Tuesday, July 23, 2019

How much Life Insurance do you need?

Awareness of the necessity of life insurance is one thing. Having a clear idea of how much of it you need is another. Different people have different opinions on this subject. One may have the minimum that will cover just the funeral costs; another may plan giving the dependents at least a small cushion to help them recover from your bereavement and pick up the threads.

The reality is that there is no single right answer to the question of how much life insurance you should have. The best way to find an appropriate answer is to contact a life insurance professional, who will be able to analyze liabilities, the short- and long-term needs of your dependents and other relevant factors.

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However, if you want to do some research on your own, so that you have issues to discuss with the expert, you could use these two formulas:

L.I.F.E.

L.I.F.E. stands for Liabilities/debts, Income to be replaced, Final expenses and Education and/or other expected costs. You can calculate your life insurance needs based on these factors.

A. Total up everything covered by the L.I.F.E. needs. Ensure you leave nothing out. That is the total coverage you need.


B. Subtract all the assets and savings that will be available to your family on your passing. It is tempting to inflate the amount by taking into account expectations from your stock market investments etc. Do not commit this mistake; they are volatile investments.

C. Also, subtract any life insurance you currently have and any coverage provided by your employer etc.


The gap between A and B+C = the amount of additional life insurance you need.

D.I.M.E.F.

This stands for Debts, Income, Mortgages, Education and Final expenses.

  • Debts: These would be every liability you have and everything you owe, including credit card debts, car payments and so on.
  • Income: What is the income that will be lost to the family? This is your current income and what you expect it to be when you stop working; this expectation is normally part of a family’s financial planning.
  • Mortgages: How much is required to pay off your mortgages? Do not think that the amount will be less the following year. No one knows when a claim may have to be filed. If the amount to be repaid is lower in the future, that is an extra cushion for the family and will help cover the unexpected.
  • Education: What do your dependent children want to do with their lives? How much will it cost to educate/train them for the careers they want to pursue? Include any reasonable financial cushion you would like to give them when they start out.
  • Final Expenses: The cost of death is far greater than most people imagine it is. You may desire a small budget funeral. Nevertheless, your family might have an elaborate one in order to ease their pain. Life insurance is to care for those you leave behind and this is a part of that caring. Budget for the final expenses might not be what you desire, but what your family will.
These tests will give you an idea of the coverage you need. To be sure about the protection you require, it would be better to consult an insurance agent.

Evaluating Insurance Policies

Insurance is a competitive industry and insurance companies market their products by making them appear to be as much attractive and user-friendly as possible. That makes choosing the right product difficult. People spend a lot of time comparing breakfast cereals to find the one that best suits them. It is surprising that they do not take the same trouble over their insurance.

It’s not that insurance companies are out to rip you off or mislead you – they are just promoting the sale of their policies. If the policy was not properly evaluated, and if you made the wrong coverage choices, you would live with a false sense of security. However, that would be shattered when a claim is filed, and you find that the coverage is not what you thought it to be.

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Policy comparison

In order to compare and evaluate the benefits of different policies for the same type of coverage, you need to be cautious about the following six key factors, known as the 6 C’s:

1. Cost: Though important, cost should not be the deciding factor. No one wants to pay for insurance more than what is needed. However, if a few extra dollars can fetch you many times the amount of coverage, it might be wrong to brush aside the option.

2.Convenience: Insurance companies make it as easy as possible for people to buy their policies. However, there are industry and legal mandates that need to be followed. At times, these could make one policy easier to obtain than another could. What you need to ensure is that the policy that is easy to get gives you the coverage you need.

3. Coverage: Is the protection available under the policy complete? Do the basic policy terms and available riders meet all your requirements?

4. Customer service: Is there a helpline, chat option on the website or other ways to contact easily the company? If you have to file a claim and need some guidance on how to do it, you should not be made to run from pillar to post. The insurance company should help you all along the way.

5. Claim Settlement: What is the company’s record and reputation for settling claims? When a claim is filed, the payment should in no way be delayed. A company with a record of prompt settlement of claims and payments is the right option.

6. Credentials: You need to be certain of the credentials of the insurance company in general, and settlement of claims in particular. You opted for the policy hoping that the insurance company would protect you when the eventuality against which you are insured occurs. If the company fails, you are going to be left without the resources to recover.

Do it the right way

Doing your own research on the insurance you need is a good idea – the more you know, the better for you and your family. However, with a subject as complex and specialized as insurance is, it is easy for a layman to make a mistake like overlooking a key factor or misunderstanding the extent of coverage.

An insurance agent has the experience and expertise in all aspects of a policy. If the agent is with an insurance broker that deals with multiple insurance companies, he will be able to give you a clear, unbiased and accurate picture of all the favorable and unfavorable aspects of each policy. That will lead you to opt for the right coverage at the right cost.

Sunday, June 23, 2019

Is your Car Fully Insured?

Cars are expensive and subject to damage or loss because of factors beyond your control. Ideally, you should have full coverage car insurance to ensure that you have the protection you need in case of vehicle damage, theft, or destruction. However, there is no single definition of what ‘full coverage’ is.

Every insurance company interprets it differently; when you buy car insurance, you will not find a ‘full coverage’ box you can tick. To ensure that your car is covered against any eventuality, these are the major forms of protection you need, typically treated as being part of ‘full coverage’:

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State requirements
Each state has specific minimum coverage requirements that must be met before a vehicle can be taken on public roads. They usually include bodily liability and property damage.
Comprehensive coverage
A collision is not the only way a car can be damaged. Storm damage, vandalism, hitting an animal and theft are just a few other things that could happen. Comprehensive coverage will cover all physical damage to the car caused by anything other than a collision.
Collision coverage
This covers any damage due to accident or collision, regardless of what caused the damage. This can be purchased only if comprehensive coverage is part of the policy.
Injury protection
Most policies have a set dollar amount for medical coverage and personal injury protection; it is normally set at the state-mandated minimum. Check to see if these amounts are enough – an insurance professional will be able to help you, if you need guidance. If required, the coverage limits can be increased.
You should consider purchasing as well the following as additional coverages to keep your car as fully insured as possible:
Underinsured/Uninsured motorist
This provides coverage if damage was caused by a motorist who does not have insurance.
Gap insurance
This is coverage for the difference between the actual cash value of the car and the amount still due on the financing used to buy it.
Towing
This may not seem like a major cost and is often overlooked. However, towing expenses can be very high and since the cost of the additional coverage is not great, it should be part of the full coverage car insurance.
OEM endorsement
Many car owners do not know that parts from the original equipment manufacturer may not be used for repairs. Aftermarket and used parts may be fitted to the car. Some insurance companies offer additional coverage to cover the cost of OEM parts used for repairs.
Car rental
You will need to use a rental while your car is in the shop. Check to see if your policy covers the cost of car rental.
Other options
There are more coverage options available like vanishing deductible and full glass coverage. An insurance expert will be able to tell you about them and help you pick the kinds of coverage you need.
Get the protection you need
Now that you know what full coverage car insurance is, and more importantly, what it is not, you should consult a reputed insurance agent to fully comprehend the terms of your current policy and get the additional protection you need.

How much Homeowner’s Insurance do you need?

The loss of a home can be devastating for the family and can seriously affect every member’s life and future. Homeowners depend on insurance to help them recover from damage or loss of a home. However, according to Consumer Reports, three out of every five Americans have underinsured their homes, often by up to 20%.

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That leaves them in dire straits when they file their insurance claims and find that they do not have the coverage they need to rebuild their homes and their lives. There are four main factors to keep in mind when calculating your home insurance coverage:

v  The cost of rebuilding your home
v  The cost of replacing personal property
v  Liability coverage
v  Coverage to take care of your living costs till you can return home

Rebuilding your home

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The cost of rebuilding your home will not be the same as the original amount you paid. Increases in material and labor costs, changes in building codes and the value of improvements and renovations you have made over time are a few of the factors that impact on the cost of rebuilding.

Replacing personal property

Assessing the true value of all the belongings you have collected over the years is rather difficult. Some items you think have little value may be worth far more than you may imagine, and vice versa. The only way to know how much coverage you need is to take a complete inventory of everything in your home, and check on the current prices of each.

Then remove those items that you need no longer. What remain would be what you will have to replace; their cost would be the amount of personal property coverage you need, which has limits; expensive items like jewelry, high-end electronics, etc. may require you to take out additional coverage.

Liability coverage

You could be liable for any injury that occurs on your property. Even your best friend could sue you if he faces huge medical bills because of a fall in your home. Most homeowner’s insurance policies cover liability, but often the amount is not enough. In general, you should have at least $300,000 coverage; one of $500,000 would be better.

Living costs

How long will you be away from your home – from the day you move out to the day you return? What would be the additional expenses you will incur during that period – temporary accommodation, food, transport and so on? That is the amount of coverage you need for living costs; if your policy does not cover this aspect, ask the insurance company how you can get this coverage.

Expert advice is essential

Each of the factors listed above does affect the amount of coverage you should have. It is indeed complex and getting right the amounts is never easy; leaving something out or underestimating costs can have serious consequences. At the same time, you do not want to pay for your insurance more than what you really need to.

The points listed above give you an idea of the issues involved. It would be better to contact an experienced insurance professional who will be able to guide you on the right coverage, by providing options you may not be aware of.

Thursday, May 23, 2019

How much Life Insurance do you need?

The only certainty in everybody’s life is death, which will occur eventually, and simply you have no control over it.  However, one thing over which you can surely have some control is to make provisions for your family today, taking into account the reality of the future inevitable.

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It is in this context that life insurance becomes very important. However, having life insurance is not enough; you must have enough of it to fulfill the responsibilities you leave behind.

So how much life insurance should you have? There is no set minimum amount or formula to calculate it. Circumstances are different from person to person and from family to family. However, your insurance plan should cover a few basic liabilities:

Mortgage

Probably for most people, a mortgage is the largest single ongoing financial burden. You must ensure that your family will not bear an extra monetary burden in case of your sudden demise. Mortgage lenders will normally demand that you take a life insurance policy that will cover the repayment. If you do not have coverage for your mortgage, the repayment must be factored into your policy.

Loans

In addition to mortgage, you may have other loans and debts you need to repay. In some cases, the lenders may have required you to take an insurance cover for such repayments as in the case of a mortgage. If you have no such coverage, you should add that liability to your life coverage.

Childcare and education

Every parent knows how expensive it is to raise children. If your children are old enough to identify what they want to do in life, you can calculate how long they will need your financial support and how much. Adding that to your coverage is easy.

If it’s too early for them to know what they want to do, calculate the cost of their remaining years in school, the college years and perhaps one or two years of specialization, research, etc. You will have to cover that amount in your policy.

Income replacement

The cost of living is not static – it rises with time. Your life insurance must ensure that your spouse and other dependents are able to enjoy the same quality of life even after your demise. In order to provide for them to continue to live in the same comfort zone, you can think of an Income Replacement Life Insurance policy.

Other liabilities/responsibilities

No two financial situations are identical. Add up all other financial outflows that will continue after your time, and ensure that your coverage is enough to take care of those costs. In addition, there may be factors like a spouse having a regular income that could reduce the amount of the coverage you require.

These are just general guidelines. Calculating the amount of life insurance you need is not as simple as it may appear. This is one area where you must be sure that you have taken all the right steps. It would be better to consult with a reputed insurance broker who will be able to help you find the right coverage at the right cost.

Impact of 2018 Wildfires on Home Insurance Rates

The steady increase in the incidence of wildfires in California over the years has seriously impacted on home insurance rates in the state. In 2018, there were over no less than 8,000 wildfires across California. The total loss caused by these fires is estimated to be in excess of $18 billion.
                                        
That kind of payout is something the insurance industry cannot afford. The only way to remain viable for them is to raise insurance premiums. This will surely impact on both businesses and homeowners.

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Premium rates expected to rise

The quantum of rise in insurance rates is not yet clear, but it may be huge. In a report issued last year, before the occurrence of the worst wildfires, the California Department of Insurance (CDI) made a prediction: homeowners who pay currently $800 a year for coverage might be charged up to $5,000.

One reason for this increase, besides the actual insurance payouts of last year, is the increasing number of homes in the Wildlife Urban Interface; these are areas, where forests and brush lands touch housing tracts. As they are both the most desired and the most vulnerable locations, the large rebuilding costs must be factored into the insurance rates.

Furthermore, builders say that labor shortages and the rise in material prices keep pushing up steadily construction costs.

Difficult to control the rise

Many residents are hopeful that the state government will be able to do something to control the rise in the rate, using the authority of the CDI. The CDI has the power to slow down the implementation of the increases, reduce them or even reject any proposed increase.

However, this is very unlikely to happen. If it were to occur, insurance companies could refuse to insure property in wildfire-prone areas or even stop selling policies in the state. Wildfires can destroy a community in a few hours. In contrast, the problem of insurance rate increases is a long drawn out one. Approval for increases can take months, and this timeframe could be extended, if citizens’ groups challenge them.

What you should do

The cost of insurance will inevitably go up. It is important that homeowners prepare themselves for this reality. The right way is to have a current valuation done of the home along with the valuables in it. The cost of major repair or even complete rebuilding must be taken into account. That is what you will have to insure your home for if you desire full protection.

There are other issues too you need to consider, for example, the cost of temporary accommodation and incidentals like food etc. if your home is not fit for occupation. Do you want your policy to cover these aspects as well? With the frequency, variety and severity of natural disasters on the increase, you do need full protection.

Contact an experienced insurance broker who has the expertise to help you though the maze of the rate increases. You need to find at the earliest the most cost-effective coverage to keep you and your family totally protected.

Tuesday, April 23, 2019

What to do if your Life Insurance Policy has Lapsed

All insurance policies, including life insurance ones, are contracts between an insurance company and the person buying the policy. Being a contract, there are actions that both parties are obligated to take. The insurance company will pay the money due under the policy, if a claim meets the requirements of the policy.

The policyholder is obligated to make regular payments, as defined in the policy. If payments are not made, the policyholder has not met his obligations and that in turn releases the insurance company from its commitment to pay if a claim is filed. This is known as a ‘lapse in coverage’. If this happens, the policy will have to be revived to enable again the protection the policy provides.

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The grace period

All States in the country require insurance companies to provide for what is called a ‘grace period’, if the premium is not paid on time. This is to help prevent lifeinsurance policies from lapsing every time there is a few days’ delay in paying the premiums.

This period is normally 30 days and the delayed payment will be accepted without the need for further underwriting. If the policyholder dies during this time, the coverage remains intact. When the grace period is over without payment of premiums, things get complicated.

Reviving a policy

Once the grace period is over, reviving a policy is not easy. Underwriting is usually required. If the period of the lapse is between one to six months, limited underwriting is usually enough. This is normally restricted to answering a few basic health questions and attesting that there have been no significant changes in the policyholder’s health from the time the policy was first underwritten.

If the lapse is beyond six months, things are much more complicated; complete underwriting procedure has to be carried out as when the policy was first taken. An important point to be noted is that the claim is very likely to be rejected, if the company discovers any false information in the claim during the limited or full underwriting process.

Why not take a new policy?

A frequently asked question is why not take a new policy if the old one has lapsed for so long that complete underwriting is required to revive it.  The answer is simple: even if the policyholder’s health is the same as it was when the lapsed policy was taken, the premium on the new one will be higher. This is because it will be based on the age at which the policy is issued. This will obviously be more for a new policy.

Get professional help

The specifics of reviving a lapsed life insurance policy will vary from one insurance company to another. The best course of action, in the case of a lapsed policy, is to contact your insurance broker for guidance. They will be able to help you revive the policy in the quickest, simplest and most cost-effective manner you can ask for.