Archives For Insurance

hand + heart

Insurance is a gift of love. Credit aussiegall

Buying life insurance is something that we love to hate, but like making a will it is something we know we should do.

Why don’t we get life insurance when we know we should? It could be we’re in self denial about our mortality, it’s not a priority, or we’re stuck in paralyzis of confusing information.

Buying life insurance is an act of love toward your family. You can rest assured that your family and estate are taken care of. You love your family, now show it with action.

No matter what your reason for not buying life insurance in the past, I hope these frequently asked question about life insurance will educate and encourage you move forward.

Life Insurance FAQ

Why do I need life insurance? I’m glad you asked. If you understand the why then the rest will fall into place. Life insurance isn’t about making you rich or leaving an inheritance (unless you’re super rich).

It is about replacing your income or the income of your spouse should death occur. If you’re living the smart financial principals I teach on this site, you’ll be rich in 20-30 years and won’t need the insurance money should you or your spouse pass away. In essence you’ll be self insured.

If you’re still not convinced about your need for life insurance read a few of these real stories about their experience with or without life insurance.

Should I buy Term or Whole Life? The verdict is almost unanimous among personal finance experts that Term Life is the better product. I agree. Why? Term life is more affordable and fulfills the purpose of insurance.

Term Life Basics- A policy is for a set amount of time, usually 20 or 30 years at a low monthly rate (seriously it’s cheap for those who qualify). Term life has no investing vehicle. If a death occurs, the policy pays out in full.

Whole Life Basics- Also known as cash value, requires a higher monthly premium [than term] and a portion of that is invested for a small return. Upon death the insurance portion is paid upon death. The investment built up isn’t paid out to the family, but can be taken out any time before death (depends on policy).

My friend, Steve, did more math to compare Term vs. Whole Life that I recommend checking out.

I’m single, do I need life insurance? 

If you don’t have any dependents, then you won’t necessarily need life insurance. BUT, if anyone has co-signed a loan for you and your estate can’t cover the costs, then go ahead and get insurance.

Also, consider that every year the premiums increase on each birthday. If you are in early 20’s and unmarried, in good health, and able to afford it– why not go ahead and get cheap rates while you are healthy? If you are diagnosed with a a medical condition later, it is much more difficult to get life insurance.

How much life insurance should I buy? [common sense answer] A general rule of thumb is 8-10x your annual income. I’m not selling insurance here, but I’d rather overinsure than under insure in this category. Remember the purpose of insurance is income replacement for you or your spouse.

So how much are we talking? If you take home $3,000 a month after taxes, you’ll need at least $288,000 for 8x and $360,000 for 10x. For term life, these amounts are relatively inexpensive.

How much life insurance should I buy? [nerd answer] Ok so if you want to get more complicated there are handy calculators to help you decide. They take into account debt, mortgage, and other issues.  Personally, I find these calculators confusing as you don’t know the variables and are really just guessing. Use a few calculators and go with the bigger number as long as you can afford it.

My spouse works from home, do we need to insure her? A resounding YES! Your spouse has a huge economic impact on your family. What would it cost to pay for childcare, cooking, cleaning, errands, and the millions of taks a stay at home spouse does? In short- a fortune.

You should have a policy on the stay at home spouse. The amount would be in proportion to the economic impact on the family if they passed and you still had to continue working. A $250,000 or $500,000 policy would be a good place to start and then move up from there. Remember term life policies are cheap if you’re in good health.

Can I afford life insurance? Yes! term life insurance is fairly inexpensive. It really is. Let’s look at a 34 year old male in good health for a $500,000 policy.

Term Life quote examples

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Compare a few quotes today. 

1. Life Insurance by Jeff– an independent broker and CFP.

2. Zander Insurance Group– Larger independent broker endorsed by Dave Ramsey.

3. Go to you own insurance carrier or local independent insurance broker and get a quote. In most cases an independent broker can get the best rates on term insurance.

*These are NOT affiliate links.

My health is bad, can I still be covered? Yes, but you’re going to pay for coverage. Your best bet is to go to an individual broker to have them shop around for a policy with your specific medical condition.

I’m over 50, do I still need Life Insurance? 

This is where it gets tricky. It depends on your financial situation (debt, savings, nest egg amount, etc) If you have a question, consult your financial planner.

The price will go up significantly as you get older. Let’s look at a 51 year old male in good health for a $500,000 policy to compare to the above example of 34 male.

Term Life Quote 51 Male California

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What Are You Waiting for?

It’s time to take action. If you’re still reading this and don’t have life insurance in place, something is missing from your financial plan. The time to act is now. Do it for your family.

If you still have questions there are over 100 personal finance bloggers focusing on life insurance this week. Read about the Life Insurance Movement  and follow the Twitter hashtag #LifeAware

What other questions do you have about life insurance? 

vintage red refrigerator

I doubt this fridge had a extended service plan

A few months ago, we moved to The Valley and found out we needed to buy a refrigerator. We were busy moving and working for a week before we finally got a fridge.–yes that was an expensive week of eating out!

We paid cash of course $585.08. It would have been cheaper, but I opted to spring an extra $85 for the automatic ice maker. We got a good deal, free delivery, and they installed the water line to boot.

Now several months have gone by and we get a packet of information from G.E. trying to get us buy an extended warranty.

Extended Service Plans: Why? Is My New Fridge Junk?

So I begin thinking “Wait, what have we done? Is my fridge a piece of junk?” I have a twinge of fear, before my brain takes over.

“No stupid, you bought a top quality refrigerator that should last 15 years.”- my brain said to my fear. “Your manufacturer’s warranty is still good for another 7 months.”

My fear now gone– my brain starts to become angry when it sees the *terrible (insert word of choice) product they are selling.

Extended Warranty Plans: Great Marketing

Here are a few lines from the pamphlet they sent. Great marketing if you can’t do math or believe your fear.

  • “Spend time with a friend. Not a repairman.”—catchy eh?
  • “You have the right to expect the very best performance from your appliance and home electronics…but life isn’t perfect.”–do you sometimes sell lemons?
  • “No hidden costs. No deductibles, No stress. Peace of mind protection!”—sounds good right?

Extended Warranty: Breaking Down the Numbers

Here is what the numbers look like.  They offer a one year plan (20% discount already included–how nice of them) for $54.36, a two year plan for $97.85, and a three year plan for 146.77.

If you remember I bought our G.E. refrigerator for $585.08. A three year plan would be 25% of the original cost we paid for the fridge.

Extended Warranty: Is it Worth the Cost?

Is an extended warranty worth it? No way! In 4 years (you have to add the manufacturers warranty) I shouldn’t have my fridge break…If there was a good chance of it breaking, Assurant Solutions would be loosing money on every repair job. Trust me, they are really good at math and know they’ll make money insuring quality products.

Paying 25% of the cost of my fridge in the first 4 years is ridiculous. If something were to happen in the first 4 years, I have an emergency fund. We got a great deal on my fridge anyway and we could easily just buy a new one if the compressor went out–a $500 cost according to their website.

Final thoughts on the offer of extended service plans:

  • They are banking on the fact that I don’t have an emergency fund to cover such expenses.
  • They are also playing on my fear that my fridge will break soon. (most products break during their first year and near the later years of their life)
  • If you read the fine print, the extended warranty doesn’t cover all parts that break.
  • My homeowners insurance covers my fridge in case of flood, fire, lightening strike, or other acts of God.
  • The company makes a ton of profits from extended warranties and extended service plans, thus a high motivation to sell.
The only time I would consider buying an extended warranty is on a piece of high dollar equipment that is tied to your livelihood. ie. camera if you’re a photographer, computer if you’re a graphic designer..etc, but even then do the math and see if its worth the expense. 

More Articles on Extended Warranties

Take Advantage of Manufacturers Warranties, but Don’t Buy Extended Warranties

5 Things to Know Before You Buy an Extended Warranty 

Never Buy Extended Warranties – Dave Ramsey

Extended Warranties: A High Priced Gamble – Consumer Reports

What are your thoughts about extended warranties? Have they paid off if you’ve bought them?

Photo Credit SnaPsi Сталкер (Creative Commons)

Reader Question:

I’ve been thinking about checking into “Lifelock” or some other ID theft prevention company. What do you think? Are they worth the money? If so, who would you recommend?

Identity Theft

Identity theft is a hot topic that is in the news almost every day. Major corporations and government agencies are having breaches to their networks and pieces of identity are being stolen.

There is cause for concern and there are several steps you can take to help prevent your identity from being stolen and used in nefarious activities. Let’s look a few of these preventions before we address the reader question: Should I buy identity theft insurance?

Protect Your Identity with these Prevention Methods

  • Check Your Credit Report-At least once a year check your free credit report  to see if there is any unusual activity. If you want you can check one of the three major agencies every 4 months for free.
  • Stop the Junk Mail- If there are less credit card offers and personal mail floating around, less chance someone will try to use those offers to open up credit in your name. Stopping the junk mail will only take a few minutes. Also consider signing up for online statements from your bank and financial institutions.
  • Shred It- Shred all important documents or anything with name, address, any account numbers, or even a photo picture of you.
  • Lockdown Your Social Identity- There is a lot of information that can be gathered from you Facebook or other social media sites: Birthday, place of birth, pictures, daily activities, answers to online security questions: mothers maiden name, your maiden name, favorite movie, dog’s name, etc. Limit access to who can view those items or scrub them from your profile. Also, beware of allowing 3rd party software to access your accounts.
  • Don’t Give out Your Social Security Number- Most companies will allow another identification method other than a social security number (except financial institutions) these days. Ask and be pushy, but try not to give out your SSN. Oh, and take that Social Security card out of your wallet or purse. No need to tote it should you get
  • Change Your Passwords regularly- We all know this, but we should have solid passwords and change them regularly, to prevent anyone hacking our individual accounts.
  • Freeze Your Credit- This is a on the extreme end, but a Credit Freeze will stop the crooks cold should your ID get stolen.

Should I Buy ID Theft Insurance?

If you follow all these above  suggestions, there is less a chance you’ll have your identity stolen. There is no 100% prevention, so companies like Lifelock have sprung up claiming they can protect your ID. Most can’t do anything you can’t do for yourself and I wouldn’t recommend any company who has been sued multiple times like Lifelock has.

I would recommend a company that helps you clean up the mess if identity theft does take place. The problem with ID theft, is that it takes a long time to clear your name and it might pop up again years later.

Clearing up a case of identity theft could literally take hundreds of hours on the phone, faxing documents, and legwork. I would recommend Zander Insurance (not an affiliate link) that provides a counselor should a ID breach occur. See a comparison chart of their services vs. credit monitoring.

If you are a victim of identity theft, make sure you take action quickly, including filing a police report.

Have you purchased Identity Theft Insurance? Have you ever had to use it? 

Photo Credit Pomax (Creative Commons)