Driving history – Maintaining a “clean” driving record (no tickets or accidents) will keep your insurance costs lower. Age, gender, marital status – There is statistical evidence that some drivers (for example, young male drivers) will have more accidents than others, which makes them a higher risk for insurers, so they are charged a higher premium. Driving patterns- Generally, the more you drive, the more you pay. If you use your car in business and drive over 25,000 miles a year in a heavily populated area, your insurance will cost more than a driver living in a rural area with low annual mileage. Your car – Some cars will cost more to insure because they are more expensive to repair, are more easily damaged in an accident or are targets for theft.. Amount of insurance – While higher policy limits will cost more, you can lower your premium by increasing your deductibles. Credit history – Some states may use your credit as a factor in determining your rates. If you have excellent credit, you might pay less.

Shop around, being sure that the quotes you’re comparing are for the same coverage. Request higher deductibles for comprehensive and collision. Ask about discounts. Maintain a good driving record and credit history.

Insurance companies charge higher rates to drivers with tickets and accidents because they are statistically higher risks. Since claims statistics and studies by law enforcement agencies show the chances of having an accident increases proportionately to how many tickets and accidents a driver has already had, insurance companies must adjust their rates so the premium accurately reflects the insurance company’s exposure to future claims based on this higher risk.

It depends on your policy. The best thing is to review your policy, or ask your insurance agent to review it with you. Your policy may cover autos rented for pleasure, like vacations or special events, but not business. If you do not have comprehensive and collision coverage (often referred to as “physical damage coverage”) for your own car, you may not have coverage for a rental car. And if you damage a rental car, your policy may not cover lost revenue the rental car company incurs while the rental car is being fixed; or the cost of a new car if you total the rental. I have Property Damage and Physical Damage coverage. Aren’t these the same? You are required to carry property damage coverage, which covers damage you cause to someone else’s car or property (the fence you hit). There is no deductible for this. Physical damage (comprehensive and collision) is an option that pays for damage to your car. Collision covers damage from your car colliding with another car or object. Comprehensive covers damage from events such as fire, theft, vandalism, weather, and windshield or animal-related accidents. Comprehensive and collision usually have separate deductibles. If I lend my car to a friend, is he or she covered under my insurance? Most policies will cover drivers who have permission to use your auto. But check your policy, or ask your agent, to see if the conditions or limits of your policy will change for drivers who are not regular operators of your auto. 

First, check to see if anyone needs medical attention. Next, call the police. They will tell you whether you should move the autos, and whether an officer will come take statements from those involved. Try to stay calm. If a police officer questions you, be factual. It is not up to you to talk about whose fault it is. The police and insurance companies will decide that. If law enforcement is not involved, exchange names, addresses, phone numbers and insurance company names with each driver. Try also to get contact information for any witnesses. Contact your insurance company or insurance agent as soon as possible to learn about conditions or procedures you need to follow.

You should always have bodily injury and property damage. In most states you’re legally required to carry a minimum amount. Insurance for comprehensive and collision is not required by the state, but may be required if the vehicle is financed or leased. Consider what would happen if the car was stolen or seriously damaged in an accident: Can you afford to replace the car it if it is damaged beyond repair? If your car is damaged but not totaled, how much can you afford to spend on repairs? Without comprehensive, you can’t buy rental reimbursement coverage, which pays for a rental car or other transportation expenses until your car is repaired or replaced.

Your policy covers you anywhere in the U.S., but there may be significant differences from state to state. If you will be residing in another state for an extended period of time, say, over 30 days, it’s a good idea to change your insurance. Significant differences can be minimum limits – one state has $15,000/30,000 and another has $50,000/100,000, for example. Or your state may have no fault coverage including loss of income, funeral expense, accidental death, etc. while another state may not. . In most cases, only military personnel are allowed to reside in one state and maintain residency in another. If you are planning to register your auto in another state, you will need to purchase insurance in that state. 

Your insurance company will handle your claims the same way whether you own, lease or finance. If you leased or financed your auto and purchased it recently, your insurance may not cover your loan or lease completely. Since you are responsible for the auto, the leasing company will require you to pay the remaining lease payments as well as any penalties for mileage, wear and tear, or warranties, and you won’t get your security deposit back. Review your lease or loan agreement to decide whether to purchase GAP insurance, which covers the difference between your loan or lease and the insurance proceeds you receive for your damaged or stolen auto. 

 Most companies do not charge for a person with a learner’s permit or require the learner be named on a policy (but some do).Once your son gets his permanent license, he must be covered under your auto insurance, unless he won’t be driving. Newly licensed drivers are involved in more accidents than more experienced drivers, so their rates are considerably higher. For his protection, and for the protection of your financial assets, you may want to review your insurance limits and coverage. Your son’s premiums can be kept lower if he maintains at least a B average in school, keeps deductibles high, and if he drives an older, standard model car (rather than a sports or luxury car). 

Your new car must be insured before you drive it off the lot. If you have a policy in force, the new car will be automatically covered for 30 days. However, if you cover a new car under an existing policy without notifying your insurance company, some companies may change some of your coverage limits until they have received notice from you about the new car, and decided they want to insure it. When you buy a car, new or used, is a good time to review your coverage and check prices among competing companies. Start by getting quotes for the year, make and model of the car you plan to buy. If you’re considering more than one make and model, checking the price of insurance may help you decide. Although two cars may seem the same, the repair costs may be dramatically different, and that will have a significant impact on your insurance costs. And, if you are financing the car, you will be required to purchase comprehensive and collision coverage by your lender or lessor. 

If the car is registered to you, and she is not considered a resident of the state where she is attending school, she can be covered on your policy. Check with the State Department of Motor Vehicles to determine whether the car needs to be registered in that state, and your insurance changed accordingly.


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Term Life

How much life insurance should you own?

Rough rules of thumb suggest an amount equal to 6 to 8 times your annual earnings. However, there are other things to consider when determining how much life insurance you need. Important factors include: income sources (and amounts) other than salary/earnings; whether or not you’re married and, if so, your spouse’s earning capacity; the number of people who are financially dependent on you; the amount of death benefits payable from Social Security and from an employer-sponsored life insurance plan, whether any special life insurance needs exist (e.g., mortgage repayment, education fund, estate planning need), etc. Talk to an insurance adviser for a precise calculation of how much life insurance you need.

What about buying life insurance for a spouse or children?

Generally, that should not be done in lieu of buying appropriate amounts of life insurance on the family breadwinner(s). It is extremely important that you protect the earning capacity of the primary breadwinner, if possible, with the right amount of life insurance before considering life insurance on children or spouse. In a dual-income household, it is important to protect the earning capacity of both spouses. Life insurance for a non-wage earning spouse is often recommended for help in paying for household services lost if that spouse dies.

Should I buy term insurance or cash value life insurance?

Term life insurance pays out in the event of death. Cash value, which is more costly, has a cash amount you can withdraw before death. Which one is for you will depend on your circumstances. First answer an insurance question – how much life insurance should you buy? Then look at the financial aspect – what type of policy should you buy? The amount of life insurance you need may be so large that the only way you can afford it is by buying term insurance, which carries a lower premium than cash value policies. If your ability (and willingness) to pay life insurance premiums is such that you can afford the desired amount of life insurance under either type of policy, you can consider the financial decision – which type of policy to buy. Important factors affecting the financial decision include your income tax bracket, whether the need for life insurance is short-term or long-term (20 years or longer is long-term), and the rate of return on alternative investments. If you view life insurance as an investment, you’ll want to study rates of returns. If it’s protection, then your purchase is a matter of what you can afford and want to spend.

How does mortgage protection term insurance differ from other types of term life insurance?

The face amount under mortgage protection term insurance decreases over time, consistent with the projected annual decreases in the outstanding balance of a mortgage loan. Mortgage protection policies generally cover a range of mortgage repayment periods, e.g., 15, 20, 25 or 30 years. Although the death benefit decreases, the premium is usually level in amount. Further, the premium payment period often is shorter than the maximum period of insurance coverage–for example, a 20-year mortgage protection policy might require that premiums be paid over the first 17 years.

Can an existing life insurance policy be used to provide for the repayment of an outstanding mortgage loan?

Yes. Lenders don’t usually require that you buy a new mortgage protection term insurance policy. An existing policy, either term or cash-value life insurance, can be used for many purposes, including paying off an outstanding mortgage loan balance in the event of your death.

Credit life insurance is frequently recommended in conjunction with taking out an installment loan when buying expensive appliances or a new car, or for debt consolidation. Is credit life insurance a good buy?

Credit life insurance is frequently more expensive than traditional term life insurance. Further, if you already own a sufficient amount of life insurance to cover your financial needs, including debt repayment, buying credit life insurance is normally not advisable due to its relatively high cost.

What are the tax issues with life insurance cash values, dividends, and death benefits?

The “interest build-up” portion of the annual increase in the policy’s cash value is not taxed. Dividends generally are considered to be a “return of premium” and are not taxable. Although life insurance death proceeds will not typically be subject to income taxation, they may be subject to federal estate taxation. If you own part or all of the policy when you die, those can be included in your gross estate for federal estate tax purposes. State inheritance taxes and federal gift taxes may also apply to life insurance policies/proceeds under specific circumstances. Contact your tax adviser regarding questions about possible income, estate and gift tax consequences surrounding any life insurance you own or are contemplating buying.

What is participating whole life insurance?

Participating (par) whole life insurance has been marketed for many years in the U.S. The participating feature means you can receive dividends if the underlying investments perform successfully. The investments are generally long-term, fixed-rate contracts, so experience doesn’t vary tremendously. Substantial amounts of participating whole life insurance are still sold today, principally by the large mutual companies.

How is universal life insurance different from traditional whole life insurance?

Both traditional whole life (WL) and universal life (UL) products are examples of cash-value life insurance. But there are several important differences between them. One relates to product transparency. In UL policies, it’s easy to look at the internal operations of the policy and to examine the relationships among various policy elements (premiums, cash values, interest credits, mortality charges, and expenses) and how they interact with each other. Another difference is that unlike whole life policies, universal life policy returns were freed from long-term, fixed-rate contracts and replaced with policies whose returns were tied to short-term interest rates and periodically adjusted. After the initial payment, universal life allows you to pay premiums anytime, in virtually any amount, subject to certain minimums and maximums. You can also reduce or increase the amount of the death benefit more easily than under a traditional whole life policy.

Which type of cash value life insurance policy, universal life (UL) or participating whole life (WL), is a “better buy” financially?

There’s no simple answer to this. The best performing product (from a financial perspective), whether UL, WL or some other type of cash value life insurance, will likely be the one that reveals the most favorable interest earnings, actual expenses and mortality costs. Insurers earning the highest investment income, and who also incur the lowest expenses and the lowest mortality costs, are in the best position to offer life insurance at the lowest cost. This is true whether the cash value product being offered is UL or WL. You and your adviser should carefully examine the financial aspects of each product under consideration.

What is variable life (VL) insurance, and how is it different from universal life (UL) and participating whole life (WL)?

Variable life insurance is a type of fixed-premium whole life insurance policy where changes in the policy’s cash values and death benefits are directly related to the investment performance of its underlying assets. Policyowners typically can choose among several investment options for the assets backing the policy’s cash values. The various investment options offered in the contract generally possess different risk/return relationships and frequently include a money market fund, a bond fund, and one or more common stock funds. The policy prescribes that the death benefit will not fall below a minimum amount (usually the initial face amount) even if the invested assets depreciate in value by a substantial amount. Because the policyowner assumes all of the investment risk, there is no similar “floor” to protect the cash values. Variable universal life (VUL) insurance has recently become a more popular product than VL. VUL combines features of both UL and VL and, in essence, is the flexible premium version of VL

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What is homeowners insurance, and who should buy it?

Homeowners is one of the most popular forms of personal insurance on the market. The typical homeowners policy has two main sections: Section I covers your property, and Section II provides personal liability coverage (to cover you in case of lawsuits arising from things that happen on your property). Almost anyone who owns or leases property should have this type of insurance. Often, homeowners insurance is required by lenders as a requirement to obtain a mortgage.

What is the difference between “actual cash value” and “replacement cost”?

Covered losses under a homeowners policy can be paid on either an actual cash value basis or on a replacement cost basis. When “actual cash value” is used, the policyowner is entitled to the depreciated value of the damaged property – so the older the item is, the less money you may receive for it. Under the “replacement cost” coverage, the policyowner is reimbursed the amount it costs to replace the property with something of a similar type and quality at current prices.

What are the limits in the standard homeowners policy?

[Note: this answer is based on the Insurance Services Office’s HO-3 policy.]Coverage A and B cover your dwelling and other structures on the premises on an “all risks” basis up to the policy limits.

You set the limit for Coverage A when you buy the policy. The Coverage B limit is usually equal to 10% of the policy limit on Coverage A. Coverage C covers losses to your personal property on a “named perils” basis, which means you’re covered for all the perils specifically named on your policy. The policy limit on Coverage C is equal to 50% of the policy limit on Coverage A. Coverage D covers extra expenses you may incur when the residence can’t be used because of an insured loss. The policy limit for Coverage D is equal to 20% of the policy limit on Coverage A. You choose the Coverage E – personal liability – limit when you buy the policy. The limit on Coverage F – medical payments to others – is usually set at $1000 per injured person

Where and when is my personal property covered?

Coverage C, the named perils coverage, applies to all your personal property (except property specifically excluded) anywhere in the world. For example, suppose that while traveling, you purchased a dresser and you wanted to ship it home. Your homeowners policy would provide coverage while the dresser is in transit – even though the dresser has never been in your home before.

Do I need earthquake coverage? How can I get it?

Direct damages due to earthquakes are not covered under standard homeowners insurance policies. And unless you live in an area prone to earthquakes, you probably don’t need it. If you do live in a part of the country with high earthquake activity you may want to consider adding an earthquake endorsement to your homeowners insurance policy. This will cover damages due to earthquakes, landslides, volcanic eruptions and other earth movements.

What should I consider when buying homeowners insurance?

First and foremost, buy the amount and type of insurance you need. Remember: if your policy limit is less than 80% of the replacement cost of your home, you will face a “coinsurance penalty,” which means you’ll have out-of-pocket expenses to cover costs beyond your policy’s deductible. For example: Your home’s estimated replacement value (RCV) is $100,000. The co-insurance clause requires you carry at least $80,000 (80% of your RCV), so you would be underinsured by half if you bought a $40,000 policy. In such a scenario, the company would pay half of a loss less the policy deductible – so if you had a $500 deductible and suffered a $10,000 covered loss, your policy would only pay $4,500.

Also, figure out how much personal property insurance and personal liability coverage you need. Personal property, like a home, should be insured for its replacement value. Personal liability is a bit more subjective, but limits should not be less than those on other liability insurance such as auto. Seek advice from a financial or legal professional if in doubt. Finally, think about the extras you could add to your policy. For example, do you want the personal property replacement cost endorsement or the earthquake endorsement? Finally, once you have decided on the coverage you want, you can decide which insurer you would like to purchase the insurance from. You should also decide whether you would like an insurance agent to help you make decisions or you want to buy the product directly from an insurer without an agent.

What is the difference between an “all risks” policy and a “named perils” policy?

A named perils policy covers losses that are due to only those perils listed in the policy. Those typically include fire, windstorm, hail, and other physical losses. An all risks policy covers losses that are due to any peril except those specifically excluded in the policy. An all risks policy provides broader protection than a named perils policy.

What can I do to lower the cost of my homeowners insurance?

The best thing to do is to shop around. You could find quotes on homeowners insurance that vary by hundreds of dollars for the same coverage on the same home. When you shop, make sure each insurer is offering the same coverage. Many insurers use the ISO policy forms, but this is not always the case. Another way to cut costs is to look for discounts that apply to you. For example, many insurers will offer a discount when you buy both your automobile and homeowners insurance from them. Some insurers offer discounts if you have deadbolt exterior locks on all your doors, or if your home has a security system. Ask your agent or company about discounts. Another easy way to save is to raise your deductible. Increasing your deductible from $250 to $500 will lower your premium, sometimes by as much as five or ten percent. However, you should be sure you have enough cash on hand to cover the larger deductible in case of emergency.

If I have an accident I think is covered under my homeowners policy, what should I do?

Insurance contracts are conditional contracts, which means policyowners have certain responsibilities to meet if a covered loss occurs. Not completing these can result in non-payment by the insurance company for losses that otherwise would have been covered. These include: (1) notifying the insurance company or the agent that a loss has occurred — this should be done as soon as you discover the loss; (2) protecting the property from further damage and/or making any repairs necessary to prevent further damage; (3) preparing a detailed list of the personal items damaged that contains descriptions, the items’ actual cash value, or their replacement cost if you have added the replacement cost endorsement to your policy; (4) being prepared to show the company and/or the insurance agent the damaged items; (5) completing a statement for the insurance company that explains how the loss occurred — for example, the time the damage occurred, the cause, etc.

Who pays for my legal defense costs if I am sued?

In the unfortunate event that you are sued, your homeowners policy will not only cover the cost of your legal defense, but your insurance company will also provide the legal counsel.