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Insurance

Now Covered By Umbrella Insurance

This article was written by in Insurance. 16 comments.


There is nothing that can derail your financial success or path to independence as fast as being held liable for some kind of catastrophic loss without the appropriate level of insurance coverage. Automobile and homeowners insurance (or renter’s insurance) cover only up to a certain amount of your liability if you or your property is involved in an accident. If your wealth exceeds those limits, you could be at risk.

That’s the case for umbrella insurance. It picks up where automobile and property insurance leave off. Shopping for umbrella insurance, until recently, was yet another task that I put off. A confluence of events reminded me to get this done: my initial meeting with an estate planner had me thinking about protecting my assets, and I received the renewal documentation for my renter’s insurance with Liberty Mutual, the same company that holds my auto insurance.

I called Liberty Mutual to review my current coverage and to ask for a quote for their umbrella insurance coverage. Nothing is as simple as one telephone call, so while I was able to adjust my renter’s insurance to protect more of my belongings, to find more information about the umbrella insurance, I was directed to a local agent.

We discussed my needs based on the total of my assets, and I was looking for a $5 million policy. That’s the upper limit of what this company offers. In order to qualify for any umbrella insurance, however, auto insurance and home or renter’s insurance must include coverage at specific levels of liability. My renter’s insurance already qualified, with $300,000 in personal liability coverage, but I needed to make a chance to my car insurance. The laws in other states may differ, but at least in New Jersey, to qualify for an umbrella insurance policy, according to the agent, one needs at least liability coverage of 250/500, or $250,000 per person and $500,000 per accident.

The agent needed some time to pull my information together for a quote. She called back, offering me the $5 million coverage for over $750 a year. The cost seemed high to me, so I didn’t make any commitments. I mentioned I would call her back. I turned to the internet for research, and saw that this type of cost was not uncommon for a high level of coverage. Basic coverage is $1 million, and that’s what most customers have. Thus, this lower level of coverage is relatively inexpensive. Once you begin looking for coverage at $2 million and above, the cost of the premiums tends to increase substantially, because the pool of customers at those levels is smaller.

I made a failed attempt to get a competing quote. I called GEICO directly to try to compare prices directly, but GEICO could not offer me coverage unless I had been invited to apply for their auto insurance. Otherwise, GEICO does not do business in New Jersey.

To move forward, I called the Liberty Mutual agent back and asked some more questions about coverage. Just about every question required her to check with her manager, and ultimately she came back and said that coverage at the $5 million level would require state approval. She suggested going with $4 million in umbrella insurance coverage while increasing my renter’s insurance liability to $1 million. Either way, my assets should be well covered — assuming any potential problem I face in the future is covered by insurance at all. This shift saves some money compared with leaving my renter’s insurance as is and going with the $5 million umbrella insurance coverage.

In total, the additional annual cost is about $650. That’s a small price to pay for additional asset protection. Of course, like any other kind of insurance, the mathematical perspective is only part of the story. If you never need to use your insurance, you’ve spent a lot of money over the course of your lifetime for a service the company never provides. And insurance companies do often make it difficult to qualify for legitimate claims.

But the alternative — being held liable without the proper insurance coverage — will quickly destroy any wealth you’ve been able to build, require you to liquidate investments or real estate, and possibly cut into your future earnings. I’m knocking on wood that I’ll never need to go through the process of filing a claim against this policy.

After I completed this quest, I sent my business insurance agent a quick email. Umbrella insurance and home insurance generally don’t cover anything that a self-employed individual or a business owner might be concerned about from a legal perspective, and I want to make sure my business liability insurance fills in the gaps left by my other policies.

Do you have an umbrella insurance policy?

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Credit Life Insurance: You Don’t Need It

This article was written by in Consumer, Insurance. 3 comments.

Occasionally, Consumerism Commentary readers send in questions or stories they’d like to share with a wide audience. These questions and stories come to me through email, via Facebook, and through this website. Recently, a new reader who discovered Consumerism Commentary due to my multi-year coverage of Bank of America (primarily the articles pertaining to the overdraft fee class-action lawsuit), wanted to share a cautionary tale about the same bank.

It’s no surprise that bankers are salespeople. Some are encouraged to sell financial products with compensation like bonuses or commissions, and they are not required to sell products that are in their customers’ best interests. Salespeople in any field are there to make money for their companies — that’s it. At the same time, consumers look to certain types of salespeople as experts, relying on these professionals to help them navigate complicated products.

I’ve never opened a home equity loan with a bank. I don’t have a home or a mortgage, so I don’t have personal experience with the type of product discussed in this article. But I took this opportunity to research the subject. There might be financial professionals, planners or advisers who are required by their certification to give advice with their clients’ best interests in mind, who might be able to elucidate the issue even further.

I’ll share the story in a future article because I wanted to ensure I was more familiar with the particular product, credit life insurance, before addressing the general concern she had. The concern is not with the product itself but with how Bank of America charged her for the coverage, and I’ll explain that in detail in a future article.

I say the following with no judgment whatsoever about anyone who has knowingly chosen, while understanding what a credit life insurance policy does and does not cover.

First, credit life insurance is a type of insurance policy that banks will try to sell — and they will try hard to sell thanks to big commissions for these products — when a customer takes out a loan or opens a home equity loan. It’s an add-on product, and some might even try to say that credit life insurance is required when you take out a mortgage with less than a 20 percent downpayment. Credit life insurance pays the lender if the borrower dies before having a chance to repay the loan in full.

There are off-shoots to this type of insurance product. Credit disability insurance pays the lender if disability makes it difficult for the borrower to live up to the obligations of the debt, and you might find products like credit unemployment insurance.

The premiums for a credit life insurance policy are rolled into the cost of the debt, so you hardly notice that you’re paying for something separate. Your monthly payments for your home equity loan, car loan, or mortgage will include the credit life insurance premiums.

Is credit life insurance necessary? Not in almost every situation. Unless a family member’s name is on the loan with yours, no survivor would be required to pay off the loan’s remaining balance in the event of your death.

Credit life insurance isn’t even a benefit for the consumer, it’s a benefit for the lender. You’re paying an extra fee for the lender’s protection, not your own. Additionally, these plans often expire before the loan would be repaid in full. The reader indicated, as you will be able to see in the follow-up article, that her plan would have expired automatically when she became 66 years old. It actually expired several years prior. So, like term life insurance, you could pay into a plan for several years with a good chance of never needing to or being able to make a claim.

Here is a summary of the cons for buying credit life insurance. Keep this in mind the next time you visit a bank for a loan.

  • Credit life insurance costs more than regular life insurance for the same type of coverage.
  • The lender is the beneficiary, not your family.
  • Credit life insurance is not required for taking out a loan, and if a salesman tries to imply that it is, go somewhere else or report him or her to the authorities.

The Federal Trade Commission has issued a consumer alert about credit insurance, including credit life insurance, credit disability insurance, and other variations of insurance that protect the lender that includes the following warning:

Before you sign any loan papers, ask the lender whether the loan includes any charges for voluntary credit insurance. If you don’t want credit insurance, tell the lender. If the lender still pressures you to buy insurance, find another lender. And review your loan papers carefully to be sure they have been drawn up correctly. Lenders can’t deny you credit if you don’t buy optional credit insurance — and if you don’t buy it directly from them. If a lender tells you that you’ll only get the loan if you buy the optional credit insurance, report the lender to your state attorney general, your state insurance commissioner or the FTC. Consumers should ask these same questions about other extra products offered with their loan, such as auto or shopping clubs, home or auto security plans, and debt cancellation products.

Has a banker or salesperson attempted to sell you credit life insurance? Do you have credit insurance for a loan? If so, make sure you understand the terms, but I’d be interested in hearing whether people with these plans consider credit insurance to be worthwhile protection.

Photo: Flickr

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Aftermath of Sandy: Check Your Insurance Coverage Before the Storm

This article was written by in Featured, Insurance. 6 comments.

I hope all Consumerism Commentary readers affected by Hurricane slash Extra-Tropical Storm slash Low-Pressure System Sandy are alive and safe and have avoided damage. I lost power for sixteen to eighteen hours, and although I live near a canal, flood waters didn’t reach me. Many of my local friends are still without power, and my heart goes out to families elsewhere who have suffered significant damage or worse.

It’s a good idea to check your insurance coverage before an approaching storm arrives if you’re not intimately familiar with its terms. Naturally, I didn’t look at my coverage until after Sandy had passed. I’m not a homeowner, so life isn’t all that complicated for me when it comes to insurance. I’ve been a renter of apartments throughout my adult life, but I didn’t have renters insurance until a few years ago. It’s inexpensive, so there’s no excuse for not having renters insurance for ten years. I can’t correct the past, only make better decisions today and in the future, so I’ve moved on.

I chose my insurance initially by calling AAA, the automobile membership club, who acts like a broker, for car insurance. They helped me find good private car insurance coverage once I was eligible for coverage not managed by the state, and my own shopping around revealed the price comparisons offered by AAA matched my expectations. The best deal was with Liberty Mutual insurance. When looking for renters insurance, I chose to work directly with Liberty Mutual, taking advantage of the multiple policy discount in addition to other discounts.

When I enrolled for renters insurance, I answered a few questions about my material possessions. Because the structure in which I live is theoretically covered by the landlord’s own insurance policy, renters insurance focuses on two main coverage categories: personal property and liability.

The personal property coverage should cover the replacement costs for household items, whether they are damaged or destroyed inside or outside the home. This policy hasn’t been updated in several years, and I may want to call to ensure I have enough coverage. There are some important limits to this coverage, however. For example, if I were to keep cash or precious metals in my home, this insurance coverage would only coverage loss of up to $200. That wouldn’t cover even one gold bullion round. I don’t own any gold, but if I were to own some, and for some reason wanted to hold it outside of a safety deposit box at a bank, this would be a concern.

Property coverage does have tight limits on property in the home used for business purposes — but that’s what business insurance is for.

When it comes to approaching hurricanes and storms, the insurance covers damage to property only if the force of the wind causes an opening in the wall or roof. Many people feeling the effects of the hurricane are experiencing loss related to water entering their living spaces, and this damage — flood damage — is not covered by typical renters insurance. Water damage is specifically excluded from my coverage, even if the water is driven by wind, as it would be in a hurricane. Damage resulting from water backing up through sewers and drains is not covered.

The policy includes very specific limitations related to floods, but points out that if I happen to live in a participating community, I could buy separate flood insurance from the National Flood Insurance Program. This is a program run by the Federal Emergency Management Agency (FEMA), a division of the U.S. Department of Homeland Security. Unless or until FEMA is dismantled by the government, you can buy flood insurance from the government through your insurance agent. Despite Sandy this year and Irene last year, and despite local communities being subject to flooding due to the proximity to a canal, my location is not prone to flooding, so I don’t need this coverage currently.

If any of my personal property had been damaged by power failure, this also would not be covered. I take this to mean, among other things, that I can’t enter a claim for any food that might have spoiled in my refrigerator during the eighteen hours I was in the dark through hurricane Sandy’s effects.

Update: If you have hurricane coverage, be sure to check how the policy defines the term “hurricane.” For example, when Sandy made landfall, NOAA did not consider the storm to be a hurricane. This can end up being good for homeowners, because hurricane policies often have a separate deductible. The deductible might not apply if any particular storm was not technically a hurricane when it caused the damage.

The personal liability coverage takes effect if I were to be sued for damage due to bodily injury or property damage, and there are specific limits to this type of coverage as well. Again, business insurance covers many of the potential holes left open by renters insurance. If I were to keep a watercraft or aircraft in the residence for some reason, liability coverage would not extend to circumstances related to those items.

Additional coverage in my renters insurance plan include credit card fraud, additional coverage for personal property so that the plan will pay for the full replacement cost rather than the “value” of the items when damaged, mold coverage, and Worker’s Compensation.

Last year was the first time I’ve experienced an earthquake on the east coast. Quakes aren’t normally expected in my area of the country, and one with the epicenter in Virginia last year took people by surprise. It is possible to get renters insurance or homowners insurance that covers earthquake events, but my insurance company goes so far as to warn against it:

Historically, earthquakes in New Jersey are a rare event, although the possibility exists that it could happen. Over the five year period from 1997 to 2002, for every $1 of earthquake insurance premium, 3/10 of one cent has been paid out for losses.

It’s just not a good deal, and the company is admitting as such. Compare the 0.003% rate of coverage value to what’s expected with health insurance. The Affordable Care Act specifies that health insurance companies should spend 80 percent of collected premiums on coverage. That said, it sounds like earthquake insurance could be quite a profitable business, at least here in New Jersey.

How did your household fare if affected by Hurricane Sandy? What damage would be excluded from your homeowners or renters insurance? It’s good to know the details of your coverage before the next natural event.

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Life Insurance: Who Needs It?

This article was written by in Insurance. 13 comments.

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Having worked for an insurance company in the past, I may be more critical of the industry than most. Don’t get me wrong. It’s very important to have different types of insurance. When I was in a minor car accident — nobody was hurt — I was certainly happy I had insurance. The same was true a few years ago when a thief broke into my car and grabbed my radio and some other items. Insurance is both a service and a product, and by paying the premiums, customers are guaranteed some form of protection.

I can’t get away from the fact, however, that insurance companies make more money when they don’t pay out claims — when they don’t perform the service they’re supposed to perform for their customers. I wrote about this recently when comparing mutual insurance companies and public insurance companies. Shareholders’ needs for profit don’t always play nicely in the short term with the customers’ needs for service.

Life saverAs if on cue, the media offered two interesting examples of insurance companies aren’t always concerned about helping policyholders. The first was fun.

Among my friends, it’s no surprise I’m a fan of the television show Leverage. The premise of the program is that five former con-men (and con-women) joined forces to protect and avenge the powerless individual against corporations, governments, and other powerful entities that have wronged individuals or the public. An insurance company was a key piece of the most recent episode; the company collected premiums and hoarded the cash, never paying claims. In reality, of course, a company would be required to pay a certain amount of claims or return the premiums, or else face a fine, but in the world of Leverage, that’s a minor detail that can be painted out of the story. Clever writers, when asked, can easily get around such seemingly troublesome plot holes.

The other example is not so fun. Progressive Insurance held the policy for a driver who recently died in a car accident. The other driver, who may have been at fault for running a red light, was underinsured. The insurance company representing the driver at fault figured it was a clear case, and paid benefits, but since the other party was underinsured, the payments did not amount to much. The driver who died carried coverage for underinsured drivers, so her own insurance policy from Progressive should have covered the gap between the benefits provided and what the driver’s estate should have received.

Progressive refused to pay, and in court, a lawyer from Progressive defended the driver who was at fault, then denied that they defended the driver, then sent social media spam to anyone who questioned Progressive’s actions. As far as I know, the company has neither apologized for their behavior or marketing lies, nor have they paid the underinsurance claim to the estate of the deceased driver.

Update: You can read more details about the Progressive Insurance case from an article by Ron Lieber in the New York Times.

But I didn’t come here today to complain about insurance companies. (It’s just so hard not to, though, so please forgive me.) Today’s is a day to celebrate life insurance, so I’m going to share my thoughts about that instead.

Financial planners say life insurance is an essential part of growing an protecting a family’s wealth. But I don’t carry any life insurance. The purpose of life insurance is to pay benefits to those who count on your income-earning ability or human capital in order to live — or in order to live the type of life to which they are accustomed. If a wife and three children were depending on my earning a six-figure salary each year, it would be a shock for them if I were to suddenly pass away.

I don’t have a family counting on my generation of income. I don’t even have a salary — though I am earning income as a freelancer and consultant. Not only that, but I have enough assets — at the moment, anyway — to cover the cost of the expenses relating to my own hypothetical death, so that’s not something that needs to be covered in the form of insurance. Life insurance will also be used to cover debts, and at this time I have none other than credit card debt I pay off every month.

Put succinctly, I don’t have life insurance right now because I don’t need it. It’s only a secondary benefit that I get to continue avoiding working with yet another insurance company.

I may be in the minority. Most Consumerism Commentary readers have dependents. The me of the future might also have a family who at least partially depends on my income. Those who do have concerns other than their own prosperity need to consider an option for ensuring a level of continuity following an unfortunate event like death. If you’ve managed to build a significant amount of wealth, you can effectively self-insure. With ten million dollars in the bank, it might be possible for your survivors to live their lives without much change from a financial perspective. With no million dollars, however, like most households, buying life insurance is a wise choice.

How much life insurance do you need and how much does it cost?

There are a large number of calculators online designed to tell you how much insurance coverage you need. The total amount of coverage depends on how much income your survivors would need, how long your survivors would need that coverage to continue, some specific large expenses that would need to be covered like college education for your children or charitable donations you’d like to leave, and how much of your own assets you’d be willing to commit to these same purposes.

Some of the calculators are linked directly to insurance agents. Good luck getting information on the cost of insurance without leaving your name and contact information. In order to receive quotes pertaining to the cost of premiums, for the most part you’re going to need to open yourself up to calls or emails from salespeople. In general, the younger you are, the less you’ll pay as a premium for the same coverage. It’s not ageism, it’s based on probability tables. Insurance companies project life expectancy based on age, and use that information to calculate the chance of one policyholder being able to cover the expense of his or her own coverage.

In some cases, the company will underestimate your life expectancy, and in other cases, the company will overestimate. The amount of money spent on premiums in total should be able to cover everyone while providing profit to the insurance company. There’s not a big chance of these calculations going horribly wrong. It’s not like property and casualty insurance, where an uncharacteristic storm could send an insurance company into bankruptcy due to its inability to pay its claims. (But that’s why re-insurance exists, and that’s a whole other topic.)

Anything that could potentially effect you’re life expectancy will adjust the cost of your life insurance premiums. If you engage in unhealthy activities, if you like extreme sports involving risking your life, or if you have a chronic illness, you’ll find it difficult to negotiate a bargain for yourself, if you can qualify for coverage at all.

The type of insurance also effects the cost. Different types of insurance do different things. Most experts — those who aren’t trying to sell insurance, anyway — tend to agree that the best type of insurance is the type that keeps it simple: term life insurance. Once you start looking to universal life insurance or cash value life insurance, where part of the insurance policy is an investment or savings vehicle, the costs generally don’t balance the type of service you’ll receive. You’re better off keeping your investments separate from your insurance, giving you a better chance of controlling fees and expenses. Why? Because reducing your investment fees and expenses is one of the best ways to improve the performance of your investments over time.

And don’t forget to shop around.

Insure.com, Consumerism Commentary’s sister site, answers commonly-asked questions about life insurance here.

Do you have life insurance? Why or why not? If you do have life insurance, what type do you have? What have been your experiences shopping for life insurance?

Read more about life insurance today from over 100 bloggers and other writers by following today’s life insurance movement.

Photo: Phil Comeau

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Mutual Vs. Public Insurance Companies

by Luke Landes
Nationwide Mutual

A former boss of mine, high up the corporate ladder in an insurance company, often complained about his own industry. “Insurance companies make money by not providing a service to their customers.” That is, insurance companies make money by collecting premiums and paying out the least amount of benefits possible. Of course, there’s a tough ... Continue reading this article…

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Universal Life Insurance

by Luke Landes

Every once in a while, I receive financial questions from readers. I am not a financial adviser, so I usually suggest those needing significant assistance with their financial decisions to seek the advice of a professional. However, I don’t mind answering general questions that might be helpful for a wider audience. If you have any ... Continue reading this article…

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Life After Salary: COBRA vs. Individual Health Insurance

by Luke Landes
Cobra

One month ago, I notified my boss at the corporation where I worked that I would be leaving. I was headed for the new frontier. Leaving my salary and benefits behind, I looked to the horizon and contemplated what I needed to do in order to keep my life secure. My biggest concerns besides maintaining ... Continue reading this article…

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Life After Salary: Individual Health Insurance

by Luke Landes

Now that I’ll be leaving my corporate job and leaving behind the benefits a salaried position afforded me, I need to begin looking at alternative options for those benefits. One of the first concerns on my list is health insurance. Inside the company, our annual benefits enrollment period was completed only a few weeks ago, ... Continue reading this article…

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Do I Need Long-Term Care Insurance?

by Luke Landes

As I mentioned a few days ago, Consumerism Commentary is matching your charitable contributions. Please take this opportunity to give to your favorite charity. Here’s how to make your charity count twice. I work for a financial services company (a situation soon to be rephrased in the past tense), and every once in a while, ... Continue reading this article…

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Children Covered by Parents’ Health Insurance Plans

by Luke Landes

A Consumerism Commentary reader wrote in with the following question: I called our health insurance company about adding our sons back on our policy and they said they still had to be in school for 12 credit hours. Is this true? They said the new law did not effect them yet. Any answers for this ... Continue reading this article…

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New Pre-Existing Condition Insurance Plan

by Smithee

Historically, it’s been difficult, if not impossible, for Americans with medical problems to acquire affordable health insurance. That changed yesterday with the rollout of another piece of this year’s Affordable Care Act, the Pre-Existing Condition Insurance Plan (PCIP). As of July 1, 2010, adult citizens or legal residents who have been without insurance for six ... Continue reading this article…

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How to Pay More Than You Should: Stop Paying Attention

by Luke Landes

In March, I wrote about reducing the amount of automation in handling personal finances. Leaving your payments on auto-pilot is asking for trouble. Leaving your brain out of the decision-making process is a sure way to rack up overdraft fees when you don’t have enough funding to pay an automatic bill. Also in March, I ... Continue reading this article…

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Insurance Companies Work for Shareholders, Not Customers

by Luke Landes

The entire concept of insurance, particularly public insurance companies with shareholders, is backward. If a company is to survive year after year, it has to make money for its owners. In the case of public companies, executives answer to the board of directors and the shareholders. The goal is, of course, to make money for ... Continue reading this article…

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Car Insurance Coverage

by Luke Landes

The first time I shopped for car insurance I didn’t know much about what I would be buying. I should have taken the time to learn more about the various types of coverage before shopping. As a result of my lack of preparation, I did a poor job comparing rates. I was slightly better armed ... Continue reading this article…

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After Ten Years of Renting, I Finally Have Insurance

by Luke Landes

I don’t know what I was thinking. I am getting older. I finished my undergraduate education with a graduation ceremony about years ago. Since graduating, I’ve moved from apartment to apartment, first with a $400 per month one-bedroom place near my college, then back to New Jersey, sharing rent with a variety of roommates. I’ve ... Continue reading this article…

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Generation X Will Depend on Family and Government for Long-Term Care

by Luke Landes

According to a recent survey of 1,004 individuals born between 1960 and 1980, roughly Generation X, many expect their family or the government to provide care or funding for care as they age. Here are some of the more interesting statistics from the study, released by America’s Health Insurance Plans (AHIP), an association of health ... Continue reading this article…

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State Farm to Pay Dividend to NJ Policyholders

by Sasha

In my mail recently, I received a colorful postcard from State Farm, the agency which insures my car, house, and several rental properties. I was “sorting” it directly into the trash when I noticed the word “dividend” peeking up at me. Dividend. That’s right, my insurance company has declared a dividend for its New Jersey ... Continue reading this article…

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Higher Health Insurance Premiums for Overweight: Discrimination?

by Luke Landes

If you are seeking your own health insurance outside of an employer plan, your weight has a lot to do with the premium you’ll pay as well as your ability to even qualify for insurance. Insurance companies find this to be logical. Overweight individuals account for a higher percentage of health-related costs than they should, ... Continue reading this article…

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Time to Shop for New Auto Insurance

by Luke Landes

Auto insurance companies are changing the way the calculate premiums, according to MSN Money. Did you know that some insurers look at your credit report to determine the risk of insuring you? Some states have declared this practice illegal, but the companies claim there is a correlation between a history of late payments and insurance ... Continue reading this article…

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Automobile Insurance Premium Increasing, But Not By Much

by Luke Landes

Earlier this week, I received my updated policy information from Liberty Mutual, the company that provides the insurance for my Honda Civic. I was expecting a significant increase thanks to a minor car accident last October. Here are some details about my coverage, which I haven’t changed since purchasing this car. * Liability, bodily injury: ... Continue reading this article…

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