We offer life insurance (term and whole annuities) and business insurance through C.A. Future North America, Inc. (CAFNA), Maine license AGR45598. An insurance professional is one who follows the law and will help you decide what kind of coverage you need and what you can afford.
It is always advisable to investigate an insurance representative before you meet him or her. Call the Maine Bureau of Insurance (or whatever is appropriate in your state, province, etc.) for any complaint history of actions taken against an insurance representative. Note that not all complaints are valid and some states report all complaints, valid or not. Consumers are not always correct. There are so many types of policies available and so many companies available that it is not possible for any one individual to know realistically half of what is available and because of this fact this area is limited to terminology.
Proper insurance always demands proper knowledge. While you need to understand some basic terms so as not to be misled, you also need to have a professional’s advice. Insurance is no more expensive with an agent than without. Any agent with good contracts can match and even beat most of the so-called “direct sellers” that you see on television or in print. One key thing to remember is that every household and individual has different needs. There is not a “one size fits all” formula to determine what is the correct amount of insurance for you. A proper insurance analysis involves dozens of questions and lots of financial, tax, and life-goal information to be disclosed in order to determine what’s best for you and your family.
Term Life Insurance
Be sure you understand the difference between term life insurance and whole life insurance. If you understand them, you’ll be able to make more informed choices. If you don’t, you might well be throwing bags of money away for nothing. Term insurance means that for any insurance benefit to be paid out, you must die during the term of coverage. If you buy a five-year term policy and die in five years and one day, your beneficiaries receive nothing. Term insurance is only appropriate when the need for coverage is determinable as to the length of time and the amount of money needed, and when the financial risks involved are unabsorbable or if the insured is unwilling to assume the financial risk. Term insurance is also useful as a temporary coverage if you are currently not able to afford permanent coverage. Term insurance is generally affordable at the young ages and becomes prohibitively expensive as you age.
The flavors of term policies are:
Decreasing term: Value decreases each period, on specified dates or occurrences or at the insured’s request.
Increasing term: Value increases each period, on specified dates or occurrences or at the insured’s request.
Straight term: Value does not change.
Whole Life Insurance
Whole life insurance does necessarily mean that you have to pay premiums for your whole life. It means that you have coverage for your whole life. Simply put, if you fulfill your financial obligation to the insurer, the insurer guarantees that your beneficiary will be paid. Because so many different types of life insurance are labeled as whole life, you need to carefully read the policy that you buy. With policies that have been sold as “guaranteed paid-up” after so many years, you need to check the policy contract. Look for the guaranteed life value or some similarly named column. This column generally has a much lower value than shown to you during the sale. This is because the interest rate that is than the current rate being paid or the illustration rate used. You may have to make payments for longer than you think.
“Buy Term—Invest the Difference!”
You might have heard the common “wisdom” to “buy term life insurance, and invest the difference,” but please remember this: It is the wrong—absolutely wrong—approach to life insurance. Insurance should always be purchased for one reason only: to insure you.
Insurance should never be an investment vehicle. You buy life insurance because you have family obligations that must be met. If you die prematurely, you want to leave an asset to pay your debts and support your family. If those obligations have been met, you might use it as your retirement (bad idea) or for estate issues. No one buys life insurance expecting to die before his children are grown, his spouse can be self-sufficient, or his debts are paid off.
Based upon a 45-year-old male preferred risk, I have run the number guaranteed term and yearly renewable term to an investment using both 9% and 15% yearly return. The insurance policy had a 7% rate of return. (These are numbers often cited by advocates of “buy term—invest the difference.”) Because life insurance cash build-ups are tax-free, I allowed for tax-free build up of the investment. It will take 9 years at 15% and 31 years at 9% for the investment fund to equal the value of the insurance benefits. It is at this breakeven point that advocates say you no longer need the insurance and thus start to save money. Term policies out to 10 years are reasonable, but beyond 20 you’re better off with whole life. Factor in that we all hope to be better off in 20 years, that life insurance might be needed for estate issues, and your health is never going to get better—and common sense will tell you that you need whole life.
If you have a group policy from your bank, credit union, or association, check out the policy carefully—not only for rates but coverage. Many sponsored “group” policies have rates that are no better than you can get on your own. In addition, most of these policies are only accidental term policies; your chances of ever collecting are extremely remote. Remember, insurance means to insure. If you are not covered from any cause, you are not insuring the interest that you’re trying to protect.
Whole life insurance is sold under dozens of names and many have a so-called investment element to them, variable life being the most common. Anyone who purchases insurance for the investment aspect is wasting money. The fees, mortality charges, and commissions are ridiculous. With these policies, you are basically agreeing to guarantee that the insurance company is going to make a certain amount of money for managing yours. You assume the risk. The sole purpose of insurance is to protect you from a financial risk from which you want protection. While some insureds and some companies have done very well, things do not generally go bad until the insured (you) are into your 70s and it is too late correct the error.
Here are two good examples from my personal experience, both women in their 70s:
Case History #1: Individual was told that her $300,000 policy would be fully paid in seven years at her premium rate. Ten years into the policy, the “investments” soured and she then needed to pay over $32,000 a year to keep the insurance after already paying in $190,000.
Case History #2: Individual took a pension from the policy. Due to the asset, she had to pay for her husband’s nursing home. Because the value of the policy became zero as she drew down the money, Internal Revenue Code requires taxes to be paid on the difference between the insurance premiums and what she collected during life—even though the funds were withdrawn as “loans.” She sold the family house to pay close to $30,000 in taxes due.
Key point: Buy insurance for protection—no other reason, period. Insurance is never an investment.
Disability
Choose the right insurance for your various needs.Disability insurance is designed to preserve your income. The rates vary wildly depending upon your age and occupation. The best policies cover your occupation, pay partial benefits if you can work in a lower pay occupation, pay for at least five years (age 65 is best), have an elimination period of no more 30 days, pay even if a worker’s compensation or other insurance claim is available, is non-cancelable and guaranteed renewable, covers accident and illness, and keeps pace with inflation. Unfortunately, the cost could run as much as 15% of your income, so the only advice that I can give is that you should buy what you can or be prepared to depend upon the state.
If you have an insurance plan at work, ask your benefits person to find out if the coverage is convertible to permanent insurance, with or without evidence of insurability, and what the restrictions are. If you ever become unemployed, you may find yourself uninsurable and without any coverage.
Health Insurance
Health insurance is designed to assist in the coverage of medical needs, primarily the coverages available are broken down into three different setups. They are:
The Blues. Blue Cross pays the hospital costs and Blue Shield pays the physician’s fees. The Blues contract with hospitals and doctors and agree to set rates and fees. They will pay up to those agreed costs and you are responsible for the difference.
Health Maintenance Organizations basically have the same arrangement as the Blues but consider your premiums as prepaid medical expenses versus premium payments.
Private insurance is a contract between you and the insurer. Once your obligations have been met, the insurer takes over. For more specific information, you need to talk to a professional. (Most association health insurance I have seen is not worth the paper on which it is written. Always get a complaint and claims history from your state insurance commissioner as well as a buyer’s guide before buying any insurance.)
Health insurance has two deductibles and can be written in many ways. But all function the same way; just the dollars vary. All policies will have a deductible in which the company pays $0.00 and then co-insurance up to a max in which both the insured and insurer pay.
Example: Joe has health insurance that covers doctors and hospitals only. The policy has a $2 million lifetime benefit, with a $5,000 deductible and then co-insurance at 20/80 for the next $20,000. This means that until Joe has spent $5,000 for doctors and hospital fees (labs usually count), the insurer pays zero. For every dollar over $5,000 but less than $20,000, Joe pays 20% of the bill and the insurer pays 80%. After total bills for the year reach $25,000, the insurer will pay all bills up to the $2 million lifetime limit. There are a lot of variations on this and not all bills are covered items. You must read your policy carefully and ask questions. Ninety percent of complaints are because people do not understand what they bought.
HMOs, being “pre-paid” health expense, generally have flat-rate deductibles based upon some combination of per-visit or per-procedure fees. Again, read and ask; most complaints are due to a lack of customer knowledge of what is covered.
The Health Care “Crisis” in the United States
Know your insurance options! Don’t be uneducated, and don’t give in to an insurance agent who’s more interested in a commission than in providing you and your family with what you need.With so much in the news about the health care “crisis,” you should know that for the most part this is the fault of government. Health insurance is expensive because insurance companies are required to be economically viable in order to be insurance companies. This is a good thing; however, contrary to popular opinion, health insurers’ profit margins are only between 3% and 5%. Government-sponsored plans are not the answer, as is proven by the fact that there is not a single nation whose government-sponsored health plan is working. Any time people receive something they perceive as free, they overuse it.
There is a solution, and it is simple, but until the people demand it over the hospitals’ and lawyers’ objections, the cost of health care will be unattainable for many. Hospital services must be allowed to be free-market industries. Most states not only limit the number of hospitals but what those hospitals’ services are. Our society believes all other industries should be deregulated; why not hospitals? Next, no person is monetarily worth more than his earning capacity. Liability needs to be limited to the lifetime earning capacity of the injured person unless it can be shown that some part of the medical establishment (all personnel and facilities) where services were rendered were negligent. Before you start arguing against this, would you cut your own leg off for $100 million? Either way, does it make any sense if you did?
As for the cost of drugs, they are a bargain and save billions of dollars for consumers each year as well as add both life and quality of life for us all. They may be cheaper in some countries, but again those countries do not allow for the legal actions taken in the USA, nor do they require the companies to put aside money for these possible law suits. (In some countries, the drug companies sell so low they do not come close to covering cost, but through their actions they save not just lives but us tax dollars as we are not paying out foreign aid to save lives.) No one who is truly needy has to decide between their medication and food. Most states have a low cost drug program and all drug manufacturers have programs in place to provide their drugs to the poor. People only need to ask and show financial inability to pay; so, adding a prescription drug benefit to Medicare for those poor seniors is going to do nothing but bankrupt an already underfunded, overstretched system.
Long-Term Care
Of all insurances, this is the most important. The cost, if purchased young, is small if planned correctly, fully tax-deductible, and not taxable if used. With basic nursing homes costing $185 per day (and $300 not uncommon), the government is paying less and less, and ever-changing government rules on what assets can seized even if they were transferred to someone else, not having this is a foolhardy.
Coverage is sold in per day units from $50 up to $500 in one-, three-, five-, and 10-year, and lifetime, benefits. Currently, most people do not need more than three years as they are either dead before then or, with proper planning, their assets are out of reach by then. Some companies also offer an at home coverage, which pays 50% per day of the daily amount. Shop around carefully; get in touch with a National Association of Insurance Commissioners buyer’s guild and ask lots of questions. This field is getting crowded with different types of policies, companies and agents. Even within companies policies are changing rapidly as companies learn how much they are paying out.
One key fact to remember is that no policy guarantees the premium you will pay is fixed unless you purchase a single pay premium policy. If you are told otherwise, you have been lied to.
Home Owners and Auto Policies
These are two expenses that most people either do not shop for or truly understand. The best advice is to shop around every three to four years for identical coverage with different agents. You need advice. Note that the difference in liability insurance from the minimums to several hundred thousand dollars is generally negligible as the true cost is in the base policy.
Example: All factors being equal, a driver may receive quotes from $600 to $3,500 for auto coverage. Going coverage of 10/50 to 100/300 costs $20 per year. Don’t understand those terms? That is why you need a professional.
Insurance Agent or Broker
State laws define that an agent is an agent of the company he represents, not an agent of you. A broker is your agent and is supposed to find the best deal. In practice, however, it depends on how many companies the agent or broker represents. An agent or broker may work with one or multiple insurance companies. Because both agents and brokers can only sell for companies with which they have contracts, they will generally only check their companies’ prices. It always pays to shop around for both quality and price. Because of the confusion between the terms, agent and broker, many states now issue a producer license instead. The fact remains each producer can only offer you insurance from companies they do business with, thus when you shop around make sure that each producer you talk with has different insurance companies than the other producer.