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When getting your financial house in order, don't ignore one of the most important structural foundations: insurance needs.
Don't ignore one of the most important structural foundations: insurance needs.
Whether it's life insurance, vehicle insurance, homeowners insurance or renters insurance, it's worth taking time to give yourself an insurance checkup.
"It's critical for service members, and really any consumer, to do an annual check. Their needs change," said Gerri Walsh, president of the FINRA Investor Education Foundation. "It's critical to reassess to ensure they're not overpaying for policies they don't need, or underinsuring themselves."
A key point to remember about all types of insurance, she said: "Insurance is meant to cover the costs you can't afford to bear."
As you review your finances and your insurance coverage, a word of caution: "When families are looking at ways to trim their budget, that life insurance [premium] is often fair game. It shouldn't be," said Roy Gibson, president of Military Benefit Association, an organization that has sold life insurance to the military community since 1956.
Life insurance provides income and security after a person dies.
"If you give it up, you're jeopardizing your family's future," he said.
Here are some points to consider in your checkup:
• Have your needs changed? Have you married? Had a child?
If you're a service member, unless you opt out, your life is insured for the maximum $400,000 coverage under the Servicemembers' Group Life Insurance program, which costs $27 a month regardless of how old you are, as long as you're on active duty.
For most people, that's plenty of insurance, Walsh said. But as your family grows, or if others become financially dependent on you, you may need to consider whether you need more.
The Veterans Affairs Department, which administers SGLI and the Veterans Group Life Insurance Program, also offers an insurance calculator at http://www.benefits.va.gov/insurance">www.benefits.va.gov/insurance. Scroll down to "Assessing your life insurance needs."
If you need insurance beyond $400,000 in SGLI coverage, Walsh suggests shopping for term insurance, which is typically cheaper than permanent policies such as whole life, universal life and variable universal life.
Term insurance is for a specific amount of time, generally has lower premiums in the early years and doesn't build up cash value. This allows people to plan for specific situations — such as ensuring your spouse could provide food, clothing, a comfortable household, pay off debts, and pay for your children's college education if you died unexpectedly.
The time period for that insurance could be tailored to the time when the children finish college, for example. "Your family is taken care of, but once you no longer need it, you no longer have the policy," Walsh said.
"Ideally, you have an insurance benefit that allows you to pay off the mortgage, so the spouse doesn't have to go to work or get another job to pay the mortgage," MBA's Gibson said.
After determining what these needs and expenses are, he said, "consider what you already have in savings, investments, death benefits and other resources," and make sure your life insurance benefit could make up the difference.
Gibson suggests service members periodically evaluate other aspects, such as their income level.
"If you're making more money, your family's lifestyle may have changed, and your insurance needs may change," he said.
• When did you last update your beneficiaries? If you designated your parents as the beneficiaries of your $400,000 SGLI policy before you got married two years ago, it may be time to change that designation — unless you still want your parents to get that money. You might not worry too much about it, thinking that your parents would just give the money to your spouse and children. But don't assume; families have been torn apart in such situations. The only way you can truly ensure that your spouse receives that money is to designate him or her as a beneficiary.
• Are you leaving the military? Your low-cost SGLI insurance policy doesn't go with you when you separate or retire. Those who wish to do so can transfer into the Veterans Group Life Insurance program; VGLI costs more, but it's automatically available, with no physical exam required, to those previously insured under SGLI, if the coverage is converted within 240 days of separation.
Coverage is available regardless of medical conditions, such as illness or war wounds. VGLI is available in increments of $10,000, up to $400,000 or the amount of your SGLI coverage while on active duty, if less than the maximum.
If you're leaving the military soon and need to replace your SGLI with another policy, shop around before you separate or retire. This keeps your options open. If you can't find a cheaper policy in the commercial market, or find out no one will insure you, you'll still have the VGLI option.
Just make sure you sign up for VGLI within that 240-day window; you can always cancel later if you find a better option.
Gibson encourages troops to replace SGLI while still on active duty.
"Don't wait until after you're discharged to get association insurance," he said. "If you do, you'll get the same underwriting as John Q. Public on the street," he added, which means getting insurance could be more difficult or expensive.
• Do you have the right amount of coverage? Auto insurance is required in every state, but most states require only liability insurance, FINRA's Walsh said. Evaluate whether the amount of liability coverage you have is enough to protect your income and assets if you were sued.
But liability coverage alone "doesn't help if you need to repair it in an accident," she said.
So you may need collision coverage for damage when your car collides with another car or a tree, for example. Comprehensive coverage is for damage for almost anything other than a collision — fires, floods, extreme weather, theft and vandalism.
Do you need Guaranteed Auto Protection insurance? If your car is new or nearly new and you have a loan, GAP insurance covers the difference between what your insurance company will pay out and the amount of money you owe on your car loan if there is a total loss.
On the other hand, if your car is older and its loan is paid off, or close to it, you might consider opting out of collision and/or comprehensive coverage. Look at how much of your premium is going toward collision and comprehensive coverage, or ask your insurer, and weigh that against the value of your car. Decide if you'd be better off putting that money into savings instead.
States have minimum requirements for liability coverage, so make sure you check your policy to see how much coverage you have. Bodily injury liability coverage protects you against claims from other people when you cause an accident that results in medical expenses and lost wages, for example. Property damage liability coverage pays for damage that your wreck causes to such things as other vehicles or mailboxes.
• Are you deploying soon? If so — and if your vehicle will sit idle for months in a storage facility — let your insurance company know. It may reduce your premium.
• Should you increase your deductible to save money on premiums? When you purchase collision and comprehensive coverage, you choose the dollar amount of your deductible — typically $250, $500 or $1,000. If you're in an accident, you'll pay for the first $250, $500 or $1,000 worth of damage to your vehicle.
The lower the deductible, the higher the premium, so Walsh advises carrying the highest deductible you can afford.
"Again, insurance is meant to cover the costs you can't afford to bear," she said.
If you have enough money in your emergency fund to cover the deductible without draining the fund, consider increasing the deductible, and put the money you save into the emergency fund.
• Have you updated your coverage? If you've remodeled your house or made other changes that increase its value, let your insurance company know, because the value of the property has probably increased, said Mechel Glass, vice president of community outreach for CredAbility, a nonprofit credit counseling and education organization.
Review your homeowners' policy to ensure you have coverage for replacement value, not just current market value, Walsh said.
Along the same lines, ensure you have adequate coverage for the items within your house. You might need to update your coverage if you've made some purchases.
"If you have high-priced items, make sure the policy covers at least the most expensive of those items," Walsh said. "You might have to ask specifically about high-cost items like jewelry or to replace unique items like antiques or collectibles."
• Do you need flood insurance? All homeowners in federally designated high-risk flood areas with mortgages from federally regulated or insured lenders are required to buy flood insurance. In moderate- to low-risk areas, flood insurance isn't required — but remember, there is no such thing as zero flood risk.
• Should you increase your deductible? As with auto insurance, if you increase the deductible on your homeowners' insurance, you can save money on your insurance premium. Just ensure you have enough money in your emergency fund to pay the increased deductible if your home suffers damage.
• Are you a landlord? If you're like many military members stuck in the housing crisis who have been unable to sell their homes before a permanent change-of-station move, and chose to rent out the property instead, make sure you have adequate coverage because you're still responsible for the structure, Walsh said. Let your insurance company know you now have tenants. If they won't continue coverage for your home, shop around, because other companies will.
• Cover your belongings. If you've moved to a new installation, make sure you have insurance coverage for your possessions. You need renters insurance even if you live in barracks or family housing. Sometimes military privatized housing companies offer renters insurance.
Too often, people think their property is covered by their landlord's insurance.
"If a neighbor is smoking in bed, everything could go up in flames, and you could lose everything," said CredAbility's Glass. "That's a terrible place to be in because you don't have insurance."
Read the policy to make sure it covers losses from theft, too.
• Save money with bundling. If your insurance company offers various types of insurance, sometimes you can save money by "bundling" various types of insurance — such as auto and renters insurance.
This can be added to your homeowners or renters policy to protect your assets if something goes awry and you get sued. For example, someone could slip and fall in your home, or your dog could bite a neighbor's child. Spouses or veterans who own businesses also need to have liability insurance. Talk with your insurance provider to see if it makes sense for you, Glass said, noting that substantial assets usually are involved before this becomes a consideration.
Long-term care insurance
There's no magic age at which you should start looking at buying long-term care insurance — but waiting could cost you money because rates increase as you get older. And by applying early, you avoid the risk that a future illness or condition would disqualify you from coverage at a later date.
Check out the Federal Long-Term Care Insurance Program at http://www.ltcfeds.com">www.ltcfeds.com, or call 800-LTC-FEDS (800-582-3337). The program is open to active-duty and retired service members, as well as federal employees and annuitants, and their qualified family members.