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• How can I lower my car insurance costs?
• What coverage should my auto policy include?
• How should I handle an auto insurance claim?
• Does it make sense to comparison shop for car insurance?
• How much of a deductible should I take on my car insurance?
• Is it worthwhile to maintain collision coverage on older cars?
• Does the kind of car I buy affect my car insurance?
• Does my address affect my car insurance?
• Does it make a difference if I pay my insurance annually, semi-monthly or monthly?
• What types of auto insurance discounts are available?

LIFE INSURANCE

• How do insurance companies classify individuals for rate
  purposes?
• What questions should I ask my life insurance agent?
• What should I watch out for when buying life insurance?
• How do I compare the cost of several insurance policies?
• Do I really need life insurance?
• How much life insurance should I buy?
• What type of life insurance should I buy?
• Should kids have life insurance?
• How do I balance life insurance with my other investments?

LONG-TERM CARE INSURANCE

• Should I buy long-term care insurance?
• What are the alternatives to long-term care insurance?
• How much does long-term care insurance cost?
• What should I look for in a long-term care insurance policy?
• Should I comparison shop for long-term insurance coverage?
• Is it worthwhile buying "dread disease" insurance, and other
  types of special health insurance?
• Do I need disability insurance? How can I ensure I have
  adequate coverage?

HOMEOWNER'S INSURANCE

• How can I get the "best buy" in homeowner's insurance?
• How much homeowner's insurance should I buy?
• How can I make sure my homeowners' insurance is adequate?
• How should I shop for a home insurer?
• How much of a homeowner's deductible should I have?
• Should I buy home and auto policies from the same company?
• Should insurance costs be a factor in the home purchase decision process?
• Should I insure the entire cost of the home including land?
• Does home security reduce insurance cost?
• Do home insurer's offer discounts for non-smokers?
• How often should I review my homeowner's policy?
• Should I buy private or governmental sponsored storm insurance?

ANNUITIES

• How do life annuities differ from life insurance?
• What would I use an annuity for?
• What's the down side to buying an annuity?
• What types of annuity are available?
• What are my options for collecting my annuity?
• What's the tax on payouts from a qualified plan or IRA annuity?
• Is it a good idea to buy annuities for my IRA or qualified plan?
• What's the tax on payout of an annuity bought as an investment?
• What tax must my beneficiaries or heirs pay if my annuity continues after my death?
• How should I shop for an annuity?
• What are the added or hidden costs in buying an annuity?

• Comparison shop
• Take a higher deductible
• Drop collision damage on older cars
• Buy a low-profile car
• Check insurance costs by community when you are planning a move
• Do not duplicate medical coverage
• Pay premiums annually
• Inquire about discounts

TIP: Don’t neglect to check the financial ratings of carriers. Check them out in ratings services, such as Moody’s, and then supplement your review by calling your state insurance department for further information. Some state agencies will supply you with the number of justified complaints that have been made about insurers.

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Insurance companies place individuals into four risk groups: preferred, standard, substandard, or uninsurable. A terminal illness at the time you apply for insurance will render you uninsurable. Having some type of chronic illness will place you in the substandard category. People with conditions such as diabetes or heart disease can be insured, but will pay higher premiums.

If you have a high risk job or hobby, you will be considered substandard, a high risk.

The premiums charged will be commensurate with the category you are placed in. Thus, a standard risk will pay an average premium for similarly situated insurers.

	TIP: One company’s category for you may not hold with another company. Thus, it still pays to shop for insurance with other companies even though one may have labeled you "substandard."
	TIP: Once an insurance company approves you for coverage, you cannot be dropped unless you stop paying your premium.

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• How do cash values accumulate? An early, rapid build-up is generally preferable.
• How has the policy’s cash value performed in the past? You can get this information from a publication called Best Review, Life and Health. Determine how the policy performed in comparison with the company’s projection and with other insurers.
• Are any special features merely bells and whistles, or do they add value for you?
• What is the company’s rating with Best, Standard & Poor’s, and Moody’s? You can find these publications in public libraries. The rankings should be in the top three to ensure that a company has financial stability.

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One type of index, the net payment index, gauges the cost of carrying your policy for the next ten or twenty years. The lower the number, the less expensive the policy. This index is useful if you are most interested in the death benefit aspect of a policy, as opposed to the investment aspect.

The other type of index, the surrender cost index, is useful to those who have a high level of concern about the cash value. This index may be a negative number. The lower the number, the less expensive the policy.

These two indexes apply to term and whole life policies. With universal life policies, focus on the cash value growth and the cash surrender value to make comparisons. "Cash surrender value" is the amount you receive if you cancel the policy. It is not the same as "cash accumulation value.

If you are shown two universal life policies, and they have the same premium, death benefit, and interest rate, then the one with the higher cash surrender value is generally the better policy. Be aware that the projections of cash values given by some insurers may use unrealistic assumptions, and therefore might be misleading.

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Whether you need to buy life insurance depends on whether anyone is depending on your income. If you have a spouse, child, parent, or some other individual who depends on your income, you probably need life insurance. Here are some typical families and a summary of their need for life insurance:

1. Families or single parents with young children or other dependents. The younger your children, the more insurance you need. If both spouses earn income, then both spouses should be insured, with insurance amounts proportionate to salary amounts.
2. Adults with no children or other dependents. If your spouse could live comfortably without your income, then you will need less insurance than the people in situation (1). However, you will still need some life insurance. At a minimum, you will want to provide for burial expenses, for paying off whatever debts you have incurred, and for providing an orderly transition for the surviving spouse.
3. Adults with no children or other dependents. If your spouse could live comfortably without your income, then you will need less insurance than the people in situation (1). However, you will still need some life insurance. At a minimum, you will want to provide for burial expenses, for paying off whatever debts you have incurred, and for providing an orderly transition for the surviving spouse.
4. Single adults with no dependents. You will need only enough insurance to cover burial expenses and debts, unless you want to use insurance for estate planning purposes.
5. Children. Children generally need only enough life insurance to pay burial expenses and medical debts. Many advisors recommend self-insuring for children rather than buying an insurance policy.
6. Retirees. There is less of a need for life insurance after retirement, unless it is to be used for estate planning purposes. You may need to provide an income for the second spouse to die if your retirement assets are not large enough. Further, you will need some insurance to pay burial expenses, final medical costs, and debts.

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The ideal amount of coverage is the amount that would allow your dependents to invest it after your death and maintain their desired standard of living without touching the principal. Although the old rule of thumb—to buy five, six or seven times your annual salary—may serve as a starting point, it is no substitute for making the calculations to find out how much you really need.

It’s important to be as accurate as possible in estimating your family’s needs, since an underestimation could lead to your being underinsured, and an overestimation will lead to money wasted on unnecessary coverage.

TIP: To accurately estimate your family’s annual income needs, it’s helpful to have the following documents with you: A checkbook register for one year, a year’s worth of credit card statements, and last year’s tax return.

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Term Insurance—, in which you pay for coverage for a specified amount of time, and if you die during that time the insurer pays your survivors the death benefit specified.

For individuals age 40 or less, a term policy will almost always be less costly than a whole life policy. Although term policies do not build cash values, many are convertible to whole life policies without a physical exam. Thus, a term convertible policy may be a good option for someone who is under 40. There are various types of term insurance.

Renewable. With the typical renewable term policy--the most common type--the policy renews automatically every year. You do not need to take a physical or verify the fact that you are employed. The premium goes up at the beginning of each new term to reflect the fact that you are older. Most renewable term policies can be renewable until you reach age 70 or so.

Re-entry. With this type of policy, you must undergo a physical exam after a certain period, or pay an extra premium.

Level. With level term policies, the premium is guaranteed to stay the same over a certain period. This period may be shorter than the term of the policy.

Decreasing. With a decreasing term policy--a good option for insuring mortgage payments--the face amount of the policy decreases over time while the premium payments remain the same.

Term life insurance is most effective when you do not need coverage for your entire lifetime, while cash value or whole life insurance is generally considered to be permanent insurance.

The two most common types of cash value life insurance are whole life and universal life.

Whole Life. This is the traditional life insurance policy. It provides a death benefit, has a cash value build-up, and sometimes pays dividends. You do not need to renew a whole life policy. As long as you pay your premiums, you will have coverage, usually until your death.

The premium for a whole life policy remains the same for the amount of time you own the policy; the premium is "level," in insurance parlance. Thus, when you are younger, the premium you pay for whole life will be greater than what you would pay for term, but when you are older, the premium will be much less than a term premium.

Part of each premium goes into the cash value of your policy. Your cash value, which is actually an investment, is guaranteed to grow at a fixed rate. You do not have to pay current income taxes on the growth in the cash value—it is tax-deferred.

You can borrow against your cash value, at a rate that is usually better than the prevailing consumer lending rates. If you die with an outstanding loan amount, the loan amount, plus interest, will be subtracted from your death benefit.

Dividend-paying whole life policies—termed "participating" policies—are usually offered by mutual life insurance companies. Mutual life insurance companies are generally owned by policyholders, while other insurance companies are owned by shareholders. The dividends are refunds of insurance premiums that exceed a certain level. They are paid when the insurance company does well during a quarter or a year. Of course, premiums for participating policies are usually higher than those paid for non-participating policies.

NOTE: Term policies can also be participating, but the dividends paid are usually minimal. Term policies can also be participating, but the dividends paid are usually minimal.

Universal Life. Universal life, also known as "flexible premium adjustable life," is similar to whole life, but offers more flexibility in terms of payment of premiums and cash value growth.

With a universal life policy, your monthly premium amount is first credited to your cash value. The company then deducts the cost of your death benefit and the expenses of the policy. These costs are about equal to what it would cost to buy term coverage. As with whole life, your cash value grows at a fixed minimum rate of interest. The growth of the cash value is tax-deferred, and you can borrow against it or make partial withdrawals.

A special feature of universal life is that you can vary the premium paid from month to month. You can pay more or less—within certain limits—without jeopardizing your coverage. You can let the cash value absorb the premium. If the premium payments fall too low, your policy may lapse. Some states require the insurer to tell you when your cash value is at a dangerously low point; in other states, the insured will have to maintain a careful watch on the amount of cash value if premiums are skipped.

In addition to the two types of cash value life insurance discussed, there are other variations.

Variable Universal. Variable universal life allows you to choose the investment for your cash value. You have a potentially greater cash value growth, but you also have added risk, depending on the type of investment you choose.

Variable Whole Life. With variable whole life, the death benefit and cash value will depend on the performance of an investment fund that you choose. Again, you have potentially greater reward, with its accompanying risks.

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Alternatives. Other ways of covering the costs of a child’s death include (1) using funds already set aside for college and (2) taking out a rider on a parent’s policy (if available).

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If you already have a cash-value policy, don't sell it. Just realize that it is a conservative, long-term investment. The cash value eventually may be substantial because it is a tax-deferred investment. It may take 15 years or more, however, to produce a respectable return, similar to high-quality corporate bonds or long-term CDs. Balance your policy with investments, such as stock funds, that have a higher, long-term return.
 

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• Inability to afford the premiums, or not having enough assets to protect. In such case, the individual will quickly qualify for Medicaid.
• Some LTCI policies lack sufficient home care coverage to keep an individual out of a nursing home, unless family members or informal caregivers are available to help in providing care. Thus, if your goal is to avoid nursing homes at all costs, LTCI may not be the best way to go.
• LTCI policies return from 60% to 65% of total premiums paid in benefits. This is much less than returns from other types of health insurance.
• The fact that LTCI policies are improving: In a few years, you may be able to get a better deal.

• LTCI, although expensive, may provide protection against costly care. While the premiums may be wasted if you never need long-term care, if you do need the care the insurance can effectively pay back your premiums many times over.
• If you have family caregivers, the extra home care coverage in LTCI might make it possible to remain at home longer.
• LTCI premium costs increase with age. Once you develop a serious medical condition, you probably won't qualify for coverage. Thus, it is better to buy LTCI early in the game, if at all.

Do not buy long term care insurance unless all of the following apply to you:

• Each person in the household has more than $75,000 in assets (not counting the value of the primary residence);
• Your annual retirement income per person in the household is over $30,000;
• You can pay premiums without having to "go without"; and
• You could continue to afford the premiums, even if they increased by 20% or 30% in the future.

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Eligibility rules vary from state to state, but beneficiaries are generally required to "spend down" their income and assets to qualify. New laws in many states make it possible for the spouses of Medicaid nursing home residents to keep more income and assets than previously allowed.

Reverse mortgages and other forms of home equity conversion are often viable alternatives for those who wish to remain at home. Seniors borrow money against the equity in their homes, and defer repayment until they die or sell their house. However, for these options to make sense, a home must have a high monetary value and be fully or mostly paid for, and the individual must intend to stay in the home for the long term.

Self-insurance—i.e., just paying for costs if they arise— is a gamble, but is the current strategy of choice for the majority. Self-insurance makes the most sense for people with major assets; for those who can afford a long nursing home stay; and for people of modest means, who would quickly qualify for Medicaid anyway.

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Here are some guidelines:

No matter how good a policy sounds, it's worth little if the company won’t be there when it comes time to pay. Buy from a company with strong financial reserves. Unfortunately, there is no foolproof method for determining which companies are financially strong. However, it pays to look up company's rating by M. Best or Standard and Poor's, both of which evaluate the financial health of insurance companies.

TIP: Purchase long-term care insurance from a company that has an A+ or A++ rating from Best or an A, AA, or AAA rating from Standard and Poor's. Most public libraries have these references.

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Flexibility.  A policy that covers nursing homes should also cover assisted living, a better alternative for many people who can no longer live on their own. If you want a policy with home care, look for one that offers a full range of community-based services, including adult day care, or that pays you a monthly cash allowance to spend as you please for care.

Eligibility.  Look for a policy that bases eligibility on the need for help with activities of daily living. Policies that only pay for "medically necessary" care are not usually a good buy. To be sure you are covered for Alzheimer's disease, choose a policy that covers cognitive as well as physical disability and pays benefits if you meet either criteria

Inflation.  If you purchase a policy before the age of 75, inflation protection is essential to ensure adequate coverage when you need long-term care at some point in the future. Buy a policy that has an additional cost but automatically increases benefits at the rate of 5% annually.

Duration.  Keep in mind that the chances of needing long term care for five years or longer are relatively small. For most people, a policy covering two or three years will be more cost-effective.

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TIP: Use a local independent agent or broker who has been recommended by someone reliable. Don't buy from an agent who sells door-to-door.

Read the policy from cover to cover; don’t rely on marketing literature.

Don't be pressured to buy the first policy you see. Compare it with at least two others.

TIP: Don’t pay more than one month’s premium when you apply for coverage. In most states, after you buy a policy, you have thirty days to change your mind and get a refund.

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NOTE: We realize that there are worthwhile policies out there that fall into the categories we talk about. But we bring your attention to these categories so that you will be wary of them, and will not buy without careful research.

• Dread-Disease Insurance. This limited coverage insures against only one specific disease. Further, if you already have this disease (i.e., have been diagnosed) at the time you buy the policy, you’re not covered.
• Hospital Indemnity Insurance. "Indemnity" insurance means that the policy will pay (up to the policy’s limits) for actual charges by the care provider, as opposed to paying daily benefit amounts to the insured regardless of actual charges. The typical "hospital indemnity" policy will provide a very small amount of coverage per day, and is not worth it.
• Medical-Surgical Insurance. This type of coverage also provides limited payments, and only for specified procedures.
• Insurance Sold Through the Mail and On Television. Many policies sold through television advertisements and mail solicitations have the following negative attributes: They tend to cover accidents but not illness; they start out with low premiums that later rise unreasonably; they deny claims more than other types of insurance; and they tend to exclude pre-existing conditions.

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Disability insurance generally provides you with an income stream in case you are unable to earn income due to illness or accident. Here are some questions that will get you started in making sure you have adequate coverage.

• What does your employer provide? Find out what types (if any) of disability coverage are provided. If no coverage is provided, you may be able to purchase coverage through your employer.
• Is the employer- or state-provided coverage adequate? Find out how much you will receive under any existing coverage you have. If the amount you will receive is not enough to support your family during an illness or other disability, you may wish to supplement it.

If employer and government coverage is insufficient you should purchase a private disability policy.

Before you buy a disability policy, check out the following factors:

1. Make sure the policy can be renewed every year.
2. Make sure that if you are able to work part-time when disabled, you will still receive benefits.
3. Choose as policy with a three- to six-month waiting period, since it will be less costly, and set aside an emergency fund to cover the waiting period.
4. Be sure the policy covers you until you reach age 65, at which time you can obtain full Social Security benefits.
5. Be sure the policy pays when you can’t perform work in your own field.

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• Shop around
• Raise your deductibles
• Buy home and auto policies from the same company
• Check a home’s insurance cost prior to purchase
• Don’t insure land
• Increase home security
• Stop smoking
• Check your policy once a year
• Compare private insurance and governmental plans

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1. To save money for a long-range goal, and/or

2. To produce a guaranteed stream of income for a certain period of time.

Annuities lend themselves particularly well to funding retirement and, in certain cases, education costs.

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With the flexible-premium annuity, the annuity is funded with a series of payments. The first  payment can be quite small.

The immediate annuity starts payments right after the annuity is funded. It is usually funded with a single premium, and is usually purchased by retirees with funds they have accumulated for retirement.

With a deferred annuity, payouts begin many years after the annuity contract is issued.  Deferred annuities are used as long-term investment vehicles by retirees and non-retirees alike. They are used in tax-deferred retirement plans and as individual tax-sheltered annuity investments. They may be funded with a single or flexible premium.

With a fixed annuity contract, the insurance company puts your funds into conservative fixed income investments such as bonds. Your principal is guaranteed as is a certain minimum rate of interest. The fixed annuity is a good choice for investors with a low risk tolerance and a short-term investing time horizon. The growth that will occur will be relatively low.  

The variable annuity, which is considered to carry with it higher risks than the fixed annuity—about the same risk level as a mutual fund investment— gives you the ability to choose how to allocate your money among several different managed funds. There are usually three types of funds: stocks, bonds, and cash-equivalents. Unlike the fixed annuity, there are no guarantees of principal or interest. However, the variable annuity does benefit from tax deferral on the earnings. You can switch your allocations from time to time for a small fee or sometimes for free.

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Fixed Amount gives you a fixed monthly amount—chosen by you—-that continues until your annuity is used up. The risk of using this option is that you may live longer than your money lasts. If you die before your annuity is exhausted, your beneficiary gets the rest.

Fixed Period pays you a fixed amount over the time period you choose. For example, you might choose to have the annuity paid out over ten years. If you are seeking retirement income before some other benefits start, this may be a good option. If you die before the period is up, your beneficiary gets the remaining amount.

Lifetime Or Straight Life payments continue until you die. There are no payments to survivors. The life annuity gives you the highest monthly benefit of the options listed here. The risk is that you will die early, thus leaving the insurance company with some of your funds.

Life With Period Certain gives you payments as long as you live (as does the life annuity) but with a minimum period during which you or your beneficiary will receive payments, even if you die earlier than expected. The longer the guarantee period, the lower the monthly benefit.

Installment-Refund pays you as long as you live and guarantees that, should you die early, whatever is left of your original investment will be paid to a beneficiary.

Joint And Survivor.  In one joint and survivor option, monthly payments are made during the annuitants' joint lives, with the same or a lesser amount paid to whoever is the survivor. In the option typically used for retired employees, monthly payments are made to the retired employee, with the same or a lesser amount to the employee's surviving spouse or other beneficiary. In this case, the spouse's (or other co-annuitant's) death before the employee won't affect what the survivor employee collects. The amount of the monthly payments depends on the annuitants' ages and whether the survivor's payment is to be 100% of  the joint amount or some lesser percentage.

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1. Any nondeductible or after-tax amount you put into the plan is not subject to income tax  when withdrawn, and
2. The earnings on your investment are not taxed until withdrawal.

If you withdraw money before the age of 59-1/2, you may have to pay a 10% penalty on the amount withdrawn in addition to the regular income tax. One of the exceptions to the 10% penalty is for taking the annuity out in equal periodic payments over the rest of your life.

Once you reach age 70-1/2, you will have to start taking withdrawals in certain minimum amounts specified by the tax law (with exceptions for Roth IRAs and for employees still working after age 70-1/2).

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If you make a withdrawal before the age of 59-1/2, you will pay the 10% penalty only on the portion of the withdrawal that represents earnings. You are not obliged to start withdrawals at age 70-1/2 or any other age.

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Income tax. Annuity payments collected by your beneficiaries or heirs are subject to tax on the same principles that would apply to payments collected by you. Exception: There's no 10% penalty on withdrawal under age 59-1/2 regardless of the recipient's age, or your age at death. 

Estate tax. The present value at your death of the remaining annuity payments is an asset of your estate, and subject to estate tax with other estate assets. Annuities passing to your surviving spouse or to charity would escape this tax.

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CAUTION: If you purchase through such a "middle-man," you will pay a commission ("load") of from 3% to 8% of your investment. The commission reduces the return you  can get on your investment. Some insurance companies sell "no-load" annuities directly to the investor, so all of your money earns income.

Check Out The Insurer. Make sure that the insurance company offering it is financially sound. Annuity investments are not federally guaranteed, so the soundness of the insurance company is the only assurance you can rely on. Several services rate insurance companies.

Compare Contracts. For immediate annuities: Compare the settlement options. For each $1,000 invested, how  much of a monthly payout will you get? Consider the interest rate and any  penalties and charges.

For deferred annuities: Compare the rate, the length of guarantee period, and a five-year history of rates paid on the contract, not just the interest rates.

For variable annuities: Check out the past performance of the funds involved.

If a particular fund has a great track record, ascertain whether the same management is still in place. Although past performance is no guarantee, consistent management will grant you better odds.

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Sales Commission.  Ask for details on any commissions you will be paying. What percentage is the commission? Is the commission deducted as a front-end load? If so, your investment is directly reduced by the amount of the commission. A no-load annuity contract, or at least a low-load contract, is the best choice.

Surrender Penalties. Find out the surrender charges (that is, the amounts charged for early withdrawals). The typical charge is 7% for first-year withdrawals, 6% for the second year, and so on, with no charges after the seventh year.

TIP: Be sure the surrender charge "clock" starts running with the date your contract begins, not with each new investment.

Other Fees and Costs.  Ask about all other fees. With variable annuities, the fees must be disclosed in the prospectus. Fees lower your return, so it is important to know about them. Fees might include:

• Mortality fees of 1 to 1.35% of your account (protection for the insurer in case you live a long time),

• Maintenance fees of $20 to $30 per year, and

• Investment advisory fees of 0.3% to 1% of the assets in the annuity’s portfolios.

Other Considerations. Some annuity contracts offer "bail-out" provisions that allow you to cash in the annuity if interest rates fall below a stated amount without paying surrender charges.

There may also be a "persistency" bonus which rewards annuitants who keep their annuities for a certain minimum length of time.

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