I met a couple with $250,000 of accident-only life insurance on each other. They were 70 and did not snowmobile, horseback ride or skydive.
(PRWEB) May 30, 2005
Uninformed Americans overbuy nearly every type of insurance from overzealous agents who put commissions ahead of clients or insurance companies that deluge them with marketing messages.
Being over-insured places needless financial burden on young families, baby boomers and retirees, says Paul J. Mauro, CLU, CHFC, Managing Partner, Legacy Financial Advisors, Inc. in Milford, MA. MauroÂs firm delivers a complete menu of financial and estate planning services. He says, "Integrate insurance with financial and estate planning to avoid the common and costly insurance mistakes consumers make."
Here are some of MauroÂs favorites:
Too many property insurance companies--Consolidate homeowner and auto insurance with an umbrella insurance policy. Bundling policies can cut premiums by 15%. If you buy a $1 million liability umbrella insurance plan, do not increase the underlying limits on the home and car above $300,000. This is wasteful.
Buying whole or universal life when young--Young breadwinners with dependents, a big mortgage and more responsibilities than money, should never buy a small permanent, whole-life, universal life or any life insurance with an investment component. This leaves young families grossly underinsured because they cannot afford enough coverage. A 35-year-old father of three with a $50,000 annual income needs a $1 million policy. Level term is $400. A $1 million universal life policy, has cash value, but the same coverage costs about $6,000, hence young families often buy too little death benefits.
Not buying insurance at work--Employers can help you lower insurance cost by sponsoring many types of insurance. For example, buying voluntary excess disability insurance as part of a group at work usually costs a third the price of an individual policy. Other employer-sponsored plans offer good value as well.
Procrastinating on long-term care insurance--Look into employer-sponsored, long-term care coverage too. Read the fine print. Make sure you can take this coverage with you if you leave the company. DonÂt delay. Long-term care insurance at age 70 costs $4,000 annually, totaling $60,000 to age 85. The same policy, through an employer group, bought at age 50 costs $1,200 per year or $42,000 to age 85; saving $18,000.
Not evaluating your insurance at age 60--Re-evaluate coverage. Since most disability insurance covers you only until age 65, it may be wise to drop it as you near retirement. A disability policy at age 40, could pay you for 25 years at $40,000 per year or $1 million total. If you are over 63, the policy will only pay out for less than two years -- a total of $80,000 in benefits.
Paying for accident insurance--Get rid of "accidental death only " benefit policies. As you age, death or injury by accident, as opposed to illness, becomes increasingly less likely. "I met a couple with $250,000 of accident-only life insurance on each other. They were 70 and did not snowmobile, horseback ride or skydive."
Not comparison shopping for Medicare Supplemental Coverage--Buy high-quality medical and Medicare supplemental coverage through whatever group arrangement you can find. "A 72-year-old Massachusetts couple was paying $12,000 annually for an individual supplemental policy," says Mauro, adding, "They then joined an HMO and cut their cost to $6,000." To find a group, contact your former employer, Council on Aging or a small-business network if you are self-employed.
Failing to consult with an attorney--"Review your business plans, estate plans, and medical documents with your lawyer. In a recent case, a family was paying thousands for insurance to cover the death tax for their children. After paying a few thousand dollars for legal services, they saved nearly $7,000 annually in premiums, because their estate was now tax free. Likewise, living trusts for both spouses can cut the cost of long-term care insurance in half," Mauro says.
Falling prey to insurance gimmicks--Some insurance is just a bad buy. Individual dental insurance tops the list. Illness-specific coverage is a close second. Collision insurance on cars over seven-years old is dubious. Also, drop most maintenance contracts, lost credit card insurance and creditor insurance. If you bought mortgage insurance (PMI ) when you purchased your home, the equity build-up may allow you to drop it. Mortgage term and credit card term life policies are usually overpriced if you are healthy. Also make sure your credit card covers the rental car deductible and donÂt buy extra coverage.
Being a know it all--Do not assume you know everything. New insurance policies have been developed that are big improvements over those available 10 years ago. Find a quality independent agent or planner to help you review your old policies.
Example, "A Legacy client wanted their granddaughter to inherit their $1 million dollar estate. She was the apple of their eye and they were living on $25,000 annually to conserve principal. I asked them if they thought their granddaughter wanted the house and bonds, or a check for $1 million tax-free from an insurance company. All grandpa said was, ÂSheÂll want the check.Â
"Our client then bought a new joint-life insurance policy with low premiums to endow the granddaughter. This freed up cash from the estate and, as a result, we increased their income to $45,000 annually, while guaranteeing the granddaughterÂs inheritance," says Mauro. Joint life policies allow elders to spend some principal to live better while leaving a tax free estate.
Legacy Financial Advisors Inc. (http://www.lfsadvisors.com) has extensive experience in helping families plan for the issues of aging and was featured in the PBS special "And Thou Shalt Honor" broadcast in November 2004 on WGBH-TV. With 30 years of experience in the area of planning for aging, Legacy has extensively used new products and plans developed which are referred to as "Principal Protected Investing" recommended in the Ernst and Young LLP in a white paper on the changing face of the industry recently. Legacy Financial Advisors, Inc. has six offices in Massachusetts; Milford, Duxbury, Yarmouth Port, Natick, Peabody, and Braintree and offices along the East Coast.
Legacy Financial Advisors, Inc.
321 Fortune Blvd.
Milford, MA 01757
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