Insurance Types

LIFE INSURANCE

There are several uses for life insurance. The primary use is to provide for your family in the event of your death. There are also techniques to help pay for expenses that arise in the event of death, such as burial costs, estate administration costs, and transfer taxes. Below is a short description of the various types of life insurance. Should you feel that your strategic plan might include life insurance, we strongly recommend that you locate a reputable life insurance agent, and investigate these policies further.

Term Policy

You purchase a policy for a set amount of insurance for a number of years. If you pass away during the term, your designated beneficiary gets paid the face amount of the policy. There is no investment feature to this type of policy.

Whole Life

You purchase a policy for a set amount of insurance for your lifetime. Premiums remain constant throughout the life of the policy, and the insurance company invests a portion of the premiums.

Universal Life

You choose an amount in excess of a minimum premium you pay each year. This extra amount is invested and the money goes into a separate account, which you can use against future premiums or allow to build in value.

Variable Life

This is similar to Universal Life, but you get to decide where you invest the excess funds.

HEALTH INSURANCE

Health insurance is primarily for your benefit during your lifetime. It preserves your assets in the event of a catastrophic illness for you and your family. If you do not have proper health insurance, a catastrophic illness can wipe out your life's savings. Such situations have been one of the largest causes of bankruptcies.

Fee for Service Plans

This type of plan generally offers the most choices of doctors and hospitals. You make monthly premiums to the insurance company who, in turn, pay fees for the health care services provided. The insurance company only pays for part of the health care costs.
There is usually an annual deductible that you must pay each year before the insurance company begins to pay for a portion of the health care expenses.

Health Maintenance Organizations

Health Maintenance Organizations ("HMOs") are basically prepaid health plans. You make monthly premium payments, and the HMO provides health care to you and your family. Generally, your choice of doctors and hospitals is limited to those who have agreed to be part of the HMO program. There are typically exceptions when an emergency is involved. There are usually co-pay obligations when you visit a doctor or hospital.

Point-of-Service Plans

This is an option under an HMO, where your primary physician may refer you to another service provider within or without the HMO. If the doctor refers you outside of the HMO, the plan will usually pay for most or all of the health care services. You can elect to use a health care provider outside of the HMO, but you will typically have to pay coinsurance.

Preferred Provider Organizations

This is a combination of the fee for service plan and an HMO. When you use a health care provider that is part of the HMO, most of your bills are covered. When you use a health care provider outside of the HMO, your share of the costs is typically greater than when you stay within the HMO network.

Medicare Supplement and Advantage Plans

Should you be eligible for Medicare, you should investigate getting a supplemental plan or an advantage plan to help with your healthcare expenses.

DENTAL AND VISION INSURANCE

Dental and eye insurance are similar to health insurance, and help you pay for dental and eye care services.

LONG TERM CARE INSURANCE

Long term care insurance should be considered by anyone 45 years old or older. Some folks confuse this kind of insurance with health care insurance. Health insurance coverage will not typically cover the services that a long term care plan will cover. Long term care policies are designed to cover nursing care in the event you need them on a regular basis.

DISABILITY INSURANCE

Disability insurance replaces the income you lose if you are sick or injured and can't work, and should be considered by everyone who is still working.

LIABILITY INSURANCE

General liability insurance usually covers bodily injury and property damages caused by an accident. Liability coverage is generally part of your homeowner's policy, your automobile policy and your general business policy. It is very important to have proper liability insurance in an amount sufficient to cover any likely claim from the activities you are engaged in.

AUTOMOBILE INSURANCE AND CARS

Cars are considered a dangerous instrumentality under the law, which means that the owner is liable for any damages caused by the car. So if you lend someone else your car, and they cause damage with the car, you are liable for the damages even though you were not driving the car. Proper insurance is the best protection when it comes to cars. You should have proper insurance coverage, and should seriously consider having an umbrella policy to increase your liability limits. This typically costs a couple of hundred dollars extra a year. Please check with your auto insurance provider.
As a general matter you should own the car that you normally drive on a daily basis. You should not allow others to drive this car. Sticking with this strategy will help limit any potential liability claims to you as the driver and owner of the car. This is especially important should you decide to own other property with your spouse as tenants by the entirety.

Children should own and insure their own cars. You always need to employ good common sense when it comes to children. Do not allow them to drive if they are a menace on the road. You have a responsibility to protect others in society from your children. This is especially true if you are on notice (that you have discovered) that your child is a menace. If they are, do something about it. It is your responsibility. However, you may not be on notice of any problems with your child's driving, and you should nonetheless protect yourself financially for a youthful mistake. Assuming your child's driving is fine, you should make sure they own their car (in the child's own name), and that the car is properly insured. The child should have their own insurance policy covering the ownership and operation of the car. This same analogy is true for boats and other dangerous items such as 4 wheelers and motorcycles.

UMBRELLA/EXCESS LIABILITY

Umbrella or excess liability insurance is where you purchase additional insurance coverage over normal policy limits. For example, most cars are insurance for up to $100,000 per person/$300,000 in the aggregate. You can increase the $300,000 to $1 or $2 million by purchasing an umbrella policy. This is often the simplest and easiest way to handle most liability risks.

BUSINESS/PROFESSIONAL LIABILITY

Should you be engaged in a business or profession, you should make sure that you maintain proper liability insurance for your business or profession. Mistakes happen to all of us, and having a proper amount of insurance will ensure that you do not do more damage to your clients or customers by not being properly insured.