Do You Still Need Life Insurance?

Deciding when to drop life insurance is an individual matter and varies depending on your circumstances. As you age, the cost of life insurance increases so that paying the premium every year can become a burden if you are on a fixed income. Some of the things to consider include the following:

  1. Are your children grown and on their own with sufficient income that they don’t require any money from you?
  2. Are your funeral and burial costs prepaid, or will there at least be enough money in your estate to cover them?
  3. If you are married, and you die first, will your spouse have enough income to live comfortably?
  4. If you give up the policy, it will be more expensive to buy another one when you are older. In addition, if you develop health issues in the meantime, it may be impossible to get another policy.
  5. If you decide to keep your policy, perhaps you could reduce the coverage as you get older.
  6. Do you or someone in your family have serious medical problems which may cut into your savings?
  7. If you have a whole life policy, instead of a term policy and you are getting a good interest rate, it may still have value as a savings plan.
  8. If you need advice, try to meet with an independent financial adviser, even if you have to pay a fee. No matter how much you like your insurance agent, his job is to sell insurance, and therefore he may not give you an impartial opinion.
  9. One more aspect of this is your estimated life span.  Face it, some families die young so it might make sense to keep the policy.  Other families live a long time, so maybe it might make sense to let it go.  It is a little like a bet on how long you will live.  Die young, you win.

Pay Less for Homeowner’s Insurance

In addition to checking your policy annually, there are other things you can do to save money on your homeowner’s insurance.

  1. Increase your deductible. Most people have low deductibles because they don’t like the idea of paying for losses out of pocket. However, doing that means paying more for your insurance.
  2. Insurance companies give credit for security upgrades such as deadbolt locks , smoke alarms, fire extinguishers, carbon monoxide detectors or security systems.
  3. Smokers in the house always raise the price of insurance. Stop if possible.
  4. Some companies charge less for homeowners who are retired.
  5. Putting your auto and homeowner’s insurance together with the same company usually gets you a lower rate.

Homeowner’s Insurance Coverage

In the current economy, the value of homes has gone down in many areas. You may have noticed, however, that the cost of your homeowner’s insurance continues to rise. It pays to look at your policy annually to determine if the amount of your coverage is accurate, and if there are ways to reduce the amount of money you are paying for insurance.

Most policies have an automatic cost of living increase every year, and the value which the insurer assigns to your home may no longer be accurate. This value is based on how much it would cost to replace your home on its current lot. In today’s economy, the value of your home may have decreased by 75% or more. If you don’t think it would cost as much to replace your house as the insurer quotes, or you are at the point where you need less house, you could ask them to lower the amount of coverage. Be careful with this, though. Even though your house may be worth a lot less, to rebuild it may cost a lot more than you think.

Another area which you can look at is the insurance on the contents of your house. If you live simply, and don’t have a lot of valuable possessions, you may be paying a lot more than you think to insure them. Or, you may find, that if you had to replace something, you could get by with a used item, or even go without. Take a tally of the contents of your home, and try to come up with a figure for how much it would cost to replace them. Compare that to your insurer’s figure, and reduce or increase your coverage accordingly.

How Does Life Insurance Work?

Life insurance is a way to protect your survivors in case you die. For example, if you are the sole breadwinner for a family of four, a life insurance policy would pay your family a lump sum if you suffer a premature death. In this way, your family is protected, and you can have peace of mind. As people get older and have fewer family responsibilities, the need for life insurance is less. Most people drop their policies altogether before they die, but at least they are protected when they need it most. There are two types of life insurance – term life and whole life. They both have a death benefit, but are otherwise somewhat different. Let’s look at them one at a time.

Term life is a fairly simple insurance policy that insures your life for a term of years, perhaps 10, 20 or 30 years. During this term of years you pay a monthly premium and if you die, the insurance company will pay a death benefit. After the tern is up, the policy is over. It’s fairly simple. Who gets the death benefit? Whomever you choose to name as the beneficiary, usually your spouse, but it also could be a parent, child or business partner. It comes to the beneficiary tax-free. Term life is the cheapest form of life insurance, and your premiums are based on several factors including your age, place of residence, lifestyle, and general health. Be prepared to answer some questions or possibly get a physical exam. After the term of the policy is up, the policy expires and you then have to get a new policy or go without.

A whole life policy is different, it covers you for your entire life as long as you pay your premiums. It is much more expensive, but usually includes some form of cash value that builds up over the years. At some point, you can use your cash value to pay the premiums, withdraw the cash value or borrow against it. It you have difficulty saving money, a whole life insurance policy is like a forced savings plan. The general wisdom is that you will do better to get a cheap term life insurance policy and invest the difference in cost.

There are numerous other types of life insurance such as universal life that are combinations of term and whole life. Of course, there are numerous exclusions where the insurance company doesn’t have to pay, so you really should read the policy carefully before buying it, and have your agent explain all the details.

How Much Life Insurance Do I Need?

This is different for every person, and is a highly personal decision. What do you want the life insurance policy to do for you? Once you answer that question, you will be in a better position to determine the amount you need. Perhaps you want it to provide for your family if you die. Perhaps you want it to pay for your funeral only. Perhaps you want it to protect your business partner. How much money will fulfill your goal, and how long will this need last?

The people with the greatest need for life insurance are the sole breadwinners of young families. Let’s say you are married and have two children and your spouse doesn’t work. What if you die? How much will be enough for your surviving family to live happily without your income? A general rule of thumb might be 10 times your annual salary. This big lump sum might be enough to provide food, clothing and shelter for your survivors and possibly more. Do you feel that this amount would provide for your family until the children are grown and your spouse could get a job?

Another person without children might only need to protect his or her spouse. The need is less, particularly if the spouse is working. How much is enough? That is a question to discuss with your spouse.

Perhaps you have a disabled child, and you need insurance to provide for this child for the rest of his life after you die. It might be a considerable sum.

Perhaps you just want an insurance policy to pay for your funeral so your family won’t have to think about that when you die. In that case, a $5,000 to $10,000 policy is probably enough.

Perhaps you have no family responsibilities and you never will. You probably don’t need life insurance, particularly if you are elderly.

For most people, a prudent plan would be to carry a large amount of life insurance (maybe 10 times your salary or more) during that period of you life when you have heavy responsibilities such as children and mortgage. Then reduce the amount of insurance when the children are grown. Finally, when you are elderly, life insurance is just too expensive and is dropped altogether. Of course, it is different for every person.

What Does Fire Insurance Cover?

Fire insurance covers four things: the house, other buildings such as a detached garage or shed, personal property (all your things), and the expenses associated with obtaining temporary housing in the event of a fire. Certain big-ticket items might need to be insured separately in addition to the above. These might include such things as furs, jewelry, fine art. Check with your agent to see if they are covered by your regular policy. Your personal property is generally valued at up to 70 percent of the value of the house. It is best to have some record of your property in case of a loss. Make a video of your home and all your possessions and keep it someplace besides your home. Then in the event of a fire, you have a record of what was lost.

Do I Need Flood Insurance?

It depends. Flood insurance is not usually included in your regular home owners insurance policy, so if you want it you will need to get it separately. Some lenders will require you to have flood insurance. But if it is not required, should you get it anyway? That depends on your tolerance for risk. If you buy flood insurance you are protected against loss from floods, and this could be considerable, but you will have to pay your annual premiums. Some consider this a small price to pay for the peace of mind. If you actually suffer flood damage, then the insurance was worth it. If you never have a flood, you have paid for the peace of mind. No one can predict the future, but certain areas are prone to flooding, and floods can occur anywhere. Maps have been put together that show the risk for a given area. These maps and other information can be found at: FloodSmart.gov

What is Title Insurance?

Let’s say you buy a piece of property such as a new home. You get a title to the property, but how do you know that the title is good? What if there is a problem with the title from some time in the past? Maybe someone forged his name when transferring the title in the past, so that your title is in question. There are numerous such problems that could possibly arise. Could this result in claims against you and the legal fees that go with it?

Title insurance is designed to protect you against this type of problem. In other words, title insurance is protection against loss arising from problems connected to the title to your property.