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3 Common Mistakes People Make:
1. Placing all your Life Insurance through your employer’s sponsored program – Most people believe that their employer-sponsored life insurance provides the best value. These policies are called “Group Life” policies and allow employees to secure coverage without fear of being denied coverage. However, if you are healthy, you have better options outside of your employer.
- Lower Rates– Group Life policies are rated on the overall “health” of the group and factor in that some employees have significant health issues. To account for those employees, the rates you pay are higher. If you are healthy, purchasing your own policy based on your personal health will likely lead to lower rates. Group Life policy rates rise as you get older. With an individual term policy, you can keep the same rate for up to 30 years. Over time, the “fixed” rate will result in significant savings.
- More Flexibility– Most Group Life policies are dependent on your continued employment. What happens if you retire, start your own business, or work elsewhere and similar benefits are not available? Depending on your health situation at that time, you may not find affordable coverage. Most Group policies limit coverage to a factor of your income. (Example: Your coverage limit = 3 times your income). Securing your own policy allows you the flexibility to change your work situation without worrying about your coverage and to select the level of coverage you need.
Any free coverage offered by your employer is certainly worth taking. Beyond that, we can help you determine if purchasing your own coverage makes sense.
2. Filing claims for small amounts. If you have insurance, why not use it? Isn’t that why you have it? While this makes sense initially, a quick analysis shows most small losses should not be claimed. Most carriers “charge” 35% – 50% of the policy premium for at-fault claims up to three years. If you have multiple vehicles on your policy, this percentage “surcharge” is usually applied to the one vehicle the at-fault driver is rated to. On a homeowner policy, even if the claim is not your fault (e.g. water pipe breakage or a theft), the insurance company will “surcharge” your policy. This “surcharge” is applied to the annual policy premium (prior to addition of any endorsements). Therefore, some simple math can help you determine if filing a claim makes sense. If the cost to handle the claim on your own is less than the increased rate difference over the next three years, it does not make sense to file the claim. Considering that you will be responsible for your deductible as well means that the claim must be larger than the three years of “surcharges” plus the deductible. If you need help determining if it makes sense to file a claim, please call our office.
3. Not reviewing coverages with your Agent/Broker on a regular basis – As your life changes, so do your insurance needs. Remodeling your home, acquiring a rental property, new jobs and commuting patterns, a new child, an inheritance, plus many other changes can impact your insurance needs. Most people only call their Agents/Brokers when they have a question or an immediate need (like adding a new car), yet do not take the time to review the policies they have to ensure they are adequate. Policy reviews can take less than 30 minutes yet reveal areas where something was missed, or insurance levels that are no longer adequate. We recommend that you review your coverages every other year. We can also review your policies with you and answer any questions you may have.
Buying Insurance FAQ’s
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What is an Umbrella policy?
Personal Umbrella policies provide an extra layer of liability coverage over your Auto and Home insurance policies. Liability is the coverage you have in case you are held responsible for injuries to someone else or damage to their property (like an auto accident or slip and fall at your home). Sometimes, liability losses can be significant and you can be held responsible for an amount greater than your Auto or Home policy limits. After those policies have paid their full liability limits, the umbrella policy provides additional liability coverage. These policies only provide liability coverage and do not provide any additional coverage to fix your car or rebuild your home after a loss. Personal Umbrella policies are sold in increments of $1,000,000. A typical $1,000,000 personal umbrella policy (2 cars and 1 home) will cost about $300 per year. Try our free liability calculator to estimate your need for a Personal Umbrella policy. There are also Business Umbrella policies to provide additional liability coverage for a business
What is the best Life insurance?
There are two basic types of life insurance, “Term Life” and “Cash Value” Life policies. Term policies provide a fixed death benefit for as long as the policy is active. The “Term” refers to how long the rate is guaranteed to remain the same. For example, a $250,000 20-Year Term policy will provide a $250,000 death benefit if the policy is active, and the rate for the first 20 years will never change. The Cash Value policies can be segmented into Whole Life and Universal Life policies. These two are similar in that they both have a “savings” component that allows the policy owner to build cash value that can be used to offset higher premiums in later years, take a loan against the proceeds in the future, or just take the savings if needed. There are also some tax benefits to these policies. Due to the “savings” component, these policies have higher premiums than a Term policy. If you need a specific amount of coverage for a specific time frame (like enough to cover a mortgage or until a child is no longer a dependent), a Term policy is usually a better choice. If you have other financial goals, including tax deferral needs, one of the Cash Value policies may work better. In many situations, a combination of the two policies will be the best alternative.
How much life insurance do I need?
There are several methods used to determine how much Life insurance is needed. Some are based on a multiplier of your income (anywhere from 7 to 15 times annual income) and others are based on debt (remaining mortgage + cost of other remaining loans + expected costs to send child(ren) to college + burial costs). You can also find several online calculators that can be informative.
Ultimately, a single calculation or online calculation will not accurately reflect your true needs. Your needs should be based on your financial goals and how close you are to those goals, the impact of each spouse’s income, age of your children, and other financial means you may have. Any determination of coverage should begin with a conversation of what you want to happen if there was an unexpected death. How much would be needed to realize your wishes? We can help you through that conversation including asking thought-provoking questions to ensure you have addressed all your needs.
Is Mortgage Life Insurance a good investment?
You just bought a new home and are being overwhelmed with offers for Mortgage Life insurance. These policies promise to pay off your mortgage in the event of your unexpected death. The question…should you invest in one of these policies? The answer…probably not.
Mortgage life policies are very simple. The initial benefit amount is based on your mortgage. As you pay down your mortgage, the policy benefits drop to remain in line with your balance. However, while your benefits go down, your premium remains the same. This is one of the greatest disadvantages of these policies.
Another disadvantage is their lack of flexibility. For example, some policies require that you name your mortgage company as the beneficiary. This means that you have no choice how to spend the proceeds of the policy. It all goes to your mortgage company to pay your loan. What happens if you need the money for something else (e.g. funeral expenses, college education, income replacement, etc…) or you refinance and your mortgage amount changes? As a result, a mortgage life policy may not meet the financial needs of your family.
Purchasing a Level Term life policy is a good alternative. These policies typically provide the greatest amount of coverage for the lowest premium, allow you to name the beneficiaries, and determine how the proceeds are spent. We can help you determine if this is your best option.
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Have a question?
Feel Free to Ask
If you have other questions, ask us here and provide your e-mail address. We will answer your question within 2 business days. We promise that we won’t spam your e-mail address or sell it to a third party.
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