June 2012
Why your Summer BBQ requires an Umbrella
Summer is the season of sunshine, pool time, BBQs, and friends suing you because they fell off your trampoline.
It's impossible to predict when you or a family member may have a really bad day. One unforeseen accident can unravel decades of careful financial planning and saving. By planning ahead, it's possible to lessen an accident's impact on your life and finances.
We tend to associate the word accident with car accidents, but many other types of mishaps can jeopardize your financial security. You may be having a party at your home when someone slips and falls, seriously injuring himself. Or you may be out walking your dog when he unexpectedly bites someone. An umbrella policy is one of the easiest and least expensive ways to prepare for accidents like these.
What is an umbrella policy?
An umbrella policy provides coverage beyond your automobile, homeowner's, watercraft, or other insurance policies, protecting you against the possibility of a devastating financial loss. This type of policy covers both your existing and future personal assets against the cost of losing a lawsuit, which can be significant.
What benefits does it offer?
An umbrella policy typically provides the following benefits:
· Protects you where other policies leave off. An umbrella policy covers you if you're successfully sued for an amount that exceeds the liability coverage of your other policies.
· Protects you from liability issues not covered by your other policies. Homeowner's insurance, for instance, typically covers your liability for medical costs incurred by guests who are injured in your home, but not live-in residents. If your live-in nanny injures herself and decides to sue you, an umbrella policy would likely cover your liability.
· Covers legal defense costs. Umbrella policies cover legal expenses on top of the policy amount, including lawyers' fees and associated court costs.
· Protects against non-business-related personal injury claims. These include slander, libel, defamation of character, false arrest, detention or imprisonment, invasion of privacy, and wrongful entry.
· Protects your family. Any accidents caused by your dependents, including car accidents, accidents on your property, and non-business-related personal injury claims, are typically covered.
How much does it cost?
Before you can purchase an umbrella policy, your insurer will require you to have a certain amount of basic liability coverage. Umbrella policy coverage limits start at $1 million and can run as high as $10 million for qualified applicants. The price varies by risk, with the first $1 million in coverage usually starting between $150 and $300 annually. Each additional million dollars in coverage could cost around $100 to $125 annually. The rates per million decline as coverage increases.
Is an umbrella policy right for you?
When considering any type of insurance, it's important to evaluate which assets you would like covered and your chances of being sued. It may be more cost effective to raise the liability limit on your homeowner's or auto insurance than to buy an umbrella policy. (Your premium may be less if you also raise the deductible.)
Either way, you should think about factors that increase your risk of being sued. For example:
· A long commute
· Driving during rush hour, when accidents are more likely to occur
· Owning a swimming pool, hot tub, trampoline, or swing set
· Owning a pet
· Frequently having guests over
As careful as you may be, it's wise to acknowledge that accidents do happen. Though you may not feel that you're at risk of being sued, the safest course of action is to be properly insured, adjusting your coverage as your financial situation changes.
It's impossible to predict when you or a family member may have a really bad day. One unforeseen accident can unravel decades of careful financial planning and saving. By planning ahead, it's possible to lessen an accident's impact on your life and finances.
We tend to associate the word accident with car accidents, but many other types of mishaps can jeopardize your financial security. You may be having a party at your home when someone slips and falls, seriously injuring himself. Or you may be out walking your dog when he unexpectedly bites someone. An umbrella policy is one of the easiest and least expensive ways to prepare for accidents like these.
What is an umbrella policy?
An umbrella policy provides coverage beyond your automobile, homeowner's, watercraft, or other insurance policies, protecting you against the possibility of a devastating financial loss. This type of policy covers both your existing and future personal assets against the cost of losing a lawsuit, which can be significant.
What benefits does it offer?
An umbrella policy typically provides the following benefits:
· Protects you where other policies leave off. An umbrella policy covers you if you're successfully sued for an amount that exceeds the liability coverage of your other policies.
· Protects you from liability issues not covered by your other policies. Homeowner's insurance, for instance, typically covers your liability for medical costs incurred by guests who are injured in your home, but not live-in residents. If your live-in nanny injures herself and decides to sue you, an umbrella policy would likely cover your liability.
· Covers legal defense costs. Umbrella policies cover legal expenses on top of the policy amount, including lawyers' fees and associated court costs.
· Protects against non-business-related personal injury claims. These include slander, libel, defamation of character, false arrest, detention or imprisonment, invasion of privacy, and wrongful entry.
· Protects your family. Any accidents caused by your dependents, including car accidents, accidents on your property, and non-business-related personal injury claims, are typically covered.
How much does it cost?
Before you can purchase an umbrella policy, your insurer will require you to have a certain amount of basic liability coverage. Umbrella policy coverage limits start at $1 million and can run as high as $10 million for qualified applicants. The price varies by risk, with the first $1 million in coverage usually starting between $150 and $300 annually. Each additional million dollars in coverage could cost around $100 to $125 annually. The rates per million decline as coverage increases.
Is an umbrella policy right for you?
When considering any type of insurance, it's important to evaluate which assets you would like covered and your chances of being sued. It may be more cost effective to raise the liability limit on your homeowner's or auto insurance than to buy an umbrella policy. (Your premium may be less if you also raise the deductible.)
Either way, you should think about factors that increase your risk of being sued. For example:
· A long commute
· Driving during rush hour, when accidents are more likely to occur
· Owning a swimming pool, hot tub, trampoline, or swing set
· Owning a pet
· Frequently having guests over
As careful as you may be, it's wise to acknowledge that accidents do happen. Though you may not feel that you're at risk of being sued, the safest course of action is to be properly insured, adjusting your coverage as your financial situation changes.
March 2012
How much Life Insurance should we have?
The Basics
Your spouse has access to Serviceman Group Life Insurance (SGLI) while active duty, reservists or guard, in increments of $50,000 up to $400,000. If your spouse has $400,000 you are paying $27.00 per month for this coverage. This is great coverage for a certain amount of time and it is affordable. But, most families don’t sort of need life insurance or just need it for a little amount of time. Most need it for a few decades while there are dependents in the house and maybe forever depending on how much you have saved, if you have the ability to earn an income and what other assets you own.
$400,000 may not be enough coverage if your spouse dies for you to support yourself and your kids. You may be entitled to other survivor benefits which will be addressed in a future article and may reduce your spouses’ need for additional coverage. Remember, it always is too much when you are paying for it and never enough if you ever need it. The need for life insurance typically extends beyond the military term of service and SGLI is not available once you retire from the military. There are options of conversion and extension through different companies and the VA, but be prepared for potential sticker shock.
A Real Life Example
Your spouse is 42 and retiring from the military after a 20 year career. You are also 42 and have a 14 year old, 10 year old, and 5 year old. You realize that your $27.00/month SGLI is going away and that you still want your spouse to have life insurance. You stay at home with the kids and if anything were to happen to your spouse you have a mortgage, college, and will need income while you figure out how to support yourself. Let’s go through your options because remember while you are covering your spouse, this coverage is for you.
1) Convert $400,000 SGLI to VGLI (the retired version of SGLI). It is important to know that you can convert the amount that you currently have, not more. This will cost $68/mo until your spouse is 45, then $88/mo to age 49, then $144/mo to age 54, then $268/mo to age 59. If you average that out over the 17 years it is $155/mo. In this example, your youngest is now 22. You consider the fact that you would probably like to still have life insurance if anything were to happen to your spouse, but at $432/mo at age 60 you are most likely not going to pay for that life insurance. So, you go without and hope for the best.
Also, important to know is that if you need VGLI you have to elect it within 120 days of separation from service. If you go and try to get private insurance and are denied and then go back to get VGLI you may not be eligible.
2) Your spouse is approaching retirement and applies for the disability benefit through the VA and is approved for the VA benefit. Next on the checklist is to apply for an individual term life insurance policy, and you have to disclose that you have a disability. Your spouses’ disability rating is most likely going to affect the cost of the insurance or their ability to get insurance all together. Educate yourself before you start this process.
3) You talk to an insurance company and convert your SGLI to a permanent life insurance policy through one of the providers without underwriting (health exams, background checks, etc.) If you are a 42 year old male and convert your $400,000 SGLI to a permanent whole life policy your annual premium would be approximately $530 per month. Yes, there are cash accumulation features, but for a lot of folks this is just not in the budget.
4) You realized when you were 35 that $400,000 of life insurance through the military was not going to be enough coverage when you had a 7 year old and 3 year old. You bought $1,000,000 30 year term policy through an insurance company that does not have a war clause (be careful of this because many companies have a war exclusion that means if your spouse dies while deployed or in an act of war they will not pay the death benefit.) You locked in your spouse’s fantastic health and cheap insurance rates and pay $70/month for a 30 year $1,000,000 term insurance policy that will last until age 65. When the kids are grown you can reduce the cover and your premium by calling the insurance company. You are also saving aggressively outside of the military so when you are 65 you won’t have any debt and you will have a nice nest egg to provide for your financial security going forward. Marvelous work!
How Much Should We Have?
It depends. Remember, even though the coverage is on your spouse, it is for you. This relates back to last month’s article and make sure that you are actually the beneficiary of the policy. There are plenty of calculators out there, but a rule of thumb is that you will want at least 12x annual earnings in death benefit if you are a single income household with dependents. This may be reduced if you work, if you have a survivor pension, what your age and potential Social Security benefit would be. It could be increased if you can’t work or support yourself, if you have goals of sending your 5 kids to private college, and if you have a $500,000 mortgage. Feel free to contact me to run a customized scenario for your family.
Just like all your other lines of insurance; auto, home, umbrella, you hope that the coverage never comes into play. But what do we do? We plan for the worst and hope for the best. Ultimately, you will deal with whatever coverage your spouse has. If your spouse is underinsured and passes away unexpectedly you will go back to work, the kids will have college loans, you will live on a tight budget and you won’t probably save for retirement and retire when you want and life will go on. But, as a military spouse you would be negligent not to realize that your spouses’ job is higher risk than most. Next time you talk to your spouse and he or she says, “We have enough” remind them that this is not for them, it is for you. What are you comfortable with? It doesn’t have to be a discussion of emotion but look at the real numbers and see where you would stand.
Good Things to Know about Life Insurance
- If you collect a death benefit, it is income tax free. If your spouse has a $1,000,000 policy and dies, you get a $1,000,000 check, income tax free.
- There is a huge difference between term insurance and permanent insurance. Regardless of which one you decide on make sure you understand what the cost and coverage would have been under the other.
- Insurance company will rate risks differently. Certain companies are going to be better at covering a 45 year old man with heart disease in his family with a ‘big build’ than others. Make sure that you are working with a professional that can compare multiple companies and help you pick the company that will best suit your particular needs. Shop it around because you will most likely be paying these premiums for a long time. A $30/mo difference over 30 years is $10,800.
- As a spouse, you need life insurance coverage, too, and odds are that the $100,000 SGLI is not going to be enough for your husband to replace the value that you bring the household.
- Your spouses’ rating is a big deal. The cost of insurance (the rating) takes into account your health history, height, weight, family history, driving record, and hobbies such as flying, international travel, or skydiving. Make sure that you understand what your spouses’ rating will be and if you need to use one of the guaranteed conversion options or the next employer’s group term life insurance policy if your spouse is uninsurable. Going back to the example from before, you can either pay $70/mo with great health or $144/mo for standard health for the exact same policy. Is your spouse a smoker? Be prepared to pay double or triple the amount.
The Bottom Line
Spend the time educating yourself while your spouse is active duty about what the options will be for the life insurance coverage when he retires or leaves the military and know what coverage is appropriate for your family.
Your spouse has access to Serviceman Group Life Insurance (SGLI) while active duty, reservists or guard, in increments of $50,000 up to $400,000. If your spouse has $400,000 you are paying $27.00 per month for this coverage. This is great coverage for a certain amount of time and it is affordable. But, most families don’t sort of need life insurance or just need it for a little amount of time. Most need it for a few decades while there are dependents in the house and maybe forever depending on how much you have saved, if you have the ability to earn an income and what other assets you own.
$400,000 may not be enough coverage if your spouse dies for you to support yourself and your kids. You may be entitled to other survivor benefits which will be addressed in a future article and may reduce your spouses’ need for additional coverage. Remember, it always is too much when you are paying for it and never enough if you ever need it. The need for life insurance typically extends beyond the military term of service and SGLI is not available once you retire from the military. There are options of conversion and extension through different companies and the VA, but be prepared for potential sticker shock.
A Real Life Example
Your spouse is 42 and retiring from the military after a 20 year career. You are also 42 and have a 14 year old, 10 year old, and 5 year old. You realize that your $27.00/month SGLI is going away and that you still want your spouse to have life insurance. You stay at home with the kids and if anything were to happen to your spouse you have a mortgage, college, and will need income while you figure out how to support yourself. Let’s go through your options because remember while you are covering your spouse, this coverage is for you.
1) Convert $400,000 SGLI to VGLI (the retired version of SGLI). It is important to know that you can convert the amount that you currently have, not more. This will cost $68/mo until your spouse is 45, then $88/mo to age 49, then $144/mo to age 54, then $268/mo to age 59. If you average that out over the 17 years it is $155/mo. In this example, your youngest is now 22. You consider the fact that you would probably like to still have life insurance if anything were to happen to your spouse, but at $432/mo at age 60 you are most likely not going to pay for that life insurance. So, you go without and hope for the best.
Also, important to know is that if you need VGLI you have to elect it within 120 days of separation from service. If you go and try to get private insurance and are denied and then go back to get VGLI you may not be eligible.
2) Your spouse is approaching retirement and applies for the disability benefit through the VA and is approved for the VA benefit. Next on the checklist is to apply for an individual term life insurance policy, and you have to disclose that you have a disability. Your spouses’ disability rating is most likely going to affect the cost of the insurance or their ability to get insurance all together. Educate yourself before you start this process.
3) You talk to an insurance company and convert your SGLI to a permanent life insurance policy through one of the providers without underwriting (health exams, background checks, etc.) If you are a 42 year old male and convert your $400,000 SGLI to a permanent whole life policy your annual premium would be approximately $530 per month. Yes, there are cash accumulation features, but for a lot of folks this is just not in the budget.
4) You realized when you were 35 that $400,000 of life insurance through the military was not going to be enough coverage when you had a 7 year old and 3 year old. You bought $1,000,000 30 year term policy through an insurance company that does not have a war clause (be careful of this because many companies have a war exclusion that means if your spouse dies while deployed or in an act of war they will not pay the death benefit.) You locked in your spouse’s fantastic health and cheap insurance rates and pay $70/month for a 30 year $1,000,000 term insurance policy that will last until age 65. When the kids are grown you can reduce the cover and your premium by calling the insurance company. You are also saving aggressively outside of the military so when you are 65 you won’t have any debt and you will have a nice nest egg to provide for your financial security going forward. Marvelous work!
How Much Should We Have?
It depends. Remember, even though the coverage is on your spouse, it is for you. This relates back to last month’s article and make sure that you are actually the beneficiary of the policy. There are plenty of calculators out there, but a rule of thumb is that you will want at least 12x annual earnings in death benefit if you are a single income household with dependents. This may be reduced if you work, if you have a survivor pension, what your age and potential Social Security benefit would be. It could be increased if you can’t work or support yourself, if you have goals of sending your 5 kids to private college, and if you have a $500,000 mortgage. Feel free to contact me to run a customized scenario for your family.
Just like all your other lines of insurance; auto, home, umbrella, you hope that the coverage never comes into play. But what do we do? We plan for the worst and hope for the best. Ultimately, you will deal with whatever coverage your spouse has. If your spouse is underinsured and passes away unexpectedly you will go back to work, the kids will have college loans, you will live on a tight budget and you won’t probably save for retirement and retire when you want and life will go on. But, as a military spouse you would be negligent not to realize that your spouses’ job is higher risk than most. Next time you talk to your spouse and he or she says, “We have enough” remind them that this is not for them, it is for you. What are you comfortable with? It doesn’t have to be a discussion of emotion but look at the real numbers and see where you would stand.
Good Things to Know about Life Insurance
- If you collect a death benefit, it is income tax free. If your spouse has a $1,000,000 policy and dies, you get a $1,000,000 check, income tax free.
- There is a huge difference between term insurance and permanent insurance. Regardless of which one you decide on make sure you understand what the cost and coverage would have been under the other.
- Insurance company will rate risks differently. Certain companies are going to be better at covering a 45 year old man with heart disease in his family with a ‘big build’ than others. Make sure that you are working with a professional that can compare multiple companies and help you pick the company that will best suit your particular needs. Shop it around because you will most likely be paying these premiums for a long time. A $30/mo difference over 30 years is $10,800.
- As a spouse, you need life insurance coverage, too, and odds are that the $100,000 SGLI is not going to be enough for your husband to replace the value that you bring the household.
- Your spouses’ rating is a big deal. The cost of insurance (the rating) takes into account your health history, height, weight, family history, driving record, and hobbies such as flying, international travel, or skydiving. Make sure that you understand what your spouses’ rating will be and if you need to use one of the guaranteed conversion options or the next employer’s group term life insurance policy if your spouse is uninsurable. Going back to the example from before, you can either pay $70/mo with great health or $144/mo for standard health for the exact same policy. Is your spouse a smoker? Be prepared to pay double or triple the amount.
The Bottom Line
Spend the time educating yourself while your spouse is active duty about what the options will be for the life insurance coverage when he retires or leaves the military and know what coverage is appropriate for your family.