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Monday, January 25, 2010

Insurance Tips

When grouped together, the amount of money a family spends on various insurance premiums can easily eat up twenty percent or more of the household budget. Insurance, in general, is one of the most confusing areas of family finances, partly because policies are complex and also because it’s in the insurance company’s best interest to avoid full transparency. Here are my top 5 insurance strategies:

Lower deductibles don’t save you money. Whether its homeowners insurance or automobile insurance, too often I find families using low deductibles thinking they will save money when they have a claim. Not true. Generally you’re better off with higher deductibles of $500, $1,000 or more. Raising the deductible (the amount you are responsible for when there is a claim) can slash your premium 20% or more every year. Over the long term, this will put substantially more money in your pocket. Use the annual savings to start a sinking fund (savings) to cover the increased deductible.
If you have assets, you need an Umbrella Liability Policy. This ‘add-on’ insurance provides $1 million or more insurance against legal claims of a personal nature above the basic liability coverage provided by your auto or homeowners insurance. It’s inexpensive and imperative if your net worth exceeds $100,000.
You don’t have enough life insurance. Pretty consistently, I find families don’t have enough life insurance on the primary income earner. How much is enough? Think logically about your situation. If the income earner died suddenly, how much income, annually, would the family need to continue to pay the bills, save for college and invest for retirement? Add a zero to this annual number and you’ll have the minimum amount of life insurance needed on that income earner. If you want the income to last a lifetime, you’ll need double that amount. For low-cost rates on life insurance, visit the Resource Center at www.welchgroup.com; click on ‘Links’, then ‘Life Insurance Quotes’.
Rethink Long-Term Care Insurance. The cost of healthcare services has risen sharply over the past decade. While healthcare reform may provide some financial relief such as removing the lifetime claim limits, traditional coverage does not cover in-home healthcare. Consider Long-Term Care insurance to fill this gap especially if you are age 65 or older. I recently visited with a husband who is spending over $100,000 per year on in-home care for his wife. At that rate, most people’s money won’t last long. I prefer ‘indemnity’ type policies versus ‘reimbursement’ type policies. Indemnity policies pay you the full daily benefit regardless of the out-of-pocket expenses and allow you to better control the level and cost of care.
Avoid ‘event’ insurance. There’s a lot of insurance being sold that is just a bad deal and should be avoided. Examples include trip insurance, airline insurance, accidental death insurance, guaranteed-issue burial insurance, mortgage insurance, credit insurance as well as excessive riders on your homeowners insurance. You’ve seen the ads on TV and in your mailbox. Most of this is highly overpriced.

Your best bet is to work with an experienced financial advisor or insurance agent that you trust and who can help you navigate and coordinate the coverage you need at prices you can afford.

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