The Daily Mail and The Mail on Sunday are always on the look out for new villains, and this time it’s not illegal immigrants or teenage mothers. No, Stephen Womack in the Financial Mail on Sunday has discovered the crooks that stage car crashes – the car crash bandit. The fraudsters pin the blame on the innocent driver so they can submit a bogus claim against the victim’s insurer for up to £30,000.
Usually staged on motorway slip roads and roundabouts, the car in front brakes hard, sometimes after a second car veers into its path, forcing you to crash into the back of it. The crooks will claim for damage to the car and the cost of a replacement vehicle, often inflating the claim in several ways.
The car might be carrying several passengers, all of whom will claim for personal injuries and loss of earnings. Some gangs even own accident repair garages and car-hire firms. There are apparently 10,000 staged crashes a year, costing the insurance industry up to £200 million. You have been warned!
Tuesday, June 17, 2008
Running towards bankruptcy
Last year, some of our readers were kind enough to take me with them on the London to Brighton Veteran Car Run. It was an amazing day out. It wasn’t cold, it didn’t rain, and despite many, many breakdowns, we did eventually complete the race. I loved it. I also ended up loving the cars. Modern cars are so predictable both to look at and to drive that there’s no fun in them. But these, they came in every shape and form and absolutely refused to behave much like cars at all (having to be pushed up hills and not moving at all for hours on end, for example). Much more fun, and I think probably a wonderful thing to own. But do they make a good investment? I’m not entirely convinced - prices already seem high to me. However, Stewart Skilbeck thinks they’re still a pretty good deal.
One of the amazing things about driving about in a veteran car is that you go so slowly that you actually have time to look at the view. And what a nasty view the main roads of Britain offer most of the time. Mainly of cars. You’d expect I’d know this, but what seemed surprising was not the number of cars on the road, but the number in the driveways of the houses we passed. Most households seemed to own at least two. And pretty much every second commercial outlet (that wasn’t a Tesco) was a second hand or new car showroom of some kind. Not long before going on the Brighton Run I read a survey by one of the insurance companies that claimed one in five families with a child of driving age owned four or more cars. Half owned three. I didn’t believe a word of it. In America maybe, but surely not here. I believed it by the time we got to Croydon: the 0% interest deals on offer on the forecourts of several of the garages were so good it was only the fact that you never stop a veteran car when its moving that stopped me buying three myself before lunch.
That so many people have had no such reason to hold them back might explain the huge number of bankruptcies in the UK.In the last quarter of 2004, personal bankruptcies in the UK rose nearly 35%, with the typical candidate being under 30 and owing well over £25,000 to 11 different creditors. Sounds nasty doesn’t it? But this is probably only the beginning. Last year, 1.1 million people asked the Citizens Advice Bureau for advice on debt. But this year, with inflation and interest rates on the up, private-sector employment on the way down, personal debt at record highs and the credit-card companies as desperate for our business as ever, I think they’ll find their phones are busier than ever before.
One of the amazing things about driving about in a veteran car is that you go so slowly that you actually have time to look at the view. And what a nasty view the main roads of Britain offer most of the time. Mainly of cars. You’d expect I’d know this, but what seemed surprising was not the number of cars on the road, but the number in the driveways of the houses we passed. Most households seemed to own at least two. And pretty much every second commercial outlet (that wasn’t a Tesco) was a second hand or new car showroom of some kind. Not long before going on the Brighton Run I read a survey by one of the insurance companies that claimed one in five families with a child of driving age owned four or more cars. Half owned three. I didn’t believe a word of it. In America maybe, but surely not here. I believed it by the time we got to Croydon: the 0% interest deals on offer on the forecourts of several of the garages were so good it was only the fact that you never stop a veteran car when its moving that stopped me buying three myself before lunch.
That so many people have had no such reason to hold them back might explain the huge number of bankruptcies in the UK.In the last quarter of 2004, personal bankruptcies in the UK rose nearly 35%, with the typical candidate being under 30 and owing well over £25,000 to 11 different creditors. Sounds nasty doesn’t it? But this is probably only the beginning. Last year, 1.1 million people asked the Citizens Advice Bureau for advice on debt. But this year, with inflation and interest rates on the up, private-sector employment on the way down, personal debt at record highs and the credit-card companies as desperate for our business as ever, I think they’ll find their phones are busier than ever before.
Could life assurance companies be ripping us off?
Have you ever been mis-sold something by a financial services company? Odds are the answer is yes.
If you’ve ever taken out a loan you’ve probably been brow-beaten into taking out Payment Protection Insurance with it, despite the fact that this is – as Cliff D’Arcy of the Motley Fool puts it – “the worst insurance ever”.
If you took out a mortgage a decade ago you were probably mis-sold, or think you were mis-sold, an endowment policy. Add that to all the hideously inappropriate investment muck we’ve all had hoisted on us over the years and it’s no wonder that so many of us aren’t exactly enamoured of the industry.
But the most irritating thing about it is that it never seems to learn. Look at the Self Invested Personal Pension market. I love SIPPs, which allow you to buy a pension ‘wrapper’ and then invest your own pension assets as you see fit. I think they are one of the best innovations to come out of the often overly creative minds of the market for years.
But they aren’t for everyone. If you are never going to invest in anything except for the funds of one company for example, they are pointless. And if you have only a small pension, which you intend to keep in mainstream funds, you are likely to find you are better off with a stakeholder pension.
However, this isn’t stopping the life assurance companies having a go: they are paying hefty commissions (up to 15%, says The Scotsman!) to advisers to transfer customers out of old-fashioned pensions into their SIPPs and then – this is the good bit – having them buy their funds with the SIPPs. Friends Provident, says the FT, requires its SIPP holders to invest £20,000 in its insured funds. Does this make sense? The FSA isn’t so sure: it is conducting an inquiry into the sales of SIPPs by financial advisers.
If you’ve ever taken out a loan you’ve probably been brow-beaten into taking out Payment Protection Insurance with it, despite the fact that this is – as Cliff D’Arcy of the Motley Fool puts it – “the worst insurance ever”.
If you took out a mortgage a decade ago you were probably mis-sold, or think you were mis-sold, an endowment policy. Add that to all the hideously inappropriate investment muck we’ve all had hoisted on us over the years and it’s no wonder that so many of us aren’t exactly enamoured of the industry.
But the most irritating thing about it is that it never seems to learn. Look at the Self Invested Personal Pension market. I love SIPPs, which allow you to buy a pension ‘wrapper’ and then invest your own pension assets as you see fit. I think they are one of the best innovations to come out of the often overly creative minds of the market for years.
But they aren’t for everyone. If you are never going to invest in anything except for the funds of one company for example, they are pointless. And if you have only a small pension, which you intend to keep in mainstream funds, you are likely to find you are better off with a stakeholder pension.
However, this isn’t stopping the life assurance companies having a go: they are paying hefty commissions (up to 15%, says The Scotsman!) to advisers to transfer customers out of old-fashioned pensions into their SIPPs and then – this is the good bit – having them buy their funds with the SIPPs. Friends Provident, says the FT, requires its SIPP holders to invest £20,000 in its insured funds. Does this make sense? The FSA isn’t so sure: it is conducting an inquiry into the sales of SIPPs by financial advisers.
Avoid the pain of a visit to the dentist
Dentistry in the UK is painfully expensive. A Government survey has found that one in five of us go without dental treatment because of the cost. Assuming you’re not among the 6% who claim, rather alarmingly, that they “self-treat”, how can you cut the costs?
The cheapest route is to register with an NHS dentist who is obliged to do all work on a fixed-price scale. Band one treatment, covering an examination and advice, will set you back £15.90; band two (fillings and root canal work) is £43.60; and band three (crowns, dentures or bridges) comes in at £194. Each band covers all the work needed during that session, so you’ll pay £43.60 whether you need one filling or five. Always check whether you can get NHS treatment before looking at other options – your local Primary Care Trust should be able to help. The trouble is, finding NHS dentists isn’t easy due to the rising numbers being tempted into lucrative private work. If you have to go down the private route, then remember that costs vary, so consider a second opinion on non-routine work. Take root canal treatment – according to The Independent, Gordon Brown’s private dentist in Primrose Hill charges £650 per tooth, compared to the national private average of around £340. Of course, that’s still not cheap – so how can you cover the extra expense?
Dental insurance is one option. If your employer offers a plan, then join it – although the benefit is taxable, it still usually works out far cheaper than buying your own policy. But if not, and you have troublesome teeth, private insurance might still make sense. You’ll pay a monthly premium, which varies widely according to your age and level of cover chosen. A comparison site, such as Moneysupermarket.com, can help you find the right policy. Alternatively, 6,000 private dentists offer “capitation” plans, which spread the cost of treatment over the year. The biggest provider is Denplan with 1.8 million registered users. Premiums vary according to the state of your teeth when you sign up. The downside is you pay the same fixed amount (on average £240 a year) whether or not you need treatment. Plus you are tied to the same dentist while the cover is in place.
A better alternative for many, combining flexibility and lower premiums, is a healthcare cash plan. Unlike private insurance, these simply make a fixed cash contribution to a range of NHS and private procedures, including dentistry and eye care, in return for a monthly premium. You choose the treatment provider and then complete and send a standard claim form after treatment.
But the best bet for most people, particularly if you have good teeth, says Moneysavingexpert.com, might be simply to put aside emergency money in a high-interest account each month, rather than pay for a plan you may rarely, if ever, need – and invest in a decent toothbrush.
The cheapest route is to register with an NHS dentist who is obliged to do all work on a fixed-price scale. Band one treatment, covering an examination and advice, will set you back £15.90; band two (fillings and root canal work) is £43.60; and band three (crowns, dentures or bridges) comes in at £194. Each band covers all the work needed during that session, so you’ll pay £43.60 whether you need one filling or five. Always check whether you can get NHS treatment before looking at other options – your local Primary Care Trust should be able to help. The trouble is, finding NHS dentists isn’t easy due to the rising numbers being tempted into lucrative private work. If you have to go down the private route, then remember that costs vary, so consider a second opinion on non-routine work. Take root canal treatment – according to The Independent, Gordon Brown’s private dentist in Primrose Hill charges £650 per tooth, compared to the national private average of around £340. Of course, that’s still not cheap – so how can you cover the extra expense?
Dental insurance is one option. If your employer offers a plan, then join it – although the benefit is taxable, it still usually works out far cheaper than buying your own policy. But if not, and you have troublesome teeth, private insurance might still make sense. You’ll pay a monthly premium, which varies widely according to your age and level of cover chosen. A comparison site, such as Moneysupermarket.com, can help you find the right policy. Alternatively, 6,000 private dentists offer “capitation” plans, which spread the cost of treatment over the year. The biggest provider is Denplan with 1.8 million registered users. Premiums vary according to the state of your teeth when you sign up. The downside is you pay the same fixed amount (on average £240 a year) whether or not you need treatment. Plus you are tied to the same dentist while the cover is in place.
A better alternative for many, combining flexibility and lower premiums, is a healthcare cash plan. Unlike private insurance, these simply make a fixed cash contribution to a range of NHS and private procedures, including dentistry and eye care, in return for a monthly premium. You choose the treatment provider and then complete and send a standard claim form after treatment.
But the best bet for most people, particularly if you have good teeth, says Moneysavingexpert.com, might be simply to put aside emergency money in a high-interest account each month, rather than pay for a plan you may rarely, if ever, need – and invest in a decent toothbrush.
How much insurance do you really need?
The inboxes of personal finance journalists can make for terrifying reading. Every week press releases arrive packed full of stories about awful things that have happened to people, or that could soon happen to them.
There are stories of people breaking their legs in seven places on skiing holidays and having to be airlifted back to Britain; of families having to spend entire package holidays in the same clothes because their suitcases have been lost; of brides spilling red ink all over their £3,000 dresses; of people having their dogs stolen or losing £400 worth of belongings from their handbags and so on.
It’s miserable stuff. But there is a common thread: the people in question are always declared to have not had enough insurance to “protect” them from calamity.
Had they had the correct travel insurance, pet insurance, wedding insurance or contents insurance, we are told, things would have been so much better.
Insurance: how much is really necessary?
All these stories, as you will probably have guessed, come from insurance companies and they are sent with one thing in mind: to terrify Britain into buying ever more insurance.
If the financial-services industry had its way we wouldn’t leave the house without being insured against everything from dropping our lipstick down the drain at pedestrian crossings to being abducted by aliens outside Tesco Metro.
It has even gone so far as to invent a special phrase for the difference between the amount of insurance we do have and the amount of insurance it thinks we should have — the “protection gap.” And how big is this gap? £2,300 billion apparently.
This is complete nonsense. There are a few insurances you are legally obliged to have, such as car insurance, and a few that you really should have — buildings and travel. But beyond that I’m not convinced that most of us need much: in general, insurance is both overpriced and unnecessary.
I can’t see, for example, why one needs much in the way of contents cover. There may be a case for insuring things you need for living against flood or fire, but why pay good money to cover things that you would never sell and could not replace – your grandmother’s jewellery for example.
Insurance: why you may already be covered
You may not need life insurance, either. If you check your employment contract you will probably find, if you are a white-collar worker, that you have life cover at three to four times your salary as standard and that a pension may be paid to your dependants too.
If you are not the main breadwinner in the family or if you have no dependants you definitely won’t need life cover, and if you are at or near retirement you shouldn’t need it either. By then you should be free financially (mortgage paid, pension sorted, children independent) with no need for the extra cash. Much the same goes for critical-illness insurance, which is practically impossible to claim on anyway.
Then there is health insurance. Large numbers of people appear to take it for granted these days that the NHS is awful and that, if they can afford it, they should insure themselves against ever having to use it. But this just isn’t the case.
Worse, medical insurance is utterly useless in an emergency: private hospitals don’t have accident and emergency departments. Medical insurance also doesn’t come cheap. The least expensive policy I could find for myself came in at £20 a month and covered almost nothing. I would have to be practically dead before I could claim on it.
Insurance: set up a 'calamity account' instead
The alternative to paying out all this money is simply to save the cash you might have spent on insurance (note that proper health coverage starts at about £50 a month and goes up to £200-plus) into a special account and then to pay for any treatment you don’t want to have on the NHS yourself.
The things that are really pricey are mainly those operations that you won’t need until you are heading for your sixties (hip replacements cost about £7,000), so if you start saving early instead of paying for insurance you should be able to pay for them without much trouble.
You can think the same way about most other insurances too. Pet insurance is at least £100 a year but, again, unless you go for the top of the range, covers very little. You might as well put the cash into your special savings account (let’s call it your Calamity Account) instead.
The same goes for mobile-phone insurance, ID-theft insurance, wedding insurance, payment-protection insurance (this is a particularly expensive and useless one) and extended warranties (even more expensive and useless). Instead of taking out any of them I think you’d be wise just to put the cash into your Calamity Account instead.
It is entirely possible that your cat may get run over at some point, but very unlikely that in the same week your phone and identity will be stolen, your wedding dress will be covered in red ink, you will be made redundant, your hip will give way and your house will be burgled.
That should mean that if you are disciplined about saving the money you aren’t spending on insurance, you should always have enough cash to cope. You will also have the satisfaction of knowing that you have, at least in this case, thwarted the financial-services industry in its ongoing efforts to separate you from your money.
There are stories of people breaking their legs in seven places on skiing holidays and having to be airlifted back to Britain; of families having to spend entire package holidays in the same clothes because their suitcases have been lost; of brides spilling red ink all over their £3,000 dresses; of people having their dogs stolen or losing £400 worth of belongings from their handbags and so on.
It’s miserable stuff. But there is a common thread: the people in question are always declared to have not had enough insurance to “protect” them from calamity.
Had they had the correct travel insurance, pet insurance, wedding insurance or contents insurance, we are told, things would have been so much better.
Insurance: how much is really necessary?
All these stories, as you will probably have guessed, come from insurance companies and they are sent with one thing in mind: to terrify Britain into buying ever more insurance.
If the financial-services industry had its way we wouldn’t leave the house without being insured against everything from dropping our lipstick down the drain at pedestrian crossings to being abducted by aliens outside Tesco Metro.
It has even gone so far as to invent a special phrase for the difference between the amount of insurance we do have and the amount of insurance it thinks we should have — the “protection gap.” And how big is this gap? £2,300 billion apparently.
This is complete nonsense. There are a few insurances you are legally obliged to have, such as car insurance, and a few that you really should have — buildings and travel. But beyond that I’m not convinced that most of us need much: in general, insurance is both overpriced and unnecessary.
I can’t see, for example, why one needs much in the way of contents cover. There may be a case for insuring things you need for living against flood or fire, but why pay good money to cover things that you would never sell and could not replace – your grandmother’s jewellery for example.
Insurance: why you may already be covered
You may not need life insurance, either. If you check your employment contract you will probably find, if you are a white-collar worker, that you have life cover at three to four times your salary as standard and that a pension may be paid to your dependants too.
If you are not the main breadwinner in the family or if you have no dependants you definitely won’t need life cover, and if you are at or near retirement you shouldn’t need it either. By then you should be free financially (mortgage paid, pension sorted, children independent) with no need for the extra cash. Much the same goes for critical-illness insurance, which is practically impossible to claim on anyway.
Then there is health insurance. Large numbers of people appear to take it for granted these days that the NHS is awful and that, if they can afford it, they should insure themselves against ever having to use it. But this just isn’t the case.
Worse, medical insurance is utterly useless in an emergency: private hospitals don’t have accident and emergency departments. Medical insurance also doesn’t come cheap. The least expensive policy I could find for myself came in at £20 a month and covered almost nothing. I would have to be practically dead before I could claim on it.
Insurance: set up a 'calamity account' instead
The alternative to paying out all this money is simply to save the cash you might have spent on insurance (note that proper health coverage starts at about £50 a month and goes up to £200-plus) into a special account and then to pay for any treatment you don’t want to have on the NHS yourself.
The things that are really pricey are mainly those operations that you won’t need until you are heading for your sixties (hip replacements cost about £7,000), so if you start saving early instead of paying for insurance you should be able to pay for them without much trouble.
You can think the same way about most other insurances too. Pet insurance is at least £100 a year but, again, unless you go for the top of the range, covers very little. You might as well put the cash into your special savings account (let’s call it your Calamity Account) instead.
The same goes for mobile-phone insurance, ID-theft insurance, wedding insurance, payment-protection insurance (this is a particularly expensive and useless one) and extended warranties (even more expensive and useless). Instead of taking out any of them I think you’d be wise just to put the cash into your Calamity Account instead.
It is entirely possible that your cat may get run over at some point, but very unlikely that in the same week your phone and identity will be stolen, your wedding dress will be covered in red ink, you will be made redundant, your hip will give way and your house will be burgled.
That should mean that if you are disciplined about saving the money you aren’t spending on insurance, you should always have enough cash to cope. You will also have the satisfaction of knowing that you have, at least in this case, thwarted the financial-services industry in its ongoing efforts to separate you from your money.
Why you shouldn’t insure against identity theft
The recent terror alerts that sparked chaos at airports across the country not only disrupted travel plans, but also affected insurance claims. Regardless of how badly delayed you were, the majority of insurance policies will not cover acts of terrorism.
Most airlines whose flights had to be cancelled following the security alert pledged to offer stranded passengers refunds or alternative flights, says Jessica Bown in The Sunday Times.
Some people might prefer not to travel when there is such a state of alert, but airlines are unlikely to offer you a refund if you cancel for this reason. You will probably have even less chance of success with your travel insurer, although, according to Rupert Jones in The Guardian, home policies will pay out if your trip is delayed by more than 12 hours. Check the terms of your policy, or contact the firm direct if you were caught up in the alert, or if you plan to travel over the next few days.
Chip and pin fails to beat fraud
Chip and pin cards have been mandatory for six months – but card fraud over the internet, phone or by mail rose by 21% last year as criminals swiftly sought other ways to part us from our cash. Many cloned cards are now taken abroad to countries where pin numbers are not yet used.
Some high-street banks are fighting back, says Lisa Bachelor in The Observer. Barclays and Lloyds TSB are thinking of giving some customers hand-held devices that will electronically generate a one-off password when they log onto their account or shop online.
And some firms are testing a new device to prevent shoulder surfing – where someone watches as you punch in your pin. The device was designed by the University of Warwick and incorporates a magnifying glass that helps the user see the keys, but distorts the view of the keypad for anyone else.
The payment protection insurance scandal
The Office of Fair Trading has just published a damning report into payment protection insurance – and not before time. Lenders are keen to sell you this cover when you take out a mortgage, personal loan or credit card. The cover is supposed to pay out if you can no longer keep up the payments because of sickness or unemployment. However, the policies are often costly and riddled with exclusions.
The Office of Fair Trading wants to reform the sale of payment protection insurance, and will come up with some recommendations by the end of the year, says Helen Loveless in The Mail on Sunday. It should start by banning firms from automatically including the insurance when they quote the monthly loan repayments.
Most airlines whose flights had to be cancelled following the security alert pledged to offer stranded passengers refunds or alternative flights, says Jessica Bown in The Sunday Times.
Some people might prefer not to travel when there is such a state of alert, but airlines are unlikely to offer you a refund if you cancel for this reason. You will probably have even less chance of success with your travel insurer, although, according to Rupert Jones in The Guardian, home policies will pay out if your trip is delayed by more than 12 hours. Check the terms of your policy, or contact the firm direct if you were caught up in the alert, or if you plan to travel over the next few days.
Chip and pin fails to beat fraud
Chip and pin cards have been mandatory for six months – but card fraud over the internet, phone or by mail rose by 21% last year as criminals swiftly sought other ways to part us from our cash. Many cloned cards are now taken abroad to countries where pin numbers are not yet used.
Some high-street banks are fighting back, says Lisa Bachelor in The Observer. Barclays and Lloyds TSB are thinking of giving some customers hand-held devices that will electronically generate a one-off password when they log onto their account or shop online.
And some firms are testing a new device to prevent shoulder surfing – where someone watches as you punch in your pin. The device was designed by the University of Warwick and incorporates a magnifying glass that helps the user see the keys, but distorts the view of the keypad for anyone else.
The payment protection insurance scandal
The Office of Fair Trading has just published a damning report into payment protection insurance – and not before time. Lenders are keen to sell you this cover when you take out a mortgage, personal loan or credit card. The cover is supposed to pay out if you can no longer keep up the payments because of sickness or unemployment. However, the policies are often costly and riddled with exclusions.
The Office of Fair Trading wants to reform the sale of payment protection insurance, and will come up with some recommendations by the end of the year, says Helen Loveless in The Mail on Sunday. It should start by banning firms from automatically including the insurance when they quote the monthly loan repayments.
Sunday, May 25, 2008
Life insurance: choosing a policy that meets your needs
The first question you should ask yourself about life insurance is whether or not you really need it. The purpose of life insurance is to provide a source of income, in case of your death, for your spouse, children, dependents, or other beneficiaries. It can also serve other estate planning purposes, such as giving money to charity when you die, paying for estate taxes, paying for funeral and burial costs, or providing for a buy-out of a business interest.
Do I Need Life Insurance?
Whether or not you need to buy life insurance depends on whether anyone is relying on your income. If you have a spouse, child, parent, or some other individual who depends on your income, you probably need life insurance. (You might also need life insurance for estate planning or if you need to make arrangements for your business after you are gone.) Typically, however, if you are single with no dependents, and you don’t own your own business, you probably don’t need life insurance.
Types of Life Insurance
If you determine that you do need life insurance, how do you know what kind of policy is right for you? See our article on Life Insurance: What Types are Available for a discussion on the different kinds of policies one can buy. In general, there are two categories of life insurance:
Term, whereby you pay for coverage for a specified amount of time, and if you die during that time the insurer pays your survivors the death benefit specified;
Cash value — whole life or universal life (or variable life, or universal variable life) —, which, in addition to paying a death benefit, also provides you with some other redeemable value during your lifetime.
Using a Broker
If you know little about buying life insurance, it’s best to use a broker who deals with several companies and who can educate you about the different options available, how the cash values accumulate, and what the policy will cost you over different periods of time. The premium is based on your current age, but may increase over time.
You may also wish to consider purchasing different policies from different companies, particularly if the protection you want exceeds $500,000. Each state has a life insurance guaranty corporation, required by state law, whose purpose is to protect insureds in the event an insurer is unable to pay a claim. There are, however, limits to this protection. These limits are typically $300,000 to $500,000 per insured individual. Policies that exceed that amount are not covered.
Here are some questions to ask of your broker or agent:
How do cash values accumulate? (An early, rapid build-up is generally preferable.)
How has the policy’s cash value performed in the past? You can get this information from a publication called Best Review, Life and Health. Determine how the policy performed in comparison with the company’s projection and with other insurers.
If there are any special features in the policy, do they add value for you, or are they just bells and whistles that you’re paying for but don’t need?
What is the company’s rating with Best, Standard & Poor’s, and Moody’s? You can find these publications in public libraries or online. The rankings should be in the top three to ensure that a company has financial stability.
Note that everyone’s situation is different and your needs will not be the same as your neighbor’s even if you have similar lifestyles and family units. To choose the right policy, it is important to give your broker some important pieces of your financial information to help her understand your financial status and your current and future family needs.
Do I Need Life Insurance?
Whether or not you need to buy life insurance depends on whether anyone is relying on your income. If you have a spouse, child, parent, or some other individual who depends on your income, you probably need life insurance. (You might also need life insurance for estate planning or if you need to make arrangements for your business after you are gone.) Typically, however, if you are single with no dependents, and you don’t own your own business, you probably don’t need life insurance.
Types of Life Insurance
If you determine that you do need life insurance, how do you know what kind of policy is right for you? See our article on Life Insurance: What Types are Available for a discussion on the different kinds of policies one can buy. In general, there are two categories of life insurance:
Term, whereby you pay for coverage for a specified amount of time, and if you die during that time the insurer pays your survivors the death benefit specified;
Cash value — whole life or universal life (or variable life, or universal variable life) —, which, in addition to paying a death benefit, also provides you with some other redeemable value during your lifetime.
Using a Broker
If you know little about buying life insurance, it’s best to use a broker who deals with several companies and who can educate you about the different options available, how the cash values accumulate, and what the policy will cost you over different periods of time. The premium is based on your current age, but may increase over time.
You may also wish to consider purchasing different policies from different companies, particularly if the protection you want exceeds $500,000. Each state has a life insurance guaranty corporation, required by state law, whose purpose is to protect insureds in the event an insurer is unable to pay a claim. There are, however, limits to this protection. These limits are typically $300,000 to $500,000 per insured individual. Policies that exceed that amount are not covered.
Here are some questions to ask of your broker or agent:
How do cash values accumulate? (An early, rapid build-up is generally preferable.)
How has the policy’s cash value performed in the past? You can get this information from a publication called Best Review, Life and Health. Determine how the policy performed in comparison with the company’s projection and with other insurers.
If there are any special features in the policy, do they add value for you, or are they just bells and whistles that you’re paying for but don’t need?
What is the company’s rating with Best, Standard & Poor’s, and Moody’s? You can find these publications in public libraries or online. The rankings should be in the top three to ensure that a company has financial stability.
Note that everyone’s situation is different and your needs will not be the same as your neighbor’s even if you have similar lifestyles and family units. To choose the right policy, it is important to give your broker some important pieces of your financial information to help her understand your financial status and your current and future family needs.
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