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Uncovering auto insurance myths

December 30, 2009

Like a teenager eager to try a new video game, playing before reading the rules, many drivers buy insurance without really understanding what they’re buying. In the rush to feel “covered,” they can skip the details. That can lead to frustration. Following are five insurance myths heard by some of the more than 13,000 claims people at Progressive, one of the country’s largest auto insurance companies:

Myth: I bought “full coverage” so everything’s paid for.
Reality: There is no such thing as “full coverage.” In most states, only liability insurance is mandatory. There are a lot of other coverage options out there, so select what you need and can afford based on your personal situation.

Myth: I need three estimates before my wrecked vehicle can be repaired.
Reality: Not necessarily. Very few insurers actually require this, although some might. If you decide to use a shop that’s in an insurance company’s “network” of pre-approved shops you may just have to get an estimate from that shop.

Myth: My insurance premium always increases if I’m involved in an accident.
Reality: It depends. Your rate can increase, decrease or stay the same. The information about your accident is combined with other information about you, your car and your driving history to determine your rate.

Myth: If I lend my car to someone and he/she crashes it, I’m covered.
Reality: Not so fast. If you or your friend don’t have optional physical damage coverages, damage to your vehicle generally won’t be covered.

Myth: If I buy a new car, my auto insurance company automatically knows; and my new car is covered.
Reality: No. Most insurance companies require that you notify them or your agent within a specified number of days. Generally, you have 30 days to add the new vehicle to your policy.
“Insurance can be complicated,” says Chuck Crist of Progressive. “It’s not something people deal with every day. So the more informed you are, the better choices you’ll make.”

Written by dberry · Filed Under Auto 

Auto Insurance Made Easy

December 30, 2009

Understanding insurance can often be like trying to learn a foreign language. Many find it confusing and intimidating.

Read more

Written by dberry · Filed Under Auto 

New Texas Law Requires “Fire Safe” Cigarettes

December 29, 2009

AUSTIN – As of January 1, 2010, all cigarettes sold in Texas must be certified fire standard compliant (FSC). Read more

Written by dberry · Filed Under Home 

How much life insurance do I need?

December 16, 2009

2222040_scaled_175x116In most cases, if you have no dependents and have enough money to pay your final expenses, you don’t need any life insurance.

If you want to create an inheritance or make a charitable contribution, buy enough life insurance to achieve those goals.

If you have dependents, buy enough life insurance so that, when combined with other sources of income, it will replace the income you now generate for them, plus enough to offset any additional expenses they will incur to replace services you provide (for a simple example, if you do your own taxes, the survivors might have to hire a professional tax preparer). Also, your family might need extra money to make some changes after you die. For example, they may want to relocate, or your spouse may need to go back to school to be in a better position to help support the family.

You should also plan to replace “hidden income” that would be lost at death. Hidden income is income that you receive through your employment but that isn’t part of your gross wages. It includes things like your employer’s subsidy of your health insurance premium, the matching contribution to your 401(k) plan, and many other “perks,” large and small. This is an often-overlooked insurance need: the cost of replacing just your health insurance and retirement contributions could be the equivalent of $2,000 per month or more.

Of course, you should also plan for expenses that arise at death. These include the funeral costs, taxes and administrative costs associated with “winding up” an estate and passing property to heirs. At a minimum, plan for $15,000.

Other sources of income

Most families have some sources of post-death income besides life insurance. The most common source is Social Security survivors’ benefits.

Social Security survivors’ benefits can be substantial. For example, for a 35-year-old person who was earning a $36,000 salary at death, maximum Social Security survivors’ monthly income benefits for a spouse and two children under age 18 could be about $2,400 per month, and this amount would increase each year to match inflation. (It drops slightly when the survivors are a spouse and one child under 18, and stops completely when there are no children under 18. Also, the surviving spouse’s benefit would be reduced if he or she earns income over a certain limit.)

Many also have life insurance through an employer plan, and some from another affiliation, such as through an association they belong to or a credit card. If you have a vested pension benefit, it might have a death component. Although these sources might provide a lot of income, they rarely provide enough. And it probably isn’t wise to count on death benefits that are connected with a particular job, since you might die after switching to a different job, or while you are unemployed.

A multiple of salary?

Many pundits recommend buying life insurance equal to a multiple of your salary. For example, one financial advice columnist recommends buying insurance equal to 20 times your salary before taxes. She chose 20 because, if the benefit is invested in bonds that pay 5 percent interest, it would produce an amount equal to your salary at death, so the survivors could live off the interest and wouldn’t have to “invade” the principal.

However, this simplistic formula implicitly assumes no inflation and assumes that one could assemble a bond portfolio that, after expenses, would provide a 5 percent interest stream every year. But assuming inflation is 3 percent per year, the purchasing power of a gross income of $50,000 would drop to about $38,300 in the 10th year. To avoid this income drop-off, the survivors would have to “invade” the principal each year. And if they did, they would run out of money in the 16th year.

The “multiple of salary” approach also ignores other sources of income, such as those mentioned previously.

A simple example

Suppose a surviving spouse didn’t work and had two children, ages 4 and 1, in her care. Suppose her deceased husband earned $36,000 at death and was covered by Social Security but had no other death benefits or life insurance. Assume the surviving spouse is 36.

Assume that the deceased spent $6,000 from income on his own living expenses and the cost of working. Assume, for simplicity, that the deceased performed services for the family (such as property maintenance, income tax and other financial management, and occasional child care) for which the survivors will need to pay $6,000 per year. Assume that the survivors will have to buy health insurance to replace the coverage the deceased had at work, and that this will cost $12,000 per year.

Taken together, the survivors will need to replace the equivalent of $48,000 of income, adjusted each year for an assumed 4 percent inflation.

Thanks to Social Security, the survivors would need life insurance to replace only about $1,700 per month of lost wage income (adjusted for inflation) for 14 years until the older child reaches 18; Social Security would provide the rest. The survivors would need life insurance to replace about $2,100 per month (adjusted for inflation) for three more years when the non-working surviving spouse has only one child under 18 in her care.

The life insurance amount needed today to provide the $1,700 and $2,100 monthly amounts is roughly $360,000. Adding $15,000 for funeral and other final expenses brings the minimum life insurance needed for the example to $375,000.

What’s left out?

The example leaves out some potentially significant unmet financial needs, such as

  • The surviving spouse will have no income from Social Security from age 53 until 60 unless the deceased buys additional life insurance to cover this period. It could be assumed that the surviving spouse will obtain a job at or before this time, but she could also become disabled or otherwise unable to work. If life insurance were bought for this period, the additional amount of insurance needed would be about $335,000.
  • Some people like to plan to use life insurance to pay off the home mortgage at the primary income earner’s death, so that the survivors are less likely to face the threat of losing their home. If life insurance were bought for this goal, the additional amount of insurance needed is the amount of the unpaid balance on the mortgage.
  • Some people like to provide money to pay to send their children to college out of their life insurance. We may assume that each child will attend a public college for four years and will need $15,000 per year. However, college costs have been rising faster than inflation for many decades, and this trend is unlikely to slow down. If life insurance were bought for this goal, the additional amount of insurance needed would be about $200,000.
  • In the example, no money is planned for the surviving spouse’s retirement, except for what the spouse would be entitled to receive from Social Security (about $1,200 per month). It could be assumed that the surviving spouse will obtain a job and will either participate in an employer’s retirement plan or save with an IRA, but she could also become disabled or otherwise unable to work. If life insurance were bought to provide the equivalent of $4000 per month starting at age 60 until 65 and $3,000 per month from 65 on (because at 65 Medicare will make carrying private health insurance unnecessary), the additional amount of insurance needed would be about $465,000.
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Written by dberry · Filed Under Life 

Business Insurance Services

December 10, 2009

  • 154733Commercial Auto Insurance (Business Vehicle Insurance)
  • Key Person Life Insurance
  • Professional Liability
  • General Liability
  • Property Insurance _ for rental homes and businesses

Written by dberry · Filed Under Business 

Personal Insurance Services

December 10, 2009

  • 36051586Auto
  • Home (Homeowners & Renters)
  • Life
  • Health
  • Annuities
  • Motorcycle
  • RV
  • Boat (Personal Watercraft)
  • Flood
  • Umbrella
  • Personal Articles Floater
  • Jewelr

Written by dberry · Filed Under Health 

How often should I review my policy?

December 10, 2009

2222498You should review all of your insurance needs at least once a year. If you have a major life change, you should contact your insurance agent or company representative. The change in your life may have a significant impact on your insurance needs. Life changes may include:

  • Marriage or divorce
  • A child or grandchild who is born or adopted
  • Significant changes in your health or that of your spouse/domestic partner
  • Taking on the financial responsibility of an aging parent
  • Purchasing a new home
  • A loved one who requires long-term care
  • Refinancing your home
  • Coming into an inheritance

Written by dberry · Filed Under Life 

How should I organize and store my life insurance records?

December 10, 2009

The last thing you want to happen after you die is for your beneficiaries to be unable to locate and submit a claim on your life insurance. To prevent this, you should have copies of your life insurance records in at least two places. This is to make it less likely that you’ll lose them (to fire, flood, accidental discarding, etc.) and more likely that, after your death, your beneficiaries will find them.

What information should I keep?

For each individual life insurance policy on your life, you should record the following information:

  • The full name of the life insurance company that issued the policy
  • The city and state of the home office of the company that issued the policy
  • The name and U.S. headquarters of the group, if the issuing company belongs to a group of companies
  • The policy number
  • The date the policy was issued
  • The amount of the death benefit
  • The name and address of the agent/broker who sold you the policy
  • The type of policy (e.g., term, whole life, etc.)
  • The location of the original life insurance policy

You might have life insurance automatically from your employer. Your employer also might offer you the chance to buy additional life insurance under a group policy. And you might be eligible to buy life insurance under a group policy from your union or trade association or other group you belong to (such as a college alumni association or an automobile club). For each of these life insurance benefits, you should record the following information:

  • The name of the employer or group that sponsors the insurance
  • The office or person to contact when it’s time to file a claim
  • The certificate number (comparable to the policy number under an individual policy)
  • The date the insurance was started
  • The amount of the death benefit

Sometimes financial programs that are mainly designed for income or other purposes have death benefits as additional features. This might include pensions, annuities, workers compensation programs, disability insurance, travel accident insurance, etc. For each such program, you should record the following information:

  • The type of policy that has a death benefit as part of its features
  • The full name of the life insurance company that issued the policy
  • The city and state of the home office of the company that issued the policy
  • The policy number
  • The date the policy was issued
  • The amount of the death benefit
  • The name and address of the agent/broker who sold you the policy
  • The location of the original insurance policy

Credit cards and lending institutions may offer life insurance to pay off your outstanding loans in the event of your death. For each life insurance benefit on your life dedicated to paying off a loan, you should record

  • The full name of the lending institution through which you obtained the life insurance
  • The loan number and issue date of the loan
  • The name of the person or office to contact when it’s time to file a claim
  • The policy number of the life insurance policy that pays off the loan

Where should I keep the information?

Keep one set of these records in your home, in a place where others who need this information are likely to find it (and after you put the information there, tell the people who’ll need it where it is). This might be with your other financial records (such as income tax, checking account, investment records), with your other legal papers (such as a copy of your will, living will, health care proxy, etc.), or anywhere your survivors are likely to look for them.

Keep another set of these records “off site”—that is, outside of your home, perhaps in a safe deposit box, or with a professional or a relative who can be counted on to produce them when they’re needed.

On each page, record the date on which the information was last updated. That way, if the copy in your home differs from the one in the safe deposit box, it’s easy to tell which is the more current.

Written by dberry · Filed Under Life 

Do “Empty Nesters” need life insurance?

December 10, 2009

Quite possibly. Here are 10 reasons to own life insurance after your kids have left home:

1. To meet goals
If your children are in college and/or not completely financially independent, life insurance can help “finish the job.” Although you may have saved enough for tuition, the kids’ living expenses (e.g., room and board, laundry, entertainment/activity costs, etc.) continue, but not Social Security benefit payments for the surviving spouse and children—they stop when the kids leave high school.

2. To support other dependents
If you have parents, disabled adult children, or others who depend on you for financial support, life insurance would continue this support if you die before they do.

3. To cover the Social Security “blackout period”
A recent study showed that 5 percent of married women ages 51-64 were poor, but 20 percent of widows that age were poor. This happens because many people don’t plan for life insurance to pay income to the surviving spouse after their kids are grown. As noted above, Social Security pays nothing from when the youngest child leaves high school until the surviving spouse applies for benefits based on the deceased spouse’s record (minimum age for eligibility is 60). This interval is called the “blackout period.”

4. To offset reduced Social Security survivor’s benefits
If a survivor begins receiving Social Security survivor benefits earlier than the full-benefit age (66-67, depending on when the survivor was born), the Social Security benefit amount is permanently reduced. Moreover, because of the deceased’s early death, he or she didn’t get salary increases that might have boosted Social Security benefits further. A life insurance policy can help offset the effect of these “lost” raises.

5. To offset other “lost” retirement savings
Also, because of the deceased’s early death, he or she didn’t get salary increases that might have boosted employer pension benefits and/or IRA contributions. A life insurance policy can help offset the effect of these reduced retirement savings.

6. To meet commitments based on two incomes
Most two-earner couples make financial commitments (e.g., home mortgage, loans, leases, etc.) based on their combined income. Life insurance on each earner enables the survivor to continue to meet those commitments.

7. To pay unplanned expenses caused by an early death
Young people don’t generally plan to have savings available to pay for funeral and burial costs, final medical expenses, estate administration and transfer costs, and federal and state income and estate taxes. Life insurance can cover these costs, which can easily reach tens of thousands of dollars.

8. To create a financial “safety net”
Conventional wisdom says each household should have an “emergency fund” equal to about half a year’s income, to meet surprise unavoidable outlays. If the household does not already have an emergency fund, the post-death family will be even more financially vulnerable without one. Furthermore, it might also be somewhat more difficult for the survivors to obtain credit. Life insurance can solve this problem.

9. To offset lost income if a spouse dies after beginning Social Security retirement benefits
When a couple retires and begins receiving Social Security retirement benefits, each one receives an income. The earner with the larger pre-retirement income gets a benefit based on that income, and the person with the smaller (or no) pre-retirement income gets either a benefit based on his or her own earnings record or half of the spouse’s Social Security benefit, whichever is greater. When one spouse dies, the larger retirement benefit continues but the second benefit stops—in effect, a 33 percent income reduction. Life insurance can offset this income drop.

10. To provide bequests to heirs and charities
If you want to be sure that your heirs and/or favorite charities get money after your death, you can designate some or all of your life insurance benefits to go to them. This is particularly useful if, without the life insurance, your executor would have to liquidate other assets to meet this objective.

Written by dberry · Filed Under Life 

What is “burial insurance”?

December 10, 2009

“Burial insurance” usually refers to a whole life insurance policy with a death benefit of from $5,000 to $25,000. As its nickname implies, people buy this type of policy to provide money for funeral and burial costs for themselves and/or family members. It is possible to buy a policy after answering a few health-related questions on the application and with no medical exam.

Premiums are payable weekly or monthly. The premium is usually collected at the policyowner’s home or workplace, and the premium is usually a small round number, such as $2 or $3 per week; the death benefit is whatever that premium will buy given the insured’s current age. For example, a $3 per week premium might buy a $6,000 death benefit for a 36-year-old man or an $18,000 death benefit for a 9-year-old boy.

Burial policies may be designed to cover one person or everyone in a family.

Under some state laws, funeral homes may be licensed to sell burial insurance, but it is mainly sold through brokers and agents of insurance companies licensed to sell life insurance.

An approach that is similar to burial life insurance (and sometimes called burial or “pre-need” insurance) is pre-payment of your funeral arrangements. Under this program, you may select the funeral home, type of service, casket (or cremation), flowers, headstone, burial plot, the cost of digging and filling the grave, and other items, and lock in the prices for them by paying in advance.

Written by dberry · Filed Under Life 

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