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.