The 4 Basic Types of Life Insurance:

Term Life Insurance

Term life insurance is the most basic type of life insurance policy available.  A term life policy covers you for a specific time period and pays a death benefit to your beneficiary only if you die during the term.  Terms usually range from 1 year to 30 years or more, and can be renewed at the end of the term period.  However, as you age, these premiums may increase.

Unlike other types of life insurance policies, term life policies have no cash value or investment component.  Most term life insurance policies are convertible, meaning that they can be exchanged for a whole life or other type of policy without having to take another medical exam.

In terms of value, term life insurance typically offers you the most amount of coverage for the least amount of money.

Whole Life Insurance

Whole life insurance is a life insurance policy that covers you for your entire life and not just for a specific time period or term.  As long as you pay your premiums, your policy will remain active so there’s no need to renew whole life policies.  There is an investment aspect to whole life policies: a portion of your premiums will be invested by the insurer, increasing the policy’s value over time.

Whole life insurance policy premiums are based on your age and medical condition at the time you purchase the policy, and they generally remain the same throughout your life.  At first, the premium for a whole life policy may seem much higher than a that of a term life policy.  However, the premiums for term life policies typically increase as you age, while whole life policy rates remain the same.

Universal Life Insurance

Universal life insurance, also referred to as flexible premium life insurance, is a type of life insurance policy that allows you to vary the amount of premium payments you make for investment purposes.  You can choose to pay the insurance premium plus an additional amount that you would like invested.  Your investment and returns are placed into a cash value account, which builds the policy’s cash surrender value, which is the amount that you expect to receive back when you terminate the policy.

Variable Life Insurance

Variable life insurance is a type of life insurance policy that allows you to allocate a portion of your premium payments to a separate investment account, such as an equity fund or money market account.  The cash value of the policy fluctuates based on the market and the performance of the investment.  Because of its investment risks, variable life insurance may only be obtained from brokers who are licensed to sell securities like variable annuities and mutual funds.

Riders

Riders are additional benefits that can be purchased and added to your basic life insurance policy.  These extra features provide you with more coverage and benefits than you would receive from the basic policy,  however you will need to pay an additional premium for these coverages.

Some of the most popular life insurance riders:

Accelerated Death Benefits

Also known as “living benefits”, the accelerated death benefits rider may pay all or some of the death benefits to the insured if they are diagnosed with a terminal illness and need money right away to pay for medicine, treatment, and other medical expenses.  Typically, the accelerated death benefits are subtracted from the total death benefits that your beneficiary would receive upon your death.  Different insurance companies have different rules regarding living benefits, so be sure to check the specific details of this rider with your life insurance provider.

Accidental Death Benefits

Also referred to as “double indemnity”, this rider would pay out an additional death benefit if the insured’s death is considered to be an accident.  The additional amount paid to the beneficiary is typically double what the normal death benefit would be for non-accidental death, which is why it is called double indemnity.  This rider is especially important for people who are the only providers of income for their family.

Automatic Premium Loan Provision

If for whatever reason you do not pay your life insurance premium, this rider automatically authorizes the insurance company to take out a loan from the policy’s cash value to cover the cost of the premium.  This rider can only be used if your policy has sufficient cash value to cover the cost of the loan.  The benefits of having this rider would be if you accidentally forgot to pay your premium, you wouldn’t have a lapse in coverage.

Family Income Benefit

This rider provides monthly income payments to family members upon the insured’s death.  These payments are in addition to the death benefits of the policy, and will be paid out for a pre-determined number of years.  The advantage to purchasing this rider is that after death, your family will receive steady monthly income payments for the duration that you choose.  The beneficiary of the policy can usually choose between receiving monthly payments or one lump sum.

Guaranteed Insurability/Renewal Provision

This rider allows you to purchase additional life insurance at a  specified time or date in the future, without having to go through another medical examination.  The advantage to  having this rider would be if something significant changes in your life, such as your health, marital status, or income level, you will still be eligible to purchase coverage without having to answer any questions regarding your health.

Waiver of Premium

The waiver of premium rider is a policy provision that takes effect if you become disabled.  If you experience loss of income due to a disability or injury, you would be exempt from having to make future premium payments until you are able to go back to work.  This rider is valuable because it prevents your policy  from expiring if you are injured and unable to make premium payments.

Homeowners Insurance Market Value vs. Replacement Cost:

Market Value Coverage

A market value policy would pay you the market value of your home as it is worth on the market today.

Replacement Cost

A replacement cost policy would pay you the amount of money it would take to replace your home using similar quality construction materials, without taking depreciation into consideration.

If your Home insurance current and providing enough coverage?

What to Look Out For when comparing homeowners insurance

When comparing homeowners insurance quotes, be sure that you are comparing quotes for the exact same coverages and benefits.  Be careful not to confuse a market value policy with a replacement cost policy, as these are two completely different products.  Remember: the market value of a home is the amount that the home is worth on the market today, while the replacement cost of the home is the amount of money it would cost to rebuild the home using the same quality construction materials but at today’s cost.

Also, understand the difference between an all-risk policy and a named peril policy.  An all-risk policy will protect your home from damage caused by all types of risk with a few specific exclusions, while a named peril policy covers only the specific types of damage that are listed.

If you can, avoid filing “small” claims for damages less than $3,500.  Claims under this amount may actually cost you more in the long run because an insurance company can raise your rate for having multiple claims and could even cancel your policy.  Choose higher deductibles to save money and prevent yourself from making smaller claims.

Know what you need before talking to an agent

Home Insurance Paperwork You Should Have Ready

Before receiving your quote, it is recommended that you have a copy of your current homeowners policy declarations page.  This document is typically the first page in your insurance policy paperwork and provides an overview of the policy, as well as the full name and address of the named insured, a basic description of the property, the dollar amount of the coverage limits, the name of the insurance company, and the total premium.

Also, if you have an umbrella policy, you will want to have that document available so that you can get an accurate comparison for the exact same coverage limits.  Having these documents on hand while speaking with an agent will help determine which insurance plan is your best option.

 

Will your insurance cover your next possible disaster?

Replacement Cost Vs. Actual Cash Value

 

When comparing home insurance rates, be sure that you are receiving quotes for the exact same coverages and benefits. Be careful not to confuse a replacement cost policy with an actual cash value policy, as these are two completely different types of insurance policies. The following guide explains the difference between these two types of coverages and will help guide you towards making the right decision.

Replacement Cost

Replacement cost is the amount of money it would take to replace or rebuild your home or repair damages to your home using similar style and quality construction materials, without taking depreciation into consideration. Depreciation is the decrease in a home’s or property’s value since the time it was built or purchased due to its age or normal wear and tear.

Most insurance companies require homeowners to insure their homes for at least 80% of whatever the replacement cost value is. If the homeowner fails to cover their home for at least 80% of the replacement cost value, a penalty can be applied when partial losses occur.

For example, if it would cost $100,000 to replace your home and it is insured for $80,000 (80% of its replacement value), and a fire causes $50,000 worth of damage in your kitchen, your insurance company will pay the full $50,000.

On the other hand, if your $100,000 home is insured for only $65,000 (which is less than 80% of its replacement value), and a fire causes $50,000 worth of damage in your kitchen, your insurance company would only pay for part of the damage and you would be responsible for having to pay the remaining balance out of pocket.

So, how much will your insurance company pay and how much will you have to pay?

Your insurer would pay for the damage based on the following replacement cost formula:

The Amount of Insurance You Have = $65,000

= 81.25 %

The Amount of Insurance Needed (80%) = $80,000

Using the kitchen fire example above, your insurance company would pay only 81.25% of the $50,000 damage to your kitchen, which equals $40,625. That means you would be responsible for coming up with the remaining $9,375 needed to fix your kitchen – which is a whole lot more than it would have cost to insure your home for the minimum requirement of 80%.

As you can see from this example, keeping your home insured for at least the minimum requirement of 80% of replacement cost value is very important and can save you lots of money and trouble in the future. Different companies may have different requirements for replacement cost value, so be sure to check the requirements and rates for multiple companies.

Actual Cash Value

Most standard home insurance policies cover the contents of your home, such as your personal belongings, on an actual cash value basis. Actual cash value is the amount of money that it would take to replace or repair damage to something after considering depreciation.

For example, if a powerful storm causes damage to several items in your living room and your 5 year old television is destroyed, you would not get back the same amount of money that you originally paid for the television 5 years ago. Instead, the amount of money that you could expect to be paid back would be the actual cash value of the television today, after depreciation.

Many insurance companies offer an additional coverage option for you to insure your personal belongings at replacement cost value. Choosing this option will raise your rate slightly, but will also guarantee that you will have sufficient coverage to replace your personal items in the event of a loss.

Regardless of whether your home is insured on a replacement value basis or actual cash value basis, it is important that you keep track of your home’s current value and note any new construction or improvements you make. Home improvements that you make can affect the value of your home and you will need to update your insurance policy as well.

For example, upgrading your home’s heating or electrical systems, building a new addition such as a deck or porch, and yearly inflation all should increase the replacement cost of your home, while the actual cash value may decrease over time due to depreciation.

Compare insurance prices at least once a year to make sure your policy still provides adequate coverage and you are receiving the best price available.

The Cost of Trampolines and Swimming Pools

Having a swimming pool or trampoline in your back yard can be great fun, but it could be costing you more than you think. Although these recreational accessories provide fun activities for family and friends, they also create a lot of risk for insurance companies, which leads to paying higher rates.

Insurance companies look at it like this: pools and trampolines are fun toys that can attract young children throughout the neighborhood to come onto your property to play. If a child is injured on your trampoline or much worse, drowns in your pool, you can be sure to find yourself involved in a costly lawsuit with the victim’s family.

Because of this risk of injury that surrounds swimming pools and trampolines, insurance companies either charge people much more for having them, or decide not to insure them at all.

If you currently own a pool or a trampoline or are planning on purchasing one, find out how it will affect your home insurance rate now.

More Advice for Pool Owners:

• Be sure to check the local laws in your area to see if there are any regulations for swimming pool safety.

• You might be required by law to install a fence around your pool and keep it locked when its not in use.

• Even if its not required by law, insurance companies can require you to keep your pool locked when your not using it to prevent children from accessing it.

More Advice for Trampoline Owners:

• Like swimming pools, trampolines create a lot more risk for insurance companies.

• Many companies will deny you coverage if you own a trampoline.

• Even if you do install a fence around your property, if a child climbs over it and is injured while playing on your trampoline, you could be held legally responsible.

Insurance for Historical Homes

If you own an historical home, finding the right coverage at the right price can seem challenging. Some insurance companies are hesitant to cover older homes due to their sometimes unsafe electrical wiring and heating systems. Some companies even refuse to insure homes built before a specific year or time period.

Another big challenge to obtaining coverage for your historical home is that the insurance company may only offer to insure it for its market value instead of its replacement cost.

Remember: the market value of a home is the amount of money that its worth on the market if it were sold today. The replacement cost of the home is the amount of money it would cost to rebuild the home using the exact same quality craftsmanship and construction materials, but at today’s cost of materials and labor.

Older homes, especially ones built during the Victorian area, are difficult to rebuild or replace today because they typically feature authentic hand-made windows and doors and ornate hand-carved wood molding, which was common for homes built in the late 19^th century. Historical homes also usually contain original hardware like hinges and doorknobs which are hard to find replacement parts for.

The cost to rebuild or replace all those authentic parts today would end up being a lot greater than the actual market value of the home.

If you own an historical home, find out if your home insurance policy offers coverage on a replacement cost basis or on a market value basis, because these two types of coverages should never be confused.

If you would like to quickly find out how much a replacement cost policy would be for your home, click here to get rates online.

Calculating Home Insurance Quotes

There are many different factors that insurance companies use to help determine your home insurance rates. Understanding what these factors are and how they are used to calculate your rates will help you make more informed decisions and secure the best deals possible on your home insurance.

The 9 Most Important Rating Factors

We’ve identified the 9 most important factors used to determine home insurance rates:

(1.) Basic Description of Your Home 

(2.) Geographical Location of Your Home

(3.) Distance from the Nearest Fire Department and Hydrant

(4.) Home Upgrades in the Last Few Years 

(5.) Total Square Footage

(6.) Credit History & Insurance Score

(7.) Security Devices and Alarm Systems

(8.) Prior Loss & Claims History

(9.) Type of Pets and Recreational Equipment

Basic Description of Your Home

The most important factors used to calculate your home insurance rates are the basic details about your home, like your home’s age and condition, how much its currently worth today, and what construction materials were originally used to build it. Its a good idea to know this basic information about your home to better prepare yourself to compare rates.

Geographical Location of Your Home

The geographical location of your home is one of the most important factors used to determine your price because it helps insurance companies predict what type of weather patterns may affect your home. If you live in a region prone to natural disasters like floods, tornadoes or hurricanes, you are most likely paying a lot more for this increased risk.

Distance from the Nearest Fire Dept. or Hydrant

The distance between your home and the nearest fire department is also used to help determine home insurance rates because insurance companies want to make sure that if a fire does break out in your home, your local fire department is located close enough and well-equipped to respond quickly.

Insurance companies look at how your local fire department is rated using the Fire Suppression Rating Schedule (FSRS). The Fire Suppression Rating Schedule (FSRS) is used by insurers to review the fire-fighting capabilities of individual communities. The schedule measures the major elements of a community’s fire-suppression system and develops a numerical grading called a Public Protection Classification (PPC).

Most home insurance companies require that your home to be located within 5 miles of your local fire department station and 1,000 feet from the nearest fire hydrant.

Upgrades to Wiring, Plumbing, and Heating Systems

Home insurance companies also determine the age and condition of your home’s wiring, plumbing and heating systems and will ask if you have made any upgrades recently. Upgrading your home’s wiring, plumbing, and heating systems will help improve your home’s overall safety. If you’ve made home improvements recently, you could be qualified for much lower rates, so its a good idea to compare home insurance prices after upgrading.

Prior Loss & Claims History

Your home insurance loss and claims history in the past few years is important in determining your home insurance rate because it helps insurance companies calculate the likelihood that you will file a claim again in the future. Insurance companies want to know if you have filed any claims in the last several years, how much the total amount paid out in losses was, and if you have had a lapse in coverage.

Type of Pets and Recreational Equipment

Home insurance companies will also ask if you have any pets, swimming pools, or trampolines on your property. Owning certain breeds of dogs or recreational equipment could increase your rate and may even prevent you from being eligible for coverage.

Click the following links to read more information on how your Dog, trampoline, or swimming pool could be affecting your home insurance rate.

Smart Ways to Save Money

If you’re looking to lower the cost of your home insurance, there are many easy and affordable home improvement options available. The following simple precautions will not only help make your home a safer place to live, they’ll also save you money in the process:

Minimize the Risk of Fire

Here’s how you can better protect your home and also qualify for additional home insurance discounts just by taking a few simple fire prevention precautions:

• Install smoke detectors throughout your home, especially in key areas such as your kitchen, laundry room and near the bedrooms – this will qualify you for extra discounts.

• You may receive a credit for keeping a fire extinguisher on hand near your kitchen, garage, or fireplace. Make sure everyone in your household knows how to locate and use the fire extinguisher.

• If your home’s electrical wiring is more than 30 years old, you should consider upgrading it. Having upgraded electrical wiring also qualifies you for additional credits and discounts on your policy.

• If you’re not a smoker, you may be overpaying for home insurance. Insurance companies typically offer discounts for home owners who don’t have any smokers in their households, since cigarettes are responsible for so many fires each year. Request home insurance quotes today to find out how much you save just by not smoking.

Burglar-Proof Your Home

Reducing the chance that your home will be burglarized will not only help to protect your family and your belongings, it will also reduce your home insurance premium. By putting the following simple security measures in place, you can earn significant discounts:

• Installing a home security system or alarm in your house helps discourage potential burglars and will also automatically notify authorities in the event of a break-in. Most insurance companies offer a 15-20% discount on your policy if you have a security system installed.

• Test your doors and windows to make sure that all locks work properly and there are no obvious gaps or weak points.

• Other easy and affordable ways to qualify for discounts include: install deadbolt locks on all doors, place special locks on all ground floor windows, and set timers to turn your indoor and outdoor lighting on and off when you’re not at home.

Weather-Proof Your Home

Preparing your home for winter weather can save you money on insurance by minimizing the risk of cold weather-related damages.

• Take time to inspect your roof before the winter season starts. Look for things like loose shingles, gutters, downspouts, and other parts of your roof that could become severely damaged from the weight of heavy snow or ice.

• Before the temperature turns cold, wrap any water pipes that are located just inside your exterior walls with insulation to prevent them from freezing. Add weather stripping and caulking to windows to prevent cold air from entering your home.

• If you use a fireplace to heat your home in the winter, have a professional inspect it for potential damage and properly clean out your chimney. This will make sure that everything is working properly and will help prevent a chimney-related fire.

Insurance for Coastal Homes

If you own a home near the coast, you’re likely paying a lot more for home insurance than most people due to the increased chance of your home being damaged by wind, hurricanes, or flood.

Since the geographical location of your home is one of the most important factors used to determine your home insurance rate, many insurance companies have stopped offering home insurance to new customers who live along America’s coasts, and some companies are even choosing not to renew loyal customers who have been with them for years.

Insurance has become more difficult to obtain for property locations that are known to pose much higher risk for companies to insure, like homes located near the ocean. That’s why in the late 1960′s, the federal government established a program to give these property owners better access to insurance, called the Fair Access to Insurance Requirements plan, or the FAIR plan.

• The FAIR Plan operates similar to normal insurance companies, in that it underwrites and evaluates risk, collects premium, issues policies and adjusts claims
• FAIR plan insurance policies usually cost more than insurance from private companies
• They often offer lower coverage amounts or come with more conditions

If you live near the coast, find out if your’re eligible for lower insurance rates, either from a private insurer or the FAIR plan.