Friday, 11 July 2014
Dyman Associates Insurance Group of Companies - In Part 2 of a three-part interview, T. Rowe Price's Christine Fahlund discusses getting the most out of Social Security benefits as well as longevity and long-term care insurance.
Christine Fahlund, senior financial planner for T. Rowe Price Group (TROW), retired in May after 18 years with the firm. Before her departure, Morningstar's Christine Benz sat down with her to get her wisdom on creating a successful retirement plan.
In Part 1 of the three-part interview, Fahlund discussed how to assess whether you've saved enough to retire as well as the benefits and pitfalls of working longer. In this section, she addresses lifetime income sources, including Social Security and longevity insurance.
Christine Benz: You think Social Security planning is a very important aspect of retirement planning. Can you outline some of the things that people should be thinking about as they look to maximize their Social Security benefits?
Christine Fahlund: We believe that there are a variety of ways to enhance the amount you receive from Social Security. The preponderance of Americans are still taking it at 62. We want them to stop for a minute and educate themselves, talk to a financial planner, and come up with at least one strategy for them to consider other than, "We're just going to take it at as soon as possible."
For married couples, the way to maximize benefits is for both spouses to work until age 70, or at least to full retirement age for one of you and 70 for the other. The higher breadwinner should always be waiting until 70. The reason to wait until 70 is that benefit is the amount that the surviving spouse, whether it's the husband or the wife, is going to receive from Social Security once the first spouse dies. So, you definitely want to maximize that because in most cases we don't know who it's going to be or when it's going to be.
The frosting on the cake is in addition to waiting until 70, one of you could file and suspend your payments until 70, which would enable the other spouse to file and restrict his or her application to spousal benefits. So, depending upon the age difference between the two, many times, one of the spouses could receive four years' worth, from age 66 all the way to 70, of spousal benefits, and that might end up being, for example, $1,000 a month for four years. That's $48,000.
Now, it may not be quite possible to wait until age 70. It may be that 68 turns out to be the number, but you're going in the right direction. For us personally, some people would say, "I don't know why you and your husband both waited until 70." Some of that is an emotional decision, too. In our particular case, I felt that it would be ideal for us to get the largest checks possible from Social Security while the two of us are enjoying our retirement together.
Tuesday, 8 July 2014
If a tree falls in your yard, your insurance agent might not hear it.
You probably bought your home policy years ago, then stuffed it in a file somewhere. Will it be there for you when you need it?
Here's how to protect yourself:
1. You'll probably have to fight to get a big claim paid. Homeowners who suffer a loss of $30,000 or more get the most pushback from their insurers over damages, coverage and slow payouts, ShopSmart's recent survey data shows. But the coverage of huge losses is exactly why you buy home insurance.
Protect yourself. You can cut your odds of a fight by doing business with an insurer that pays its claims. The best carriers for claim-payment satisfaction are Amica, Auto-Owners and USAA, according to the most recent Consumer Reports National Research Center survey of 9,905 subscribers who filed homeowner claims from 2010 through the first six months of 2013.
2. The first offer may not be your best offer. Consider your insurance adjuster's first offer just an opening gambit.
Protect yourself. If you have a dispute over damages, make the adjuster go over the estimate, line by line, with you and your contractor. Get a second opinion from an independent contractor or multiple estimates, if necessary.
3. Your trees can bankrupt you. Linda Paustian of La Porte discovered that after a violent thunderstorm dropped about 40 hard maple and red oak trees on her home and property in June 2010. State Farm paid $6,000 to remove the trees that struck Paustian's 1895 Arts and Crafts bungalow, but nothing of an additional $6,000 that was needed for tree and debris removal and stump grinding.
Protect yourself. Understand that a standard policy covers trees that fall on insured structures but generally not those that land in your yard.
4. Your bank might hold up your check. “Every check sent to us had to be forwarded to the mortgage company so they, in turn, could write another check to us so we could pay the contractor,” says Thomas Sloan, who suffered $33,000 in damages when the remnants of Superstorm Sandy blew a neighbor's oak tree onto his West Virginia home in October 2012.
Protect yourself. If you have a mortgage, expect a settlement check made out to you and your mortgage company. Find out how to get it promptly endorsed and deposited to your or the lender's escrow account.
5. You may end up with a lot of damage from a little water. James Peter told ShopSmart that his California home had $48,000 of damage thanks to a leaking valve in his refrigerator icemaker that wasn't discovered for months.
Protect yourself. Check for leaks in bathrooms, kitchens and basements, and on the roof. Periodically inspect behind appliances. Get add-on insurance coverage for sewer backups and flood insurance for water threats from outdoors.
6. You may need lots of cash to pay for repairs. Settlements aren't always paid quickly or in full, so you'll need cash flow.
Protect yourself. Keep credit card balances low or pay them off in full each month so you have ready credit after a big loss. Build an emergency savings fund.
7. Your trusty insurer may dump you. State Farm lived up to all of its promises to James Lipsett and his husband, Paul LaRiviere, on their $35,000 water damage claim on their Morro Bay, Calif., home. But less than a year later, the “good neighbor” people sent a notice of nonrenewal because of the claim. State Farm declined to comment.
8. Your most valuable valuables may not be covered. If that diamond ring goes missing, you're out of luck with a standard home insurance policy. Same goes for expensive furs, silverware or artwork.
Protect yourself. You'll have to pay extra for a special endorsement or floater to cover the full value of pricey possessions.
Sunday, 6 July 2014
Few personal milestones compel someone to buy life insurance coverage like becoming a parent.
In the event of an untimely death, life insurance can serve as a financial safety net to ensure there’s money available to pay for everything from medical bills to a home mortgage and future college education costs.
Many Americans have taken steps to line up such a financial cushion.
At the end of 2012, 146.2 million individual life insurance policies were in effect, with coverage totaling $11.2 trillion, according to the American Council of Life Insurers.
Yet the distribution model has changed during the past few decades, and fewer Americans are relying on local financial advisers in their community to look at their overall financial situation and recommend a life insurance strategy, said Brian Bulakites, national sales manager for life insurance for Henrico County-based insurance company Genworth Financial Inc.
The Internet has enabled consumers to shop more widely for insurance, but it might also cost them the face-to-face advice that can be helpful, he said.
“The biggest thing we see in our industry today is that people don’t have advisers,” he said. “You want to find an adviser that you can build a relationship with — somebody that you can trust.”
Here are five tips for those looking to buy life insurance:
Learn insurance options
The overarching goal for new parents in buying life insurance is to provide financial security in case of the death of one or both parents.
“The first reason is for income replacement if one of the wage earners dies prematurely,” said E.G. Miller, an associate professor and executive director of the Risk and Insurance Studies Center at Virginia Commonwealth University. “That means you need to determine how much income needs to be replaced.”
“In doing that, you would also factor in that there are some survivorship benefits for children and spouses in Social Security, even for people that are relatively young,” he said. “That is a base to build on, but it is not going to replace someone’s income entirely.”
However, life insurance policies can vary widely and provide financial benefits besides a death benefit.
“There are flexible products these days,” said Bulakites, such as indexed universal life insurance, which enables the policyholder not only to have a death benefit but also to accumulate cash for use as a supplement to retirement income, to finance a child’s education or for long-term care needs.
Life insurance policies generally fall under two categories: Term insurance and permanent insurance, which is often referred to as whole life or universal insurance.
With term insurance you pay a premium for a set period, commonly 10 or 20 years, and your policy entitles you to a specific amount of money. Unless the policyholder dies, triggering a payout, any premiums paid are lost once the policy term ends.
In contrast, whole life insurance policies cover insured individuals as long as they live. These policies also function as savings vehicles. A portion of the premiums paid for the policy are invested to provide a pool of money the policyholder can access, tax free, while he or she is still alive.
Such policies are generally more expensive than term life insurance, however.
Andrew Porter, a certified public accountant in California, advises clients who are new parents to avoid whole life insurance.
“The cheapest form of insurance, generally speaking, for healthy, young adults is term (policies),” Porter said.
However, Bulakites said he would not necessarily steer younger people away from permanent insurance and toward term. For some, permanent insurance might make more sense if their budget can absorb it.
Set coverage priorities
Generally, an insurance agent will help you determine an appropriate coverage amount for the policy by examining some of the key costs your family will have in years to come, such as the cost of child care, education and the mortgage.
In determining how much to pay for life insurance and the benefit, “you have to take into consideration what your other goals are,” Bulakites said. For example, “do you have an education fund for your kids?”
Another approach is to figure out how much income you’re expected to earn over your lifetime.
Although it might be tempting to think of life insurance in terms of a dollar amount, it makes more financial sense to tie that amount to a goal, such as paying off a mortgage or college tuition, Porter said.
“If you’re going to buy insurance, you want to have a specific use for each policy,” he said. Otherwise, “it opens the way for insurance agents to oversell insurance that you may or may not need.”
Life Happens, a nonprofit organization financed by insurance and financial companies, has an online worksheet to estimate your insurance needs before you meet with an agent: www.lifehappens.org/insurance-overview/life-insurance/calculate-your-needs.
Buy a policy early
The cost of life insurance doesn’t hinge on your credit rating, savings or assets. It’s determined by your age and the results of a medical evaluation that’s required every time you seek coverage.
If you’re a couple in your 20s and healthy, you’ll pay less than when you are in your 30s and 40s.
“If you can qualify now, it’s better to do it, versus waiting and something could change in your medical situation and you may end up not qualifying,” said Craig DeSanto, head of life insurance and long-term care at New York Life. “And the younger you buy, the cheaper it is.”
A 20-year-old man who is healthy and doesn’t smoke could be charged, on average, $32.53 a month for $500,000 in coverage on a 20-year term life insurance policy, according to an estimate by insurance quote portal TrustedChoice.com.
By comparison, a 50-year-old with the same health characteristics would be charged $111.38 per month for the same coverage.
Insure both parents
It’s common for both parents to work and contribute to household expenses and the costs of caring for their children.
That’s one reason experts recommend both spouses have life insurance, particularly if they both pitch in to pay the mortgage.
But even in cases in which one parent quits work to care for a young child, that parent should be insured.
“There is (a) common misconception that a spouse who is not working does not need as much coverage as their working spouse,” Bulakites said. “I would propose that they need the same amount of coverage and maybe even more.”
Bulakites said his wife maintained her life insurance when she decided to stay at home with their children.
“I travel a lot for my job,” he said. “If something happened to my wife, who would be home with the kids? If I don’t have an occupation that allows me to do that … I would need to hire someone.”