Evidence of Insurance. Are you “Insurable”?
How things were…
There once was a time when acquiring insurance was a relatively uncomplicated event. There were companies making all sorts of offers to cover everything from health, life, well-being –long term well-being that is. In order to get signed on to these policies, it was fairly simple and straightforward, you could respond to a mailer solicitation form, answer the knock at your door from the local salesman or just call up one of the most well-known companies and get the process going. Typically you would identify a few key things relative to your general well-being, how much coverage you needed, the duration and what affordable premiums would be to you. During these times, people were even insuring other high risk activity family members just in case. There was no need to set up auto payments, check your credit, look up anything or wait for anything.
Well, things have changed drastically over the years and if you want to be insured for anything, you had better do your homework. Whether it’s homeowner’s insurance, car insurance, health, life, or anything that’s insurable you had better take the time to understand what will be required from you in order to be eligible, the costs and the fine print… the exclusions and disqualifiers. The insurance industry has taken a turn for becoming a behemoth sized profit machine. Through their lobbying arm, they use their collective might to persuade lawmakers to legislate in their favor, according to Opensecrets.org , they did this to the tune of over $40,000,000 so far in 2015. They are constantly refining policies to cover things that they are pretty darn sure will not cost them money, and if something does come along and have to be covered then you should expect higher rates somewhere down the line because you’ve just moved into the high risk category. Even calling your homeowner’s policy insurance representative to inquire about making a claim can be held against you! I’m going to stop here before going on some sort of rant, this post isn’t about how terrible insurance companies are, even though they are at times.
This post is however about understanding that it’s necessary to evaluate your current and future status, and planning accordingly in all financial matters relative to insurance. Insurance is a useful tool in the planning of your financial well-being and overall prosperity. That being said, knowing how to evaluate your needs properly is key alongside knowing the options available and how to effectively use them
Evidence of Insurability.
This is the term that will be thrown in conversation after you’ve sat with an agent representative and have gone over the details of a policy. After you have reviewed the costs, benefits, premiums, setup auto debit from your checking account, and finally decided that you’re making a good financial move. It also may come up after you’ve made elections during the “Open Enrollment” period at your job, when your make elections for the upcoming year for employer benefits and decide to “up” your life insurance. That’s when this pops up… “Evidence of Insurability”. Typically this means that the insurer is going to want you to do something that offers proof of your current state of health and well being at the time of the coverage. At the very least that your health and well-being is what you state it is on the application. Not that they don’t “Trust” you, but um… let’s say they are Reaganites who believe in the idea of “Trust but Verify”. So what this means for you is they may require one or more of a few things to prove your insurability such as:
- Having you sign an affidavit stating your insurability according to your application, or they may
- Sending a nurse to your home to take your vital signs, blood and even an EKG to be sure you are worthy of insuring
- Having you sign a release document authorizing you medical records to be released to them from you doctor or any other medical institution for the purpose of underwriting insurance for you.
So, keeping healthy will literally cost you less money in the long run in medical bills, health insurance and life insurance too. And now more than ever, what the Doctor puts in your file regarding your blood pressure and medications (prescribed, whether you take them or not) make a big difference. Don’t worry though, they’ll still insure you if you’re voluntarily not in good health, you’ll just need a mortgage for the insurance that’s all.
This seems like the no brainer regardless where you fall on the economic ladder if you are concerned about any costs that will remain after you die, be it an untimely or expected death. The younger and healthier you are the more time you have to move through various life insurance options to fit your needs. First you want to consider what liabilities would remain that you would want to make sure are taken care after you die including any final plans for yourself. And that’s it. There is no need to use life insurance as a windfall option in case you die for anyone else to benefit from. This means focus on what’s important and unless you have million dollar liabilities you won’t need a million dollar policy, seriously. Here’s 5 top things what people need to consider covering with life insurance.
- Burial costs
- Income replacement for primary or secondary head of household
- Education costs for growing children
- Cost to cover outstanding debt such as car loan, mortgages, etc.
For example: If you have $150,000 left on the house, 2 school age children, 2 car notes totaling $35,000 left owed on the vehicles, “Your Own” final expenses, and a second mortgage for $10,000 . Assuming $50,00 per child for education (this is a wild card, because they can also go to community college, or get scholarships- you have to figure out what you’re working with). You’re definitely not looking at a million dollar policy to cover this scenario… If you currently earn a modest $60k to $90k a policy with a payout of $300,000 to $400,000 should cover those expenses plus by replacing 4 to 5 years of disposable income. Sure a $500,000 policy would be super sufficient, but that would be near the top end of the needs. I’m definitely no insurance broker or representative, however, this is good conversation to consider when calculating your needs at the time of buying a new policy. If your representative isn’t taking this approach with you, then get someone else.
Notice, there isn’t anything there about a new Lexus or a new house or super vacations. And, as you become older some of these things may even drop off. If the house is already paid off, you won’t be worried about leaving a spouse to pay for it. Same goes for children’s education and so on. So be wary of over purchasing life insurance that you may not be able to keep up with. You may end up losing the benefit that all of those premiums go to if you drop a policy that was too expensive in the first place.
One interesting option is “Return of Premium” (ROP), this policy offers a return of your accumulated premiums if you so happen to not die during the term of the policy, less whatever they work out to keep for themselves of course. The premiums are a bit higher, however it is definitely very worthwhile looking into. www.aig.com and www.statefarm.com both offer ROP policies and have extensive info on these type of policies including understanding the costs, future benefit calculations and comparisons to regular term policies. It all comes down to future value which is easily explained by Investopedia.com at http://milesweekly.com/futurevalue
What if you just become ill or need care?
LTC Insurance seems to be a well-kept secret, this sort of insurance plan offers to help pay the costs of any long term care should you become ill or injured and need long term care. This is something many people overlook for various reasons including believing that their health insurance is going to cover everything. However, health insurance doesn’t cover much related to “care” as it relates to someone helping you in your home if you’ve been released from the hospital and are in need of home health care. Many people end up leaning on their family members if they have a support system in place, others are weighed down with the guilt of burdening family members and can sometimes trigger depression as a result. LTC policies come in many types and sizes to fit different budgets and target various scenarios, however, in general the focus is on primary areas that health plans typically do not cover or cover very little of. 5 Key areas that Long Term Care policies cover:
- Nursing Home Care
- Home Health Care
- Respite Care
- Hospice Care
- Personal Care in your home for thing like cooking meals, toileting and other personal issues.
When you consider how a lifetime of earnings, smart financial decisions and the resulting accumulated assets can be wiped out in your later years by the costs and needs for “care” due to illness or injury, it’s a smart move to add this to any plan for prosperity. www.Genworth.com , www.statefarm.com , and www.mutualofomaha.com offer LTC policies. I don’t recommend these companies in particular, however, they offer great info, standard policies, are leaders in the market and a great place to start.
The Earning Years.
Typically for most of us the “Earnings Season” will be between 25 and 60, really hitting peaks at 35 to 50 give or take some years for some folks that are faster or slower. It’s actually a nice long time when you think about it, enough time to do extremely well even if you trip, have a slow start or need to restart. These are the years to build the nest egg, acquire whatever cultural standards and even enjoy the fruits of yous labor a bit too. This is also the time to plan, review, assess, execute… I could have made up some corny acronym, but simply put, these are the years to keep healthy place good odds on your health and life and then collect on them too. That 35 to 50 interval is critical, critical… There is still time to redirect, change course, update, step up, get things in order like your health and even buy insurance if you haven’t or recently lost it with your last job. You may even get a new job and start there if you have to, you’re in the zone, old enough to have some serious experience and young enough to execute with vigor.
Of course there’s more and more, plus some more to go over with insurance, everything from home to auto to pet care and even insurance to cover the other than angelic teens. But that’s all for another time, right now, being mindful of the term “Evidence of Insurability”, buying the appropriate amount of life insurance and considering the often overlooked Long Term Care insurance is where we are. These are pillars of your personal prosperity as it relates to being insured to protect yourself and your assets long after the home is sold or paid off, the car has been replaced, the kids grow up, and the pet is heartfelt memory.