What Is Insurance & How Does It Work?
being exposed to various risks and losses is an integral part of everyday life and while insurance might feel like a bothersome necessity a practical understanding of how it works is a must otherwise how do we deal with massive expenses or debts.
if we get into a car accident our property gets vandalized or we face a serious illness financial strains associated with these threats and perils can be eliminated by taking out suitable insurance to make it possible you need to understand the specifics of the process.
so what is insurance is an arrangement between you and an insurance company the purpose of insurance is to protect you your property and the people you love in the event of a loss or a mishap of any nature as a policyholder you make regular payments in return the insurance company provides coverage.
if you face a specific risk or loss in a nutshell it is a handy instrument for reducing financial risks in sectors like property health and life therefore any aspect of your life can be insured should it image appropriate or necessary let’s say you have a car you genuinely care for but you’re worried that it might get stolen or damaged by a thunderstorm falling objects or other vehicles.
so you contact an insurance agent the insurance agent evaluates the car and determines its total value then the agent assesses the possible risks he asks about your age the frequency of your travels your driving habits your driving record and your neighbourhood based on this information the insurance broker draws up an insurance policy afterwards the leading underwriter reviews.
the policy and adds or excludes some of the risks the lead underwriter will be the one agreeing or declining any of your claims in the future than the terms of the policy must be agreed upon and you can get the preferred coverage that is when premiums come into play they differ from sector to sector and can be paid monthly quarterly or annually depending on the terms of your policy.
we can all agree that it might not feel right to pay for something that might never happen however insurance cannot be provided free of charge and in most cases, it is not required so it is up to you to choose a suitable policy if you need one if you are worried about the expenses you have to make before your policy kicks in think about this the sum of the premiums tends to be significantly smaller than the possible costs resulting from an accident or a loss.
let’s get back to the car you have recently insured what if it gets damaged during the riot once any of the covered risks or losses take place you need to contact the insurance company or an agent and make a claim that is when an insurance agent once again contacts the lead underwriter and informs him about the incident.
the agent then negotiates the best settlement for you with the lead underwriter and other issue-related participants once the settlement is made you get your money so now you should see how it plays out should you face a certain risk or a loss but there is more to it naturally there are also other components of the insurance policy called a policy limit and a deductible a policy limit represents the maximum size of the payment.
the insurer has to pay according to the terms of the policy as for the deductible it is typically paid out of your own pocket toward an insured loss or peril before the insurance company starts making any payments.
while it seems like you have to pay a lot before getting anything back from the insurance company always remember about balancing costs and choosing your policy carefully before taking out any policy consider your financial situation your needs and your lifestyle
Different Types of Insurance Policies
the different types of insurance and what they do for types of insurance it’s important to know not just what type but also how much coverage you’ll need as well let me show you the basics so that when it comes time for renewals or shopping around for a new policy you’ll be ahead of the game.
so let’s take off for our journey number one life insurance the idea of death is terrifying and inevitable yet it’s important to plan for the worst-case scenario life insurance pays a beneficiary an agreed-upon amount of money after someone dies.
so that they are able to cover funeral expenses or settle any outstanding debts without going into debt with credit cards or loans from banks death can be expensive from settling estates to planning funerals but life insurance will ease this burden by paying out your beneficiaries in full.
when you die at no cost number two health insurance is a contract between you and your health insurer a policyholder pays the company for all or at least part of their medical costs so they can pay less than what it would cost to go through an emergency room directly buy medicine from drug stores without a prescription and spend time in hospital waiting rooms with people.
who are not as sick as themselves number three travel insurance you’re about to take off on a new adventure make sure your tickets are refundable or changeable in case of travel emergencies travel insurance covers trip cancellations lost luggage and other mishaps that may arise.
when travelling abroad travel accidents can happen at any time so make it easier for you if anything goes wrong by getting the best flight options with refundability and flexibility privileges such as world nomads policies which cover medical emergencies.
while travelling plus more than 280 million people have been satisfied customers number four home insurance get the protection you need from all disasters that may occur with homeowners insurance including fires with high property values and more coverage added on for total peace of mind it’s never been a better time to make sure your home is protected number five car insurance.
auto insurance covers a variety of vehicles and is meant to protect against physical damage or bodily injury that could result from driving if you are uninsured while behind the wheel you may not be covered for any accidents or incidents driving without auto coverage puts both the driver and their vehicle at risk.
when they need it most in an accident situation number six pet insurance you have probably heard of health insurance for humans but what about pet insurance pet coverage can be a lifesaver in the event that your beloved pooch gets hurt or falls ill there are two types wellness and comprehensive care plans with the former covering routine visits and shots.
while the latter is more serious such as genetic diseases in addition to emergency room visits you may also save money by paying into these policies ahead of time rather than going through expensive medical treatments after an injury has occurred unexpectedly saving on vet bills number seven renters insurance is a must-have.
if you rent your home or apartment it protects you in any possessions in the event of damage theft natural disasters such as fire and flooding you can protect yourself with renters insurance by purchasing it before an unfortunate accident occurs number eight liability.
insurance is a top tier type of coverage that protects any damages incurred by the insured party umbrella liability policies provide you with extra-legal personal injury and property protection in case your other insurance does not cover all expenses from accidents or lawsuits.
liability can be used to protect against both intentional and accidental damage as well as providing financial relief for victims of civil litigation such as if someone was suing them because they damaged their car on purpose or got into an accident while driving drunk these were the different types of insurance that one might opt for in his or her life
What is life insurance?
Under life insurance, the subject matter of insurance is human life. Under life insurance, human life is insured against various risks like death, accident etc. Life insurance is basically for legal heirs of the person insured( i.e; legal heirs of the person on whom the life insurance is taken).
So in event of the death of the person insured, the insurance amount goes to the legal heirs. What are various types of life insurance? – First Whole Life Policy – Under this policy, the whole life of a person is insured. The person who is insured, cannot receive any amount under this policy.
The insurance amount is paid to the nominee or the legal heirs on the death of the person insured. The rate of premium is very low in the case of the whole life policy. The second is Term Plan – Term Plan is very similar to the whole life policy.
The only difference is under term plan, the person is insured for a specific period only like 10 years, 15 years etc. The premium of the term plan is the lowest among all types of life insurance policies. Suppose if a person has taken a term plan for say ten years, his nominee or legal heirs get the insurance amount if the person insured dies within the term of the plan (which is ten years in our example).
If the person survives the tenure of the policy, he gets nothing in return. The third is Endowment Policy – Again this policy is not for the whole life. It’s for a specific period only. Under this policy, the nominee or the legal heir gets the sum assured ( i,e; insurance amount plus a bonus) in event of death of the person insured Bonus is some extra amount that is paid by the insurance company over and above the sum assured.
However, if the death of the insured doesn’t happen within the tenure of the policy, then he himself gets the sum assured plus the bonus on completion of the term of a life insurance policy. The bonus amount depends on the income earned by the insurance company by investing a certain portion of the premium in various assets.
Money Back Policy – Under this policy, a certain percentage of the insurance amount is paid regularly to the person insured during the lifetime of the policy. That amount may be paid after every three years or say four years or may be even 5 years (depending on the kind of policy that he has taken).
However, in event of the death of the person insured, the nominee or legal heirs get the full sum assured. Joint Life Policy – Under this, there are two or more individuals who are jointly insured. For example, it could be husband and wife or maybe all the partners of a partnership firm.
The sum assured is paid at the end of the term of the policy or on the death of any one person out of the two people insured whichever is earlier. Annuity Policy – This policy is basically for retirement planning. Under this policy, the person insured pays the premium in a lump sum or in instalments over a certain period of time.
The person insured will receive a specific sum periodically from a specified date onwards, either for life or for a fixed number of years. Just to give you an example, the person will get say Rs.10,000 every month after the age of 40 years and he may receive it throughout the life or only for a certain number of years (depending on the terms and conditions of the plan)
Unit-linked insurance plan or ULIP – This policy is very similar to the endowment policy. Under endowment policy, a certain percentage of the premium amount is invested by the insurance company in safe investments like government bonds etc and the bonus is being paid out of the income generated by the insurance company from these investments.
So there is not much risk involved in such investments and hence surety of getting a decent bonus amount is much more. Whereas under unit-linked, the investments done by the insurance company are in slightly riskier assets like shares. So the surety of getting a good bonus is not there and you may also end up getting a negligible bonus or maybe even a zero bonus.
HOW TO Read a Life Insurance Illustration
Reading a life insurance illustration. So if you’ve ever been presented with a life insurance illustration there are a lot of columns and you might feel like you’re reading stereo instructions sometimes. Now there are columns that are definitely more important than others, such as the net cash value, the net death benefits, how much am I paying in? my annual outlay, my premium.
But while some columns may not be as important as others, it’s still good to know them or at least have a source to better understand the columns. Because frankly, it is our money going into the product. I want to have an idea or have someone that can explain it to me properly in the event I want to know or I need to know.
So let’s get into it. We’re going to look at 2 illustrations here with different companies. We took the company’s names off of these illustrations but let’s have some fun. So first we’re going to look at a 50-year-old male who’s paying in $100,000 per year for 10 years. That’s a total of $1,000,000.
So if you’re ever paying money into a policy my question would be to you if we flip positions, where is my money going? Steve, if I’m giving you $100,000 where is it going within this policy? So at the end of the day money can go toward one of two areas.
The premium or the PUA [Paid-up Additions] component. The premium first and foremost does what? Purchases my whole life insurance, a death benefit and then eventually build cash value beginning year 3. In this particular example, you’ll see just that. Whereas PUA dollars immediately accelerate the cash value growth.
There is a term insurance rider on this policy as well. The purpose of a term rider is that this is a cheap or cost-effective method to raise the death benefit, which primarily raises the MEC limit. So now I’ve got a permission slip to reduce my insurance premium further and plough more money into the cash value.
Alright so let’s go through this. A couple of components here, there’s $10,715, this is my base premium. So it purchases me a whole life death benefit of $440,000 and that is my premium component. Now in gold, I see this $1,320,000 that is a term insurance rider. And then to the right, you see this premium of just under $9,300.
That is not the cost of the term rider, it does not cost $9,300. In this particular example, there is right around $1,000 or so that satisfies the term cost. The rest of that rider goes towards puas. It is a blended PUA rider, consisting of PUA’s accelerating the cash value growth and a one-year renewable term rider.
There are reports which we often just disclose and in full illustrations there as well that displays the full term rider cost and what it renews to each year as well. Then we’ve got in green $80,000 that is a pure PUA component. That’s why we see n/a here and that’s my PUA rider.
So let’s go through the different columns here. Year and age and year, pretty straightforward. What I will say is year 1 age at the end of the year is 51 this illustration is on a 50-year-old male. This particular company displays at the end of each year how old the individual will be.
Why I state that is, the next example we’re going to look at states the age at the beginning of each year. Good to be aware of that little uh difference there with insurance companies. Annual outlay $100,000 per year. So what this reads is everything I’m paying in my total out of pocket $100,000 consisting of the premium, PUA and term rider, everything lumped together, that’s my net out of pocket.
Same thing as two columns to the right, the annual net outlay, exact same thing in that respect. Now the next column let’s scroll up here, annual surrender what this represents is as follows. The base premium was what? $10,700 and change what you’ll see is while I am paying, the annual surrender is zero. Beginning year 11 we see a surrender of $10,716.
Now when you hear the word surrender what pops to mind? Surrender fees, charges, typically something that’s not good here. Am I penalized? The answer is, no, kind of. what this represents here is your base premium of $10,716 that is still due but you’re not paying it.
What’s happening here is the policy is paying for itself through dividends and interest where you’re out of pocket, you’ll want to refer to the net outlay column here, which is still zero. That means you’re paying nothing out of pocket each year.
That premiums still do but the policy is paying for it on its own. Then we see “annual dividend beginning year”. So this company on this illustration has a dividend rate of 6%. They have a guaranteed rate of 4%. Where I’m going with this is when you see a dividend column on a life insurance illustration it often does not reflect the guaranteed rate, only the dividend, which is technically the surplus.
Everything above the guarantee, so in this case, a guarantee of 4% total dividend of 6% gives me a difference of 2%, that’s my surplus. So the point here is this dividend column represents only a 2% surplus not the company’s total dividend rate.
That can be confusing as we dig into these illustrations. Perhaps you’ve done that in the past to say, “hey the company’s got a six per cent dividend rate this thing is not even 2%” like “what is going on?” it’s because the guarantee is not included in the dividend column.
Then we’ve got the basic policy cash value end year. This is what I will often refer to as a useless column. The reason why is it represents if you only paid the base premium of $10,716 and that only yielded the guaranteed rate of 4% no dividends were added you added nothing in the PUA’s, no riders nothing like that, again you just pay the base premium and you only receive the guaranteed rate of 4% here’s what the cash value would look like.
The first two years overcharge me for the death benefit that’s why I see nothing, beginning year 3 comes back and capitalizes over time. Next column, cash value of additions and year. So what this represents is money you add into the PUA component.
So remember we added $80,000 into the pure PUA and then you also had that combination of money going towards puas and the term rider expense. So this displays the cash value of additions. The money you add to the cash value outside of the premium does not in any way, shape or form reflect dollars you add to the base premium component $86,000, year 2 $176,000.
It does reflect the interest any dividends in interest added on to the policy as well in addition to your payments to. Net cash value is the money column that you have access to as the policy grows. That’s really what we want to track as far as the cash value growth over time. Then we’ve got “total paid-up additions beginning year”.
This is a valuable column to be aware of because typically when we hear paid-up additions we think what? PUA rider money that I can direct towards the cash value. Here what it represents is the amount of paid-up additional death benefit life insurance that is purchased from your cash editions.
So let’s go through this slowly here. If you add or a 50-year-old male adds $86,000 into PUA’s into a cash value add that will purchase him another $261,000 of whole life insurance death benefit. Remember those models where we talk about your money can go toward premium or puas.
PUA’s accelerate cash value but if we put $1,000 into PUA’s I’ll see it show up in cash but I also might get another $3 or I should say $3,000 in death benefit that’s exactly what we’re seeing here. We pay $86,000 you see just about 3x show up in added whole life insurance death benefit.
Amount of one year term this is a term rider that gradually decreases as time passes. The main reason we attached this term rider to this policy is it is a cheap way to again raise the death benefit. Here’s our net death benefit in the far right just under $2,000,000.
Why would we want to add $1,300,000 in term insurance to this policy? Well, the reason why you’ll see disclosed on the bottom right-hand corner under the MEC limit is $100,000. So this individual wanted the ability to pay up to $100,000 per year.
So we solved for the minimum death benefit just about $2,000,000 to obtain that $100,000 MEC limit. What that accomplished, minimum death benefit equates to minimum insurance expenses. Based on that $100,000 payment. I know this can be complex. The next page is very similar here in respect to the columns.
The only difference is that we looked at a reduced paid-up option and all that did was kill the surrender column. So now we see no annual surrender here. Meaning that the premium of $10,716 is gone. Once we go reduced paid up, even if we want to continue to pay into it we no longer can do so.
So the disadvantage is we cannot add money to the policy. The advantage is that premium is gone, so we remove what I’ll refer to as the drag, we cut the drag so now all dividends and interest can be kicked back into the cash value which is attractive. Let’s look at another company here.
All companies are similar but have things termed a little bit differently. There we go a little too fast. Alright, so different insurance company, same 50-year-old male but only paying in $100,000 for 5 years again where is the money going? Premium $9,100, buys him a death benefit of $330,000.
That might get him a MEC limit of $14,000 or $15,000 not that much space. Total death benefit, we’ll get down to this in a minute here $2,000,000. We’ll see here target additional benefit just under $1,700,000. That is term insurance that we added to the policy.
Again cheap or cost-effective manner to raise the death benefit which raises the MEC limit. Cost for that term rider is disclosed right here that is the first year cost just about $1000. The cost will actually decrease each year thereafter as well and I’ll show you exactly why here in a second.
Almost forgot the most important piece, paid-up additions just over $90,000. So as we look at this guy a couple of things we’ll see. As illustrated policy changed to reduced paid-up beginning of year 8 in this example. So exercise the same reduced paid-up option but a bit earlier. And refunded for 5 years so policy year and age at the start of each year.
So this is a 50-year-old male, the only difference is year one it reads age 50 instead of age 51 like the last illustration we just saw. Next, base policy annual premium, that’s the $9,100. Base guaranteed cash value, that’s that useless column I’ll refer to.
What this again represents is if you only paid the base premium of $9,100 and that only yielded the guaranteed rate. You added nothing into PUA’s, added no riders, nothing like, that this is what the cash value will grow to overtime.
Annual dividend or end-of-year dividend, this company’s dividend rate 5.65%, guaranteed rate, 4%, so like the last illustration this represents the surplus only, everything between the guaranteed rate and total dividend rate, which is 1.65%.
Net premium, net after-tax outlay my total out of pocket payment, pretty straightforward. Cumulative net after-tax outlay, tallies my total payments over time, $500,000 total. Cash value of all ads, so this represents money I add into PUA’s, at $90,000 and change, if you remember that up top, this is how much of it after the term rider cost as well, is leftover in cash value.
The column immediately to the right total face amount of all ads, this represents how much additional whole life death benefit is purchased by the PUA payment. So if I add $88,000 into cash value that buys you another $275,000 in death benefit.
The face amount of 1-year term, this is the 1-year term rider. So your whole life goes up your term comes down over time. Then we’ve got the net cash value and net death benefit, breaking even year 4, very attractive.
The company only overcharges us for the base premium in the first year in this example, not the first and second. And then we can also run a custom report with custom guaranteed values based on our total net payment.
Homeowners Insurance Claim
homeowners claim so whether you’re experiencing one right now or you just want to be prepared for if one happens I’m gonna walk you through the important part of what you can do to make your homeowners claim as simple as possible. So let’s dig right in!
We’re gonna start with property versus liability, two different kinds of coverage that exist on your homeowner’s policy. Then we’ll talk about what to do right when a claim happens. Your first decisions, the first things to do. We’ll talk about a super important person in the process> the claim adjuster, and finally, we’ll walk through how a claim goes and you can see the different parts of it and who does what, those kinds of things.
First off though, a tiny disclaimer. This video is meant to provide very general advice. I am in no way confirming details about your specific insurance policies cause I don’t have them in front of me. Those conversations should happen between you and your insurance advisor.
So pretty obvious but just wanted to throw that outright at the beginning. Ok, let’s talk first about property versus liability, some basic insurance education here. Property coverage is when bad things happen to your stuff. In a homeowner scenario that’s your house, your stuff inside your house, your other structures (your shed, your detached garage, pool, any of those kinds of things.
That is your stuff and that is Property Coverage. Liability Coverage is when bad things happen to other people because of you.
So something bad happened to somebody, they got hurt or whatever. That is your liability and that’s why you have Liability Coverage on your auto policy, in your homeowner’s policy and, if you’re a business owner, you have general liability coverage as well.
This is coverage for when bad things happen to other people because of you. So I wanna stop right now and I just want to say, if you want to learn about liability claims please check out the Homeowner’s Liability Claims video on our YouTube channel.
You can click right here to go watch that video right now. I didn’t want to make this video too long and so the rest of this video is all about Property Coverage, coverage for bad things that happened to your stuff but I do have a video about Liability Coverage, bad things to happen to other people because of you and you can watch that right there.
Alright…so you had a claim happen. Maybe you had a fire. Maybe a tornado came through. Maybe you had water damage, a burst pipe for example. Those are the most common ones but there are lots of different kinds of claims. Something bad has happened to your house.
What’s the first thing to do? Well, I’m gonna start with the no-brainer, you know, call 911. If your house is on fire or something like that it’s not the time to worry about your insurance coverage. Right now you want to make sure that you mitigate the damage and that you get the professionals in to take care of it.
So you’re gonna call 911 and that’s the first thing your gonna do. If it is safe, stop further damage. The best example of this is you should know where your water shutoff valve is in your house. Oftentimes water claims become much much worse because someone didn’t know how to turn off the water in their house and so it continued to pour out of the burst pipe and caused lots more damage. So if it’s safe go ahead and stop further damage.
That could be turning off the main water pipe in a fire situation, that could be getting your fire extinguisher and attempting to put the fire out. Ok, so call 911 at the very beginning, obviously, and then if it’s safe go ahead and stop further damage with all those things I just said.
Finally, make sure you document everything. So take pictures, take videos, make sure to have evidence of what happened because the claim adjuster that I’m about to talk about is going to ask for evidence and the more you have, the better off you’re gonna be throughout the claims process.
Ok so now you’re gonna call a remediation specialist. This is someone who is going to clean up the damage. A fire and water damage service specialist you probably have one in your town if you don’t you have one in the next closest larger town and you’re gonna hire these folks to clean up the mess.
But I want to point out right now a rookie mistake. Something that people do all the time and it totally makes the process so much worse. That is hiring the wrong restoration service. These folks not only come in and clean up your house but oftentimes they are going to become the general contractor who helps to rebuild your house as well or fix the damage that happened.
So you’re gonna have a relationship oftentimes with these restoration folks from the very beginning to the very end of your claim experience. They’re gonna be doing the work and so if you hire the wrong folks it really really creates a problem. What I suggest is to ask your insurance agent who they have used before.
Insurance agents have relationships with restoration folks and they know who’s good and who’s not. If you don’t have an insurance agent go out to Yelp, go out to whatever reference spaces out on the web and make sure that the people you hire get positive reviews from other local folks in your area.
If somebody showed up and knocked on your door and you’ve never heard of them before or they don’t have any reviews online, that’s a red flag and they create could create a serious problem for your process. So definitely hire the right restoration folks based on referrals.
Ok so when everything is settled and you know it’s not an emergency anymore, it’s time to call your insurance company. That’s your insurance agent or maybe that’s your insurance company itself. You’re gonna make a phone call to them and tell them about the claim.
Pretty simple right and when you call in you’ll likely get a general person, someone who doesn’t necessarily have expertise in the claims process. They may not be able to answer a whole bunch of questions for you but they’ll be collecting information from you.
The information you want back from them is fairly simple. You want a claim number, this is going to drive a lot of the future conversations you have about this claim. You would love to have an adjuster’s contact information. This is a person so they would say “Betty Sue” and they give you her phone number.
A lot of times they will not have an adjusters contact information yet in that first call. But you can ask for it and see if they have it and if they do that’s super awesome. Then ask when you can expect a call from the adjuster. I always say in claims experiences you want to know when the company is supposed to do the next thing.
Then if they don’t do it at the time they say they were going to do it, that is when you contact them and say, “Hey you said you would do you know so and so at this time it hasn’t been done yet. I was just wondering how things are going.” That way you don’t come off as being really needy or any of that but at the same time, you make sure that you’re being taken care of like you should.
So this is the first opportunity to do this: asking when you can expect a call from the adjuster. If they say in the next 24 hours don’t call the company two hours from now and say, “Hey I haven’t got a call from the adjuster. What’s going on?” Give them the time that they said it would take but don’t give them more.
If that phone call doesn’t come in the 24 hours that they say they’re going to call in, that’s the time to give them a call and say, “Hey I need to speak with the claims adjuster.”
Speaking of the claims adjuster, here is our claims adjuster. This individual is your new best friend. The reason why is this is the company’s representative that makes claim decisions. Decisions like whether certain things are covered. how much coverage there is.
So this person is super important and a super important relationship to take care of. That’s why I say be nice to this person. It is amazing to me how many people are unkind to their claims adjusters. The claims adjuster from the company calls me and says, “hey Jeremy you know this person is really being a jerk and I’m trying to help him out but here’s the situation……
and I gotta tell you, life is like this, I mean this is a general life lesson. You’re never going to get the best from someone if you’re treating them poorly. So you know to be nice to this person. They have a huge role in the process. . This is what creates a visual for you that really explains exactly how a claim happens.
So you have a claim happen. I’ve got the house with fire as the example here. There are two parallel paths that happened throughout the process. The first involves the insurance company Your insurance company is obviously going to be involved if there’s damage to your house but the other one you don’t think about as much as the contractors.
I mentioned the remediation folks at the beginning of this video and they may become your general contractor throughout the process or maybe you have someone you know who does framing or does drywall or does different kinds of plumbing or whatever.
If you have those folks you are usually, with most companies, allowed to hire whomever you want. But most of the time the remediation folks play that role because it’s easier and it works out better. So there are two parallel paths the insurance company and the contractor.
Let’s start with the contractors first. What is their job? Well, their job is to do the work. So they are going to clean out the damage, fix everything that was wrong, and then rebuild whether that is putting carpet back down because it got wet or framing a room and drywalling it because it burned or whatever.
It is the contractors that are local t0 you are going to be doing the actual work. It’s super important to understand because most people think it’s the insurance companies. They say, “Hey why isn’t the insurance company getting this done?” It’s because the contractors are the ones that are actually doing the work and the contractors are oftentimes what gets hung up.
if problems happen in the homeowner’s insurance situation it’s often the contractor who are the ones that are taking the longest. Because you know they have the work to do and they have to get the materials and the people and all that kind of stuff.
The insurance company is also involved but their role is fairly simple, they provide the money to fix the damage that happened. That’s really their only role. You know they’re going to provide the money and the contractors are going to do the work.
The contractors are going to be the ones you’re talking with the most, what colour you want the paint, you know, all those kinds of things, The insurance company is going to provide the money. Two parallel paths are super important to understand. Ok, so what are some of the things that we need to think about while the property claims to happen?
Well, the first and most important is to determine if there is coverage. The second is that, if there is coverage on the policy, the insurance company’s going to pay to make you whole again. Let’s talk about determining if there is coverage. Here’s how it’s going to work.
The adjuster will likely visit your home and take photos. Sometimes they don’t come out but oftentimes they do. They’re going to come out and take a look at what happened. They’ll ask a lot of questions. They’ll ask you how it happened when it happened, what started it, all those kinds of things.
Finally, they are going to create a report that defines the Cause of Loss. The Cause of Loss is what drives insurance policies. What made the claim happen? What was the root problem? If a tree fell what made the tree fall. Did someone with a chainsaw cut that tree down?
That’s very different than if a wind storm came through and knocked that tree down. So we’re looking all the way back to the very beginning even if it’s a domino effect of things that happened. What was the original thing that happened? That’s called the Cause of Loss.
Why is the cause of loss so important? Well, when you look at the cause of loss plus the terms of your insurance policy (which is different for all homeowners policies) you are going to get whether your loss is covered or not covered and that’s the heart of it all.
Whether it’s covered or not covered has everything to do with the cause of loss plus the terms of your insurance policy. So many times the terms of your insurance policy are just all this legalese stuff inside of your insurance policy.
So that’s where some trust happens when you hire your insurance agent and choose a homeowner’s policy. You’re trusting them that it’s a solid policy and you’re certainly gonna find out in these kinds of scenarios. The cause of loss plus policy terms equals covered or not covered. Let’s talk about how we figure out covered or not covered.
There are basically three different things that could happen. here. The adjuster could conclude that the entire loss is covered. That’s the best-case scenario, the entire loss is covered. They could conclude that parts of the loss are covered.
The best example here is if a valve breaks in your house and that valve was rusted out or something like that and the water bursts everywhere. A lot of times they say well you know well the valve was old and faulty so we’re not going to replace the valve but we will replace all the damage that the water did after leaving the valve.
So if it’s a $10,000 claim they’re gonna pay $9,000 and not paid the…wait that’s a bad example but you know, sometimes they won’t cover certain parts of the loss because of the scenario and they will cover others. Then, finally, the loss is deemed not covered. They determined that the cause of loss combined with the policy terms showed that the loss was not covered.
So three different ways that things can go. Oftentimes it’s the entire loss, sometimes parts are covered & part aren’t and other times it’s not covered it all. Ok, so how does the coverage work? Well first of all you have a deductible. You chose a deductible.
Oftentimes on homeowners’ policies, I suggest a one thousand dollar deductible. That’s to keep your premium down. Some people have $2,500, $5,000 deductible and other people have $500 deductibles. To me, a $1,000 deductible is proper most of the time. So you are going to pay the first thousand dollars associated with this claim.
So if the claim is less than $1,000 or if the damage is less than $1,000 then there won’t be a claim because you won’t you won’t have gotten to your deductible limit. If it is above that then you’ll pay a thousand bucks the insurance company will pay the rest. Replacement cost versus ACV.
There are lots of videos out there about this. I’ve created a couple so I’m not going into big details on this topic but basically you want a replacement cost policy. This is going to replace things properly. ACV is going to subtract for depreciation so for everything that needs to be replaced the insurance company is not going to be giving you the complete amount of money that you need to replace that.
So hopefully you have a replacement cost policy and not an ACV policy. If you want to know more information about that check out the other videos on our channel. Finally, as I mentioned before, Pay to Make You Whole. The insurance company is going to pay to replace the things that you lost.
If that means rebuilding your house completely then we’re going to rebuild your house completely up to the policy limits. If you have a policy that insures you for $180,000 and it’s gonna cost 250,000 to replace your house lots of insurance policies stopped at $180,000 you’re going to have to pay the extra $72K to get your house totally completely rebuilt.
Now many many solid policies have built-in systems to help deal with that, for example, Guaranteed Replacement Cost or Extended Replacement Cost. But as best we can, we’re going to pay to make you whole up to the policy’s limits. We’re not gonna pay more than your policy provided for you, we’re gonna pay to make you whole. Ok, so what things are covered?
Just a quick reminder your house is covered, your stuff is covered, the things inside your house (with some limitations including jewellery, furs, firearms, money) personal property has lots of rules around it but in general your stuff is covered, other structures (this could be a pool or detached garage things of that nature) and finally oftentimes people does think about this but we’re gonna pay to put you in a hotel for a period of time or a long-term living situation if we’re completely rebuilding your house.
So additional living expenses or loss of use is paid by your insurance policy often times as well. So those four things are what are going to be covered in a property claim. That was quick, didn’t get too deep into the details but gave you at least a basic understanding. We covered property versus liability. Property coverages for your stuff.
Liability coverage is for bad things that happen to other people because of you. We talked about what to do first, make sure you call 911, stop the problem if you can, and finally document, document, document. The adjuster is your best friend in this process, the person who will be making decisions at the insurance company about whether coverage is there or not there, What kinds of coverage exists, how payments get made, they cut the checks, this person is important.
So be nice to them. And how a claim goes down. I described different coverages and how you can see them, reminded you about your deductible and talked a little bit about what things are covered. Want to tell you real quickly about other sign videos
your new home buyers guide, if you are buying a new home it’s a super valuable video, very similar to this one in the way it’s structured but really tells you a lot about the new homebuyers process. I definitely suggest that video. If you’ve never heard of a personal liability umbrella, additional liability coverage above and beyond liability coverage on your home and auto policy, this video will really help you with that.
Finally, if you’re into some funny stuff, our riding lawn more fails video is pretty funny. Some people making pretty poor decisions with riding lawnmowers. Finally, what’s next? As always the last step in our videos is to please, if you haven’t done so already, subscribe to our YouTube channel.
We create tons of great videos just like this one. Our attempt is true to help you understand how insurance works or like with the new home buyers guide just to really educate you about something financial or with the lawn mower riding lawn mower or fails just to try and be funny and have a good time.
So we try and enjoy ourselves on our channel here and we’d love for you to be a part of it. Finally, if you could share this information with your social media world.
Whether that means Tweeting a link to this video or liking our Facebook Page, Anything that you can do to share this information I always say good information is only great when you share it with others. If you feel like this video did that for you please go ahead and share it with other folks so that they can experiences it as well.
Health Insurance For Early Retirement
Health insurance seems to be one of the biggest concerns when people are considering early retirement, which is definitely understandable because it is very expensive in the United States. I suppose the other major concern is having enough money to retire. the options for health insurance.
when you are self-employed or are considering early retirement. And I will also share with you my current preference. I retired from my nine to five job at age thirty-six.
I’m excited to share a few different options with you for health coverage if you are self-employed or an early retiree because I know in the United States that health care coverage is one of the most expensive expenses that you can have. So let’s get into it.
The first option for health care coverage is actually going to the health care dot gov website. You can choose your own insurance plan through the health care marketplace. They have numerous plans on there where you can just pay a premium each month and receive health care coverage.
The better the plan, then, the more expensive it’s going to be. Which makes sense. The nice thing about going to the marketplace is if you do have a lower income, then they offer a tax credit. So you would actually pay not quite as much for your health care premium if you do have that lower-income.
Another nice thing about the marketplace is that if you are self-employed, then the premiums that you pay are tax-deductible.
So you could write those off on your taxes, at least for federal income tax purposes. For me personally, when I was looking for a plan on the marketplace, I looked for a high deductible plan, which meant I would have about a seven thousand dollar deductible for my insurance coverage.
But I looked for one that was also HSA qualified, health savings account qualified, which means I could set up an HSA account on my own and put money in there to pay for my medical expenses, or I could even invest my money in there. And if you are wondering more about HSA Health Savings Accounts, I did create a video about that recently.
So I will leave a link above and below in the description and you can check that out after this video’s over. The reason I chose a high deductible plan was that I am a pretty healthy person. I rarely go to the doctor.
But if you are the opposite, if you have a lot of medical expenses and you need to be going to the doctor often you may want to choose a plan with a lower deductible so you aren’t paying quite as much out of pocket for your health insurance.
But I would strongly suggest if you do end up going with a high deductible plan, then choose one with that option for an HSA, because there are just so many benefits of an HSA, which you can learn about in the other video created for you. I want to share with you a quick example of how much health insurance could cost.
And I entered my own details. But you can go to the health care dot gov website and I will leave a link below in the description and you can check out the prices of plans at any time. Currently, it’s closed. But if you do have a major change in your life, which I’ll talk about later, then you could actually enrol during non-open enrollment.
The details that I input was a single female who’s 40 years old, lives in Utah and doesn’t smoke. And I ran a few different scenarios with different income levels. So if I was making fifty-five thousand or more per year, then I would not receive a tax credit on my premiums. Like I mentioned before, my income level would be too high.
So at fifty-five thousand or more per year, I would be paying three hundred and twenty-four dollars per month in my health care premium, which would be three thousand eight hundred and eighty-eight dollars per year, and that would be for a seven thousand dollar deductible.
With hardly anything included in the plan. I would be paying the full amount, whatever the doctor charges for a doctor’s visit or any prescriptions or anything like that, I would have to pay all of that out-of-pocket up until seven thousand dollars. So this is a very basic plan. And I was curious.
So I entered a spouse for me and put his age at thirty-seven. And if that was the case, we would be paying a total of six hundred and thirty-one dollars per month, which is just about double what I would be paying for me. And then I looked at a different income level. If I was making fifty thousand dollars, I would receive a thirty six-dollar tax credit, which means I would be paying two hundred and eighty-eight dollars per month.
And then I dropped the income level down to forty thousand dollars, which gave me one hundred and eighteen dollars tax credit, which means I would be paying two hundred and five dollars per month for my health care premium.
And then I went even further down, to twenty thousand dollars, and this gave me a three hundred and seventy-two dollars credit, so I wouldn’t be paying anything for the health care premium, which would be awesome. But then again, I would be only making twenty thousand dollars.
But I know for early retirees, we try to write off as much as possible. Or maybe you’re pulling money out of your Roth IRA, which wouldn’t count toward your income. So there are different things that you can do to have a lower income level.
And if you do have something around twenty thousand dollars, then you would receive a full tax credit, which means you wouldn’t be paying anything for your insurance plan. So that is the first option for health care. Just going to the government’s website and looking at the marketplace and choosing which plan you want to go with.
The second option that I want to talk about is Christian Healthcare Ministries, and these are not health insurance policies in the traditional sense like we talked about before. But it’s essentially pooling everyone’s money, everyone that belongs to this Christian ministry health care plan.
And then you are paying for everyone’s medical expenses. And these plans are a lot less expensive than the traditional health care marketplace. And I pulled up their website just to give you an idea of how much it would cost.
So if you had their gold program, it’s one hundred and seventy-two dollars per month, or if you went with their silver program a little bit less coverage, it would be one hundred and eighteen dollars per month.
And then their lowest plan, the bronze program, is seventy-eight dollars per month. So you can see that it is a lot less. But there are some pretty strict restrictions on being able to join the Christian Health Care Ministry program. They want you to be a serious Christian, basically.
I will leave a link to their website below in the description and you can click on that link to get more details about their requirements on being able to join their health care program. And unlike with the traditional health care dot gov programs, you’re not able to set up health savings account with the Christian ministry programs, just a heads up there.
The third health care option that I want to talk about may not apply to everyone and it may not be the best solution, but I want to talk about it nonetheless. So if you were at a nine to five job and ended up quitting that to retire early, then you could sign up for what’s called COBRA.
And that would mean you could keep your current health insurance plan from your nine to five job for 18 months, but you would have to pay the premiums on your own. So it would be a lot more expensive. And I had actually looked into doing this when I had quit my nine to five job, but it was way too expensive and not worth it.
So I did not end up going that route. But it is an option. And option number four for health care coverage is actually getting a part-time job. And maybe you’re saying to me, I’m retired early, I don’t want to be working for someone else.
But I’m just saying, if you are looking for less expensive insurance, this could be a good route, especially if you find a job that you really love and you can just work there part-time and they would offer you health care benefits.
I know a lot of banks or credit unions do this, so you don’t have to be a full-time employee to still have health care coverage. So just think about it. You don’t have to do it, but it could be an option for you. And option number five is actually my current preference.
And this is not having a formal health insurance plan. And I know I might be crazy and you might be thinking what the risk is way too high and that’s totally fine. I know this option is not for everyone, and I’m not saying everyone should do it, but it’s just what I’ve chosen to do.
And I feel good about my decision. And you can leave in the comments, whatever you would like about me being crazy. And if something goes wrong, I’m going to lose all my properties and all my investments, and that’s totally fine. But here’s a few reasons why I chose not to do a formal health care plan.
Number one, I am a relatively healthy person. I rarely go to the doctor and I don’t have expensive prescriptions that I need to fill all of the time. I hardly ever get sick. I don’t even remember the last time I got sick. And going along with this, I like to take preventative measures for my health.
And I feel like sometimes people are backwards about this. They don’t exercise or they don’t eat right. And they just think, oh, well, I can just get some medicine later and have a prescription filled or whatever. And I feel like we really need to take care of our bodies because if we don’t have our health, how are we going to enjoy the lives that we created? We won’t really be able to do that.
I enjoy going to my Zumba toning class. I enjoy going for walks outside. I eat fairly healthy and no, I’m not perfect. I still like a sugar cookie every once in a while, but I’m not eating them every day, all day with all of my meals. And I don’t smoke. I don’t do drugs. I don’t drink alcohol or coffee or tea.
My preferred drink is water with lemon. And not only on the health side of things, but I also take preventative measures in what I am actually doing in my activities. I’m not into extreme sports, or skydiving or crazy things like that. So what if something does happen? What if I do need to go to the doctor?
Well, since I have had a health care plan in the past, I’ve set up a health savings account, my HSA, so I can take money out of there and pay for medical expenses if I need to, or I can pay for them out of pocket. I have some money in savings and I also have a brokerage account that I could take from.
I’m fully aware that I could have medical expenses and I do have a budget set up for those medical expenses. And something that you may not know is that with a lot of medical companies or hospitals or doctors, they actually charge less if you do not have insurance, they tend to bill someone with insurance a higher amount because they know insurance is covering that.
But if you go in saying you don’t have insurance, they offer a huge discount. And honestly, I found where they do forty-five to eighty-nine per cent discount. So you’re not paying as much for those medical expenses. Plus everyone gets a free checkup every year with or without insurance.
And if I was to sign up for insurance, I would go back to what I was doing before, the health care dot gov marketplace and sign up for a high deductible plan with that HSA qualification. And I would be paying over three hundred dollars a month for insurance and still paying out of pocket if I did go to the doctor or if I did need a prescription up until I reached that seven thousand dollar deductible.
So instead I’ve chosen to invest that three hundred dollars on my own and create my own insurance plan. And yes, I do realize I can’t help it if a freak accident happens or I do have some sort of disease or cancer or something like that. But I’ve made the choice to take that risk.
And I’m definitely not saying that everyone should be doing this. It’s just my preference. And I said I would talk about this later in the video if I had a major change in my life.
For example, if I was to get married or if I was to have a child, then I could enrol in the health care dot gov marketplace at any point, not just during open enrollment. Comment below and tell me which health care option you are going to go with once you are retired early.
kinds of automobile insurance
the different types of auto insurance, terms you may hear when you’re out shopping and you weren’t quite sure what they meant. We’re gonna help you learn about those terms. And joining us today is Nicole Beall from our property and casualty area.
Nicole, what’s the first thing that consumers should think about when they’re out shopping for auto insurance. Sure. So the first thing is it’s not all about price. A lot of people want to, you know get the best deal and that’s great, you should shop around, try to find a good rate for yourself, but don’t cut coverage to get that good price.
A lot of companies offer different things, different options, different limitations. Just know what you’re buying. Okay, so you got to think about your budget.
but also think about the coverage that you’re purchasing. Exactly. So, the law does require all drivers to have at the minimum liability, but I think there’s some confusion there about what that actually covers, so what does liability cover?
So liability covers you if you’re at fault in an accident it’s gonna pay the other person for their injuries and for the damage to their car. So say you know, you’re driving and you side swipe someone, you didn’t know they were in your blind spot and you hit them That happens. All the time.
Unfortunately. All the time. So that’s gonna, your liability coverage is gonna pay for that person’s car, to get that person’s car fixed, that’s going to get them into a rental car and it’s gonna pay for their injuries too. And the, the law provides minimums for each accident right? What are those minimums?
So those minimums are, it’s $25,000 for property damage, that’s the damage to their car or other structures if you happen to hit something else. Then it’s $30,000 for the injuries to the other person, up to a total of $60,000 for that entire accident.
So you may hear those numbers refer to as is it 25 or 20? Usually it’s 30/60/25 is what you might hear and that’s what those stand for. So are those minimums enough for the average person or should you consider going higher than that?
Definitely recommend going higher even though no insurance is worse than minimum limit. So minimum limits is what you can afford that’s better than nothing, but usually it doesn’t cost, you know a few more dollars to double those limits and if you think about, you know what if that car you side-swept it was a Tesla? That $25,000 is not gonna go very far.
Right. So we definitely want to recommend increasing those as far as you can. consider, what you can afford. Again it’s a combination of what you can afford, versus what you’re buying there. So that covers somebody else’s car that I’ve damaged but liability that doesn’t do anything for my vehicle correct? Correct.
So what do I get to cover my car? So usually what you purchase is collision and comprehensive coverage. Collision coverage kind of does what it says. It pays for your car if it’s damaged from colliding with anything. And then comprehensive coverage covers anything else.
So that covers… anything else? Things out of your control. Maybe not anything else, but it covers things like theft, and it covers things like hail. nonaccident kind of things that could happen? Yes. Exactly it does cover if you hit an animal, so just be aware of that, that sometimes not covered by collision.
I think those terms are some that people sometimes cross or get confused comp, comprehensive, collision because they, they sound the same, they’re both long C words, but they generally come in a package, right? Usually. Most companies offer them together and there’s a deductible usually.
They’re $500 or a $1,000 deductible. So you set that and that helps determine how much you’ll pay monthly, but also what happens after an accident Yes, so make sure that deductible that you set is something that you feel comfortable paying if you had an accident tomorrow.
And we talked about cost a little bit but, when you get into beyond liability, into comp and collision and things like that, you are talking about higher cost for yourself. Yes. It’s more coverage so it is more cost, but if you have a lien holder they might require you to have that, so you probably want to budget that.
And also if you know you’re in an accident tomorrow, if you can’t pay to replace your car, probably should think about having collision and comprehensive on your policy. Whether or not you’re still paying on the car, if you can’t afford to replace it you might want to… Yeah … add that onto your monthly budget.
Exactly. Okay. So that’s a little bit about comp and collision and the cost increases there. Are there other kinds of coverage that you might be offered when you start your shopping for auto insurance? Yeah there’s a few others. So first of all we know that 12% of the cars out there on the highway actually don’t have liability insurance.
So if they hit you, there might not be any coverage for your injuries or your car. That’s an uncovered, uninsured driver. Uninsured drivers. So it’s uninsured or underinsured motorist coverage is the name of it. Definitely recommend that.
If you’re injured, that pays for you and your passengers. It also pays to fix your car. Now what’s the difference between uninsured and underinsured? Is that about the limits again? Yeah so it’s about the limits again. Someone is obviously uninsured if they have no insurance.
If they’re underinsured, maybe they just have that 30/60/25 that we talked about, and that’s not enough to cover your full amount of damages so. So that person has their legal responsibilities covered, but you’re still not made whole so you might want to add a little coverage on top of that.
Exactly, yes. Other things that they might encounter when they’re shopping for insurance. Specialty items? There’s a few other optional coverages. So there’s a medical payments and personal injury protection that covers you and your passengers for your medical payments like it says.
Personal injury… Where does that come into play? Is that during the uninsured driver is that just medical not covered with your regular insurance and your comp and collision So that, yeah it’s not covered under your comp and collision, but that’s covered, that covers even if you’re at fault, if you’re not at fault, either way it’s just a little bit of medical payments coverage for you and your passengers.
Okay. And so those are some things that you can consider. Lots of different items. Again, liability is what the law recovers, requires of you, but if you want to raise those coverages you may have to pay more.
But again, you may need to you need that coverage. So think about those kinds of things, like Nicole said at the beginning, you can’t just go on the bottom line because there are situations where you might want that coverage.