Insurance

Cars are a joy to drive and who wouldn’t like to enjoy a drive in the car after a long day’s work. A nice drive can take away the bitterness in the heart and the roughness in speech. With the wonderful scenery treating the eyes, it is the easiest and one of the most inexpensive ways to light up a person’s day. Also the same car helps us in transporting things and people from one place to another fulfilling the work that we have got.

Cars have become much cheaper to buy these days which is why we find many cars on the road. Also there is an option of loan, so quiet a few would opt for it. Cars offer much convenience but like anything in the world we need to be careful while we drive the car. Many accidents are taking place and so is the case in South Africa especially these days.

Solutions to car problems: car insurance is the need of the hour that takes away the problems of the insured. Whatever loss or damage may be made to the car or its driver will be taken care by
the insurer depending upon the terms and conditions of the insurance policy.

How to get a good policy at a good price?
With so many insurance companies out there it is difficult to choose the one that will cover you the best. In such a scenario what should be done is, we should be making use of the online websites that have tie ups with various insurance companies and offer policies for lesser rates than the company itself. Now this is lucrative as all of us would want to get a policy at a lesser price than what it is actually being offered for. But at times, when we find a policy that covers all our risks it would either be higher than our budget. So what should be done? Shouldn’t price be given importance? This is not possible which is why we should first find two or three suitable policies that would cover your risks and then compare their
prices.

This is also the case with commercial insurance. When you want to get the policy with all your risks covered, the motive should be finding the right policy offered by a good insurer. The right price would automatically follow suit. Also check if the insurer with whom you are insuring has both telephone and online customer support all the time so that you can contact them when you need to make a claim.

Insurance companies are great at selling you policies you either don’t need or which seem a great deal at the time compared to the other offers around. The problem comes, though, when you have to make a claim. Insurers don’t like to pay out and the whole feeling of the deal you made with the company at the outset can feel very different when it’s time to make a claim.

It’s at times like these that you wish you’d gone with a better company rather than taking out the best possible price you could find at the start of the policy. But that’s the game all insurers play; it’s a basic numbers game. The trouble is that some companies are better at this game than others – which makes them worse for you, if and when the time comes to make a claim.

The bottom line here is that it isn’t always the wisest decision to go for the cheapest policy you can find on whatever it is you’re looking to insure. The devil is in the detail. What you need to try and do instead is to understand the fine print and gauge the experience of others who have had to make a claim against the company you’re considering.

But who really has the time and inclination to do all this right? So what we need is a shortcut and the best way of doing this is to start out with a company you can trust – then make sure their basic deals are at least in the same ball park as the rest of the market. In this way, you shouldn’t go too far wrong.

One quick and easy way to achieve this is to seek out your Trade Union insurance company if you have one. Union insurers are usually mutual companies – so they’re run for the mutual benefit of their members – i.e. you if you take a policy out with them. This also means they’re generally run along more ethical lines – otherwise your union wouldn’t support them. In this way, you can quickly and easily find an insurance company you can trust – one that won’t let you down when you really need them.

Bio: Clare is a finance writer who knows all about how important it is to make sensible financial decisions. As a member of a trade union, Clare found that a Trade Union Insurance company was the best choice for her when it came to deciding where to take out insurance. She is an advocate of ‘doing your homework’ before making any financial decision.

Picking the right type of life insurance policy can be seem as overwhelming as picking a specific card from a deck of cards. The good and bad news is that you, as a consumer, have options – the good, the bad & the ugly. There are two basic types of life insurance, those policies that are designed is for a specific period of time and does not build up a cash value and those policies that are designed to last for the rest of your life (hopefully) and will build up cash value.

To guide you through this, you should keep in mind what your goals are and your needs. Life insurance as is all insurance, is a financial leverage tool. You pay a certain amount (or percentage) of an insured risk. If an event occurs such as a death with Life insurance or your home burns down with Fire insurance, you receive a much larger amount of money than the amount paid in (premiums).

So when looking at life insurance, remember to not get distracted and that the primary goal of a life insurance is to protect against the loss of earnings/income from someone who is financially dependent (as an example – note there are other reasons for insurance). Everything else is an add-on and potentially a distraction from the bottom line.

The first type of coverage referred to above is term life insurance. Term insurance comes in a few variations – though the basic and constant is that term insurance provides a death benefit for a set premium and does not accumulate a cash value. The most common type of term insurance currently is guaranteed level premium term insurance where you buy a certain amount of coverage and the premium is guaranteed level for a set number of years such as 10, 15 or 20 years after which time, the premium either increases significantly or the policy terminates. Another common type of term insurance is annual renewable term insurance, where the premium increases each year.

The second type of coverage encompasses any type of permanent policy (those that accumulate or can accumulate a cash value). This category includes whole life, universal life, variable life, equity indexed life and the numerous sub-categories. Each of these types of coverages has multiple sub-types.

Whole Life Insurance is the oldest and generally best known type of permanent (cash value) life insurance policy. Whole Life insurance policies typically have a guaranteed level annual premiums, guaranteed death benefit and a guaranteed cash value which can be increased by projected dividends. Dividend options can be used to modify the premium you pay, the death benefits or how much cash value accumulates. Different companies have different dividend options. The most common are Dividend to Purchase Paid-Up Additions (cash value & death benefit are increased), Dividends to Purchase One Year Term (additional death benefit), Dividends to Reduce Premiums, or you can receive dividend in cash (not too common). Other types of whole policies include endowment policies (not commonly sold anymore – however, a lot are still in-force) and excess interest whole life policies. There are other types, these are the most common.

Universal Life (UL) – formally known as Flexible Premium Adjustable Life, allows the policy owner flexibility as to the amount and timing of premium payments. Furthermore, the face amount of coverage can be changed (down at any time, up with evidence of continued insurability). Universal Life is unique in the sense that this type of policy “unbundles” the pricing elements that make up a traditional cash-value permanent policy—interest earnings, mortality costs, and company expenses—and prices them separately. Ideally, this gives you better transparency into the moving parts of your policy. In practice, however, this can get a little complicated. With a traditional whole life policy, you have but one responsibility: to pay the premiums when due. If premiums are paid when they come due, the policy will never lapse, and eventually it will mature as a death claim, period.

Universal Life is different. If the policy owner fails to fund it adequately, Universal Life may turn out to be temporary rather than permanent life insurance. The company may change pricing elements subject to certain limits set forth in the policy. So the company may raise the expense charges and mortality costs and lower the amount of interest credited to the accumulating funds. If these policies are handled incorrectly, they can turn out to be more expensive as you grow older, the cash value can erode, and the policy could end up lapsing if premium payments aren’t high enough to continue to fund the policy.

Guaranteed Universal Life policies comprise one of the fastest growing segments of the life insurance industry. These policies guarantee the death benefit as long as all scheduled premiums are paid in full when due. These policies may or may not accumulate a cash value—they are designed to provide coverage past age 95/100 and up to age 120. Most insurance policies will terminate (mature) at age 95 or 100 and cash out at that time, leaving the insured to self-insure. In essence, they function as a lifelong term life insurance policy, where you have the option to accumulate a cash value. A note of caution: if you miss a scheduled premium or pay less than the total premium due, you may lose the guaranteed death benefit.

Variable and Variable Universal Life: As with Universal Life polices, Variable Life and Variable Universal Life policies provide death benefits and cash values to beneficiaries. But here’s the crucial difference: whereas the premiums paid into most standard Universal Life polices earn interest within a life insurance company’s General Account, as it’s known, Variable Life policies earn interest on a portfolio of investments that you, as the policy owner, choose from a selection offered by the company (key: check the selections).

Depending on how financially savvy you are, selecting your own portfolio can be an acceptable aspect of this type of policy or a very dangerous one. When an insurance company invests your premium into its General Account, it bears the risks inherent to investing and credits your policy with interest based on the account’s performance. There’s no direct link between the company’s investment portfolio and the declared interest rate on your policy. But with Variable Life policies, there’s a direct link between the cash value of your policy and the performance of the portfolio of sub-accounts you choose. You bear the risk. The cash value and death benefit of your policy is not guaranteed. (But some policies do guarantee that the death benefit cannot fall below a minimum level.) So if your portfolio does well, the earnings on the cash value of your policy may exceed what you would have earned through a standard Universal Life. But if the performance of your portfolio tanks, you’ll have to put in additional funds to keep your policy in force. That can get pricey and could endanger your policy. While you may see tax advantages with this type of policy—you are earning returns or income that you do not have to pay taxes on—there are fees associated with the policies that may offset the tax advantages. Federal and state premium taxes average around 3 percent of premiums. Mortality and expense charges assessed against cash values can range from .6 to .9 percent. Asset management charges can vary from 0.2 to 1.6 percent. And surrender charges can typically exceed the first year’s premium and last 10 to 15 years.

Overall, the costs of Variable Life policies can be higher than other types of permanent policies. You’ll get a legally entitled prospectus from an insurance company before you purchase either a Variable Life or Variable Universal Life policy. And you’ll definitely want to read it, even though it’s lengthy and tedious to pore through. If you have a tough time understanding it, find someone who does and have him/her explain it to you. (But if you have to do that, ask yourself: Is this the right kind of policy for me?) Many factors affect the performance and well-being of a Variable Life or Variable Universal Life policy. For advice on the investment accounts, always consult a properly licensed financial/investment adviser.

Equity Indexed Life Insurance. Equity-Indexed Universal Life (EIUL) is a newer form of UL insurance that is extremely complex and combines elements of variable life (which you’ll read about next) into the mix. The main difference between this and traditional UL is in how excess interest is credited. Most EIUL policies have two separate accounts that can be used to credit interest. One account has a fixed interest rate that is declared by the insurance company periodically. The second account provides an equity index option that offers you the opportunity to earn rates of interest based on positive equity (stock) market returns. However, the cash value of the EIUL policy is not exposed to losses due to negative market returns.

The amount of interest credited to your cash value is tied to the performance of the policy’s particular equity index. Companies use a range of indexes that include the S&P 500, Dow Jones Industrial Average, Lehman Brothers Bond Index, and FINRAAQ. In years where the index performs well, the interest credited to the policy’s cash value rises, and in years where the index performs poorly, the interest rate falls. Typically, EIUL policies guarantee that the interest rate will never fall below zero so that the policy won’t lose money if the stock market index declines.The first thing to watch out for is that these policies usually have a cap or limit on the amount of interest that can be credited to your policy. Therefore, if the cap is 10 percent, and the index return is 14 percent, you will only earn 10 percent. The reasoning is that this would offset the liability the life insurance company assumes in years where there is a negative return in the stock market index. The insurance companies can, at their discretion, also adjust what is called the participation rate, so that a policy owner receives a lesser percentage of the total return. This is an important thing to look for. Some companies will offer a 100 percent participation rate guaranteed for the life of the policy. But if a policy has an 80 percent participation rate, and the policy has a cap of 10 percent, the most you will ever earn on the policy is 8 percent (80 percent of 10 percent). There are also different indexing methods that are used in measuring the market return, which you should understand before signing a policy.

Joint & Survivor/Second-to-die: Joint-Survivor Life is a type of coverage that can be a part of any type of permanent cash-value policy. This type of coverage insures two people (usually spouses) and pays a benefit only at the second death. It’s used primarily for estate planning purposes, as the estate tax is usually only payable at the second death.

It’s essential with any type of permanent/cash value policy that you order an in-force illustration at least every two or three years, as it’s the only effective way to monitor the performance of a policy. Annual review packets are available at no cost through  LifeInsuranceSage. An in-force illustration is a report of current values and assumptions compared with guaranteed minimum values.

Most life insurance needs are short term in need as if you are saving and investing in retirement plans, mutual funds, stocks, etc – then these investments should grow to an amount that will exceed the amount of life insurance that you have or need. There still may be a need for a small amount of life insurance. In terms of using life insurance as an investment, please refer to my
guest blog post, Why Life Insurance May Be The Greatest Investment Ever.

Questions and Answers on Life Insurance – The Workbook is designed to walk you through these decisions for yourself and to provide the tools for you to select and monitor your policy.

Background: Tony Steuer, author of Questions and Answers on Life Insurance, has been in the life insurance business for 20+ years as a life insurance agent and consultant.  He is one of 30 licensed Life & Disability Insurance Analysts in the State of California.  Also, he currently serves on the California Department of Insurance Curriculum Board as appointed by the Insurance Commissioner.

The ads and sales pitch are familiar, life insurance can be the answer to all of your financial worries including ones that you didn’t even know you had.  So the $64,000 question is: “Should I Use Life Insurance As an Investment”?

The trick here is in the question itself.  The question really should be what are my goals, needs, cash flow and alternatives.  The purpose of life insurance is usually to replace lost income or earning from someone upon whom there is a financial dependency.  Life insurance is a financial leverage tool – nothing more, nothing less -everything else is a variation.  You pay a premium, the insured dies and a death benefit is paid.   And on some policies, a cash value accumulates.

It’s the policies where cash accumulates that prompts the discussion.  So let’s get back to goals: Do You Need Life Insurance?  If the answer is no, you’re done – life insurance will not be a good investment for you as you are paying for the cost of insurance which you do not need.  If you don’t have a car would you buy auto insurance?   If the answer is yes to needing life insurance, then the next question is your goal – how long do you need the life insurance for?  If your need is short term- less than 15-20 years – a guaranteed level premium term policy will most likely best fit your needs (we’ll explore the details on this further in a subsequent blog post).  Most life insurance needs are short term in need as if you are saving and investing in retirement plans, mutual funds, stocks, etc – then these investments should grow to an amount that will exceed the amount of life insurance that you have or need.  There still may be a need for a small amount of life insurance.

So why do people say that life insurance is a great investment?  One reason cited is that life insurance is forever which as discussed is not really the case for most people.  Another reason cited is that the  cash value on a life insurance policy accumulates on a tax-deferred basis and can later be borrowed against – which is all true, however, the details here are important – 1) remember that you are buying a life insurance policy and you are paying for insurance (do you need it), 2) the cash value on a life insurance policy is currently tax-deferred, however, there is no guarantee that this will remain the case in the future and 3) you can borrow against it at low rates – however, there will still be loan interest and if you borrow too much you could end up having your policy crash without value and end up with a significant phantom income tax gain (see the article “Pitfalls of Policy Loans” at Life Insurance Sage – resources section or email me for a copy), 4) the companies crediting a 5%+ dividend pre-tax – (equivalent to a 7% return) – that’s great if that’s the true rate of return net of policy expenses, however, it’s not an it can take many years for a policy to earn anywhere close to that amount.

Remember the old adages, you get what you pay for and there are no free lunches.  My workbook is designed to walk you through these decisions for yourself.

Background: Tony Steuer, author of Questions and Answers on Life Insurance, has been in the life insurance business for 20+ years as a life insurance agent and consultant.  He is one of 30 licensed Life & Disability Insurance Analysts in the State of California.  Also, he currently serves on the California Department of Insurance Curriculum Board as appointed by the Insurance Commissioner.

When my husband and I were newly weds, our insurance agent convinced us that a whole life policy that built cash value was a “good investment.” He was quite enthusiastic about it: “If you decide you don’t need the insurance in 40 years, you can turn it in and get cash!”

Hooray! We got a policy for each of us. They aren’t huge policies (thank heaven), but the more I’ve thought about it, the more I’ve decided that — at least for my husband and me — a cash value life insurance policy isn’t really that good of an investment.

Giving Up Better Returns

Whenever you give up safety in an investment, you give up the chance of better returns. Most cash building life insurance policies do that cash building at a snail’s pace. You are guaranteed an eventual return (provided the company doesn’t fold), but the returns are often quite low. Sometimes your returns won’t even keep pace with inflation!

The price difference between my 30-year term life policy (which has a much bigger benefit) and my whole life policy is about $15 a month. That’s $180 a year that I pay more for my cash building policy. If, instead of having a whole life policy, I invested that $180 in securities with better potential yields, I could make a great deal more. Over the past 8 years, the cash value of my policy has grown to about $72. Now, let’s say that over that last 8 years I had put the $15 difference in an index fund tracking the Dow. Using a dollar cost averaging calculator, I see that if I had put that $15 a month in ^DJA, the value of shares today would be $1,709.36. That’s a lot better than $72. Of course, the cash value will supposedly build faster over time, but it’s still discouraging.

What About Equity Indexed Policies?

In some cases, you might try equity indexed policies. These are whole life cash value policies tied to the performance of an index. You have a guaranteed minimum return, and the potential for more, based on how the index does. As the index rises, you benefit. This can be a good option for some.

However, it is important to note that there might be additional costs and fees associated with this type of life insurance policy, and those expenses can erode your returns. You should carefully consider your options before deciding that an equity indexed policy is a good way to balance safety with increased returns.

In the end, whether or not cash value life insurance represents a good investment for you largely depends on your financial goals, and the role that your insurance policies play in reaching them. Before you decide, carefully weigh your options.

Miranda Marquit is a personal finance blogger. She writes for a number of sites, including the AllBusiness Personal Finance Corner and InsuranceQuotes.org.