Auto Insurance Deductibles: How Big Should Yours Be?

Determining the right deductible when purchasing auto insurance can be difficult. It’s tempting to reduce your rate by increasing the deductible to the maximum possible, but taking on more risk than you are able to assume can place your entire financial future at risk.

Ask yourself the following questions to determine the right level of coverage for your financial comfort zone:

1. Do You Have a Healthy Savings Account? Before opting for a high deductible, be sure to set aside enough savings to cover the full cost of the deductible should an accident occur. Many people find it helpful to start slow, gradually increase the deductible, and put the savings in the bank. Once sufficient funds have accumulated, then it’s safe to increase the deductible once again. The reduced premium often pays for itself within the first year.

2. Are There High-Risk Drivers in the Household? A healthy savings account can become quickly depleted if used frequently enough, so households with a high-risk driver may prefer a lower deductible in case of multiple accidents.

3. Do You Drive an Older Car? Remember, the purpose of auto insurance is to pay for repairs so you don’t have to, but people who drive older automobiles may not be as concerned about small dings or dents. In fact, some repairs may cost more than the entire depreciated value of the vehicle. It’s often more affordable to opt for higher deductibles and then use refurbished parts when obtaining repair quotes.

How to Choose the Right Umbrella Policy

Does your umbrella insurance policy cover the gaps that you need covered?

If you’ve taken the time to inquire about the purchase of an umbrella insurance policy, chances are you already understand the need for an excess liability policy. In today’s litigious society, the odds of being sued steadily increase in proportion to the personal and professional assets you own.

To protect and preserve their personal assets against a potential lawsuit, more people are turning to affordable umbrella insurance policies. The typical policy picks up where traditional automobile and homeowners policies leave off. For just a few hundred dollars, excess liability from $1 million up to $10 million can be purchased.

The first step to understanding if your umbrella policy covers the gaps is to make sure the limits meet your specific level of need. Experts suggest that you obtain a level at least equal to current net worth. Young professionals may opt for substantially higher levels due to increasing earning potential.

The second step is to evaluate personal and professional risks. For example, do you hire in-home domestic help such as a nanny or lawn care service? Perhaps you volunteer your professional services to a local charity organization or provide the use of assets to others. While each of these situations is certainly acceptable, it’s important not to inadvertently expose yourself to financial ruin due to a lawsuit arising from an accident or injury.

The third step is to determine situational risk. For example, do you own vacant property that could be subject to increased risk by accident or injury? Do you engage in high-risk hobbies that could injure others?

Something as simple as children playing on an unimproved field could result in a serious accident that exceeds the coverage provided. Sports-related accidents, dog bites and even ill-timed antics of children also place homeowners at risk for excess liability claims.

Finally, it’s important to carefully read and review the limits, exclusions, additions and omissions when purchasing a new policy or renewing an existing policy.

What You Need to Know about Insurance Co-pays

The concept of health insurance co-payments can be confusing to many people. The following will help you understand the issue:

Co-pay: A co-payment is a flat fee or portion of a medical bill that becomes the financial responsibility of a patient when seeking medical services. For example, a patient may have to pay $25 for each visit to a general practitioner.

Co-insurance: Co-insurance and co-pay are often used interchangeably by health care consumers, but they aren’t exactly the same thing. To be precise, co-insurance is the percentage of a medical bill that is the responsibility of a patient after meeting an annual deductible.

Maximum Out-of-Pocket: The maximum out-of-pocket expense is the annual maximum amount the policyholder is required to pay before the health insurance policy provides 100% coverage during a calendar year. Co-payments may or may not count toward the out-of-pocket limit.

There are a few essential questions to consider when speaking with your agent:

1. What is the co-pay in network versus out of network for office visits, out-patient providers and hospitalization?

2. Which co-pay situation applies when my physician visits me in the hospital?

3. Are medications included or excluded? Is there a separate limit or deductible?

4. Can the co-pays be used to satisfy one another

How to Avoid Common Life Insurance Errors

The decision to purchase life insurance is one of the most important steps the average person can take to protect the financial future his or her family or future family.

Unfortunately, research indicates that the majority of people underestimate their true life insurance needs.

With a bit of planning and preparation, though, it’s possible to avoid these common errors and purchase a policy that provides long-term protection at a great price:

1. Inflation

By far the most common mistake many people make when trying to determine how much life insurance to buy is to forget about inflation. Using a modest inflation rate of 3% annually, the purchasing power of most policies will buy half its current value.

To fully protect against the ravages of inflation, experts suggest building in an additional layer of protection by doubling the estimated cost of living required later in life.

2. Family Growth

Young couples may have few resources and high expenses while raising children, so it’s essential to plan for future college expenses, day-care and even additions to the family.

The cost of college is one of those expenses that has outpaced than the rate of inflation, so it’s important to plan accordingly. Remember, life insurance is a long-term purchase, so plan for unforeseen circumstances early. To ensure that college-bound children have sufficient resources, estimate college tuition with a 5% to 10% inflation rate.

3. Medical and Nursing Care

Older couples often have the advantages of retirement plans and a lifetime of savings to fall back on, but that doesn’t mean they are without worries of their own.

The escalating cost of medical or skilled nursing care can leave a surviving spouse facing bankruptcy just when he or she needs help the most.

To ensure that elderly spouses have sufficient resources, estimate medical and skilled nursing care at an 8% to 12% inflation rate.

Too Little, Too Late: Make Sure You’re Covered Now

Every year, millions of Americans learn the hard way that they do not have adequate health insurance coverage. Sadly, it’s often a situation of too little information too late.

More than 20,000 Americans die each year because they cannot afford basic medical care, medications or surgery. Surprisingly, it’s not just the uninsured who are at risk. Consumer reports indicate that four out of 10 people do not have adequate coverage levels.

The following information will help you determine if you have enough coverage:

1. What Is the Lifetime Cap on the Policy?

When shopping for health insurance most people simply look at annual premium rates and deductibles, but that can be a big mistake. Most health insurance policies have lifetime limits or cap rates that limit the total payout on the policy. Once that level is reached, coverage stops. Many low-cost, state-sponsored policies have a cap rate of only $50,000 annually. Experts suggest at least $1 million to $5 million per policy. Given the rapidly rising cost of medical coverage, the difference can literally mean life or death for someone facing a catastrophic accident or serious illness.

2. Are the Doctors, Laboratories, and Imaging and Other Providers In Network?

Most people realize the need to verify the hospital is in network but don’t realize the individual providers may not be. Even for the same surgical procedure it’s not uncommon to find that a surgeon, anesthesiologist, lab and even imaging studies are covered by different plans. It’s important to verify that all providers are covered by the plan in order to avoid costly surprises later.

3. What’s the Worst-Case Scenario?

Take time to add up the total cost required to use the policy in a bad year. If premiums, deductibles, co-payments, medications and all other out-of-pocket expenses exceed your savings, then chances are you are underinsured. Remember, health insurance is one of the most important policies available, but it works only if you can actually afford to use it.

Retirement and Annuities: What You Need to Know

With the market declines of 2008 and 2009, many investors are now asking themselves whether or not they should think about rolling the money they have in mutual funds and individual retirement accounts into variable annuities.

Annuities, particularly variable annuities, can play an important role in retirement planning.

But buying a variable annuity to protect your retirement savings from market declines may not be the best investment strategy.

With a variable annuity, money is invested in a subaccount of securities.

You receive payments that are based on the performance of the securities in the subaccount.

So if the market declines, the variable annuity is affected in the same way as a mutual fund.

It goes down in value.

Variable annuities often have guarantees that offer some additional security.

However, in many cases buyers don’t understand the guarantees.

Thus, you might not want to move any of your money into a variable annuity without first learning exactly what the guarantee is and what it costs as well as how much you’ll be paying in total fees, including surrender charges.

It is best to consult a professional financial advisor who can help you with this process.

Could a New Variable Annuity Be Right for You?

Some new variable annuities are available to replace those that insurers found too generous to customers during the financial crisis.

However, only you can decide if one is right for you.

A variable annuity is a contract with an insurance company.

Simply put, you give the insurance company a sum of money now, and the funds are invested in a sub-account of securities. At some later date, you receive payments that are based on the performance of the securities in the sub-account.

However, for an additional fee you can buy downside protection, which means that if the securities in the sub-account perform poorly, you can exchange the decreased sums for lifetime payments of a guaranteed minimum amount.

How Does it Work?

Downside protection features usually involve a guaranteed minimum benefit base used to calculate your annual income if you exchange decreased sums for lifetime payments of a guaranteed minimum amount.

The problem for insurers in 2008 and 2009 was that the benefit base was reset at regular intervals – annually or more often – to incorporate gains from the owner’s overall annuity.

Many also promised high minimum annual gains, in some cases 7%. Those guarantees strained insurance companies after the market contraction of 2008 and 2009.

As a result, many insurance companies took them off the market.

Now, a number of new downside protection features are being offered.

Many promise minimum annual gains, albeit lower ones such as 5% instead of 7%.

Some make annuity holders in their mid-to-late 60s eligible for annual income of 5% of the base.

As appealing as that may sound, you’d be wise to know the rules before you invest, and consider all the pros and cons of annuities, including fees.