If you have a loan and owe money on your vehicle you generally are required to carry full coverage insurance. If you do not have a loan on your vehicle you must make the decision of which type and how much insurance you should carry.
Full coverage insurance covers your loss, less your deductible if you are in an accident no matter who is at fault. The decision you must make with full coverage is how much of a deductible you should carry. This is really a personal preference issue. The cost of the insurance is less with a higher deductible. The best thing to do is to decide how much you could write a check for if you needed to. Once you know about what your comfort zone is then you can request a quote for the different deductibles and make an intelligent decision from there. I personally have always carried a 1,000 dollar deductible. I have found that in my case my rate is nearly half of that for a 500 dollar deductible policy, and I factor in that my car is not new model, so in my situation it has always been best to go with that. Your company may be different. Age and geographical location do play a role in the insurance premium rates. There may be some instances that this policy will not pay out, I believe that if you were driving for a work related task or if an unlicensed driver is driving the vehicle it won't cover it. It is always best to get policy specific information before obtaining the insurance.
Liability insurance pays only other people that have suffered a loss because of your vehicle. Deciding to drop down to liability can be a sound decision. If your vehicle is older and you are generally a safe driver it may be cost effective to have only liability. I have heard that if the value of your vehicle is less than 10x your premium it may be a better choice. That sounds simple enough but you also need to factor in your comfort and financial stability into the equation. If you couldn't replace your car if you needed to it may be better for you to keep the full coverage just a little longer. Personally I have had liability exclusively for 10 years. I am more comfortable with a little more risk and a low premium. This insurance will not pay if you are involved in an accident that isn't your fault. Liability insurance is regulated by the state. Each state has their own statutes as to what the lowest limits of insurance needs to be. Most agents will recommend that you have more than the bare minimum needed. Review each category and decide what you are comfortable with.
This is not meant to be guidance, please check with your agent for company and state specific information. Another thing to keep in mind is to compare premium rates often. I have found that sometimes even though I thoroughly checked rates before buying a couple years later there was a much lower rate with another company.
Friday, August 13, 2010
Sunday, August 8, 2010
Deciding How Much Life Insurance You Need
Deciding how much life insurance you need is a complicated issue to just ask about if you are not familiar with insurance. A general rule that I heard a few years back was that you should have 7 years worth of your annual income as insurance. I think you also have to take into consideration your personal financial situation. But everyone has personal goals for their life insurance.
A large consideration in the decision making process is your family situation. If you are not employed as a contributor to the household financially you are obviously going to need less than if you are the sole supporter of your family. You might be thinking that a stay at home mother doesn't need life insurance, but that is not necessarily true. If there are young children in the home and the caregiver passes away there will be extra expenses. Daycare, transportation to events while the remaining parent is working, and some of the services our spouse did for us sometimes that we don't even consider such as eating out more now that the person who handled that isn't here. On the same token if you have small children 7 years income may not be enough to see the children through college. It is something that you should sit down and think about before selecting the face of the policy. Discuss with your agent why you selected the amount you did in case you have overlooked something.
Your financial situation also plays heavily into the selection of life insurance. Some people have a secure future and have a great deal of savings, 401k and pension plan with no debt to speak of. Other people walk around with no savings and large amounts of debt barely scraping by. Obviously the person who has some money set aside will need less than someone who has not been able to do that yet.
There are many options available and you can also do a blend having 2 policy's so that you can drop one later when your need for insurance isn't as great. This post is not intended to be insurance advise. The best thing to do is talk to an advisor you trust will give you clear answers that are based on your life and not a standard recommendation.
A large consideration in the decision making process is your family situation. If you are not employed as a contributor to the household financially you are obviously going to need less than if you are the sole supporter of your family. You might be thinking that a stay at home mother doesn't need life insurance, but that is not necessarily true. If there are young children in the home and the caregiver passes away there will be extra expenses. Daycare, transportation to events while the remaining parent is working, and some of the services our spouse did for us sometimes that we don't even consider such as eating out more now that the person who handled that isn't here. On the same token if you have small children 7 years income may not be enough to see the children through college. It is something that you should sit down and think about before selecting the face of the policy. Discuss with your agent why you selected the amount you did in case you have overlooked something.
Your financial situation also plays heavily into the selection of life insurance. Some people have a secure future and have a great deal of savings, 401k and pension plan with no debt to speak of. Other people walk around with no savings and large amounts of debt barely scraping by. Obviously the person who has some money set aside will need less than someone who has not been able to do that yet.
There are many options available and you can also do a blend having 2 policy's so that you can drop one later when your need for insurance isn't as great. This post is not intended to be insurance advise. The best thing to do is talk to an advisor you trust will give you clear answers that are based on your life and not a standard recommendation.
Friday, August 6, 2010
Term Versus Whole Life
Buying life insurance can be an overwhelming task if you are not familiar with insurance. There is such a wide range of premium pricing and face values of the policy. For there to be such a wide range of products it is clear that it is not a black and white choice. Different objectives and thinking demand choices.
Let's start with a quick definition of what the difference between these 2 products are.
Term insurance is "pure" insurance. You pay a premium and if you die the company pays, if you don't they keep the money. Most term policy's are for a defined duration. The typical policy's are 10 year, 20 year, or 30 year policies. You pay the same premium based on you current age for 10, 20, or 30 years. After the time lapses your agreement is over. This is the one product that you purchase that you really don't want to use! These policies are usually very affordable if you insure at a relatively young age. At the time the policy lapses if you have a continued need for insurance it can be rather expensive to replace because you will be older. If you have certain medical issues develop you may not be able to obtain insurance, or have to pay extra to be covered. Those 2 issues are the main risk with term insurance, expensive premiums later, and risk of not being able to obtain any insurance at all. The 2 benefits are being able to buy a much larger policy and paying a much smaller premium.
Whole life on the other hand is a permanent insurance. The price is much higher initially. For example if a term policy would be $50 a month for, the same face value might be $150 for whole life. And the face of the policy is likely less too. Whole life build a cash value. There are people who say that this is a waste and that the money doesn't appreciate as well invested in life insurance. Each company has their policy of where the excess cash is invested so I can't comment. What I can say is most guarantee a small % gain which is more than a stock or mutual fund will do if you invest directly with them. The other issue is tax treatment. Most of these policies also have a loan feature where you can after a few years of accumulation borrow the excess money. This can be a nice feature if you have trouble saving cash.
Self insuring is obviously the cheapest choice, but most of us have families and obligations that we need to ensure are properly cared for. If we don't have a lot of excess cash life insurance is a necessity. Which kind is best? Well that depends. If you have the absolute minimum cash or a lot of excess cash term is probably right for you. If you are somewhere in the middle whole life may be a better option. Personally I have a blend of both. I carry a 30 year term policy for $100,000 and a whole life policy for $50,000. By the time my term expires I will not replace it. My children will be old enough to maintain on their own and hopefully my expenses will be low.
For the first 2 years in some states some things are excluded and your policy may not pay out. It is best to discuss these exclusions with your insurance agent. There is also a large difference in premium for smokers.
This post is for information only. This is not intended to be insurance advice. Each person is different and consulting your insurance agent is the best way to determine your needs.
Let's start with a quick definition of what the difference between these 2 products are.
Term insurance is "pure" insurance. You pay a premium and if you die the company pays, if you don't they keep the money. Most term policy's are for a defined duration. The typical policy's are 10 year, 20 year, or 30 year policies. You pay the same premium based on you current age for 10, 20, or 30 years. After the time lapses your agreement is over. This is the one product that you purchase that you really don't want to use! These policies are usually very affordable if you insure at a relatively young age. At the time the policy lapses if you have a continued need for insurance it can be rather expensive to replace because you will be older. If you have certain medical issues develop you may not be able to obtain insurance, or have to pay extra to be covered. Those 2 issues are the main risk with term insurance, expensive premiums later, and risk of not being able to obtain any insurance at all. The 2 benefits are being able to buy a much larger policy and paying a much smaller premium.
Whole life on the other hand is a permanent insurance. The price is much higher initially. For example if a term policy would be $50 a month for, the same face value might be $150 for whole life. And the face of the policy is likely less too. Whole life build a cash value. There are people who say that this is a waste and that the money doesn't appreciate as well invested in life insurance. Each company has their policy of where the excess cash is invested so I can't comment. What I can say is most guarantee a small % gain which is more than a stock or mutual fund will do if you invest directly with them. The other issue is tax treatment. Most of these policies also have a loan feature where you can after a few years of accumulation borrow the excess money. This can be a nice feature if you have trouble saving cash.
Self insuring is obviously the cheapest choice, but most of us have families and obligations that we need to ensure are properly cared for. If we don't have a lot of excess cash life insurance is a necessity. Which kind is best? Well that depends. If you have the absolute minimum cash or a lot of excess cash term is probably right for you. If you are somewhere in the middle whole life may be a better option. Personally I have a blend of both. I carry a 30 year term policy for $100,000 and a whole life policy for $50,000. By the time my term expires I will not replace it. My children will be old enough to maintain on their own and hopefully my expenses will be low.
For the first 2 years in some states some things are excluded and your policy may not pay out. It is best to discuss these exclusions with your insurance agent. There is also a large difference in premium for smokers.
This post is for information only. This is not intended to be insurance advice. Each person is different and consulting your insurance agent is the best way to determine your needs.
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