The Simple Dollar: “Best Life Insurance Companies for 2014” plus 2 more
The Simple Dollar: “Best Life Insurance Companies for 2014” plus 2 more |
- Best Life Insurance Companies for 2014
- If I Can Suggest One Financial Move to Anyone, It’s This
- The Rise of Black Box Car Insurance
| Best Life Insurance Companies for 2014 Posted: 22 Oct 2014 03:00 PM PDT Life insurance can ease your loved ones' financial worries if you die unexpectedly, but it's just as essential for your own peace of mind. In short, life insurance helps replace your lost income after you pass away, keeping any beneficiaries you name insulated from major money troubles that stem from your death. The best life insurance companies offer a wide array of coverage options, superior customer service, and their own financial stability as an incentive to give them your trust — and money. In my research, three companies came out on top: Read on to discover why these companies stand out from the competition. Further down, I'll explain how I made my picks. I'll also provide a primer on life insurance types so you can make sure you're shopping for the right product. Once you're ready to start your search for a life insurance company, the quote tool below can help you find the best deals in your area. Best Life Insurance Company Overall: State FarmOne of the largest insurers in the nation, State Farm is also consistently rated one of the best. In fact, it was the only company to earn the highest rating in every category of J.D. Power's 2014 customer satisfaction survey. It's also on rock-solid financial footing, earning A.M. Best's highest-possible A++ rating. State Farm also shines with a consumer-friendly business model that combines online convenience and, if you prefer, a more personal, agent-driven experience. Their website is user-friendly, requiring a minimum amount of identifying information before getting quotes for different kinds of policies all on one page. However, the quote I received for term insurance was among the pricier ones I received, and the company's fees and charges can be on the higher end, too. Upsides
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Best Term Life Insurance Company: TransamericaMany customers choose term life insurance because it's their most economical option. Transamerica blew away the competition on price, quoting me just $22.75 a month for a 20-year, $500,000 term policy. But perhaps even more importantly, Transamerica offers flexible, comprehensive term coverage options. Their "Trendsetter Express" term life doesn't require a medical exam, making coverage available sooner. Another plan offers an option to convert to permanent insurance later on, while a "living benefit" feature lets you use policy benefits for certain critical illnesses. There is a wide range of terms and coverage amounts, too. While it didn't perform poorly, Transamerica was not as highly rated as some competitors in customer-service surveys. Upsides
Downsides
Best Whole Life Insurance Company: State FarmMy pick for the best insurance company all-around, State Farm is also a particularly good choice for whole life insurance. You can actually receive a quote for whole life insurance online. This is a major plus, as many companies limit online quotes to term policies (if they provide online quotes at all). State Farm's whole-life options are comprehensive, including limited-pay, single-premium, and final-expense policies. Low minimums and disability waivers are among other policy benefits. Upsides
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Best Universal Life Insurance Company: PrudentialPrudential particularly excels when it comes to universal life for two major reasons. First, it offers online quotes for universal life insurance — most companies require you to call an agent. Second, it offers a comprehensive range of five universal life policies that are easy to directly compare online. Fixed, variable, and return-of-premium death benefits are available. Prudential also has strong financial ratings. However, if you still want to compare universal and whole-life policies, you're out of luck: Prudential does not offer whole life. Upsides
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Selecting the Best Life Insurance CompaniesI looked at several factors in my search for the top life insurance companies, including customer satisfaction surveys, the online experience, coverage options, and the insurer's financial strength.
Make sure you have an idea of what you need before you start comparison shopping. If you still need a primer on the different types of life insurance and which one is right for you, read on. Types of Life InsuranceLife insurance is among the more complex financial products, but one of the most important. It's essential to understand the different policy types before you buy. There are significant differences between term, whole, and universal policies. Knowing the basics will help you figure out which type of life insurance is right for you. Term life insuranceA term policy is life insurance at its most basic. It's also the most affordable type of coverage. Just as the name suggests, you get a term life insurance policy for a fixed amount of time: 10 or 20 years, for example. If you die during your policy's term, any beneficiaries you've designated will receive benefits. Term life's biggest downfall? If your policy ends and you're still alive and kicking, the insurance company keeps your money — you get nothing in return. It can also be difficult to qualify for a reasonably priced term life policy if you're older, have known health issues, or are at higher risk for health issues because of smoking or obesity, for instance. Whole life insuranceWhole life insurance is a bit more complex and comprehensive than term life insurance. Like term policies, whole life insurance pays a death benefit if you pass away. But, unlike term policies, whole life policies cover you for your entire life. You'll pay the same bill every month, and as long as you're paying, your coverage can't be canceled. There's another benefit, too: Your insurer socks away a portion of your payments in an account that builds cash value tax-deferred, and you can actually borrow against this without paying taxes. The major downside of whole life insurance is that it's more expensive than term coverage. Although a portion of your premiums will be invested, you generally have no control over how this is done. Many financial experts warn that you're unlikely to be impressed by the returns. Universal life insuranceThe basics of universal life insurance are similar to those of whole life policies. You pay your premium as long as you're alive, and the policy is guaranteed to pay a death benefit when you pass away. Like whole life insurance, some of the premium is invested on your behalf and the same tax benefits apply. However, with universal life insurance, you have more control over the particulars of your policy. You can adjust the amount paid out as a death benefit, and you can generally alter the amount of your premium and how often you pay it, too. Like whole life insurance, your policy will have a cash value you can borrow against, and you can even use this to foot the bill for your premiums. Variable plans even let savvy investors control where their money is going. Again, cost is the major downside here. Universal life insurance is the priciest kind of coverage available. Just as with whole life insurance, you might not be satisfied with the rate you earn on the invested premium. Finally, universal life is the most complex type of insurance product, and you'll definitely need a seasoned expert to help guide you. What Kind of Life Insurance Do I Need?The kind of life insurance that best suits you will depend on your unique circumstances, but there are some general rules of thumb. Term is probably your best betExcept in special circumstances, term life is probably going to make the most sense. Why? It's simple to understand and easy to compare across insurance companies. It's much more affordable than whole or universal policies, and the death benefit gives you the most bang for your buck. Finally, term life insurance doesn't lock you into an investment vehicle that may not give you the best returns. There are rare cases where whole or universal policies might be worth a look. If you're wealthy and looking for investments where you can grow your money tax-free, these policies can be a solid option if you've already maxed out your retirement savings. Those who expect to owe a lot of estate taxes can soften the blow by transferring their paid-off policy to someone else, too. Finally, some financial experts recommend looking at whole or universal policies if you don't have the discipline to simply buy a term policy and invest the rest of your money. Remember, life insurance is meant to give your beneficiaries a financial cushion in the event of your untimely death. If no one is depending on you and your income, you may not need life insurance at all. This holds true regardless of age. One thing to think about, however, is whether you want to leave family members on the hook for your funeral expenses or debts for which they've cosigned. In that case, you may want an inexpensive burial or term policy. How much insurance should I buy?Your magic number will vary according to your circumstances, of course. For a rough estimate of how much life insurance you need, some insurance advisers simply tell you to multiply your income times 10. However, that doesn't take into account potentially crucial information, including how many dependents and the type of debt you have. For a more accurate number, you'll need to consider several factors, like how much your spouse and any children will need to maintain their standard of living without your income, whether any of your children will need help with college, and what your mortgage and other debts are. To arrive at a number, consider using an online calculator such as this one from Life Happens. Beginning Your Search for the Best Life Insurance CompanyLife insurance is a smart move for most people who need to look out for their loved ones. Now that you have a better sense of the different types of life insurance and what's right for you, it's time to comparison shop. Start by using our quick and easy quote tool, which will let you see offers in your area. The post Best Life Insurance Companies for 2014 appeared first on The Simple Dollar. |
| If I Can Suggest One Financial Move to Anyone, It’s This Posted: 22 Oct 2014 07:00 AM PDT Save for retirement. Period. There are very few adults in the United States that are of working age that aren’t affected in a positive way by saving for retirement. For virtually all of those people, saving for retirement – or saving more for retirement – is a strong positive move. If there was one financial move that I got right before my personal finance meltdown in 2006, it was that I saved for retirement from the day I started working. Almost every mentor I had in my life encouraged me to sign up for this the second I started work and, for once, I actually listened to their money wisdom. (If only I had listened to other elements of their advice, such as “pay off your student loans quickly” and “don’t elevate your lifestyle now that you’re making more money” and “spend less than you earn.”) Let’s start off with the most obvious question. What About Debt Repayment?This is the first question that a lot of people are going to ask, and it’s a good one. The problem is that it’s not the best advice for everyone. It turns out that only around 47% of American households have any credit card debt at all, and of those that do, many of them have a very small amount ($1,000 or less). It’s only a relatively small number of American households that are deeply underwater in high-interest debt. Obviously, eliminating your high-interest debt (and not acquiring any more) should be the top financial move, but that move really applies only to a minority of American households. The averages that we hear, like the average credit card debt of indebted American households is about $15,000, are skewed by a fairly small handful of households with large amounts of debt. The truth is that the majority of American households have no credit card debt and, of the ones that do, the majority of those have a relatively small amount (less than $4,000). If you have significant high interest debt, getting rid of that should be your highest priority. However, that advice applies only to a minority of Americans. Why Retirement Savings?Every single American under the age of seventy that isn’t drowning in credit card debt will benefit from saving for retirement. Period. There are a bunch of reasons for this. First of all, Social Security probably isn’t going to be enough. Take a look at your most recent Social Security benefits letter that you received in the mail. Could you survive on that level of income? Could you live an enjoyable life at that level? If the answer is “no,” you need to save for retirement. Social Security benefits aren’t going to go up. You aren’t going to magically have a mountain of money fall on your lap between now and retirement. You need to do it yourself, period. So, what exactly is “retirement savings”? “retirement” savings just means normal savings that has very nice tax benefits. There are essentially two different ways to score those benefits, depending on which retirement account you use. (Remember, retirement accounts – like a 401(k) or a Roth IRA – is essentially a special type of savings account that gives you some options as to exactly how to save and helps you out with your taxes.) First, if you contribute to a 401(k) or 403(b) – which is likely offered through your workplace, you’re going to reduce your income taxes for this year. What this means is that less taxes will be taken out of your paycheck than before. There’s not an exact formula for this, of course, because it depends on a lot of factors like your income level, your number of dependents, and so on, but your taxes will go down if you contribute to a 401(k) or 403(b). For example, if you put away $20 into your 401(k) each paycheck, your taxes from each check might drop by $6, which means your paycheck would only drop by $14. (You do have to pay taxes when you finally start making withdrawals, but you’ll likely be earning less money then, so you’ll pay less taxes at that point, too!) On the other hand, if you contribute a Roth IRA – which you’ll have to set up on your own, you will pay no taxes on your withdrawals from that Roth IRA if you do it after age 59 1/2. None. If you’re 25 and put $1,000 in it and it grows to $5,000 by age 60, you can pull that $5,000 out and pay no taxes at all on it. The government will basically pay you (in the form of lower taxes) to save for retirement. Furthermore, if your employer is kind enough to offer matching, it’s free money! Every dollar that they offer in “matching” money is just free money for you, period. Let’s say that your employer matches 100% of your retirement savings. Remember that example where I suggested putting $20 per paycheck into your 401(k)? That $20 immediately turns into $40. In other words, you’re putting $40 per paycheck into your retirement savings and it’s only dropping your paycheck by $14. Your $14 in take-home pay turns into $40 in your 401(k)! That’s amazing! If someone said “if you give me $14, I’ll give you $40,” you’d do it over and over again, right? That’s exactly what matching funds are like. They are a giant no-brainer gift to you. At the same time, the “savings” part of the equation means that you’re putting money away for your future. No matter how your future turns out, having that money set aside is going to help you. Let’s say you reach age 62 and you can no longer find a high-paying job. That money you socked away for retirement, along with your Social Security benefits, is going to enable you to keep having a pretty good life. What if you have a great job at that point? Your retirement savings allows you to keep bringing home the bacon while you want to and gives you the freedom to walk away whenever you want and follow whatever path you’d like. What if you dream of starting a second career, like writing a novel? Your retirement savings can easily finance that. No matter whether your life is going great in your sixties or if things aren’t going as well as you’d hoped, that retirement savings money will make things better. It can turn a difficult situation into a pleasant one. It can turn a good situation into a great one. It will simply make your life better. What About Other Financial Goals?Different people might have other financial goals in mind. Let’s look at them. What about saving for my children’s college education? It’s almost always preferable to save a healthy amount for retirement before saving anything for college. You should be saving enough to make your retirement secure before saving for college. Why? First of all, there’s no guarantee that your child will choose to go to college or that the expenses will be significant. Second, money saved for college takes away from your personal retirement savings, which increases the likelihood of you becoming an economic burden on your kids later in life. Third, you can usually tap your retirement savings to pay for that education should you choose to do so. Finally, there is some value in having your child figure out how exactly to pay for college on their own, as this creates the idea that college has real value. What about saving for a house down payment? As this U.S. News and World Report article describes, most financial advisors recommend saving for retirement before a down payment. In general, the suggestion seems to be that you should be saving 10% of your income for retirement before saving anything for other goals (except for high-interest debt repayment). What about an emergency fund? Everyone should have a small emergency fund – say, $1,000 in savings – before pursuing other financial goals. If you don’t have that, save for that first. After that, you can use your own judgment, but I would still prioritize retirement higher than a larger emergency fund. What about having fun? Having fun doesn’t cost money. Sure, there are some avenues of personal enjoyment that have a financial cost, but many do not. If you’re skipping out on retirement savings because you refuse to sometimes choose free things to do with your time, financial advice probably won’t help you with your situation. Final ThoughtsThis is a simple one. If you are an adult American under the age of 70 with a job and without a mountain of high-interest debt, there’s basically no reason why you shouldn’t be saving for retirement. This is something that you need to be doing. Not only that, the government has made it pretty easy for you. The vast majority of Americans can open a Roth IRA. Many, many employers offer a 401(k) or 403(b). Honestly, signing up for either one is fine. It matters more that you’re saving 10% of your income than anything else. Don’t know which investment choice to make? Just look for a Target Retirement investment that matches the approximate year when you turn 65. So, if you’re 40, look for a Target Retirement 2040 investment. Put all of your money in there. It’s essential. It’s pretty easy. Just do it. The post If I Can Suggest One Financial Move to Anyone, It’s This appeared first on The Simple Dollar. |
| The Rise of Black Box Car Insurance Posted: 22 Oct 2014 05:00 AM PDT  Devices that track driving behavior can help lower your premiums — and keep tabs on teens. Photo: State Farm Car insurance companies have always looked for ways to maximize profits by minimizing their risk. Insurance companies make money by taking in more in premiums than they pay out in claims. It’s hard to raise premiums in a competitive market, so reducing risk is the easiest way for them to become more profitable. Making money would be a lot easier for insurance companies if they weren’t in competition with one another. All they would need to do is tally up how much they expect to pay out in claims based on their own history, add in a profit margin, divide it all by their number of policyholders, and voila: The insurance company makes a tidy profit. Sadly — for insurance companies, anyway — there is competition. Further complicating things for them are strict state regulations that ensure consumers get what they pay for, including having legitimate claims paid. That leaves insurance companies with only one option to stay both competitive and profitable: Do a better job of evaluating and charging for risk than the other guy. Calculated RisksCar insurance companies have been looking for better ways to calculate risk since the invention of the automobile. But for decades, car insurance companies have based customer premiums on the same handful of factors: the age and gender of the driver, the make and model of the car, and the driver’s record. Underwriting, which is the process insurers use to calculate car insurance premiums, uses past experience (claims paid) for different criteria to come up with an estimate of what they can expect from a new customer. Each insurance company uses their own formulas to calculate their rates, which is why there prices vary from one company to another. Generally, though, they all start with the same criteria. AgeYoung drivers pay a higher premium than older drivers for several reasons, starting with experience. As with anything else, the more you practice something, the better you get. This is why more experienced drivers get into fewer accidents. Younger drivers also tend to take more risks than their older counterparts, and this is especially true of young men. GenderMen are more aggressive drivers than women. Men tend to drive faster and take more risks — such as weaving in and out of traffic — than women. By every measure, under identical circumstances, male drivers will accelerate more quickly and brake harder than women. These and other traits of aggressive driving put men at greater risk of not just getting into an accident, but causing more damage when they do. Make and ModelThe car you drive affects your premium in two ways. The first concerns the size of potential claims. This is because the more expensive the car, the more costly it will be to repair the damage done to it. The second relates to how the car is driven. A sports car like my Mustang 5.0 goes much faster than my wife’s Honda. That, when combined with the age and gender of the driver, can mean that if an accident does occur, it will likely happen at a higher speed — and cause more damage to property and people. Driving RecordThe best indicator of future outcomes is past performance. That is the logic used to determine which team is favored in a game and in predicting how someone will drive in the future. That means if you have had an accident that was at least partly your fault, chances are greater that you will have another. The same is true of traffic violations such as speeding or running a red light. If you did it before, you’re more likely to do it again, and that makes you a bigger risk. Credit ScoreIn the past 10 years a growing number of insurance companies have started using credit scores as one of the factors they use to determine car insurance rates. Whether the concept was started by insurers looking for a competitive edge or by credit bureaus looking for a way to boost sales is unclear. Car insurance companies don’t look at full credit reports. They are only interested in your three digit FICO score, which is on a scale from 300-850. The premise is that your credit score indicates your sense of responsibility. The higher your score, the more responsible you are. They believe that people who pay their bills on time are more responsible and file fewer and smaller claims than people with lower scores. Companies using credit scores are confident that the theory is correct — so much so that it’s possible a driver with a ticket and a minor accident and a high FICO score will pay a lower rate than someone with a low credit score and a clean driving record. Pay As You GoThere can be three parts of a car insurance policy, of which two — liability and collision — usually require your car to be moving to generate a claim. Liability pays for damage you cause to other cars, property, or people if you are at fault. Collision pays for damage to your car, regardless of whose fault it is. Insurance companies have always recognized that the less someone drives, the lower their chances are of generating a liability or collision claim. Ever eager to find ways to attract lower risk drivers (people who drive less), insurance companies began offering pay as you go rates that are based on how much you drive. It works like this: Take 32-year-old identical twins John and Philip. They drive the same make and model car, their driving records are both spotless, and their credit scores are identical. They share the same insurance company. The only difference is that John pays about 15 percent less than his brother for the same coverage. That’s because John only puts about 8,000 miles a year on his car while Philip travels at least 15,000 miles a year. Pay-as-you-go, mileage-based rates, while still available from a handful of companies, have morphed into something more. TelemetricsAs a middle-aged man who drives a very fast car very fast, I confess that sometimes I feel like I’m flying a fighter jet and the only thing missing is the black box. Airplane black boxes record information such as altitude, speed, and navigational heading. When accessed after a plane crash, black boxes provide investigators with clues about what might have gone wrong. The information contributes to changes in aircraft design or pilot training that are implemented in the future to make air travel safer. Telemetric devices are the automotive equivalent of an airplane’s black box. These handy dandy devices are not entirely new. Most cars made in the last five years are equipped with a sort of black box that is about the same size as couple of packs of cigarettes. They are activated if you brake hard and are part of your car’s airbag system. They record information starting from the moment you jam on the brakes. They measure your speed and rate of deceleration and whether an impact occurs. Information contained on them may make its way into court for the first time as part of the class action suit against General Motors. For the past dozen years or so parents of newly minted teen drivers have had the ability to install real black boxes in the family car. They serve as a way of ensuring that young drivers follow the rules. These devices monitor acceleration, deceleration, average speed, top speed, and cornering. They use GPS to keep track of where and when teens are driving. Some models are equipped with warning beeps that alert young drivers to bad habits. The warning systems remind junior not just to slow down, but that he’s being monitored. Insurers responding to competitive pressures and the early success of pay as you go premiums began offering their own take on black box technology to customers. Customers are invited to install the devices with the promise of discounts of up to 50 percent. The most aggressively marketed of these is Snapshot from Progressive. All of the devices connect to a port on your car’s steering column. Snapshot tracks how often you brake hard, how many miles you drive each day, and how often you drive between midnight and 4 AM. Some Snapshot devices use GPS to track location, which Progressive says is just for research purposes. Progressive is not alone in marketing telemetric devices to customers. Travelers Insurance’s IntelliDrive and State Farm’s In-Drive, as well as others, are making major inroads with customers in search of lower rates. In-Drive tracks braking, acceleration, turns, time of day, and speeds over 80 mph. IntelliDrive logs braking and acceleration, average speed, and uses GPS to log where and when the car is driven. As an incentive to get customers to sign up for the devices, insurers are offering discounts of up to 15% right out of the gate and deeper cuts down the road. The sign-up discounts are not permanent. Initial discounts remain in place between 30 days and six months, at which point a permanent renewal rate is established. Permanent rates are based on data collected by the monitoring devices. Discounts are subject to continued monitoring by the plug-in modules. Each of the systems allows customers to monitor their own performance by viewing online statistics about their driving. Some even offer email alerts for changes or behaviors that fall outside the norm. Some are marketing the monitoring and reporting features as a way for users to kill two birds with one stone: paying less for insurance and monitoring young drivers. So far, all of the companies that have rolled out telemetric devices insist that customers will not be penalized with higher premiums if the devices report bad habits. Insurers maintain that the worst-case scenario for consumers will be not receiving a discount. But if history is any guide, it may be only a matter of time before insurers change their minds. What’s more, it may not be long before the devices are required for coverage. Customers could then be rated on their driving habits and both rewarded with discounts or penalized by higher rates as a way to further improve bottom lines in the insurance industry. Big BrotherSince the 1970s consumers have grown more and more comfortable with behavior-based pricing. They have also grown accustomed to corporations having intimate knowledge of their spending habits. Credit card companies base consumer interest rates on credit reports. These are little more than report cards on past behavior. Credit card issuers also use spending habits to predict who might be interested in marketing to us and make our names available to “partners” for a price. In other words, they sell our information, either about us as individuals or in the form of metadata. Some of the telemetric devices in use already have GPS built into them. Progressive says that some of its devices may have GPS but the information they collect is not used to determine rates. State Farm takes a similar position on the GPS functionality of their device, saying that the information collected is only “to help ensure safety and security.” Travelers actively markets IntelliDrive’s GPS tracking as a positive feature for parents of teen drivers, who can can find out not only how their cars are being driven but where. Privacy advocates question how long it will be before insurers seek to capitalize on information that is potentially worth billions of dollars. Whether the information gathered is sold based on the behavior of individuals or packaged as metadata, its value is incalculable. It would enable marketers to further hone their demographic data, combining spending habits and other information gleaned from credit card companies and credit bureaus with information about where and when we go about our daily business. That information could be used to create anything from next-generation roadside advertisements tailored to different commuters at different times to direct mail and email based on our habits. The post The Rise of Black Box Car Insurance appeared first on The Simple Dollar. |
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