10 Insurance Tips No One Else Will Tell You
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Spilling the Insurance Beans
Whether he is spilling the beans that your insurance agent does not have to act in your best interest or explaining why the type of life insurance policy you buy may be as important as determining the amount you need, personal finance expert
Daniel R. Solin shoots straight and tells you what you probably won't hear elsewhere.
Click through our gallery to see his 10 insurance tips no one else will tell you.
First Up: Insurance Tip No. 1 -
Insurance Tip No. 1:
Your agent does not have to act in your best interest.
Dan Explains: The issue is whether or not your agent has a "fiduciary" obligation to you. If so, he accepts the highest duty of loyalty and care. He cannot have any interests that conflict with yours. In most states, however, insurance agents are not fiduciaries. They have no obligation to place your interests above their own or above those of the insurance companies they represent.
· Here's How to Flush Out This Issue
Next: Insurance Tip No. 2 -
Insurance Tip No. 2:
You may not need long term care insurance.
Dan Explains: Don't get me wrong. Many people do need long-term care insurance. But before you grab the phone to call your insurance agent, consider whether you really need this insurance. It provides assistance with daily tasks for those who need some help in order to remain independent. The primary benefit of long-term care is that it may permit you to receive care in your home, so be sure your policy covers home care and not just nursing home care.
· You May Also Be Covered by ...
Next: Insurance Tip No. 3 -
Insurance Tip No. 3:
The type of policy you buy may be as important as determining the amount of coverage you need.
Dan Explains: The focus of the insurance industry has been to persuade people that they need to purchase more life insurance. An even more critical issue may relate to the kind of policy you buy. Your need for life insurance generally decreases with age. This is significant because term insurance is relatively inexpensive when you are young. Permanent life insurance has much higher premiums because it contains a significant savings element. What's the Bottom Line?
Next: Insurance Tip No. 4 -
Insurance Tip No. 4:
Blending term and whole life coverage into one policy is the secret your agent doesn't want you to know.
Dan Explains: A blended policy combines term and whole life coverage into a single policy. Over time, the term portion of the policy is replaced with whole life. The bottom line is that a blended policy can result in lower premiums, higher cash values and higher death benefits because of lower sales costs. The bad news is that your agent probably won't tell you about it because it may clobber her commissions.
· Why 'Blended' Is Not Right for Everyone
Next: Insurance Tip No. 5 -
Insurance Tip No. 5:
Insurance for singles and children can be a smart buy.
Dan Explains: I know it sounds counter-intuitive. Children don't earn income and singles typically have no dependents. Since the primary purpose of life insurance is to replace lost income, why would you insure the lives of children or singles? Insurance on the lives of children is not generally necessary. But there are circumstances where it might be a good idea. First, insurance at a young age is very inexpensive.
· Second ...
Next: Insurance Tip No. 6 -
Insurance Tip No. 6:
Choosing the right health care plan is a critical decision.
Dan Explains: You have many options for selecting health insurance. The one you pick may be your most important financial decision. If you are covered at work, you may be able to select from various options. Check out the coverages and costs carefully. My advice generally is to focus on big ticket items. It may not be worth the additional premium to cover smaller costs.
· If You Need Individual Insurance ...
Next: Insurance Tip No. 7 -
Insurance Tip No. 7:
Your auto insurance should cover replacement with original parts.
Dan Explains: Your insurance should cover the cost of repairing your car with original equipment manufacturer (OEM) parts. Most insurance permits the use of aftermarket parts. Why should you care? There is much debate about whether aftermarket parts really are of the same quality as OEM. They are significantly less expensive, but the real issue is whether using them returns your vehicle to its "pre-accident condition."
· If You Lease or Drive a Luxury Car ...
Next: Insurance Tip No. 8 -
Insurance Tip No. 8:
Buying term insurance and investing the difference may be a dumb move.
Dan Explains: If you are in it for the long haul, buying term and investing the difference can be a dumb move for many reasons. The primary reason is that few people have the discipline to invest the difference. Most likely, this money will be spent just staying afloat. Even if you do "invest the difference," how will you do it? The data indicates that Americans are terrible investors.
· Not the "No Brainer" It's Made Out to Be
Next: Insurance Tip No. 9 -
Insurance Tip No. 9:
Disability insurance may be the most overlooked part of your financial plan.
Dan Explains: If you knew the data, you would take a hard look at disability insurance. Now is the right time since you probably don't have any disability coverage. There is about a 40% probability that you will have at least one disability that lasts three months or longer before you reach age 65.
· If You Become Disabled ...
Next: Insurance Tip No. 10 -
Insurance Tip No. 10:
Company ratings are not the most important factor when buying cash-value insurance.
Dan Explains: Ratings are often bandied about as the standard by which you should select an insurance company for cash-value insurance. However, ratings tell only part of the story. You want an insurance company that has relatively strong investment performance, relatively low mortality rates, relatively low expenses and has demonstrated a willingness to treat both new and existing policyholders fairly.
· One Area You Can Easily Understand Is ...
Next: A Bonus Tip -
Bonus Tip
The best kept secret in the insurance industry
Dan Explains: Consider using a fee-only life insurance advisor. These advisors receive compensation only from their clients. They will agree in writing to accept fiduciary responsibility (unlike your agent -- see tip #1) and will act solely in your best interest. They have no conflicts of interest. Their only goal is to obtain the best policy for you at the most cost-effective price.
· How to Find One
Next: More on Daniel Solin -
Dan Solin
More on Dan Solin
Dan Solin is a Senior Vice President of Index Funds Advisors, Registered Investment Advisors. Solin has appeared on 'The O'Reilly Factor,' MSNBC's 'Weekend Economic Review,' CNN's 'Money,' and Bloomberg Television, and is a frequent speaker on investment-related topics. His latest book, 'The Smartest 401(k) Book You'll Ever Read,' was recently on the New York Times bestseller list.
· More on Dan Solin
· Buy 'The Smartest Investment Book'
· Buy 'The Smartest 401(k) Book'
More: Toughest Retirement Questions -
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10 Toughest Retirement Questions
Now that you've seen Dan's tips on how to navigate the insurance industry, check out his straightforward and easy-to-understand answers to 10 of the toughest -- and most common -- retirement questions.
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Recent Comments
AdamPag 02:42:34 PM Sep 08 2008
Im a full time agent with Primerica, as are my parents both Senior Vice Presidents. PFS has been the largest (if not sole) proponents of the Buy Term Invest the difference concept. The biggest slap in the face about that article is the same one the whole life industry has been laying on middle america for the last 80 years, the fact that we're too "undisciplined" to make the concept work.... How does that make you feel that the "savvy advisors" and insurance companies think we're too braindead to write 2 checks a month, so instead we get one of the single worst insurance plans possible and about the least effective way to "invest" (its actually illegal to represent life insurance as an investment but typically thats how it's sold to middle america.) Around here we have a simple motto regarding all this "Liars Figure, Figures never lie." When you simply look at the math comparing real 30 year track records between split funding and trash-value mutual funds and cheap level term crush the
neddynoddy 10:49:10 AM Sep 08 2008
Buy Term and Invest the difference. There are 35 year term policies available to young families that are still 1/3 or 1/4 the price of a Cash value policy. Even an indexed mutual fund will greatly out perform any whole life policy. Term policies are cheap because of lower commissions paid as compared to cash value policies. Lots of companies will even cover all the children in a family when one is covered under a policy. Yes children need life insurance unless you have the money set aside for final expenses. This article does a great disservice to middle income families.
DCCB3 12:56:59 AM Sep 08 2008
bassman...I agree with you! Buy term and invest the difference!
bassman8197 12:17:01 AM Sep 08 2008
How is buying term and investing the differnce not a good idea? Term is so much cheaper than whole life and the right choice 99% of the time. It is true that when people invest into the market they buy when the market is doing good and sell when it starts to drop off, completly oposite from the "buy low and sell high." But that is why financial advisors, managers, planners, ect, are there to be the brain when the client is being emotional. Cash value makes no sense and is the biggest rip off ever made. Cash value gets promoted as life insurance investments, which would be fine except that you only end up with one of those, not both. In a sense they are saying 1 1 = 1. Plus, the reason that the cash value grows tax deffered or free, its because most of it is your money, the average cash value account grows at 2%, which is less than inflation. And if you ever have gotten a "dividend" from your cash value policy and have wondered why it is tax free, its because a dividend fro
jonbillie@eatel.net 11:51:28 PM Sep 07 2008
Never say never........I was only 33 years old when a moderate car accident caused me to break both my neck and my back. I have been disabled for 20 years now. I 've had over twenty surguries since then. Thank God the hospital where I was employed had long term disability insurance on all their employees. I just know that I wouldn't have gotten it on my own.
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