Insurance is an essential financial planning tool. The purpose of insurance is to transfer risk. Unless you have a large amount of cash set aside, you need to transfer that risk to someone who can afford to pay for it. Without proper insurance, certain losses can bankrupt you. Conventional wisdom says that you should transfer risk. The above picture was taken from: http://www.losangelesinjurylawyerblog.com/woodland% 20Hills%20attorney%20insurance%20companies.jpg 1
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Insurance Notes In all 50 states, it is the law to have insurance on your vehicle. The above picture was found at: http://www.fairwaykansas.org/vertical/sites/%7bebadf035 F52C 4E58 9797 6FBC90BCD122%7D/uploads/%7BE77D1486 2682 4E14 9455 8DA8D0EB22C7%7D.JPG The above picture was found at: http://www.sc.edu/oppa/law.jpg 3
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An Insurance Deductible is the amount the insured is required and obligated to pay by the insurance policy. The deductible is chosen by the insured and is usually applied to coverage's such as comprehensive and collision. Generally the lower the deductible, the higher the insurance premium. If you have a fully funded emergency fund, you can raise your deductible to lower premiums. http://www.christophersimon.com/photos/collision.jpg.w300h357.jpg 5
Vocabulary Collision Insurance: Portion of auto insurance that covers losses due to vehicle damage in an accident. Dave recommends having collision on your vehicle unless you have the cash to replace in your emergency fund. You can consider dropping collision on older cars. Comprehensive Insurance: Portion of auto insurance that pays for damage to your car that is not a result of an accident. Liability Insurance: insurance that pays damages to another person where a person or organization is found responsible for injury or harm caused, e.g. in the case of negligence Dave recommends having $500,000 liability coverage because it's very cheap and well worth the expense. It is considered one of the best buys in the insurance world. 6
How can you save on your car insurance? (Discounts) 1) Shop around to find the most competitive company for you. 2) Most auto insurance providers offer up to a 25% discount for students that maintain a "B" average or better with their grades. 3) Good driving records with no points may qualify for better rates. 4) Defensive driving courses can save you 10% on your premiums. 5) If you can stay on your parents car insurance policy, you can save money. 6) Install anti theft devices http://www.credit.com/article/image/6000009 u s consumers areputting more money into savings custom.jpg 7
Homeowners Insurance Homeowner s Insurance: Insurance that covers a loss due to damage, theft or injury within one s home. This picture was found at: http://www.vegasinsurance.net/images /homeowners insurance.jpg You can lower your premium if you raise your deductible. However, you should have a fully funded emergency fund first. Homeowner's insurance should be "guaranteed replacement cost." This will completely cover the cost to replace your home in case of a disaster 8
What if you caused an accident which lead to a 5 car pile up? Your liability insurance may not cover everything which means you are responsible for the rest of the damage. What if someone falls on your driveway and sues you for major medical bills beyond the limits of your homeowners? Umbrella Liability Policy: picks up where your homeowners and auto insurance drops off. It is good to have these policies if you have some assets to protect. If you get sued for more money than your homeowners or auto policy covers, this policy will kick in and you won't have to sell some of your assets to pay for the damages. Umbrella liability policies are a good buy once you have some assets. They are very affordable. http://www.insure.com/images/articl es/umbrella house.jpg 9
Renter s Insurance: Insurance that covers your possessions in an apartment or place of residence other than your permanent home. It is important to protect your property within an apartment or dorm room in case of a fire, theft, or injury. You probably don't realize how much value you have in personal belongings, but for $10 $15 a month it's nice to have protected. Can you put a price on your wardrobe, books, computer, video games, furniture, and appliances? This picture was found at: http://joyestesstatefarm.files.wordpress.com/2009/02/renters insurance pic.jpg 10
Health Insurance: Insurance that covers you in the event of an illness or injury. You can save money on your premium by raising your deductible if you have a fully funded emergency fund. http://weblogs.sunsentinel.com/news/politics/dcblog/health% 20care.jpg http://www.youngausskeptics.com/wp/wpcontent/uploads/2009/07/healthinsurance. gif 11
Other ways to save with Health Insurance Increase your deductible if you have a fully funded emergency fund. Increase the Stop Loss (your maximum out of pocket cost) on your policy. Do not reduce the max pay (that's what they pay and it's not worth the minimal savings). See if an H.S.A.,Health Savings Account, would make sense in your situation. The H.S.A. is a tax sheltered savings account for medical expenses that works with a high deductible insurance policy. You would only use this if you rarely go to the doctors and wanted protection from a serious medical bill. A realistic deductible for this would be $5000. 12
Disability Insurance: Insurance designed to replace income due to short term or permanent disability Most people are more focused on buying life insurance rather than disability insurance even though you have a 1 and 3 chance of being disabled before retirement. These odds give you better chance of being disabled than dying before retirement. http://insurance.canequity.com/disability insurance/ 13
Disability insurance is a long term solution. Your short term needs should be met by your emergency fund. Try to buy disability insurance that pays if you cannot perform the job that you were educated or trained to do. That is called occupational, or "own occ," disability. Many times, this is only available for two years. Beware of short term policies covering less than 5 years. http://lsminsurance.ca/images/weblog/disability insurance.jpg 14
Buy disability insurance with after tax dollars, that way if you have to collect they can't tax you on your new income. Your coverage should be for 65% of your current income. Since you won't be taxed when you collect (if you used after tax dollars to purchase your policy), 65% of your current income is about what you are currrently taking home. The elimination period is the time between the disabling event and when the payments actually begin. It works like a deductible because you can adjust your premium by changing your elimination period. A longer elimination period will lower your premium. 15
Long Term Care Insurance: is for Nursing home, assisted living facilities or in home care. Statistically, people rarely collect on these policies until after 60. So Dave recommends waiting until you are at least 60 to buy this insurance. However, it is a must when you become of age. 69% of people over the age of 65 will require long term care at some point in their lives. The last 6 months of your life could be the most expensive. The figures to the left came from: http://www.genworth.com/content/p roducts/long_term_care/long_term _care/cost_of_care.html 16
Nursing homes, or skilled care/skilled nursing facilities, are for the elderly who can no longer live on their own. Several types of nursing homes exist, from those with private and semi private bedrooms with living areas to assisted living facilities and adult day care. These services do not come cheaply, as the average cost of a nursing home includes housing, food, medical care and activities. Average Costs According to the MetLife Market Survey of Nursing Home and Assisted Living Costs, the average cost in 2009 of a private bed in a nursing home facility is $219 per day, which computes to over $79,000 per year. For those patients who are in a semi private room, the average cost is $191 per day, or about $70,000 annually. Read more: The Average Cost of a Nursing Home ehow.com <http://www.ehow.com/about_5602262_average cost nursing home.html> http://www.ehow.com/about_5602262_averagecost nursing home.html#ixzz16zgqluo7 <http://www.ehow.com/about_5602262_average cost nursing home.html> The above information was found at: http://www.ehow.com/about_ 5602262_average cost nursinghome.html The figures to the left came from: http://www.genworth.com/c ontent/products/long_term _care/long_term_care/cost_ of_care.html 17
If you or your spouse require long term care and don't have Long Term Care Insurance you may end up having to liquidate all your assets to pay for this service. The government will provide assistance paying for long term care if you can no longer pay for it yourself. However, they will make sure you have no more in your accounts than $79,000. You can also keep your car and house. www.urbandigs.com http://www.chew.hu/liquidation_sale.html 18
Identity Theft Insurance: What Is Identity Theft Anyway? Identity theft occurs when someone uses your personal information, such as your Social Security number, name or credit card number, without your permission, to commit fraud or other crimes. A thief could take out a mortgage in your name or commit a crime and pretend to be you when caught. Thieves can even use your personal information to apply for a job or use your medical insurance! Learn more about identity theft <faqs.php>. How To Protect Yourself It's actually easy to help protect yourself against identity theft. Identity theft protection services do the work for you by monitoring your personal information to detect and/or prevent identity theft. We recommend identity theft protection services that monitor several different types of information for fraudulent activity, including your credit reports, public records, and black market websites where stolen information is bought and sold. Identity thieves can strike in numerous ways, so the more protection you have, the better. View our full comparison for more details <compare.php>. identitytheftprotection.net The above information was found at: http://www.nextadvisor.com/identity_theft_protection_services/index.php?a=2 &kw=gidxx4+identity%20theft%20protection fqidentity+theft+protection&gclid=cpicqfm0zqucfcnm4aod606skw 19
Identity Theft Insurance: Don't buy identity theft protection that only provides credit report monitoring. You can do that once a year for free yourself. Good protection includes restoration services that assign a counselor to clean up the mess. It can take hundreds of hours to clean up an identity theft situation, and saves time and aggravation if someone else is doing the work for you. www.identitytheftprotection blog.com 20
Life Insurance is to replace lost income due to Death. Most people have no idea what kind of life insurance they own. Term Insurance: Term Life Insurance for a specified period of time and is very affordable. It is much cheaper than Cash Value, and has no savings plan built into it. Cash Value Insurance: Cash Value Life insurance is normally for life and is more expensive in order to fund a savings plan within it. Also referred to as; Permanent, Whole Life, Variable Life, or Universal Life Insurance. http://insurance.canequity.com/life insurance/ 21
The most common insurance myth is that the need for life insurance is a permanent situation. Twenty years from today, when the children are grown and gone, you are debt free (including the 15 year mortgage), and you have investments that have grown to a substantial amount, you will have become self insured. Why Not Life Insurance as an Investment 1 Returns are historically Low 2 When you die with cash value, the insurance company keeps the cash value. 3 The fees deducted from your return are extremely high and limits your return. http://www.frapanthers.com/teachers/white/myth_home.htm 22
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If you have a Cash Value Policy already, before you cancel make sure that you already have a new term policy in place! If, for some reason, you cannot be approved for a new term policy, it is better to hang on to a bad cash value policy than to have nothing at all until you become self insured. What to remember when purchasing Life Insurance 1 Buy only low cost term insurance 2 Do not forget to insure your spouse 3 Stay away from fancy options 4 Children only need enough for burial expenses in case they die. They don't contribute income to the family that needs to be replaced. 5 You need about 10 times your income in life insurance coverage. If your spouse collects on your policy, because you die, and invests that at 10 12% rate of return in a good growth stock mutual fund, the annual interest would replace the lost income of the deceased. Ex: Gross Income = $40,000 at 10 times your income = $400,000 Invest $400,000 at 10% rate of return = $40,000 to live on in interest. 24
Insurance to Avoid 1 Credit Life and disability 2 Credit Card protection 3 Cancer and hospital indemnity 4 Accidental Death 5 Any insurance with a cash value, investments or refunds 6 pre paid burial policies 7 Mortgage life insurance 8 Any kind of duplicate coverage which is very common in health insurance http://forum.belmont.edu/cornwall/archives/004573.html 25
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