The title of this post makes a very big assumption.

It assumes you are actually reviewing your life insurance plans!

Life insurance seems to hit the gag reflex for most folks.  It’s just not something desirable they care to review, make plans for or discuss.

And yet, it’s one of those necessary evils.

Your life insurance plans should be reviewed at least annually, and perhaps more often if you are experiencing life changes throughout the year.

For example, becoming a parent or having another child is a major life event that should cause you to review your life insurance plan well before your annual life insurance review.

So today we want to cover four things that you need to consider when reviewing your life insurance plan:

Type of Life Insurance Plan

Ok, this seems pretty basic, but I sense there is a lot of confusion out in the world regarding the types of life insurance out there.

There are two main types of life insurance:  term and permanent.

Permanent insurance is designed to last as long as you live, no matter how long you live.  These can be whole life, universal life, variable universal life and a newer version of a universal life that is nicknamed permanent term.

All these life insurance plans have one thing in common – they try to make sure your life insurance is their for you when you really need it – at your death.

You will generally pay higher premiums because you are insuring yourself for a longer period of time and because many of these policies build up cash value, a savings portion of the insurance.

Term insurance plans on the other hand insure individuals for a set period of time, or a term.  This could be one year (not recommended) or it could be 10, 15 or 20 years depending on the plan you choose.

If you do not die within that period of time, then your beneficiaries get nothing.  You would have to buy another policy at that time.

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Term is great for those looking to keep premiums inexpensive.  Since you are only insuring yourself for as set period of time, the premiums for these life insurance plans are generally much less.

So, which type of insurance plan is right for you?  It’s a question you’ll need to consider when you review your life insurance!

Amount of Life Insurance Plan

This one makes sense right?  How much life insurance do I have and how much life insurance do I need?  Pretty simple.

The difficulty comes in when really trying to figure out how much life insurance you need. 

I generally like to keep things simple, so here is a good way to think about it:

• Current and future financial obligations
• minus (-)
• Existing resources (includes savings, existing life insurance and survivor’s earnings)
• equals (=)
• Life insurance needed.

Premiums of Your Life Insurance Plan

Many folks confuse the cost of insurance with premiums.

Cost of insurance refers to the cost it takes to insure you as determined by the insurance company. 

Your premiums may be higher than this amount if you have a permanent insurance policy because most of those have the built-in-savings portion called cash value.

In order to build cash value, you have to put in an amount much higher than the cost of insurance.

What I refer to here is the out of pocket cost for your life insurance, or your premiums. 

You’ll want to review your premiums especially with your permanent insurance because if you didn’t put enough in to begin with, your insurance company will want a higher amount to keep this type of policy going strong.

With term insurance, you need to review the premiums because you don’t want to come to the end of your term and automatically renew at a much higher premium.

I’ve heard of people getting a higher bill for their term insurance because it was at the end of its renewal period and just paying it because they didn’t review what it should be.

Beneficiaries of your Life Insurance

Beneficiaries should be reviewed annually as well.

I’ve heard horror stories of folks forgetting to change their beneficiaries after a divorce only to leave their “ex” with a nice little chunk of change upon their death.

This could also apply if you created a trust and were supposed to put life insurance proceeds into the trust! 

There are big ramifications for having wrong beneficiaries selected so be sure to review this regularly, if for nothing else than peace of mind.

What Else Do You Consider When Reviewing Your Life Insurance Plan?

Share your thoughts below!

Remember reading Aesop’s Fables in school?

Aesop wrote popular short stories that always had a  moral to them.

One of his stories was about the goose that laid golden eggs!

A man and his wife were blessed to have a goose that laid one golden egg each day – unfortunately, they felt they weren’t getting eggs fast enough and so they decided to access the gold themselves.

Upon cutting the goose open, however, they didn’t find any gold, just normal goose-guts!

The moral of the story dealth with their greed and contentment.  

I’d like to look at the story from a different angle.  Moral aside, what if the man and his wife purchased some insurance on the goose!

Now hang with me here a second - can you really buy goose insurance?

No, but relate this to your own life - do you have a goose that lays a golden egg?

The answer is YES!  Yes, you do. 

That goose is you!!

Your ability (the goose) to earn an income (the golden eggs) each and every day is an extremely important factor in reaching your financial goals!

No one enjoys talking about insurance, but it’s an important piece to the financial plan so insurance is something that should be reviewed!

So let’s take a look at disability insurance that will protect the goose!

Disability Insurance Protects Against the What Ifs

What is Disability Insurance?  Well, basically these policies provide income replacement for those who are unable to work.

Generally you will get paid a certain percentage of your take-home pay if you are unable to perform functions of your current occupation.

If you get sick or hurt for a period of time, disability insurance will kick in and pay you a salary!

Depending on whether your employer picks up the tab or not on a group policy will determine if the benefits are taxable.

If a disability insurance policy is paid by you then benefits are tax free when received!

Most group policies are inadequate, but they are better than nothing.

Who Needs Disability Insurance?

To put it simply, anyone who has earned income needs some form of disability insurance!

Consider this – it’s estimated there are approximately 6 million car accidents per year in the U.S., with 3 million of them resulting in serious injury and around 2 million of them permanent!

Think it can’t happen to you?  Think again.

Most accidents don’t result in death.  In fact, only  about 42,000 of these 6 million accidents are fatal. 

I don’t mean to downplay the fatalities here, but the point is this -

You are more likely to be involved in an accident and get seriously injured than you are getting into a fatal accident!

Put it another way – you are more likely to need disability insurance than you are accidental death insurance.

How Much Does Disability Insurance Cost?

Depending on the type of policy and the benefits, most individual disability insurance policies are relatively inexpensive. 

If you have disability insurance through your employer, they might pay for most of it and you might be on the hook for a very small portion if you wanted to increase the benefit!

Let’s say you are covered by a group policy at work that will pay you 60% of your income should something happen and you want to get an individual disability policy to cover the remaining 40%.

Your premiums would generally run anywhere from 1% – 3% of your annual income – relatively inexpensive if you want to insure the goose!

If Aesop sold insurance his moral of the story might be:

It’s better to take a tiny portion of the golden egg to insure the golden-egg layer!

Have you purchased an individual disability insurance policy?

Do you have a group policy through work?

This post was originally written for ChristianPF.com, you can find it here.

What the COBRA Insurance Extension Means to You

The Recovery Act established an employer-provided health insurance continuation subsidy for workers who involuntarily lost their jobs between Sept. 1, 2008, and March 31, 2010.

That continuation coverage is known as COBRA Insurance.

COBRA stands for Consolidated Omnibus Budget Reconciliation Act, which enacted health benefit provisions in 1986.

What Does COBRA Insurance Do?

COBRA Insurance provides you and your dependents the same group coverage that you had with your employer, however, you pay the premiums.

According to the US Department of Labor, COBRA Insurance provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group health insurance rates.

COBRA Insurance is only available when coverage is lost due to certain specific events.

Unfortunately, if you are working for a small company, you may not qualify for COBRA Insurance.

COBRA generally does not apply to plans by employers with fewer than 20 employees.

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COBRA Insurance is usually more expensive than health coverage for active employees because you foot the entire bill whereas active employees get some part of their health insurance paid for by the employer.

That is, until the Recovery Act provided a subsidy.

What is the COBRA Insurance Subsidy?

The Recovery Act provides eligible workers who have lost their jobs with a 65 percent subsidy for COBRA Insurance premiums for up to 15 months.

Eligible workers pay 35 percent of the premium to their former employers.

The other 65 percent of the COBRA Insurance premiums is paid for by the employer who receives a tax credit from the IRS.

You must have been involuntarily separated from your job between Sept. 1, 2008, and Marc 31, 2010.

Of course if you make too much money the subsidy is reduced.  

If your modified adjusted gross income exceeds $145,000 ($290,000 for joint filers), you do not qualify for the subsidy.

This subsidy ran out on March 31, 2010 – until now.

What are the details of the COBRA Insurance Subsidy Extension?

The Continuing Extension Act of 2010, enacted April 15, reinstated the COBRA Insurance subsidy.

Employees who are involuntarily terminated from employment between April 1, 2010 and May 31, 2010, may be eligible for a 65-percent subsidy of their COBRA Insurance premiums for a period of up to 15 months.

Employers must provide COBRA coverage to eligible individuals who pay 35 percent of the COBRA premium.

This is a great subsidy for those who lose their jobs and need health insurance.

At least for 15 months you’re only on the hook for 35% of the premiums!

Hopefully another job can be lined up by the end of that period.

Need More Information on COBRA Insurance?

If you’re looking for more info on COBRA, check out the US Department of Labor as well as the IRS.

Tip #9 – Negotiate Your Home and Auto Insurance

Welcome to day nine of our roughly 10-day journey, where we are looking at 10 money-saving tips to help save $10,000!   This has been a really fun series of posts and it’s garnered a lot of great comments!  Keep ‘em coming everyone!

If you missed the introductory post of 10 Money-Savings Tips to Help You Stash $10,000 you’ll definitely want to check it out so we’re all on the same page.

But to sum it up – here’s our mission:

• The Goal: Save $10,000
• By When: This time next year
• How: By implementing 10 money-saving tips

For the last couple weeks we’ve looked at one money-saving tip each Monday through Thursday.  We’ll be finishing up our series this week!

If you have a tip that hasn’t been mentioned, or you’d like to add some additional thoughts to one of our existing tips, please let me know your best money-saving tip here!

We’d love to hear your stories of what you did and how much money you saved by implementing your tip!  If you’re a blogger and have posted about your money-saving tip, please include a link to your post!

Here’s what we’ve been through so far:

Tip #9: Negotiate Your Home and Auto Insurance

This is one tip that most people have probably thought of, but perhaps haven’t paid much attention to.  For whatever reason, we all get into a rut and so when our renewal notice comes we just pay the premium and on we go for another six months.

For many of us, the thought of getting auto insurance quotes and home insurance quotes isn’t all that appealling right?  So what do we do with things that aren’t that fun?  C’mon now, be honest – we put them off!  

 But, this is one area that you can really save some big money with a little front-end effort of getting some quotes!

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How Much Coverage Do You Need?

Before you get carried away and start raising your deductible and dropping coverage, you really need to do a little homework up front to figure out how much coverage you actually need.

Smart Money has a great article on auto insurance that walks you through the different options for your auto insurance and gives an idea of how much coverage you should be looking for.

Shop Around For Home and Auto Insurance Quotes

Ok, now for the fun part.  Before you give your existing company a call, you’ll want to give competitor’s a call and start comparing insurance quotes.  You’ll also want to check to see if your employer offers any discounts with certain carriers.  If you’re a Costco member, you get a discount as well. 

Make sure you know all the angles – most companies will offer you big discounts for buying both home and auto insurance – among other things through them!

Get as much information as you can and write it down.  You want to make sure you’re comparing apples to apples.  To help get you started here are some toll-free numbers to call so you can shop around:

Geico: 1-800-861-8380

AAA: (866) 539-8033

Allstate: 866 704 9900

Progressive: 1-800-776-4737

Or, you can always go on the web and get some free auto and home insurance quotes as well.

Simple Financial Lifestyle mentioned they recently shopped their car insurance and ended up saving $500 annually!  There’s some great potential savings because this type of insurance is very competitive – and companies want your business!

Call to Negotiate

Once you’ve got a pretty good idea as to what other companies will offer, you want to give your existing company a call first. 

Let them know that you’ve got a quote for “X” amount and you’re wondering what they can do to retain your business.  This works!  It’s amazing how many companies scramble to throw you a deal when they realize you’re about to walk.

There are some crazy discounts offered by the competition these days – ask your current company if there are any discounts you’ve been missing out on, like a safe driver discount, or a “I haven’t had a cold in two years” discount.  Anything!

If your existing company can’t match or beat the lowest price you shopped around for then it’s time to switch.  Yes it’s a pain, but it’s worth it.

Side Note: I don’t advocate going by price alone – you want to make sure you are with a legitimate company that has good claims-paying ability!  The last thing you want is to get into an accident and have a company that can’t pay!

Estimated Savings: $25-$100 per month

Don’t Forget To:

1. Check out the other money-saving tips in this series!

2. Leave a comment below letting us know how much you’ve saved by negotiating your home and auto insurance!

Check Out All The Tips From Our Series

Tip #1: Cut Back on Going Out to Eat

Tip #2: Evaluate Your Entertainment

Tip #3: Cut Your Cable

Tip #4: Turn Your Heat Down

Tip #5: Negotiate Your Cell Phone Plan

Tip #6: Get Rid of Your Land Line

Tip #7: Slash Your Grocery Bill by Cutting Out Junk Food!

Tip #8: Use Coupons, For Everything!

Tip #9: Negotiate Your Home and Auto Insurance

Tip #10: Start Packing Lunches!

A few weeks back I tackled this annoying topic by discussing four questions you should ask before you buy life insurance.

I was honestly surprised at the popularity of that post – so I decided to tackle the annoying topic AGAIN!  This time to help clear up some common misconceptions that are out there regarding life insurance.

We all have different perceptions of life insurance and we tend to think that whatever we believe must be right.  Our views have been formed by the media, by friends or family or even insurance agents themselves. 

But what’s often the case is that we don’t do our research into what’s true and what’s not. 

So here are some of the most common misconceptions about life insurance:

1. You Can’t Commit Suicide and Have Your Beneficiaries Collect the Proceeds

This one is partly true.  The truth is that in most states you only have to have your insurance in place for two years.  At that point you can commit suicide and have your beneficiaries collect the death benefit proceeds.

Some states have tried to the suicide provision clause down to one year in insurance contracts, provided that the insured did not contemplate suicide at the time of applying for the policy.

Side note: Don’t do this!

2. The Insurance Company Will Never Know If I Fudge the Application

This one is a common one because for some reason people seem to think they can pull the wool over the insurance companies eyes.

Ahh, they’ll never know that I had that heart surgery when I was 25 – I’ll just put down that everything is fine. 

Here’s the rub:  Ok, so maybe you slip this one through the goalie, but don’t think you’re in the clear just yet. 

The insurance company has the right to investigate  the cause of your death and if they find that your cause of death at age 40 was a heart attack and upon further investigation they see you had heart issues at age 25 they could refuse to pay your beneficiaries.

Many companies will compensate something for fear of negative press, but it is their right to deny a claim.  You are required to tell the truth on the application!

Side note: Tell the truth!

3. The Insurance Company Will Never Know I Smoke

Can’t kick that habit, but don’t want to pay through the nose for life insurance?  Thinking about marking “No” to the question of “have you ever used tobacco in any form?”

Think again.  Insurance companies take blood tests that can trace tobacco in your system up to six months after you’ve had your last puff. 

Side Note: Don’t smoke or don’t pretend you don’t.

4. Buy Term and Invest the Rest

This is one I hear a lot in the media. 

The basic premise is that  whole life insurance or “permanent insurance” is way too expensive and you do not need to use this as an investment vehicle – after all this is insurance – therefore you should always buy term insurance and invest the difference between the two policies into an account.

It makes some sense at first, but here’s two things to consider:

• This doesn’t make sense for everyone!
• Most people don’t invest the difference!

I’m not a big fan of sweeping generalizations like this.  There are some instances when using cash value life insurance makes sense (ie- someone making a ton of money who doesn’t qualify for a Roth and is looking to sock away a bunch of money into a tax-free savings vehicle)

Side Note: Make sure you know why you are buying insurance in the first place.

5. I Never Have to Review My Insurance Once I Purchase It

Is there really anything in life that we shouldn’t review?  Many people seem to think that once you buy your life insurance you can check that off the list and never have to worry about it again.

It’s wrong because if you have term insurance it will eventually expire and you have to decide what you want to do (buy it again or get rid of it).

If you have permanent insurance you should be running what’s called “reprojections” on these things each year to determine the vitality of the policy and make sure it’s running at “optimal speed”. 

Another thing that people often fail to review is their beneficiaries.  Life happens, things change. 

Your nephew Billy might’ve been the cutest little guy growing up, but now is a royal jerk.  You may not want to leave the half mil to him anymore – review your benny’s to make sure the money’s going to who you want it to go to.

Side Note: Don’t put your insurance on auto pilot.  You should review it at least once a year.

Other Misconceptions

Can you think of anything else that should be on the list?

Oh great – a post about life insurance – doesn’t he know I’m not interested in reading about life insurance?

Is there anything people hate thinking about, talking about and paying for more than life insurance? 

A necessary evil if you will.

It just feels like a waste – I mean what benefit do you receive from having it?  Abolutely nothing – only your heirs get to see that. 

At least if you need other forms of insurance you can realize something tangible like health or a fixed vehicle or something!

But we all know that we need it – or at the very least, we need to talk about it and come to an informed decision regarding it.

So, when you’re about to make the plunge and start looking at life insurance for the very first time or you are re-evaluating your current situation - answer these four questions before you pay that premium!

1. What’s the purpose of my life insurance

Are you serious?  The purpose of my life insurance?  Isn’t it to pay someone when I die? 

Sort of. 

What I mean by purpose of life insurance is what exactlly are you using it for.  Here’s some examples:

• To provide my spouse with income for life
• To create funds for my children to go to college
• To pay off my mortgage
• To pay estate taxes and minimize the erosion of my estate
• To pay off other debt
• To bury me

As you can see there are multiple purposes for your life insurance and you may have more than one.  

It’s vital to understand why you are buying the life insurance in the first place.

2. How much insurance do I currently have

You might have a million dollars through your group insurance at work and think that you’re good to go.

Wait!  Not so fast – think about it for a second.  If that’s the only insurance you have what about if you lost your job, quit or retired?  What happens to all that insurance?

In most cases it disappears – so do you really have that coverage? 

Yes and no.

You do have coverage, but it’s temporary.  So you need to evaluate how much you have and what kind of insurance you have as well – term, permament or group.

3. How much life insurance do I need

There are countless calculator’s on the web you can use to determine your life insurance needs.  

The amount of insurance you need will vary depending upon what your purpose for the insurance is. 

If you are trying to provide for your spouse for the next 20 years then you’ll probably need more than someone only worried about having enough to bury themselves and pay off some outstanding liabilities.

There’s no hard or fast rule regarding how much you need, but here’s a handy guide from LIFE (Life and Health Insurance Foundation for Education):

4. What kind of life insurance policy should I buy?

Yes, Suze Orman will tell you to only by term insurance.  Others will tell you to only buy permanent (also known as whole life, universal life or variable universal life).

But what kind do you really need?

The answer is it depends.  It depends on the purpose for your insurance and how long you want it to last you.

If you’re concerned about using life insurance for estate planning purposes you probably need something more than term insurance.

If you’re only concerned about protecting your life for 20 years until the kids go off to college then a term product is proably right for you.

Don’t let people tell you that only one type of insurance is right for everyone.  There is no one size fits all!

The bottom line with life insurance

Identify the purpose of the life insurance, do your homework, shop around and do what’s best for your situation.

What about you? What other questions should you ask before you buy life insurance?

Wouldn’t you agree that it seems like everyone is offering some sort of Accidental Death insurance these days?

From mortgage companies to credit card issuers to banks and employers – everyone is in on these types of plans.

There can be a lot of confusion, however, around Accidental Death & Dismemberment insurance, also known as AD&D.

But just because costs are low doesn’t mean you should be so quick to sign up!

Understanding exactly what an accidental death insurance policy is and what it covers will help you determine if you should buy into one of these plans.

What Is Accidental Death Insurance?

Accidental death insurance is NOT standard life insurance!

An Accidental Death & Dismemberment policy is exactly what it sounds like.

It’s an insurance plan that gives money to the beneficiary of someone whose cause of death is a non-work-related accident.

It also provides fractional benefits for a loss of limbs, fingers, eyesight etc. The parts of the body and benefits for each vary with each policy.

Generally speaking, the premiums on these policies are pretty inexpensive relative to the benefit that would be paid out.

When Does Accidental Death Insurance Pay Benefits?

Generally speaking, the accidental death insurance policy will pay full benefits in the event of an accidental death and will pay a portion of benefits for the loss of a body part. 

See Unum’s example:

As you can see, Unum defines “accidental death” as “the loss of life caused soley by external, violent, and accidental means and not contributed to by any other cause.

What to Watch Out For With Accidental Death Insurance

Let’s say you have a $250,000 Accidental Death policy. 

Will your insurance carrier pay your spouse if you’re on your way to work and suddenly have a heart attack, head into oncoming traffic and die in an accident?

The answer is no.  Although the death was accidental, the cause was the heart attack, which is a natural cause.

Now, let’s say your spouse was hit head on in an accident, sustained injuries and passed away four months later due to head trauma from the accident – will you receive benefits?

The answer is: very unlikely.  Most policies have provisions that state you must die within a certain period of time and that it must be directly caused by the accident etc.  Four months is many times too long of a time period.

Who Should Buy Accidental Death Insurance Policies?

Even though the costs are low, the odds of one of these policies paying out is extremely low.  According to Insure.com, in 2005 117,809 people died from unintentional injuries.

Now, if your employer offers AD&D as an additional benefit without cost on their group plans then by all means sign up for it – you’ve got nothing to lose at that point.

If you travel a lot for your job or you have a long commute to and from work every day then you may want to consider getting the most you can from an AD&D policy.  The odds of an accident are higher for you.

In general, however, most people do not need the added expense of an AD&D policy.

If you are looking for additional coverage and think this is a cheaper way to insure yourself, you’d be better off spending a few extra bucks and applying for an inexpensive individual term policy.

What is Income Protection Insurance a.k.a. Disability Income Insurance

May is National Disability Awareness Month. 

My guess is you didn’t even know there was such a thing. 

To be honest, I didn’t either until a few weeks ago.  It seems like everything is getting its own awareness month these days doesn’t it?

I thought this would be a good time talk about disability income insurance or income protection insurance.

I know, I know, it sounds fascinating!

What is Disability Income Insurance?

Disability insurance, or income protection insurance, is one of the most misunderstood and often overlooked forms of insurance in the marketplace today. 

In its simplest form, it offers income replacement to an individual who is unable to work.

If you were to get sick or hurt for a period of time, disability income insurance would replace a portion of your income. 

Benefits are generally taxable if you have a group policy paid by your employer and typically non-taxable if you own an individual policy.

Who Needs Disability Income Insurance?

The Social Security Administration estimates in their December 31, 2007 fact sheet that seventy percent of the private sector workforce has no long-term disability income insurance.

A person’s ability to earn an income is usually their most important financial asset, so basically anyone who depends on earned income should probably consider this type of insurance.

How Much Disability Income Insurance Do You Need?

That depends on a few things like how much income do you currently earn, how much are your fixed expenses each month and do you have any other disability insurance in place.

Here’s a handy calculator that shows your potential need for insurance.

I Won’t Need Disability Income Insurance

Consider these statistics:
• Someone who is 35 years old has a 50 percent chance of disability for 90 days or more before they turn 65.
• Most people in the U.S. are better prepared financially in case of death (usually with life insurance) than if they get disabled, even though the chances are at least three to five times greater (depending on age) that a disability will occur.
• Upwards of 375,000 Americans become totally disabled every year.
• Approximately one out of seven people who are between the ages 35–65 can expect to become disabled for five years or longer.
• Almost 30 percent of the people who are between the ages 35 and 65 will experience a disability that lasts at least 90 days during their working careers.

Should You Purchase Disability Income Insurance?

The first thing to do is check with your current employer to see if you are covered through work. Secondly, if you do have group coverage, find out if you can increase your coverage.

And lastly, shop around to get a price on individual policies to see if it works into your budget and makes sense for you financially.

Real Life Example

I remember talking to my friend and former coworker Kent Eloe, who said he was so glad he bought disability insurance before he found out he had brain cancer.

Many of us think, “it’ll never happen to me” and that might be true, however, the question that should be asked is “what if it does?”.

See more of Kent’s amazing life story here.

Theological Considerations

Our hope does not lie in any amount of insurance coverage or financial planning.

Our hope lies in the Sovereign Creator of this world, our Father God who cares for and loves his children and promises to provide for their needs.

We must be prudent in our planning, but ultimately we entrust our care to Him.