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Monthly Archives

September 2008

UNDERSTANDING INSURANCE FOR YOUR STUDENT AWAY AT COLLEGE

By Personal Perspective

Sending a child off to college is always an exciting and anxious time for parents. They worry about their child’s safety, whether she has everything she needs, how she’ll get along with her roommates, and whether she’s ready for independent living. Between making sure that textbooks and supplies have been purchased, tuition bills paid and course registrations completed, it’s natural that parents won’t think about insurance considerations. However, accidents can happen at college just as easily as they can at home, so it’s worth taking a few minutes to think about insurance coverage.

A Homeowners insurance policy might not cover a part-time student or one over a certain age. For example, policies often state that a person has coverage if she is a full-time student and was a resident of the policyholder’s household before moving out to attend school. They also limit coverage to students who are either under the age of 24 and related to the policyholder or in the policyholder’s care and under the age of 21. This could become an issue when the child is attending college at a later age, or at graduate school, law or medical school, where students are often in their mid-twenties. The parents should discuss this with an insurance agent and consider asking for a change to the policy that would eliminate these restrictions.

A typical policy covers the student’s belongings while at college, but limits coverage to 10% of the amount of insurance covering the parents’ personal property. For example, if the policy shows a limit of $100,000 for coverage of personal property, it will cover the student’s property up to a maximum of $10,000. If this amount of insurance is too low, parents should consider higher limits.

Many colleges require students to own a laptop computer. A standard Homeowners policy will cover a laptop, but only for a small number of causes of loss. These include perils like fire, theft, lightning, explosion, and vehicle damage. The policy does not cover damage from someone dropping the computer, spilling a beverage on it, or damage to its circuitry from a power surge. However, many insurance companies offer special computer coverage that will pay for damage from these types of accidents. An agent can explain to the parents what the coverage includes and how much it will cost.

The Homeowners policy will also cover the student’s liability for any injuries or damages she might cause to others while at school. For example, the policy would pay for repair or replacement of dormitory furniture that she might accidentally damage.

If the student brings a car to college and the parents’ Auto insurance policy lists it, the student will have coverage for its use. Of course, the student could also buy her own policy. If she does, she should buy liability coverage in an amount at least equal to what the parents have. Purchasing only the minimum limits required by state law could leave her owing a large amount out of pocket if she causes serious injuries to others in an accident. If she doesn’t bring a car with her, the parents’ policy will cover her while using someone else’s car unless it’s regularly available to her. The car owner’s policy should also provide her with coverage.

Parents’ insurance policies will automatically cover many student situations. However, parents should read their policies to verify the coverage they have. A discussion with one of our insurance agent is in order if anything is unclear or appears inadequate. A little bit of advance checking can save a lot of worry and expense later.

DETERMINE YOUR HOME INSURANCE NEEDS WITH ANNUAL REVIEW

By Personal Perspective

Although the housing market is in the midst of a prolonged slump, some experts believe prices are still higher than they should be. At least in the short term, homebuyers will take out large mortgages against their homes. Unfortunately, the mortgage amount sometimes brings the lender into conflict with the homebuyer’s insurance company. For example, the mortgage might be for $200,000, but the insurance company might be willing to insure the home for only $175,000. The lender will often threaten to not hold the closing if the borrower does not buy an insurance amount equal to the amount of the mortgage. This obviously leads to a very anxious homebuyer who has many other things to worry about. Who is correct here?

Most insurance policies provide coverage for the home on a “replacement cost” basis. This means that if a covered cause of loss damages the home, the company will pay the cost to repair or replace it without deducting any amounts for depreciation. However, the company will pay the least of:

  • The amount of insurance covering the building;
  • The cost of replacing the damaged portion of the building with materials of similar kind and quality and for similar use; or
  • The necessary amount actually spent to repair or replace the damaged building.

Assume that a fire completely destroys the home mentioned previously. The homeowner bought $200,000 coverage to equal the mortgage amount. The most the insurance company will pay is $200,000 (the amount of insurance) or the reasonable cost of labor and materials to rebuild the house, whichever is less. If the contractors can rebuild it to a state reasonably similar to its prior state for $175,000, that is the amount the company will pay.

The mortgage, however, is based at least in part on market value. Market value reflects what someone is willing to pay for the house and related structures (garage, swimming pool, gazebo, etc.) and the land they sit on. The price someone is willing to pay for a building could be very different from the cost to rebuild it, because that price contemplates factors (school district, proximity to workplaces and shopping or bodies of water, etc.) that have no relationship to the cost of labor and materials. In addition, market value includes the value of the land, something no Homeowners insurance policy covers, since land does not burn, explode, or otherwise suffer insurable damage.

Although it is understandable that the lender wants to see its investment protected, requiring a borrower to insure up to the mortgage amount helps no one other than the insurance company. The lender and the homeowner will never collect more than the cost of rebuilding no matter how much more insurance the homeowner buys. The insurance company, however, gets to collect the premium for $200,000 worth of coverage but will never have to pay out more than $175,000.

Many states have laws or regulations that prohibit mortgage lenders from requiring borrowers to buy amounts of insurance greater than the cost of replacing the house. Arizona, California, Florida, New York, Tennessee, North Carolina and Virginia are just some of the states that restrict lenders’ insurance requirements. New York’s regulation, for example, prohibits mortgage lenders from requiring a borrower to “obtain a hazard insurance policy in excess of the replacement cost of the improvements on the property as a condition for the granting of a mortgage loan.”

Homeowners should review the amount of coverage on their homes with their insurance agents at least annually. The importance of having enough coverage continues long after the home purchase. However, it is equally important not to buy more coverage than necessary.

WHY LIFE INSURANCE IS A NECESSITY FOR THE SELF-EMPLOYED

By Life and Health

Being self-employed definitely has its perks: Freedom, flexibility, autonomy. Unfortunately, the long list of self-employment benefits doesn’t usually include an actual benefit plan. That means you’re on your own when it comes to insuring yourself.

If you’re self-employed and don’t own Life insurance, you’re putting your family at great financial risk. Not only would a Life insurance policy provide for your family if something were to happen to you, but it would also cover the costs of your business debts.

Everyone needs Life insurance

Any financial expert will tell you that whether you’re self-employed or company-employed, you need Life insurance — especially if you have a family who depends on your income. As long as you’re alive and kicking, you can continue to earn money and maintain your family’s lifestyle. However, if you were to die without Life insurance, your family could find themselves in a financial crisis.

Without your income, your family certainly wouldn’t be able to maintain their former lifestyle, and they might have a hard time making ends meet. They would probably struggle to pay monthly expenses, including the mortgage, credit cards and utilities. On top of that, they could face some hefty bills associated with your death, including burial and funeral costs and medical expenses.

An effective Life insurance plan will ensure that all of your family’s financial needs will be covered in the event of your death — from the monthly mortgage to final expenses to your child’s college education.

A necessity for the self-employed

Although everyone should have Life insurance, it’s an absolute necessity for the self-employed. Why? In the eyes of the law, there is no difference between your personal and business assets. That means that you are personally responsible for any and all business debts.

When the owner of a sole proprietorship dies, the business legally comes to an end. Therefore, if you were to die, any of the debts or losses associated with your business will become the responsibility of your estate. This could include business loans, your office mortgage or lease payments, local, state and federal taxes, lawyer and accountant fees and any payments due to your employees, suppliers or vendors.

To pay off these debts and cover your business’ financial obligations, your family might have to sell off personal assets. This would leave them with even less money to cover their ongoing financial needs.

However, with an effective Life insurance plan, your family would have enough to pay off these business debts and provide for their ongoing financial needs after your death. This is why it’s crucial for any self-employed person to have a Life insurance plan.

Meet with one of our financial professionals to discuss your Life insurance options. We can assess your situation and find a plan that fits your unique needs as a sole proprietor.

PROTECT YOURSELF BY PLANNING FOR DISABILITY AND RETIREMENT FUNDING

By Life and Health

Although retirement is a time we can count on happening someday, and disability is something we hope never happens, these two areas of financial preparation are closely related.

Both concern the maintaining of a standard of living, due to loss of income. Rent or mortgage payments, bills, taxes, insurance, and other living expenses, such as food and clothing, will need to be paid for. By planning carefully and being prepared well in advance to cover these costs whether retired or disabled, you will be able to replace your lost income, protect your family, and preserve your estate effectively.

Many people become disabled suddenly and realize that their monthly needs will not be met by their current assets. This is why Disability Income insurance is so important. This type of insurance protects your income by guaranteeing monthly payments after a defined waiting period, whereas social security can take months after you have applied to start receiving benefits assuming you qualify in the first place. Without Disability coverage, you would be forced to tap your retirement savings, which could jeopardize your future financial security. Those who are better prepared for events, such as retirement or disability, will be in far better control of their finances in each situation.

HELP HEIRS BY PURCHASING A SECOND–TO-DIE LIFE INSURANCE POLICY

By Life and Health

Many parents want to leave their children an inheritance to help provide for them and their families, but such a bequest can be a double-edged sword. Together with all that accumulated wealth comes the problem of having to pay substantial estate taxes. If heirs are forced to pay taxes from the estate proceeds, it will lower significantly the amount they ultimately receive. You can help your heirs to avoid this situation by purchasing a Second-to-Die Life insurance policy on you and your spouse. Such a policy, also referred to as Survivorship Life, can provide tax-free dollars (if owned outside of the estate) to pay estate taxes.

Federal tax law permits you to leave an unlimited amount of assets to your surviving spouse without taxation. Those assets then become part of your spouse’s estate and are taxed when he or she dies. If you purchase a Second-to-Die Life insurance policy insuring both you and your spouse, and you die first, the death benefit is paid to your beneficiaries upon your spouse’s death, thus providing the necessary funds to pay whatever estate taxes are owed. Consider these additional advantages to buying a Second-to-Die policy:

  • Survivorship Life costs less than a single insured Life insurance policy. The premium you pay for a Second-to-Die policy is calculated using the joint life expectancy of you and your spouse. Since the insurance company owes nothing until both of you die, the premium will be less.
  • Qualifying for this type of insurance is much easier than for single insured Life insurance. Since the death benefit isn’t paid until both insureds die, the insurance company isn’t as concerned if one of you is in poor health. Some insurers will even issue a policy when one of the insureds is deemed uninsurable by typical Life insurance standards.
  • Survivorship Life can add value to your estate. Second-to-Die Life insurance does more than protect your estate from taxes. The death benefit can ensure your beneficiaries receive a minimum amount of money, even if you spend through all your other assets during your lifetime.
  • The proceeds from a Second-to-Die policy can cover additional tax obligations, such as income taxes owed on any traditional individual retirement accounts (IRAs) and tax-deferred plans that the deceased owned.

Consult with one of our financial professionals to determine if Second-to-Die Life insurance should be a part of your estate planning.