Category Archives: Coverage Types

126th Cavalcade Of Risk

Welcome to the 126th Cavalcade of Risk, where we’re showcasing the best in risk-related writing from around the web.? As a primary risk-management tool, insurance in all of its various forms tends to show up a lot of the posts, but there’s something for everyone here, so dig in…

cards To start things off, we have a compelling article from Scott Bartlett about the dangers of progress.? Scott’s post is inspired by the book A Short History Of Progress by Ronald Wright.? It’s a reminder of the ultimate risk to all of us if we don’t take care of this little planet we all call home.? But more then the usual articles about climate change and environmental degredation, Scott also looks back over centuries of history to see how the rise and fall of civilizations is often linked to resources and their depletion.? Sobering, yet an excellent read.

To put a visual spin on the idea of risk, Julie Ferguson of Workers’ Comp Insider brings us a photographic depiction of workers performing all sorts of tasks far from terra firma.? If you’re leery of heights, these are probably not the jobs for you.? There are pictures of modern workers, as well as plenty from days gone by, and it’s interesting to note the complete lack of safety equipment in some of the older shots.

Life Insurance And Estate Planning

plane Jim Yih of Retire Happy Blog brings us Cathy’s story of life insurance.? It’s an excellent example of a scenario where term life insurance makes much more sense than permanent life insurance.? Term life insurance is a perfect product for someone who is insuring her life in order to protect her children, since we can assume our children will only be financially dependent on us for a finite length of time.? And since it’s a lot less expensive than universal or whole life insurance, a term policy allows a person to have a policy with a higher face value and lower premiums.

Free Money Finance also writes about term life insurance, taking to task a recent WalletPop article that included term life insurance as a type of coverage that is “not worth the money”.? I think FMF’s take on this is absolutely correct.? For some people, permanent life insurance might be just the right product.? But anytime a planner or advisor is recommending permanent life insurance as being generally a better option, it’s a good idea to question how much more commission they will get if the client goes with permanent life insurance.

Continuing on the importance of estate planning, Jeff Rose of Good Financial Sense tells us what happens if you die without a will.? Basically, all assets will pass through probate, and state laws will determine how your money and possessions are doled out – and who will care for your minor children.? The way the state does it may be far different from how you would want it done, which is why having a will is such an important part of financial planning.

quake Russell Hutchinson of Chatswood Consulting Limited takes a look at whether the Christchurch, New Zealand earthquake will impact life insurance premiums.? He notes that although the loss of life was tragic, the payouts in terms of life insurance settlements will be quite small when compared with the payouts for property damages from the quake.? He concludes that events like the recent earthquake will usually not impact life insurance premiums rates at all.

Health Insurance And Healthcare Reform

Jaan Sidorov of the Disease Management Care Blog delves into some of the financial nitty gritty behind the idea of patient centered medical homes.? The PCMH concept has become quite popular during the course of the healthcare reform debates, but Dr. Sidorov’s article brings into question the financial sustainability of such models, as it appears that they won’t be making much money.? The idea is for the clinics to be paid on a per member per month basis, but the actual amounts that would likely be paid are startlingly small.

racecars InsureBlog’s Bob Vineyard tells us about a European ruling which prohibits companies from using gender in setting prices for products like insurance and annuities.? Turns out that there could be some unintended (and not-so-great) consequences, such a young men buying higher performance cars because their auto insurance premiums are artificially reduced.? Here in Colorado, health insurance premiums are no longer allowed to be based on gender.? It will be interesting to see if similar laws catch on across the country, or with regards to other products, like auto insurance.

Jason Shafrin of the Healthcare Economist looks at a proposal from the Healthy Trucking Association of America and the Convenient Care Association, for a plan to provide health insurance to truck drivers that would allow them to access care congress wherever their job may take them.? The integrated medical home concept works well for people who are generally in the same geographic location from one day to the next – but truck drivers need access to care all over the country.

Eric Turkewitz of the Terkewitz Law Firm writes and open letter to NY lawmakers, encouraging them to reject a proposed measure that would cap pain and suffering damages at $250,000 in medical malpractice lawsuits.? While we tend to hear a lot from people who are in favor of tort reform measures like the cap on non-economic damages, Eric’s letter provides quite a bit of detail from the other side, and explains why it would do more harm than good to place such a cap.

The Consumer Boomer gives us an overview of how Medicare Advantage programs work, the details about what the various Medicare plans cover, and information needed for enrollment.? Good info for anyone approaching retirement age and starting to look at how health insurance works once we turn 65.

P&C Insurance

Nancy Germond of All Business explains why your home may be underinsured.? The problem seems to stem from the fact that many insurance carriers give the homeowner the responsibility of determining the replacement value of a home, and that may not be the same as the market value of the house.? Nancy notes that a better option is an insurance carrier that will do an independent appraisal, or one that will add a percentage cushion to the determined replacement value in order to more adequately account for increases in replacement cost.

Neal from Wealth Pilgrim explains that if you need to file a claim with your homeowner’s insurance, hiring a private insurance adjuster can be a good way to make sure that you get as much money as you’ll actually need to repair or rebuild your home.

Canadian Finance Blog explains the basics in terms of how auto insurance premiums are calculated😕 type of coverage, how much you drive, what kind of car you drive – they all play a factor.? I’ve read that some auto insurance carriers even look at credit scores in order to set prices.

Other Risky Business

alt Health Blog’s David Williams discusses whether parents should be allowed to give teachers gifts.? While regulating such things might at first seem trivial and intrusive, David points out how gifts from pharmaceutical companies to doctors have been shown to influence the doctors’ prescribing habits.? Observation of the relationships between doctors and pharmaceutical companies when gifts are involved should give us pause to consider the fact that there is always a risk of compromising integrity when gifts are allowed.? Good food for thought.

The Dough Roller tells us about identity scores.? I wasn’t aware such a thing existed, but an identity score – compiled using data from a much wider source of data than credit scores -? is used by lenders as an indicator of how likely it is that a credit applicant is using a fake identity.? The higher the number, the more likely it is that an applicant is committing identity theft.? The article includes details about how you can check your ID score and make sure that it doesn’t contain errors.

Credit Card Guru takes us for a closer look at payment protection insurance, and concludes that it’s usually not worth the money.? Sure, programs like that help to alleviate some risk (for people who carry a balance on their credit cards and would have a hard time making payments if they were faced with an unexpected job loss, illness, etc.) but it appears that the insurance is pricey and has a lot of fine print.

Heather Hollingsworth takes a look at how unrest in Egypt and the rest of the Middle East could impact global financial recovery from the recession.? Since so much of the world’s oil comes from the Middle East, protests and regime changes there can have an effect all over the world.

That wraps up this edition of the Cavalcade of Risk.? Thanks for all the great submissions!

Disability And Long Term Care Riders On Life Insurance Policies

One of the advantages of permanent life insurance is that there are all sorts of riders that you can purchase along with the policy. ?Two that could be particularly useful are available through The Hartford: ?The LifeAccess rider and the Disability Access rider. ?The LifeAccess rider aims to take the place of a long term care insurance policy for people who have life insurance but not a separate long term care policy. ?The Disability Access rider provides a safety net for people who don’t have short term disability insurance coverage (the rider does not provide long term disability coverage).

Sales of the LifeAccess rider are up 80% nationally (the rider was first introduced in 2007) in the past year, and that may have something to do with the rising price of long term care policies recently. ?The rider can be added to a permanent life insurance policy for a cost ranging from 5% to 15% of the cost of the life insurance policy. ?The rider will generally be less expensive than a long term care policy on its own, but the cost of the permanent life insurance will be much more than the cost of a term life insurance policy with a similar face value. ?For most people, it probably makes more sense to purchase a term life insurance policy and a separate long term care policy. ?But for people who have a genuine need for a permanent life insurance policy, adding a long term care rider could make a lot of sense. ?In addition, the LifeAccess rider is more leniently underwritten than stand-along long term care policies, which might make it an attractive option for applicants with less than perfect health.

The Disability Access rider has been available from The Hartford for a little over a year, and costs an additional 6% to 10% of the cost of the life insurance policy. ?It has a monthly benefit cap, and a lifetime cap of up to 24 monthly payments. ?The monthly benefit cap is calculated when the policy is issued, and cannot exceed $5,000. ?The money can be used to protect the insured’s lifestyle/income in the event of a disability, or to pay for a buy/sell agreement or key man insurance policy depending on the insured’s business situation. ?As with the LifeAccess rider, this rider only makes sense if the insured truly has a valid need for a permanent life insurance policy and is able to pay the premiums that it entails. ?For some people, it will be a good option, although term life insurance and a separate disability insurance policy might be a better choice for a lot of people.

Comparing Life Insurance Options

This week’s Cavalcade of Risk included an informative article at the Consumer Boomer blog about how to compare different types of life insurance policies. ?The article did a good job of detailing the major differences between term life insurance and permanent life insurance (both universal and whole) but not much was said about the cost differences, other than to note that the permanent policies are “more expensive”. ?Permanent life insurance is dramatically more expensive than term coverage – often ten or twenty times as much in annual premiums. ?For some people, the benefit is worth it. ?But for most of us, it makes sense to buy a term policy and keep our investments separate from our life insurance. ?But either way, the Consumer Boomer article provides a good summary of how the various types of coverage work. ?If you’re in Colorado and you’d like to get quotes for your particular life insurance needs, we’re be happy to help.

What You should Know About Permanent Life Insurance

A recent article on CNN Money lists five things you should know about permanent life insurance:

1. ?It might be more coverage than you need… or at least coverage for longer than you need. ?Because permanent life insurance is so much more expensive than term life insurance, people might get a lower face value than they really need, but end up with life insurance long after their children are grown and the house is paid off. ?It usually makes more sense to purchase a less expensive, higher face value term policy, which will truly provide financial protection to your family while they need it – ie, while children are young, college still has to be funded, and payments are still being made on the house.

2. ?It may not be your best investment. ?The idea with permanent life insurance is that it provides a death benefit, but also builds cash value via investments. ?But for most people, it makes more sense to purchase insurance separately from investments. ?It’s hard to tell where your money is being invested in a permanent life insurance policy.

3. ?But in rare cases, it’s just the ticket. ?I would say that these are very rare cases, but they do happen.

4. ?The right flavor makes all the difference. ?Deciding among the three types of permanent life insurance policies (universal, variable, and whole) will likely require extensive research and/or a meeting with a financial advisor.

5. ?Dumping a policy will cost you. ?It takes many years for the cash value in permanent life insurance policies to build up to a significant amount of money. ?If you cancel a term policy early, you’ve only paid for the life insurance protection you got during the years you had the policy. ?But if you cancel a permanent policy in the first 10 or 15 years, you will likely have paid a lot of money (above and beyond what you would have paid for just having the death benefit of a term policy) and get very little in return. ?A permanent policy is really only appropriate if you know that you’ll stick with the policy for the long term.

Permanent life insurance is a good option for some people. ?But if you choose to purchase it, make sure that your decision is based on independent research or advice from a qualified professional who does not have a vested interest in your decision. ?The premiums – and thus the commissions – are significantly higher on permanent life insurance policies; if the person advising you to opt for a permanent policy is also making a commission based on the policy you buy, you might want to get a second opinion.

Regular Term Life Or Return Of Premium?

If you’re looking at term life insurance, you might be considering a return of premium policy. Return of premium policies are more expensive than traditional term policies, but you get all of your premiums back at the end of the term, assuming you’re still alive.

Determining whether return of premium life insurance is a good choice depends a lot on your own habits, goals, and tolerance for risk. Let’s consider a hypothetical situation of a 35 year old female who is looking for a $1 million, 30 year term policy. Let’s say she can purchase a traditional term policy for $650/year, or a return of premium policy for $1175/year.

If she buys the traditional term policy, she will spend $19,500 on the coverage over the course of 30 years ($650 x 30). This money is gone forever, but it has done its job of purchasing peace of mind for her and her family.

If she buys the return of premium policy, she will spend $35,250 on the coverage ($1175 x 30), but if she is alive at the end of the 30 year term, she will get the entire amount back. This option costs a total of $15,750 more than the traditional term policy, so the trade off between the two policies is what she could have done with that money if she had purchased the traditional policy instead.

Here’s where an investment calculator comes in handy. The return of premium policy will cost $525 more per year than the traditional term policy. We can use an investment calculator to determine what sort of return she would have to get on that money if she invested it on her own, in order to end up with at least a total of $35,250 at the end of 30 years (since that’s the amount she will end up with if she buys the return of premium policy).

There are numerous online investment calculators that you can use. Each person’s situation will be different in terms of taxes (ie, one person might choose to invest the difference between the premiums in a traditional IRA, with tax-deferred growth, while another person might put the money into a taxable brokerage account) so I’m focusing solely on the growth of the money without taking taxes into consideration. Here is an example of a simple calculator that you can use to determine the effective rate of return that the return of premium policy is giving you.? For our hypothetical lady, we can input 30 years, an initial principal of zero dollars, and an annual investment of $525.? We can reduce the tax rate to 0%, but if she is investing her money in a taxable account, that amount will have to be increased.? Then we can move the little blue arrow on the rate of return line until the investment total (in blue at the top of the calculator) gets to at least $35,250.? For our lady, this happens at 4.8%, at which point, her investment would be worth $35,324 after 30 years (if she invested her money in a taxable account, her rate of return would have to be higher to offset the loss to taxes).

So if this lady were to get average returns of more than 4.8% in another investment vehicle, she would be better off getting the traditional term policy.? But if she likes the idea of a guaranteed rate of return and forced savings, she might be better off with the return of premium policy.? The final decision will be up to you, but understanding the numbers behind the premiums will likely make the decision easier.

Job Loss Often Means Loss Of Life Insurance

The recession seems to have a lock grip on our economy right now, and employment numbers get worse by the day.? The loss of health insurance that goes along with the loss of a job is a common subject in the news right now.? Most people can’t afford COBRA when they’ve lost their jobs, and even individual health insurance premiums are out of reach for some families struggling to get by on unemployment.

But what about life insurance?? 66% of Americans get their life insurance through an employer.? It’s typically inexpensive, just a few dollars per paycheck, or in some cases completely funded by the employer.? But for a person who gets laid off, life insurance is often just one more thing to add to the list of benefits that are lost in addition to the job.

Basic term life insurance is much less expensive than health insurance, but it might not be something that a family thinks about in the face of a job loss.? Unfortunately, that leaves a family – that might already be facing some of their most trying economic times – with much more potential financial risk.

It is possible to continue group life insurance under COBRA, but I don’t think it’s an option that most people know about.? And while individual life insurance premiums are quite low, it’s easy to procrastinate on the application process.? Although most Americans understand the importance of life insurance, it might be pretty far down on the list of priorities in the event of an unplanned job loss.?? Here in Colorado, unemployment reached 6.1% in December – the highest in five years.? And nationwide, job loss numbers are not encouraging.? While it’s not particularly enjoyable to think about being laid off, it’s a good idea to think of the benefits your job includes, and get an idea of the options that are available for continuing or recreating those benefits on your own if necessary.

How Much to Buy

Do You Know How Much Life Insurance You Require?

dad1 We analyze a client’s life insurance requirements using either an income replacement method, or a needs fulfillment method, or both. We also combine this with a clients individual budget for life insurance to determine what type, and how much Colorado life insurance the client requires. The income replacement method of a needs analysis is to determine how much life insurance is required if the purpose is to replace the income that your family would require to survive. The needs fulfillment method determines how much life insurance is needed to cover future family needs like paying off debts and mortgages, saving for college, etc.

Universal Life Insurance

A Good Long Term Investment

life-insurance-colo A universal life insurance policy is more flexible and less expensive than a whole life insurance policy, but the interest rates have lower guarantees. Premiums may be increased or decreased by the policyholder within policy limits in order to change the policy as needs change. The amount of life insurance may be increased, subject to evidence of insurability, or decreased subject to minimums set by each Colorado life insurance company. Loans can be taken from the policy once it has gained a cash value, but can reduce the cash surrender value and death benefit. Withdrawals may also be taken but can also reduce the cash surrender value and death benefit.

Whole Life Insurance

An Easy Long Term Solution

A whole life insurance policy pays out its face value whenever you die. In the early years of a whole life policy, the premiums are much higher than the customer would pay with a term life insurance policy. These up-front overpayments are what keep the later payments reasonable. Otherwise, as you grow older, your premiums would need to increase substantially to keep up with the risk of insuring you. Level Premium Whole Life policies require premiums to be paid your whole life. Limited-pay whole life policies require higher payments for only a few years.

Are you getting a good deal with whole life?

– Probably not. Check out a good analysis by Moolanomy. It also has a comment that sums up my feelings on whole life:

Whole life is a huge rip off for most people. Stick to a combination of a strong savings plan and fixed term life insurance. If 30 years from now you need a large death benefit you?ve done something wrong along the way.
Estate planning does have some use for whole life style policies but most people won?t have an estate that is large enough to need to duck the estate tax and gift tax laws.

Term Life Insurance

Term Life Offers the Best Value

A term life policy pays out its face value only if you die during the selected term. Normally, if you have not used the death benefit when the term runs out, the policy expires. However, return of premium policies are becoming very popular as an alternative to typical term life insurance and even whole life and universal life policies. Building cash value with a permanent policy means paying high premiums (2 to 3 times as much for the same coverage). While an unused term policy can feel like a waste. Return of Premium (ROP) term is an easy and effective new solution that splits the problem down the middle. It starts out like term life insurance with one extra promise from the carrier: If you pay your premiums and you live, we’ll give you your money back. On a normal 20 year level term Colorado life insurance policy the ROP benefit may cost about 30% more, but that extra premium will effectively earn you a 6-7% return over the 20 years — just enough to earn you back everything you’ve invested. What’s in it for the life insurance company? Your loyalty. Colorado life insurance companies spend a lot of money to get your business, and only start making a profit if you stick around more than five years or so. ROP gives an incentive for their customers to stay for the full term. And, for those that don’t, the carrier made an extra 30% on those guys — and used some of it to pay you a solid return on your money for sticking around and living. So if you know that you are going to be insured for the entire term, then think about paying a little more for the ROP benefit and getting it all back in the end. We would be happy to give you the price of a term life policy and compare it with the same amount of ROP term and do the math to see if ROP term would be a good investment.