Updated: 11/2/2011 7:48 PM ET|
Vital insurance questions answered
Insurance can be complicated and confusing. This guide answers 15 crucial questions about the types of coverage you need.
Winston Churchill once described the Soviet Union as "a riddle wrapped in a mystery inside an enigma." The same might be said of insurance in its varied forms.
You know you should have a comprehensive, cost-effective network of coverage, but what you need and how much can be confusing. Here are answers to 15 of the most commonly asked questions about insurance:
1. What sorts of insurance do I need?
Most people need to be concerned with insuring four areas: their possessions, their life, their health and their finances.
2. When you're talking about possessions, does that mean homeowners insurance is the most important?
Probably, because a house is likely to be the single biggest investment most of us make. The rule of thumb with homeowners insurance is not to skimp. If you can, pay extra for guaranteed-replacement coverage, which mandates that the insurer will replace your home if it is destroyed, regardless of the cost. If you instead specify a dollar amount of coverage, and it's not enough, you could end up paying the difference.
3. Once I have guaranteed-replacement coverage for my home, I'm all set, right?
Well, it's important to know what your homeowners insurance covers and what it doesn't. For example, particularly pricey items such as big-screen televisions and fancy stereo equipment are often excluded from policies or, at the least, inadequately covered. The same goes for antiques, collectibles, expensive jewelry and furs. Ask for riders that specifically cover those items.
Additionally, homeowners insurance does not cover flood damage. Go to your town or municipal office to see if your home is in a flood plain. If so, these private insurers participate in the federal government's National Flood Insurance Program. Likewise, seek out earthquake insurance if you live in a vulnerable area.
4. I have a home office. Do I have any special insurance needs?
Oh, yes. A great deal of home office equipment, including computers, fax machines and copy machines, is excluded from most conventional homeowners' policies. You have to obtain separate insurance to cover them. If you see clients in your home office, insurance becomes particularly important: You will need liability insurance as well. Check with your insurance agent to make certain your bases are covered.
5. Does homeowners insurance cover me if, say, someone slips on my front steps, breaks a leg and sues me?
Not completely. Homeowners policies -- and, for that matter, renters policies -- have liability limits. One option is an umbrella policy. This adds additional liability coverage, upward of $1 million, relatively cheaply (prices vary considerably from state to state). It also gives you additional liability coverage for your car.
6. Is car insurance a must?
Absolutely. Every state requires that drivers have some sort of automobile insurance in place. Even if they didn't, it would be sheer madness to drive one inch without some form of protection. Slam into someone and wreck another car or kill someone, without the protection of auto insurance, and your financial life could be ruined.
7. Why is auto insurance so expensive, and how can I hold down the cost?
The biggest bite comes from liability protection, which is composed of bodily injury protection and property protection. This is one element of auto insurance you shouldn't shortchange. Look for coverage of at least $100,000 per person, another $100,000 for property and $300,000 per accident. If you can swing it, add uninsured-motorist coverage, which protects you if you're in an accident involving a driver with no insurance.
To make this more affordable, consider raising your deductibles (that portion of the expense you have to pay before your coverage kicks in). Pushing up deductibles to $500 or even higher can significantly cut your premiums. Consider eliminating collision coverage, which covers damage to your car. That's probably not wise if your car is new, but give it some thought if your car has a few years on it and driving around with a ding or two is no big deal.
Other ways to cut costs:
- Drive safely (drivers with good records get better deals).
- Insure every car you own with the same company (packages that cover multiple vehicles often mean lower premiums).
- Don't smoke (statistics show that smokers have more accidents than nonsmokers).
- If you're still in school and pulling down good grades, let your insurer know it (good marks sometimes cut premiums).
8. What about life insurance? Do I have to have that?
Does anyone depend on you financially? In its most basic form, life insurance covers a person's income. If no spouse, child or parent is depending on your income, then life insurance is optional. If you're married, or there is someone whose well-being depends on what you make for a living, life insurance can prove an essential form of protection.
There is one wrinkle that goes against the maxim "no income, no insurance." If one spouse works and the other stays home with kids, consider taking out insurance on the parent at home. Should he or she die, the death benefit could cover the hefty expense of child care.
9. How can I figure out how much life insurance I need?
It's something of an inexact science, but try MSN Money's life insurance calculator.
10. What sort of life insurance should I consider?
Term life insurance is best for most people. It's the cheapest and simplest insurance you can get. You pay the premium and you're insured. It's particularly effective if you follow the time-honored wisdom of investing the difference between what you pay for term insurance and what you would pay for "whole life," or cash-value, insurance. If things work out, your investment program will leave you with a large cache of cash.
11. So I should never buy anything but term life insurance?
It's not quite that cut-and-dried. If you doubt you'll be able to invest the difference, cash-value programs are a form of forced savings. Some are tied to mutual funds that can offer reasonable rates of return. And, because life-insurance death benefits are exempt from taxes, they can prove an effective strategy for passing along assets to your heirs. The downside to most cash-value plans is that they're more expensive than term insurance, and you have to hold on to them for a set number of years so you're not hit with heavy "early surrender" charges.
12. Health insurance is something I can't do without, right?
Correct. According to recent Census data, more than 46 million Americans lack health insurance. Make sure you're not one of them. Many employers offer health insurance to employees at group rates. Plans boil down to two options: managed care and fee for service.
With managed care (HMOs, PPOs and the like), the employee is responsible for a co-payment, generally between $10 and $30, for doctor visits and other services. In exchange, the program specifies certain physicians from which you may select. Managed-care programs are infamous for making you wait days and even weeks before getting in to see someone.
Fee for service, on the other hand, carries more expensive premiums than managed care. The major advantage is that you can generally go to any doctor you want. Fee-for-service policies usually pay 80% of patient expenses after deductibles, and you are responsible for the remaining 20%. Like other forms of insurance, you can trim fee-for-service premiums by increasing your deductible.
If you're self-employed, or your employer doesn't offer health coverage, make certain you get something in place.
13. What exactly is COBRA?
COBRA stands for the Consolidated Omnibus Budget Reconciliation Act of 1985. Under COBRA, if you resign from a job or are terminated for any reason other than "gross misconduct," you can continue to be covered under your former employer's health care plan for up to 18 months. In many cases, spouses and dependent children are also eligible. The downside is that the premiums are expensive -- in effect, you're paying both your share and that of your former employer. The idea of COBRA is to remain covered until can you arrange for some other sort of health insurance.
14. Does health insurance help if I'm sick or injured and laid up for a while?
Partially. Health insurance helps to pay only your medical expenses. Disability insurance is what keeps income coming in if you can't work for a time. This is one of the more commonly overlooked types of insurance, and one that most working families really need. It pays you an income if you're incapable of generating your own for any period of time. Some employers offer it, but in many cases, you'll have to get it on your own. Look for policies whose waiting periods are no longer than 90 days. This is the time you have to wait until you start getting disability payments.
15. What about long-term care?
Long-term-care insurance helps pay for nursing care and other like expenses when you get older. That's a good thing, no doubt about it. But the premiums are expensive -- the average annual premium for a 55-year-old couple in good health is $2,350, according to Jesse Slome, the executive director of the American Association for Long-Term Care Insurance -- and grow as you get older. So you have to consider whether you can genuinely afford the increasing premiums.
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These articles are nice but really contain junk advice. Their benefit is in raising awareness, and no more!
condisder this - If you had a serious medical problem would you take advice from a newspaper column? No. Well proper insurance is serious stuff - unprotected, you could lose EVERYTHING you own and more.
So, If you have no assets, no dependents, no money, then take your advice from the column.
If have some assets, a reasonable income, and care about your retirement years - then consult a professional. (or two).
*Property & Casualty agents specialize in insuring your THINGs (home, auto), and
*Life insurance agents specializes in insuring PEOPLE and their incomes.(Life, Disability Income, and Long Term Care insurance).
Although many agents carry licenses to sell both types, these are two different disciplines. (by analogy - even though they are both MD's, you go to a cardiologist for heart problems and a dermatologist for skin issues!)
As a 20 yr professional agent, More and more I see the horrors of improper planning, a result of following 'one size fits all" advice such as this one.
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