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Life Insurance 101 – Part 1 – Basic Forms of Life Insurance

Posted on October 15, 2014 by Comments are off


Jack Driscoll: Welcome back everyone to another edition of All Things Financial. I have with us over the next couple shows a guest, Ian George. And he’s a brokerage director with Mass Mutual. Welcome Ian. Thank you for coming to join us.

Ian George:   My pleasure thanks for having me.

Jack Driscoll: The reason I have Ian with us is – I get so many questions; especially from business owners but individuals and retires alike on different forms of life insurance. And Ian is an expert in life insurance.

                        So I wanted to bring Ian on the show to go through a number of different choices; alternatives that we have; evaluations that I want many of you listeners and viewers of this show to know:

  • whether your policies are healthy;
  • how to do checks;
  • what to look for;
  • what different forms of life insurance are available for those of you who are looking to purchase life insurance.

And also Ian’s going to help share many ideas on how to determine if we even need life insurance; what the benefits are; and things like that. So Ian again I’ll turn it over to you to pick up where you think people ought to begin with a basic explanation for starters.

Ian George:   Okay. Well basically over the years what I’ve discovered is that people from all walks of life have essentially the same kind of questions which is – they’re not quite sure what type of life insurance exist out in the market place. And more importantly obviously after they figure out what those are what type is right for them.

                        So I do find its best to give people some foundation in terms of what the basic types of life insurance are. As an industry the life insurance companies have done a great job of giving different life insurance products all sorts of different names to make things extra confusing.

                        So I’m here to tell you that the good news is that there are basically only 3 types of life insurance. And what I will do is go over and explain how those work one by one. And you know give people an idea so they can see how those work.

So the basic 3 types of life insurance are:

  • Term Life Insurance,
  • Universal Life Insurance,
  • Whole Life Insurance.

Now obviously the easiest to understand for a lot of people is Term Life Insurance. And that’s considered to be pure insurance. You basically pay your premiums, covered for death benefit, there’s no cash value, nothing else that goes on with it.

The reason it’s often called pure insurance is because basically what you’re doing is taking the amount of insurance that you want. And it’s calculated on the components of what all life insurance contracts contain. And that is first and foremost is the death benefit.

Whatever somebody wants to have to be you know their life insurance amount, their death benefit, that’s gonna be a part of all forms of life insurance.

The next thing you’re gonna have is what a lot of people don’t know about. It’s called the mortality charge. And all a mortality charge is, is basically what the insurance company needs to charge in other words when they figure out what the risk is if somebody would die.

So as an example you have somebody who’s in their 20’s. Their mortality charge for the amount of life insurance they would buy would be lower than that of somebody say in their 60’s. Because the odds of somebody dying in their 20’s is much lower than the odds of somebody’s dying in their 60’s. So that means that their charges would be lower for that.

Mortality charges in Term Life Insurance correlate pretty close to what’s gonna be charged to them in premium. So there’s the insurance company’s gonna pad in some added features on top of their mortality charge obviously because insurance companies need to make money; and when they’re selling and protecting the public with their insurance policies.

So it’s gonna be mortality plus some incomes from the insurance companies and then you’re gonna have the premium that you’re gonna pay.

Traditionally those premiums have now gone on to be level. So as mortality charges grow and they grow year over year, most companies now offer programs that levelize your premiums. So that you’re paying the same premium for say 5 years, 10 years, 20 years or 30 years. And that’s Term Life Insurance.

So if you look at it you have a very level death benefit. So whatever I want to pay in death benefit. And then I’m gonna have my mortality charges which are gonna go up over time. So the older I get the more I’m gonna pay for my life insurance.

With level premium all they’ve done is factored that in and flattened it out again for what we talked about; that – 10 years, 15 years, 20 years, 30 years. So that’s Term Life Insurance plain and simple.

The next product that comes into play is Universal Life Insurance. And Universal Life Insurance might be one of the most confusing programs and products that the insurance industry has ever come up with. It has gone through a number of different changes but let’s go back to the basics.

Universal Life Insurance starts with the same place that all life insurance starts with; that our Term started with. So we have the death benefit, And the death benefit is the number that somebody’s gonna pick.

Now we know insurance companies have to charge for that death benefit so just like your Term Life Insurance there’s gonna be a mortality charge. The cost that the then insurance company deems it’s gonna take to cover the death benefits you’re gonna do.

Now comes, well the added feature; or now the confusion comes in because now we’re talking about cash value. And cash value that sits inside a Universal Life Insurance contract is designed to grow over time. So what happens is you pick your premium.

So to a certain degree on Universal Life Insurance your producer, agent or advisor is gonna help you determine the amount of premium that you’re gonna put in. Now you’re probably not going to put in the minimal premium amount because that would be Term Life Insurance. Because they’re gonna give you the bottom and base amount for your mortality charge and you can pay that.

Now if you pay that it’s gonna demand that you pay more and more each year because that mortality charge is going to be going up and up each year. But generally they’re gonna pick some money so; pick a premium amount rather that you’re gonna put in there. And whatever is remaining from your premium after the mortality charge is taken out is going into your cash value.

The problem with Universal Life Insurance is what we’ve already referenced – what’s going on inside that contract year over year over year. There’s a charge in there that is constantly going up.

Now over time as you can imagine somebody in their 20‘s may not notice that charge as they’re pushing money into one of these life insurance policies. But over time their mortality charges as they go into their 20’s, into their 30’s, into their 40’s becomes more and more expensive.

The other aspect of it too is – this can sometimes be hard to see within your policy or your charges because you are actually only being charged on the difference between how much cash is built up and how much your death benefit is.

As an example if I started a policy that was $100,000 in death benefit, year 1 I’m paying my mortality charges. My fee is on all $100,000 because I don’t have any cash value.

Down the road if I have accumulated cash value and let’s say there’s $50,000 in cash value and my death benefit remains at $100,000 – I am now only buying $50,000 of life insurance because the other $50,000 is my cash value. So that upon my death I just get my death benefit.

So where that gets confusing is – people can look at their charges and see that they’re not buying as much life insurance but actually their cost is going up.

The trouble comes in with these policies when I go to either use my cash value. Or if I reach a point in time where my mortality charge has increased greater than my premiums which means the policy only has one place to go to make up the difference so I don’t pay more premiums; and that’s in my cash value.

So you can tell there’re a lot of working parts in Universal Life Insurance that can make it hard to work with and a little difficult to understand for a lot of folks. Not to mention the fact that you know we’ve come out in the industry with so many different types of Universal Life Insurance that it doesn’t make it any easier.

So when Universal Life again, first started it was based on interest rates. And this was back when interest rates were very high. So the insurance companies were offering a product where people could take advantage of the very high interest rate. It was a horrible time to buy a house but it was a great time to put money in the CD’s.

I don’t know if anybody could even remember the days when you could put money in the CD and get 10%; but they existed. And that was also going on inside these policies. Obviously those days came and went. And when the interest rates dropped so did what these policies were doing.

When that occurred these policies with the interest-sensitive portion became less popular.

Then came along the most recent incarnation of what they’re doing with these Universal Life policies which is called Indexed Universal Life Insurance Policy.

Now if you thought they were confusing before, the indexing of these policies is only matted to make them that much more confusing. Because then now not only does the client have to understand the variables that change inside the Universal Life policy on its own. Now they have to understand how their interest is going to be calculated.

So at least with the traditional interspace Universal Life Insurance policy it was like having a savings account. They told you what your interest rate was and that’s what your interest rate was and off it went. The indexing is supposed to be, can be tied to a market index such as the S&P500 and things like that.

But you really have to be very careful with these policies because you don’t really know exactly how your interest is gonna be credited from year to year because it changes. And that’s where Universal Life policies have basically come to today.

All 3 are still available out in the market place:

  • a traditional Universal Life with interest;
  • a variable which money is finding its way into the market;
  • and an indexed product where the markets are just being used to calculate the interest.

There is one form of Universal Life Insurance which is easy to understand that does work for some people. And that’s called Guarantee Universal Life Insurance.

Jack you and I have talked about Guaranteed Universal Life Insurance in the past.

Jack Driscoll: Right

Ian George:   But we basically talked about it. It’s Term till you die.

Jack Driscoll: Right.

Ian George:   And that’s basically what it is. Guaranteed Universal Life Insurance is essentially a premium that is guaranteed for the rest of your life for the death benefit guaranteed for the rest of your life. And that can be all the way up to age 121.

As we have gone over in some cases you can pay your premiums for a short period of time for Guaranteed Universal Life Insurance and keep your death benefit in force for the rest of your life.

Just know that there will be not, there will not be any cash value associated with these policies. It’s all going towards death benefit. Some polices will show some cash value at a certain time. But you have to understand with Guarantee Universal Life Insurance that if you touch that cash value the guarantee is removed.

So while you can see the cash value you can’t touch it.

Jack Driscoll: And that’s important.

Ian George:    It’s very important. Also it’s important for clients to understand if they’re working in that area that if they happen to forget a premium payment and that then will have the policy to look towards its cash value. They then lose their guarantees as well.

So they’re very fragile contracts but they will keep all of their promises and they are easy to understand as long as you’re very diligent what you pay.

 Now that brings us to Whole Life Insurance. And Whole Life Insurance is actually a fairly easy product to understand. We had talked about our basic components of life insurance. And so let’s go back and revisit those.

Our first basic component of Whole Life of life insurance is death benefit. Now with Whole Life Insurance obviously that carries a death benefit as well. So you’re gonna pick your death benefit. The next thing that happens is – we need to know about the mortality charge that goes on inside that policy.

Here is where Whole Life Insurance is different than Term Life Insurance or Universal Life Insurance – the morality charges on Whole Life Insurance are fixed in guaranteed level for the rest of time. This is nice because it makes it easier for people to figure out what’s going on inside their contracts.

So where as Universal Life Insurance is constantly going up. And then there’s the calculation of how that charge is taken out and what you’re paying into your premiums to get your cash value. And then you have to figure out how that’s calculated.

Whole Life Insurance kind of does away with that and basically says, “No. Here’s your mortality charge and here’s what it’s gonna be” and off it goes. Your premium also with Whole Life Insurance is- there’s gonna be a base premium to make sure all the guarantees can come true.

The underlying guarantees on any Whole Life Insurance contract are basically this – that the premiums that you pay in will go to your cash value and cover your death benefit. In a given year your cash value is guaranteed to be worth as much as your death benefit.

For most policies today that’s at age 100. So it doesn’t mean that you; you know that all that has to happen by age 100; well actually the policy guarantees that all that will happen by age 100 but it doesn’t mean you have to live to age 100 to keep it.

The other aspect is that you throw into what’s happening with that cash value. So you have that underlying guarantee but you can get more. So those are either with if you own a policy through a mutual company which are companies like my company – is Mass Mutual.

You have North Western Mutual; you have New York Life; you have the Guardian. These are your bigger mutual companies. We have Ohio National; we have National Life of Vermont; you have Penn Mutual. So you have small mutual companies that are out there as well.

The mutual companies, and this is where it’s important to understand this if you’re looking at a Whole Life Insurance contract – mutual companies are owned by their policy holders. So a policy holder of a Whole Life Insurance contract with a mutual company is being paid dividends. That’s how it’s done.

So if somebody has a policy with any mutual company, there are no stockholders other than the policy holders. You can’t find them on the New York Stock Exchange. They don’t; they’re not out there.

Other carriers do offer Whole Life Insurance they just won’t be paying you dividends on their Whole Life Insurance contracts as their dividends are paid to their stockholders. Policy holders are gonna get interest rates. So that’s how those contracts basically work.

With the dividends or interest rates on a Whole Life Insurance contract those are paid above and beyond the guarantees. They’re gonna do a couple of things. And most contracts are going to grow your cash value above your guarantee. And in other circumstances they’re going to pay your or grow your death benefit above your initial.

So it’s not uncommon to watch; on any Whole Life Insurance contract to watch all of your cash value grow and your death benefit grow. And that’s why Whole Life Insurance has been seen as a more stable program for a lot of people.

Jack Driscoll: And it’s important to point out – the dividends with the mutual companies are not guaranteed.

Ian George:   No they’re not. Dividends are not guaranteed and they do however; the cash value does have an underlying actual guaranteed amount.

Jack Driscoll: Right.

Ian George:   But no the dividends themselves are not guaranteed and they will fluctuate. So that is important to understand with anything. So your policy will go on over time.

The other thing that Whole Life Insurance contracts have are limited pay contracts. And those are offered by a number of different carriers offering you the chance to have a policy paid up in 10 years, 20 years. Some policies can be paid up at a certain year of you know the insured say at age 65 they want to make sure it’s all done, that can be done as well.

And that’s basically Insurance 101 with our Term Life Insurance, our Universal Life Insurance and our Whole Life Insurance. Now I know a lot of people do get confused Jack when they talk about all these programs. And somebody says, “Yeah but what about Single Premium?” well the funny thing is – is that Single Premium Life Insurance can be paid into any one of those 3 contracts.

So Single Premium contract in and of itself isn’t its own type of life insurance it’s actually a choice within any one of the 3 types of life insurance.

So how those companies choose to offer different options within those contracts can also be confusing. But what you want to know when you first start hearing about life insurance is – what is the basic type of life insurance.

And you can ask your producer or agent or anybody you’re talking to – is it Term; is it Universal Life Insurance or is it Whole Life Insurance? And then you’ll at least know what you’re starting with as a foundation and the blueprint for how that product works.

Jack Driscoll: And is it true that in any forms of life insurance; whether it’s Term or Universal Life or Whole Life – the death benefit if payable to a designated beneficiary and individual is income tax free no matter which form of insurance that you have?

Ian George:   That is true except for one particular area. It would be income tax free but depending upon individuals it could be, it may cause an estate tax which is why you need to work carefully with your advisor to understand how your policy’s being owned.

                         So nowadays if you’re an individual and you’re buying a life insurance policy and your life insurance death benefit proceeds take your overall estate over $5 million you could be subject to some inheritance tax as well as estate tax. That’s when you might want to take a look at having your policy inside of a trust in terms of how that goes.

But yes you can easily with some very simple diligence make sure that the death benefits of your life insurance policy remain untouched by taxation.

Jack Driscoll: And then the other area with life insurance can sometimes be probate where you get the name designated beneficiaries on the life insurance?

Ian George:   Yes probate is avoided as you know and some of you may know, is that probate is avoided on any beneficiary designation. So that is not only life insurance but its annuities; it’s your IRA’s; it’s your 401K at work; or your any plan at work where you’re forced to you know give a beneficiary.

                        And what probate does it that’s avoided as soon as the court is not involved. So anything that’s already been pre-deemed, and that’s where life insurance is obviously your front runner because – well people may forget to put you know beneficiaries on some other items; they’ll never forget to put beneficiaries on their life insurance policies.

Jack Driscoll: Because the one point I’d want to make to everyone is when you talk about life insurance the beneficiary designations override any designations you might have in your will. Because Ian just said it bypasses probate. If you have beneficiary changes that you’ve made in your will, who you want your heirs to be.

                         Let’s say you’re at a divorce or falling out or new children or whatever, and you update your will and don’t update your beneficiary designations, the issue will be the will is not seen through life insurance.

The beneficiaries that you have listed even if they’re old and defunct now will be the only designations the life insurance company sees when they’re paying out the benefits. So make sure to update both your wills and your beneficiaries when we talk about life insurance.

 Alright, well that’s it for today’s show. I appreciate everyone tuning in. I’m going to have Ian back on a couple of the next shows. We’re doing this as a series and will air them each week.

So Ian thank you very much for coming in and until the next show I appreciate it.

Ian George:   My pleasure thanks for having me.

Jack Driscoll: Thanks.

Valuable Papers and Business Interruption Insurance Coverage

Posted on September 26, 2014 by Comments are off

Insurance Coverage Episode

Valuable Papers and Business Interruption Coverage

Part 1

Welcome back again everyone to another edition of All Things Financial. We’ve discussed in many shows on the radio and now brought to you by video, so many areas in what I call financial planning but it’s really far more than that, that’s why I call the show All Things Financial. It deals with; we’ve talked about long term care issues; how to protect for long-term care; long-term care insurance or self-funding using life insurance.

We’ve talked about legacy planning; charitable planning; estate planning; special needs planning. For children let’s say future generations we’ve talked about college financial aid; we’ve talked about student loans; we’ve talked about FAFSA; we’ve talked about 529 plans, IRA’s, Roth IRA’s, Stretch IRA’s, Beneficiary IRA’s, 401k’s, 403b’s. We’ve talked about business insurance; workers compensation; auto insurance; car insurance; all these different areas in your lives; even budgeting.

Today I wanted to touch on a couple areas that most, especially business owners never think about. And the first one is – whenever there is a weather related or fire or any tragedy, any claim let’s say on an insurance policy, we find in many cases ruined documents. So I know it’s the paperless society. So we don’t have any documents anymore – everything’s online. Well, is it backed up? – “Yes, yes, yes, everything’s backed up”, you’ll say.

And then there’s a claim and it’s a water damage; it’s a flood; or it’s a mine subsidence; or there’s dirt; who knows; mud; who knows. And all your records that you didn’t think you had at your house or at your business are ruined. Now granted, the most up to date electronic records may be preserved because they were already loaded off site or in the cloud; but for the rest of the documents many times there’s data storage that’s ruined. It can be electronic media; it can be paper documents, same thing for those of you at home.

Well I wanted to share with you especially for the business owners – there’s a coverage called Valuable Papers Coverage. And you know we used to think that that was only a coverage for businesses who had blueprints or special valuable papers that were valued in and of themselves as hard to reproduce. But now we’re realizing over a long number of years, Valuable Papers Coverage needs put on to reproduce or preserve any paper documents, files and memos; because right after claim especially water. But it could be smoke or anything where they, the documents might have been recoverable using a specialist type of a company.

They might be ruined even just a couple hours later. Water is a classic case where it can compromise the whole box of files. Where immediately after the water claim if a restoration company properly comes in and specializes in paper restoration they might be able to save those documents.

Now picture this – papers or documents are in a box in the basement, water comes in, the box is wet. Immediately if you look and separate each paper and fan them out or lay them out, you may preserve the ink on those papers, you may still be able to read them but if you don’t they may all be stuck together and there may be 20 pages all stuck together and you’ll never tear them apart. That’s just a simple example of what I mean.

So what you’re gonna want to consider having coverage for, is the money to hire specialists at restoring paper documents if they can get in there fast enough and if you have the money to do it.

So we’re covering Valuable Papers. I’ve read a lot of articles on this and I refer to a couple of them here. But I read the Insurance Journals and on there were couple interesting tips in a number of articles; so the first one is – during or following a water loss. And this is from The Insurance Journal; it’s an older one but it’s The Insurance Journal – National Region and I quoted from this a couple shows ago – the same journal. I went through an old one from 2011 and I’m still talking with clients and prospective clients who don’t know this information. So I thought I’d bring this article back out again and share it with everyone because it’s just as timely.

It’s in the April 4th edition of 2011 and it says this – “During and following a water loss a standard letter or legal size box can absorb and retain several gallons of water”. You know we don’t think of this.  Who thinks of this? We just go along our lives hoping nothing gone happen but the insurance industry does think of this. And so do the valuable papers specialty firms.

Now, “saturated documents”, it goes on to say, “reduce the effectiveness of dehumidification efforts and provide a source of microbial growth”. So that’s mold. So you look at this and you say, “If we have boxes full of papers or files that are all wet and they’re trying to dehumidify the building to get all the moisture and humidity out, we’re making it hard on them by having all those paper documents; and it’s a great place to foster mold; which you know breathing that causes its own complications, very serious complications in some cases. So we’re festering and fostering the environment for mold and ruining documents and making it hard to dry out the whole location.

Now to prevent these problems and any other unnecessary expenses, the article says, “Damaged documents should be removed as quickly as possible”. I didn’t say discarded; I said removed from the premises as quickly as possible and blast frozen. Get that. I never heard of that before I had read this article. Blast frozen to arrest or stop or slow down the bleeding of ink and microbial growth.

Have any of you ever even heard of this? You know I’m bringing things to listeners and watchers of this show because most of us have never heard of half of this stuff, that’s why I’m bringing it out. Can you imagine that? Blast freezing! Who would’ve even think of that? – But the specialty companies do. So we would think of separating it out and drying it out like I said. They’re freezing it immediately and dealing with it later. It’s kind of genius right? But you need to pay for that.

Do you have the coverage to pay for that? – is one of the big issues. So it’s called Valuable Papers Coverage. You don’t have any valuable papers you might think and here, that’s the endorsement you need on to be able to preserve all your documents. So vacuum freeze drying and desiccant drying are the most widely used methods of document drying systems.

They’re 2 different methods folks. Again I don’t know anything about this until I read these articles but that’s why I share them with you. Vacuum Freeze Drying is one method, commonly used method, they’re others; and Desicant Drying – there the most; and they both have advantages and disadvantages.

Vacuum Freeze Drying results in a less wrinkled finish when you’re done – drying products. And it’s usually used when for books or clay coated paper is what they say. Vacuum Freeze dry chambers though are pretty small. Usually they’re pretty small. So you can’t handle a lot of volume at one time in one location. Companies using that system exclusively can have a significant backlog following a major loss. So they’re sitting out, unable to be treated fast enough.

Desiccant Drying – the other major alternative – is an expandable system; so several thousand boxes or documents can be processed at once. So it allows for faster turnaround; reduces your business interruption; reduces your time back in business; but desiccant drying can cause documents to expand. So it has its drawbacks too. And if you don’t use a highly skilled vendor for that it can get pretty bad.

Now, when even after drying these documents that you have may require some additional care. Gamma irradiation – again I never heard of half of this before I explored this further. Gamma irradiation may be required to combat bio-hazardous contamination to pre-mold; or soot may need to be cleaned form the surface; reproduction or imaging may even be required. So they’re gonna have to reproduce the document- can’t keep the old, original one; or they’re using gamma rays I guess to irradiate the documents again. You think this might cost some money folks?

You’re trying to replicate or restore the papers that you had. You didn’t think they were valuable but now that you think about it they might be original applications; documents; contracts. You never thought they were of any value and here’s what’s interesting – you have all your contents covered on your business policy and you have the full amount of coverage and guess what they’ll do. If you don’t have Valuable Papers Coverage or you do but you only have a basic limit, a lot of package policies give you basic limit – $10,000; $25,000 maybe $5,000.

You say, “Oh I have that coverage, I have that coverage” and in reality nowhere near enough. So these are some of the problems. So here are the big questions that we all look at and need to look at. Most business owners never even think about this –Does your property policy provide the necessary protection as you can already imagine, probably not? Rarely is coverage extended to include reproducing or imaging services as you can imagine. And a Valuable Papers endorsement is required; but how do you provide and determine the right amount of coverage? How do you know how much it’s gonna cost? You say you won’t know until you know what happens.

Well every need is, every business let’s say has a different need and every need is different.  But let’s use some common sense – Are you a medical firm? Are you a law firm? Are you an auto parts distributor? Are you a mechanic shop? Do you think there might be some difference in risk control with a law firm or a medical firm as opposed to an auto parts supplier or a mechanical shop? Yes of Course.

So there’s your first step – how vulnerable are you and is your business in this example? And you personally at home how vulnerable are you to paper being exposed to the risk of loss.

Now, the first thing an agent can do; so you need to contact your agents and say, especially if you’re a company and say, “Listen I have a law firm; I have a medical firm. I need your specialists, your qualified document recovery firm to come out and give me an estimate on how much exposure I have. What they would do if my papers got compromised; what treatment would they prescribe and how much would it cost and how much coverage do I need”.

Now if your agent says, “Huh!?” you might have the wrong agent. If your agent says “I’m familiar with what you’re talking about. I have company specialists that can help guide us in this and get a document recovery firm to come out and give you an analysis on the business and an estimate on the coverage”; now you’re dealing with a true professional and that’s why I share the show.

So that’s the first thing you do. And the second thing you do is find out – if I ever had this problem would you provide the restoration service in house or off site? Very few do it in house. You want one that does if you can to inconvenience you as least as possible; but you need to know the differences when you shopping these firms.

Now step 2 you need to see – do you have any damaged documents now that you might not know about? So you want to get down and see if there’s any mold where you’re storing things. Make sure, they might be able to give you some preventative measures; and if it’s a damp storage areas, how to protect from any exposure over a long period of time that might not be covered under any insurance policy. Because remember most insurance policies cover sudden and accidental types of losses but not losses that happen over long and extended period of time or it had to do with wear and tear, something like that.

When you look at your insurance, if you have a professional look at your insurance you may see the documents ruined over a long period of time because of mold may not covered under an insurance policy whereas if it was an instantaneous water loss they would have been covered.

So do your research folks. Standard limits that you have on policy typically just aren’t going to cut it, even if you do have some on your basic policy.

Alright, let’s take a quick break. We’ll be right back with more.

Part 2

Okay welcome back. We just got done talking about Valuable Papers Coverage, and for you business owners which was one little known type of a coverage on your policies; but another one is, you may be familiar with the term which probably you have no idea whether you have the coverage or adequate coverage – is Business Income or Business Interruption Insurance.

Here’s the key, if you own a business or you’re in business or representing a business or working for a business, that business needs money; which is its fuel to keep its doors open. Not its building, not its contents, not its people, not anything else.  Nothing works without money. Stop the money – people are still there, building is still there, contents are still there, machinery’s still there – business stops. Money is the fuel that keeps the business going.

The reason I bring that up – if there’s a loss, an insurable loss or a non-insurable loss, but let’s take an insurable loss here like a fire, or an earthquake, or a hurricane, or a flood or anything else; you might have great coverage with business on property, building, contents, workers’ compensations, vehicles, everything. And if your business is down while the property is being rebuilt; your building is being rebuilt whether you’re a tenant and don’t have a place to go back into yet or whether you’re a building owner or manufacturing firm or your manufacturing plant is down.

No matter what, your survival is an element of time and loss of revenues because loss of revenues coming in means you don’t have any money to pay your people; any money to pay your mortgages; any money to pay your business loans; any money to pay your expenses; any money to pay your car payments. Doesn’t matter how much those things are insured for – the people, if you can’t make their pays, will be gone 6 to 9 or 12 months later when you’re ready to reopen.

The vehicles will be – what do they call that?  – That’s right. They’re all taken back. The cars got repossessed. The properties got foreclosed on even though you had other property coverage; vehicle coverage; workers’ comp.; medical insurance; everything you needed to protect all of those things. You forgot the fuel which is the money stopped coming in until you reopen.

You know there’s a large percentage of businesses that are fully covered in the event of a claim that never reopen their doors again once everything’s rebuilt and restored. And the company is paying full replacement of the building and the contents and replacing vehicles and the business is never open. And you can tell why by the theme of this segment on this show.

They didn’t have income coming in through that whole period in time. Now there’re many reasons for that – Number 1 – no Business Interruption Coverage; Number 2 – Business Interruption Coverage but not pertaining to the type of loss that occurred. I have seen cases where we have Business Interruption Coverage or Business Income Coverage but the type of loss was a flood and the Business Income Coverage would have only pertained to fire, vandalism or whatnot but not all kinds of loss. Wow!

So check your coverages and then check your policy limits. I’ve talked about that in prior shows.

Now you have to take this very seriously because there’s another expense. What if your income is all coming in and by the time you reopen 6 or 12 months later all your customers went to the competitor because while your income was coming in and you had it insured your customers weren’t getting product.

You can’t expect your customers or maybe you can, to go down the street find alternative arrangements to have their needs met and especially if you’re a supplier for other businesses, and then come back to you when you’re open again. They’ve developed new habits now folks that’s why they stay with you now. The reason some of your customers don’t leave now, they’re used to dealing with you. There may be a better competitor right down the road and they still won’t leave because people don’t like to change.

Well in this case you need coverage piggy-backed called Extra Expense Coverage and that coverage needs to be of an adequate amount and limit to allow you to resume operations elsewhere. At a satellite location to service all of your customers so that their needs are met even if you’re making arrangements with other providers and manufacturers in the meantime to provide product through you so they don’t  have to leave you to keep your customers happy and fulfilled, in addition with having all your income coming in. So it’s Business Interruption Income and Extra Expense Coverage.

Now one final thing cause we’re out of time. You need to check with your insurance people or have us compare for you and do an analysis on your insurance program to see – “what if one of my suppliers goes down? what if my main suppliers has the fire? And now I’m out of product for 6 to 9 months and they’re proprietary products so I can’t license with another dealer or distributor. And I can’t provide product and my facility is fine. So you need to see if you have Dependent Properties Coverage.

Folks listen, we’re out of time, there’s a lot more to go over. It’s more than to do yourself. If you need a comparison, you’d like us to do a thorough analysis of your own business let alone the insurance program that you have, we will be happy to do that. We’ll get into an analysis on your business needs. Then do an analysis on your business policies; try to help you identify any gaps or areas of concern; and what potential and possible solutions are available.

Please feel free to contact us. As you could see our contact information’s available and we’ll be back next week we’re out of time again.

Thank you so much for tuning in and we’ll see you again next week.

Various Insurance Vulnerabilities

Posted on September 23, 2014 by Comments are off

Insurance Vulnerabilities

Part 1

Welcome back again everyone to another edition of All Things Financial. The last couple weeks we’ve been talking about Policy Comparisons – How to Compare. And if you missed the first 2 parts you’ll want to check those out. Because I went through some general concepts that are little known and widely misunderstood on how people compare insurance policies when they’re shopping.

But to continue this we were ending up last week with some differences and nuances with, as opposed to car insurance coverage, what recreational vehicle policies might provide; or boat policies; or classic car policies. So for those of you who have motorcycle insurance or any of these ancillary type vehicles, I wanted to point out some of the different coverages which we started on last week.

And I want to pick up this week where I left off. And I’ll also discuss some other areas in insurance issues. And maybe exposures that you don’t even know you have as we get through this show today. And maybe help you identify some areas you’ll want to hurry and call your agent about and ask him, “Am I covered?”

So back to the recreational vehicles – I wanted to share with you a couple other areas especially with boats and like I say the motor homes and mobile homes. But a lot of times when you’re going on a trip, especially when you have a motor home you will take a pet. And I bet most of you don’t have your pet insured. You never even thought of it.

So yes you can buy pet insurance but secondly in a motor home, you can actually add pet coverage while you’re transporting a pet, in some policies, in some cases, with some companies. So whether or not you have pet insurance, so to speak, which normally provides for medical care for the pet, this type of insurance is if they get injured in an accident or something happens to them in an accident let’s say.

So your motor home policy might be able to endorse pets on and I’ll bet that you never knew that.

When we look at some of the boat coverage – you know if you’re sailing in international waters do you think you might need some special coverage? You know, seems like common sense. Most of you would know that but I bring it up anyway because it is something you want to ask – If you go in international waters. Well be careful because – is Mexico international waters? or when you go off the coast of Florida. So be a little bit careful there.

We’re talking about some coverages that we didn’t have to concern ourselves or at least we didn’t know to like piracy and terrorism. So even on domestic waters we now have coverages that you may need to contact your agent and find out, “Am I covered for piracy and am I covered for terrorism?”; some of these things.

Now for you fishermen with the bass boats and I know they’re probably a lot of you listening. Some of you might be fishing tournaments for money and you might miss out on a tournament that you’ve invested money for, that your boat didn’t make it. It broke or you had a boating accident. What I want you to do is – know that you can talk to your insurance carriers about, “I fish for tournaments. And can I have coverage for loss of income or revenues or expenses as a result of the boat failing or me being in an accident?”

So I’m sure a lot of you didn’t know you could even buy that coverage but you can in many cases. Now again, remember there are a lot of discounts available that are not available in regular car insurance for boat policies. And that’s again Boaters’ Safety Training.

And you also have to know you might have to pay additional premiums. If you’re taking passengers you might have to pay additional premiums that cover those passengers if they’re hurt. Especially uninsured boaters liability and all those type of things. And you might have to cover equipment especially. They might not cover it on the regular boat policy. So know that fishing equipment, life preservers, things like that might qualify you for discounts but might also need covered. So you have to know all those things.

You know when you go into a Boaters’ Safety Course you might have as Boaters’ Certification – every 2 years or 3 years you might have to update that to keep the discounts but it’s good to have that. And you might also get a discount for having ship-to-shore radio on there; because it’s a safety feature. You might not think of but it might be a safety feature that’ll give you some discounts.

Alright let’s take a quick break and we’ll be right back after this.

Part 2

Welcome back again everyone. Now we’re going to get into some areas that I’ll bet you never even think of. But I’m here now to help you. One of them is texting while driving. There are issues with texting while driving and we’re a little bit concerned as insurance agents over – will policies begin putting provisions for if you’re texting while driving maybe coverages will be limited or something like that. So be aware of this because we already know the police can check your phones and see that there was texting and things like that; very, very dangerous. Remember when you’re driving a vehicle you’re really driving a loaded weapon so be very, very careful out there.

But an area I wanted to point out was an article I ran across. And I’ll cite the study, but you know what it pertains to?  – Football games. And I don’t mean participating in football games. I mean fans of football games and fatalities and car accidents after their team wins. So here goes.

There was an article. It’s an old article but I wanted to resurrect it for those of you now that it’s football season. And here is what it is, it dates back to 2011. It was in the “Insurance Journal” in the “National Region”, April 4th of 2011. And what it did was, it cited a study which I’ll tell to you about in a minute who did this, but here’s what it is.

The description says, “Closely contested major sporting events are followed by a significant increase in traffic fatalities for the fans of the winning team”. Whoever heard of this? So what seems to be happening is research from the North Carolina State University came up with this report that when your team wins there’s sometimes an increase in traffic fatalities – because the teams are winning and I guess it gets everybody all hyped up.

It said, “A previous study showed that traffic fatalities increased in the hours following the Super Bowl. Dr. Stacy Wood-Langdon” L-A-N-G-D-O-N, “distinguished Professor of Marketing at North Carolina State and a lead author of a paper describing the research went into a question saying – “Are close games or highly contested games; are the fans at more risk after the game?” Basically they’re all ramped up.

Now we don’t know whether it’s ’cause of drinking or whether it’s ’cause of testosterone, as it goes on to say in the article, that hypes people up and makes people more aggressive but here’s part of their conclusion. And the reason I’m sharing it with you on the show is because yes it pertains to insurance but it also pertains to your safety. Remember this show is All Things Financial so I’m trying to keep you safe folks.

“Games rated as nail-biters are far more likely to result in traffic fatalities” this study goes on to conclude, “but only for fans on the winning team”. So I don’t know maybe it doesn’t pay to win but be careful when you’re at these football games. “Wood and researchers”, it goes on to say, “from the University of South Carolina (USC) evaluated traffic fatalities after 271 games played between 2001 and 2008 including championship games”.

And it just goes on to say that they found that traffic fatalities increased significantly after close games and games that were like nail-biters. So the paper, it’s called if you want to look it up – “The Bad Thing about Good Games – The Relationship between Close Sporting Events and Game day Automobile Fatalities”. And the reason I bring it up on the show is forewarned is forearmed. So it’s from the General of Consumer Research. It was co-authored by Dr. Melane Morgan-McInnis – a Professor of Economics at USC; and David Norton PhD student at USC. Also the North Carolina States Department of Business Management is part of the university’s Poole College of Management had a part in this study.

So I bring it up for one main reason – it’s football season, be careful. As I say forewarned is forearmed. So be careful out there.

Now another thing I wanted to point out. A totally different area for those of who are involved in so many different sporting events or any community events – I know most of you don’t even think about insurance but my question as a financial planner not just an insurance agent is – are you covered? So if I had a hundred of you listening – tell me everything that you do on your off time. I’d be asking, or I’d ask you to ask me the question, “Am I covered?”; “Am I covered?”; “Am I covered?”; “Am I covered?” for all these different things.

It might be scuba-diving and you know bungee-jumping; it might be Little League Baseball; it might be coaching Little League Baseball. So all of these bring up activities and it might be being on a community board; or a community association; could be holding picnics; it could be holding trade shows; it could be doing all these things; holding fairs, farmers’ markets. All of these different ancillary activities raise the question to a seasoned and skilled financial professional – “Am I covered?”

So, I want to get into one area which is for those of you who are on boards or in leadership positions because you’re volunteering – and I know a lot of you probably are. I will start this discussion by saying many of you or maybe most of you are not covered. So you’re volunteering for organizations; you’re taking on responsibilities for those organizations; you’re making decisions on behalf of those organizations and may be personally liable for those decisions made having no protection through the organization.

So we’re going to take a quick break again. Come right back I’ll explain what I need; what I mean and what you need to make sure you’re covered when you’re volunteering out of the goodness of your heart to these organizations – to make sure that you’re also protecting yourself and the other members on the board; and the other members of the association properly, okay. Let’s take a quick break and we’ll be right back.

Part 3

Okay let’s get right into this issue. You’re volunteering for organizations; they get, they have no money sometimes. So you’re doing volunteer work- you’re coaching, whatever it is for no money. You’re putting yourself and your family and maybe even your business at risk. For what? – To do good work. But, be careful here folks because if you’re not covered it backfires. If you wish you never had done it then you need to know in advance – could coverage have been available; and then could the organization have afforded the coverage.

Many people are not volunteering because of the risks. But there’s a policy that can help mitigate some of the risk and it’s called – a Directors’ and Officers’ Liability Policy. Now for those of you listening you first need on your own; your automobile insurance, your home insurance; your miscellaneous insurance like I’ve talked about – recreational vehicles, motorcycles, boats, whatever and Umbrella Liability Insurance.

I’ve not talked about that on recent shows so write that one down. I won’t go into it in detail today. It will not typically provide coverage though for Directors’ and Officers’ Liability. So you still need; if you’re volunteering or on a paid board. You need to make sure that Directors’ and Officers’ Liability is first purchased from a reputable company. And many organizations don’t have the money to be able to afford the coverage.

And secondly, I’m going to help you see and write down what you need to be looking for, for starters out of the Directors’ and Officer’s Liability policy. So the very first thing that I want you to do is look and see when you join a community association or a board, I want you to realize you’re a fiduciary when you’re acting on a board. Talk to your attorneys first. And ask them, “Am I putting myself in any legal liability that I need to know about and I’m unaware of?”

And that can go so far as the attorneys might tell you, “Do you sign any leases? Do you sign any papers as a board member? Do you vote on anything?”

“Well yes we do.”

“Well that might be deemed as a contract.”

Who knows I’m not an attorney. But you need to ask the attorneys, your own attorneys and maybe the board’s attorneys – and they should have one by the way, “What liability are we exposing ourselves to individually and as an organization?”

So typically we see that as a fiduciary liability which means – you have to do what a prudent person  in the court of law they say- would have done to put the interest of the organization first and the members of the organization over yourselves and above and beyond. So get to an attorney is my first recommendation. And ask them, “What risks am I undertaking that I’m unaware of?”

Number 2 – on the insurance side with this Directors’ and Officers’ Liability even with your best efforts you still can’t control all the risks. So there are potential lawsuits that you might want to be buying this insurance to protect, and you might want to be shopping the insurance from many different companies.

So one is – breach of fiduciary duty. Are we covered if there’s breach of fiduciary duty? A lot of; how about employment issues? We had a secretary, we had a janitor, at the association we fired and they sued us. So for discrimination, “We didn’t hire”. You know sometimes you might be in a situation where it’s not an employee that you had. It was a perspective employee that you chose not to hire and they sue you for discrimination or whatever.

So don’t you think you might better have coverage so that you’re not on the hook paying all the legal bills defending yourself that you did not do anything wrong. Low and behold 2 or 3 years later it goes through the courts and yeah it was proven you did not do anything wrong. But it didn’t get to the courts for 2 or 3 or 4 years. Who’s paying all those legal bills for those 2 or 3 or 4 years until it gets to the judge to say, “Yeah it’s a ridiculous lawsuit”? – Well you are.

So when you look for the Directors’ and Officers’ Liability coverage, you’re looking for – does it have these coverage for  breach of fiduciary liability but you’re also looking to see does it pick up defense costs of each individual; and in fact is each individual an insured under the contract or is only the organization insured?

So if the organization’s sued and the judgment goes against them, the organization is not remunerated but the payment is made based on any liability to the organization. But what if it doesn’t pay based on the liability of any one individual in that organization acting on behalf of the organization? Ouch!! So you better make sure you’re covered; do your homework there.

Now you want to make sure that the insured like I say is – picking up all the members and all the officers. So I’m talking here about members and officers. Why do I want that? Well what if one member in the organization does something, and they’re not an  officer and they put the organization at risk for being liable for something because they were a member of the organization? Boy oh boy, what a mess huh!!

So you want to find out who’s an insured – are the members insured’s? Any action of the member as a result of an organizational activity? Are the officers insured?

Then you get to the next point and you say, “What about somebody stealing money?” What about members stealing money are we covered? What about officers stealing money or embezzling or not only money – theft of equipment? So are these things insured?

How about liability? When you’re a member of an organization and you conduct a picnic as or fundraisers. If anyone gets hurt at those activities are you insured? And another one is what if you plan a big event? Put all that expense into the big event, have all the commitments from all the vendors, let’s say, and all the members or not members but participants who might pay an entrance fee to the event and then it gets rained out. Or power goes out in the facility where you were holding the event. Do you have No Show Insurance? Do you have Show Cancellation Insurance? There’s a lot to think about here.

Now you see why I tell you – business owners and individuals alike. You need to surround yourselves with competent financial, legal and tax professionals. Don’t try to do this yourselves. Like the old TV shows, “Don’t try this at home kids!” because it’s too complicated. And I’m sharing that with you here. Don’t try to do this on your own. It’s tough. There’re a lot of things that you’ll never think of and in fact many professionals don’t even think of, so you have to get highly skilled ones.

How about this? What if a lawsuit is between an insured to another insured? Wow! A lot of policies don’t cover that, but you wouldn’t know to ask. So when you shop one company and you shop another company and they both say they’re giving you the same coverages, and you look at the policy quotes and they’re both saying $1 million or $5 million, and this and that and the other. You don’t know how to look in that policy coverage booklet.

Insured versus insured is excluded on one; claims on that and they’re covered on another one. Obviously one policy is going to be more expensive if it’s including more risks of loss than the other one is. Have your attorneys review your contracts when you’re shopping for coverage folks. Do not try to do this on your own.

Now – employment discrimination. Again I just touched on that but what about breach of contract? You know the attorneys will tell you there are verbal contracts, they’re written contracts, but if you tell somebody you’ll do something and don’t; what if your organization says they’ll do something and don’t? What if they sign agreements and then have a breach of contract for whatever reason? Are breach of contracts covered?

These are all issues that when you’re a member of an organization you’re now taking on that you weren’t before you volunteered or for pay. So either way I’m asking you to be very careful. I’m asking you to research. I’m asking you to ask the right questions. And I’m asking you to get and surround yourself with the right professionals to help guide you.

Okay folks, that’s it for another edition of All Things Financial. We’re out of time. I could go on and on as you know. But we’re out of time so we have to stop. I’ll be back again next week.

Insurance Coverage Comparisons When Shopping For Insurance

Posted on September 16, 2014 by Comments are off

insurance comparisons

Insurance Coverage Comparisons When Shopping For Insurance

Part 1

Welcome back again everyone. You know – last week we were talking about the basics of shopping for insurance and the tragic mistakes that are made right off the bat before people even get started.

Well what I wanted to do this week as a continuation of that series, was go over a couple issues with just different things that you do in your life and how the coverages might work or whether you even have policies to address those risks.

So the first thing I wanted to share with you. I happened to notice an older article from an insurance journal magazine that was from 2011. So I wanted to check on something and here is what the article says. Well just a little excerpt from it. “$10 million dollars”; now before I go any further that ought to scare all of you, because if I ask everyone listening and watching, “How much coverage do you have?” And again now we use that term loosely. But when I say, “How much coverage do you have?” I bet many of you aren’t going to say $10 million dollars. So that number ought to scare you right off.

But here’s the case. “An amount sought by the family of a comatose cyclist”; so this is a bicyclist who got hit and it was an elderly driver of a car that struck him in Maryland. And the names are Nathan Krasnopoler, K-R-A-S-N-O-P-O-L-E-R and he was 20 at the time it appears; an undergraduate student at John Hopkins University. So Johns Hopkins University means probably pretty bright kid, bright future ahead of him.

And they alleged that this 83 year old Janet Marie Walke, W-A-L-K-E, had hit the cyclist. And it turns out they, I looked it up online now to see what ended up happening on that case. And as it turns out they settled. And it says they settled for an amount that’s not able to be disclosed but it was a substantial amount. So we’re not going to guess here. What we’re going to say is– a law suit was presented against this 83 year old for 10 million dollars.

Now folks listen, one of the very reasons we’re willing to slide those dollars across the desk to transfer our risk of liability to an insurance company is so that we don’t lose everything that took a lifetime for us to build and accumulate in one moment of an accident; or mistake; or mishap; or even weather related on a home let’s say, mine subsidence. So we’re willing to pay money to transfer risks of liability that we can’t asume or absorb all on our own.

So imagine you live 70 and 80 years accident free and then this happens. $10 million and a whole life accumulated assets are now put at risk. Do you have enough insurance? That’s the question. So when we first shop for insurance, and I’m back to this mistakes in shopping for insurance – “Apples to Apples”; “Apples to Apples”; “Apples to Apples”; if you’ve done that your whole life, if this 83 year old or any 80 year old had done that their whole life; and saying, “Hey I’m not driving that much anymore I don’t need as much coverage just quote me apples to apples”; and they’re still quoting on coverage that was presented to them when they were 20 and 30 years old. And everybody, they’ve ever only allowed anyone to quote apples for apples; for the rest of their lives, they might still have their coverage limits that they had when they were still way back when they didn’t have any assets to speak of. And meanwhile they may have 401k’s in retirement accounts, a home and all these different assets now, that they don’t want put at risk. And they’ve never increased or modified, enhance, improved, upgraded whatever you want to call it, their policy protection.

They might have retirement benefits, pensions, who knows? So folks listen, use common sense here. These limits on today’s lawsuits are way higher than they were 30 years ago. Are your coverages? If you’re still quoting apples to apples, or trying to, actually the mistake is, you’re trying to do it on your own. You’re trying to compare apples to apples or go on the internet or quote on your insurance, you’re trying to do it on your own.

If you get skilled professionals in every area of your life – A qualified certified public accountant; qualified attorneys for your legal representation, for your wills, for your living trust, if that’s what you choose; for your charitable planning; for your legacy planning. You have skilled financial advisors, skilled life insurance professionals. Get someone or a group as a team around you to advise you and make sure that your greatest concerns financially – because this show is All Things Financial – we can’t solve everything folks; but your greatest concerns financially are being put in the hands of the highest credentialed and qualified professionals to handle each area for you and with you.

So I don’t want your professionals making decisions for you folks. I want the professionals being guides and assistants making good decisions with you, and helping you as the final determinant and decision maker. Helping you make the best decisions, equip you with information to make the best decisions possible for yourselves. That goes for your business owners that goes for you individuals.

So the number one test when you’re shopping for insurance is, “Are my limits adequate?” there is no right answer to that. Everybody’s circumstances and situations are different. One person needs one set of limits that they’re comfortable with and can afford and the very next-door neighbor has a totally different set of circumstances and might choose to structure and build an insurance portfolio of far different limits.

So I bring up this one case because any one occurrence could wipe everything out. Take this very seriously. Okay I wanted to share that with you.

Now let me share some areas that you don’t think about. When you go on vacation and you rent a boat, or a Jet Ski are you covered? When you rent a car are you covered? If you own a boat? So here’s what I wanted to point out. There are some differences when you have car insurance and if you own a boat have boat insurance. So you’ll be thinking I have coverage, I’ll shop for it the same way, or I have collector cars, or I have motorcycles, or I have recreational vehicles, or I have quads or snow mobiles. Whatever it is, each carries with it their own set of circumstances and risks.

So what I want you to do, I want you to first see things that are different and unique to these set of circumstances. Let’s talk about boats. Are people on your boat covered? You don’t have to know the answers folks to the questions I raise, you have to know the questions. You have to write down the questions that I’m giving you. And then ask the agents that you have. So you don’t have to answer me.

If I say, “Are your passengers covered? Is anyone else covered? Is their personal property covered?” You know you’ll get people coming on your boat. They bring their cell phones and they bring their radios and they bring their fishing tackle. Can be very expensive! Goes overboard; are you liable for that? Are they liable for that? Are you covered for that? Are they covered for that?

Folks you don’t have to know the answers to these questions, you have to know the questions. Now what do you do with the questions? You ask your agent. You go to the agent. You say, “I have some questions that I saw on a video and I heard over the radio, I never thought to ask you, am I covered for this? So I want you to think next time you’re out on your boat, what could go wrong. “Hmm I wonder what could go wrong. My boat leaked; somebody got hurt; I had a skier on the back”. Whatever it is, write the things down that scare you most and just ask the question the next week. Call the agent.

Other coverage options are available on boat policies that aren’t available on car policies. Like mechanical breakdown – if the outboard or inboard, the mechanical breakdown, there’s coverage for that in some policies and other policies not. How about fishing equipment that you have on the boat? Radar, sonar, whatever it is that you have especially on the pass boats and all.   Are they covered or do you have to specifically tell the insurance company you have that equipment to get it covered.

And folks out of a hundred people listening and watching this show, maybe 5 will call the agent and be told you’re not covered for those but then you called. Maybe the other 95 are covered, doesn’t matter, if this show helps anybody then it helps everybody. Now did you know there are discounts on boat policies that are different than car insurance? So you think if I have a good record. Our ages are good we’re over 30 years old, etcetera, our credit’s good, we’re going to get good boat insurance rates too for the same discount.

But get this, how about account rounding; educational credit for boater safety courses? How about equipment discounts for having safety equipment on the about? How about taking advantage of any of these savings that you didn’t know to ask for that you might be missing out on simply because you didn’t know to ask for the discounts? So I wanted to share that with you.

How about recreational vehicle insurance? When we have recreational vehicle insurance we have the same thing in unique circumstances, but here is what we have different – There is a lot of equipment in recreational vehicles that aren’t in normal cars and aren’t on normal boats. And I mean refrigerators, stoves, couches, cabinets; when we think of those recreational vehicles we might be to the extent of driving a house down the road. And a question has to be, if all of that equipment in this boat gets damaged or the whole thing gets stolen am I covered for that? So folks – write it down.

Now what about if it’s a trailer and it’s a recreational vehicle but its not self-propelled and you have it hooked onto your car, is it covered? Hey folks, that’s a good question. A lot of people say, “Oh yeah if I have it hooked unto my car it’s covered”. A lot of people say, “I don’t know”. Some people say I don’t have it insured maybe it’s not covered.

 And my next question would be, “Well while it’s hooked unto your car or your truck, while you’re driving down the road if you have an accident in your truck are you covered?”

“Well yes I have my truck covered”. You’ll say, “I have my liability covered so that if I had anyone else or anything else I have coverage for that”. Then I’ll ask you, “How much coverage?” And then we get into another whole discussion.

But when we’re trailing something, we didn’t know you were trailing it as an agent. You hooked it on there but you didn’t tell anybody. And you swung wide and it came off or you swung wide and hit a parked car or someone that you didn’t see as you were backing up. Now are you covered? I’m not asking if the trailer’s covered or the boat that you’re hauling; I’m asking are you covered for the liability while it’s hooked unto your vehicle?

Folks, ask the questions. Write them down; that’s the purpose for this show; and then ask the questions. So you’re going to ask all of that and then if so what are the limits. Because if your run somebody over and you’re $100,000 bodily injury limit is the maximum, you might get a little unnerved. So you’re going to want to talk about some optional coverages on some of these areas.

Now recreational units, again with all of this equipment you can usually endorse let’s say a motor home or a mobile home. And you can endorse all this extra equipment and awnings and things like that. A motor home is typically portable, not parked in any one place at one time. Where a mobile home many times is skirted; it’s stationery for years and years sometimes. And it’s more like a stationery residence than it is a motor home. And definitely not a mobile home equals a motor home as you can see. So the coverages are going to probably be very different, and you’re going to want to make sure you have the right coverages in line with your needs, especially when you’re away.

So you say, “I have a mobile home at my camp” or “that is my camp”. And the agent, you don’t know how to ask the agent or even talk to them about – is it my primary residence or is it seasonal. So you go back up the next summer or winter and rodent damage tore through the motor home or mobile home and you say, “Oh boy I better call my insurance agent”.

Well you sure want to hear the answer, “Yes you’re covered for that”. You don’t want to hear the answer, “Oh no you’re not covered for that we didn’t know it was stationery”; or “we didn’t know it was only seasonal”; or “we didn’t know this or we didn’t know that”. You don’t need to find those things out after a claim. So I wanted to point that out to you; there’s special coverages that you might not even know to get.

Now how about this? While you’re units in storage or again, in the winter but even in storage what about freezing water supply in the holding tank; or vandalism? So you’re going to want to check on those coverages ’cause that’s different than your normal car insurance deeds as you can see.

Here’s another area you definitely want to be looking at in your own policy or asking the agent. Most car insurance policies, the physical damage coverage covering the car itself is called Comprehensive and Collision. And its normal settled on an actual cash value basis otherwise known as ACV. And you’ll be able to see that on many policies. It’ll just say the deductible, one thousands, ACV minus $1,000; ACV minus $500. That just means they’re going to depreciate the vehicle or we’ll use what we customarily refer to as the Blue Book Value.

You know it’s not really the Blue Book value but we still call it that. But it communicates it’s what your car will be worth if you traded it in or sold it on a retail market which are 2 different numbers, or maybe an average of those. So that’s an actual cash value would be all you would receive on a car insurance policy.

Well when you have a boat or a recreational vehicle one option you can buy is market value. That’s what your individual motor home; mobile home; boat might be able to get on the market. So that’s market value as different than Actual Cash Value which is described as replacement cost minus depreciation. Commonly we call that the Blue Book Value but it’s not by pure definition really a blue book value.

So you have the Blue Book Value, you have the ACV, the Actual Cash Value which is replacement cost minus depreciation. Then on a motor home and a mobile home, some of these recreation vehicles you also have another option you can buy unlike a car insurance policy, which is Total Loss Replacement Coverage.

Now again you can do this on collector vehicles, collector cars. And we’ve done that a lot on the collector car policies. Interestingly enough, collector car policy coverage is a lot less expensive than regular car coverage. And here we’re able to buy Replacement Cost versus Actual Cash Value or Depreciated Value. So there are a number of things you can buy on your recreational vehicle policies I wanted to make you aware of – as opposed to just buying a standard off the shelf, as I’ll refer to it, recreational vehicle policy. And assuming that you have all that you need can be very inexpensive to make some of these very valuable and great differences in the value on which you’re insured. Get the right coverage – can be very, very, inexpensive maybe even almost the same premium you were paying unknowingly without having those coverages.

Okay let’s take a quick break and we’ll be right back.

Part 2

Okay welcome back. Now before the break remember I started talking about on the recreational vehicles, the different types of coverages that you can choose – Actual Cash Value, Blue Book Value we might call it; Red Book Value whatever they want to call it. Its depreciation probably the lowest value you could receive if someone stole your RV.

Market Value is the second one I touched on; what it would actually bring in the market at that time. The third option that sometimes available on an RV policy for purchase is Agreed Value Coverage. Now what that is, is a coverage that the policy holder and the insurance company actually agree an amount in advance, on an amount that they’ll pay you at the time of the claim. So you’re buying a limit when it’s purchased but it’s actually an agreed limit at the time of the claim what you’d be paid without haggling. That’s an Agreed Value or Agreed Amount Coverage.

You know I think the insurance agents for those of you who have these RV policies, classic car policies. You know Classic Car Policies aren’t all the same. You look at different companies and you say this company’s more expensive than that. Without getting the policy booklets out not just the declaration pages you don’t know why it’s more expensive.

Again my evaluation of more expensive cars versus less expensive cars – A Mercedes for example versus a Kia; there’s a reason the cost is different. It doesn’t make one of the cars better than the other but it makes them different. There’s a difference. And their differences are sometimes worth paying for, and sometimes in other cases not worth paying for – depends on your budget and your personal situation and circumstances.  It is the same for insurance.

Some people want the best attorneys, the best legal representation so they’re hiring the best partner which might be a multi-national insurance company. And another person might say I don’t care I just want a small regional firm that probably has to sub out the attorney work; the claims representatives using an independent claims firm. But at least go into that with your eyes open and know that you’re getting a difference, not thinking, “I got exactly the same thing as I had before”.

When you’re first shopping for coverage get a skilled professional to help you analyze even when we get to these recreational vehicle policies. If you talk to someone who only handles one company – the contract with that company and the policy booklet is what you’re going to get. You might be able to ask them are they’re coverage enhancements with that company but you certainly can’t ask them, “How about the others are there 5 other companies that are dominant in this industry also and can you help me find the best one for my personal needs?” So that’s why I recommend the independent agent as being the representative of choice to help you shop for your insurance companies rather than you trying to do it for yourself and on your own.

Alright folks, we’re again out of time. When we come back I’ll probably continue this discussion because I keep running out of time and there’s so much more I want to get to you about helping you comparing your insurance and being able to get the best packages available. So we’re out of time. We’ll be back again next and thanks for tuning in.


Shopping For Insurance

Posted on September 11, 2014 by Comments are off

Shopping For Insurance

Shopping for Insurance

Part 1

Welcome back again to another edition of All Things Financial. What I wanted to go over today – I happened to be thinking and going through some articles about so many various areas that most of us never think about – dealing with insurance, things that can go wrong, protection; and we just really go along our lives never really giving any of these issues any thought.

So what I wanted to do today is try to peak your interest in some areas in your own lives that you might be opening yourselves up and exposing yourselves to risks that are not covered right now if anything goes wrong. I mean like baseball little league games and if you’re going ice-skating or skiing in the winter. And if you’re a member of a community organization or on the board of directors or running any risks at all where you don’t even know you’re running risks.

You know they say ignorance is bliss, but a lot of times what happens is you never know of a real risk until someone has a complaint or assesses any lawsuit against you. You’re just driving down the road and you happen to not see the bicyclist or the motorcycle and all of a sudden your life just turned upside down.

Well what I want to do as a part of financial planning on this show of All Things Financial is discuss today a lot of areas that I’ve never touched on, on this show. Different areas in a person’s life that those of you listening and watching the video might say, “Wait a minute, I’m doing those very things, those activities”; or “my kids they went to school”; “they’re in college”; “they’re in athletics”; “we never thought o’ those things”.

So I thought, “You know what? I’m going to do a show on this”. And I’m going to try to make you aware of some of the areas that you have risks that are so easy to solve if you think about them in advance; and impossible to solve if you wait and then something goes wrong and it’s too late to protect yourselves – where it’s so simple in many cases.

You have a recreational vehicle, motorcycle quad, anything like that your kids are active; and all of these things in areas of your life can be protected with such simplicity  and many times very little cost just by evaluating the types of policies you already have and are paying for.

So that brings me to my first point. And that is when you compare your policies that you now have and are paying for what I mean by that are your car insurance and your home insurance. Things like this, and when you compare, as we many times do, we’re taught to compare apples for apples. So we say I want a price on apples to apples. And I as a professional advisor say, “Who chose the apples to begin with?”

Because what I’m finding is in life most people’s policies’ coverages are never changed. So whoever set your first coverages in place enforce the snowballing effect of all the policies and policy comparisons for the rest of your lives; and I’m using this as an extreme example; and also in your businesses for the rest of the life of your business.

The quality of the coverages, the amount of the protection that you bought is sometimes dependent on the very first agent that you ever met. And every other agent thereafter that you’re handcuffing to, “Hey don’t make any changes, I want you to quote on exactly what I have right now”. And the agent might ask you questions and you might adamantly and firmly say, “I don’t want any changes! I told you I wan’t quote apples to apples”.

You know the poor agent, especially the professional over a long period time realizes, has anyone ever asked you about what you need and done a needs analysis. And here most consumers would be scared off by that and they, “Oh you just want more money! You just want extra money out of this. And you’re trying to build up the price and get me away from being able to compare something that’s firm with the coverages I have now and measurable. You’re trying to trick me”.

Where the professional might actually be saying, “Wait a minute, we’re trying to evaluate your needs, and then evaluate what you have in comparison with what you said your needs were”. It’s a much more professional approach.

So then I see some people in companies taking it to the other extreme. The opposite end of the spectrum saying to people who want to quote, “Well I’m not going to show you anything that I have. You tell me what you think I need and you build the program from scratch”. That’s equally devastating because what you’re doing there it is possible that agents along the way have asked some questions. Like on your homeowners, “By the way do you have any jewelry?” And they might have schedule jewelry on your policy 15 years ago that you forgot even about.

And if you get an agent, if they at least compare they might identify things on your policy that you forgot to tell this new agent about. Or you business owners might have Director’s & Officer’s coverage or you might have hired and un-owned auto or whatever the exposure is that an agent might have uncovered years ago.

And you’re telling a new agent now, okay in 1 meeting or 2 meetings you have to know everything there is to know about me and my business and my history and quote on exactly what I need. Well obviously you might be putting yourself up and setting yourself up for failure because this new agent might come in far lower premiums than what you’re paying now. And you’ll think, “Boy that old agent, they’re ripping me off!” – Where in fact the new agent because you didn’t show them any coverages might just be missing a lot.

So my advice in the very first step on this insurance policy comparisons:

Number 1 – Comparing apples to apples; going to find the cheapest price; the best price you can for exactly what you have. I’m going to tell you either extreme is bad because if the new agent is just quoting exactly what you have, taking the information on coverages, not asking many questions about it, and simply quoting on whatever it is you have without addressing your needs, that can be very devastating as you can imagine.

You might have coverage that’s woefully inadequate for the exposures you have. You know 10 or 15 years ago you might not have been on any community associations; you might not have been on any board of directors; your kids might not have been in inter-collegiate sports or have gone away to college. They may have been infants at that time, now your needs have changed, your lives have changed but your policies haven’t.

So you’re still comparing apples to apples mirror imaging on everything that was 10 or 15 or 20 years ago. And again the opposite mistake being true; hiding your policies from the new agent puts them at such a disadvantage, or maybe you at such a disadvantage by not allowing the agent to professionally review, not only what you now have, but also professionally analyze and inquire from you what your current lifestyle is, what your future lifestyle is expected to be; and asking you probing questions on your needs analysis. In addition comparing what you now have as a base policy, base structure of coverages, in combination with analysis of your needs. That might help you provide much better coverage and protection for your family and your business.

Now, what are we buying insurance for? Most people that I talk to, most businesses that I talk to I think are under the misconception we’re buying insurance to get the cheapest premium that we can get for the coverage we now have. So you know where I’m going with this. That can’t make the most sense. But we forget as business owners, we forget as individuals, there is only one reason we should extend $1 out of our pocket and give it to an insurance agent or company. And you know what that reason is in my opinion? Because the value of whatever is being provided to us is greater than the value of each dollar that we pass across to that agent or company.

 So what am I getting at? I’m getting at, you’re buying protection, you’re buying transferring your risk and transferring the risk of liability that you now have in either your business or yourselves individually. You’re with sliding those dollars across the paper, across the desk rather along with the paper which is the application for insurance. You’re transferring your risk to the insurance company in areas that you feel the risk is too great for you to assume on your own.

So you’re looking for a partner, you’re looking for help so that brings me back to shopping for insurance. You’re actually choosing a partner. Be very careful with this because if I tell you to go out and shop for cars and I say to you my criteria, “The car must have 4 wheels, tires, a steering wheel, seats”. I could come back with a whole range of cars! You’re not specific enough in your criteria.

So when I go to an insurance company and I say I want the exact same thing that I have right now but what your criteria is – I have $100,000 liability coverage I have a $500 deductible. The smallest insurance company versus the largest insurance company, to you look the same. But obviously when you probe deeper there’s a big difference between a Mercedes and a Kia. That doesn’t make one of them better or worse but it does certainly make them different. And why would a person spend so much more out of their budget for the same thing as they could get so much less. But the reality is, it’s not the same thing. It’s exactly the same in insurance.

When you get an international, multinational conglomerate insurance carrier versus a regional local insurance carrier providing you with the same list of coverage maximum benefits; you do not have the same things folks! If you’re hit with a lawsuit one of the companies may have a team of specialized attorneys in every city, every major city and maybe every minor city in the country and not only that all around the world. And another company; and claims offices by the way! Of their own employees, their own staffed claims offices all around the world as opposed to maybe a small regional carrier who may be equally as good, I’m not saying that, but they may be different and you must recognize those differences because their premiums will reflect those differences in many cases.

The smaller regional might have to outsource to other attorney firms in other areas of the countries or rather states even. Not only the United States, it may only be a regional carrier in your own individual state. So even though the other 49 states in the country, a small regional carrier may have to go to outside attorneys, independent claims adjusters who they really don’t control with the same quality criteria control as they might their own employees who  have been trained for years and years on the company way of doing things.

So when you’ve shopped for insurance and you think you’ve saved money because you did it yourself, I’m telling you from my years of experience it’s too hard to do yourself. My recommendation is you get and hire an independent insurance agent who represents many companies and can represent your needs; but be able to better evaluate the comparison process of I’d say independent insurance on individual insurance policies, and for you business owners and HR people your company insurance policies. On a more professional scale they are able to help identify in many cases. The difference is that those of you who are not trained would not be able to address or identify and you would just think you’re getting the same thing for the same premium. So I wanted to talk to you about all of that.

And then the last point I’ll make before the break is when you’re shopping for coverage please remember you’re buying insurance for the time of claim not for every year you’re paying a renewal. So you don’t have an insurance policy, and that I know most people don’t think about; “I have an insurance policy”, “I have an insurance policy”; “it’s too expensive”, “it’s too expensive”. The thing you have to look at, and many of you won’t so you’re going to have to trust an independent agent to do it for you, is  – you’re going to need to evaluate, what protections do I need that I feel I can’t handle myself in either business or individual lives.

If someone slips and falls on my property;  if I’m out golfing and I hit someone or if my ball goes astray and hits a car, an oncoming car; if I hit someone in front of us and I foursome; if I’m skiing and I swerve in front of someone else I’m out of control; if I’m on the board of directors in an association I make a decision it turns out to be wrong; we cancel an event because of weather related and we get sued for $100,000 because the vendor says, “We had so much invested in the commitment for all the food” that they had to prepare for the event in advance and here you get sued for that. So many things can go wrong, you want to evaluate your own personal lives and your own business lives and say, “What are the things we’re most scared of?” and write them down.

Say these are the things that could hurt us the most and we want to transfer that liability, that risk to someone else or at least to share the risk with us that if anything happens in these areas, that we’ll have someone else paying the legal cost; we’ll have someone else already providing the attorneys who are skilled in this area; they already have on staff and who will pay the judgment or the benefits if we’re deemed to have committed a liability; or something went wrong that they are skilled in handling.

That’s how we sleep at night and that’s the only thing you should be looking at when you’re first shopping for insurance.

-       What risks are you looking to transfer?

-       What coverages are you looking to purchase that if in the event of any of those claims or misfortunes happen to you?

Then you’ve taken care of your business and yourselves individually in advance by paying the premium to bring a partner on board to handle those risks for you. And that’s the only thing that should be first and foremost in your mind when you begin shopping for insurance.

Okay folks, let’s take a break and we’ll be right back.

Part 2

Okay folks let me give you an example of what I mean when I say we’re going to shop for coverages and the very first thing I want you to do is – I want you to open up your own policies. Well, wait, wait, wait a minute before we do that I want you to write down on a piece of paper. Before we open anything write down on a piece of paper the coverages that you now have. Now come on folks you’ve been paying for these coverages for long enough. You can surely write down some basic coverages on your own car insurance, on your own home insurance policies; and for you business-owners your basic coverages that you now have.

What do you mean you can’t figure out anything on your sheet you can’t even figure the first thing out? Start listing down with something you do know that would probably be on your car insurance the deductibles because you probably do know those. But if I ask you, “Do you have?” and I wouldn’t normally ask you ’cause I want this to be an essay test on a blank sheet of paper.

How much liability coverage do you have?

Do you have bodily injury or property damage coverage?

Do you have an un-insured or under-insured motor’s coverage?

Do you have medical insurance?

Do you have towing and labor?

Do you have collision?

Do you have comprehensive?

Do you have full tort to limited tort?

When I ask those questions I know some of you are getting nervous. You say, “I have no idea”. You know what? We go to the homeowners.

How much is your home insured for?

How much are your contents insured for?

Are your computers covered?

Are your TV’s covered?

Are your electronics covered?

How about your cell phones?

What about if someone slips and falls on your property?

Are you covered for if anything happens off your property?

Most people when I ask that question say, no it’s a homeowner’s policy. You know what folks, just in even scratching the surface you can see how complex and complicated this is and how little some of us know about our own coverages that we’ve been paying year after year after year for.

So my first advice you know is going to be very obvious. Pull your policies out, sit down with them 5 minutes that’s all and just look at the coverages. Now I know when I say that most of you will pull them out and you’ll have your homeowner’s policy there and you’ll have your car insurance policy there. Now when I say look at your coverages you will, and you’ll look at a piece of paper on the auto that’s called the Declarations Page and it will say coverages. And it will say $100,000 / $300,000 for your liability and it’ll say 500 deductibles. When you get to the home it’ll say $X for the home insurance limit. Property A, Coverage A – the Building; Coverage C – the Contents; 100,000 liability or whatever their limit is for liability.

And I’m going to tell you, you have not looked at any of the coverages yet. And you’re going to say, “Wait I just did. I just read off all the coverages to you”. Guess what folks; none of those are your coverages. Those are simply your policy limits. Your maximum limits of which the company will pay if any of your coverages apply. You’ll say – what do I mean?

What I mean is

–     If water backs up in your sewers am I covered?

–     If I’m driving down the road and I hit a bicyclist am I covered?

Those are your coverages and they’re not found on the declarations page folks, they are found inside the policy booklet that no-one wants to read including agents. So if you’ve ever shopped for insurance, and most of us have, and your agent has ever told you, I’ve given you apples to apples and compared your policies and you have exactly the same coverages with us that you have right now and they haven’t read your policy booklets or even asked for them?

Come on folks, all they’re doing is giving you the maximum limits that match if indeed they do. And most times we find that doesn’t even match. All they’ve done and all you’ve done if you’ve done this online is looked at the maximum policy limits that will apply for any coverages that you’re in or for any incidents, or occurrence that you are covered for that’s found in your policy booklet. Then the most they’ll pay will be those policy limits shown on your declaration’s page.

Now I don’t know how many years you been buying business insurance or personal insurance but I’ll bet that’s the first time you ever heard that. So after all these years paying premiums, every time you have shopped and switched policies it is almost with certainty that your coverages have changed from company to company even if your policy limits didn’t without your knowledge; and in fact without the new agent’s knowledge either because they never checked them.

So I bring these shows onto the air and onto video to try to help educate as to the complexity of how do we shop for insurance? Get a professional independent agent and stick with him and let them do all the shopping for you and research.

Now when I come back I’ll talk with some miscellaneous areas next week on coverages that you would never even think to insure for as I mentioned in the beginning of the show and how easy they are to protect yourself against once a professional, a skilled professional helps you identify the risks that you have and didn’t even know.

We’ll be back again next and I want to thank you for tuning in. See you again next week.

How Much Life Insurance Do You Need

Posted on September 3, 2014 by Comments are off

how much life insurance do i need

Transcription of 9-6-14 – How Much Life Insurance Do You Need

Part 1

Okay we’re back again. You know some people ask me why do I refer to certified financial planner when I’m saying contact a qualified professional. I don’t represent certified financial planners or any organization. But the reason I say that is most people call themselves financial advisors and a financial advisor can be anything.

You don’t have to have any specific training to be able to call yourself a financial advisor. So I may see life insurance agents who are brand new in the business, one-month licensed referring to themselves as a financial advisor.

So I’m cautioning you to make sure that you’re dealing with advisors in your world that you surround yourself with seasoned financial professionals; seasoned tax professionals and seasoned legal professionals who have reached the highest levels in their fields.

With a certified financial planner, the reason I keep referring to that is, I know there is an accelerated level of learning and studying, resources, training and competency tests that a person has to go through to at least reach that level.

Being a certified financial planner does not in any way mean all certified financial planners are competent in all areas, but it is at least a good start; so test people by their credentials things like that to find out exactly who you want on your team. But that’s why I say that ’cause I think it’s a good start to get someone well versed and at least who has shown competency in their training to a higher level than just a financial advisor or so-called financial advisor.

Okay the next thing I wanted to get into on this life insurance programming was we just got through burial cost. And another reason why people when they’re programming means might say they need life insurance. The next step, logical step would be, “Hey if anything happens to me I want to pay the bills off for my spouse”; “If anything happens to me as a business owner I want to pay the bills off for the business”.

So when we get to that let’s take the husband and wife situation to keep it simple. Husband dies for example and the wife is left. And let’s take an example where the wife does not work. So we have a situation where now you want to take care of making sure that your spouse does not have any financial burdens. So you’ve taken care of your burial costs and now we’re taking care of the bills. So what are the bills that you could pay off? Usually cars and usually house.

On the cars, the first thing is I’ll ask people, “Okay how long do you need the life insurance for your cars?”

And they’ll say, “Well ’til the loans are paid off.”

And I’ll ask. “How long is that?”.

They’ll say, “5 years or whatever”.

And I’ll say, “Okay so you need 5 years of life insurance to pay off the loans”.

And they’ll say, “Yes”;

and I’ll say, “No”.

They’ll ask “Why” and

 I’ll say, “A car loan is a lifelong loan”.

They’ll say, “No it isn’t, I, it was a 5 year loan. There are only 3 ½ to 4 years to go on it”. And I’ll say, “Listen; is this the only car you’ve ever owned?”.

They’ll say, “No the car before this etcetera, etcetera”.

 And I’ll say, “Did you have a loan on that car when you bought it?”

“Well yeah, oh yeah. We did or we leased”

And I’d say, “Okay, if I had insured that loan on the other car then when you traded it and bought this car wouldn’t I have had to write another brand new 5-year life insurance policy to cover this?”

And they’ll say, “Yes. I see where you’re getting. I see where you’re getting to”.

So I’ll say, “Once this car loan’s paid off you’re going to buy another and another. What if something happens to you and we’re trying to protect your wife? Cars get old, they wear out. They are costly on maintenance after a while and your wife (in this example I’m using) will continuously have to rebuy cars.”

So when we say car loan we have to think, the eternal car loan. So I want you to think about that because a lot of people miss that in life insurance. They say only this much to pay off your loans and they take the term of the loan. Now that – I will give you a little bit of advice. When you have a car loan, sometimes you want to ensure it with life insurance you contact your life insurance company or your life insurance agent and they say we can’t get you life insurance because of the health condition that you just had; or the surgery or operation that you just came out of. And you say, “oh my goodness, now what am I going to do? When I need it the most I can’t get it”.  And the answer sometimes is – the next time you get a car loan see if they offer credit life insurance built-in to the car loan and if they do also see if they have credit-disability insurance.

The reason I bring that up is this – the medical qualifications for that type of coverage built right into the car loan, many times they won’t ask any medical questions. They’ll just say do you want the life and credit insurance or however they’re gonna phrase it. This is your loan company. Always ‘x’ yes if; to the life and the disability especially if you have a medical condition. Now if you don’t and you go buy life insurance less expensive on your own and its long-term life insurance; whatever you needs are you may be better off by buying it elsewhere. But always ‘x’ yes on those credit applications if you think you might have trouble getting it on your own. It may be an opportunity for those of you who are medically uninsurable to actually buy insurance. And it’s the same thing on mortgages.

Many mortgage holders the banks, the credit unions, the mortgage companies offer you the opportunity when you first take the mortgage to actually ‘x’ yes on those boxes and have instant coverage. You’re paying a premium for it – might cost and extra 50 or $80 a month. It’s not always cheap but especially for those of you who are uninsurable because of some medical condition or are unable to get insurance for any other reason. It might be a very good way to get those loans covered and paid off.

Alright now that’s the tip on the loans and then what we do is we have to get into a theory and here’s the theory. If you have a mortgage and you have a car loan, isn’t it true that if you buy a car for $25,000 three and four years later you don’t still owe $25,000 if something happens to you, to pay off the loan?  – might be 5 or 8,000. So you have a decreasing need as those loans begin to mature and get older as they get seasoned you continue making the payments you, you continue paying the principal down.

We used to have a term life insurance policy called a Decreasing Term Death Benefit. So the life insurance policy premium would stay the same but it would be a lot less expensive than regular term life insurance because every year the amount of insurance would go down according to the amortization of the car loan or the mortgage. That’s called decreasing term insurance. I haven’t seen that for a lot of years now because level term insurance is so inexpensive.  But I wanted to point that out to you because you truly have, in those cases, a decreasing need. As time goes on you have a decreasing term need.

So keep that in mind when you’re looking at the life insurance; it’s just something you want to keep in mind. Alright let me take another quick break and we’ll be back to wrap up.


Part 2

Okay, let’s get back into this discussion. We’re talking about a family let’s say; and we have this husband and wife situation that I brought up before. And let’s take that a step further. Let’s say the wife is at home and not earning gainful employed income because of raising the children let’s say, and the husband dies prematurely. Now if we have a mortgage we might typically look and say for example, we had a $100,000 mortgage. We might typically look initially at the $100,000 death benefit policy, properly matching the need to pay off the mortgage and we wouldn’t be wrong.

What I propose is this. There are other alternatives maybe better, maybe not but there’re other alternatives to look at. Number one, do you want your wife at home having no mortgage but also maybe having no credit because they haven’t had a chance to build credit themselves? So if something happens to you they might find themselves in a situation where they tried to get a credit card and are unable to do so because they don’t have any credit built in their name. We ran into that a lot 20 years ago. We don’t run into that as much now because a lot of 2 income families exist now where that wasn’t necessarily the case 20 years ago.

But in those cases let’s take this example and look at some alternatives. One, we have a $100,000 mortgage. Let’s say it was a 30 year mortgage at a 4% interest rate. Roughly projected, the mortgage payment without taxes, without any insurance but just the principal and interest; let’s say the mortgage payment would be about $477 a month. Now if that’s the case I propose to you an alternative way to look at the situation; not that it’s right or not.

Let’s say we’ve had that mortgage for 30 years; 5 years later the bread winner dies, dies prematurely, leaves 2 young kids at home and the mortgage and the car payment. Well we just talked about the car payment so let’s talk about the mortgage. One option would be to take $100,000 pay off the mortgage. Because as I said, 5 years is already paid toward it; it may only take $98,000 to pay off the mortgage.

 As you know, you have a 30 year mortgage, you pay 5 years, almost all of it went toward interest. So the loan balance is still up there pretty high. But when we do that and we have a situation I might want the wife to keep the mortgage, keep making the payments and provide a lump sum asset that at interest; having, its earning interest, and have the interest make the mortgage payment for her. So in essence I’ve paid off the mortgage or taken the mortgage burden from her, without actually paying it off with the mortgage company; but I’d have the same benefits.

It cost a little more to do this so just evaluate both and decide what’s best for you. Here’s how the numbers might work. We have $477 a month as the payment; and if I had any lump sum of money I might not be able to count on earning any interest higher than 3%. If I had to be safe to figure out how much could I earn on that sizeable amount of money I might say or project 3%. We’re going to be wrong it might earn more, it might earn less, we may never even need it. But as a rule let’s say if it did earn 3%, I would need how much money in the bank to make a $477 a month payment? And that’s how much money or much life insurance you’ll need to buy.

So I did the math for you in advance – $477 a month is 3% interest on $190,000. Now here’s what’s interesting about this solution. First it costs more for life insurance because we’d be buying $190,000 as opposed to $100,000. But I’m solving a permanent need my wife has. Now notice I didn’t say I’m buying permanent insurance. Whether I’m buying term insurance or universal life or whole life. I’m just buying for her permanent need rather than just a one time need of pay the mortgage off. Do you see the difference?

If we have $190,000 death benefit, does your wife receive that in this example income tax free or did she owe taxes on it? As we’ve talked about its income tax free if payable to a beneficiary. So she has 190,000 in the bank. She finds a way to create a structure of 3% interest. She talked to a qualified financial professional and see if that option’s available to her or not. But in this example let’s say she finds that. At a rate of 3% every month she’s receiving a check equal to her mortgage payment. I’m discounting income taxes in this situation because everybody’s situation is uniquely different. One person won’t have any income tax to be paid if they’re a survivor because they have very low income and another may have very high taxes to be paid. So I’m discounting taxes and for this example. She’d have $477 a month coming in and she’d have $477 a month going out.

So in essence this investment which was funded through the life insurance, the interest on the investment is making her mortgage payment over the next 25 years. What are the benefits?

Number 1 – If you look at mortgage interest, that is a tax deductible expense if she itemizes her deductions; and if her income is lower she’ll be able to itemize and have a greater value possibly to that itemized deduction, we never know. But it’s an option that she can deduct and is a deductible expense that she is making the payment.

Number 2 – The income may be taxable depending on her tax rate.

Number 3 – The interest only in this example and scenario is making the mortgage payment for her and the whole $190,000 is staying intact.

Now what does that mean at the end of 25 years? Does her mortgage payment go up every month over the 25 years? No. the mortgage payment does not go up. The mortgage payment is locked in. It’s a 30 year amortization so some of you listening are saying, “Wait a minute; no, the mortgage payment does go up”. And I’m telling you – No. the property taxes and the insurance that are held in escrow go up but not the mortgage payment. So keep that clear and keep that separate. I’ll refer to that again a little bit later as to why that’s important.

So she has a fixed cost. What if her savings account earns greater than 4%? Let’s say inflation comes back and interest rates are come back up with the bank and they earned 4 or 5%. Her fixed cost is still based on – only the first 3% interest from that account is necessary to make her mortgage payment. So if she’s earning any more than that she gets to keep it in the account. Have that be re-invested and in fact possibly, potentially grow the $190,000 bucket if that is indeed the case. So we have at least a chance of being able to grow that account for her future needs after the mortgage is paid off that account is still intact. So that’s pretty good and in addition she’s developing a history of making the mortgage payments and that could be very beneficial.

So you look at the whole situation. Tax-deductible whether it’s better or not is not the issue here when we’re programming life insurance needs. What we’re doing is we’re really analyzing alternatives & trying to make sure that we don’t miss any possibilities or alternatives in helping make good decisions. We’re not saying one decision is better than any of the other. We’re just saying we’re trying to evaluate all the choices before we try to make what might or might not be the best one. But that’s a darn good one to consider because at the end of the 25 years what does she still have coming in? That’s right, a steady income in this scenario if all things hold true a 3% income, $477 a month for the rest of her life if that principle is kept safe and intact. And again if it’s earning more than the 3% at any time it’s reinvested.

The risk is if it’s earning less than the 3%, maybe it’s only earning 1% and she has to draw 3% out to make the mortgage payment. Well again remember the mortgage balance is $100,000 so if it gets down too low, she can indeed. 190,000 gets to 170, gets to 150. She could take the 100,000 out of her then what may be 95,000, reverse course, and just pay the loan off. So that’s a, that allows additional flexibility for a spouse.

That is a good planning option as opposed to just the obvious which would have been pay off the mortgage. Alright now, why else might someone need to buy life insurance or think to buy life insurance. Remember this whole discussion is programming needs. People buy life insurance again back to my premise. Everybody has a $100,000 let’s say and that can’t have been tailored to most people’s needs. So that’s what we’re; the process we’re going through here. When I say program the needs I’m just giving you a couple examples.

Here’s another one, you have little kids at home. What’s the greatest goals some parents have for their little kids?  – When they grow up to go to college. So if something happens to the breadwinner that may go out the window; or you may be saddling and burdening the kids; or your surviving spouse with huge student loans if they choose to go to college; where you for a very small expense, thinking in advance this early might have been able to create a fund of $180,000 for maybe a couple hundred dollars a year.

Would you buy insurance for a couple hundred dollars a year if it meant that something happen to you prematurely your kids could still go to college without burdening your spouse and without taking on loans? What a great gift to give to kids, your kids.

And grandparents; those grandparents of you who are listening think about life insurance on yourselves with the grandchildren as beneficiaries to get them through college. What a lasting gift and I know some of you grandparents listening and watching are saying, “Wait a minute it’s too expensive at our age” or, “we’re not able to qualify”. Then why not consider purchasing life insurance on your children which are their parents.

The parents might not be able to afford that extra life insurance, you as grandparents want to give a gift and instead of giving a gift of let’s say a thousand dollars a year to the kids or the grandkids every year, you might want to give a gift of a thousand dollars toward a premium a year that insures the parents for $180,000 or so, should anything ever happen to the parents that the kids would still get to go to college; or better yet insuring your lives as grandparents to help fund that cost.

So there’re a lot of different opportunities for you to make lasting gifts. Now most life insurance can be seen as self-fulfilling and self-completing the financial goals, that you as the caregivers and the primary breadwinners were intending to accomplish over your life, if you’re given your whole life of earnings to accomplish. But what these are, the life insurances, is an option and an opportunity to have self-completing goals. It self-completes the goals automatically should you die prematurely; it takes up and makes up the loss.

Alright we’re almost out of time again. I did want to bring up something important. When I talk about grandchildren or children, usually when we see a newborn, the parents a lot of times say, “We need to get insurance”. And I’ll say, “On who?” And they’ll almost always say, “Well on our new child”. Well I get I’m a ‘why’ guy so I have to ask why to everything. Why are we doing this? Why? Why? Why?

So you need to ask why are we insuring the son or the daughter. Well everybody needs insurance and my parents bought a small policy for me; and I’m buying one for the kids. And I’ll say, “Listen if you want to do your kids a real favor, one way is to buy life insurance on them now in advance that’s true – because then later if they develop a medical condition you’ll always have at least, they’ll always have actually at least, a life insurance policy that maybe later on in life they could never buy for themselves, because a medical condition arose and they’re uninsurable so there’s truth to that.

But I also have to propose that if you really want to do a favor for your children and take care of them then buy more life insurance on you; that if something happens to you there are additional funds to take care of them. So I want you to think about that when you’re thinking about life insurance. Who do we insure? If you’re insuring your wife in my example who is staying at home, and you’re insuring you the breadwinner; or the husband is staying at home and the wife’s the breadwinner; I want you to re-evaluate why are we buying insurance on both of us equally.

Should we be insuring the breadwinner for certain financial needs that the non-working spouse would have? And even if you’re both working, hey if you’re living on both incomes now there’s going to be a financial hardship if something happens to either one of you. So you insure to make up the gap. And those – the spouses at home who are taking care of the kids, if something happens to them, hey guess what breadwinner, you don’t go to work tomorrow.

You got 2 little kids running around at home. So you have to hire people maybe a thousand dollars a month, fifteen hundred dollars a month to take care of them. And then get home and cook for them and if you travel you might have to quit your job or if you’ve provided and protected yourself by buying enough life insurance on the non-bread winner the spouse at home to replace all of those chores and duties they’re doing it might equate to a $2,000 a month salary. You’ll have to buy life insurance to replace that to be able to hire out those services so you can keep your job.

So think about that both ways folks, there’s a lot to this. Now you could see why I said go to a certified financial planner to help you with this rather than just an individual practitioner. Alright folks, we’re out of time.

I will come back next week with another edition of All Things Financial. In the meantime feel free to call us with any questions you might have. Thanks again and we’ll be back next week.



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jack driscoll

Hear Jack Driscoll's weekly radio show broadcast offering news and tips on all things financial.

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