finance self-insurance

Nobody wants to ever think that they’re going to die. The ‘not-so-funny’ thing is, that’s the only thing we all have in common.

Hopefully though, it’s after you have lived a long healthy life. Regardless, it is important to make sure you get adequate life insurance to protect you and your family in case something happens to you. Or maybe you have just purchased a home and want it to be covered.

In either case, it is important for you to take a few minutes to research your life insurance options and make sure you understand what amount of coverage you need and what sort of policy suits you best.

So if you are in the market for life insurance, it is your responsibility to make sure you don’t place your finances in jeopardy, by making some of these basic insurance screw ups.

Going Cheap

The price should not be your only focus when you are buying life insurance. Life insurance policies aren’t black and white and each one has a few different features that make it hard to measure against another. Continue reading →

Let’s deal with the legal practices first. When you take out a mortgage, the lender always insists you insure the structure so that, should there be a fire or some other event that damages the property, there’s enough money to rebuild and so protect the security for the lender. How this works depends on the level of trust between borrower and lender. In a world where everyone is trustworthy, the borrower takes out insurance and provides evidence to the lender. Where there’s a lack of trust, the lender insures and sends the borrower the bill, i.e. adds the amount of the premium to the monthly installments. That way, if the borrower should stop paying for any reason, the lender can step in to keep paying the insurance. A compromise is found where the lender reserves the right to insure should the borrower default or leave the property empty for some time. The problem in this situation is that this insurance is no longer for the benefit of the borrower. It’s solely for the benefit of the lender. Worse, this is always more expensive, often three to five times more expensive, than the conventional policy. All these premiums are added to the outstanding loan and add to the pressure on the now delinquent borrower.

This practice is shady because many lenders seize on even the most trivial of defaults to justify a force-placed insurance policy. A borrower who has been paying all due amounts can therefore suddenly find the loan amount has increased without explanation, e.g. the borrower has already paid enough into escrow to cover the immediate insurance payments and so pays slightly less on the overall monthly repayments. There’s now evidence to show the Bank of America has been acting in a way suggesting fraud.

One example shows BoA backdating insurance for up to nine months and charging the borrower for insurance they did not actually have. Better still, this is not insurance on which there could be a claim. Yet, despite the fact insurance of this type would be unenforceable, the insurers accept the premiums and pay a commission to the BoA. This gives companies like the BoA a direct financial incentive to declare their borrowers delinquent. What makes this activity a possible fraud is that, in many cases, the BoA or other lender often owns or has a major stockholding in the insurers. If the loan is subsequently dealt with through one of the insolvency or federal programs, the loan including the insurance premiums is given preference, i.e. paid before any personal debts. Continue reading →

When looking around the market for life cover, the first thing you notice is how much cheaper it is to insure your life with a term policy. When you are young, it can look a good option to buy term. The alternative of a permanent policy is going to take a bigger slice of your disposable income. You are not sure it’s worth the pain. This may well look the right decision but, when you take the longer view, what starts out a struggle to afford becomes increasingly affordable as inflation takes effect. But if you buy one term policy after another, the premium rate rises each time. Equally if you look to switch to a permanent policy, you are that much older and, again, the premium rates on a new policy will be higher.

A good compromise can therefore be to buy a term policy with the right to convert to a permanent policy. Why should you seriously consider paying a little more for this right? The first part of the answer comes in the total loss of all the premium installments you have paid. Once a term policy lapses because you stop paying or the term expires, there are no refunds. All the money you paid is gone. But if you convert to a permanent policy, you retain the value of the installments paid. The second part comes with the fact this is a right. Should your health suffer after you take out a term policy, that new health problem means you will probably be refused a second policy or the premium rate will be high. If you have a right to convert, this is not a new policy so none of the rules about pre-existing conditions affect you. Continue reading →

How any company presents itself to the market has a direct effect on its operating costs. If the company decides to maintain a brick-and-mortar presence on every Main Street, it ties up a lot of capital in property and has a big commitment to maintain staffing levels to ensure there’s always enough people to open the doors and provide a good service to anyone who may walk in. But if it’s possible to centralize operations and mainly deal with people by telephone and through the internet, this can cut costs and produce savings to be passed on to the customers. A halfway house is to sell your goods or services through agents. This way, you avoid the direct investment in buildings and staff, and simply pay a commission based on sales.

Translating this to insurance, a number of companies prefer the personal touch and either employ their own representatives in each area or work through local agents. Once you start meeting with human beings face-to-face, you know the final premium rate is going to be higher. Whatever you pay must cover the additional costs of the labor. The odds are buying through an agent will be the more expensive. These businesses work to represent several insurers and will juggle sales to give themselves the best return as commission. So, in most cases, the cheapest premium rates will come where you never meet human beings and only deal with automated systems.

In this, there’s a slightly amusing reversal of trends. Go back five years and every time you picked up a telephone to speak to a call center, the odds favored you talking with someone in India. The outsourcing boom was at its peak and, when it came to finding cheap labor that could speak American English sufficiently well, the Indians seemed to win the contracts. This led to some unhappiness from our side of the conversation so it’s good to see the latest news out of Kentucky. Here we have a direct-to-consumer company that’s decided to set up a call center here. This is a partnership effort between the state government and the private company, bringing jobs to Americans talking to fellow Americans about an American product. When it’s up and running, it will be servicing calls to and from sixteen states. Hopefully this will mark the start of a new trend where offshore deals will be cancelled and the work brought back to our shores. Continue reading →

When the news media all seem to be telling the same story, it’s easy to believe it must be true. When you go on to look at the complaint sites and blog postings, the same bad news story is repeated. This confirms your worst fears. It seems the insurance companies only ever increase the premium rates and conspire to gouge every driver on US roads. Except this is not the whole story. Let’s go back to the beginning. When the idea of insurance was first being discussed back in Lloyd’s coffee shop, the idea was that merchants who all faced the same risks of fire and theft should group together. If they all paid into a central fund, there would hopefully be enough money to cover the losses of one should there be a fire.

Over time, this has become a very sophisticated operation, but it all comes back to some very simple rules. If you have a poor driving record with multiple tickets, you will pay more than the luckier driver who manages to avoid accidents and tickets. It’s the same with the make and model you choose to drive. Pick something fast and sporty, and you will be paying more than the boring person who picks something steady that performs well in crash tests. Then there’s your address. If you are a street-parker in a zip code area with high theft rates, you will pay more than someone with a garage in a low crime area. And so on.

In other words, there’s an element of common sense when it comes to judging risk. You could probably look around your circle of friends and guess which ones are more likely to end up with their vehicle in a body shop. So, when it comes to putting a price on the risk, the process for setting the premium rate is more personal than you might imagine. Yes, you’re being put into a group but membership is judged by a host of facts drawn from your life. In theory, this is what makes insurance fair. In practice, the groups are broadly defined and, the closer you are to the dividing line between groups, the more fair or unfair the decision may seem to be. So to even things out, insurers offer discounts and bonuses to help people feel better about their premium rate. Continue reading →