Monthly Archives: May 2017

How Much Important Car Insurance

For many people, the best auto insurance policy provides the greatest amount of coverage at the lowest cost. Because auto insurance has become commoditized, the focus often shifts to the premium amount as the primary point of comparison, which is fine as long as you don’t lose sight of what it is you are trying to protect. Paying a $1,000 deductible for a dented bumper, while inconvenient, is not a game changer for many people; but a liability claim of $500,000 or $1 million can be a life-changer. Auto insurance coverage should provide the maximum amount of protection against that which poses the greatest possible risk. To determine how much car insurance you actually need, consider several types of insurance coverage.

Start with Mandatory Liability Coverage

Auto liability coverage is mandatory in every state except New Hampshire. Liability coverage includes bodily injury coverage, which covers injuries to others and property damage coverage, which covers the cost of damage to other people’s vehicles or property. You are responsible for any liability claims resulting from accidents when you are at fault.

Each state sets a minimum coverage requirement, usually stated as a three-part number, such as 100/300/50. Each number represents a coverage amount in thousands of dollars. The first number is the coverage amount for bodily injury for a single person, while the second number is the total coverage amount for all individuals injured in the accident. The third number is the coverage amount for property damage. The state minimums for bodily injury coverage are as low as $20,000 to $25,000, and $40,000 to $50,000 for total coverage per accident. Property damage minimums range from $5,000 to $25,000.

As for other mandatory coverages, some states have requirements for uninsured or underinsured motorist protection and personal injury protection. Check with your state insurance department for any other mandated coverage.

The Rest Is up to You

There are several other components to your auto insurance policy, but the decision as to whether you need the coverage or how much coverage you should have is up to you. For instance, unless you have a loan out on your car, you are not required to buy collision or comprehensive coverage. Other factors to consider in determining your car insurance needs include:

• Your age and driving record

• The age, make and model of the car

• Your ability to self-insure

The additional coverages you need to consider are collision, comprehensive, personal injury or medical insurance, and uninsured/underinsured coverage.

Collision Coverage

Collision covers the cost of repairing or replacing your car. Some auto lenders require this as part of your minimum coverage. If your car is worth more than what you could pay to replace it, it would be important to have collision coverage. If your car is more than a few years old and the loan is paid off, you could opt out of this coverage.

Comprehensive Coverage

Comprehensive coverage is the cost of replacing your car or its contents for just about any other event besides an accident. Such events include car theft, weather damage or fire damage. If your car is more than a few years old, you may not need this add-on.

Medical Payments

Personal injury or medical payments covers expenses related to medical and funeral expenses for you or others injured or killed while riding in your car. With the exception of the funeral coverage, medical payments coverage may be redundant coverage if you have sufficient health care coverage.

Uninsured/Underinsured Motorist

Some states combine the two, while others make you choose one or both. This is especially important if you live in certain regions of the country with high percentages of uninsured or underinsured motorists. If you or your family members have an accident with an uninsured or underinsured motorist while in your car or on foot, you will be covered for all costs related to the accident.

Your Deductible

The deductible is the amount of an insurance claim you agree to pay out of your pocket before the insurance company pays the remainder of the claim. The deductible represents the amount of financial risk you are willing to assume. If you are willing to assume more financial risk in the form of a higher deductible, your premium cost is lower.

It might seem like the smart thing to do to take the lowest deductible, typically $500, because that would mean less money out of your pocket if you need to file a claim. However, if you never have to file a claim, that low deductible will have cost you hundreds or thousands of dollars in higher premium costs over time. If you take the highest possible deductible, typically around $1,500, you could save on your premium costs, letting you put more money into an emergency fund that can be available when and if you need it for repairs. For some people, this can be a much better use of their funds.

Learn More About Insurance Checkup

Life happens, and at different stages you’re going to need different protections from your insurance. That’s why an insurance checkup is often in order. Doing it annually may seem like a waste of time, but it could yield some big savings. That’s particularly true if you have too much insurance. Even being underinsured can cost you if the unthinkable happens. But making sure you have the right level of insurance is not the only reason a checkup is important. From taking advantage of reduced rates to ensuring you are getting all the discounts owed, here’s a look at five reasons shopping around for your insurance can save you money.

To Take Advantage of Rate Changes

One of the most important reasons why you want to do an insurance checkup is to save money. Rates can change more often than you think, driven by a variety of reasons, some of which are out of the control of the insured. Take homeowner’s insurance for one example. If crime in your neighborhood decreases, so will your homeowner’s insurance premium. Shopping around is the only way you will know if lower rates are available.

Your Circumstances Have Improved

The timing of your insurance purchase can also have an impact on your rates and is another reason why you want to shop around fairly often. Take homeowner’s insurance again as an example. If you bought the policy after a rash of crimes or a big storm and things improved, your premiums could be cheaper. With auto insurance, the same thinking applies. You may have signed up for your policy when your credit score had taken a hit, but now you’re in a better financial position and your debts are paid off and your credit score has improved. Or it may be that you had points on your driver’s license that are now gone. In both instances, by shopping around you are going to save money, and in some cases, a lot of it.

Whether you own a home, car or fine art, what you pay for insurance will be based on the perceived risk. The more that risk is mitigated, the less you will pay in insurance. Take health insurance for an example. Someone who is healthy will pay less for insurance than someone who is sickly. But if that sick person got better, then his insurance should be reduced. The same can be said for an automobile or home. If you just bought a security system for your home or automobile that is going to lower your risk and thus your premiums. But if you don’t shop around or at the very least let the insurance know about the upgrades, you won’t be able to save.

You Have Too Much Coverage

Whether it is on purpose or by mistake, often people end up with too much insurance coverage whether that’s for their health, home, automobile or life. Insurance is supposed to give you some peace of mind, but that doesn’t mean you have to overpay for it. While you may not have to check up on your insurance every year to make sure you have the proper coverage, it is something you should want to do more often than not. After all, you don’t want to have full coverage on your automobile if it’s more than 10 years old or $1 million coverage on a $50,000 condo.

On the flip side, being underinsured can also be a costly mistake. The last thing you want to happen is have a major disaster and not have enough insurance to cover the repairs. If we’re talking about health insurance, not having enough of it could end up bankrupting you.

You’re Missing Out on Discounts

Insurance companies are in a cutthroat industry, and they want your business and will go to great lengths to attract and retain you as a customer. Translation: discounts abound. Whether you are shopping for homeowner’s insurance, health insurance or for car insurance, insurers are going to offer you discounts that can range from single-digit to double-digit percentage savings. There are discounts for your age, risk, how many products you have with the company, whether you are a member of a particular group and so on. If you don’t shop around for your policies, you could be leaving money on the table in discounts and deals


Learn More About Bundle Your Insurance For Big Savings

Most American drivers start out using the same insurance company that their parents had, and never really think to switch. Some drivers may have changed insurance companies somewhere along the way to save a few bucks, but for the most part, they’ve made no conscious choices about their insurance provider. Many first-time homeowners get their homeowners insurance in the same way, as it’s probably the company that their real estate agent or title company had recommended. Life insurance purchases usually follow a similar path.

People buy insurance for reasons of convenience as well as, of course, initial price. As a result, a lot of people end up with a hodgepodge of insurance carriers, and have no reason for doing so. This is fine if you enjoy opening extra mail and paying bills to three separate insurance carriers every month, and possibly overpaying for your combined insurance premiums, but you probably don’t, so read on to find out how bundling your policies can help you save big on insurance.

The Benefits of Bundling
Many of the big insurance companies price their insurance rates to attract a particular segment of the market. They usually price their insurance to attract homeowners who need to insure not only their cars, but also their homes and their lives (and other things). Many other companies can beat them on price if it’s left to a head-to-head price check on a single line of insurance (such as auto or home), but these big companies want customers who will stay with them for years instead of shopping around for a better deal every six months. To accomplish this, companies give the best deal to clients who will use their company to insure all three main lines of insurance, as people who buy one type of insurance usually have additional items that need insuring and end up paying much more in total annual premiums than the single-line customer who only insure a car or a house.

How Much Do You Actually Save?
When combining auto, home and life insurance, it wouldn’t be unusual for many families to spend between $3,000-5,000 – or more – per year. Of course, these rates depend on where you live, the value of your home and car(s), driving habits, personal health and so forth.

What’s the Catch?
For just one line of insurance, most large multiple-line companies aren’t extremely price-competitive. After all, those thousands of people on staff can really add up. By combining your policies under one roof, the companies benefit from economies of scale and can justify more discounts by getting additional total premiums. In other words, they have more of your money to work with and therefore can justify charging you less.

As for life insurance, people who have a life insurance policy are much less likely to switch insurance carriers because of the difficulty (or even impossibility) of changing policies. This difficulty is due to medical issues, age and the possible need for further medical exams, among other factors, and so people usually keep their life insurance policies in place. For this reason, many large insurance companies emphasize to their sales teams that life insurance sales are a critical product.

Companies also want to give discounts in order to retain customers because it is expensive for companies to continually process (also known as underwriting) a revolving door of new customers. Due to the added expense associated with customer turnover, insurance companies prefer to have customers who carry multiple lines of insurance and keep these policies in place for years. Moreover, bringing all of the insurance from a particular household slightly diversifies the company’s risk


Learn More About Life Insurance

Very few people enjoy thinking about the inevitability of death. Fewer yet take pleasure in the possibility of an accidental death. If there are people who depend on you and your income, however, it is one of those unpleasant things that you have to consider. In this article, we’ll approach the topic of life insurance in two ways: first, we will point out some of the misconceptions and then we’ll look at how to evaluate how much and what type of life insurance you need.

Does Everyone Need Life Insurance?

Buying life insurance doesn’t make sense for everyone. If you have no dependents and enough assets to cover your debts and the cost of dying (funeral, estate lawyer’s fees, etc.), then insurance is an unnecessary cost for you. If you do have dependents and you have enough assets to provide for them after your death (investments, trusts, etc.), then you do not need life insurance.

However, if you have dependents (especially if you are the primary provider) or significant debts that outweigh your assets, then you likely will need insurance to ensure that your dependents are looked after if something happens to you.

One of the biggest myths that aggressive life insurance agents perpetuate is that “insurance is harder to qualify for as you age, so you better get it while you are young.” To put it bluntly, insurance companies make money by betting on how long you will live. When you are young, your premiums will be relatively cheap. If you die suddenly and the company has to pay out, you were a bad bet. Fortunately, many young people survive to old age, paying higher and higher premiums as they age (the increased risk of them dying makes the odds less attractive).

Insurance is cheaper when you are young, but it is no easier to qualify for. The simple fact is that insurance companies will want higher premiums to cover the odds on older people – it is a very rare that an insurance company will refuse coverage to someone who is willing to pay the premiums for their risk category. That said, get insurance if you need it and when you need it. Do not get insurance because you are scared of not qualifying later in life.

Is Life Insurance an Investment?

Many people see life insurance as an investment, but when compared to other investment vehicles, referring to insurance as an investment simply doesn’t make sense. Certain types of life insurance are touted as vehicles for saving or investing money for retirement, commonly called cash-value policies. These are insurance policies in which you build up a pool of capital that gains interest. This interest accrues because the insurance company is investing that money for their benefit, much like banks, and are paying you a percentage for the use of your money.

However, if you were to take the money from the forced savings program and invest it in an index fund, you would likely see much better returns. For people who lack the discipline to invest regularly, a cash-value insurance policy may be beneficial. A disciplined investor, on the other hand, has no need for scraps from an insurance company’s table.

Cash Value vs. Term

Insurance companies love cash-value policies and promote them heavily by giving commissions to agents who sell these policies. If you try to surrender the policy (demand your savings portion back and cancel the insurance), an insurance company will often suggest that you take a loan from your own savings to continue paying the premiums. Although this may seem like a simple solution, this loan will cost you, as you will have to pay interest to the insurance company for borrowing your own money.

Term insurance is insurance pure and simple. You buy a policy that pays out a set amount if you die during the period to which the policy applies. If you don’t die, you get nothing (don’t be disappointed, you are alive after all). The purpose of this insurance is to hold you over until you can become self-insured by your assets. Unfortunately, not all term insurance is equally desirable. Regardless of the specifics of a person’s situation (lifestyle, income, debts), most people are best served by renewable and convertible term insurance policies. They offer just as much coverage and are cheaper than cash-value, and, with the advent of internet comparisons driving down premiums for comparable policies, you can purchase them at competitive rates.

The renewable clause in a term life insurance policy means that the insuring company will allow you to renew your policy at a set rate without undergoing a medical. This means that if an insured person is diagnosed with a fatal disease just as the term runs out, he or she will be able to renew the policy at a competitive rate despite the fact that the insurance company is certain to have to pay out.

The convertible insurance policy provides the option to change the face value of the policy into a cash-value policy offered by the insurer in case you reach 65 years of age and are not financially secure enough to go without insurance. Even though you will be planning in the hope of not having to use this option, it is better to be safe and the premium is usually quite inexpensive.

Evaluating Your Insurance Needs

A large part of choosing a life insurance policy is determining how much money your dependents will need. Choosing the face value (the amount your policy pays if you die) depends on:

  • How much debt you have: all of your debts must be paid off in full, including car loans, mortgages, credit cards, loans, etc. If you have a $200,000 mortgage and a $4,000 car loan, you need at least $204,000 in your policy to cover your debts (and possibly a little more to take care of the interest as well).
  • Income Replacement: One of the biggest factors for life insurance is for income replacement, which will be a major determinant of the size of your policy. If you are the only provider for your dependents and you bring in $40,000 a year, you will need a policy payout that is large enough to replace your income plus a little extra to guard against inflation. To err on the safe side, assume that the lump sum payout of your policy is invested at 8% (if you do not trust your dependents to invest, you can appoint trustees or chose a financial planner and calculate his or her cost as part of the payout). Just to replace your income, you will need a $500,000 policy. This is not a set rule, but adding your yearly income back into the policy (500,000 + 40,000 = 540,000 in this case) is a fairly good guard against inflation. Remember, you have to add this $540,000 to whatever your total debts add up to.
  • Future Obligations: If you want to pay for your child’s college tuition or have your spouse move to Hawaii when you are gone, you will have to estimate the costs of those obligations and add them to the amount of coverage you want. So, if a person has a yearly income of $40,000, a mortgage of $200,000, and wants to send his or her child to university (let’s say this will cost $80,000), this person would probably want an $820,000 policy ($540,000 to replace yearly income + $200,000 for the mortgage expense + $80,000 university expense). Once you determine the required face value of your insurance company, you can start shopping around for the right policy (and a good deal). There are many online insurance estimators that can help you determine how much insurance you will need.
  • Insuring Others: Obviously there are other people in your life who are important to you and you may wonder if you should insure them. As a rule, you should only insure people whose death would mean a financial loss to you. The death of a child, while emotionally devastating, does not constitute a financial loss because children cost money to raise. The death of an income-earning spouse, however, does create a situation with both emotional and financial losses. In that case, follow the income replacement trick we went through earlier (your spouse’s income/8% + inflation = how much you’ll need to insure your spouse for). This also goes for any business partners with which you have a financial relationship (for example, shared responsibility for mortgage payments on a co-owned property).

Alternatives to Life Insurance

If you are getting life insurance purely to cover debts and have no dependents, there is another way to go about it. Lending institutions have seen the profits of insurance companies and are getting in on the act. Credit card companies and banks offer insurance deductibles on your outstanding balances. Often this amounts to a few dollars a month and in the case of your death, the policy will pay that particular debt in full. If you opt for this coverage from a lending institution, make sure to subtract that debt from any calculations you are making for life insurance – being doubly insured is a needless cost.