Liability Insurance Is Like Mafia Protection!

What does auto liability insurance cover?

Auto liability insurance covers the damage to other vehicles and injuries to other people that result from an accident caused by the insured individual.

There are two kinds of liability coverage:

1. Bodily injury coverage

Bodily injury liability, which covers medical costs, funeral expenses, lost income and pain and suffering of people injured by you.

2. Property damage coverage

Property liability, which reimburses accident victims for the repair or replacement of belongings damaged by you. This covers both someone else’s car or property; for instance, if you hit a sign or house.

Both types of liability insurance cover you only up to your limits, and that is why it’s important to make sure you buy enough coverage for the protection you need. Use our coverage calculator to find a recommended liability coverage level.

Your insurer is obligated to defend you if you are sued following a motor vehicle accident.

Liability insurance does not cover damage to your own vehicle if you are at-fault in an accident, you need collision and comprehensive coverage to pay for those damages. Nor does liability insurance reimburse you for medical expenses if you are at-fault in an accident, your personal health insurance plan may be able to cover unreimbursed medical costs. It also does not cover claims that exceed the limits of your coverage, and it may not extend to legal defense exceeding your policy limits. Higher liability limits can help you to avoid paying out-of-pocket when damages exceed minimum limits, and an umbrella policy can offer limits of $1 million or more once your auto insurance limits are reached.

Liability car insurance coverage limits

States set their own minimum liability coverage requirements for property damage and bodily injuries. Requirements are usually expressed as a group of numbers. For example, California’s requirements are 15/30/5. This means that in California, you must purchase a policy that provides at least:

· $15,000 of bodily injury coverage per person injured in an accident caused by you.

· With a maximum of $30,000 for everyone injured in that accident.

· In addition, you must carry insurance covering at least $5,000 of property damage.

How much does auto liability insurance cost?

Depending upon where you live and what coverage limits you purchase, your annual premium for liability car insurance can vary significantly. Insurance.com acquired Quadrant premium data indicating the average annual liability premium for a driver purchasing minimum coverage limits to be $723.26 in California, versus $890.72 in New York.

You may obtain the cheapest insurance rate if you buy a minimum liability policy. However, minimum coverage levels are not recommended because it can leave you financially exposed in an at-fault accident. Increasing your limits above state minimums should give you better coverage and doesn’t cost much more – averaging approximately $5.00 per month above the cost of minimum coverage.

Penalties for driving without liability insurance

According to the latest Insurance Research Council (IRC), 29.7 million U.S. car owners do not carry legally-required auto insurance. Driving without insurance could save money in the short run, but it can result in serious penalties.

In most states, if you cause an accident, you will be forced to cover the resulting damages. This may drain your savings, and it is possible that a lien could be placed on your home and other assets. Up to 25 percent of your future wages could be garnished.

The Insurance Information Institute (III) reports that in 2014, the average auto liability claim for bodily injury was $16,640 while the average cost for property damage was $3,290. Without insurance, you’d have to cover this out-of-pocket. If you’re taken to court and lose, you could be forced to pay for your victim’s legal fees as well as your own. And you’d still have to repair or replace your own car.

If you don’t cause an accident but are pulled over and caught driving without insurance, you may face:

•   Driver’s license suspension
•   Registration suspension
•   Fines ranging from $600 to $5,000
•   Additional lapse fees due to your DMV
•   Vehicle impoundment
•   Jail time or community service
•   Points on your license
•   A requirement to carry SR-22 insurance

By driving without insurance, you’re gambling with your future.

Shopping for liability car insurance

It can be smart to review your policy once a year or so and make sure that your assets and income are fully protected. Even if you don’t need to increase or decrease your auto liability insurance, it’s useful to compare auto insurance quotes to make sure that you’re getting a good deal. Make sure the quotes you receive all include the same coverage so that you can make a valid comparison.

When you have a life-changing event during the year – such as adding a teen driver, marriage, divorce, moving, adding or removing a vehicle – it’s particularly important to comparison shop. Your current insurance company may not have the cheapest rates and you could miss out on saving hundreds, or even thousands, of dollars each year by not taking 20 minutes or more to shop around.

July 21, 2017April 26, 2020

What Is The Difference Between Term & Whole Life Insurance?

Many people want life insurance for the peace of mind it provides, but shopping for policies can get confusing. While there are more specialized types of life insurance than I could name here, the two main varieties you’ll find are term and whole life — and there are many differences between the two. Here’s what you need to know, so you can make an informed decision for you and your family.

Term life insurance can protect your family — for now
You can think of term life insurance as temporary coverage, while whole life is permanent.

Essentially, your premiums stay fixed for a set number of years (the “term”), during which time your beneficiaries will receive a lump sum of money in the event of your death. If the policy runs out and you’re still alive, you have the option to continue coverage, but the premiums can increase rapidly. Many people find that continuing a policy beyond its term can become unaffordable quickly, so don’t plan on being able to keep it forever.

Perhaps the most attractive aspect of term life insurance is the cost. Term life policies usually come with much lower premiums than whole life. I ran a quote for myself (mid-30s, non-smoker) through State Farm’s website. For a 20-year term life policy with $250,000 in coverage, my premium would be just $22.85 per month. A whole life policy would cost $261.65 per month, or more than 10 times that amount.

For this reason, term life policies are a popular option for younger individuals and families, who may not have much savings yet but want to make sure their loved ones are financially secure. In fact, 85% of the life insurance policies TIAA-CREF issues are term life.

Whole life insurance protects you forever and builds cash value
As the name implies, a whole life policy protects you for your entire life. It’s also much more expensive for a number of reasons.

For starters, whole life premiums stay the same forever — even if you’re 100 years old. Unlike a term policy’s premium that can increase dramatically after the initial term runs out, a whole life premium is guaranteed for life. The premiums may seem steep to insure a 35-year-old (and they are), but they’ll seem like a bargain for $250,000 in coverage on an 80-year-old.

Don’t forget about inflation, either. While the $261.65 premium in the previous example may sound ridiculously expensive when compared with that of a term life policy, a dollar when you’re 80 won’t be worth the same as a dollar today, so your premiums will seem cheaper as time goes on.

Plus, whole life provides a living benefit. That is, as you pay your premiums, your whole-life policy accumulates cash value. Your premiums are invested and grow and earn dividends as time goes on, and this value builds on a tax-deferred basis, similar to an IRA or 401(k). You can also borrow against your policy if you choose to do so, or you can cash out some or all of its value.

To recap, here’s a summary of the reasons you might want each type of life insurance:

Term Life Insurance	Whole life insurance
Cheaper	Builds cash value
Straightforward, easy to understand	Premiums will never increase
Just provides a death benefit; no extras	You can borrow against the policy
	Eligible to be paid dividends

An alternative to whole life
Before you decide which is best for you, consider whether you’ll need life insurance in 20 or 30 years after a term policy expires. After all, the main attraction of a term life policy is that it’s an inexpensive way of providing financial security before you have enough savings and other assets. Well, if you’re saving and investing responsibly, this may not be the case in 20 or 30 years from now.

Looking at my example once more, you’ll notice that the monthly difference in premiums between the whole and term life policies is $238.80. If I simply buy the term life option and invest the difference, it could build up quickly. Based on the S&P 500’s historical average returns, after 20 years my investment could be worth nearly $155,000. After 30 years, it could grow to $428,000. Bear in mind, this would be on top of whatever other investment accounts I have, such as a 401(k) or IRA.

The point is that if you have $428,000 or more in savings, do you really need a $250,000 life insurance policy? I tend to lean in favor of carrying a term life policy and maximizing my investments, and this is in fact what I do for myself and my own family. The goal is that by the time my term life insurance policy expires when I’m 55, the death benefit won’t be nearly as necessary as it is now.

It’s all about your peace of mind
While I completely agree with the assertion that term life insurance is sufficient for most people, it’s still important to do what makes you comfortable. If you like the idea of having a fixed premium for your entire life and the ability to borrow from or cash in your policy, there’s nothing wrong with shopping around for whole life if it’ll help you sleep more soundly at night. However, I believe those extra dollars could be put to work elsewhere.

The $16,122 Social Security bonus you could be missing
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,122 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after.

June 18, 2017April 26, 2020

The 6 Different Types of Insurance Policies That Should Be A Part Of Your Financial Plan

Earlier this year, when the hubs and I reviewed our spending from last year and set up our 2016 budget, we talked about incorporating more (and better) insurance into our financial plan.

Now, 6 months later, we’re finally putting the final touches on all 6 different types of insurance policies that we determined were necessary to protect us from every sort of situation, and I’m really proud of it.

Why?

Because often people our age (mid-twenties) neglect insurance until they’re much older, or just neglect certain types of insurance, which causes those policies to be much more expensive when they do finally incorporate them into their budget and long-term financial plan.

All told, there are 6 different types of insurance policies you should have:

Health Insurance

Health insurance is, far and away, the most important type of insurance you should have.

Everyone will need medical care at some point, and since medical debt is the largest cause of bankruptcy in the United States, I cannot stress the importance of health insurance enough. Before the Affordable Care Act, health insurance was not mandated, but for most people was available through their job, and expected in the budget.

But now, with the Affordable Care Act, health insurance is mandatory, and you will receive a fine (gradually growing larger each year) if you do not have it.

The best place to find health insurance at an affordable rate, and with the best coverage, is usually through your employer. However, not every employer is required to provide health insurance, the plan doesn’t cover much, is very expensive, or you have a special circumstance, such as you’re self or unemployed.

If this is the case, try the Government Healthcare Marketplace, or eHealthInsurance.com to compare rates, coverages, and prices.

Key Questions to Ask:

What Is The Deductible? Is is per person, per family, per year?
Are there any copays?
What is your yearly maximum out of pocket?
When does the insurance cap out?

Auto Insurance

Also mandated in your state, auto insurance protects you and other driver’s from the huge financial costs of causing/being in an accident.

After all, even if you’re a perfect driver, acts of God like deer, hail, and storms happen. You can’t control everything, and auto insurance protects you from suffering financial ruin should something go horribly wrong.

Key Questions to Ask:

How much property damage will this cover?
What portion of medical bill will this cover?
What is the deductible?
Are there any perks like free glass, accident forgiveness, etc?
Does it meet the requirements for your state’s minimum coverage?

Homeowner’s Insurance

Your home is important to you, above and beyond your car, even.

It’s where your family lives, where you brought your children home to, and where you’ve made a lot of memories, so it makes sense that you would want to protect it in case of fire, storm, floods, or other disasters.

It is also probably the most valuable asset you own.

As a result, your homeowner’s insurance is incredibly important – and probably mandated by your mortgage company – and can be quite pricey. Shop around for homeowner’s insurance, and be sure to factor this cost into your budget every month.

Key Questions to Ask:

What is the deductible?
What is the total cost to rebuild?
Have you added flood coverage (if in a flood plain)?
Will your policy cover the cost of a hotel or rental while the house is being rebuilt?
What about all the belongings inside the home? Does this policy cover them as well?

Life Insurance

Life insurance is a budget line that everyone needs, but hopefully not for some time.

In a nutshell, it protects those that depend on from having to make large life changes if you should pass away. It protects them from things like having to assume your debts without a way to pay them off, requiring your spouse to get a job outside the home (if they stay home with children), or going from 2 incomes to one.

It also ensures things that have more than a financial connotation.

For example, if you were to pass away tomorrow, would you want your family to have to move out of your home? Would you want your children to have to switch care providers or schools? And how about activities? Would you want your family to have to break away from everything they’ve ever known?

Chances are, you would want your family’s life to stay relatively constant to make the time of mourning that much easier on them.

There are several different types of life insurance, the most common of which are Whole Life Insurance and Term Life Insurance, and you’ll need to decide which is right for your family.

Whole Life Insurance does not expire at a set age, and generally has a small rate of return, like an investment account. You can also “draw” on your whole life insurance policy if you need cash for a large or unexpected expense. As a result, Whole Life Insurance coverage is more expensive than it’s counterpart, Term Life Insurance.

Term Life Insurance costs less, but expires at a certain age, depending upon your policy. It was designed as an affordable alternative to Whole Life Insurance, since the insurer is betting that you won’t pass away at a young age, therefore it is less likely they will have to pay out before the policy expires. By contrast, the policy saves you money because you’re betting that you won’t have large debts, you’ll own your home, and that your children will be out of the house by the time you pass away.

Key Questions to Ask:

Who are my beneficiaries?
Have I set up my insurance to take care of my children if both my spouse and I pass away?
What is the death benefit? Will it cover my debts and my family’s needs comfortably?
Is there a cash benefit to the policy?

Disability Insurance

Now, before you go all “not another one!” on me, hear me out, because some of your disability insurance may already be taken care of.

Many employers provide some sort of disability insurance for you, and although coverage varies from employer to employer, the standard is 60% coverage at not cost to you. Alternatively, you may be required to pay for this coverage, or have no coverage at all, it just depends upon your employer.

But, in the case of 60% coverage, what this means is that if you were to have a long-term disability, 60% of your salary would be covered by that disability insurance.

That sure is a nice perk, but for most people 60% isn’t going to cut it to keep the bills paid and food on the table, which is why you should at least consider purchasing an additional 30% salary coverage, which would bump your salary replacement level up to 90% – a lot better than 60%.

The best and first place you should look for this coverage is through your employer. Often, it can be purchase at an additional, but minimal cost. If your employer doesn’t provide disability coverage, or you need more than you can get through them, check with your insurance agent for recommendations.

Think you won’t use Disability Insurance? Think again:

A pregnancy puts you on bed rest? Use your disability insurance.
An injury/surgery unrelated to work requires some recovery time? Use your disability insurance.
Come down with an illness that requires hospitalization? Use your disability insurance.

Key Questions to Ask:

How much of my salary will this coverage replace?
What is the annual (or monthly) premium?
Will taxes be taken out of the replaced salary?
How many weeks of coverage will this policy replace?

Long-Term Care Insurance

I know, getting old isn’t something you want to think about, and believe me, I’m with you.

I mean, I just turned 25 and it kind of hit me that the first half of my 20’s was over. It wasn’t the best birthday, to say the least.

But the bright side of realizing I’m getting older is that it made the hubs and I think about our insurance, specifically insurance that will cover the costs of a nursing home, whether we use it as we age, or because of a serious injury that leaves one of us needing intensive care in a nursing home.

If you purchase it while you’re young, Long-Term Care Insurance is insanely cheap. Yes, you’re paying for the cost over the course of many years, but with the rising costs of senior care and the likely hood that you will live longer than ever, this coverage is super important.

Key Questions to Ask:

What is the maximum payout for the policy?
Does the policy adjust for inflation?
Does it expire at a certain age?
How much will it pay out per day?
What is the qualification to start coverage?

One Last Option

While this last point isn’t one that I would recommend to everyone, but since this is a personal finance blog, it does have a place here.

Rather than opting to purchase 6 policies with different premiums and coverages, you also have the option to self-insure in a few instances.

Health Insurance and Auto Insurance are mandated by laws, so you will have to purchase those policies, but the others are somewhat negotiable.

Just be warned, the costs to self-insure can total in the millions, and a mistake could cost you and your family more than just money.

Homeowner’s Insurance

It’s very important to be protected in case of a tragedy, but if your mortgage is paid off, you’re not required to carry homeowner’s insurance. Cancelling the policy will certainly save you money, but where will that leave you if your home is destroyed?

Homeless, that’s where.

Rather keeping a policy, if you’ve saved above and beyond the requirements of retirement, you could self insurance. Basically this means that you have enough money in the bank to cover the cost of rebuilding, replacing everything inside, and paying for a place to live during the rebuild – that is not already slotted for a specific purpose such as retirement.

Life Insurance

Self-Insuring is also an option for life insurance, especially if you have very little debt, own your home, and have significant savings not required for retirement.

I don’t recommend this, not because of the massive amount of money you would have to save, but simply because landing on your perfect number to self-insure with is so hard.

You have to ask yourself questions like “What does it cost my family to live for 1 year, comfortably?” and “For how many years do I want them to live off the insurance money?”

It’s a very hard number to come by, so proceed with caution.

Disability & Long-Term Care Insurance

You can also skip the Disability and Long-Term Care Insurance if you’ve saved aggressively, and this number is even harder to come by than the Life Insurance amount.

Insurance isn’t the most fun item in your budget, that’s for sure.

But it’s absolutely necessary.

And, although you may never need it, planning your finances requires thinking through every possible contingency, even those that aren’t entirely pleasant.