Home Insurance

Home Sweet Home Insurance

You may be able to cut your premiums as much as 50 percent

Experts estimate that over a third of the some 60 million people who pay homeowner premiums could cut their home insurance bills significantly – in many cases by 50 percent or more. Yet many are unaware that they qualify for various discounts. Slimming down your bill needn’t be time-consuming. Nor does it require much expertise about the fine print in insurance policies. In fact, your research may amount to no more than a few well-placed telephone calls.

Insurance companies sell in different ways. Big companies, such as State Farm and Allstate, employ their own sales forces to sell their policies. “Agency writers,” such as Aetna, ITT Hartford, and Chubb, are represented by independent agents. The so called direct writers, such as American Express, Amica, and USAA, sell over the phone. As you might guess, they have the lowest selling costs and the best deals – if you qualify. Not everyone does. USAA limits its pool of potential customers to people who served in or have some connection to the armed forces. And Amica gets more of its new business from referrals from existing customers. American Express taps its cardholders – first for auto-insurance customers, then for home-owners insurance. Generally, it looks for card-holders in areas with a history of low loss ratios, such as Arizona, Connecticut, and Illinois.

Ask for discounts for home insurance. Photo by Elena

Allstate and State Farm can almost compete on price with the direct writers because they keep sales commissions low, usually no more than 8 percent. An agency writer, like Aetna, is more likely to pay 13 percent or even 20 percent. What keeps the agency writers in business is that the other insurers either won’t cover some applicants, or will do so only at much higher rates. Also, a good insurance agent can be a useful source of advice and counsel, a service many are willing to pay for.

No matter what firm you buy your insurance from, you can shave your annual premium by taking advantage of the discounts insurers offer. Your existing policy should list the discounts you already have, but that doesn’t mean they are the only ones for which you are eligible. For instance, you should inform your insurance company if you install or upgrade a home security system or if you have a live-in housekeeper; all of which may reduce your premium because they reduce the chance of a break-in. You also may qualify for a discount simply because you live in an area in which the company is trying to increase its market share. If you combine your homeowner’s policy with your auto-policy, you may get another break. And raising your deductable is always a sure way to lower your premium.

All discounts are not available from all insurance carriers in every state. And discounts vary from one company to another. Some are far more generous than others. But finding out exactly what you qualify for is easy enough. All you have to do is ask.

Disability Insurance

Disability Insurance

The Nightmare scenario: Rates are zooming, but you can’t afford not have a policy

Here’s a frightening fact: Insurance companies report that if a disability keeps you out of work more than 90 days, you’re not likely to work again for about three years.

The usual source of long-term disability coverage is your employer. But if you ever need it, this coverage will probably not be sufficient. For starters, only 60 percent of your present earnings are covered. Disability insurance payments paid under your employer’s policy are taxable. Pension and retirement funds, bonuses, overtime, or special pay may not be covered by your group disability plan.

An individual disability insurance policy is a good idea but it will cost you – especially now. Disability insurers chalked up huge losses in 1992 and 1993 in part because their policies didn’t charge enough to cover the benefits offered. As a result, some big insurers are scaling back policies and raising prices. Disability policies used to be non-cancelable – meaning if you pay your premiums, the insurer must continue covering you without lowering benefits or raising premiums. No longer. It will also be tougher to find a policy with an “own occupation” rider, which provides benefits if you can’t work in your chosen occupation. In early 1990s, Provident Life &Accident, the nation’s second largest individual disability insurer, stopped offering non-cancelable, own-occupation policies in many states. Other insurers are doing the same, or charging up to 20 percent more.

Hard times. Sketch by Elena

Women are likely to pay more than men. Insurance companies have discovered that women are more likely than men to claim disability benefits.

Therefore, women are higher risks and premiums will also depend on your profession. Ministers and editors are higher risks than lawyers, architects, corporate executives, and accountants.

Disability policies consider all forms of income in figuring how much of a benefit you’ll receive in case of a mishap. The policies are portable, so you’ll still be insured should you change jobs. Premiums don’t increase. You can’t find policies that you can carry for the rest of your life.

If you’re self-employed or a so-called fee-for-service provider – insurance jargon for a doctor, lawyer, etc. – you should look for a policy with recovery benefits. Recovery benefits will supplement your income while you build up your client base after a log absence. Recovery benefits kick in when your’re back working full-time.

You’ll also need residual benefits to cover you while you’re working part-time. Doctors, lawyers, and other self-employed individuals, especially, will also want their policy to include “own-occupation benefits.”

The High Cost of Disability Insurance

The annual cost of a non-cancelable individual disability income policy for a 40-year-old nonsmoker earning $60,000 to replace 60 percent of lost income to age 65:

Top-of-the-line professional coverage (includes own-occupation and residual benefits):

Architect, attorney, CPA, corp. Exec (corporate executive receiving this rate must be in firm of 25 or mor and have office or consulting duties only). Female – $1,882, Male $1,376, Multi-life – $1,021.

Actuary, pharmacist, optometrist Female – @2,042, Male – $1,492, multi-life $1,218.

Multi-life policies are individual plans purchased by groups in a corporate or association setting.

Source: Paul Revere Life Insurance Company, Worcester, Mass.

(historical values, 1995)

Attention, Heirs Apparent

Attention, Heirs Apparent

Ways to escape estate taxes and die happily ever after.

There’s no getting around death and taxes. Even after death, there can be taxes – and lots of them. Sure, if all of your assets go to your spouse, there won’t be any estate taxes. And you get break on the first part of your estate, which is tax-free. But after that, estate tax rates start at 37 percent and rise to 55 percent. For estates of $10 million to $21 million, there’s an extra 5 percent surcharge, which brings the the top rate to 60 percent. What’s a rich guy to do?

Well, buy insurance for one. Financial planners generally urge couples with estates of some million or more to look into using life insurance to pay estate taxes. When you die, you life insurance proceeds are not subject to income tax. If the policy is owned by someone else, such as a child or an irrevocable trust, it will not be part of your estate and will not be subject to estate taxes either.

Your first estate-planning step is to calculate the approximate value of your estate, including all the property you own and life insurance in your name. You then could buy a life insurance policy to cover the federal estate tax owed – or as much as you chose to cover with insurance. And remember, there may also be state taxes due on your estate.

House on the rocky ground. The estate tax bite. Your heirs only pay the top rate on the top end of your estate. Illustration: Megan Jorgensen (Elena)

Whether using life insurance to cover your estate taxes is a smart move or not depends chiefly on what kind of policy you buy and, of course, when you die. A 65-year-old man and 62-year-old woman, for example, could buy a $1 million policy for a premium of $24,420 for nine years and a final premium f $12,643, or a total of $232,423. The policy is a second-to-die, or survivorship, policy, which means that it does not pay off until the second person dies. This makes premiums significantly lower than they would be on a policy covering only one individual since, from the insurer’s perspective, it is more like that at least one of the two people covered will live a while and the death benefit won’t have to be paid. If both die during the first year after they bought the policy, their heirs would get a fantastic return of 3,995 percent. If, however, either one lives for 20 years, the return is reduced to 10.36 percent. If either one lives 30 years, the return is 7.72 percent.

There’s another catch: taxable gifts. You can give gifts of up to $10,000 per person per year without affecting the status of your estate, but if you give a single person more than $10,000 in a year, the difference will reduce the taxable threshold of your estate. If you give one of your children a gift of $50,000 in a given year, for instance, the taxable threshold of your estate will be $560,000.

Life Insurance Policy Glossary

Life Insurance Policy Glossary

Learning the Lingo of Life

The terms you need to know before you sign up for a life insurance policy.

There’s no shortage of books and other references to consult if you want to learn more about life insurance. In fact, there are two basic types of life insurance policies: term insurance and whole life insurance. All other types of policies are variations of these two types. We consulted a few insurance primers and publications put out by various insurance and business groups to adapt this glossary:

Accelerated death benefits: Benefits available in some life insurance policies before policeholder’s death.

Accidental death benefit: A provision added to a life insurance policy for payment of an additional benefit in case of death as a result of an accident. This provision is often called “double indemnity”.

Annuity: A life insurance product that provides an income either for a specified period of time or for a person’s lifetime.

Beneficiary: The person of financial instrument (a trust fund, for example) named in the policy as a recipient of insurance money in the event of the policyholder’s death.

Cash value (cash surrender value): The amount available in cash upon surrender of a policy before it becomes payable upon death of maturity.

Cash-value insurance: “Cash-value” insurance is any life insurance product that offers some opportunity to accumulate cash value, in addition to ensuring a death benefit.

Convertible term insurance: Term insurance that offers the policyholder the option of exchanging it for a permanent plan of insurance without evidence of insurability.

Cost index: A way to compare the costs of similar life insurance plans. A policy with a smaller index number is generally a better buy than a comparable policy with a larger index number.

Dividend: Dividends are a partial or full refund of premiums paid to owners of certain kinds of participating life insurance contracts.

Face amount: The amount stated on the face of the policy that will be paid in case of death or at maturity. It does not include dividend additions or additional amounts payable under accidental death or other special provisions.

Group-term insurance: Group-term insurance typically is provided by or through your employer. It has several potential advantages. It can be inexpensive if your employer pays the premiums or subsidizes it. And the only thing you have to do to join is sign the application – you do not have to pass a medical exam. The downside: If you lose your job, you generally lose your insurance.

Guaranteed insurability: An option that permits the policyholder to buy additional stated amounts of life insurance at stated times in the future without evidence of insurability.

Guaranteed permanent life insurance: Sometimes called “whole-life”, guaranteed permanent insurance provides a death benefit until the age of 90 or 100 as long as you pay fixed premiums that cannot have unscheduled increases. Guaranteed-permanent products can build substantial cash values over time.

Joint life insurance: Joint life insurance – also called survivorship life or “second-todie” insurance – covers two lives (typically a husband and wife) and pays and benefit only after the second death.

Level premium insurance: Insurance for which the cost is distributed evenly over the premium payment period. The premium remains the same from year to year and is more than actual cost of protection in the earlir years of the policy and less than the actual cost in later years.

Load: The amount of your premium that is taken out to cover administrative costs, commission and premium taxes in a lump sum. The load generally is taken at the beginning of a policy, but sometimes in the middle or even at the ending of the policy. Depending on the company, the load is either a percentage of the worth of the policy or a percentage of the cost.

Paid-up additions: Paid-up additions are increments of guaranteed-permanent insurance on which all premiums are paid in one lump sum.

Policy riders: Riders are optional features you may add to your policy for an increase in premium.

Re-entry term insurance – re-entry term insurance products appear to be guaranteed renewable, but require steep premium increases at specified intervals, such as every five years, unless you pass a medical examination.

Renewable term insurance: Term insurance providing the right to renew at the end of the term for another term or terms, without evidence of insurability. The premium rate increase at each renewal ast the age of the insured increases.

Term insurance: Term insurance pays your survivors a death benefit if you die while the contract is in force. It is often called “pure” insurance because it offers only a death benefit with no savings component.

Universal life insurance: Universal life is a form of cash-value insurance that combines term insurance with a “side fund” that is credited with earnings.

Variable life insurance: Variable life encompasses a variety of cash-value products that allow you to decide how to invest your policy’s cash values. You can choose among options offered by the insurance company – typically stocks, bonds, fixed-rate funds, or money market funds – and participate directly in the investment results.

Waiver-of-premium benefit – a waiver-of-premium rider keeps your life insurance protection in place by paying the policy premiums if you became disabled.

If you forget everything else about buying life insurance, remember to ask how much you’d get if you cashed in your policy after one year – the so-called cash surrender value.” (Glenn Daily, insurance expert). Photo: Megan Jorgensen (Elena)

Taking Out a Lifetime Contract

Are premiums guaranteed not to increase?

Yearly renewable term: No, they will increase.

Re-entry: No, they will increase.

Group-term: No, they will increase but employer may pay cost.

Universal life: There is no fixed premium.

Term/guaranteed permanent: Yes, for guaranteed-permanent, but not for term.

Guaranteed permanent: Yes.

Is there an asset accumulation element:

Yearly renewable term: No.

Re-entry: No.

Group-term: No.

Universal life: Yes.

Term/guaranteed permanent: Yes.

Guaranteed permanent: Yes.

Can I continue the coverage if I get sick?

Yearly renewable term: Yes, for the period of renewability.

Re-entry: Yes, prior to re-entry; thereafter at a high cost.

Group-term: Yes, while you remain employed; thereafter at a high cost.

Universal life: Yes.

Term/guaranteed permanent: Yes.

Guaranteed permanent: Yes.

Does the insurance company guarantee my coverage will last?

Yearly renewable term: No, generally not available after age 70 and usually too costly after age 60.

Re-entry: No, generally not available after age 70 and usually too costly after age 60.

Group-term: Yes, but employer may provide reductions beyond a certain age.

Universal life: As long as the side fund is not exhausted.

Term/guaranteed permanent: Yes, for the guaranteed-permanent portion, but not for term.

Guaranteed permanent: Yes.

(Certain level-term contracts have premiums that are given for a fixed period, such as 10 years).

They also must have life insurance! Photo by Elena.

Auto Insurance

Auto Insurance

In most states, drivers are required to have liability insurance for each drivers, for accidents, and for the other person’s car in case of an accident.

How much you need: Generally, insurance experts counsel that you buy as much liability coverage as you’re worth. You should also consider an “umbrella policy” that covers both your home and car.

What your options are: Collision and comprehensive coverage accounts for 30 percent to 45 percent of your premium. If the cost of your collision and comprehensive insurance is more than 10 percent of your car’s Blue Book value, it probably makes sense to drop it. Remember, though, that if you get into an accident, you’ll have to decide if it’s worth your car fixed.

Uninsured or underinsured motorist coverage also is sometimes desirable, but it is probably cheaper to purchase it in your home or life policy. You may be able to slash the price of your car insurance by adding safety or anti-theft features to your car, maintaining a safe driving record or simply by driving a low number of miles each year.

Bahamas, cars. Photo: Elena

What to watch out for: For an old jalopy, the insurance cost may not be worth the amount you’d receive in the event of an accident. The most you’ll receive if your car is damaged is the Blue Book value of the vehicle – not that much if your car is more than five years old.

A last tip: Medical payment, income replacement, and rental car insurance can add substantially to your premiums and may be covered elsewhere. Some credit card companies, for example, offer rental car insurance.