Horse Economics. Catherine E O'Brien
SO YOU KNOW…
♦ Cash value is the amount of money available to a whole life insurance policy owner in the form of a loan or partial withdrawal.
Note: a loan must be paid back with interest, and the policy benefit remains the same. Typically, a partial withdrawal does not have to be paid back and, therefore, will reduce the insurance benefit received.
Term
Term insurance is a pure insurance wherein the owner pays an annual premium for the policy and no cash value accrues. If the insured dies during that year, his designated beneficiaries receive the face amount, also called the “stated value,” of the policy. (This is similar to car and homeowner’s insurance.) The older you are, the more expensive term insurance is to buy; however, some companies offer what is called level term insurance, where the premiums remain the same for a stated number of years—5, 10, 15, or 30—so you know how much you’ll have to pay in the future.
Whole Life
The other type of life insurance policy is a whole life contract. This is paid for over a specified number of years and covers the insured for his entire life. A portion of the annual premium is invested by the insurance company, and the policy owner receives a modest portion of any interest, which builds cash value in the policy over time. This cash value can often be used—either in the form of a loan or withdrawal—by the insured during his lifetime, should the need arise.
Since all life insurance policies are based on age, health, and similar factors, the younger and healthier the insured at the beginning of the contract, the cheaper the insurance premiums. Annual premiums for whole life cost more than term insurance. For this reason, term insurance is popular with young couples starting out.
The dollar amount of life insurance you need to carry depends on a variety of factors. If your goal is debt coverage, all borrowings, including your mortgage, car loan, and any unsecured debt owed, need to be considered. The appropriate policy value for estate-planning purposes, on the other hand, depends on the size of the estate and the tax laws in effect at the time of your death—if your estate is sizeable, your heirs could use the life insurance proceeds to pay federal estate taxes. Speak to a life and health agent licensed in your state about what might be best for your particular situation.
Disability Insurance
Disability coverage—often offered by your employer’s benefits package—pays you a monthly amount in the event you become disabled. The benefits are based on a percentage of your income and are usually paid to age 65, when you receive Social Security and retirement benefits. In order to compare policies, some clauses you should be aware of include, but are not limited to:
Elimination period—the time you have to wait for coverage to begin after becoming disabled.
Definition of disabled—you need the policy to consider you are disabled when you can no longer perform your own occupation, i.e. the work you normally do. If the policy has a much broader definition of disability, this reduces your benefits.
Maximum benefit allowed under the life of the policy—the dollar limit of coverage.
Tax consequences of paying premiums with before-tax or after-tax income—the general rule is if you pay with after-tax income, the benefits are income-tax free, and if you pay premiums with before-tax dollars, the benefits are taxable when paid.
Health Insurance
Health insurance is also frequently part of your employer’s benefits package. If you are self-employed or do not have health insurance coverage, you should consult an agent to help you locate the best policy for an affordable price, as uninsured medical expenses can be financially devastating.
There are two basic types of health care coverage, traditional and managed care. Traditional insurance plans allow you to go to a provider (i.e., hospital or physician) of your choice, but you are required to pay up front for the services and file claims for reimbursement (though some plans allow the hospital or doctor to file for compensation directly from the insurer). Managed care health insurance uses a network of selected doctors and other providers with whom the insurance company has arranged the amounts to be charged for certain services. You usually pay more for a traditional than a managed care health insurance policy.
MAKE SURE COVERED CLAIMS GET PAID
Unfortunately, many of you will need to utilize your health insurance for surgery or another involved claim. And sometimes, a doctor or hospital, through coding or processing error charges you for items that are covered under your insurance plan. When this happens and you contact the insurance company or doctor’s office only to hear the words, “We will take care of it,” don’t assume it will be done!
Often, this bill gets sent to a collections agency before you realize it, and then the “delinquent” account gets reported to the credit bureaus, ending up on your credit report. Sometimes, it can take months to get a claim resolved. So, always make sure bills have been settled and obtain written confirmation that the matter is resolved. If a delinquency was incorrectly reported to the credit bureau, make sure it is completely removed from your credit report and notated as an error—not a delinquent account that was finally paid.
Long-Term Care Insurance
When preparing for the future, the importance of planning to pay for long-term care is often forgotten or ignored. This can be financially draining—even devastating—because annual costs in a skilled nursing facility can run well over $50,000. (Rates vary widely by state: the American Association of Retired Persons—or AARP—has information about average costs for nursing home care state by state.) Purchasing a long-term care insurance policy helps to minimize the risk of having too little money to pay someone to care for you when you can no longer care for yourself. This policy allows you to plan in advance and fund associated expenses.
When considering such a policy, a few items to discuss with your licensed life and health insurance agent include:
Maximum benefits allowed under the policy—the dollar limit of coverage.
Elimination period—the waiting time for benefits to start.
Covered services—what is included and excluded under the policy.
Benefit triggers under the policy—generally, coverage begins when the insured can no longer perform a specific number of daily living activities, such as eating, bathing, or walking.
Property and Casualty Insurance
Property insurance covers your interest in a physical property for its loss or the loss of its income-producing abilities, and casualty is just another name for liability—such types of insurance cover your legal liability for injuries done to others, or damages done to another’s property. This includes home-, horse-, and business-owner’s insurance, automobile insurance, as well as general and commercial liability insurance, to name a few.
Homeowner’s Insurance
There are various forms of property coverage. I will limit my discussion to the “fully loaded” homeowner’s policy, which provides insurance for your dwelling, personal property, other structures on the premises, and liability. Consult your agent and determine whether the following key items are included in your policy: