Monday, April 30, 2007

My house burnt down

will my homeowners insurance pay off the mortgage?

If fire destroys your house, a burning question might be whether your insurance would pay off the mortgage. Chances are the answer would be yes. However, there's a lot more to it than that.
With that in mind, a hypothetical was brought up by American Insurance Association assistant general counsel Eric Goldberg. "Let's say you bought the house 20 years ago for $200,000 and at the time of purchase you obtained a homeowners insurance policy with $190,000 in limits, which is less than the property's total value because you don't buy coverage for the value of the land," Goldberg began. That house has appreciated in value considerably since the date of purchase, he said. Building costs, materials and other costs have gone up.

"Let's say you haven't increased my policy limits since the day you bought the house," Goldberg added. "If that's the case, you probably don't have sufficient coverage." What should a homeowner do to avoid facing such an unpleasant situation? "It would behoove you to meet with my insurance provider once a year to ensure you have adequate coverage," answered Goldberg.

"You don't want insurance surprises at a critical time such as in the event your house burns down," Goldberg emphasized.

Goldberg talked about how homeowners insurance for the structure itself is sold in one of two ways: replacement cost coverage and extended replacement cost coverage. At replacement cost, if you have $200,000 in coverage, you'll get the actual replacement cost up to that amount if your house burns down. "Extended replacement cost protection costs a bit more, but under that type of policy, the insurer provides you a cushion - typically 20 or 25% over coverage limits - to cover factors such as rising building costs and increasing costs of building materials."
A final point from Goldberg: "It is the policyholder's responsibility to find out what the replacement costs are."

"You are still going to have that same mortgage, but your homeowners insurance will pay to rebuild your home, and so you will be made whole," says Carolyn Gorman, vice president at the Insurance Information Institute's branch office in Washington, D.C.

Gorman's organization, the Insurance Information Institute, says you need enough insurance to cover the following:
  • The structure of your home.
  • Your personal possessions.
  • The cost of additional living expenses if your home is damaged and you have to live elsewhere during repairs.
  • Your liability to others.

Chubb spokesman Mark Schussel says your homeowners insurance policy should have adequate coverage to cover your outstanding mortgage. However, that may not be enough for you to rebuild. "What's more important is for you to purchase an extended replacement cost policy that regardless of your stated policy limits will provide you with enough insurance proceeds to replace the home in its entirety," explains Schussel.
Schussel's bottom-line point on the subject? "Most banks won't approve your loan application unless you have adequate insurance to pay off the mortgage," he said.
Says Safeco Insurance spokesman Paul Hollie: "If your house burns down due to a covered loss, homeowners insurance typically will pay to clear your property of damage and debris, rebuild your home, and replace the belongings you lost in the fire. In addition, if you can't live in your home, your homeowners insurance will pay additional living expenses as detailed in your policy. This covers the cost of temporarily renting a place to live."


Sunday, April 29, 2007

Coalition Forms to Promote Life Insurance Settlements

Life settlements aren't exactly a new concept.

Also known as senior settlements, life settlements are contracts where a life insurance policyholder who is not terminally ill decides to sell his or her policy to an investor for a fraction of the face value. The investor then takes over the premium payments and gets the death benefit when the insured dies. Viatical settlements, on the other hand, occur when a life insurance policyholder becomes terminally ill and decides to sell the policy.

Coventry Financial, for example, expects to broker settlement deals involving approximately $5 billion in life insurance policies over the next year, but according to the company's Chief Executive Officer and cofounder, Alan Buerger, it is an option that not many consumers know about.

That's why Buerger and Coventry Financial have formed the Life Settlement Coalition, a group that will include life settlement brokers and providers, with the goal of educating consumers and insurance companies about life insurance settlements.

"I got into life insurance because I heard an agent talk about the legacy a good life insurance agent leaves behind - businesses that stay open and families that can send their kids to college thanks to life insurance" says Buerger. "I think that the insurance industry should embrace life settlements because it makes life insurance policies more valuable and gives agents a better product to bring to their customers."

According to Buerger, surrendering a policy for the cash value, rather than seeking a life settlement, amounts to selling the policy back to the insurance company. Buerger says that the insurance industry would be well served by making consumers aware of options for the sale of a life insurance policy that is no longer wanted - options that, under the right circumstances, can bring the policyholder more money than surrendering the policy.

"Over the last three years, Coventry has helped policysettlers receive more than $100 million in excess of the cash value surrender amount," says Buerger. "Generally, 20 to 25 percent of the policies submitted have a [settlement] value in excess of the surrender value."

"I think it serves consumers very poorly not to tell them about other options," says Buerger. "Consumers won't put up with it for long, and the insurance industry will get a black eye - the same way it did with the 'vanishing premium' sales pitches."

The Life Settlement Coalition is developing sample "disclosure" forms - that would make policyholders aware of life settlements - that Buerger hopes will eventually accompany every policy surrender contract.


Saturday, April 28, 2007

Group Life Insurance: Is it Enough?

Group life insurance, which in most situations is offered by your employer, provides coverage at a reasonable rate. While group life insurance can be a great deal, it might not provide enough protection. If your group life policy is the only life insurance you own, you could be open to financial disaster.

The group advantage

In most cases, you purchase group life insurance through work. Your employer owns the policy, and the employees are the "insureds." You can get group life either as an employee benefit (meaning you don't have to pay for it) or on a voluntary basis (meaning you open your own wallet).

If you receive the policy at no cost, the most common type of coverage is usually a full year's salary payable to your beneficiaries at your death. Some employers with limited budgets might offer smaller policies with face amounts of $5,000, $10,000, or $20,000, depending on your position and seniority at the company. At the other end of the spectrum, larger companies with unions, such as auto manufacturers, might offer very generous death benefits that total two or three times a person's salary.

If your company offers group life on a voluntary basis, the coverage is generally more extensive. The size of your death benefit can vary, but can be several times your annual salary. Some larger employers offer group life plans with a maximum death benefit of $1 million. There are also group life policies under which your spouse and children can get coverage.

Most group life plans are term policies that provide life insurance protection for as long as you work for the company. There are also some employers that offer whole life policies, so you can have permanent coverage after you retire or leave the company. Unlike some individual life insurance policies you could buy on your own, premium rates are rarely locked in. Premiums usually rise every five years because the risk of deaths among the group increases, as employees grow older.

Group life on the cheap

Group life insurance tends to be inexpensive because the insurance company is calculating the overall risk of the group. The chance of everyone at a company dying simultaneously is so small that the cost of insuring a group is cheaper on a per person basis than insuring an individual.

The insurer also assumes that not all people at the company are going to work there until retirement, so the length of the insurance term is relatively short.

A typical universal life group policy for a person in good health at a normal job would cost 5 cents for every $1,000 worth of coverage per month. So for a $100,000 policy, it would cost you $5 per month, or $70 per year.

Poor health? No problem

If your employer gives you group life insurance free of charge, you often don’t need to undergo any medical examination. Most of these are "guaranteed issue," meaning you will qualify for insurance regardless of your medical condition.

When you have the option of signing up for group life insurance through work, those policies usually require applicants to fill out a short questionnaire about health and lifestyle. If a severe health problem is found, insurers will likely require a medical exam, which includes giving blood and urine samples.

When setting a group life rate, an insurer figures in the ratio of females to males (females generally live longer, according to mortality tables), as well as how many smokers are in the group. It also takes into consideration the nature of the work at the company. A bank, for example, would likely have a cheaper group life rate than a construction company.

Think "supplement"

If your employer offers group life, it can be a nice supplement to your existing life insurance if you have it. It's important not to count on group life as your main source of life insurance. Most group life policies, whether you pay for them or not, don't offer enough coverage for your beneficiaries. One or two years of salary, the level of coverage offered by many group insurance plans, would fail to provide complete financial protection when the key breadwinner in a family dies.

Perhaps the biggest drawback to group life is when you leave your job, you’ll probably lose the coverage. Worse, when you leave your job, you might have trouble buying life insurance elsewhere if you've developed a severe health problem.

Some employers will let you continue your life insurance with the group after you leave the company or retire (if you want the option, it will likely cost you 10 to 25 percent more in premiums). Even so, there’s a chance the employer will discontinue the insurance, or switch to an insurance plan that might not take you on.

"The biggest downside to group life is that it's not always portable," says Michael Snowdon of the College of Financial Planning. "If you're counting on [group life] as part of your risk management plan and you change jobs or your employer decides to not offer the insurance any more, you could be hurting."

Jerry Rosenbloom, a professor at the Wharton School at the University of Pennsylvania, says another downside to group life is it does not leave you with a lot of coverage options. For example, if you want a long term care rider on your policy, you would likely have to look elsewhere than your group life policy.

"It always comes down to what your needs are," he says. "You may not have anywhere near the options on a group term as you would with an individual policy. [Group] policies are pretty much standard vanilla."

"It's not a bad deal," says Michael Snowdon, an instructor with the College for Financial Planning in Denver. "It can be a very cost effective way to add to your life insurance" if you already own a policy.


Friday, April 27, 2007

Dealing With the Estate

If you thought the so-called federal “death tax” is dying, you’re wrong. It may slowly vanish over the next few years, but without Congressional action, the estate tax will spring back to full force in 2011.

Here's what’s happening with the federal estate tax: Over the next eight years, the estate tax will be gradually reduced, both by cutting the tax rate and by increasing the exemption levels. In 2002, the estate tax rate dropped from 55 to 50 percent. The tax also only applied to estates of a million dollars or more.

The estate tax rate will be reduced by 1 percent per year until it reaches 45 percent in 2007. Meanwhile, the exemption levels will also increase — to $1.5 million in 2004, $2 million in 2006, and $3.5 million in 2009.

In 2010, the estate tax will be completely repealed, but heirs will be subject to capital gains taxes on any of their inheritance that they sell. Furthermore, according to Joel Friedman, a senior fellow at the Center on Budget and Policy Priorities — a Washington, D.C., think tank — capital assets, such as property, stocks, and bonds, are currently assessed the capital gains tax only on value gained after the assets are inherited. Under the new system, the tax would be based on the value gained since the original purchase.

Under the old tax rules, if your father bought a stock for $10 and you inherited it when it was worth $100, and sold it at $150, you'd pay capital gains taxes on the $50 rise in value while you owned it, says Friedman.

It wouldn't matter to the taxman how much your father had paid for it, all that would be important was how much it had gone up since you owned it. "However, under the new system you would have to pay capital gains on the total $140 the stock had gained," says Friedman.
According to Friedman, this new law has the potential to make estate planning and record keeping even more complicated.

Further muddying the waters is an exemption clause in the tax legislation. According to Morgan Stanley Dean Witter, this change in the capital gains tax will be partially offset by an exemption of up to $1.3 million per individual, with an additional $3 million exemption for transfers to a spouse. Assets that qualify for these exemptions would have their base value for tax purposes "stepped up" to the value at the time of inheritance, as under the current system.

So what's the good news?

Even if it does return, the estate tax won't be as strong as it was. The estate tax now doesn’t kick in on assets worth less than $1 million. While that exemption will rise in the following years, it drops back to $1 million in 2011. The drop in the estate tax rate, however, will disappear completely in 2011, and inheritance will be once again taxed at 55 percent.\

The problem is that if the "death tax" stays dead, it will make estate planning much more difficult, according to Dennis Fitzpatrick, a director of advance planning for Northwestern Mutual Insurance Co.

"It's essentially a 'full employment act' for financial advisors," says Fitzpatrick. "This new law makes the tax code so complicated that there's no way an individual can understand it."
In a report co-authored by Friedman for the Center on Budget and Policy Priorities, an argument is made for a permanent and simplified solution to estate taxes. “Retaining the estate tax with a high exemption level and lower top rate, would likely be a more effective way to stabilize long-term planning, not only because it is a more affordable policy in the long run and thus is less likely to be altered in subsequent years, but also because repeal raises serious administrative issues.”

So what does this mean to you?

It's really too early to tell. If you're wondering whether you've wasted money on a survivorship, or "second-to-die," life insurance policy that you bought to pay estate taxes, you probably haven't. According to Fitzpatrick, flexibility in your financial planning is going to be the key for the next decade.

"Because of the complexity of the law, the keys to estate planning are going to be flexibility and control," says Fitzpatrick. "By and large, life insurance is a very flexible product."

Not only are there still estate taxes at the state level to consider, but depending on which year you die, the laws at that time, and the value of your estate, your beneficiaries may need the life insurance benefit. In these cases, according to Fitzpatrick, it's safest to keep the life insurance policy as an added safety net.

Furthermore, a benefit is still a benefit, so even if your beneficiaries don't need the survivorship policy to pay estate taxes, the death benefit still goes to them.

"If you've bought a policy recently, the worst you've done is get some death benefits you may not have needed," says Fitzpatrick.

At the same time, consider whether a new survivorship life policy is the right product for you at this time. Survivorship life policies tend to be cheaper and more easily obtained than traditional life insurance policies, and large estates will almost certainly still end up paying some taxes, but you may want to hold off on a new policy until the future of estate laws is more certain.

According to Fitzpatrick, precise planning will be crucial. With the laws changing every year, and the uncertainty about what will happen in 2011, if you have a large or complicated estate, you may need to revise your estate planning every year, he says.


Thursday, April 26, 2007

5+ Tips on Investing in Promissory Notes

Promissory note scams often target the elderly with claims of high returns with minimal investment. Some life insurance agents sell promissory notes in addition to policies. The North American Securities Administrators Association (NASAA) and New York Department of Insurance offer some tips to protect you - and your money - if you're thinking about an investment in promissory notes.

  • Beware of any investment sold as "guaranteed" or "no-risk" and advertising a high rate of return.
  • Beware of any investment sold as "guaranteed" from an offshore insurance company.
  • Never succumb to sales tactics that pressure you to make an immediate investment decision.
  • It is not advisable to put all of your savings into one type of investment.
  • Before investing in any promissory note, check with your state securities regulator to confirm that the notes are properly registered or legally exempt from registration. If you can't verify that the notes are registered or exempt, hold onto your money. Research the legitimacy of the company whose notes are being offered. Florida securities regulator Laura Royal says that any investment "guaranteed" by a bond from an offshore bonding company should be thoroughly investigated. Your state insurance department can verify if the bonding company is registered to do business in the United States.
  • Agents selling these "notes" are usually required to be licensed by both the state and the National Association of Securities Dealers (NASD). To find out if your agent is registered or has a disciplinary history, contact your state securities regulator or call the NASD Public Disclosure Hotline at (800) 289-9999.
  • Be suspicious if the notes have an above-market rate with a maturity of less than a year.


Wednesday, April 25, 2007

Doctors Might Lie to Insurers to Avoid Hassles

One in 10 doctors say they would lie about a patient's condition to obtain approval from an insurance company for that patient's surgery or other medically necessary treatment, according to researchers from the University of Michigan. And that number climbs when doctors consider the potential "hassles" about HMO approvals.

In a paper published May 17, 2002, in the Archives of Internal Medicine , the researchers report that 11 percent of 890 randomly surveyed physicians say they would "misrepresent" a patient's medical condition to insurers to secure HMO approval for surgery or additional procedures. That number rose to 13 percent when physicians were told the appeal process for a treatment denial would only be 50 percent successful, as opposed to 9 percent when told that the appeal success rate was 95 percent.

Additionally, although 9 percent of the doctors say they would misrepresent a patient's condition if the appeal process was estimated to take 10 minutes, that number increased to 14 percent if they were told the appeal would take 60 minutes. The number who said they would lie is highest (16 percent) when doctors factor in a patient whose condition is "severe."

"The 'hassle factor' had a big influence over the doctors' actions," says Dr. Peter A. Ubel, associate professor of internal medicine at the University of Michigan Medical School and research investigator at the Ann Arbor Veterans Administration Medical Center. "If the HMO says 'no,' doctors can appeal, but often, it is a long and burdensome process. So in some cases, physicians lie about their patients' condition."

This news is troubling to the American Association of Health Plans, says spokesperson Mohit Ghose. "You've got to deal with the implications of outright lying," Ghose says. "What happens when a patient switches doctors and the medical record does not reflect the patient's true health history?"

According to Ghose, 41 states and Washington, D.C., have emergency external review laws that require expedited reviews of denials within 72 hours. "There are mechanisms in place to address treatment denials," he says.

Us vs. Them

Although there is plenty of animosity between insurers and doctors these days, Ubel says it's important not to view his study results as an "us vs. them issue." He is calling for increased cooperation between the two, a sentiment that is echoed by Ghose.

"There is going to have to be more cooperation between the two," Ubel says. "It's clear some doctors will lie to get what they want when confronted with approval hassles. But the doctors' goals should be the same as the insurance companies' - to control costs while at the same time encouraging evidence-based medicine and more reliable [treatment] behavior."

Ghose agrees. "It's got to be a partnership between the two. Doctors and health plans must work together to responsibly provide the access to the health care that patients need while following the [health insurance] contracts signed by employers."


Tuesday, April 24, 2007

The Basics of Term Life Insurance

Should you "buy term and invest the rest," or fuel your life insurance with "the power of cash value"?

Term life insurance is often touted for its "pure insurance protection," which includes none of the cash value features inherent in whole life policies. Term life insurance covers you for a specific period of time - as short as one year, or as many as 10, 20, or even 30 years. You can also buy term insurance that covers you until you reach a certain age, usually 65 or 70. Term insurance policies expire at a set time.

Generally, you purchase term life insurance if you want to protect your loved ones from debts. For example, if you and your spouse own a home, and you were to die tomorrow, your spouse could be stuck paying the mortgage on his or her own. If you had a term life insurance policy, your spouse could have enough money from the policy's death benefit to pay off the mortgage.

Term insurance doesn't just cover specific debts, however. If you have children or if your spouse does not work, term insurance can protect your family's finances, providing money for college and living expenses if you die before your children are fully grown.

Medical exam is usually required

When you apply for term life coverage, the insurance company will probably require a medical exam before issuing a policy. Some companies require a medical exam for all policies, but others require the exams only for policies with a substantial face value. The examination is basic, covering your height, weight, medical history, and blood and urine testing. With the blood and urine tests, the insurer looks for specific medical problems. Positive results could affect your premium, or even your ability to buy a policy.

Smokers will pay more for life insurance, although cigar smokers might get less expensive premiums than those using cigarettes. If you smoke marijuana, but not cigarettes, you still must admit to being a smoker on the policy application. Insurers don't generally differentiate between different types of smoke inhalation. (Marijuana users must also disclose their drug use.)

As you age, the likelihood you will die sooner increases. That's why older individuals pay more for life insurance. Many term policies give you the option to renew your coverage at the end of the term without undergoing another medical exam. You also can lock in low premiums by asking for a "level premium" policy. That means for a specific time period, say 20 years, your premium rate stays the same. After that term expires, your rates will increase.

If you have trouble finding life insurance because of illness or a troubled medical history, you can turn to guaranteed issue life insurance coverage, also called "quick issue" or "simplified issue" insurance. Guaranteed issue policies require no medical exam, but you pay a higher premium in exchange for the guaranteed coverage. That's because the insurance company takes on more risk in insuring people without knowing their medical condition. Guaranteed issue policies can require waiting periods before coverage kicks in, and often require yearly fees. They might be the only option for some people. A life insurance broker can search the marketplace for a guaranteed issue policy that meets your needs.

How long a term?

When you are researching what kind of policy you should buy, your income, short-term and long-term debts, and financial obligations to your loved ones are among the factors to consider.

Figuring out which term you should buy - 10 years, 20 years, 30 years, or some other number - requires a major review of your debts, financial needs, dependents' needs, and when all these might change. Jack Dolan of the American Council of Life Insurers suggests you ask yourself, "When will my dependents reach financial independence?" Also look at major debts, such as mortgages or other loans, and at how much money your spouse or dependents would need in order to pay them off if you die.

Guenther Ruch of the Wisconsin Insurance Commissioner's office says it's a good idea to review your life insurance needs carefully, both when you buy the policy and on a regular basis throughout your life. "You may not have the coverage you need. You may have more than you need," Ruch says.

Ruch has the following recommendations for anyone buying life insurance, or anyone who already has coverage:
  • Schedule a routine "check-up" with your insurance providers at least once a year.
  • Shop around for identical products and services. Not every company charges the same rate.
  • Remember an insurance policy is a legal document. Read it carefully, and make sure you understand what your policy states.

Determining the best coverage for your family is an important financial decision, both now and for the future. " Consumers can save themselves hundreds, and sometimes thousands, of dollars if they know how to shop wisely for insurance," says May Chao, executive director of the Consumer Protection Board of New York-state.

"If you are purely interested in financial protection for your family, that's what life insurance is designed for. So when your children are grown, reconsider your life insurance needs," Dolan says. You might still need coverage if a spouse or other relative depends on you. On the other hand, you might be able to scale back on the amount of life insurance you own.

"Perhaps you want to leave assets for your heirs, or for charity, or you need the death benefit for business planning purposes. These are all areas where life insurance can play a role, but it's really designed for financial protection," Dolan says. For that reason, after you've purchased life insurance coverage, you should periodically evaluate whether your current coverage amount is still right for you.

Term vs. whole life insurance: The cash value debate

Variable universal life insurance (VUL), a form of whole life insurance, is popular because it offers a pool of money known as cash value that builds up with interest over time. The interest earned is based on the performance of the stocks, bonds, and mutual funds in which you choose to invest the cash value.

Some financial planners advocate VUL policies because they force you to save money in the cash value component. Others recommend you buy term insurance for the cheaper premium, and then invest the money left over in mutual funds or other investments. VUL also allows you to change your death benefit - and subsequent premium payments - over time.

Cash value in life insurance should not be considered a traditional investment, because any partial withdrawals or loans will reduce your death benefit. Also, if you partially withdraw your cash value or take out a loan against it, and the cash value exceeds the premiums you have paid into the policy, you will face a tax bill. In addition, every year you own the policy, more of your premium goes to pay for the cost of insuring you, and less goes toward the cash value.


Monday, April 23, 2007

The Basics of Guaranteed Issue Life Insurance

You've seen the ads on TV. Celebrities tell you about a life insurance policy with no medical exam. For some people, these "guaranteed issue" individual life insurance policies can be the only way to buy insurance protection.

Often marketed to the elderly, guaranteed issue individual life insurance will insure everyone who comes along, with no medical examination and without asking any medical questions. These policies should not be confused with simplified or quick issue individual life insurance — for which insurers will ask medical history questions but will not require an examination.

"There are some 'short form' life insrance policies that you shouldn't confuse with guaranteed issue," says Bill Schreiner, an actuary with the American Council of Life Insurers. "For a true guaranteed issue policy, there are no medical questions — you just send your money and get insurance."

What's the catch? There are a few, says Schreiner. Most guaranteed issue life insurance policies are designed to provide for only funeral expenses, so it can be tough to find a company willing to sell a policy with a face amount of more than $15,000 to $20,000.

Also, because guaranteed issue life insurance policies do not rely on medical information to set premiums, the cost tends to be very high. Insurance companies will use medical information to offer lower rates to people, who can prove they are in good health.

With guaranteed issue life insurance policies, because there is no medical exam or underwriting, insurance companies have no information other than the applicant's age and gender on which to base the premiums.

The high premiums, combined with a low face amount for the death benefit, can make guaranteed issue life insurance a less desirable option. For some of these policies, you could end up paying more in premiums after only a few years than your beneficiaries will ever receive from the insurance company.

The problem of consumers paying more in premiums than their beneficiaries will receive in death benefits has drawn the attention of state insurance regulators. The National Association of Insurance Commissioners (NAIC) has established a working group to consider what, if any, actions it should take.

Although critics have questioned the ethics of selling insurance products that may perform worse than a savings account, no insurance companies seem to be making excessive profits on these policies, according to Ernst Csiszar, the director of the South Carolina Department of Insurance and the chairman of the NAIC working group on small face value life insurance. "We are developing a disclosure statement that would warn consumers of the possibility that they might pay more in premiums than the face value of the policy," says Csiszar. "Anything more than that would potentially be a form of rate regulation, and the consensus of the NAIC is that we are simply not prepared to regulate the rates of life insurance."

Avoiding fraud

The final catch, according to Schreiner of the ACLI, is a concept called "graded benefits." Introduced to avoid insurance fraud, graded benefits clauses in guaranteed issue life insurance policies allow the insurer to refund a policy's premiums, plus interest, instead of paying the death benefit if the insured policyholder dies within two to three years of buying the insurance.

"Graded benefit periods prevent people in hospitals from signing up while on their deathbeds," says Schreiner. Insurers couldn't offer guaranteed issue policies without the protection these clauses provide, he says.

Some policies will pay out the full-face amount during the graded benefits period in the case of an accidental death, but not all guaranteed issue policies will offer this feature. As with any accidental death policy, the definition of "accidental causes" is usually quite limited.

In general, if you can buy life insurance after answering medical history questions or by undergoing a physical examination, you'll probably end up paying much less for a greater death benefit than you would with a guaranteed issue life insurance policy.

If you've been turned away from every other policy because of your age or your health, guaranteed issue individual life insurance can be a last resort.


Sunday, April 22, 2007

Millionaires Aren't Impressed by Estate Tax Reform

Most of the nation's millionaires believe that the repeal of the estate tax will leave them paying less, but few are ready to change their estate plans, says a recent survey.

Over the next eight years, the estate tax will be gradually reduced, both by cutting the tax rate and by increasing the exemption levels. In 2010, the estate tax will be completely repealed, but heirs will be subject to capital gains taxes on any inheritance that they sell. Unless the is ratified by a 60-40 vote in the senate, the estate tax will automatically spring back into effect in 2011.

According to a survey of "high net worth individuals" - defined as those who have more than $1 million in assets, not including a home, above and beyond their debts - conducted for The Phoenix Cos. Inc., 64 percent said they believed the new legislation would decrease their taxes, but an additional 30 percent thought the law would either have no impact on their estate taxes or cause their taxes to go up.

"This group is knowledgeable about the tax law changes, but they are not responding with dramatic changes in their estate plans," says Walter Zultowski, senior vice president of marketing and market research for Phoenix Life Insurance Co. "They know that the law leaves the future open with its sunset provision."

According to Zultowski, these provisions have left many millionaires uncertain about what the future of estate planning holds, and most are choosing to sit tight with their current inheritance plans.

The survey also found that of high net worth individuals:

  • 47 percent plan to consult a financial advisor about estate planning.
  • 41 percent plan to leave existing trust funds in place.
  • 33 percent plan to either increase or maintain their plans for charitable giving.
  • 33 percent plan to either increase or maintain their plans for tax advantaged giving to their children.
  • 26 percent will leave existing life insurance policies in place.
  • Less than 5 percent plan to drop life insurance, terminate their trusts, or decrease their giving to charities or children.

"I think the big change you will see is that people will pay more attention to estate planning in a broader sense - more than just paying for estate taxes," says Zultowski.

The findings about the effects of the estate tax changes are a selection from Phoenix's annual wealth management survey.

Saturday, April 21, 2007

Life Expectancy Going Up, Life Insurance Rates Going Down

Ready for good news from your insurer? Well, since you're probably reading this sitting down, we'll go ahead and tell you: you're going to live longer, and because of that, your life insurance will be a better deal.

Due to improved lifestyles and better medical care, people are living longer, and the actuarial tables that the insurance industry uses to set its rates are going to reflect that.

Actuarial tables, also known as mortality tables, are the charts that give us our life expectancies. Last compiled in 1980, they were recently revised, and the news is good. Average Joe, instead of living only until 70, will now make it to 74, and Josephine's looking at enjoying her grandchildren until 79 instead of 77.

How insurance companies are giving new meaning to the phrase, live long and prosper

Insurers charge you premiums, and then use that money to invest before they need to pay out the benefits. If you live longer, they have more time to invest the money. That means they don't need to charge you as much. The one hitch is that this is only going to affect new policies--old policies are locked in to the rates established under the old mortality tables. Be sure to check with your insurance agent to see if you can take advantage of the new rates. Also, depending on the insurance company, don't expect the price cuts to reach their deepest for a few years. State laws require insurers to adopt the new tables, but it gives them 5 years from the day of their implementation (January 1 of next year) to do so.

New actuarial tables mean new savings

How much your insurance will actually drop will depend on what type of insurance you have. According to industry watchers, term life insurance-insurance that provides coverage for a specific period of time and doesn't build any cash value will see the most significant price drops. That's good, because term insurance meets the needs of life insurance for a large number of consumers. Although it has no investment value, it gives the insured the peace of mind that if a death does occur, the house will be paid off and the kids will have money for college.

There are a few industry actuaries who think that, on the contrary, whole-life insurance will have an even more dramatic change. Whole life insurance is insurance that remains in full force for the entire life of the insured, and also builds cash value.

In either case, for most policyholders, the new tables will provide an opportunity for significant savings.

Sounds like a win-win situation all around. But does anyone stand to lose? Alas, according to the new tables, woman smokers are living even shorter lives, and paying higher premiums in the meantime--just another to reason to quit.


Friday, April 20, 2007

Insuring a Teen Driver in Single-Parent Home

If your teen is away at school, living part-time with an ex-spouse, or spending a significant amount of time away from your single-parent home, you may be wondering if you are still required to keep them on your car insurance policy. Insuring a teenage driver can be an expensive endeavor, but depending on the circumstance and practices of your car insurance company, you may not be required to keep them on your auto insurance policy.

Divorced parents

The first thing single parents should do when deciding on which policy to claim their teen driver on, is to check the language in their car insurance policy or contact their auto insurance company for details. Some car insurance companies suggest that the parent who has custody of the teen while they are in school is responsible for having that teen driver on their auto insurance policy, while others say it is the parent who has custody of the child more than the other.

In some instances, if both parents have the same auto insurance company, the child will automatically be covered on both policies. The reason behind this is that some companies define "an insured" as "a person related to you by blood, marriage or adoption who is a resident of your household."

Honesty is the best policy

If you don't list your teen driver on your car insurance policy, you are risking more than you may know. For instance, if you neglect to list your teen driver during your application process or failed to add your teenager once they have received their driver's license; your auto insurance company could cancel your auto insurance policy for misrepresentation. Worse yet, if your teenager is involved in an accident or traffic violation and you don't have them on your auto insurance policy, you could risk having your car insurance policy become nonrenewable.

However, all auto insurance companies handle insuring teen drivers and single-parent homes differently. Some companies require that all drivers be named on both parents' car insurance policies, regardless of how much time they spend between households.

Worst case scenario

If your state permits auto insurance companies to void policies for misrepresentation, and your teen is in an accident and you file a claim, YOUR policy could be voided because you failed to tell them about your teen driver. So play it safe and contact your car insurance agent or company immediately once your teen has received his or her driver's license.

High risk teen drivers

Recently, The National Highway Safety Administration released the statistic below showing just how much of a risk teen drivers are to themselves and to others on the road.

  • In 2004, 5,896 teenage drivers were killed in traffic accidents. Teens accounted for 28% of all the drivers involved in motor vehicle fatalities

Teen drivers pose a higher risk of accidents than other groups of drivers, which is why the car insurance rates for this age group are so high. "On average, parents can expect to see a 50-100% increase in their car insurance rates once their teen has been added to their auto insurance policy," stated David Roush, CEO of "However, many companies do offer parents discounts to help reduce the cost of insuring their teenager, such as 'Good Student Discounts' which are available to teen drivers who have a grade point average of 3.0 or above."


Thursday, April 19, 2007


Summer is nearly here, and we’re all thinking about how much fun we’re going to have. We've got some useful tips and ideas about how to make the most of the summer months while keeping you safe.


Keep the Window Up

As tempting as it might be to wind down a window, lean your arm outside, and enjoy the sunshine while driving, you might get burned. The cooling sensation of the wind blowing across your arm disguises the fact that you might actually be getting badly burned. Use sunscreen liberally, or cover up – or both.

Your Car’s an Oven

Cars get hot, fast, even if it doesn’t feel that warm outside. Direct sunlight can raise the temperature inside a car by over 30 degrees in less than five minutes, which can and has killed children and elderly people over the years. Even keeping a window cracked isn’t enough, so never leave children, pets or anyone inside a car during the summer.

Sunscreen for your Car

Inexpensive sunshields are available that can be placed inside your car, and can help keep temperatures down when you’re away from your vehicle.


Wednesday, April 18, 2007

On Your Bike

Protect Your Noggin

Make sure you wear protective gear, including a helmet that fits correctly. Only wear a helmet that is approved by either the CPSC (Consumer Product Safety Commission) or Snell. A helmet will have a sticker indicating that it has been approved. Also, remember that helmets are designed to protect you from a single serious accident. If the helmet has taken a hit, it should be replaced.

Maintain a Safe Ride

Keep your bike well maintained, and check tire pressure, brakes and chain. Oil relevant parts when necessary, and check your bike before each ride. Make sure your bell works and that the reflectors are clean.

Stand Out

Wear bright colors to stand out from the scenery. You want other drivers and bikers to be able to see you easily. Always carry some form of ID when you’re out cycling.

More Fun with Two... or more!

There’s safety in numbers so when your kids go for a bike ride, encourage them to take a friend as well as make sure you know where they’re going. That’s something for adults to consider too!

Sun Safety

Sunscreen. Lots of it. Regularly applied. This is important for any outdoor activities in the summer. It doesn’t have to be hot or sunny for sunburn to occur, and although staying in the shade is an essential part of skin care during these months, some sun exposure is unavoidable. Covering up with lightweight, light-colored clothing can also help minimize exposure.

Stay hydrated

Drink lots of water. Avoid alcohol or caffeine, as these will only add to dehydration. Dehydration can lead to heat exhaustion. The warning signs are feelings of nausea, cramping, light-headedness, fatigue, or headaches. Should you suffer any of these, it’s important to get out of the sun, and start drinking water. Untreated, heat stroke may develop, and that is a potentially fatal condition.


Tuesday, April 17, 2007

Summer Safety Tips

At the Beach
Dangerous Toys
Carefully supervise the use of inflatable toys as floatation devices. Not only are they not an alternative to knowing how to swim, they are easily blown out to sea, and children often attempt to recover these toys, which could put them into danger. If your child does need a floatation device, then provide them with a properly-sized lifejacket or other personal floatation device.

Keep Applying
Reapply sunscreen often, especially after being in water. Tell kids to check in regularly for sunscreen. You can still get sunburned in the water, so it's not an alternative to wearing sunscreen. Water-resistant sunscreens lose their SPF after 40 minutes in the water; waterproof sunscreens after 90 minutes so it's critical to reapply. The water may feel cool on your skin, but it's not protecting you from the sun's harmful rays.

A Sailor’s Life
If you’re on the water in a boat or other craft, make sure to pay attention to the weather reports for small craft advisories and other alerts. Also, remember that boats and beer don’t mix. Many accidents and fatalities are caused by alcohol. You wouldn’t drink and drive on land, so don’t drink and drive on water either.


Monday, April 16, 2007

Second-To-Die Life Insurance PoliciesImagine a life insurance policy that doesn't pay off when you die. Second-to-die life insurance fits that descrip

Imagine a life insurance policy that doesn't pay off when you die. Second-to-die life insurance fits that description, and might be a worthwhile purchase for people who will leave behind estates worth $1 million or more.

A second-to-die life insurance policy, or survivorship life as it's sometimes called, insures two lives - usually a husband and wife. Unlike traditional life insurance, the death benefit isn't paid out until the second insured person dies.

Usually, the death benefit from a second-to-die life insurance policy is intended to pay taxes owed after both spouses pass away. The product was developed in the early 1980s in response to a law that postpones estate taxes until both spouses pass away.

Under federal tax law, there is a marital deduction permitting you to leave an unlimited amount of assets to your surviving spouse. If you leave all your worldly possessions to your husband or wife, no federal estate taxes are owed at the time of your death. Those assets then become part of the estate of the spouse and might be taxed when he or she dies. The death benefit from a life insurance policy could help pay those taxes.

There are also estate tax ramifications for small businesses, which is why business partners also purchase second-to-die policies.

The second-to-die sales pitch

Agents who sell second-to-die life insurance often point out your beneficiaries can pay estate taxes with the proceeds of your policy, so they won't be forced to sell your house quickly or liquidate assets to pay the bill. When you buy the policy, you'll pay less than the estate taxes will cost. Many attorneys say with the right legal advice, you can avoid estate taxes altogether. Therefore, you might not need life insurance to pay the estate taxes.

Sometimes, a second-to-die-policy salesperson and the policyholders' lawyers will construct a financial plan reducing the tax burden of wealthy individuals by creating trusts and using second-to-die life insurance as part of the estate-planning process.


Sunday, April 15, 2007

Doctors Might Lie to Insurers to Avoid Hassles

One in 10 doctors say they would lie about a patient's condition to obtain approval from an insurance company for that patient's surgery or other medically necessary treatment, according to researchers from the University of Michigan. And that number climbs when doctors consider the potential "hassles" about HMO approvals.

In a paper published May 17, 2002, in the Archives of Internal Medicine , the researchers report that 11 percent of 890 randomly surveyed physicians say they would "misrepresent" a patient's medical condition to insurers to secure HMO approval for surgery or additional procedures. That number rose to 13 percent when physicians were told the appeal process for a treatment denial would only be 50 percent successful, as opposed to 9 percent when told that the appeal success rate was 95 percent.

Additionally, although 9 percent of the doctors say they would misrepresent a patient's condition if the appeal process was estimated to take 10 minutes, that number increased to 14 percent if they were told the appeal would take 60 minutes. The number who said they would lie is highest (16 percent) when doctors factor in a patient whose condition is "severe."

"The 'hassle factor' had a big influence over the doctors' actions," says Dr. Peter A. Ubel, associate professor of internal medicine at the University of Michigan Medical School and research investigator at the Ann Arbor Veterans Administration Medical Center. "If the HMO says 'no,' doctors can appeal, but often, it is a long and burdensome process. So in some cases, physicians lie about their patients' condition."

This news is troubling to the American Association of Health Plans, says spokesperson Mohit Ghose. "You've got to deal with the implications of outright lying," Ghose says. "What happens when a patient switches doctors and the medical record does not reflect the patient's true health history?"

According to Ghose, 41 states and Washington, D.C., have emergency external review laws that require expedited reviews of denials within 72 hours. "There are mechanisms in place to address treatment denials," he says.

Us vs. Them

Although there is plenty of animosity between insurers and doctors these days, Ubel says it's important not to view his study results as an "us vs. them issue." He is calling for increased cooperation between the two, a sentiment that is echoed by Ghose.

"There is going to have to be more cooperation between the two," Ubel says. "It's clear some doctors will lie to get what they want when confronted with approval hassles. But the doctors' goals should be the same as the insurance companies' - to control costs while at the same time encouraging evidence-based medicine and more reliable [treatment] behavior."
Ghose agrees. "It's got to be a partnership between the two. Doctors and health plans must work together to responsibly provide the access to the health care that patients need while following the [health insurance] contracts signed by employers."


Saturday, April 14, 2007

Common Questions About Life Insurance

"When it comes to insurance, what you don't know can hurt you financially," warns Texas Insurance Commissioner Jose Montemayor. "Knowing about discounts, rate guides and how to file a complaint can save consumers money as well as a lot of grief."
Before you start shopping for an insurance policy, take a look at this list of common questions about life insurance.

Can I have more than one life insurance policy?

Yes. You could have a permanent life insurance policy and add a supplemental term life policy for a short-term need, for example. If you request more insurance coverage than your expenses indicate you need, the insurance company will want proof that a medical condition is not motivating your request.

What happens if I don't make the required premiums?

Typically, you will have a 30 or 31-day grace period. If you pay within this time frame, you won't be charged additional interest. If you don't pay within the grace period, your policy will lapse. With a permanent policy; however, you can usually draw from the cash value to continue your premium payments. This will lower the cash value of the policy, though.

If you are unable to pay because you have become disabled, and you elected a "waiver of premium" provision or rider on your policy, you do not have to pay premiums for the duration of your disability.

What if my policy lapses?

If a policy lapses, most companies allow you a grace period in which to pay your premium and continue the policy. If you have enough cash value built up in your policy, most companies will use part of the cash values to pay the premium due. If you have a term policy and don't pay within the grace period, your policy will lapse and simply end.

Do I need life insurance if I'm a young, single person? An advantage to buying life insurance now is your premiums will be low. If you have dependents in the future, you will have locked in the lowest rates, and you will have guaranteed your "insurability" because you won't have to take a medical test for life insurance in the future.

Are there cases in which I don't have to take a medical exam to buy life insurance?

Group policies don't require medical exams. Unless you are buying Supplemental Group Life, or asking for a higher amount than the standard coverage level for the policy, you don't have to provide medical documents. Most group life insurance enrollments are held annually through an employer (usually larger corporations offer group health benefits).

What do insurance companies look for in the medical exams?

For individual life purchases, you will be classified based on height, weight, nicotine use and other health factors. Your health status will determine what rate class category you fit in, so even if you have some health problems, you could be covered. Your agent or insurance company should explain what criteria determined the class into which you fall.

If you don't qualify for their best rate today, you might be able to improve your rate category if certain health factors improve. For example, a 35-year old woman buys a life insurance policy. She is 50 pounds overweight, has high blood pressure, and is trying to quit smoking. Two years later, her policy is still in force and she has lost 50 pounds, her blood pressure is normal, and she has been nicotine-free for a year. She could talk with her agent about a revision in medical underwriting on her policy, possibly reducing her rates.

If the medical evaluation showed a condition for which she would be classified into a higher rate category, she could remain at her current rate. The insurance company would not reclassify her into a higher rate bracket.

Can I buy a policy on someone else?

Yes, but only if you have an "insurable interest" in that person. This usually means a relative, a domestic partner or live-in companion, or a business partner. There are products such as first-to-die and second-to-die that allow you to insure the life of another.

Can I buy a policy on someone else without them knowing about it?

No, you cannot take out an insurance policy on someone without his knowledge.

Can I name anyone I want as my beneficiary?

While most people choose only their spouse, it is possible to name more than one person as a beneficiary - but only if those persons have an "insurable interest" in your policy. For example, if you have a $100,000 individual life insurance policy on your own life, you could name your spouse and four children to share in the policy equally at $20,000 each.

Do life insurance policies ever cancel each other out?

If I have a credit life policy and a whole life policy, will one not pay out? No. Upon your death (assuming you have paid all the necessary premiums), the credit life policy will pay out according to the terms of the policy (paying off your credit card balance, and so on) and the whole life will pay out according to the terms of its policy (your full death benefit).

Alabama Insurance Regulator David Parsons says regardless of the type of life insurance policy you buy, make sure you get all the facts about the policy and your other options. " It's about making sure your family is properly covered," says Parsons, who urges all insurance customers to take advantage of the consumer services offered by their states. "We believe state insurance departments are the best resource for insurance-related questions and concerns," Parsons says.


Friday, April 13, 2007

Insurance Advice for Engaged Couples

It is not uncommon for many happy couples to spend months in wedding planning mode to guarantee that their special day is flawless. But as couples prepare to share a life together, they need to look further down the road to plan for their future security.

"There are even more details to ponder when trying to secure the life you'll have with your loved one," notes Steven Paul, vice president at, the online insurance resource. "Engaged couples should examine their existing insurance policies to make sure they are adequately protecting both their possessions and each other." suggests that couples consider a few common insurance issues before they leave for the honeymoon.

In Sickness and Health

Health insurance generally costs less for married couples than for two separate individuals. If both are covered by employer-sponsored health insurance, it may make sense to integrate health plans. Couples should determine which of the two plans is more attractive and obtain coverage under that plan. If one spouse is uninsured, the other can add him/her to the existing policy.

When comparing policies, they should consider the monthly premium, deductibles, co-payments for routine and emergency care, the doctors and hospitals that participate in each plan (e.g., if it's a Health Maintenance Organization or Preferred Provider Organization), and any additional coverage provided (e.g., dental, vision care, prescription drugs, etc.).

Unmarried couples may have a more difficult time getting coverage if one companion is uninsured because employer-sponsored health plans don't always offer domestic partner coverage. For plans that do offer this coverage, the value of the coverage provided to the partner is taxable as income for the employee and may not provide suitable benefits for the couple. Individual policies may be a more appropriate option, and in many cases, the only option.

There's No Place Like Home

For newlyweds, both spouses' property is automatically covered under the typical homeowners policy. This is not necessarily true for unmarried couples, however, so they should consult with their agent or carrier to determine if coverage can be extended to both partners. Policyholders should clarify these matters so there isn't any question.
If renting an apartment, couples end up with twice as many possessions under one roof. Renters insurance provides coverage similar to homeowners insurance, protecting their possessions and offering liability protection.

Getting married is a major event in a person's life - the kind of milestone that marks a change in their responsibilities. Reexamining insurance needs before the ceremony is over will help couples be sure they can live happily ever after.

'Til Death Do Us Part

Life insurance is not a topic most people like to talk about, but it is a serious consideration for couples that have promised to spend their lives together. The right policy can help protect family members from losing an income stream, or missing mortgage or tuition payments. To make sure either spouse could carry on financially after the death of the other, both should consider an appropriate amount of life insurance.

If either spouse owns an existing life insurance policy, he/she should review both the beneficiary designation and the adequacy of his/her coverage. They may want to name their spouse as beneficiary and, depending on their situation, may need more coverage than when they were single.


Thursday, April 12, 2007

Organizing Finances for Married Couples

Even if you have the most stable marriage, you may encounter difficulties when finances enter the picture. After all, when you were single, you probably managed your finances in a way that was comfortable for you and you alone. As a married individual, you need a system for budgeting money and paying bills that both you and your spouse agree on.

Can we talk?

Your first step on the road to organizing your finances should be to agree to talk to one another about your financial situation. Then, sit down and begin that talk by determining your net worth. In order to figure out your net worth, start by listing your assets (what you own--e.g. a car, cash in savings account) in one column and your liabilities (what you owe--e.g. mortgage debt, student loan debt) in another column. Now add up each column. Subtract your total liabilities from your total assets. You have determined your net worth.

Your net worth can give you a good idea of your overall financial picture, because it indicates how much money you would have left over if you sold all of your assets and paid off all of your liabilities. If your net worth is negative, don't be discouraged. Simply use the information to help you and your spouse develop and implement a financial plan.

You should also be sure to discuss your financial goals. Make a list of your short-term goals (e.g. saving for a family vacation or car) and long-term goals (e.g. saving for a child's education, new house, or retirement), and prioritize each goal by matter of importance. Then, ask yourself these questions for each of your goals: What will it take to accomplish this goal? How much will my spouse and I need to save? Which investment should we use to help us reach this goal? The end result will be a mapped-out strategy that will assist you in achieving all of your financial goals.

Note: Developing and implementing a financial plan may require you to seek professional advice from a financial planner or to do some research on the Internet, etc.

Looking at the numbers

Your next step should be to prepare a monthly budget that lists all of your income and expenses throughout each month. Preparing a budget is a good way to keep track of where your money goes and to make sure that you are spending within your means.
Begin with your sources of income (e.g. salary and wages, alimony, child support, interest). Next, list your expenses (e.g. rent or mortgage payments, student loan payments, groceries, car repairs).

Note: You may need to review several months' worth of entries in your checkbook to be sure that you include everything.

Add up your expenses, then add up your sources of income. Compare the two totals. The result should be that you spend less than you earn. If you don't get it right the first time around, review your expenses and try to trim down your spending. Finally, be sure to monitor your budget periodically and make adjustments when necessary.
Note: It may make more sense to prepare an annual budget when planning for long-term investment goals (e.g. retirement).

Bank accounts: To each his/her own?

Whether you choose to have separate bank accounts or maintain a joint account is a matter of personal preference. The advantages of consolidating your funds into one checking account include easier record-keeping, reduced maintenance fees, less paperwork when applying for a loan, and simplified money management. Keep in mind, however, that it is generally more difficult to keep track of how much money is in a joint checking account when two individuals are writing checks. To minimize confusion, or if you desire some degree of financial freedom from your spouse, you may want to maintain separate checking accounts.

Note: Be aware of the pitfalls that can go along with maintaining a joint account. For example, if you and your spouse split up, both of you can access the funds that are held in the account. In other words, your spouse can take the money and run.

Credit: For better, for worse

At some point in your marriage, you may want to apply for joint credit with your spouse. If you and your spouse have joint credit, however, you will both become responsible for 100 percent of the debt. Keep this in mind before you co-sign a loan with your spouse or add your name to your spouse's credit card account.

If you decide to maintain separate credit, the general rule is that spouses are not responsible for each other's debt if the debt is incurred by one spouse alone (not jointly). However, there are exceptions. Many states will hold both spouses responsible for debt that is incurred by one spouse if the debt constituted a family expense (e.g. child care, groceries). In addition, community property states will hold one spouse responsible for the other's debt if both spouses have rights to the property that underlies the debt.

Note: Consider keeping your credit separate if either you or your spouse had bad credit prior to marriage. That way, the other will not negatively impact whichever of you has the good credit rating.

Looking down the road: Retirement plans

If both you and your spouse participate in employer-sponsored retirement plans, you should be aware of each plan's characteristics. Plans may have different matching contributions, investment options, and loan provisions. If you are on a budget and can't afford to take advantage of both plans to the fullest, you should review each plan carefully, determine which plan provides the best benefits, and make that plan the focus of your investment strategy.

Insuring a happy marriage

A mistake that married couples often make is failing to recognize the impact marriage has on their health benefits. For example, the coverage offered by your spouse's employer-sponsored health plan might be inferior to your own (e.g. higher deductibles and co-payments, fewer benefits). If that is the case, compare the benefits offered under each plan to determine whether you should continue to keep your coverage separate.

Chances are that both you and your spouse own separate cars. If you also have separate auto insurance companies, you may want to consider pooling together your auto insurance policies with one company. Many insurance companies will give you a discount if you insure more than one car with them.

Whether you and your spouse own or rent a home, you need insurance to protect yourself from both the loss of your property and claims against you if someone injures him or herself on your property. Consider having the same insurance company provide coverage for your home or apartment and your car. Many insurers will give you a discount if you carry more than one type of policy with their company.

Note: As for other types of insurance (e.g. disability, life), you'll want to review your insurance needs periodically in order to make sure that you have adequate coverage. For example, as you obtain more assets (e.g. purchase a house) or have children, you may want to increase the amount of your life and/or disability insurance coverage.

Note: Don't forget to change the beneficiary designations of your retirement plan and insurance policies to include your spouse.


Wednesday, April 11, 2007

Basics of Accidental Death & Dismemberment Insurance

A look at the fine print
AD&D pays out in the event of a fatal accident or an accident that results in the loss of a limb or eyesight. If you have other forms of insurance, it offers an added layer of protection. For example, if you lose a limb on the job, you would receive your AD&D benefit and workers compensation. But the policy does have limitations. To receive benefits, your death or the loss of a limb or eyesight must occur within a certain time frame after the accident, usually within three months. And your death must be a direct result of the injuries you sustained in the accident. If you die and meet the criteria, the policy would pay the principal, or full, amount of the AD&D policy.

Other circumstances connected with an accident or your death could affect your benefits. For example, if you commit suicide, attempt suicide, or attempt to hurt yourself on purpose, the AD&D policy would not pay out. The same holds true if the accident or your death is caused by a war.

The policy would fail to pay out if the death or loss is caused by physical or mental illness, or if you die during surgery. And a bacterial infection, drug overdose, or a hernia that contributes to your death or an accident would not be covered under AD&D, according to the language in many policies.

If you have a heart attack while driving and crash your car, your beneficiary would not receive any payment from the AD&D policy. But if you have standard life insurance, your beneficiary would receive a payment from it.

J.C. Penney Life Insurance Co., for example, which allows you to have your premium charged to your credit card, offers up to $1 million in AD&D protection. But your family collects that amount only if you die in a "common carrier" accident - that is, a crash involving a plane, bus, train, or city subway. If you die in an automobile accident, the policy pays out $100,000. Your family receives $25,000 if you die in any other kind of accident. The premium is $7.95 a month.

Upon closer look at how "dismemberment" works, if you lose one "member,'' you would receive 50 percent of the full benefit. A member is a hand, foot, limb, or the sight in one eye. If you lose two or more members, you would receive the full amount. Most policies pay one-quarter of the principal if you lose both your thumb and index finger. If you lose only your thumb, you won't receive the benefit.

Who sells this?

One generally purchases AD&D through credit card offers, with the policy underwritten by major insurers. Some credit unions also offer AD&D insurance with minimal coverage for no cost.
Many major insurance companies sell AD&D to employees in a variety of occupations as part of group life or health plans. Many employers connect the amount of coverage to the worker's salary. For example, at Stanford University, an employee who wants to buy $150,000 or more of AD&D coverage must be earning at least 10 percent of the principal amount, or $15,000 a year. The worker's maximum coverage also may not exceed 10 times his or her annual salary.

What it costs

Lou Madonna, national director of special risk sales at Hartford Life Insurance Co., in Simsbury, Conn., says people in a variety of professions purchase between $100,000 and $500,000 worth of AD&D insurance from his company, with premiums averaging around $60 a year, depending on the amount of coverage. Hartford Life typically offers the coverage through group plans, and usually hopes that between 60 and 70 percent of the group's workforce will buy AD&D, he says.

"AD&D should be part of somebody's overall planning," Madonna says. "The foundation most people should start with is life insurance, then look at AD&D as a supplement to that." He adds, "Most people I know can't afford or maybe don't want to spend those dollars solely on life insurance, and that's where the AD&D comes in."

Wayne Durflinger, life and health general underwriting consultant with State Farm Life Insurance Co., based in Bloomington, Ill., says his company offers two types of AD&D policies, but neither is very popular. "People would rather take the extra money and buy a little extra life insurance," he points out.

State Farm Life policyholders can buy additional accidental death (without dismemberment) coverage as part of a life insurance policy. The rates vary depending on your age. If you're 35 years old and don't smoke, a $100,000 accidental death policy could cost $88 a year in addition to your life insurance premium, which costs a 35-year-old nonsmoker $1,405 a year for a $100,000 policy, Durflinger says.

If you're killed in an accident, your beneficiary would receive $100,000 from your life benefit, plus $100,000 from your accidental death benefit. The accidental death benefit doubles if you're killed while a passenger aboard a public conveyance, such as a commercial airline. In other words, your beneficiary would receive $300,000 in the unlikely event you perish in a plane crash. Durflinger says only 6 percent, or 324,000 out of 5 million State Farm Life policyholders, opt for the accidental death rider.

State Farm Life also offers accidental death with dismemberment coverage as a rider to health insurance. A policy with a $25,000 benefit would cost $31.50 a year. Durflinger says about 1 percent of State Farm's health insurance customers buy State Farm's AD&D policy.

Who needs it?

Generally, insurers selling AD&D target anyone seeking inexpensive accident coverage. Younger people who are in high-risk jobs such as heavy construction might consider purchasing AD&D, although premiums for people in dangerous jobs are likely to be more expensive. If you enjoy bungee jumping or extreme sports, you might think of taking out a policy, but Durflinger says an insurer might not offer the policy to someone who routinely engages in risky activities.

Meanwhile, Snowdon, of the College of Financial Planning, remains skeptical about this type of insurance, which he says is like a taking a gamble with lousy odds. "Very few people actually die by accident and collect under the accidental death and dismemberment benefit," he says. "If you've got all kinds of money, and you don't care how you spend it, and you want to cover something that's not likely to happen - buy it."


Tuesday, April 10, 2007

Basics of Accidental Death & Dismemberment Insurance company's pitch for AD&D insurance might go something like this: If you lose your hand or use of

A company's pitch for AD&D insurance might go something like this: If you lose your hand or use of your eye, we'll pay you $100,000. If you happen to die in a dastardly way, say by decapitation or in a fiery plane crash, we'll double that amount and give your beneficiary $200,000. All you have to do is pay a mere $7.95 a month. Interested?

While some insurers might use more subtle tactics to drum up business, these examples are typical ways an AD&D policy might pay out. The policies, which are often riders on a basic life or health insurance policy, are relatively inexpensive and easy to understand. At first blush, purchasing an AD&D policy might seem like a wise investment for anyone. If you die accidentally, your beneficiary stands to collect lots of money. If you lose an arm or other limb, you would collect a healthy sum. And if you are younger than 45, the odds are you will die in an accident before some other cause of death.

But is AD&D really a good deal? Insurance experts say it's probably not, when you consider the odds of making a claim. You're more likely to die from natural causes than from an accident if you are older than 40 or 45. You're also more likely to become disabled by a back injury than you are to lose a limb. And if you do lose a limb on the job - or hurt your back - workers compensation will most likely cover your injury.

Furthermore, AD&D fails to cover death from "natural causes" or disease. In other words, if you die a less-than-spectacular death, the policy won't pay off. For protection against the more likely risks, like dying of old age or cancer, you're better off putting your monthly premium payment toward a standard life insurance policy, experts say.

AD&D "creates the illusion of having a lot more coverage," says Michael Snowdon, an academic associate at the College for Financial Planning in Greenwood Village, Colo.

Jerry Rosenbloom, a professor of insurance and risk management at Wharton School of the University of Pennsylvania in Philadelphia, recommends taking the money you would spend on AD&D and investing it in other forms of insurance. AD&D protection is too limited, he says.
"If you need the protection, you need it from any cause - be it an accident or something else,'' Rosenbloom explains. With a term or whole life insurance policy, you're covered in case of accidental or natural death. "If you have adequate protection against anything, you really don't need AD&D,'' Rosenbloom says.


Monday, April 9, 2007

If Your Health Improves, so Might Your Life Insurance Bills

Your health plays a major factor in your ability to get life insurance, as well as how much you pay for it.

If medical exam results show you have high cholesterol, high blood pressure, or some other ailment that makes you a "higher risk" and boosts your premium payments, an insurer might consider lowering your rates in the future if you take effective steps to ease or eliminate those conditions.

Many factors, including the possibility of other health problems down the road and the freedom a company has to change guidelines, prevent lower premiums from being guaranteed to you.

"General practice" but no guarantee

In an insurance company's eyes, the healthier you are, the less risk you represent. When you buy your life insurance policy, many companies can even give you specific requirements for a premium reduction (suitable cholesterol and blood pressure levels, for example).

Christopher Graham, underwriting director for Hartford Life, says companies also reward good health in order to keep customers from shopping around for another policy. "It makes good business sense," he says.

Insurance companies stop short of putting a provision in your contract that promises your premium will go down if your health improves. Michael Snowdon, a faculty member at the College for Financial Planning in suburban Denver, says insurance companies prefer not to put such promises in writing because it could lead to lawsuits. "It comes down to a little skittishness on their part for anything that is going to force their hand," says Snowdon. "If you re-qualify on a medical basis for a lower rate, they're happy to give it you. But it's easy to function that way without all of the language in a contract."

Your improved health can't be a "flash in the pan"

To qualify for lower premiums due to health improvements, many insurance companies require you to show medical proof from your doctor that you've maintained those improvements for a specific period of time. For example, if you had high blood pressure that later went down, an insurance company might look at all of your blood pressure readings for the past year to determine whether you warrant a premium reduction.

For more severe health problems, such as cancer and heart disease, the time period for showing improved health can be longer. Getting a premium reduction after suffering a serious condition such as cancer is possible, but a company may require that the cancer be in remission for a long time - such as five to 10 years - before reducing your insurance bill.

There are some ailments for which it's unlikely you will ever get a reduction. Graham, of Hartford Life, cites heart-wall damage as a condition that will not improve, thus making it nearly impossible to get a reduction.

In some cases, the company will require you to undergo its own medical tests (collecting blood and urine samples, for example) to verify the information from your doctor. What happens if while checking for improvement for one medical condition, another serious problem is detected? Under most insurance policies, your rate would not increase. For example, if you lowered your cholesterol but the blood test showed you had developed diabetes, your premium would not increase.

Also, there is generally no limit as to how many times you can ask the company to revisit your health and lower premiums accordingly. "It's pretty much a no-lose situation for someone to reapply," says Snowdon of the College of Financial Planning. "As long as the premiums are paid, the life insurance is yours. They can't go back and reunderwrite to charge you a higher rate."

Improved health could result in big life insurance savings

Improving your health can save you money on your life insurance policy. Take a look at these examples.

  • One insurance company says a 35-year-old male who smokes and has a $200,000 permanent life insurance policy could save 24 percent on his annual premium if he quits smoking by age 37. His annual premium would drop from $1,243 to $942.
  • Another insurance company says a 35-year-old, nonsmoking male with a $100,000 term life insurance policy, who lowers his cholesterol from 300 to 180, would save about 13 percent on his annual premium payments.


Sunday, April 8, 2007

Life Insurance Trusts for Child Beneficiaries

It's great to have life insurance to benefit dependent children when your income is lost because of your death, but it's an even better idea to make sure your insurance benefits are used the way you hope they will be. Setting up a trust for your beneficiary can help ensure that your wishes are carried out.

A trust is a legal arrangement that gives ownership of assets to one person for the benefit of another. The trustee, or person who officially holds the property for the beneficiary, does not have the right to personally benefit from the trust assets. The trustee must manage the assets responsibly and can be held personally liable for any lost funds.

It may take very little effort on your part to create a trust. If you're an Allstate policyholder, for example, you can simply write, "John Smith, trustee for Susie Jones" on the beneficiary line. You should check with your insurance company to see what wording it requires, and also name a guardian and describe the trust in your last will and testament. Once the trust agreement is set up, you can transfer funds or property to it. In the case of life insurance, the death benefit from your policy is transferred to the trust after your death.

The trust agreement should make clear who the trustee is and give the trustee instructions on how to use the money.

A common way for young parents to handle life insurance is to name each other as the beneficiary, but if both die, the money can be put into a trust for the benefit of the couple's children.

Consider special needs children

If your children have special needs and cannot work or care for themselves, leaving them to depend on Social Security income if you die, you can set up a trust to ensure that your life insurance funds are used for the children's care. If you give the money to the child outright, he or she could be ineligible for Social Security benefits until the money runs out. With a special needs trust, you can have a trustee pay for everything but essentials such as food, clothing, shelter, and medication, all of which can be covered with Social Security benefits.

Always make sure that the terms of your trust are in writing and that the insurance company is aware of your arrangements.

Saturday, April 7, 2007

Variable Life and Variable Annuity Sub-Accounts

Is more choice always better? When it comes to your investment choices on variable life insurance policies and variable annuities, life insurance companies seem to think so.

Since the roar of the stock market in the mid-'90s, when consumers poured money into variable annuities and variable life products, many life insurers have increased the number of sub-accounts available within their variable products. Sub-accounts, found on all variable products, are a series of investment choices similar to mutual funds.

While many insurers are offering more options to diversify their investment offerings, many of the sub-accounts are aggressive growth funds that might produce either robust or shrunken returns.

Since a healthy sum of cash value in a variable life or variable universal life insurance policy is needed to pay the costs of keeping the policy in force, policyholders should choose their sub-account investments with extreme caution.

The lowdown on sub-accounts

When you buy a variable life or variable universal life insurance policy, part of your premium payment goes toward the cost of insurance. The rest of your payment goes into a pool of money known as cash value. Your cash value is then invested in a "portfolio" of funds that contain sub-accounts. These sub-accounts are typically mutual funds that contain stocks and bonds, such as the Janus Retirement Advantage Fund, the Fidelity Advisor Annuity Classic Index 500 Fund, or the TD Waterhouse VA Invesco Technology Fund.

While you can withdraw part of the cash value or take out a loan against it, enough money must remain in the cash value to pay for monthly insurance expenses. If the money runs too low, your insurer will send you a letter asking you to pay more in premiums. Otherwise the policy will lapse. So the performance of your sub-accounts is vital to keeping your policy in force.

When you buy a variable annuity, your money also is invested in a series of funds containing sub-accounts. When you annuitize - begin to receive a stream of payments from your contract - the payments you receive are based on the performance of those sub-accounts.

The growing number of sub-accounts

Thousands of sub-accounts have been introduced for variable life, variable universal life, and variable annuities, according to Morningstar, an investment tracking and ratings firm based in Chicago.

Many major life insurers have upgraded their sub-account options. William Goslee, vice president of investment management products at Nationwide, says the company decided to add more sub-accounts to give customers a "wide array" of fund choices. He says many insurers are trying to meet the demands of investors.

How risky is too risky?

Many experts say there's nothing wrong with putting your money in aggressive growth sub-accounts as long as you diversify your investments. Split your investments by putting your money in enough conservative sub-accounts to offset any poor performances from the more aggressive ones.

Goslee notes annuities are sold through Nationwide by professional advisers, who consider each client's need on an individual basis. He says it might be appropriate for an older investor to have a small allocation - 5 percent or less - in aggressive growth sub-accounts in order to be properly diversified.

Some insurers also claim people who are on the verge of retiring aren't the only ones buying variable annuities. Leonard Stecklein, senior vice president of annuities and accumulation products at Northwestern Mutual, says his company has many young annuity holders who can ride out the highs and lows of the stock market over time. In fact, one of the reasons Stecklein says his company added aggressive sub-accounts was to attract younger buyers.

Michael Snowdon, a faculty member at the College of Financial Planning in Denver, says variable life and variable universal life insurance policyholders need to be wary of choosing sub-accounts. Snowdon warns if they invest too much in growth funds, they could wind up having to pay more for their life insurance or else lose their coverage. "If people make the mistake of viewing it as an investment product, they stand a very good chance of investing the money too aggressively," Snowdon says


Friday, April 6, 2007

How an Insurance Class Action Settlement is Taxed

Getting a monetary settlement from an insurance company as a result of a class action lawsuit isn't necessarily pennies from heaven. The money carries tax consequences that you'll need to address when you prepare your annual income tax return.

If you have any questions on how to treat your particular settlement proceeds, it's best to ask your tax consultant or accountant. But here are some general guidelines on what to do when it's time for your annual report to Uncle Sam.

Ordinarily, any income you receive is taxable. (In the insurance world, an exception to this is the proceeds of a life insurance policy to which you're a beneficiary.)

Policyholders eligible for compensation in a class action lawsuit may be offered several options. For instance, Prudential Insurance Co. offered three "relief choices" to policyholders eligible for its 1997 class action settlement. The choices included a refund of premiums (with interest) and two types of "basic claim relief." There could be taxable money involved in each choice.

If you opt for a return of premium with interest, the premium is not subject to taxes, but the interest would be. For other settlement options, distributions from a life insurance policy are not taxable until you've received more money than you paid in premiums. Any amount above that is taxed at the ordinary income rate.

You'll need a Form 1099

If you receive insurance lawsuit settlement money, you'll need an Internal Revenue Service (IRS) Form 1099 that shows the amount of money you received and from whom. There are several types of 1099 forms that report on earned gross income (money from which taxes have not been deducted).

You might get a Form 1099MISC, which applies to miscellaneous income. A 1099MISC shows the total amount you received, so look for an accompanying letter from the insurer that breaks down how much of your settlement is a return of your premium and how much is interest or other settlement benefits. If that happens and you don't get a letter that breaks out the amounts, you can either figure out yourself what premiums you've paid into the policy or call your insurance company and have them do it for you. Bring this information to your tax preparer.

On the other hand, the insurance company may send you a Form 1099INT, which lists the interest payment of your premium that you received. This interest amount is probably subject to income taxes, and you should bring that form to your tax preparer.

It is up to the insurance company which Form 1099 they will use. For your purposes, it's important that the amount you are awarded is broken down either in a letter from the insurance company or through Form 1099. Be sure you don't pay taxes on your returned premium, because you probably paid that premium with your after-tax dollars. Few of us want to pay taxes on that money twice.

The IRS Form 1099 must be sent out by the company from which you've received income, regardless of what type of income it is, by Jan. 31.


Thursday, April 5, 2007

What the Viatical Investor Should Know

States have been grappling with the implications of viatical contracts for both the seller and the potential investor. Of special concern are shady viatical companies that blatantly mislead investors about returns. They play on the "humanitarian" aspect of improving the quality of life for someone in their last days.

For example, here are some sample sales literature statements: "Savvy investors agree, viaticals make a lot of sense." "Viatical settlements are worry-free." It advises potential investors that "90 percent of life insurance policies lapse" anyway, yet the actual life insurance industry lapse average is around 6 percent. And, "All qualified retirement plans can be rolled into a viatical settlement." Well, they can, but would you really want to risk your retirement nest egg against someone's life-expectancy odds?

According to the U.S. Securities and Exchange Commission (SEC), viatical settlements can be risky investments and the agency advises caution. Since they are not securities, the SEC does not regulate viaticals. The North American Securities Administrators Association says viaticals are "risky and unpredictable investments" that "generally do not provide a guaranteed rate of return."

Some states have open investigations against viatical companies and work with other states to address the problem of viatical investor scams and to find solutions.

More than half of the states require viatical companies to be licensed. Being licensed, however, doesn't necessarily mean the industry is regulated.

Florida enacted legislation that prohibits viatical companies operating in the state from offering guaranteed investment returns; penalizes those who violate viatical settlement provisions; and requires viatical settlement brokers to disclose their compensation for the transaction and to be licensed as life insurance agents.

Cracking down on viaticals

The SEC wants viatical companies to make full disclosure of their products and companies, including financial statements on both the company and its owners and investment risks associated with viaticals. The purpose of registering a security is to make sure information is available to investors so they can make an educated decision when they invest.

There are also reports of healthy people applying for life insurance at the urging of viatical companies. The policies are then immediately sold, the seller gets a lump sum payment, and the new policy is resold to investors immediately - almost before the ink on the contract is dry. This is referred to as a "wet ink" scheme. The American Council of Life Insurers (ACLI) says that the practice undermines the "insurable interest" rule in selling life insurance, which is required under a state's insurable interest statute. It also contends that wet ink policies end up stimulating insurance fraud.

In fact, the ACLI reports that two insurers were forced to pay death benefits to viatical settlement companies "even though there had been blatantly intentional fraudulent acts committed by the insured at the time of application," according to Julie Spiezio, senior counsel for the ACLI.

Another ruse called "clean sheeting" happens when terminally ill people apply for an amount of life insurance just under the limits required for a medical exam. They lie about their medical history and sell the new policy immediately.

Buyer beware

In some states, the securities regulator takes the lead in overseeing viaticals, while in others it's the insurance department. It's this lack of uniform control that makes it easy for viatical companies to slip through jurisdictional cracks.

As an investment, viaticals are generally not a good choice for individuals, since there's no guarantee on returns, no data available on investment performance, and not many regulations in place at this time.


Wednesday, April 4, 2007

Viatical and Life Settlement Contracts

Viatical and life settlement contracts enable you to sell your life insurance to a third party in exchange for a reduced amount of the face value. The amount you receive depends on your age, health, death benefit, and number of years your policy has been in force.

The viatical business began in 1989 as a way to give terminally ill AIDS patients early access to their life insurance, but has expanded to include policyholders suffering from cancer, heart disease, or other life-threatening illnesses, or as life settlements for policy holders who longer want a particular policy. Today, some viatical companies unabashedly target people who may simply have high blood pressure and carry hefty death benefits.

In addition, life settlements are being offered as a way to use insurance you may no longer need for estate planning or family protection, as a way to get a return larger than the cash value of the policy.

There are many legitimate viatical and life settlement companies. But, unfortunately, there are also viatical scam operators urging people to liquidate their life insurance without explaining the implications, as well as life settlement companies who do not follow state guidelines. Be careful in selling your life insurance policy.

Know your options

If you're thinking of buying a viatical or life settlement you should:
  • Understand the details and the risks before deciding.
  • Consult your own professional financial advisor who knows your personal financial circumstances, investment objectives, age, and other considerations. You may want to consider other investment choices.
  • Ask your tax advisor about any possible tax consequences of buying a viatical settlement. Find out if it's appropriate to use 401(k), IRA, Keogh, or other qualified retirement plan funds to buy a viatical settlement.