Saturday, May 01, 2010

Common Insurance Mistakes - Are YOU making one?

By Rajiv Hargunani

We all know we need insurance but it’s not usually at the top of our priority list.  Insurance is a valuable tool to protect our families from unforeseen events that can severely damage their financial futures, but it does not often get much of our attention.  I have compiled a list of common insurance mistakes so you can determine if you are currently making any of them and hopefully properly insure you and your family before it is too late.

 ·        Not having any life insurance – Life insurance has two basic purposes: 

·        to provide estate liquidity and

·        to provide sufficient assets for a surviving family to live on after the wage earner has passed away.

·        Having too much life insurance – If substantial assets are accumulated, then survivors may already be adequately provided for.

·        Naming the estate as the beneficiary of a life insurance policy – This brings the policy proceeds back into the probate estate where it will be subjected to fees and expenses, inheritance taxes and creditor claims.

·        Failing to name contingent beneficiaries in a life insurance policy – If the primary beneficiary were to die first, then the proceeds of the policy could go back into the probate estate. It might be a good idea to review this with other documents such as wills, trusts and retirement plans.

·        Not having life insurance on a non-working spouse – The value of a “non-working” spouse, which can be substantial, is often overlooked.

·        Buying life insurance on children – Such coverage rarely makes economic sense unless the policy pays interest which is tied to current market rates.  The premium dollars could be better spent by contributing to a custodial account for the child’s future education needs.

·        Underinsurance of personal residences – Most homeowners obtain homeowner’s coverage and then forget about it.  They may fail to realize that if construction costs increase at 8% per year, the replacement cost of a property doubles every nine years.  Determine what your house (not counting the land) is really worth and then see if it matches your coverage.

·        Having medical insurance with inadequate lifetime limitations -- With the ever-increasing cost of medical care, it is easy to incur very high expenses for an extended hospital stay.  Many policies cover only $100,000 to $150,000.  The minimum coverage an individual should have is $250,000 to $500,000.

·        Not having disability insurance – You’ve probably heard it before.  Your family’s single greatest asset is more than likely your ability to earn a living.

·        Having a disability policy with too restrictive a definition of disability – Many policies cease coverage if the insured can perform any occupation after the second year of coverage.

·        Holding a disability policy after retirement – Make sure you aren’t paying premiums in retirement.

- Rajiv Hargunani

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Rajiv Hargunani and not necessarily those of RJFS or Raymond James. Rajiv Hargunani, Raymond James Financial Services, Inc., its affiliates, officers, directors or branch offices may in the normal course of business have a position in the securities mentioned in this report. All stock prices are quoted as of 03/02/2011. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Past performance may not be indicative of future results.

 

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