What's the Cheapest Life Insurance?

I hear this question a lot, and it is a easy question to answer.  It's the life insurance that you buy when you are young, healthy and don't need it.  So what do you do if you've let the years slip by and find yourself in need of a policy to protect your family?  I'll give you the short and simple answer.

Straight annual renewable term, which renews automatically each year and is based on your age.  But if you are getting up there in age this quickly becomes too expensive.  This type of term is the cheapest if you are talking about right now.

Traditional whole life which builds cash value and eventually begins paying it's own premiums when purchased for a young person will be the cheapest when they are older because the cost never goes up and it will have value to use later.

But my favorite cheap life insurance is the FREE kind!  It's called Return of Premium term.  The name says it all, it is a term policy that lasts for 20 or 30 years and if you die during that time your heirs get the death benefit but if you live (which most are hoping to do) you get all your premium back (tax free).

Why doesn't everyone buy this option, you ask?  Well some financial experts (the next statement makes this sound funny) suggest it is smarter to buy the slightly less expensive term policy and invest the difference between the two.  Hhhhhmmmm?!?!?!?  Sounds good except you are not guaranteed to even make back what you invest let alone enough to pay for the life insurance and still come out ahead.  Why not buy the Return of Premium policy and in 20 years have a lump sum to invest (guaranteed) and have protected your family all along the way?

So, what's the cheapest life insurance? Free!

J

How big of a tax bill are you leaving for the kids & grandchildren?

Do you think about this?  I do ... what will Uncle Sam take from my children's inheritance?  How much of my legacy will be lost to taxes?  Do you really want your heirs to lose the money that you have set aside for them?  No, of course not but have you spent a couple of hours to plan a strategy for helping them keep more of what you leave behind?

Here are two quick ideas to help you plan for giving ALL of your legacy to your heirs.  These are just a starting point, you need to speak to your insurance professional to personalize them and see if they will work for you.

First, if you have a lump sum of money that you want to leave to your grandchildren or you kids, lets say you have $10,000 in the bank that you got from the sale of your Great Aunt's home when she passed away.  You figure that you will hold on to it in case you need it but once you are gone you want the Grand kids (let's say you have two) to get enough to buy a car or put down on a small home.  $5,000 is not a bad amount ... and you are not risking it in the stock market so you leave it in the bank and put in your will that they get it when you are gone.  But when you pass away they will have to what for the probate process to be completed.  Then if there are no other liens on the estate they will at least be charged income tax (about 25%) and Indiana inheritance tax (5%).  This means they will both get about $3,500 after those taxes are satisfied. 

Okay let's change one part of this example, let's say that you buy a single premium life insurance policy with the $10,000, this will buy your heirs about $19,444 (assuming you don't use tobacco are age 65, female and in pretty good health) in death benefit when you pass away.  Which means that each grandchild will get $9,722 with no income tax or Indiana inheritance tax and they will get their money right away regardless of thee probate process or any additional liens on the estate.  So your two grand kids will get over 2 & 1/2 times the money.

Now, the second example is if you have 100 acres that you are leaving to your 3 children.  Let's say the fair market value of that 100 acres is $7,500 an acre ... you see where I'm going with this right?  You add the value of the land the value of the home the other assets and soon your children have a pretty big tax bill. 

If you spend a few hours with your insurance professional you will know what that tax figure will look like and you can take out a life insurance policy that will give your children the funds they need to pay the tax bill without having to sell off pieces of the family farm at a time when they are morning the loss of a parent.

Every one's situation is different but by planning ahead you can leave even more  for your heirs and really reduce the tax burden that they will face in the wake of your passing.  One note though ... the earlier in life that you start the process the less it will cost you, both of these options require you to be insurable and under the age of 80.

Here are some online calculators to help you figure out what you will need to pass on all you have worked so hard to get.

http://www.infarmbureau.com/website/general/resourcesTools.aspx

J

What if ?

In the insurance business you tend to spend a lot of time asking "what if".  None of the fun questions that you asked yourself when you were a teenager.  When I was a teen I asked myself  "what if'", I had a million dollars ... or ... what if I asked her on a date ... what if I became a famous rock star?  No, the questions I ask of myself now are more like, what if you have an accident ... what if you had a fire ... what if you died tonight? 

That's my job, asking myself and my clients, what if?  I am forced to think about the future in a way that most people don't want to think about it.  This makes me an unpopular guy in the moment I ask a client "what if", and they are not ready to consider "what if".  But these big looming questions exist whether I ask them or not and the answers will plague my clients with a great deal of sorrow.

One area that is most uncomfortable is the "what if" that surrounds our children.  What if they crash the car?  What if they hurt someone?  What if they get hurt?  What if they die?  No one ever wants to look at these possibilities, but I speak with parents everyday that have had these questions answered for them in the aftermath of a personal disaster.  Many of these parents had not asked the question before hand and they were caught off guard by an accident.  I want to take just a moment to discuss the most difficult of these questions and illuminate the answer to a question you never want to ask.

Lets imagine that you have a teenager who is in college, maybe Ball State or Indiana State University.  You want them to learn the ethics that makes the Midwest famous so you have them work and take out loans to pay for their college.  Lets imagine that it is working, you have a great kid who is in their 3rd year and has an A- or B+ ... they work they go to school and study, they don't drink and drive and they are very responsible.
But it is Wednesday night and your child is on their way to work, they just aced a test and are feeling good about the world, when BAMM!  They are Tee boned by a drunk driver that ran the light.  Your child is pronounced dead on arrival but not before being life lined to Indianapolis.  On the day after the worst day of your life you will realize that your child will never get to use the education that you will now have to pay for, not to mention the thousands of dollars that will be owed to the medical units that worked on them trying to save their life.

How will you pay for those things?  Will you make payments?  A monthly reminder of that day for 3 years, 5 years? 10 years?  This is not a pleasant thought but it is a thought I want to have now rather than later.  Imagine the worse case scenario now and you'll avoid the pain of discovery if you every have to exercise the contingency plans made while asking "what if?".

This is a simple contingency plan, once your son or daughter starts a college program, figure the final debt load they will have upon graduation if they are attending a state university and borrowing half of what is needed then perhaps $30,000 in term life insurance to cover their note.  Just a few dollars a month while they are in school will save you from ever having to make a payment on a loan for your child's unused education.
This is one "what if" that no one should ever have to experience, if you do ... make sure it is not made worse than the horror it already is and make sure their debt is covered.

J

PS: What college costs in Indiana http://www.collegecosts.com/HotTopics/IndianaCollegeCosts/tabid/102/Default.aspx

What is Full Coverage Anyway?

Ever wonder what all full coverage on your auto covers? If the law only requires liability, then why pay more for full coverage? Well, it all comes down to this ... what do you need to protect and how much are you whiling to pay?

Auto insurance is like most other types of insurance, the more bells and whistles to more it will cost you. At base the liability portion of your auto policy is the most important. But it has the most limited coverage.
Liability covers you from your family's mistakes. For example if your teenage son dropped his cell phone while trying to text and he rams the Smart car in front of him when he ducks down to pick it up. That would probably be his fail (or in the eyes of a potential lawsuit, your fault) so the Smart car driver would be entitled to you paying his medical bills. If you don't have liability coverage equal to or greater than his medical bills he would possibly sue you for the difference. Liability coverage will cover litigation and damages for the other driver if it is your fault.
Comprehensive (Comp for short) pays for damage done to your auto by flying rocks or missiles, falling objects, fire, theft, larceny, explosion, earthquake, windstorm, hail, water, flood, malicious mischief, vandalism, riot, civil commotion, and hitting or being hit by an animal. This usually has a deductable that you are responsible for before the damage is paid for by your policy.
Collision pays for damage to your vehicle caused by collision (I know, it sounds too simple but that's it!). This also has a deductable that you are responsible for before the damage is paid for by your policy.
Now full coverage is liability plus comprehensive and collision, all in the same package. It covers those around you that may be hurt by your mistakes and it covers the physical damage to your vehicle. But, full coverage on your auto won't pay for maintenance or any damage from lack of maintenance. Full coverage does not necessarily include towing or rental car, so be sure and ask about those. If your vehicle is more than ten years old you should check out it's value, because your insurance company will only pay you up to the value of the vehicle at the time of loss. So if it would take $10,000 to repair your car but it is only worth $2,000, you would get a check for $2,000 and the insurance company would get the wrecked car to salvage (that's what they mean by totaled out).
The most important part of your auto policy is the agent, because he is the one that will help you find what coverage is right for you, and he (or she) will be there to explain coverage when there is a loss. Make sure to buy liability limits that are high enough to protect your assets because sometimes just being legal for less isn't enough.

What makes my Homeowner’s Insurance go up?

You know, everyone asks why their insurance goes up in price and there is not a simple answer. Like most pricing issues there are several factors, and while some are in your control others are not.

The average price of gas at the pumps here in the Midwest is currently $2.64 and this time last year the average for the Midwest was $2.52. Why did it go up 12 cents in a year? The average cost for electricity in Indiana went up about a half cent per kilowatt of power in the last 12 months. Chocolate chip cookies cost an average of 5 cents more this July than they did in July of 2009. Cherries are up 77 cents a pound over their price last July.

In general there are some big reasons for the price increases listed above but in most cases … the price just went up. Homeowners insurance is just like any other product and as the cost of doing business raises the price offered to the public raises. But there are ways that you can control that increase or lessen its impact on your policy.

To begin with, it’s important to understand that homeowners insurance is a business and the only reason that companies get in to the business is to make money. That being said, homeowners insurance like all other insurance policies are contracts and the company is bound by the terms of the contract, and it is very much a one sided contract. The insurance company must provide the coverage that the policy dictates as long as the policy is in force. However, the customer can stop paying premium or cancel the contract anytime they want. So, what makes the company raise premiums? There are four basic events that increase the cost of your homeowners insurance.

First, if you have several claims in a three year period no matter what size those claims are you will see an increase in premium. Each claim, no matter how small has a fixed cost. The company has to pay someone to take the claim and enter it in the system, they have to pay another person to review the claim and determine if it is cover and what the liability is to the company. The amount paid to the client may be just a small portion of the overall cost to the company and so over time a client that has many small claims will be unprofitable.

Second, if you experience a single large loss you will see an increase in premium. If a client has a fire that causes say 20 thousand dollars in damages, and lets say they pay one thousand dollars a year in homeowners premium, the company may increase their premium by a couple hundred dollars a year for three to five years. This means the client will pay extra until the loss is old enough to be ignored then the client can request to be put back in a lower rate category.

Third, if an area that an insurance company has a lot of business in experiences a huge loss in a single year they will raise everyone’s premium to cover the losses in that area. Just like many companies involved in insuring homes in Florida during hurricane season lost a great deal of money rebuilding those homes, so they spread those loses on to clients around the country making everyone’s go up a little bit.

Finally, if the cost of labor, paper, postage or any other business expenses increases the cost of doing business to a point that it impacts the company’s bottom line, all their customers will receive an increase in premium. Just like at the local burger joint the cost of a burger now reflects the higher wages that the help gets paid and the increased cost of the beef used to make those burgers. My dad tells me about buying a burger for something like a nickel, you won’t see that price again just because the cost of materials and labor continues to go up.

So, what do you do if your premium goes up on your homeowner’s insurance? Well, first off realize that price increases happen and if you have had losses like what is described above you will be able to request to have your rate reevaluated after three to five years. If the increase was just an across the board increase do to rising cost of business, or losses elsewhere then everyone is getting those higher premiums and you should discuss with your agent ways to control your cost.

One way to control your premium is to raise the deductable. Your deductable is the amount of money you will pay out of pocket before the insurance company is responsible. As a general rule of thumb, the higher your deductable the lower the premium. Many folks who took out policies twenty years ago had $250 deductibles because that was a reasonable amount to pay out of pocket. Today, most home repairs cost three or four times what they cost in the late eighties, so your deductable should reflect that increase as well.

Nobody likes paying more for anything, but your agent can talk to you about what is the best strategy for controlling your premium while keeping you protected from total loss. Schedule a meeting with your agent and discuss what coverage you need as well as how you can best manage your asset protection. Communication with your agent will answer a lot of your questions and help you achieve the goals that you have for protecting your home and controlling your bills.

J

Social Security's Dirty Little Secret

We all know that Social Security has some major flaws but most folks don't know about the widow blackout period.  This is a slap in the face for the surviving spouses of life long contributors to the Social Security system, but it's also the government's dirty little secret.

Let's say that you are a woman, and your husband works as the sole bread winner while you raise the children.  You get married at 23 have 3 kids over the next 6 years and when your youngest turns 16 your husband dies from a surprise heart attack.

After grieving for the loss you apply for survivor's benefits from social security (because he paid in for 22 years and made a good living during those years) but instead of a check you get told that you have to wait 15 years until you are 60 to draw out his your benefits. 

So there you are with 2 kids in college and one in high school little or no work experience and no income coming in from your husbands lifetime of contributions!  I don't know about you, but I would say that sucks!  This system increases a woman's chance of living in poverty from 5% to 20% just because of the death of her husband.

What do you do?  Well, the only thing you can do is to plan a head and make sure that you have something in place to bridge the gap.  One plan that can be put in place is to take out a life insurance policy that will fill that gap until social security survivor benefits would kick in.  You will need to decide how much coverage you need by taking the average Social Security payment that the working spouse would receive at full retirement age and multiple it by the number of years until surviving spouse turns age 60.  For Example a man that earns $4,000 a month dies when his wife is 50 and they have no children under the age of 18, his Social Security payment at full retirement age would have been $1721 a month or $20,652 a year.   His widow would need $206,520 to make up for the loss of Social Security benefits during the next 10 years until she reaches age 60 and can begin drawing survivor benefits.

If you don't know what your working spouse's Social Security benefits would be you can go to the SSA's website and use their quick calculator to find that amount out.  Here is a link to their basic calculator http://www.ssa.gov/OACT/quickcalc/index.html  Once you have that amount you can multiple it by the number of years until your 60th birthday ... then call your insurance agent for a quote on an inexpensive term policy that will protect you until then.

J

Love what you do!

Love what you do! My dad tells me this every week. You know, he’s right, and reinforcing that lesson each week that we talk, shows his real wisdom. Most of us work 40 or more hours each week to make a living that only leaves 128 hours a week to sleep. If you get only 5 hours a night that leaves just 6 hours a day and the weekends to enjoy our family and eat. So, we had better love what we do.
I have always loved my occupation, for 10 years I was in the Army, and OMG what a cool way to make a living. I would still be doing that if it were not for my disability. After leaving the Army I started a career in sales (selling natural products wholesale to health food stores across the Midwest) that was great, the travel and the information gave me a great since of satisfaction.

Now my job is to insure that my clients have the appropriate amount of insurance at the time of loss. Not easy, because most people think I am just out to make some money. But I want to show my clients the best way to use the funds they have available for their insurance needs … and honestly, most insurance agents want the same thing.

We want to be there for you when your world has turned upside down and we want to help you get through it. That’s not how we make money … we make more if you pay the highest premium for the longest time with no claims. But we live in your communities and struggle like you do, so we often do what’s best for you and not what’s best for our bottom line.

This Father’s Day I went to the local stripper pits to fish with my dad and I know you folks did the same because that’s what we do in the Midwest, we spend our time with family and friends, and we protect those same people as best we can.

Insurance is like that, car insurance protects our family from law suits, home owner’s insurance protects our family from fire, and life insurance protects our loved ones from fate or someone else’s actions.

Yep, I love what I do because it makes a difference in the lives of each and every client I have. I spend more of my time than most folks promoting and working in my business because I LOVE what I do. Dad is right, you have to love what you do!

Call your insurance agent today and tell them that you appreciate what they do … if you don’t appreciate them then do both of you a favor and switch!