• Michael D. Wong, CLTC, DDS

Are insurance deductibles worth it?

Deductibles…What Are They Worth?

Renters, Health, Homeowners, and Car insurance…What do all of these have in common? A lot actually, but the topic for today is that they all have deductibles. What is a deductible though, and how do you choose the right one?  In an insurance policy, the “deductible” is the amount that must be paid out of pocket (by the policy holder) before an insurance provider will pay any expenses. 

So how do you know which level of deductible is best for you?  (Ignoring health insurance, as it is much more complicated) choosing the right deductible comes down to three simple, yet imperative questions.  First, how much is the price difference between the coverage for the different deductibles.  Second, how often do/will you file a claim? Third, how much do you have in savings? 

How different is the price between the policies with different deductibles?  To answer this, you will need to have your agent run the numbers for you.  You may be astonished at the difference in prices. The difference could be as little as $10/month, as much as $150/m or it could be more!  The important thing to determine is how much money could you save each month?  Keep that number in the back of your head for a minute as we go through the other 2 questions. 

The next question is, how often have you filed in the past, and how often will you file a claim?  Is it homeowner’s insurance that you have never filed a claim in your life?  Is it an automobile policy, and you have a teenage driver who has wrecked three times in the past year?   It is important to use realistic numbers, not optimistic ones. The important thing you need to determine is how often will you be paying your deductible?  The last question is, how much do you have in savings?  How high of a deductible can you afford to pay?  Do you have no savings, and will be financially crippled if you must pay a $1,000 deductible?  What happens if you must pay it twice?  Do you have large savings and can comfortably pay the deductible with no stress?  This is important, but also you should realize that the savings you can get can help you build this up. 

Once you know those three things, it is then a balancing act.  For example, in car insurance again, if you can save $60 bucks a month by going from a $500 deductible, to a $1,000 deductible, knowing that you have $3,000 in savings and haven’t used it in over 5 years.  You could have saved (60*12*5) $3,600.  Now you can pay your deductible 3 times over.  Even if you don’t have any savings, you could have enough to pay the difference in deductibles in under a year.  On the flipside, let’s assume you are in the same situation but you have high risk drivers and use your insurance regularly 1-2 times a year.  That $60 you save each month is not making up for the amount you are having to pay in deductibles, so it does not make sense. 

Demystifying the Myths About Life Insurance

The prospect of buying life insurance is intimidating. After all, it forces you to think about your death, which is not something anyone wants to do. Because it is an often-taboo topic, there is an unfortunate amount of misinformation and misconceptions surrounding this valuable tool. It doesn’t matter if you are single or have a house full of children, there are very few individuals whose families won’t benefit from a financial safety net.  Here, we will clarify some of the most common misunderstandings about life insurance and the financial impact of death.

I am single and make good money, so there is no reason to pay for life insurance.

This is one of the most prevalent reasons that single people don’t buy life insurance. But, a funeral is expensive, and your loved ones are the ones left footing the bill. Even if you leave behind a hefty bank account, your family may not be able to access your money, and there may be disagreements about who inherits your assets. At the very least, you should consider a small life insurance policy to cover your burial and funeral expenses. Make sure to designate a primary and contingent beneficiary.

My family cannot afford to pay taxes on a death settlement.

Beneficiaries are usually not required to pay income taxes on a death benefit. They will, however, pay taxes on interest received and on any interest, the money gains over time.

I’m in debt, but they can’t collect if I’m dead.

This is absolutely untrue, and companies, corporations, and even individuals to whom you owe debt have a legal right to collect from your estate. Debt doesn’t just go away if you pass. Instead, like your money or property, it is essentially inherited. Usually, this involves probate proceedings and the judge appoints an executor to first pay off any outstanding money that you owe before distributing your assets to your loved ones. Even if you do not have property, keep in mind that even things like vehicles and valuable collections may have to be auctioned off and sold to settle what you left behind. Having a life insurance plan in place will prevent the people you love the most from watching everything you owned get picked apart and, potentially, lost forever because of debt.

There are no benefits to life insurance to me while living.

Depending on the type of policy you have, there may be plenty of benefits that you can use during your lifetime. Many life insurance policies will allow you to take out a loan of up to 90 percent of its cash value. If you die before the loan is repaid, the payout is simply reduced by that amount. Keep in mind that this is a great strategy if you need a down payment on a home or to pay for college but your credit is less than perfect, as interest rates are low and you don’t have to prove creditworthiness or ability to repay the loan.

Life insurance is not only for married thirty-something’s with children and a mortgage. Everyone can benefit from having financial protections. If you are still unsure, give me a call. I am happy to answer any questions and help build a plan that’s right for you.

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