What Type of Life Insurance Policy Should You Get

The primary purpose for getting life insurance will always be to protect the people you care about in case something were to happen to you. How much capital would you need in order to pay off debts, support your loved ones, or to take care of all your affairs?

After you understand what priorities you would like to protect through life insurance it is fairly easy to determine the correct amount of coverage.

What Type Of Life Insurance

The next question is what type of coverage will best serve your needs. In order to get the right amount of coverage you also have to make sure that the premiums fit comfortably into your budget.

Term Insurance Benefits

Term insurance is less expensive than whole life insurance, because you are renting the insurance. Your coverage is considered pure insurance in this case, because it doesn’t develop cash value or participate in company dividends.

Instead it allows you to get the right amount of protection for the least expensive premiums available. Term insurance has also developed over the years to offer more comprehensive options. You can get a return-of-premiums policy where you pay more during the life of the policy, but the insurance company refunds all of your premiums at the end of the fixed term.

There are also term policies that allow you to lock in your age and health for the remainder of your life, so that you can have the coverage and premiums locked in for the rest of your life. This is a great and inexpensive way to obtain permanent insurance.

How Long Should You Lock In Your Premiums

The longer you can lock in your premiums the more advantageous it will be in the long run. The insurance company takes into consideration the mortality risk during the level period of the term. If you are 35 and you get a level 20-term policy then the rates will be fixed until you are 55. And because you are locking in the premiums at a younger age, the average risk and rates will be less than if you were to lock in your premiums at 55.

Most people have an insurance need that will last throughout the rest of their lives. If you can permanently lock in a portion of your insurance at a younger age this can save you substantially on premiums. It happens quite often where people will have to apply for new coverage after the fixed rates on their current policy have expired, and because they are now older and have to pay much more in premiums.

Your health is also locked in when you first take the policy out. Many people looking for insurance in their fifties or sixties are dealing with some type of medical condition that makes the cost of life insurance double or triple in cost. The same logic that applies to locking in your age is also good to keep in mind when locking in your health. We don’t know what is going to happen to us, and if we have our insurance locked in then our insurability and premiums will be unaffected by a medical event.

Level Term Insurance

I always recommend getting a level-term policy as opposed to one that will start off lower and increase premiums each and every year. The level term policies allow you to lock in your age and health for the remainder of the term, whereas the increasing-premium policies become more expensive every year based on your new age.

Because term insurance is a less expensive way to get the right amount of protection, I believe that it is the right choice for a large majority of people looking at life insurance.

Cash Value Life Insurance: When To Consider It

First A Word Of Caution About How The Life Insurance Industry Operates

An agent who pushes one company above the others is doing his or her clients a disservice. Every company has its positives and negatives and each company has focused on certain demographics to try to create a competitive edge. There are 17 life insurance companies in the fortune 500 alone. These companies have very similar investment portfolios and conduct business in ways that are more common than not. Eight of these companies are mutual, nine are stock companies, and they all operate in order to make a profit. The most important thing that anybody can do is to have an agent who can help them shop the market for the company that is going to fit their needs best. Somebody that is a smoker with high blood pressure is going to have better options outside of the companies that target nonsmokers without health conditions. Finding the least expensive company on the market for your age and health can save you thousands of dollars.

I used to work for an insurance agency where we only sold a single triple-A-rated-insurance company. When I worked for this agency, my fellow agents and I were especially inculcated with the benefits of this company’s whole life insurance. This situation is not unique.

Captive agencies have managers that groom agents to push one company because they get paid commissions when their agents sell these products. Please don’t assume that life insurance agents are experts on the benefits of different companies and types of insurance plans, because many of them are unaware of the benefits beyond their own company. Instead of consulting their clients and shopping the market they push a single product that doesn’t always match up well. There are far too many people being given advice from agents to consider whole life insurance, because they are trained to present the same products to every client.

When You Are Considering An Insurance Company It Will Always Be Advantageous For Some People And Ill Advised For Others

If you sit down with an agent who goes over a list of benefits about a single insurance company, keep in mind that most benefits are really trade-offs. For instance, if a company is a triple-A rated insurance company than they are probably also more conservative with whom they insure. A triple-A rating is great, but it is really only necessary if you plan on participating in the companies dividends, or in other words buying their whole life insurance. There is no need to pay extra money for the privilege of having a triple-A rated company as many agents insist. A.M. Best considers a company with an A-rating to be in excellent financial health and there are many A-rated companies with less expensive insurance offers if you are not planning on participating in whole life.

When Whole Life Insurance is a Good Idea

For some people, whole life insurance can be a great complement to their financial security. I have sold whole life insurance based on the following benefits.
1) It has a guaranteed return that will consistently build up the cash value in the policy.
2) It gives policyholders permanent insurance so that they are insured throughout their lifetime.
3) It allows them to stop paying premiums after a certain number of years, because the dividends from the company will be enough to keep the policy in force.
4) It allows policyholders to take cash from the policy in the form of a loan, so that you have another option if liquidity is needed.
5) The growth of the policy is tax deferred and tax-free as long as long as the policy is kept in force.

The problem can be that many of these benefits point to life insurance as an asset or investment. Life insurance should always be considered for the death benefit first and foremost. If you have already maxed out both your Roth Ira and 401(k), have at least three months of expenses in accessible savings, and are looking for something else to build up savings then whole-life insurance can be a good option. The point is that whole life insurance is a good choice when you have the ability to max out your qualified retirement funds and are looking to complement your savings with a conservative tie in to your life insurance.

Whole life can be a mistake for a couple of reasons

There are risks when putting your money into whole life insurance. The risks aren’t always clearly explained, because the agents focus on the guaranteed dividends that will grow the cash value every year. However, one significant risk is buying into whole-life insurance, paying the premiums for a number of years, and then not being able to keep up with the premiums down the road. Life insurance companies bank on this happening to a certain percentage of policyholders.
If this occurs you are in danger of losing thousands of dollars in paid premiums without the benefit of accumulating any cash value. When a policy lapses or you can’t keep up with whole life premiums then the insurance company will retain your premiums without you having any cash value built up or any insurance in force.
These whole life polices are structured to have large front end expenses and it will take at least a couple of years before your premiums start to build up cash value. It takes about ten years before the amount of premiums you put into the policy will equal the cash value in the policy.

How Cash Value In Whole Life Insurance Works

The other risk with whole life insurance is not understanding how the cash value in the policy works and taking out too much of it. The cash value in the policy is liquid, but the insurance company will let you take out about 97% of it in order to protect against the policy lapsing. Any cash that is taken out of the policy is loaned from the policy at interest.

Lets assume that you are in the first 20 years of your whole life policy and are taking a loan from the cash value in the policy. The loaned interest rate is 8.0 %, the non-loaned dividend interest rate is 6.85%, and the loaned-dividend interest is rate is 7.9 %. Notice that the insurance company steps up the interest rate on the loaned amount or the amount borrowed from your cash value. This mitigates the cost of the loan, but the loan still creates an ongoing obligation to pay interest. For instance the cost of borrowing here would be 6.95 %.

(The loaned interest rate (8.0 %) + (the non-loaned dividend interest rate (6.85%) – the loaned-dividend interest rate (7.9%)) = cost of borrowing (6.95%).

The cash value in the policy is really a double-edged sword, because it leads to a significant risk that you will not be able to keep up with the premiums. It is practically intended for people who can repay the loan quickly so that the policy continues to develop dividends instead of an obligation to pay interest. It is great for people who aren’t ever tempted to borrow from the policy, because the dividends will compound and eventually be able to cover the cost of annual premiums. When this occurs the risk of lapsing will be negligible. However, this takes quite some time to achieve and it truly depends on how disciplined you can afford to be with the additional cost of these premiums. If you would rather have control of your money up front there is an argument that you can buy term and invest the rest instead of leveraging the insurance companies general fund.

Your Personality Profile And Budget Must Be In Line

I recommend taking a look at both your budget and how much control you want over your money for at least the next ten years if you are considering whole life. Because term insurance can now permanently lock in your age and health in the same manner as whole life insurance, the biggest question is whether or not you want control over investing the difference in premiums. Many people prefer whole life insurance because they don’t have to think about investing the difference; the insurance company does it for them. They can also grow their death benefit by the amount of growth in cash value and act as their own creditor if they ever want to borrow cash from the policy.

A Couple Other Points About Whole Life Insurance

The cash value component in a whole life insurance policy needs to be addressed. The first is that cash value is based on compounding dividends. So the longer you keep the paying premiums the more advantageous it is. The second is that if you go with a reliable insurance company they will usually pay non-guaranteed dividends that are based on the results of an insurance companies investments. This is when rating is important to consider, because you are now participating in these dividends. Also if you have allowed the cash value to grow and take out modest loans from the policy later in life, you will most likely have enough in dividends to keep pace beyond the ongoing obligation of interest. However if you do surrender the policy the gains will be taxed as capital gains and you will have to pay a surrender charge as well. If the policy is in force and you pass away while there are still outstanding loans, the death benefit will be paid out after it covers the cost of the loans that you have taken from the policy.

Term Insurance Vs. Whole Life

I believe the most important factor in all of this is the human element. If you are patient, conservative, and comfortably able to continue paying premiums without the temptation to borrow from the cash-value then you are a good candidate for whole life insurance. The majority of people have fluctuating budgets and circumstances where they are better off with something that locks in their age and health and gives them the opportunity to invest the difference elsewhere.

Car Insurance Terms and Glossary

No car insurance resource would be complete without a comprehensive glossary of car insurance terms. We’ve compiled a list of terms and their definitions to better help you navigate the sometimes confusing world of insurance

Accident – This is an unexpected sudden event that causes property damage to an automobile or bodily injury to a person. The event may be an at-fault or not-at fault and it may be report or unreported. An accident involving two vehicles may be termed a collision.

Accident report form – This is the report filed by police, often called the police report, containing the important information regarding the vehicle collision. This report will include the names of all individuals involved, vehicles involved, property damaged and citations that were issued.

Adjuster – This is the person who will evaluate the actual loss reported on the policy after an accident or other incident. They will make the determination on how much will be paid on the auto insurance policy by the Insurer.

Agent – This is a licensed and trained individual who is authorized to sell and to service insurance policies for the auto insurance company.

At Fault – This is the amount that you, the policy holder, contributed or caused the auto collision. This determines which insurance agency pays which portion of the losses.

Auto Insurance Score – This is a score similar to credit score that evaluates the information in your consumer credit report. These scores are used when determining pricing for your auto insurance policy. Negative marks on your credit report can increase your auto insurance premiums. The use of this information to determine policy pricing does vary from state to state.

Automobile Insurance – This is a type of insurance policy that covers and protect against losses involving automobiles. Auto Insurance policies include a wide range of coverage’s depending on the policy holders needs. Liability for property damage and bodily injury, uninsured motorist, medical payments, comprehensive, and collision are some of the common coverage’s offered under an auto insurance policy.

Binder – This is a temporary short-term policy agreement put in place while a formal permanent policy is put into place or delivered.

Bodily Injury Liability – This is the section of an insurance policy that covers the cost to anyone you may injure. It can include lost wages and medical expenses.

Broker – This is a licensed individual who on your behalf sells and services various insurance policies.

Claim – This is a formal notice made to your insurance company that a loss has occurred which may be covered under the terms of the auto insurance policy.

Claims Adjuster – This person employed by the insurance agency will investigate and settle all claims and losses. A representative for the insurance agency to verify and ensure all parties involved with the loss, get compensated fairly and correctly.

Collision – The portion of the insurance policy that covers damage to your vehicle from hitting another object. Objects can include but are not limited to; another vehicle, a building, curbs, guard rail, tree, telephone pole or fence. A deductible will apply. Your insurance company will go after the other parties insurance policy for these cost should they be at fault.

Commission – This is the portion of the auto insurance policy that is paid to the insurance agent for selling and servicing the policy on behalf of the company.

Comprehensive – This is a portion of the insurance policy that covers loss caused by anything other than a collision or running into another object. A deductible will apply. This includes but is not limited to vandalism, storm damage, fire, theft, etc.

Covered loss – This is the damage to yourself, other people or property or your vehicle that is covered under the auto insurance policy.

Declarations Page – This is the part of the insurance policy that includes the entire legal name of your insurance company, your full legal name, complete car information including vehicle identification numbers or VIN, policy information, policy number, deductible amounts. This page is usually the front page of the insurance policy.

Deductible Amount – This is the portion of the auto insurance policy that is the amount the policy holder must pay up front before the Insurance Company contributes and is required to pay any benefits. This amount can be within a wide range in price and varies from approximately $100 – $1000. The larger amount you pay in a deductible the lower your normal monthly/yearly policy will cost. This is the portion of the auto insurance policy that would be applicable only to comprehensive or collision coverage.

Discount – This is a reduction in the overall cost of your insurance policy. Deductions can be given for a variety of different reasons including a good driving record, grades, age, marital status, specific features and safety equipment on the automobile.

Emergency Road Service – This is the part of an auto insurance policy that covers the cost of emergency services such as flat tires, keys locked in the car and towing services.

Endorsement – This is any written change that is made to the auto insurance policy that is adding or removing coverage on the policy.

Exclusion – This is the portion of the auto Insurance policy that includes any provision including people, places or things that are not covered under the insurance policy.

First Party – This is the policyholder, the insured in an insurance policy.

Gap Insurance – This is a type of auto insurance provided to people who lease or own a vehicle that is worth less than the amount of the loan. Gap auto Insurance will cover the amount between the actual cash value of the vehicle and the amount left on loan should the care be stolen or destroyed.

High-Risk Driver – If you have a variety of negative marks on your insurance record including driving under the Influences, several traffic violations, etc. you may be labeled as a risk to the insurance company. This will increase your insurance policy or may make you ineligible for coverage.

Insured – The policyholder (s) who are covered by the policy benefits in case of a loss or accident.

Insurer – Is the Auto Insurance company who promises to pay the policy holder in case of loss or accident.

Liability insurance – This part of an auto insurance policy which legally covers the damage and injuries you cause to other drivers and their vehicles when you are at fault in an accident. If you are sued and taken to court, liability coverage will apply to your legal costs that you incur. Most states will require drivers to carry some variation of liability coverage Insurance and this amount will vary state by state.

Limits – This is the portion of the auto insurance policy that explains and lists the monetary limits the insurance company will pay out. In the situation you reach these limits the policy holder will be responsible for all other expenses.

Medical Payments Coverage – This is the portion of an auto insurance policy that pays for medical expenses and lost wages to you and any passengers in your vehicle after an accident. It is also known as personal injury protection or PIP.

Motor Vehicle Report – The motor vehicle report or MVR is a record issued by the state in which the policy holder resides in that will list the licensing status, any traffic violations, various suspensions and./ or refractions on your record. This is one of the tools used in determining the premium prices offered by the insurance agency. This is also used to determine the probability of you having a claim during your policy period.

No-Fault Insurance – If you reside within a state with no-fault insurance laws and regulations, your auto insurance policy pays for your injuries no matter who caused the accident. No-fault insurance states include; Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, Utah and Washington, DC..

Non-Renewal – This is the termination of an auto insurance policy on the given expiration date. All coverage will cease as of this date and insurer will be released of promised coverage.

Personal Property Liability – This is the portion of the auto insurance policy that covers any damage or loss you cause to another person’s personal property.

Personal Injury Protection or PIP – This portion of an auto insurance policy pays for any lost wages or medical expenses to you and any passengers in your vehicle following an accident. PIP is also known as medical payments coverage.

Premium – This is the amount charged to you monthly, yearly or any other duration agreed upon by insurance company and policy holder and paid directly to the auto insurance company. A premium is based on the type and amount of coverage you choose for your vehicle(s) and yourself. Other factors that will affect your insurance premium prices include your age, marital status, you’re driving and credit report, the type of car you drive and whether you live in an urban or rural area. Premiums vary by insurance company and the location you live.

Quotation – This is the amount or estimated amount the insurance will cost based on the information provided to the agent, broker or auto insurance company.

Rescission.- This is the cancellation of the insurance policy dated back to its effective date. This would result in the full premium that was charged being returned.

Rental Reimbursement – This is the portion of the auto insurance policy that covers the cost of an automobile rental of similar size should the covered vehicle be in repair from a reported incident.

Replacement Cost – This is the amount of money it would cost to replace a lost or damaged item at it is actually new replacement value. This monetary amount would be based on a new identical item in the current local market.

Salvage – This is the auto insurance policy holders property that is turned over tot eh insurance agency in a loss final settlement. Insurance companies will sell the salvage property in hopes to recoup some of its monetary loss due to the loss and settlement.

Second Party – this is the actual insurance company in the auto insurance policy.

Surcharge – This is the amount added to your auto insurance policy premium after a traffic violation or an accident in which you were found to be at fault.

Third Party – This is another person other than the policy holder and auto insurance company who has faced a loss and may be able to collect and be compensated on behalf of the policy holder’s negligence.

Total Loss – This is complete destruction to the insured property of a policy holder. It has been determined that it would be a great sum of money to repair the item rather than replace the insured piece of property to its state prior to the loss.

Towing Coverage – This is the portion of the auto insurance policy that covers a specified amount for towing services and related labor costs.

Under insured Driver – This is the portion of an auto insurance policy which covers injuries to you caused by a driver without enough insurance to pay for the medical expenses you have incurred from the accident. This is portion of the policy can vary state by state as some states include damage to the car in this section.

Uninsured Driver or Motorist – This is the portion of the auto insurance policy which covers injuries to you caused by a driver who was without liability insurance at the time of the accident. Uninsured driver or motorist coverage comes in two different sections; uninsured motorist bodily injury and uninsured motorist property damage. Uninsured motorist bodily injury coverage covers the injuries to you or any passenger in your vehicle when there is an accident with an uninsured driver. Uninsured motorist property damage coverage covers the cost for the property damage to your vehicle when there is an accident with an identified uninsured driver. Uninsured driver or motorist coverage must be offered when you purchase the required liability coverage for your vehicle. You must sign a declination waiver if you decline Uninsured driver or motorist coverage. The majority of states require drivers to carry some form of uninsured motorist coverage. Some states include damages to your car in this coverage.

Vehicle Identification Number or VIN – A VIN is a 17 letter and number combination that is the identification of the specific vehicle. It will identify the make, modem and year of the automobile. This number is typically located on the driver’s side window on the dash. It can also be found on the vehicles registration and title.

A Brief Introduction to Captive Insurance

Over the past 20 years, many small businesses have begun to insure their own risks through a product called “Captive Insurance.” Small captives (also known as single-parent captives) are insurance companies established by the owners of closely held businesses looking to insure risks that are either too costly or too difficult to insure through the traditional insurance marketplace. Brad Barros, an expert in the field of captive insurance, explains how “all captives are treated as corporations and must be managed in a method consistent with rules established with both the IRS and the appropriate insurance regulator.”

According to Barros, often single parent captives are owned by a trust, partnership or other structure established by the premium payer or his family. When properly designed and administered, a business can make tax-deductible premium payments to their related-party insurance company. Depending on circumstances, underwriting profits, if any, can be paid out to the owners as dividends, and profits from liquidation of the company may be taxed at capital gains.

Premium payers and their captives may garner tax benefits only when the captive operates as a real insurance company. Alternatively, advisers and business owners who use captives as estate planning tools, asset protection vehicles, tax deferral or other benefits not related to the true business purpose of an insurance company may face grave regulatory and tax consequences.

Many captive insurance companies are often formed by US businesses in jurisdictions outside of the United States. The reason for this is that foreign jurisdictions offer lower costs and greater flexibility than their US counterparts. As a rule, US businesses can use foreign-based insurance companies so long as the jurisdiction meets the insurance regulatory standards required by the Internal Revenue Service (IRS).

There are several notable foreign jurisdictions whose insurance regulations are recognized as safe and effective. These include Bermuda and St. Lucia. Bermuda, while more expensive than other jurisdictions, is home to many of the largest insurance companies in the world. St. Lucia, a more reasonably priced location for smaller captives, is noteworthy for statutes that are both progressive and compliant. St. Lucia is also acclaimed for recently passing “Incorporated Cell” legislation, modeled after similar statutes in Washington, DC.

Common Captive Insurance Abuses; While captives remain highly beneficial to many businesses, some industry professionals have begun to improperly market and misuse these structures for purposes other than those intended by Congress. The abuses include the following:

1. Improper risk shifting and risk distribution, aka “Bogus Risk Pools”

2. High deductibles in captive-pooled arrangements; Re insuring captives through private placement variable life insurance schemes

3. Improper marketing

4. Inappropriate life insurance integration

Meeting the high standards imposed by the IRS and local insurance regulators can be a complex and expensive proposition and should only be done with the assistance of competent and experienced counsel. The ramifications of failing to be an insurance company can be devastating and may include the following penalties:

1. Loss of all deductions on premiums received by the insurance company

2. Loss of all deductions from the premium payer

3. Forced distribution or liquidation of all assets from the insurance company effectuating additional taxes for capital gains or dividends

4. Potential adverse tax treatment as a Controlled Foreign Corporation

5. Potential adverse tax treatment as a Personal Foreign Holding Company (PFHC)

6. Potential regulatory penalties imposed by the insuring jurisdiction

7. Potential penalties and interest imposed by the IRS.

All in all, the tax consequences may be greater than 100% of the premiums paid to the captive. In addition, attorneys, CPA’s wealth advisors and their clients may be treated as tax shelter promoters by the IRS, causing fines as great as $100,000 or more per transaction.

Clearly, establishing a captive insurance company is not something that should be taken lightly. It is critical that businesses seeking to establish a captive work with competent attorneys and accountants who have the requisite knowledge and experience necessary to avoid the pitfalls associated with abusive or poorly designed insurance structures. A general rule of thumb is that a captive insurance product should have a legal opinion covering the essential elements of the program. It is well recognized that the opinion should be provided by an independent, regional or national law firm.

Risk Shifting and Risk Distribution Abuses; Two key elements of insurance are those of shifting risk from the insured party to others (risk shifting) and subsequently allocating risk amongst a large pool of insured’s (risk distribution). After many years of litigation, in 2005 the IRS released a Revenue Ruling (2005-40) describing the essential elements required in order to meet risk shifting and distribution requirements.

For those who are self-insured, the use of the captive structure approved in Rev. Ruling 2005-40 has two advantages. First, the parent does not have to share risks with any other parties. In Ruling 2005-40, the IRS announced that the risks can be shared within the same economic family as long as the separate subsidiary companies ( a minimum of 7 are required) are formed for non-tax business reasons, and that the separateness of these subsidiaries also has a business reason. Furthermore, “risk distribution” is afforded so long as no insured subsidiary has provided more than 15% or less than 5% of the premiums held by the captive. Second, the special provisions of insurance law allowing captives to take a current deduction for an estimate of future losses, and in some circumstances shelter the income earned on the investment of the reserves, reduces the cash flow needed to fund future claims from about 25% to nearly 50%. In other words, a well-designed captive that meets the requirements of 2005-40 can bring about a cost savings of 25% or more.

While some businesses can meet the requirements of 2005-40 within their own pool of related entities, most privately held companies cannot. Therefore, it is common for captives to purchase “third party risk” from other insurance companies, often spending 4% to 8% per year on the amount of coverage necessary to meet the IRS requirements.

One of the essential elements of the purchased risk is that there is a reasonable likelihood of loss. Because of this exposure, some promoters have attempted to circumvent the intention of Revenue Ruling 2005-40 by directing their clients into “bogus risk pools.” In this somewhat common scenario, an attorney or other promoter will have 10 or more of their clients’ captives enter into a collective risk-sharing agreement. Included in the agreement is a written or unwritten agreement not to make claims on the pool. The clients like this arrangement because they get all of the tax benefits of owning a captive insurance company without the risk associated with insurance. Unfortunately for these businesses, the IRS views these types of arrangements as something other than insurance.

Risk sharing agreements such as these are considered without merit and should be avoided at all costs. They amount to nothing more than a glorified pretax savings account. If it can be shown that a risk pool is bogus, the protective tax status of the captive can be denied and the severe tax ramifications described above will be enforced.

It is well known that the IRS looks at arrangements between owners of captives with great suspicion. The gold standard in the industry is to purchase third party risk from an insurance company. Anything less opens the door to potentially catastrophic consequences.

Abusively High Deductibles; Some promoters sell captives, and then have their captives participate in a large risk pool with a high deductible. Most losses fall within the deductible and are paid by the captive, not the risk pool.

These promoters may advise their clients that since the deductible is so high, there is no real likelihood of third party claims. The problem with this type of arrangement is that the deductible is so high that the captive fails to meet the standards set forth by the IRS. The captive looks more like a sophisticated pre tax savings account: not an insurance company.

A separate concern is that the clients may be advised that they can deduct all their premiums paid into the risk pool. In the case where the risk pool has few or no claims (compared to the losses retained by the participating captives using a high deductible), the premiums allocated to the risk pool are simply too high. If claims don’t occur, then premiums should be reduced. In this scenario, if challenged, the IRS will disallow the deduction made by the captive for unnecessary premiums ceded to the risk pool. The IRS may also treat the captive as something other than an insurance company because it did not meet the standards set forth in 2005-40 and previous related rulings.

Private Placement Variable Life Reinsurance Schemes; Over the years promoters have attempted to create captive solutions designed to provide abusive tax free benefits or “exit strategies” from captives. One of the more popular schemes is where a business establishes or works with a captive insurance company, and then remits to a Reinsurance Company that portion of the premium commensurate with the portion of the risk re-insured.

Typically, the Reinsurance Company is wholly-owned by a foreign life insurance company. The legal owner of the reinsurance cell is a foreign property and casualty insurance company that is not subject to U.S. income taxation. Practically, ownership of the Reinsurance Company can be traced to the cash value of a life insurance policy a foreign life insurance company issued to the principal owner of the Business, or a related party, and which insures the principle owner or a related party.

1. The IRS may apply the sham-transaction doctrine.

2. The IRS may challenge the use of a reinsurance agreement as an improper attempt to divert income from a taxable entity to a tax-exempt entity and will reallocate income.

3. The life insurance policy issued to the Company may not qualify as life insurance for U.S. Federal income tax purposes because it violates the investor control restrictions.

Investor Control; The IRS has reiterated in its published revenue rulings, its private letter rulings, and its other administrative pronouncements, that the owner of a life insurance policy will be considered the income tax owner of the assets legally owned by the life insurance policy if the policy owner possesses “incidents of ownership” in those assets. Generally, in order for the life insurance company to be considered the owner of the assets in a separate account, control over individual investment decisions must not be in the hands of the policy owner.

The IRS prohibits the policy owner, or a party related to the policy holder, from having any right, either directly or indirectly, to require the insurance company, or the separate account, to acquire any particular asset with the funds in the separate account. In effect, the policy owner cannot tell the life insurance company what particular assets to invest in. And, the IRS has announced that there cannot be any prearranged plan or oral understanding as to what specific assets can be invested in by the separate account (commonly referred to as “indirect investor control”). And, in a continuing series of private letter rulings, the IRS consistently applies a look-through approach with respect to investments made by separate accounts of life insurance policies to find indirect investor control. Recently, the IRS issued published guidelines on when the investor control restriction is violated. This guidance discusses reasonable and unreasonable levels of policy owner participation, thereby establishing safe harbors and impermissible levels of investor control.

The ultimate factual determination is straight-forward. Any court will ask whether there was an understanding, be it orally communicated or tacitly understood, that the separate account of the life insurance policy will invest its funds in a reinsurance company that issued reinsurance for a property and casualty policy that insured the risks of a business where the life insurance policy owner and the person insured under the life insurance policy are related to or are the same person as the owner of the business deducting the payment of the property and casualty insurance premiums?

If this can be answered in the affirmative, then the IRS should be able to successfully convince the Tax Court that the investor control restriction is violated. It then follows that the income earned by the life insurance policy is taxable to the life insurance policy owner as it is earned.

The investor control restriction is violated in the structure described above as these schemes generally provide that the Reinsurance Company will be owned by the segregated account of a life insurance policy insuring the life of the owner of the Business of a person related to the owner of the Business. If one draws a circle, all of the monies paid as premiums by the Business cannot become available for unrelated, third-parties. Therefore, any court looking at this structure could easily conclude that each step in the structure was prearranged, and that the investor control restriction is violated.

Suffice it to say that the IRS announced in Notice 2002-70, 2002-2 C.B. 765, that it would apply both the sham transaction doctrine and ยงยง 482 or 845 to reallocate income from a non-taxable entity to a taxable entity to situations involving property and casualty reinsurance arrangements similar to the described reinsurance structure.

Even if the property and casualty premiums are reasonable and satisfy the risk sharing and risk distribution requirements so that the payment of these premiums is deductible in full for U.S. income tax purposes, the ability of the Business to currently deduct its premium payments on its U.S. income tax returns is entirely separate from the question of whether the life insurance policy qualifies as life insurance for U.S. income tax purposes.

Inappropriate Marketing; One of the ways in which captives are sold is through aggressive marketing designed to highlight benefits other than real business purpose. Captives are corporations. As such, they can offer valuable planning opportunities to shareholders. However, any potential benefits, including asset protection, estate planning, tax advantaged investing, etc., must be secondary to the real business purpose of the insurance company.

Recently, a large regional bank began offering “business and estate planning captives” to customers of their trust department. Again, a rule of thumb with captives is that they must operate as real insurance companies. Real insurance companies sell insurance, not “estate planning” benefits. The IRS may use abusive sales promotion materials from a promoter to deny the compliance and subsequent deductions related to a captive. Given the substantial risks associated with improper promotion, a safe bet is to only work with captive promoters whose sales materials focus on captive insurance company ownership; not estate, asset protection and investment planning benefits. Better still would be for a promoter to have a large and independent regional or national law firm review their materials for compliance and confirm in writing that the materials meet the standards set forth by the IRS.

The IRS can look back several years to abusive materials, and then suspecting that a promoter is marketing an abusive tax shelter, begin a costly and potentially devastating examination of the insured’s and marketers.

Abusive Life Insurance Arrangements; A recent concern is the integration of small captives with life insurance policies. Small captives treated under section 831(b) have no statutory authority to deduct life premiums. Also, if a small captive uses life insurance as an investment, the cash value of the life policy can be taxable to the captive, and then be taxable again when distributed to the ultimate beneficial owner. The consequence of this double taxation is to devastate the efficacy of the life insurance and, it extends serious levels of liability to any accountant recommends the plan or even signs the tax return of the business that pays premiums to the captive.

The IRS is aware that several large insurance companies are promoting their life insurance policies as investments with small captives. The outcome looks eerily like that of the thousands of 419 and 412(I) plans that are currently under audit.

All in all Captive insurance arrangements can be tremendously beneficial. Unlike in the past, there are now clear rules and case histories defining what constitutes a properly designed, marketed and managed insurance company. Unfortunately, some promoters abuse, bend and twist the rules in order to sell more captives. Often, the business owner who is purchasing a captive is unaware of the enormous risk he or she faces because the promoter acted improperly. Sadly, it is the insured and the beneficial owner of the captive who face painful consequences when their insurance company is deemed to be abusive or non-compliant. The captive industry has skilled professionals providing compliant services. Better to use an expert supported by a major law firm than a slick promoter who sells something that sounds too good to be true.

Know About Different Life Insurance Plans

Today, almost everybody owns a life insurance policy. It could be for various reasons like investment purposes or for tax benefits, but the key point is that it provides complete peace of mind. With insurance plans, one does not have to worry about their family’s future security in their absence. These plans provide financial security to the surviving family members after the death of the insured.

Insurance is a must for anybody who has financial dependents. The age bracket to buy a insurance plan is approximately from 18 – 75 years of age. Most of the banks have a minimum and a maximum amount of money to be assured.

Types of Life Insurance Plans

Broadly, the two main types of insurance policies are term insurance and whole life insurance. Term Insurance Plans are the most basic and simplest plans. These plans provide a cover for risks only for a short period of time. After the term comes to an end, you can renew the plan but chances are that the premiums will rise. These plans are economical.

On the other hand, whole life insurance plans are expensive but these policies continue for as long as the insured lives. These plans are sometimes treated as investment options because one does not receive any money till the death of the insured.

Other plans include unit link life insurance plans that offer great investment options along with financial security. Usually, one has to pay two separate premiums – one for the life insurance and one for investment. These plans are beneficial as they provide financial solutions during your lifetime as well as after your lifetime to your family members.

There are retirement insurance plans available for senior citizens too. Insurance policies are extremely important for such people as these plans offer security and freedom to the surviving spouse. Child plans are another choice in insurance plans. These policies provide financial aid for your child’s education, marriage, etc. Another option are the health insurance policies. Health insurance policies provide a cover for medical expenses. These plans are suitable for people who suffer from health problems like diabetes, cancer, etc.

Riders in Life Insurance

Riders are the additional benefits that one can add to their life insurance policies. However, the premium amount increases with the inclusion of these riders. There are several types of riders in insurance plans offered by banks. The most popular of all are:

Critical Illness Benefit Rider: It offers financial aid in case the insured gets diagnosed with critical diseases like cancer, heart attacks, kidney failure, etc. Accidental Death and Disability Benefit Rider: In case the insured becomes disabled following an accident, this rider covers this risk.

Tax Benefits

Tax benefits as per the Income Tax Act, 1961 offer a deduction in the premium amounts, investments, dividends, etc. However, these benefits are subject to amendment regularly.

These Plans protect the needs and requirements of your loved ones in case of unfortunate events. It helps keep your family safe and secure even when you are not around.

Life Insurance Plan Online – 7 Terms You Should Know

Being able to search for the perfect life insurance plan online has enabled more and more people to get just the plan they want. Going on line avails the consumer of free quotes on plans not to mention an array of information from which to draw. One cannot hope to get a quality product without being an informed consumer and so before searching for a life insurance plan online it behooves one to become acquainted with the terminology and intricacies of the life insurance world.

There are seven particularly important words and phrases whose meanings have direct bearing on how you streamline your policy. Knowing what they represent is a integral ingredient to the process of figuring out which is the best plan for each individual situation.

And the terms to know are…

1. Face Value

This is pretty self explanatory. If a policy has a face value of $15,000.00 then that is the amount that will be paid out upon death of the policy holder.

2. Accidental Death Benefit

Also known as “double indemnity” this benefit stipulates that an additional amount of money will be paid out if the insured dies due to an accident.

3. Disability Income Rider

This provision pays the insured a set sum each month after the first six months of suffering with a disability.

4. Guaranteed Insurability

This allows the insured to buy additional coverage at any point in their life even if they’ve reached the point where they are considered uninsurable.

5. Incontestable Clause

A good protective device this states that after the policy has been in effect for one or two years the company can’t contest it.

6. Policy Loan Provision

This allows the policy holder to borrow money against a permanent life insurance policy for any value up to the amount of the cash value of the policy at the time of loan application.

7. Waiver of Premium Benefit

This stipulates that the company will pay premiums, should the insured become disabled for a period no longer than six months, from the time of disability.

Choose Your Personal Life Insurance Plan

Personal life insurance quotes are a kind of safety valve against uncertainties that leave you and your family vulnerable, for example you could be changing jobs or be involved in a serious accident that could affect your daily life. The insurance business is growing rapidly in a dynamic market and has now begun to offer a vast range of insurance products, apart from the traditional ones like life, family health, home, automobile and accident insurance plans.

Now you can choose from a wide variety to suit your needs like travel insurance, critical illness insurance, loan cover term insurance, unit linked endowment plans etc. The entire concept of personal life insurance plans has been re – oriented to not only provide you and your family with insurance against accident and death but also to help you accumulate wealth in the process.

The unit linked pension plans let you choose how you will ive after retirement. These personal life insurance plans allow you to retire comfortably with a retirement income and lets you maximize your investment.

The whole life single premium plan aims at giving you long term growth on your investment, gives you the flexibility to choose the guaranteed surrender periods and you need not undergo any medical check up. The main benefits of this personal life insurance plan is that in the unfortunate event of your demise, your family gets the entire sum assured decided by you, along with the vested bonuses.

A group insurance plan will last as long as you are in service but personal life insurance plan will stay with you for life and will provide succor to your family even after your death. If you have just entered a job then you can choose an endowment policy which essentially gives you savings and protection.

Though it may not give a guarantee of a fixed amount at the end of the specified term but it will give you the guarantee of a certain sum assured in case of death during the specified period. An endowment policy stresses on financial security and personal safety with reasonably good returns. It is the best type of policy to go for if you are planning your child’s future education or marriage, purchasing a house or thinking of taking a vacation.

Unplanned medical emergencies can sap you of all your savings so take a health insurance plan that covers you against any medical emergency or critical illness.

You may think of a long term investment with a universal life insurance policy which gives you a tax benefit and you need not pay premium for the entire term. This kind of policy is good for people who feel the need to be insured even at 70 years of age.

Whenever you buy a personal life insurance policy ensure that you have a low rate of premium to maximize your returns. This is possible is you are mentally and physically fit and are not engaged in any high risk activities that could lead to a higher rate of premium.

What Are The Typical Health Insurance Premiums In The US?

In health insurance, two major factors affect policy premiums or rates. The first major factor is your family health or personal health history. The second factor is age.

While calculating the life insurance premiums and health insurance premiums, the insurance companies, consider family history and personal health of the individual, as the major contributors. Most health insurance companies request urine samples and blood samples to ensure that there are no pre-existing health problems.

Most insurers offer policies with higher premium amounts to people, suffering from heart disease, diabetes, cancer, high blood pressure and other health risks.

People who have perfect health can observe that the standard term policy may have more premiums simply, because such policy covers most health risks. This policy is good for those people, who do not have time to lower their risk factors and can afford to pay huge premiums.

Thus, before applying for policy, people can check out various online quotes that can help them to locate a guaranteed issue policy. Moreover, people can also refer to FAQ’s to see, what factors they need to consider while obtaining an ideal health coverage plan.

Unfortunately, even though policyholders can have low insurance premiums, family history and health are not always controllable. Therefore, such people may have to pay high premium amount.

Some Statistics:

In the early part of the decade, typical health insurance premiums skyrocketed with an annual growth of 10.8 %. In the year 2003, the premium growth shockingly remained strong, before it decreased to 8 % in the year 2004. Right from the year 1982, health insurance premiums have registered an average 7% annual growth. For health insurance premiums, volatile business cycle is very typical thing.

In the year 1992, health insurance constituted 6.3 % of the employee compensation for the private industry employers. In the month of September 2007, health benefits comprised a large portion of employer provided benefits. This included 7.1% of the entire compensation. This made health insurance the largest compensation share for employers having an excess of 500 employees.

The moment the costs escalated, most employers passed their increased premium on to their employees. This has really just shifted the problem.

Conclusion:

An aging population has a significant impact on the future of health care industry in the United States. In terms of pharmaceutical treatment, in-patient care stays and physician visits, the elderly are the most high-cost demographic groups.

The main cause of rising health insurance premiums are the aging population. An aging population creates huge problems in terms of the Medicare Program, since it attempts to fund the services of at least 22 % of the total population.

It is important for people, to pay their monthly premiums on time. Some insurance firms also provide discounts for such people. Secondly, it is also essential that the policyholders compare various health insurance plans. Thereafter, they can select the best plan amongst them all.

Health insurance has become an extremely important issue in America due to spiraling health costs. Thus, easy to pay typical health insurance premiums can ensure coverage for majority of American population.

If you need to cover your own health care cost consider getting a free quote to see if you could save money. You can get them free instantly by simply visiting one of the sites below.

A Step-By-Step Reduction of Your Car Insurance Premium

That is why we wait for the sale season, use discount coupons or shop online – all in an effort to bring down our expenses. What about our car insurance premium? Is there a way to bring it down too?

We care about it. That’s we’ve made this step-by-step guide on reducing car insurance premium.

Car Insurance Premium – Saving VS Coverage

Your car insurance premium is always a considerable sum no matter how cheap your car was in terms of its cost. Being a mandatory requirement (the Motor Vehicles Act mandates a car insurance cover), the cost is unavoidable.

Thus, it is with a heavy heart that we part with our money when buying or renewing our car insurance plan.

It is possible to customize the premium amount of your car insurance policy to some extent. The idea is to not miss out on future coverage in the race of reducing premium costs for the present.

Step 1 – Determine the optimal Insured Declared Value (IDV) of your car.

The IDV of your car is in effect the maximum Sum Assured of your car insurance plan. It is the amount (calculated as the car’s market price minus the depreciation) which is payable to you if your car is stolen or your car is damaged beyond repairs.

As is obvious, the premium rate is determined on the quoted IDV. The IDV varies across insurers and so does the premium rate. The option to select the IDV is solely on you. This chosen IDV should be optimal. Too high and you unnecessarily pay a higher premium, too low and you get a small claim. A balance must be reached and an optimal level of IDV should be selected.

For selecting the optimal IDV, you can deduct the depreciation rates standardized by IRDA from the car’s market price.

Vehicle’s age Rate of depreciation

Less than 6 months 5%

6 months to 1 year 15%

1-2 years 20%

2-3 years 30%

3-4 years 40%

4-5 years 50%

Assess your IDV as per your car’s age and settle on the optimal level.

Step 2 – Consider the coverage available.

Once you have identified the IDV, look at the coverage provided by various plans. Usually a comprehensive policy has two coverage parts – third party cover and own damage cover. Also, there might be riders available which allow you to customize your plan and enhance the coverage. Special consideration should be given to such riders as adding them would increase the premium incidence.

Riders should be chosen based on your requirements. For instance, a zero depreciation cover works wonders for newer cars while an engine protect rider is helpful if monsoons causes water-logging problems in your locality and endangers your car’s engine. Cut down the frills but opt for riders which pertain to your requirement and you can substantially lower the premium.

Step 3 – Assess the optimal premium based on the cover.

The premium for a third party cover is fixed by the IRDA. It is the own damage premium which varies across insurers and is fixed on the IDV of the car. Riders too increase the premium. So, compare the different premium quotes on two parameters – the computed IDV and any additional rider benefits.

Step 4 – Utilize policy discounts and accumulated No Claim Bonus (NCB).

If you are transferring your insurance plan to a new car or renewing your car insurance plan, you can reduce your premium if you have any accumulated NCB in your previous policy. NCB is allowed if the policyholder does not make any claims in the last year. This NCB lowers the premium.

For those who are buying a new car insurance plan, there might be discounts in a policy which should be explored for reducing the premium.

Step 5 – Portability

Blindly sticking to one insurance policy when other plans are offering a lower premium for the same level of coverage is foolish. You should constantly review your car insurance plan on each renewal and if a cheaper substitute is found you should port your policy and enjoy lower premiums.

Following these steps would definitely result in a much lower premium than you were originally charged. This little nugget of wisdom is, therefore, sure to make your pockets and consequently you happy.

This Guide would help you reducing Car Insurance Premium, Optimally!

A Beginner’s Guide to Insurance

Having the right kind of insurance is central to sound financial planning. Some of us may have some form of insurance but very few really understand what it is or why one must have it. For most Indians insurance is a form of investment or a superb tax saving avenue. Ask an average person about his/her investments and they will proudly mention an insurance product as part of their core investments. Of the approximately 5% of Indians that are insured the proportion of those adequately insured is much lower. Very few of the insured view insurance as purely that. There is perhaps no other financial product that has witnessed such rampant mis-selling at the hands of agents who are over enthusiastic in selling products linking insurance to investment earning them fat commissions.

What is Insurance?

Insurance is a way of spreading out significant financial risk of a person or business entity to a large group of individuals or business entities in the occurrence of an unfortunate event that is predefined. The cost of being insured is the monthly or annual compensation paid to the insurance company. In the purest form of insurance if the predefined event does not occur until the period specified the money paid as compensation is not retrieved. Insurance is effectively a means of spreading risk among a pool of people who are insured and lighten their financial burden in the event of a shock.

Insured and Insurer

When you seek protection against financial risk and make a contract with an insurance provider you become the insured and the insurance company becomes your insurer.

Sum assured

In Life Insurance this is the amount of money the insurer promises to pay when the insured dies before the predefined time. This does not include bonuses added in case of non-term insurance. In non-life insurance this guaranteed amount may be called as Insurance Cover.

Premium

For the protection against financial risk an insurer provides, the insured must pay compensation. This is known as premium. They may be paid annually, quarterly, monthly or as decided in the contract. Total amount of premiums paid is several times lesser than the insurance cover or it wouldn’t make much sense to seek insurance at all. Factors that determine premium are the cover, number of years for which insurance is sought, age of the insured (individual, vehicle, etc), to name a few.

Nominee

The beneficiary who is specified by the insured to receive the sum assured and other benefits, if any is the nominee. In case of life insurance it must be another person apart from the insured.

Policy Term

The number of years you want protection for is the term of policy. Term is decided by the insured at the time of purchasing the insurance policy.

Rider

Certain insurance policies may offer additional features as add-ons apart from the actual cover. These can be availed by paying extra premiums. If those features were to be bought separately they would be more expensive. For instance you could add on a personal accident rider with your life insurance.

Surrender Value and Paid-up Value

If you want to exit a policy before its term ends you can discontinue it and take back your money. The amount the insurer will pay you in this instance is called the surrender value. The policy ceases to exist. Instead if you just stop paying the premiums mid way but do not withdraw money the amount is called as paid-up. At the term’s end the insurer pays you in proportion of the paid-up value.

Now that you know the terms this is how insurance works in plain words. An insurance company pools premiums from a large group of people who want to insure against a certain kind of loss. With the help of its actuaries the company comes up with statistical analysis of the probability of actual loss happening in a certain number of people and fixes premiums taking into account other factors as mentioned earlier. It works on the fact that not all insured will suffer loss at the same time and many may not suffer the loss at all within the time of contract.

Types of Insurance

Potentially any risk that can be quantified in terms of money can be insured. To protect loved ones from loss of income due to immature death one can have a life insurance policy. To protect yourself and your family against unforeseen medical expenses you can opt for a Mediclaim policy. To protect your vehicle against robbery or damage in accidents you can have a motor insurance policy. To protect your home against theft, damage due to fire, flood and other perils you can choose a home insurance.

Most popular insurance forms in India are life insurance, health insurance and motor insurance. Apart from these there are other forms as well which are discussed in brief in the following paragraphs. The insurance sector is regulated and monitored by IRDA (Insurance Regulatory and Development Authority).

Life Insurance

This form of insurance provides cover against financial risk in the event of premature death of the insured. There are 24 life insurance companies playing in this arena of which Life Insurance Corporation of India is a public sector company. There are several forms of life insurance policies the simplest form of which is term plan. The other complex policies are endowment plan, whole life plan, money back plan, ULIPs and annuities.

General Insurance

All other insurance policies besides Life Insurance fall under General Insurance. There are 24 general insurance companies in India of which 4 namely National Insurance Company Ltd, New India Assurance Company Ltd, Oriental Insurance Company Ltd and United India Insurance Company Ltd are in the public sector domain.

The biggest pie of non-life insurance in terms of premiums underwritten is shared by motor insurance followed by engineering insurance and health insurance. Other forms of insurance offered by companies in India are home insurance, travel insurance, personal accident insurance, and business insurance.

Buying Insurance

There are an umpteen number of policies to choose from. Because we cannot foresee our future and stop unpleasant things from happening, having an insurance cover is a necessity. But you need to choose carefully. Don’t simply go with what the agent tells you. Read policy documents to know what is covered, what features are offered and what events are excluded from being insured.

1. Know your Needs

Determine what asset or incident must be protected against loss/damage. Is it you life, health, vehicle, home? Next determine what kinds of damage or danger exactly would the assets be most probably be exposed to. This will tell you what features you should be looking for in a policy. Of course there will be losses which cannot be foreseen and the cost of dealing with them can be very high. For instance nobody can predict that they’ll never suffer from critical illnesses no matter if they’re perfectly healthy at present.

The biggest mistake while it comes to buying insurance, particularly life insurance is to view it as an investment. Clubbing insurance and investment in a single product is a poor idea. You lose out on both fronts because for the premiums you’re paying more cover could’ve been got in a term plan and if the premiums were invested in better instruments your returns could’ve been several times more.

Be wary of agents who want to talk you into buying unnecessary policies like child life insurance, credit card insurance, unemployment insurance and so on. Instead of buying separate insurance for specific assets or incidents look for policies that cover a host of possible events under the same cover. Whenever possible choose riders that make sense instead of buying them separately. Unless there is a fair chance of an event happening you do not need insurance for it. For instance unless you are very prone to accidents and disability due to your nature of work or other reasons you do not need an Accident Insurance policy. A good Life Insurance policy with accidental death rider or waiver of premium rider or a disability income rider will do the job.

2. Understand Product Features and Charges

The worst way of choosing an insurance product or insurer is to blindly follow the recommendation of an agent or a friend. The good way to do it is to shop around for products that suit your need and filter out the ones offering lower premiums for similar terms like age, amount of cover, etc. All details you need about the product features and charges will be provided on the company’s website. Many insurance policies can now be bought online. Buying online is smarter because premiums are lower due to elimination of agent fees. If buying offline in case of life insurance, tell the agent that you’re interested only in term insurance.

Before you sign on the contract make sure you have understood what items are covered and what items are exempted from the cover. It would be so devastating to learn in the event of damage or loss that the item you hoped to cover with the insurance was actually excluded. So many people rush to their insurers after being treated for diseases only to realize that the particular disease was excluded. Understand details like when the cover begins and ends and how claims can be filed and losses be reported.

Don’t choose an insurance company because your neighbourhood friend is their agent and never let them coax you into buying from them. Insurance premiums run for years and it means a sizeable amount of money. Apart from the premiums charged look for the service provided. When you are faced with a peril you want the claims collection processed to be complicated with non-cooperating staff in the insurance company’s office. Seek answers from people who have had previous experience with the company for questions like how customer friendly and responsive the company is when it comes to handling claims.

3. Evaluate and Upgrade in Time

As you walk from one life stage to another or when the asset insured changes your policies must be reviewed. Perhaps your cover will need to be increased (or decreased) or you’ll need to top it up with a rider. Some instances when you need to review your cover are when you getting married, when you have children, when your income increases your decreases substantially, when you’re buying a house/car and when you’re responsible for your ageing parents.

How Much Should I Be Paying For Car Insurance? Typical Car Insurance Premiums

Typical car insurance premiums have become a matter of concern, especially for people who want to purchase car insurance. For instance, if a client gives a call to three different car insurance firms, they provide different quotes for insuring the very same car. Below are certain parameters that the insurers take into consideration, for calculating the premiums.

One of the important factors that determines whether the client has to pay low or high premiums is the age of individual involved. Particularly, the insurance firm wants to know, whether the client is above the age of 25 or under it. For instance, clients above the age of 25 years pay lower premiums as compared to those below the age of 25.

Other Important Factors Affecting Car Insurance Premiums:

Apart from age, the second factor that influences car insurance premiums is your occupation. For clients, who work in an industry such as law or banking, insurers offer them better insurance terms, as compared to those who work in more exciting jobs.

Even gender is a crucial factor, in case of typical car insurance premiums. Women are more likely to pay lower car insurance premiums as compared to men. This is due to the fact that they get in fewer accidents.

Another factor that determines the amount paid in premiums is driving experience. More importantly, insurers look out for the points on the driving license and the past driving record. Drivers having good driving record pay lower monthly installments as compared to those having poor driving records.

The other crucial factor that affects the payment of car insurance payments is the value of the car and the type of car that an individual drives. In the case of expensive cars, such as Jaguars and BMW, the premiums are much higher as compared to those on a typical Ford.

In cars, insurers mainly look at the mileage, model, age, type of engine capacity and registration number of the car. They all play an important part in the calculation of rates.

In some cases, the number of miles that an individual drives each year is included in the calculation of the premium. The place of residence is another crucial factor for typical car insurance premiums. The insurance company also takes into account the car theft rate in the local area.

Important Methods To Save On Premiums:

A great method to save money on car insurance is to ensure that the car is secure. For that purpose, individuals need to think about enhancing the security of cars, to drive down their premium rates. It is a standard method of reducing the cost of coverage for your vehicle.

One standard feature of insurance coverage is theft. If the vehicle is easy to steal or to break into, it comes under the high risk category and becomes an attractive proposition for criminals.

Less risk means that the insurer is less likely to have to make financial compensation. It thus, will be reflected in their monthly premiums and overall coverage costs. You can find out how much or little you will need to pay with the help of one of the websites listed below.