With so many types of life insurance to choose from, how can you know which one is right?
This week, I’ll try to make that choice a little simpler.
The age-old battle: term or permanent?
I could devote thousands of words to this debate. (I won’t...you’d fall asleep — lol.)
Several famous financial advisers overly-simplify this decision.
For them, it’s always term insurance. I agree that term insurance can often be the best option and it’s certainly cheaper at the beginning.
But before deciding to buy that cheap term policy, there are several reasons to consider a permanent life insurance solution.
Let’s look at four pro-term insurance arguments, and then “the rest of the story”:
Number 1: “Buy term and invest the difference” is usually the biggest reason used to persuade people to choose term insurance. That sounds fine... if you invest the difference. But most people don’t invest the difference. Permanent insurance can be a form of disciplined savings for emergencies.
Number 2: “The rate of return on the investment is lower in permanent life insurance.”
Often true, but not always. There are many new types of permanent insurance plans that have market-competitive savings plans built into them.
Over time, especially 20 years or more, they can be extremely competitive. The unique tax-deferred growth within a permanent life insurance policy is one reason for this.
It can also offer less risk on the investment.
Number 3: “You only need life insurance during the years you have dependent children.”
If this argument were always true, then the case for “term insurance only” would be stronger. But it’s often not true.
There are many people who might wish (or need) to have life insurance that lasts their entire lives. A permanent life insurance policy will pay a death benefit even at 99 years old.
If you have a special-needs child who will need help for the rest of their life, a permanent policy might be a better choice.
This also can apply if a child of any age becomes injured in an accident and suddenly needs special lifetime care.
Number 4: “You can always get another term insurance policy after the first term runs out.”
This argument is made based on the fact that most term policies are “convertible” or “renewable” after the term. That’s true.
But if you are not healthy, the cost to continue your 20- or 30-year term policy is astronomical—almost prohibitive in many cases. And we all know that health can change in an instant.
Life insurance is a mystery to many people. And the mystery can cause mistakes.
My new series will focus on four big mistakes people make with life insurance. This week, let’s look at the first mistake: Not enough life insurance, or none at all.
How many people have life insurance?
Almost 60 percent of adults in America carry some form of life insurance. Much of that is employer-sponsored term insurance.
Many of the already insured say that they don’t have enough.
Among the “no life insurance” group, one in five say that they need life insurance.
In short, there are a lot of people who have no life insurance, and a large group of people who don’t have enough.
And I believe that’s a serious mistake. Here’s why:
Everyone should have life insurance.
Life insurance creates an instant legacy.
It’s truly an unselfish gift of love. You’ll never see the relief on the faces of loved ones who benefit from your careful planning.
But your generosity will live on for years in the lives of those close to your heart.
The legacy ought to replace a lifetime of earnings and also fulfill loving wishes for family that can extend for decades.
But most people don’t have enough life insurance to accomplish that.
Life insurance isn’t just for “mom and dad.”
Even if the kids are grown, you can leave a legacy for your grandchildren. A good start in life. Money to give them the freedom of educational choices.
Life insurance can also extend your generosity to many others long after you’re gone.
Do you have a charitable organization that you’ve given time and money to? Imagine your final breath meaning the continued life of an organization that serves your neighbor in need.
“I get life insurance through work. Isn’t that enough?”
Work-supplied life insurance usually falls into the “not enough” category.
It’s only good as long as you work at the same job. In addition, the amount of coverage is usually small, typically just a year or two’s salary.... hardly enough to replace a lifetime of earnings.
You can convert it to a personal policy after you quit, but usually at a much higher price.
“I’ll wait. I can always get it later.”
Putting it off, even for one day, can have a disastrous affect. Why?
Because only healthy people can get life insurance. And none of us are guaranteed good health tomorrow. It works like this:
“When you don’t need it, you can get it; when you do need it, you can’t.”
Paul (our fictional character of the week) was a young man who fell in love and was ready to get married.
He had never thought about life insurance before. He was single. Why would he?
But now, getting married, it sounded like a great idea! He’d get around to it... eventually. No rush. He was young, healthy, and going to live for years.
Paul and his wife had a child. And then another.
Life insurance? Sure. Some day. He had forever.
Until the day they found the lump.
Rare, they said. Chemo, they said. A fight to survive.
Suddenly, his procrastination took his choice away.
Life insurance became the gift he wanted to give his family if things went badly. And it became the gift he couldn’t buy at any cost.
If you are like many folks, you may not have enough life insurance.
Don’t be embarrassed. Call your trusted local agent and have an informal chat about it.
Make sure today, while you still have your health, that the dreams of tomorrow are protected.
Insurance covers more than your property. It also protects your assets when you are blamed for a loss.
Last week, we looked at Additional Living Expense coverage.
This week, we will conclude our alphabet soup series of homeowners’ coverages by talking about liability and guest medical coverage.
Liability and Coverage E: The story of Bob, Sue, and the Perfect Storm.
Bob and Sue were careful. All the time. So, they never thought about liability coverage. After all, what could possibly happen?
That was until the Perfect Storm struck.
That storm, and that day, changed everyone’s life.
The highest winds anyone had seen in years hit hard on that day. The old tree at the edge of Bob and Sue’s property just couldn’t take another pounding.
With one big gust, it toppled over — right onto Dave’s home next door.
That was bad enough, but worse, because it crashed through the guest bedroom window where Dave’s elderly grandmother was sleeping.
She was badly injured. Her recovery took weeks, and she continued having nightmares about the event for months.
Dave blamed Bob and Sue for not taking care of the old tree near the property line. It should have been cut down years ago, or so he alleged in his lawsuit.
Suddenly, the words “personal injury” and “pain and suffering” became important.
And suddenly, this question became very important: “How much liability coverage do we have?”
You can’t foresee everything.
No matter how careful you are, you can be held legally responsible for things that can get very expensive. Here are just a few:
That small dog that never bit anyone... bit someone.
That really safe lawnmower found a rock and hurled it through your neighbor’s window.
That hole you never saw in your yard... the neighbor twisted their ankle in it.
Even away from home, you can need your liability insurance. “Oops, I’m sorry I just bumped into you and knocked you down.”
That “oops” can end up in court if someone is seriously injured.
Small accidents and Coverage F: Guest Medical to the rescue!
Picture this: Your good friend comes over to help you slice vegetables for your party tonight. You reach behind her for something on the counter, and accidentally bump her. Now, instead of slicing vegetables, she slices her finger.
You rush her to the emergency room. A few stiches later, she’s “right as rain.”
She’s not upset at you (accidents happen after all, right?)
But, she has a large deductible on her medical insurance. She’s out of pocket for the trip to the ER.
Enter the “we still get to be friends” coverage, Guest Medical.
Insurance companies see the need for smaller claims to be settled without assigning blame or filing lawsuits. This situation would fall into that category.
It’s usually limited to a small amount, so you should check your policy to see your limits of coverage.
Do you have enough liability coverage?
Many people don’t. That’s a simple and sad fact. What’s sadder is that the cost to increase your liability coverage is usually far less than you think.
Plus, you can often add an Umbrella Policy on top of your homeowners policy for an affordable rate.
An umbrella policy is usually sold in $1 million increments. It extends your liability protection to match your assets and future earnings potential.
If you haven’t reviewed your liability needs in a while, call your local agent for a review. They can help you review your assets and potential risk, and make sure that you don’t come up short at claim time.
Your home burned down. Where are you going to live? Can you afford it?
In my last article, we explored Coverage C, Personal Property Coverage. Now it’s on to Coverage D, Additional Living Expense, which can also be referred to as Loss of Use coverage.
Additional Living Expense (ALE) covers the additionalliving expenses and costs associated with being displaced from your home if it becomes uninhabitable after a covered disaster, up to policy limits.
In other words, if you can’t live in your home after a covered loss, this coverage kicks in to help pay the extra costs of daily living while your home is being rebuilt.
Coverage is limited by either a time span (such as 12 months), a set dollar amount (often 10 to 20 percent of the dwelling coverage limit) or both. It pays until your limits are reached or your home is repaired.
What’s not covered?
This coverage is pretty broad in scope. Lots and lots of things are reimbursed. Your whole life is upended; suddenly you are staying in a hotel, you’ve got to find a place to eat... maybe you need to take a cab to get to work in the morning. That’s what this coverage was made for.
But emergency spending can get out of control really quickly. So, some simple limitations apply:
First, don’t change your lifestyle from a reasonable Napa Cabernet to a private reserve Dom Pérignon.
Insurance companies expect you to maintain your current standard of living, but not to increase it at their expense.
If you lived in a nice home, you can’t rent a mansion while your home is being rebuilt. As much as you’d like prime rib every night, unless that’s what you ate before, don’t expect the insurance company to foot the bill. If you lived in a three-bedroom home, that’s the home you’ll need to rent.
Second, it’s an “additional expense” coverage.
Let’s say your family spent $300 a week on food at home. Now you are eating at the local café for breakfast, McDonald’s for lunch and Applebee’s every night. The bill comes to $525 a week. You would be typically reimbursed the additional cost of food, which is $225. Not the total food bill.
Third, you won’t usually be reimbursed for staying with family or friends.
Finally, the insurance company isn’t paying for a vacation.
If a tree fell on a corner of your house, but you can still live in your home while they repair the minor damage, you can’t move into a hotel and send the insurance company the bill... even if the repairs are loud. Your home must be uninhabitable due to a covered event for this coverage to kick in.
This type of coverage requires a lot of “hands-on” attention if there’s a disaster.
You’ll need to keep detailed records and receipts. You’ll need to understand your policy limits. And you’ll need to be reasonable on spending.
At some point, the insurance company will expect you to move out of the hotel and into longer-term rental housing if repairs are expected to take a while.
That’s financially fair and practical. It’s a win-win for you to settle into a place of your own. Working closely with your claims adjuster can make the entire process go more smoothly.
Finally, talk to your local agent today if you aren’t sure that you have enough coverage for Additional Living Expense.
Do you have enough Coverage C in your homeowners policy?
Let’s find out.
In my last column, we looked at Coverage B, “Other Structures.”
Now it’s time for Coverage C, or Personal Property Coverage. We’ll describe what it is, and then look at three mistakes you can make.
What’s covered under Personal Property Coverage (Coverage C)?
Personal Property Coverage provides insurance for almost everything you own that isn’t nailed down.
It includes big things like your sectional sofa, your king-sized bed, and your 54-inch TV. It includes small things too, like your favorite books, the stack of board games you only played once, and that Lazy Susan your kids knocked off the table and chipped- but you love too much to throw away.
It includes everyday things like your clothes and dishes, as well as not so everyday things, like your jewelry, antiques and your third-generation sterling silver flatware.
In short, if you can move it, it’s probably covered under Personal Property Coverage.
Mistake 1: Not documenting your possessions.
If I asked you to sit down over coffee and write down everything you own, could you do it? From memory? I mean everything.
Probably not. I couldn’t either.
But that’s what the insurance company is going to ask you to do after a fire.
People often miss out on money they’re entitled to because they can’t remember everything that was destroyed.
Make an inventory of all your possessions. Keep it off-premises.
A quick way to do this is a walk-through of your home while making a video on your phone. You could make separate videos for each room of the house and the garage.
Save the videos in a “cloud” account.
Mistake 2: Not carrying enough coverage.
When folks make Mistake 1, it often causes Mistake 2.
When we don’t document how much stuff we have, we don’t add up its value either. If you carry “Replacement Coverage,” you are entitled to a new pair of slacks to replace the five-year-old slacks hanging in your closet.
Have you ever added up the cost of replacing, new, all your clothing? It might shock you.
Make sure you have “Replacement Coverage.”
Then add up the costs to replace all your things. If you find that’s too overwhelming, try this shortcut.
Make a ballpark estimate of the cost of replacing the “big-ticket” items. Then double it. If that approaches or exceeds your coverage limit- call your agent.
Mistake 3: Not “scheduling” expensive items.
Homeowners policies have exclusions and limits on personal property. Lots of them.
The common limits of coverage that you’ll see are on certain expensive items, like jewelry and computer equipment, and on rare and collectible things like gun, stamp and coin collections, as well as antiques and art.
In addition to dollar limits on these types of property, the typical policy won’t cover “lost” or “accidentally damaged.”
That’s a very unpleasant surprise when someone loses a one-carat diamond from a wedding ring.
My advice: Go get your policy.
Find the section, Coverage C, Personal Property, and read it. Read it slowly and carefully, looking for limits on coverage. Also read the Exclusions section of your policy.
Most homeowners have at least one thing that should be “scheduled” as additional coverage.
There are no dumb questions when it comes to insuring your personal property. It’s taken a lifetime to acquire.
Don’t be embarrassed to ask your agent for help to make sure it’s covered properly.
We’re in the middle of what I’m calling our alphabet soup insurance series.
In my last column, we looked at Coverage A of your homeowners insurance policy. This week, we are going to talk about Coverage B... Other Structures.
What things are covered under “Other Structures?”
Coverage B covers any structure not permanently attached to your house, but still on your property. Typically, this would include:
How much is covered under “Other Structures?”
Most homeowners insurance policies cover a set percentage of the Coverage A, dwelling limit.
It works like this:
If you have $350,000 of coverage on your house, you automatically have a percentage of that for Other Structures. Typically, it’s 10 percent.
So, in that case, you would have $35,000 of coverage for other structures like your new detached two car garage, your two sheds, your split rail fence, and your pool.
That may not be enough. So, what can you do?
You can increase your Coverage B limits to make sure there’s enough protection. You and your agent should review your policy from time to time to make sure all of your structures are covered properly.
But what if you don’t have any other structures on your property, or at least none worth much money... what then?
Can you lower or delete your Coverage B and get a cheaper rate? Usually not.
Homeowners policies use a formula for Coverage B and Coverage C (which we’ll talk about in my next column). That formula automatically includes a minimum percentage of the primary dwelling coverage limit. You don’t get a price break by asking for less than the minimum.
Think of it like a fast-food burger.
The burger comes with pickles, mayonnaise, lettuce, and mustard. You don’t like any of them. The burger joint is happy to make sure those ingredients aren’t on your burger. But you’re still going to pay the same price.
What’s not covered under “Other Structures?”
Your “stuff” isn’t normally covered. If you store your old stereo equipment in the garage, that’s not covered under “Other Structures” coverage. You have Coverage C, Personal Property coverage for that.
Neither is someone else’s stuff... especially if you are renting out your garage for money (that creates a whole other coverage problem- make sure you tell your agent if you do that).
Neither is your car (you have auto insurance for that).
And nothing is covered if you’re running a business out of your other structure. Just ask “Paul the Plumber.” (Yes, he’s fictional.)
Paul doesn’t really remember when it happened. But he woke up one day and realized that he couldn’t park his car in his two-stall garage at home anymore. His overcrowded plumbing shop had spilled into his home garage over the last year.
His detached garage had become, quite accidentally, Paul’s Plumbing- Second Location. It just wasn’t one he listed on his business card.
One day, Paul’s detached garage burned to the ground. And he found out he wasn’t covered. At all.
Call your local agent and discuss “Other Structures” with them. Make a cup of coffee and plan on 15 minutes.
Run through all of your other structures with them, and what they are used for. It could make a critical difference at claim time.
Home insurance policies look like Greek and geek to many of you. But I can make it simple.
As we talked about two weeks ago, homeowners insurance policies are standardized. That’s to help make sure you can compare apples to apples.
To make it even easier, the coverage is broken down by sections, and these sections are like alphabet soup... A, B, C and so on.
As I explain them, remember the necessary disclaimers: I’m not a lawyer, policy language is the final word, and I can’t guarantee benefits.
So, let’s learn our ABCs. Trust me, it’ll be easier than you think.
We’ll start with the letter A.
Coverage A: dwelling
The primary living structure on the property listed on the declaration page is usually the “dwelling,” along with permanently attached fixtures such as cabinets and an attached garage.
In short, Coverage A covers your house, and just your house... not your stuff, and not unattached structures.
You select a limit of coverage, say $250,000, and then pay a premium. But there’s more to know.
Watch for: policy forms
How and when you are covered depends upon which “policy form” you chose; there are several: HO-1, HO-2, and HO-3 polices, as well as other types too.
They’re also known as Basic Form, Broad Form, and Special Form, in addition to other names.
Why does that matter?
It matters because a Basic Form policy (HO-1), the cheapest policy, covers only 10 or 11 specifically “named perils.”
A couple of the named perils are fire and lightning. But if the specific cause of your claim isn’t named... you aren’t covered.
Likewise, an HO-2 policy (Broad Form), limits coverage unless it’s for one of the 16 or so “named perils.”
Most policies are now HO-3 type policies, covering “all perils” unless specifically excluded.
That’s good, but don’t assume you have the “all-perils” type of coverage. Ask your agent.
Watch for: actual cash value versus replacement cost
You think that the coverage amount is the coverage amount, right? Well, yes and no.
There are many factors at play in the settlement... too many to go into in this brief article.
However, there are three terms you should be aware of and discuss with your agent. They will affect your premium and how your claim is handled after a loss. So, they are very important.
Actual Cash Value (ACV)
The least expensive policy. It also pays out the least at claim time. Depreciation is considered, and that’s usually going to leave you with less at claim time than you wished.
Replacement Cost Coverage (RCV)
The most common coverage. It’s more likely to get your home rebuilt “as it was” up to certain policy limits. You usually need to rebuild in order to get full replacement value.
Guaranteed or Extended Replacement Cost
It’s the best coverage, if you can get it, but it’s also the most expensive. Depending on your needs, you may or may not want this coverage.
The joy of a low premium today can be ruined by the shock of inadequate coverage at claim time. Consider making a phone call to a trusted local agent to talk about your homeowners insurance.
A homeowners declaration page can be the worst kind of boring. So, let’s make it interesting!
What’s a “dec” page?
‘Dec’ page is short for declarations page. It’s actually simple. Think of it as the table of contents to the book called “Your Homeowners Policy.”
It’s usually pretty close to the front, and usually labeled quite clearly: homeowners declaration page.
It’s a summary of your coverage, and the important stuff like policy number, name of the policyholder, the address and property insured and the mortgage holder.Why should you review your ‘dec’ page every year?
Changes happen all the time. Mortgages get paid off, additions are made to the home, or a new piece of expensive jewelry was purchased.
The dec page is a quick, “at a glance” page that you should look at every time a new one comes in the mail. Even small omissions or errors can have a big impact at claim time. Some can be serious, or some can just be annoying. Let’s look at a common one.
“Jack” did what he always does every year when he gets his new homeowners policy in the mail... he tossed it onto “the pile.” Unopened. You know the pile. The “I’m gonna open it someday” pile.
A few months later, lightning struck Jack’s house, and there was a huge fire. Jack was OK, but now began the tedious task of working with the claims department.
Jack agreed with the insurance company on the Scope of Loss, and was ready for checks to start coming in. But they didn’t come.
When he called, he found out that the insurance company had sent the last three checks to his old mortgage company... even though Jack didn’t have a mortgage anymore.
Jack forgot to tell the insurance company that his mortgage had been paid off. If he had opened his policy, and read the ‘dec’ page, he would have seen this simple oversight. But the ‘dec’ page sat in “the pile.” Still unopened. And slightly charred.
Don’t be like Jack. Read your ‘dec’ page.
Why are all those capital letters on the dec page?
The coverage are labeled by letters. Typical homeowners policies have sections A, B, C, D, E and F.
The good news is that there is quite a bit of standardization in the insurance industry. So once you learn what each section covers, you will feel more in control of your coverage choices.
We’re going to look at each of these sections in my next few articles, staring in two weeks with coverage A, B and C.
Coverage A is dwelling coverage, B is other structures (think garage and shed), and C is personal property. For now, just think of A, B, and C as the “stuff you can touch” coverage.
Coverage D is loss of use. Think of it as room and board at the local hotel because your house is in ashes and smoke. There’s more to this of course, but we’ll cover that in later weeks.
Finally, there’s E and F, what I like to call “Somebody Got Hurt on Your Property” coverage.
This is an often-forgotten coverage, and it’s a very important part of your homeowners policy. So, we’ll spend time just on that in the coming weeks.
Go find your ‘dec’ page. If you can’t find it, call your agent and request a new one. Look it over and ask your agent about any parts that confuse you.
Make sure the address, mortgage holder, and policyholders are all correct. Call your agent if they aren’t.
You filed a claim weeks or months ago and it’s still not settled.
What can you do?
I’m going to step into dangerous waters in this column. Dangerous, because unresolved claims can be frustrating. They can make you feel powerless.
You can avoid a lot of frustration by asking your agent for an “insurance claims checkup.”
A routine checkup during the claims process can make you feel better and possibly resolve your claim more quickly and more accurately.
Here’s how to begin.
Know what your agent can’t do
Knowing what your agent can’t do will clear the way for a good agent-insured relationship during the claims process.
Here are at least three things they can’t do:
First, your agent isn’t a claims adjuster. In fact, they are prohibited by their company from deciding the outcome of a claim at all. They aren’t allowed to say “yes” or “no” or “how much.”
Second, your agent isn’t a judge or an attorney. They can’t bind or change anything. The policy that you bought is the governing document and everyone is bound by it.
Third, your agent can’t (and shouldn’t) promise a particular outcome of your claim.
In short, as much as you might wish they could, your agent can’t decide how much you get.
Know what your agent can do
Now that we’ve seen what your agent can’t do, you might be tempted to say, “So what good is my agent? What can they do?”
They can do plenty!
Here are at least four things your agent can help you with during a claims checkup.
1. Provide emotional support
You may start to feel like your family and friends are tired of hearing about your struggles with the insurance company.
But your agent won’t ever get tired of hearing it. You are his or her most important job. Your agent can be a knowledgeable relief valve for your frustrations. Let your agent be that for you.
2. Be a point of contact
It’s common for a claim to involve lots of people.
There’s the person who adjusts the claim, their boss, the assistants, the person who writes the checks, the mortgage company, the various contractors... the list goes on and on.
You can get overwhelmed just trying to figure out who you should talk to next. Your agent can help you navigate the communications confusion.
3. Clarify policy confusion
Policyholders aren’t the only ones who can get confused about what a policy covers or doesn’t cover. Adjusters can miss things too.
So even though an agent can’t “rule” on policy language, they can spotlight particular policy language that might have been overlooked.
Adjusters are good folks. They really try to do the right thing. But having your agent as a second set of eyes on the policy could make a difference in a final settlement. I’ve seen it happen.
4. Encourage swift action
I’ve seen claims stall for all kinds of reasons. Sometimes it’s the insured who didn’t realize the ball was in their court.
Sometimes it’s the insurance company waiting for something they already have. Your agent can get to the bottom of what’s holding up a claim and light a fire under people when needed.
Ask your local agent for a claims checkup. They can translate “insurance-speak” into regular talk. Let them be your trusted ally.
It’s almost time to hitch up the boat and head for the lake. Before you do, here are four questions to ask your insurance agent:
1. Am I covered if someone else is using my boat?
If they are paying you to borrow your boat, your boat policy will almost certainly not cover any losses or liability. So, don’t rent your boat out without first talking to your agent.
However, many policies cover use of your boat with your permission by friends or family members.
But not all of them do. So, you need to read your policy, especially the exclusions section. You may need to specify by name everyone who may use your boat this season.
One way that may extend coverage to others using your boat could be through an umbrella policy. Talk to your agent about additional coverage that may be provided through an umbrella policy.
2. If I’m in an accident on the way to the lake, who pays for damage to my boat?
This one’s a tricky question. So, let’s look at a few scenarios:
First, you are towing your boat to the lake.
You are in a car accident that’s your fault. Your boat and trailer cause damage to another vehicle. Who pays? Your auto insurance pays, not your boat insurance.
Second, you are towing your boat to the lake.
Your trailer detaches from your truck and the unattached boat and trailer hit the car behind you. Who pays? Your boat insurance pays this time.
Finally, you are towing your empty trailer to a designated parking place after launching your boat.
You make a mistake and damage your trailer. Who pays? Your boat insurance, if you have optional coverage for your trailer.
3. If my boat is wrecked, will I get a new boat to replace it?
Again, that depends.
Many people have an “actual cash value” policy, often called a “market value” policy, because these policies cost less.
But actual cash value policies pay only what the boat was worth at the time of loss.
This means that depreciation takes a huge bite out of the final payment by the insurance company. If your boat is totaled, you likely won’t get enough to purchase a new one to replace it.
However, if you have an agreed amount value policy, you are more likely to get enough money to replace your old boat with a new one at claim time.
4. Are there additional coverages I should consider?
Yes. There are optional coverages available under most boat policies. That’s why talking with your local insurance agent can make a huge difference at claim time. You may need additional coverage, like an umbrella policy, and not even know it.
Schedule a time right now to meet with an experienced local agent and discuss how you will be using your boat this season.
Your assets will be better protected, and you’ll boating with more peace of mind.