Do you know how your insurance company makes money?

Do you know how your insurance company makes money?

I had been in this business for over 7 years before I ever really paid attention to that.  After my million question over, "Why did my rates go up?" and there wasn't any clear evidence that something drastic had happened in our area did I begin to get curious my self.  So without getting into the extreme technical details (especially since I don't posses the advanced economic or financial degrees) I'll give you my layman's perspective.  For every $1.00 you pay in premiums a good insurance company will set aside $0.40 for operating costs (employee salaraies, underwriting expenses, etc.) and the other $0.60 for claims expense.  Only they aren't going to have to pay out a claim on you (hopefully) for a few years if they are lucky, so in the meantime they are actually going to take your $0.60 multiplied by the hundreds or thousands a year you pay and the multipliy that by the thousands or millions of customers they have and before you know it that have....MILLIONS to "play" with.  I use that term tounge in check because the latest company's we know have abused their fiduciary responsibilities and invested poorly but I won't call out any one company, but if you thought long and hard about it I'm sure you'll remember from the bailouts who they were.  But that does bring me to my next point.  A long time ago my father told me you can always count on your insurance premiums to be low when the stock market is doing good, why?  Because the insurance company is likely making a good profit, turning that $0.60 (millions) into many more millions.  This is a good thing because this means they'll have the money to pay your claim and be less likely to try and haggle with you, or get out of paying your claim when the oppossite is happening.  The oppossite being that the stock market is tanking and the insurance company is losing lots of money!  You can expect them to recover some of their losses through raising premiums, and of course make other changes like layoffs, tightening up on claims, etc.  Now the next time your premium goes up and you didn't have an accident, get a new car, add a new driver, or do anything that would cause your premium to be rated differently consider the financial health of your insurance company.  If it isn't that then it may be your CREDIT!!!  We'll save that for another time.

Aren't All Insurances the Same?

Arent' All Insurances the Same? - NO!  Especially in Texas there are so many variations on home insurance it can leave you more confused than confident in your choice.  Now the major parts of a home policy for example will all remain relatively the same, how much to insure the house for, how much contents, liability, medical payments, deductible...but when you begin investigating what the coverage options are or are not that is where you will find a lot of differences.  Is it an all risk policy, or a named peril policy?  Does it cover water damage?  If so what types of water damage?  The list is numerous so a good starting point is http://www.opic.state.tx.us/ .  From there you can select the Residential Property Insurance menu option on the left.  That will brin up a sub menu in red.  Select Compare Policy Coverages.  Since I mentioned homeowner you'll need to use the drop down menu in the center of the web page now towards the bottom for Homeowners and click Next.  You then simply choose the company you're considering purchasing a policy from and compare it to your current one, or if your buying a home for the first time, choose all the companies you're considering and it will show them to you side by side.

This is a great resource and starting point for you when trying to navigate through the mayhem.

Auto insurance is now also becoming a more diversified policy.  So many new bells and whistles are being added to try and bring value to the policy where it didn't have any more.  Things like getting paid for not having an accident or maybe having a lower deductible.  Having accidents and tickets forgiven.  Or offering you coverage for you pets, long term loyalty rewards, and on and on it goes again.  These things should not be overlooked now especially if you've spent a few years with one company and have earned some of these rewards that you'll lose if you switch and similar features may not be available with your new company.  It isn't always about the cheapest price.

Happy Fall

Okay so this is a day late, but now that fall is here this is the time of season when reflection begins to set in.  Where did the year go?  How did my kids grow up so fast?  How did I get here?  And on ad infinitum.  This isn't a bad thing.  It's really a natural process for us to take stock and inventory in our own lives.  Are we doing the things that we value most dearly?  Are we spending time improving ourselves in the areas where we lack?  How do we know the answers to any reflective questions without taking the time to reflect and having something to be objective against?  With all the worry that is out in the world, the most immediate one that you can actual affect any change upon is yourself.  I encourage you all to take some precious few moments to reflect, "Fall Back Upon" what you set out to accomplish this year in your personal, business, spiritual lives and see if you are still on track.So Happy Fall, and enjoy this season when things seem to naturally slow a little, rest, and rejuvenate.  Follow nature's guide and spend a little time on some of the more important vicissitudes of life.

Myth # 3

Myth #3 I can't afford it.

This one is a really common objection we create in our minds.  What this is really saying is we don't value it enough to spend money on it.  Until we do see the value in it we won't spend our money on it, unless it's one of those impulse buys at the grocery store or something.  Maybe I should market there, and put up a stand right as your checking out!  All kidding aside if we were to list out the things that are most important to us, family is probably darn near the top.  This is a product that is meant to protect them, and we all want to do that while we are around, but how much more important is it when we are not around?  When we come to terms with that, and what it truly is that we are buying, we'll see it become more valuable than some of the other things we choose to spend money on, and can hopefully find a way to afford it.  We can not afford to be without it.  I am not advocating to run out there and buy the first policy you're offered.  If the agent can't explain it to you in terms that you understand or agree with, then don't hire them, don't buy from them.  Make sure you understand what you're buying.  If you aren't sure email me and I'll help bring some clarity.

Myth #2

Myth #2 I've got enough coverage through work.

This myth can also be devastating to a family in a couple of ways.  One of the most tragic is what happens when your company decides to "go a different direction", downsize, etc.  Or maybe in light of toughening economic pressures, and governmental changing regulations they become overburdened with the costs of providing these benefits and simply cut them out rather than cut you out.  If you don't have your own policy in place and your own financial protection plan this could feel a lot like getting kicked while your down.  Secondly, it is widely reported that even of those people who are fortunate enough to have this extra benefit through work, don't realize that it is not enough coverage for their situation.  I don't usually prescribe to rules of thumb since each individual situation requires an individual solution, but it can help conceptualize the amounts for you.  You should have enough insurance in place to simply provide the amount of income your partner would lose if you were to prematurely die, this way they are replacing your lost income.  A common rule of thumb for that is 8-10 times your annual salary.  If you're not married, you should have at least enough to cover your debt obligations and final expense costs.  Work based insurance should be treated as what it is, a benefit of your employment, not a primary source of insurance.  Take control of your own situation and make sure your family protection plan is sound.

Myth #1

"I'll deal with it later."  There are several ways to go with this one, but let me share an experience I had that will hopefully bring the general idea home for you.  I conduct annual reviews of my clients, and their insurance portfolios.  Primarily we review the policies that the client currently insures with us, and then we open up the discussion to the other areas of insurance that we don't insure and discuss what they are doing to protect themselves.  On one such review with a client we had finished discussing his home and auto that he insured with me, and then I started discussing with him about his financial protection plan, and what they were doing about life insurance.  You see they had 8 children all still in school (which I discovered through the review process) and he had no life insurance plan.  They became extremely convicted once they realized that their or thier spouse's premature death would leave the surving spouse and kids desparate and on the road to disaster.  So I began the work up of an illustration right away.  Then the tragic part.  Through asking them about their health they revealed a degenerative disease that kept them from being insurable!  Even more tragic is the condition would require a major operation once it had denegrated to a certain point and the likelihood of success was not great.  They may very well only have had a few more years left!  It was hard for me to keep my composure in that meeting as my own thoughts drifted to those of my wife and kids.  This client's eldest child was 15.  If 15 years ago they had made the decision to put an life insurance plan in place then they would have gotten it way cheaper then they could have ever gotten now, they would have qualified because the disease had not developed yet, and they could have had financial peace knowing they would be ok even if the operation wasn't successful, or if something worse had happened. 

I hope that this person encounter successfully busts the myth for you and know that no one is guaranteed another breath. It's time to take action on this! 

Life Insurance Awareness Month

My industry has dubbed September as Life Insurance Awareness Month.  Therefore, I'll keep in line with the theme of the industry here.  It's truly saddening to me when I read a headline in the Wall Street Journal like this, "More Go Without Life Insurance."  The understanding is simply that the life insurance bill is one that gets categorized with excess budgetary items like gym memberships, and eating out when the economic climate is tightening and therefore your own personal economic situation is tightening a bit.  The cruel irony about this situation is when your feeling some financial pressures, that's when the life insurance is needed most.  Imagine what would happen to a family if tragedy struck and the financial situation was already bad...it just got a hyper jump into devastating!  It's heartbreaking.  Instead seeing that life insurance bill as as necessity would give that family one of the greatest gifts they could receive during that tragic time, Financial Peace.  Don't succumb to the flawed thinking patters like:  I'll deal with it later...that will turn into possibly too late and will always end up costing you more the longer you wait, or I've got it through work so I don't need extra....until you get laid off, the company cuts its budget and your benefits get chopped, or simply what you have through work isn't enough!  I'll publish some personal stories that will hopefully get you thinking and motivate you to take a serious look at your life insurance needs.  Stop by www.lifehappens.org for some useful tools and resources.