Insurance, is there a more complex theme in personal finance than insurance? If you look at the furious battle of comments over my Primerica articles regarding insurance, you will see many points of view and terms (those guys brought the discussion quite far actually!). I had recently been contacted by State Farm who provided me with a list of 15 questions and answers about insurance. I have gone through the whole thing and posted a summary of the answers below:

1. How do I know that I’m getting the right amount of coverage for my situation – not overpaying for things or leaving me exposed?

A: – Find an agent that you trust with whom you feel comfortable. You should be able to find an insurance agent with qualities close to those of your trusted financial advisor. He should answer all your questions with clear and easy to understand language. You want to make sure you understand what you are signing for. In the best of both worlds, your financial advisor should be able to give you sound advice or refer you to an insurance agent that is trustworthy and competent.

- Then, shop around. It never hurt to shop around and meet with 2 or 3 insurance agents before making your decision. You will then see if your insurance coverage proposition matchs your needs (example: each of them provide similar proposals.)

2. What are the advantages of having different types of insurance policies (home, auto, life, etc.) with the same provider?

A:   – Getting a big discount! I actually gathered all of my insurance policies with one provider and I was able to save a lot of money! State Farm actually offers a discount up to 40% on their insurance policies if you take all your insurance coverage with them.

- Since the insurance market is pretty rough, most insurers provide discounts if you have more than one car insured or they will offer loyalty rebate upon renewal.

- Dealing with only one insurance provider makes it easy and convenient too. Many times I see people in my office with their briefcase full of statements. They actually don’t even know what coverage they have anymore!

3. What disadvantages are there of having multiple insurance policies (home, auto, life, etc.) with the same provider?

A:  There are not many disadvantages to having only one provider but the choice of which one becomes very important. Look for a company with a strong heritage, community involvement and a track record for fast and fair claim processing.

4. How can I understand what comprises a good policy for my situation under each of the insurance categories?  Language is complex and difficult to understand.

A: The best way to determine the right policy for yourself across the different categories of insurance (home, auto, etc) is to speak directly with an agent in-person, make sure he/she knows your current situation and what security you’re looking to get out of a policy.

5. How does your company make sure that I can get smart, trusted advice if my personal situation changes?

A:  This is a tough question to answer because it relies on trust. Your insurance agent should be available and offer you a client-focused service 7/24/365 to make sure you receive the proper support at any given time (Murphy’s Law dictates than something bad will happen at the worst possible time!) 8-(

6. What can I do to make sure that I get all of the discounts I’m entitled to?

A:   Talk a lot! For example, State Farm says they have several types of discounts. To make sure you are eligible for all of them, talk about:

- Your driving experience (tickets, accidents, years of experience)

- Your marital status (married people get discount!)

- Your age

- Your neighbourhood

- How little you use your car

- Your credit score

- Potential insurance coverage

- Contract duration (I got a discount for taking a 2 year contract!)

7. Are there benefits to renewing with the same company when my policy ends?

A:   Absolutely.  For starters, you can save money. There are renewal discounts that can save you between 15% and 25%, and, at State Farm, the first one kicks in after just three years.

All right, enough insurance for today, I hope it helps you get your feet wet in the mysterious world of insurance coverage! Tomorrow, I’m coming back with questions 8 to 15!

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If you are like most people, you probably consider shopping for insurance to be a hassle. I know I did. Until about a month ago, I had been with the same car insurance company for six years. Since this company had given me the best quote at that time, I had selected them. Then, with the insurance in place, I stopped thinking about it and kept paying the premiums.

The truth, however, is that investing a little time to periodically review your car insurance can save you thousands of dollars because, unlike things like gas prices, auto insurance is one recurring expense that car owners have control over.

In my case, my wife and I had my old 1990 Toyota Celica and a 2002 Camry. We were paying a little less than $500 per 6 months. We had no comprehensive or collision on the Celica, and we had a $1,000 deductible on the Camry.

Then, I decided to sell the Celica because it was almost 20 years old and it was just sitting on the driveway. Since my wife is a homemaker and I work from home, we really didn’t need two cars. After I sold the Celica, my insurance dropped to about $400 per 6 months.

Since my circumstance had changed, I decided to get quotes from some other auto insurance companies. I kept the $1000 deductible and made sure I checked all options for low mileage. I ended up getting a great deal from Geico for slightly less than $200 per 6 months! For just investing a few minutes of time, I will save almost $400 per year.

The fact is that, today, car insurance policies are very standardized, and it is very easy to compare different companies for apple-to-apple coverage. As long as the insurance company is in good standing with your state, has a good A+ financial rating, and has reputation for paying claims fairly, then you should shop on price. There is no reason to pay extra out of habit, or a feeling of loyalty.

Here is a summarized list of 6 tips for reducing your auto insurance costs:

1. Periodically shop around for quotes from other insurance companies.

2. Reduce coverage on old cars. The rule of thumb is to drop collision and comprehensive coverage on any car that is worth less than 10 times the yearly premium.

3. Raise deductibles. Self-insure yourself for small problems and just let your car insurance protect you from catastrophic losses. According to the Insurance Information Institute, just by increasing your deductible from $200 to $1000, you can save 40% or more on your premiums. In my own experience, if you are a competent driver (and have an emergency fund), a $1000 deductible for auto insurance is ideal. Anything higher will not offset your premium that much.

4. Double check that you are getting all the discounts that you are entitled to. Common discounts include things such as anti-theft devices, having anti-lock brakes, being free of accidents and claims, taking a defensive-driving course, and having multiple policies through the same insurer (i.e. both your auto and homeowners insurance). At the same time, don’t be afraid to split your insurance among carriers if it saves money. I saved money by switching my auto to Geico and leaving my home owner’s insurance with my old company, even though I lost the multiple discounts.

5. Maintain a good credit rating. Insurers will give you better rates because higher credit ratings correlate with fewer claims.

6. If you do not drive a car very often, check to see if you qualify for any low mileage breaks.

Praveen Puri writes about business, finance, trading, and passive income on his Simple Trading System blog. He is the author of “Stock Trading Riches”, and has been a full time trader, software developer, consultant, internet marketer, and vice president of a major bank.

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Last Friday, I explained how the life insurance on a mortgage works. However, if you do not combine the life insurance with another type of creditor insurance (such as disability insurance or critical illness insurance), chances are that your life insurance will become quite expensive.

If you shop around and look for other option, you will soon come to see an insurance broker/agent that will look at your overall insurance needs. There will obviously have an amount to be covered that comes from your recent mortgage. Here’s a way to cover your mortgage with a term life insurance:

#2 Term life insurance from a broker

Term life insurances are pretty easy to understand. You pay during a specific period of time (usually 10 years or 20 years). The insurance coverage last the very same time. Therefore, you benefit from a temporary insurance coverage that will eventually expire.

This is actually a good thing as your mortgage won’t be eternal as well. Many term life insurance offer conversion option into a longer term or a whole life / universal life insurance policy. In a case of a mortgage, this could be useful if you plan to sell your house and buy a bigger one with a similar mortgage in the future.

While the T10 and the T20 are the most common type of term life insurance, I know that there are other terms that could fit best your insurance needs. You can also use a combination.

IF you have a 300K mortgage over 30 years. You would take a 100K T10, 100K T20 and a 100K T30 (if it exists). Therefore, your insurance coverage will drop every 10 years as your mortgage balance does over time. You will be “fully covered” during your 30 years but you won’t have to pay for a full 300K T30 either.

The price for a term life insurance is usually much lower than the regular creditor insurance. Even though it is the same price, remember that the full amount of coverage is payable upon death during the time of the contract. If you pass away after 19 years of paying down your mortgage, the lump sum payment from the bank will be pretty far away from the original mortgage amount! We never look for insurance in order to “make gift” but getting extra money when you lose someone you love could never hurt!

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Whenever you are about to sign your new mortgage document, your banker will ultimately talk to you about creditor insurance. He may sound annoying but he must explain the different creditor insurances that exist to cover your mortgage (it is required by law). It is actually very important to have the right amount of coverage and the right type of insurance. Some people may think that it’s gambling on your own life or that insurance is some kind of hidden tax. However, the truth is that if you pass away and you leave a spouse and kids behind, they will be in the deep hole if you were not properly insured.

So if you plan on dying while having a mortgage (this is my black sense of humour ), you have two options to cover your property:

#1 Life insurance on your mortgage

This is the usual insurance coverage offered by banks when you contract any credit with them (personal loan, line of credit or mortgages (including HELOC)). As you take your credit agreement with bank X, you have no other choice but to take their insurance if you want a bank to pay for your debt.

The mechanism behind a life insurance on a credit is quite simple. Upon death, the bank will erase the outstanding balance off its book and the estate is not responsible for this debt anymore. On a regular mortgage, you will have equal premium to pay during the amortization. As long as you do not change the mortgage contract, your premium will stay the same and you will still be insurable even if your health condition changes. However, paying a $100 monthly premium to cover an outstanding debt may seem appealing at the beginning of your mortgage (when you owe 200K) but become a pain when you are at the end of your contract and you only owe 20K…

Since the Home Equity Line of Credit has increased in popularity over the past 5 years, the creditor insurance product evolved accordingly. In fact, the life insurance on a HELOC will cover the average balance of you line of credit and the premium will be calculated accordingly. Therefore, you will pay a smaller premium if you make a lump sum premium. However, some contract will also make your premium increase according to your age. Therefore, event thought you will still remain insurable as long as you have your debt, your premium might increase or decrease depending on how you use your line of credit.

If you shop around, you will notice that life insurance on mortgage alone is probably more expensive than a term life insurance that you will take with a broker. However, the term insurance might not cover the full length of your mortgage (most of the time you can take T10 or T20). However, life insurance on credit gives you the opportunity to add disability insurance and critical illness. As opposed to the life insurance, the later two will benefit to you and not to your estate

Monday, I’ll describe the term life insurance to cover a mortgage. Enjoy your weekend

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People that know me know that I am very hard to convince of something. It is nothing related to be closed minded. Actually, I am very opened minded. On the other side, I ask a lot of questions in order to understand correctly and if you don’t have the answer, than I won’t change my opinion.

I already wrote about the fact that I didn’t believe much in credit insurance product for several reasons. However, I decided to go further in my research and meet with the “insurance guy” from our company one more time and ask him why the hell should I subscribe for credit insurance on my house.

Some of his reasoning was the usual “insurance bullshit” like: have you though of your wife and children? You know so and so, he got cancer and couldn’t pay his mortgage because he was seriously ill, or the famous ahh, it’s your choice.

When we pass that step (I cut him pretty much in the middle of his speech), he surprised me. While the emotional reasons didn’t have any effects on me (when it comes down to numbers, you lost me at hello if you try to play with my emotions… show me facts, show me proof!), he was able to bring good points:

#1 Get insured while you can

Since I am in favour of getting the biggest line of credit while you have a good financial position (not to spend but as an emergency fund), I can definitely agree with this point. When you get your insurance in the 20’s, you are sure to get insured and to get a good price out of it. The good thing about insurance credit is that it lasts as long as you have your debt. Considering that a mortgage while last 25 years or more, chances are that you can get sick or die during that period of time.

#2 Combination of products makes the insurance very cheap

Another important factor, as I mentioned in my previous post against credit insurance product, is that when you combine more than one type of insurance (you have access to life insurance, critical illness insurance and disability insurance), the overall price is quite competitive. Actually, it is very hard for insurance agent to find a better deal elsewhere.

#3 Insurance premium on line of credit depends on the balanced used

Therefore, it is free when your balance is at 0. Now you are asking: why insure a debt that is at 0 since I won’t get any money back if something happens to me? Easy answer: got back to reason #1. If you are insurable and it doesn’t cost a thing to get it, why not getting insurance for free while you are a good candidate?

As you can see, there are still good reasons to subscribe to credit insurance product. One thing is for sure; regardless if you take credit insurance or not, make sure that you are well insured overall. Life really sucks when something bad happens and you don’t have the proper coverage!

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