Ask the Business Librarian 5-10

By Liz Kudwa

Q:  I hate dealing with insurance and have not looked at my policies in several years.  I suppose it’s time for me to re-examine my coverage.  Where can I get some tips on insurance?

A:  Many of us would rather do just about anything else than deal with our insurance policies.  But your insurance coverage is very important and should be examined regularly.  An article from the February 17, 2006 issue of Money magazine offers some questions to consider when it’s time to review your insurance coverage.

1. Am I paying too much?

* What’s the going rate? Visit your state’s department of insurance site (find it at naic.org) for sample homeowners insurance rates by company. Or research rates at a national comparison site like insure.com or insweb.com.

* What might I pay? Life insurance is much cheaper now than 10 years ago, so if you’re sitting on an old term policy, try re-pricing it — you might save a bundle (even though, of course, you’re older now). Visit accuquote.com for estimates.

2. Do I have the right kind?

* Can I replace stuff? Your homeowners policy should cover the full replacement cost of what you own, not actual cash value (ACV). That way, if your TV is stolen, you’ll be covered for a new set — ACV only pays what it was worth when it was swiped. If you have an old ACV policy, you’ll pay 5 percent to 10 percent more to upgrade.

* How old is my home? If it’s more than five years old, consider law-and-ordinance coverage, which adds some 8 percent to your premium but pays to bring wiring and other features up to local building codes if you have to rebuild.

* Am I at risk for flooding? Get the answer at floodsmart.gov. If there’s a good chance you are, spring for flood insurance, which isn’t part of standard homeowners insurance. In a low- to moderate-risk zone, a $250,000 policy on your house, with $100,000 for the contents, costs $350 a year.

3. Is it the right amount?

* What’s new? If you’ve had a child, been divorced or bought your first home since you first got life insurance, you may need more — or less. Use the calculator at life-line.org.

* Have I added on? Did you turn a porch into a sunroom, a garage into a guest room? You might need to increase the limit on your homeowners policy to reflect your home’s higher value.

* What would it cost to rebuild? Likely more than you’re insured for, even if you have an inflation rider. A local builder might give you an idea, but the Web will do the job as well: You can fill in your home’s location, square footage, the year it was built and so on — and get a construction estimate for $19.95 — at accucoverage.com and insuretovalue.net.

* What did I buy last year? Jewelry, a fur, art, a computer? If so, you may have exceeded the coverage cap for that category. You have two options: Add a rider to your policy or specifically list the big-ticket item on your policy (tell your insurer you want to "schedule" it ).

4. Am I ready to make a claim?

* Where are my policies? The best home for those is a fireproof safe. Make sure your spouse or heirs know the combination.

* Do I know what I own? Take pictures of your stuff with a digital camera, or a camcorder so you can narrate. Don’t forget what’s in drawers or boxes. Store that record in a safe deposit box or at a relative’s house.

Q: I’ve begun thinking about getting life insurance and it seems like a rather complex topic.  What resources are there to help me better understand the different types of life insurance?

A: The Capital Area District Library has a couple of books that discuss life insurance. 

* Life Insurance Made E-Z, the Silver Lake editors, c2001.

* The New Life Insurance Investment Advisor, Ben G. Baldwin, c2002.

Additionally there is an article from CNNMoney.com highlighting the "top things to know about life insurance".

1. All policies fall into one of two camps.

There are term policies, or pure insurance coverage. And there are the many variants of whole life, which combine an investment product with pure term insurance and build cash value.

2. Insurance is sold, not bought.

Agents sell the vast majority of life policies written in the U.S. because the life insurance industry has a vested interest in pushing high-commission (and high-profit) whole-life policies.

3. Whole life is expensive.

Policies with an investment component cost many times more than term policies. As a result, many people that buy whole life often can’t afford an adequate face value, leaving themselves underinsured.

4. Whole life policies are built on assumptions.

The returns quoted by the agent come in two forms, guaranteed and non-guaranteed. The guaranteed return is fixed interest added to the policy’s cash value, but the non-guaranteed are simply guesses based on projected investment returns — not reality. And some companies keep these guesses of future returns on the high side to attract more buyers.

5. Keep your investing and insurance strictly separate.

There are better places to invest — and without the high commissions of whole-life policies.

6. Buy enough term coverage to fill your needs.

Life insurance is no place to skimp, especially with rates at historic lows.

7. Match the term of the policy to your needs.

You want the policy to last as long as it takes for your dependents to leave the nest — or for your retirement income to kick in.

8. Buy when you’re healthy.

Older people and those not in the best of health pay steeply higher rates for life insurance. So buy as early as you can, but don’t buy until you have dependents.

9. Tell the truth.

There’s no sense in shading the facts on your application to get a lower rate. Be assured that if a large claim is made, the insurance company will investigate before paying.

10. Use the Web to shop.

Buying life insurance has never been easier, thanks to the Internet. You can get tons of quotes, and no pushy salespeople.