Financial ABCs For College Graduates – Part III – Insurance

Your course in financial basics is almost over. The financial ABCs course so far has covered banking and credit cards (Part I) and housing and taxes (Part II). Now we turn to ABC instructions on obtaining the best deals on insurance. Let the tutorial begin.

Life Insurance

Life insurance planning:

–Term Life insurance is cheaper than whole life insurance. Term insurance pays if you die before the policy expires. If you outlive the term of the policy, you and your family lose. But, the younger you are, and the healthier you are, the better your policy price. So you should buy term life insurance at a younger age for a long term to make it pay. Make sure the rate you have for a term life insurance policy is set for the entire length of the term.

Note: Whole life insurance, also known as permanent or cash value insurance, also has a time limit. If you die before the policy expires, it will pay a life insurance benefit, but if you outlive this policy, you get to collect what you have accrued in monies from your premiums, so you can get back some of that premium money, maybe more. However, many say you should have a whole life policy for at least 15 years to make it pay.

–Only buy the amount of life insurance benefit that you need. If you are young and have no dependents, you have no need for a large life insurance which is large in order to provide an income for your family. If you have no dependents and a pre-paid mortuary trust, you may not need life insurance at all or only a small benefit to take care of burial expenses if you have no pre-paid trust.

–If you happen to have young children, it is estimated you will need 7 times your annual income as a death benefit.

–Don’t lie about your health. If you are a smoker and tell the insurer you are a non-smoker, they can deny your death benefit if you should happen to die of a smoking-related cause of death.

-Don’t depend on a life insurance policy you get through your employer. It can be a good supplemental benefit for you, but if you should lose your job, there is no federal law that allows you to keep that policy.

–Buy directly though a company rather than go through an agent to save some money, or look for low-load policies which sell for little to no commission for an agent.

–Pay your policy premiums annually or semi-annually. If you have a monthly payment, and if it is automatically deducted from your bank account, the insurance company will charge you a handling fee.

–Don’t buy special life insurance for specific risks, like flight insurance, if you have a life insurance policy that covers you already. It’s costly and a needless duplication.

–Look for group life insurance plans such as those you can get through your alumni association.

–Save money by buying one large policy, say for $200,000, rather than two or three smaller policies for $50,000.

–Avoid riders. An accidental death or double indemnity life insurance is not worth the extra cost because the chances of predicting your exact death are slim. Other riders to avoid are the waiver of premium rider and the spousal or dependent rider.

–More is less. A $250,000 policy will cost less than a $240,000 policy. Multiples of $250,000 work better for pricing of policies.

–Check when the mortality tables come out with new estimates. The last was in 2003 and showed longer life expectancy, which lowers life insurance policy rates.

Health Insurance

Health insurance planning:

It is important to have good and adequate health care, but in this economy it is also important to know how to save your pennies when it comes to health care insurance coverage. If you exercise, stay in an average weight range, don’t smoke, don’t drink to excess, take any medications properly, and have regular health check ups all in pursuit of a healthy lifestyle, you will eliminate many health care costs. For example, some insurance plans are now charging up to $100 extra on the premiums of smokers!

Here are tips to get less expensive health care coverage: –Private health insurance rates are less expensive than group insurance rates, but your employers will offer group insurance. Most employers contribute to the premium cost, and that can save you in the long run, but, if you are young and healthy, it may be possible for you to find an insurance plan with comparable coverage for less money than what you will pay through your employer. Some employers will reimburse you for the difference, even the full benefit, in cash. If you have family members who have to be covered, you should also shop to compare if what you pay on top of your employer’s contribution for the extra it costs to cover your family is less or more than what you would pay for private insurance coverage of your family.

–Employers usually offer their employees two insurance plans, one with broader coverage for higher premiums and one with less coverage for less costly premiums. If you have to pay a percentage of your insurance premium costs, beyond what your employer contributes, you should evaluate the plan you take year-by-year as your circumstances change. Some years you will have children to immunize or to take to the orthodontist, and other years you will have maternity costs, which will dictate the higher insurance costs. But, look at your circumstances every year, and don’t buy more insurance than you need.

–Consider what the higher premiums offer you. Broader coverage, for instance will usually allow you physician choice, but if the physician(s) you use is in the lower rated insurance’s network, why pay for the broader coverage?

–Evaluate whether or not you should have higher deductibles and co-payments. With higher deductibles, you will pay less for your insurance, but more out of pocket. However, your out-of-pocket expenses will only be for times you use coverage, not over the course of your insurance policy, using coverage or not. If you have no maternity expenses or other expenses on the horizon and are fairly healthy, why not pay as you go and less for yearly insurance coverage?

–Open a health savings account, an account in which you and your employer can set aside monies for each year. This money can be used for deductible payments, co-pays, and other costs not covered by your health insurance, and you will not pay tax on these dollars. The rub is if you put in more money than you will use in a year, you forfeit the balance-so you have to do some careful pre-estimating.

–Ask employers and private insurers if they can offer you a lower rate on health care premiums as incentives for exercising, having a good weight, not smoking, etc.