This posting will discuss the coverages of different types of insurance, how they protect you and your family and why they are important to have: Auto Insurance, Homeowners Insurance, Homeowner-condo Insurance, Renters Insurance, Earthquake Insurance, Personal Liability Unbrealla Policy, Personal Articles Policy and Life Insurance.
I will not tell you which insurance is better, Ethical Laws I am bound by will not allow me to say which is better. You can go onto the California Department of Insurance (insurance.ca.gov) to check out the rating, claims ratio and complaints for each insurance company.
Caution: Each insurance company's coverages and premiums can be different and are bound by filings they have with the California Department of Insurance. Check with your own insurance company for these coverages, quotes and filings.
Important: This information is general information about each type of insurance policy below. Each insurance company is different and you need to check with your insurance company as mentioned above.
Car Insurance:
Car insurance protects you, those in your car, other drivers, pedestrians and other's property. The premium is effected by the coverages you carry and the insurance company you have.
Car Insurance Coverages:
1. Liability-Protects you if you hit someone while driving ( in their car or as a pedestrian). It provides coverage to repair their car up to your liability limits and bodily injury up to your liability limits. If you do not have enough coverages for the damages you cause, you will be liable for the remainder. The courts can pull money from the liability in your Homeowners Insurance policy and they can sequester your pay check until the liability responsibility is meet.
The coverages work like this:
$100,000 per person in the car/$300,000 total per accident. Most insurance companies liability bodily injury coverages are 15/30 (minimum required by law), 25/50, 500/100, 100/300, 250/500, 500/500, 1mm/1mm.
How this coverage works: Lets say you get into an accident where you are at fault. You injure the driver and 2 passengers. The driver has injuries of $50,000, one passenger has injuries of $75,000 and the other passenger has injuries of $60,000 (a total of $185,000). Your policy has $25,000 for bodily injury per person and total bodily injury at $50,000. You will be financially responsible for $135,000 of their bodily injuries, your coverage only covers $50,000 total per accident.
Liability Property Damage-on your policy this will be the last number 100/300/"50". This means you have $50,000 in property damage coverage for any damage to another's property, this can be a car, a building, a fence or other structure or property of someone else.
This works just like the Liability Bodily Injury, if the damages you cause are more than what you have on your policy, you will be financially responsible for the remainder.
2. Uninsured Motorist Bodily Injury-If you are involved in an accident and you are not at fault and they do not have liability insurance, this coverage will protect you and your passengers up to the limits of your policy. This works like Liability Bodily Injury.
Example: Someone hits you without liability insurance. You have 25/50 for this coverage. You are not injured, but your passenger has injuries of $30,000. Your policy will only cover $25,000 for their injuries, you have $25,000 per person. You will be responsible to the remainder of their injuries. You can take the other driver to small claims court to be reimbursed for the remainder of what your insurance does not pay.
3. Uninsured Motorist Property Damage-If you are involved in an accident and you are not at fault and they do not have liability insurance, this coverage will pay for you to repair your car up to the coverage you have on your policy. This works like Liability Property Damage.
Example: If you have $5,000 in Uninsured Motorist Property Damage and the damages to your car are $6,000 you will be responsible for the $1,000 over your coverages and you will need to pay your Collision Deductible when you pick up your car from the body shop. Most insurance companies will subgrogate to get your deductible back but this can take months. If they cannot get it back for you, you will have to take the other driver to small claims court.
4. Medical Payments-You can add this coverage to your auto insurance in the amount of $1,000, $2,000, $3,000, $4,000 $5,000, $10,000, $25,000, $50,000 or $100,000. Each insurance company is different, you will need to check with them as to what coverage amounts they offer. This coverage provides money to you, the driver, up to your policy limits for your medical bills if you are injured in an accident where you are at fault. People usually have this coverage if they do not have health insurance and to meet their health insurance high deductibles they might have.
5. Comprehensive Deductible-This coverage covers theft, fire and vandalism. It also covers you if a rock or object flies up from the street and cracks your windshield or damages your car. It covers any damages to your car that you did not cause. The deductible comes in amounts of $0, $50, $100, $250, $500, $1,000 and $2,000, depending on your insurance company. If you have a car that is in storage in your garage or on your property that you do not drive, and has a non-opt on it, it is good to keep Comprehensive on it to protect it from theft, fire and vandalism. Caution: If the car in storage does not have a non-op on it you have to carry state minimum liability 15/30/5 by law. effective January 2008. If you do not, you will receive a letter from the DMV that if you do not show them proof of this coverage on that car, the DMV will suspend your driver's license until you show proof of insurance.
6. Collision Deductible-This coverage provides coverage when your car hits something and it is damaged, either by you or another driver. It comes in deductible amounts of $0, $50, $100, $250, $500, $1,000, $2,000, depending on your insurance company. If you do not have Uninsured Motorist coverage on your car and someone hits you, the damages to your car will only be covered up to a certain amount. Check with your insurance company how this works with them.
Note: The higher your Comprehensive and Collision Deductibles are the lower your premiums will be. It all comes down to what you are comfortable with if there was a loss and you had to paid the money out of your own pocket.
7. Car Rental Coverage: This coverage covers you if your are in an accident and need to rent a car while your car is being repaired or replaced. You can add this coverages for a certain amount (or percentage) per day for the rental car up to a certain total amount per claim. If the other driver is at fault most insurance companies (yours) will not get back your cost for your rental car, it will be your responsibility to work with the other insurance company to get a refund. Call their claims department to make sure they find the other driver liable and will accept the responsibility of reimbursing you the car rental fees. If you have this coverage, your insurance company will pay up to your coverages. Any balance over your coverage you will need to work out with the other insurance company. You will need to fax or mail them a copy of your car rental receipt. If you have more than one car and can get around without the use of the car involved in the accident and while in the repair shop you may not need this coverage. Note: This coverage does not cover car rental coverage if your car has mechanical problems while in the shop for repairs.
8. UNOC (Unowned Car ): If you rent cars for more than 21 days at a time you may want to consider this coverage. Most insurance companies only extend the coverages to a rental car for 21 days, after that it will be your responsibility or to add the rental car companies insurance coverages to the rental car. You may want to check with your insurance company to make sure they allow your current coverages to extend to a rental car or borrowed car from a friend, some companies do not allow this. Also, if the rental car is in an accident and it ends up in a repair shop or waiting for more that 21 days to be repaired, you may be liable for any extra charges and the money they loose while the rental car is not in service.
Caution: Some auto insurance companies do not cover someone that is not listed as a driver on your car or a household driver. If they are at fault, your insurance company may only cover the minimum liability that is required by law 15/30/5. Check with your insurance company.
Insurance premiums: They can be effected by the year and type of car you have, type of coverages and the amounts you have, number of years the rated driver has been driving, discounts, driving record with the DMV, and zip code.
Youthful Drivers: Some insurance companies will allow your son or daughter to drive you cars with only a permit before adding them as a household driver, some do not. Once they have their driver's license they need to be added to a car in your household. Some companies give Driver Safety Discounts and Good Student Discounts (3.0 or higher grade point average). You also may loose the Good California Driver Discount for 3 years on the car they are rated on. Check with you insurance company.
Multi-line Discount: Most insurance companies have a Multi-line Discount if both your auto and home are insured with them, or if you have auto and life insurance with them. It may be higher if you have both a home policy and a Personal Liability Umbrella Policy. Check with your insurance company.
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Homeowners Insurance:
If you own a home in California and there is a mortgage you are required by the mortgage company to have Homeowners Insurance. If you let the policy cancel they can add on their own Homeowners Insurance at a cost that is usually 2-3 times higher than what you are currently paying.
Most Homeowners Insurance policy have dwelling replacement cost, dwelling extension, personal property, medical payments, liability, loss of use and a deductible.
Homeowners Insurance Coverages:
1. Dwelling Replacement Cost: Your insurance company will determine the dwelling replacement cost of your house by asking you questions about the house and its features to protect you if there was a loss to the structure and extended structures. Dwelling replacement cost means the cost to rebuild your house to similar construction. Insurance companies do not insure the land. The price you paid for your house includes the structure and land and area, so the dwelling replacement cost will be less than what you paid for the house when you closed escrow. I find the best thing to use when determining the dwelling replacement cost of your house is the appraisal. The appraiser should know the area and the cost per square of the dwelling. Even then, I find sometimes, but rarely that the dwelling appraisal might be low. Then you should contact a general contractor for the area to get the dwelling replacement cost per square foot.
Note: When you move into your new house take photos inside each room, especially if you have granite/marble counter tops, custom cabinet, crown modelings, or higher end features, to make sure you get the same construction when there is a loss. Even open closet doors. Also, take photos of the outside. Keep a copy for yourself and a copy with a relative, friend or at work.
2. Dwelling Extension: This covers up to 10% of your Dwelling Replacement Cost for any unattached structures such as a garage, work shop, guest house or storage shed. You can increase the value of the dwelling extension if it is worth more than 10% of the dwelling replacement cost. Of course, this will increase your premium.
3. Personal Property: This covers everything you brought with you when you moved in and any new items you might have purchased. You will find when your insurance agent runs the quote the Personal Property will probably be more than your personal property, the system calculates the amount by square footage and number of rooms. Lowering the amount does not lower the premium, but increasing it will. It fact, most systems will not let you lower it. Note: It is good to take inventory of your personal property. Also, take photos of your personal property, open closet doors, cupboards, drawers and cabinets. Keep a copy for yourself and a copy with a relative, friend or at work. This will help you to remember the items if stolen or lost in a fire or water damage. Know what your policy will cover and not cover and for how much. There are replacement limits on oriental rugs, money, jewelry and furs, computer equipment, collectibles, and other items.
4. Medical Payments: This coverage covers you up to your policy limits if someone is injured (not household family members living with you) while on your property. This coverage usually comes in $1,000, $2,000, $3,000, $4,000, $5,000, $10,000. Most Homeowners Insurance policies come with $5,000 at no additional cost. Check with your insurance.
5. Liability: Liability covers you up to your policy limits if someone is injured while on your property (not household family members living with you). If you do not have enough liability to meet the loss then the court can assess you the balance of damages/injures to the other party. This coverage usually comes in the amount of $100,000, $300,000, $500,000 and $1,000,000. The minimum is $100,000 with no extra charge, anything above that will increase your premium. Note: Anyone with a swimming pool or jacuzzi, I strongly recommend $1,000,000 or add on a Personal Liability Umbrella Policy, which we will discuss later (see Personal Liability Umbrella Policy below Renters Insurance).
6. Loss of Use: This is a coverage that comes with most Homeowners Insurance policy, check with your insurance company. This covers you if there was loss to your house where you are not able to occupy your house due to living conditions and construction. It usually gives you up to 24 months to stay in another house.
7. Jewelry/Furs, Silverware/Goldware, Firearms, Computers and Equipment, Business Property: These coverages are limited. Increasing the basic coverage will increase your premium. Check with your insurance company. If you have these items valued more that listed on your policy you may want to consider a Personal Articles Policy which we will discuss below. Most insurance companies come with these amounts of coverages and are subjective to your deductible:
Jewelry/Furs: $1,000 (minimum on the policy, no extra charge)
$1,500/$2,500 (extra charge, $1,500 per piece up to $2,500 total)
$2,500/$5,000 (extra charge, $2,500 per piece up to $5,000 total)
Silverware/Goldware: $2,500
Firearms: $2,500
Computers and Equipment: $5,000 (minimum on the policy, no extra charge
$10,000 (extra charge, maximum)
Business Property: $1,000 (you may be able to increase this for an extra charge)
8. Building Ordinance or Law: Includes the undamaged portion of a building which must be demolished because of building or zoning laws, the actual cost of demolition and the increased cost of repair or reconstruction to meet building or zoning laws up to 10% of the dwelling replacement cost. You can increase this amount to 25% and 50% for an extra charge.
9. Damage to the Property of Others: If a guest in your home has their personal property damaged the policy will cover up to $500 for damages.
10. Deductible: Each Homeowners Insurance policy has a deductible that you will be responsibility for if there was a loss to your house. The amount of the deductible will effect the premium, the higher the deductible, the lower your premium. But remember, this comes out of your own pocket. If someone else causes the damages to your house, they are liable. Check with your insurance company to confirm this. Deductibles come in amounts of $250, $500, and $1,000-$10,000. Some companies will not allow the lower deductibles due to the value of your dwelling replacement cost, check with your insurance company. Some mortgage companies will not allow a higher deductible and require your deductible to be a certain percentage of your loan. Check with your mortgage company if you decide to increase your deductible to save money on your premium.
Multi-line Discount: You may qualify for a Multi-line Discount if your auto insurance is with the same company. Check with your insurance company.
Endorsements: There are many types of Endorsements that can be added to the Homeowners Insurance Policy. One example is Workers Comprehensive which covers a housekeeper, Nanny, caregiver, etc. Check with your insurance company for endorsements you can add to meet your needs. These will probably increase your premium but give you the added protect you might need.
Earthquake and Flood Coverage: Your Homeowners policy does not cover any damages caused by earth movement, earthquake or flood. These are separate policies. Call your insurance agent to discuss these coverages.
Other things not covered under a Homeowners Insurance policy: Roof damage caused by a tree laying on the roof, an animal digs a hole in your roof, pest (like termite damage), rodent damage, normal wear and tear, and leakage (A pipe has been leaking over a period of time, causing damage to the walls, flooring or sub floor. The water damage to walls and flooring may be covered but not the pipe repair.). Check your Homeowners Insurance Booklet to see what is covered and what is not covered. If you have lost yours, call your insurance agent, they will send you another one. No your coverages!
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Homeowner-condo Insurance:
I find some condo owners do not feel this type of policy is necessary since the Homeowners Association covers the structure. Let me explain why it is important.
Each Homeowners Association master insurance policy only cover the structure and each insurance company is different. Some only go up to the studs, some to the walls and some all the way into the condo (which includes similar construction: the attached flooring like wood or wall to wall carpet, cupboards, walls, bathroom fixtures, etc., but not any upgrades you added).
It also does not cover any liability lawsuits against you. Example: If your condo kitchen sink or bathtub over flows, causing damage to the unit below you, you could be liable for their damages. Or if you caused a fire and the fire spread to the next unit, you could be liable for the damages.
You can also be assessed money for damages to other units if there was a fire, water damage or earthquake damage. This is called Loss Assessment. Each Homeowners Association By-laws and their CC&R's may state how much you as a unit owner can be assessed. This means if there was a fire causing damage, maybe caused by faulty electrically, to other units the Homeowners Association might assess you and each unit owner a certain amount of money. The Loss Assessment coverage is usually inexpensive. The company I work for it cost $10 a year for $50,000 in coverage, it is subjective to a deductible. Check with your insurance company what the deductible would be.
Earthquake and Flood coverages are separate policies and are not covered in Homeowner-condo Insurance. The Homeowners Association may assess you for earthquake and flood damages too. Check with your Homeowners Association and their CC&R's. The Earthquake policy also comes with the Loss Assessment coverage. Call your insurance company to discuss the coverages and for a quote. You can quote earthquake insurance through California Authority Earthquake (see how to access and quote below under Earthquake Insurance).
Homewoner-condo Coverages:
1. Building Contents: This coverage covers you up to your policy limits for anything the Homeowners Association master structure policy does not cover inside your condo (depends as mentioned above how far they go into the condo) and any upgrades you have done to the inside of your condo. Check with your insurance company, you may find you are underinsured for this coverage.
2. Personal Property: This coverage protect your personal property, anything you brought with you when you moved into your condo. Some items are limited in replacement like Homeowners Insurance (jewelry/furs, silverware/goldware, guns, computers, business property. etc.). Check with your insurance agent and company.
3. Liability: This coverage protects you up to your policy limits from any liability lawsuits that might happen if someone was injured while in your condo or around the outside of your condo. Example: You left a garden hose across you doorway, they trip over it and are injured. Or, someone trips over a rug in your condo, hits their head on your table and needs medical treatment. This also protects you, as mentioned above, if you caused damages to another condo unit. The coverage comes in amounts of $100,000, $300,000, $500,000 and $1,000,000. The minmium is $100,000 with no extra increase in your premium. If you choose higher liability your premium will increae. Check with your insurance company.
4. Loss of Use: Gives you an opportunity to stay in another place if your condo is uninhabitable while damages are being prepared due a fire, water loss, etc. Does not include personal remodeling.
5. Loss Assessment: Protects you up to your coverage limits if the Homeowners Association assess each unit owner for damages caused to the condos as mentioned above.
6. Jewelry/Furs, Silverware/Goldware. Firearms, Computers and Equipment, Business Property: See Homeowners coverage above.
7. Building Ordiance or Law: See Homeowners above.
8. Deductible: What you will be responsibility for if you cause damages to your condo. The higher the deductible the lower your premium. See Homeowners Insurance above.
Multi-line Discount: You may qualify for this discount if your auto insurance is with the same company or you life insurance policy with the same company. Check with your insurance company.
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Renters Insurance:
Just as Homeowner-condo Insurance, I find that tenants do not think this coverage is necessary. The Landlord's/owenr's insurance on his apartment/house/condo you are renting does not cover you. You are responsibility for your own personal property and liable for anyone injured while in your home that you caused.
Example: I had a policyholder who fortunately had Renters Insuarnce. The apartment next door had a major fire. Because of the water sprayed by the fire department to put out the fire, all his personal property was damaged, he lost everything. Yes, they would be liable, but because he had Renters Insurance the process was a lot less stressful because he did not have to take the other apartment tenant to court who did not have Renters Insurance, the insurance company did that for him and he was able to replace his personal property.
Renters Insurance Coverages:
1. Personal Property: This covers your personal property up to the policy limits. Some items are limited in the amount of money paid out (jewelry/furs, silverware/goldware, guns, collections, business property, computers, oriental rugs and others). Check with your insurance company. Some items you can increase for an extra charge. You may want to consider a Personal Articles Policy if you have personal property items over the limits on the policy. See Personal Articles Policy below for more information.
2. Loss of Use: Allows you to stay somewhere else while your home is being repaired due to damages caused by fire, water, vandalism or uninhabitable. Not for personal remodeling.
3. Liability: Protects you up to your policy limits against lawsuits that might accure due to injuries to others while in your home or on your property that you caused or damages you cause to someone elses property (unit).
4. Jewelry/Furs, Silverware/Goldware, Firearms, Computers and Equipment, Business Property: See Homeowners above.
5. Loss of Use: See Homeowners above.
6. Deductible: Amount you will be responsible for it their is a loss you caused. Comes in deductibles of $250, $500, $1,000-$5,000, and some companies as high as $10,000. The higher the deductible the lower your premium, but you will be responsible for the amount you choose.
Multi-line Discount: You may qualify for this discount if you have your auto or life insurance with the same company. Check with your insurance company.
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Earthquake Insurance:
Homeowners, Homeowner-condo and Renters Insurance do not come with earthquake insurance, it is a separate policy.
Some insurance companies use California Earthquake Authority and some use another companies or their own.
California Earthquake Authority is a government run program. You can check out their website and run a quote by going to http://www.earthquakeauthority.com/. Go to the premium calculator to run a quote.
How to run a quote in the Premium Calculator:
1. Click on the third box over--Premium Calculator
2. Next screen choose Homeowner, Mobilehome, Condo or Renters, put in today's date and hit submit.
3. Next screen:
- Put in your zip code of the property you are quoting
- Put in the Dwelling Replacement Cost (must match your Homeowner, Mobilehome or Homeowner-condo Policy. Renters will not have this option.
- Most homes are of wood/frame construction. Choose the date your house was built.
- Select number of stories
- Select 10% or 15% for your deductible. Most people choose 15% because the premium will be lower. The deductible is 10% or 15% of your Dwelling Replacement Cost. So, if your Dwelling Replacement Cost is $200,000 your deductible will be $30.000. People usually think this is very high, which it is, but I tell them I would rather pay $30,000 than $200,000 to rebuild my home. You can take out a Home Equiety Line of Credit to cover the deductible. Also, FEMA will come in when declared a Natural Disaster and give very low interest loans.
- Select amount for your personal property. The policy comes with $5,000 with no additional charge. You can increase to $25,000, $50,000, $75,000 and $100,000 for an additional charge. I find most people choose the $5,000 because they are more concerned about loosing their home. If you have collectable or high valued items you may want to choose a higher amount.
- Choose an anount for Loss of Use (this gives you money to stay some place else while your home is being inspected or becomes unihabital. The policy comes with $1,500 for no additional charge. You can increase to $10,000 or $15,000 for an additional charge.
- Building Code Upgrade increase--the policy comes with 10%, you can increase to 20% for an additional charge.
- Hazard Reduction Discount--this will only let you quote for the discount it your home is built during a certain time periord. If you qualify and answer yes to all the questions you will receive the discount.
- Hit calculate and you will receive a quote. You can change the coverages around and get several quotes right below each other.
Earthquake coverages:
1. Dwelling Replacement: The Dwelling Replacement Cost has to match the Dwelling Replacement Cost on your Homeowners or Homeowner-condo Policy. Renters is different, I will address that in awhile.
2. Personal Property, Loss of Use, Building Code Upgrade--have limited amounts as mentioned above.
3. Homeowner-condo Policy--This policy has limited Building Property at $25,000 and Loss Assessment at $50,000 and $75,000. It also ask if the Fair Market Value is greater than $135,000.
4. Renters--Only covers Personal Property ($5,000) and Loss of Use ($1,500). Higher coverages are available but will increase your premium.
I find Earthquake Insurance to be very personal, either people are very concerned and want to cover the loss of their home and others are not worried. Some find this type of policy expensive.
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Personal Liability Umbrella Policy:
This policy gives you extra liabiilty coverage up to your policy limits for your cars, home, vacation home, rental properties (usually up to 4 rental units) and boats. You have to have a least one car and one home policy (Homeowners, Homeowners-condo or Renters Insurance). The liability on your auto and home policy is primary and anything above that the Personal Liability Umbrella Policy kicks in. You can choose from $1,000,000-$10,000,000 in extra liability coverage. There is no deductible. Check with your insurance company if the policy will cover you for other types of liability lawsuits like slander, etc.
If you have this policy most insurance companies require your auto insurance liability to be at 250/500/100. But sometimes with this higher liability and the extra multi-line discount you get for having a Homeowner, Homeowners-condo or Renters Insurance policy with the Personal Liability Umbrella Policy, the auto insurance premium can be lower. Check with your insurance company for a quote.
Your Homeowners, Homeowner-condo and Renters policy can have a minimum of $100,000 for liability if you have this type of policy. Check with your insurance company.
For $1,000,000 with 2 cars, 2 drivers and a home the premium can be around $250 annually. Check with your insurance company for a quote. Having a driver in your household between 16-25 years old may cause your premium to be higher. Also, if you have a car(s) insured with another company it could cause the premium to be higher.
Note: Anyone that lives in California, drives a car and owns property should have this type of policy for extra protection. Especially if you have an underground or above ground swimming pool and/or jacuzzi/hot tub.
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Personal Articles Policy:
Most Homeowners, Homeowner-condo and Renters policy have limited coverages for some personal property items like jewelry, computer equipment, collectables, art/fine work, oriental rugs, camera equipment, sports equipment, etc. This policy comes with a deductible from $0-$1,000 or higher depending on your insurance company. The higher the deductible the lower the premium. Some insurance companies may require an appraisal less than 2 years old if the item is valued more than $5,000 with a detailed description of the item. If less than $5,000 they may only require a receipt with a detailed description of the item.
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Boatowners Insurance:
This type of insurance protect your boat up to the policy limits for the property damage (value of your boat, trailer), equipment on board your boat (built in fire extinquisher, life jackets, built in radio, etc), liability and has a deductible. You can receive discounts for having taking a Boat Safety Course, having been a previous boat owner and having a built in fire extinquisher. If the boat is older the insurance company may require a Marine Boat Surve. Check with your insurance company for coverages they offer and a quote.
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Life Insurance:
There are two types of life insurance, term and permanent. Term is like Renters Insurance, you pay a premium but it earns no cash value. Permanent is like Homeowners Insurance, it builds equity or cash value.
Term Life Insurance (5, 10, 20, 30 Year):
1. The premium is determined by the term of the life policy, death benefit, rating (Tobacco Standard, Non-tobacco Standard, Non-tobacco Preferred, Non-tobacco Super Preferred and some companies have Non-tobacco Super-Super Preferred) , age, sex, height/weight and health.
2. Most people who are younger, have a family, and have a mortgage choose this type of policy because the premium is lower than a permanent life policy.
3. Beneficiary/Beneficiaries can be anyone you choose. A beneficiary will receive the dealth benefit of your life policy if you pass away. If a minor you can assign an audlt to be the "informal trustee" for them. You life insurance company should know how to word the beneficiary on the life policy for a minor.
4. Certain term policies may require a medical exam provided by the life insurance at no cost to you. Some term policies will only require an Oral Specium Test (cottom swab test in your mouth).
5. Some companies offer what is called a Return of Premium. This type of term life policy is usually higher. This type of life policy means at the end of the term (usually offered only on 20 and 30 year policies) and you are still living, you will receive the premium in return (may be prorated depending on when you terminate the policy, check with your insuance company).
6. You cannot take a loan from term insuarnce since there is no cash value.
7. Waiver of Premium for Disability--this endorsment covers you if you become disability for more than 6 months, you will not have to pay the premium as long as you are disability. This is a great coverage to add and usually only cost a few extra dollars a month.
8. Riders--There are several riders you can add, like a children's rider that will cover your children on the policy. This rider will increase your premium. Check with your life insurance company as to what riders they offer and for a quote.
Caution: Be careful of the quote from some companies. They may quote you Super-Super Preferred (or the highest rating they offer) and not tell you to get you to sign up, then after the medical exam is completed come back and say you do not qualify and the premium is much higher. Always ask to see a copy of the quote and make sure the rating is showing on the quote. Note: You can request the life insurance company to send in the application non-binding to see what rate you get first, then decide if you want the life policy.
Caution: If you keep the policy beyond the 5, 10, 20 or 30 term the policy converts to a one year term and premium continues to increase each year. Ask your life insuarnce agent for a Reproposal showing you how this will effect your premium over the years.
Note: You can convert your tem life policy to a permanent life policy at certain times. Ask your life insurance company about this option.
Permanent Life Insurance (Whole Life, Universal Life, 15 Pay, Final Expense):
1. I find the Whole Life is usually more expensive than Universal Life.
2. This type of policy is great for someone that can afford the higher premium and wants to build up cash value. A small part of the premium goes towards the insurance and the rest goes into a cash value account and earns interest.
3. The premium is determined by the type of policy, death benefit, rating (Tobacco Standard, Non-tobacco Standard, Non-tobacco Preferred, Non-tobacco Super Preferred, Non-tobacco Super-Super Preferred (offered by some companies), age, sex, height/weight and health.
4. Whole Life or Universal Life is a great policy to start for your children. The premiums are usually very reasonable, the younger they are when you start the policy the lower the premiums. I like to call this type of policy the "Gift of Life".
The advantages:
1. The younger you start the life policy the more cash value they earn. You have to wait until they are 15 days old to set up a life policy for them. This is a great financial gift for your child.
2. We never like to think this, but you never know when your child may become uninsurable due to health issues. If you start a life policy when they are young, they will have it the rest of their life as long as you or they pay the premium. And if you add on the Guaranteed Insurability Option they will have an opportunity to increase the death benefit without proof of insurability. See below.
Note: I have a cilent whose child became Epileptic at the age of 6, which makes him ineligible for life insurance now. If she had set up a life policy for him when he was younger he would have the life policy the rest of his life. Another cilent had a child who became Type I Diabetic at the age of 15, he is eligible but the premium is much higher due to his health situation.
Guaranteed Insurability Option is a great option you can add onto your child's life policy which allows you and them to increase the death benefit by $25,000 or $50,000 at different ages of their life without proof of insurabiliy, usually starts at age 17 and is offered every 3 years up to age 45. The premium will increase each time you accept this ofter. The Guaranteed Insurability Option only cost a few extra dollars.
3. Waiver of Premium for Disability is the same as for the Term life policy above. If the owner of the life policy becomes diabled the premium will be waived during the time of diability.
4. Loans and Withdrawals--Because this type of life policy earns cash value you can take a loan or withdrawal from the life policy's cash value or death benefit.
If a loan, it comes from the cash value. The interest has to be paid but the loan does not. Of course, if you do not pay back the loan you will continue to owe the interest.
If a withdrawal, you can take the loan from the death benefit and their is no interest to pay back. But be careful, it can effect the policy and if it may zero out somewhere down the road. Talk to your life insuarnce agent before you do this type of loan. He can run a Reproposal showing you how it effect the policy.
Note: Check with your life insuance company how this effect the life policy and the terms of the loan/withdrawal. Each company might be different.
10 or 15 Pay Life policy:
This type of life policy is a Whole Life policy. The great thing about this type of life policy if that you pay on it for 10 or 15 years (the time you have set it up for) and then put it away. It continues to add cash value and draw interest. The premium will be higher but once you hit the 10 or 15 years the policy is paid up.
Final Expense:
This type of policy is a Whole Life policy with a standard rating. This type of life policy is usual used to help with buriel expensive. You must be at least 50 years old and be in relative good health. If you have had a heart attack, stroke, cancer and other major health issues you may not qualify. Check with your life insurance agent. This policy earns cash value. The underwriting process is usually easier than other life policies and their is no medical exam required. Documentation from a doctor may be required depending on your health.
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