Boat Insurance

A boat owners insurance policy can insure you against most risks of owning and operating your boat, its motor, and its trailer.

These risks may include:

• Sinking
• Fire
• Storms
• Theft
• Capsizing
• Stranding
• Collision
• Explosion

The property covered under boat insurance includes equipment permanently attached to the boat as well as:

• Anchors
• Oars
• Electric trolling motors
• Extra fuel tanks
• Tools
• Detachable canopies
• Seat cushions
• Life preservers
• Skis and their tow ropes
• Dinghies

It can also protect you against liability lawsuits, should you injure someone with your boat or damage their property.

Boat Liability Insurance coverage includes:

Boat liability coverage provides protection for legal liability because of an accident resulting from the ownership, maintenance, or use of your watercraft, including bodily injury, property damage, and legal defense.

Boat medical payments coverage pays medical expenses up to the limits in the policy for you, your resident relatives, and other occupants of the boat injured by an accident arising out of the ownership, maintenance, or use of the watercraft.

Additional boat insurance coverages include those for:

Newly acquired watercraft covers your newly acquired watercraft for damage caused by an insured loss. Must be replacing the existing State Farm insured boat and all boats owned need to be insured with State Farm.

Reasonable repairs covers repairs incurred to protect covered property from further damage.

Emergency service pays up to $500 for reasonable costs that you incur resulting from specified emergency service to your boat, motor, or boat trailer.

Wreck removal pays the reasonable expenses you incur for any attempted or actual raising, removal or destruction of the wreck of your boat when damage is caused by an insured loss and removal, or destruction is required by law.

Types of Auto Insurance Coverage

Most Common Types of Auto Insurance Coverages:

Auto Liability Coverage

Auto liability insurance coverage pays for the damage if you are legally responsible for accidentally injuring someone, or for damaging another vehicle or other property in an auto accident.

Auto liability coverage falls into two categories:

1. Bodily Injury Liability - which covers medical expenses, pain and suffering, lost wages, and other special damages.
2. Property Damage Liability -- which covers damaged property, and may include loss of use.

Liability car insurance also pays legal defense and court costs.

State laws usually dictate the minimum amounts of auto liability insurance required, but higher amounts are available.

Personal Injury Protection (PIP)

• Rehabilitation

• Lost earnings

• Replacement of services (For example, child care if a parent is disabled.)

• Funeral expenses

Medical Payments

This auto insurance coverage helps pay for damage to a covered vehicle caused by:

• Collision with another vehicle

• Collision with an object

• A vehicle rollover
• 
  

A deductible is required.

Comprehensive Insurance

This auto insurance coverage helps pay for loss of or damage to an insured vehicle, not caused by a collision or vehicle rollover.

Examples of this type of damage or loss include:

• Fire

• Wind

• Hail

• Flood

• Vandalism

• Theft

• Hitting an animal

A deductible may apply.

Uninsured Motorist

This auto insurance coverage pays for damages when a covered person is injured in an auto accident caused by a driver who does not have Liability Insurance

In some states this auto insurance coverage may also pay for property damage.

This type of car insurance coverage varies by state and depends upon policy provisions.

Underinsured Motorist

This auto insurance coverage pays for damages when a covered person is injured in an auto accident caused by another driver who has insufficient Liability Insurance.

Application of this type of auto insurance varies by state and depends upon policy provisions.

Rental Reimbursement

This coverage pays for renting a car when your auto is disabled due to an auto accident.

Daily allowances or limits vary by state or auto insurance policy provisions.

Emergency Road Service

This auto insurance coverage pays for having your auto towed due to a breakdown.

Towing limits vary by state or policy provisions.

This information is only a general description of the available types of auto insurance and is not a statement of contract. All auto insurance coverages are subject to all policy provisions and applicable endorsements.

What is an auto insurance deductible?

An auto insurance deductible is the part of a covered loss that you have agreed to pay with your own money.

If you file a claim against your insurance, you will pay only the amount of the deductible. State Farm® will pay the rest - up to your coverage limit.

When choosing a deductible, you must decide how much you would be willing and able to pay out-of-pocket, if you ever had to file a claim.

Typically, higher deductibles mean lower auto insurance policy premiums.

Who does my auto insurance policy cover?

An auto insurance policy typically covers:

• You and your spouse
• Relatives who live in your home
• Other licensed drivers who have permission to drive your insured vehicle.

Insurance Terms You Need to Know

Actual cash value The cost value of your property today, minus age, wear and
tear, and depreciation.

At fault Describes the person who is legally responsible for or contributes to the cause of an accident or claim, such as in an auto accident.

Claim A report of a loss sent to the insurance company.

Coverage Protection provided by an insurance policy.

Deductible The amount the policyholder agrees to pay out-of-pocket in case of a loss. The insurance company pays the remaining amount, up to the limit.

Depreciation The decrease in the value of property due to wear and tear and age.

Endorsement A written amendment attached to an insurance policy to change, restrict or broaden coverage.

Exclusion A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations.

Insurance A system to make large financial losses more affordable by pooling the risks of many individuals and business entities and transferring them to an insurance company or other large group in return for a premium.

Insured A person who is insured by an insurance policy.

Insurance company The company who provides the insurance coverage and services on a specific policy.

(Auto) Liability Pays the losses of other people which an insured may cause unintentionally, or through neglegence.


Limit The maximum amount that an insurance company
will pay for a covered loss.

Loss Damage or destruction to something of value.

Peril Causes of loss under an insurance policy, such as fire, windstorm, explosion, vandalism, etc.

Policy A legal contract that sets forth the rights and obligations of both the policyholder and the insurance company

Policyholder The person who owns the policy.

Premium The monthly or annual cost of insurance.

Quote Estimate from the insurance company of the premium you will pay for an insurance policy. This is used to shop for a policy and compare providers.

Replacement cost The amount it would cost to replace damaged property at today’s prices, without a deduction for depreciation.

Risk The chance of financial loss.

Underwriter Insurance professional who evaluates requests for insurance, determines who will be awarded coverage, and at what cost. This person is an expert in assessing risk.

Other Insurance Policies

The list of insurance products is not limited to health, life, or property protection; in fact, there are many other risk management solutions available in other forms of insurance too.

Specified Disease Insurance
Taking a step beyond health insurance, specified disease insurance (such as cancer insurance or Alzheimer's insurance) helps people guard against the incredible financial burdens of specific long-term diseases or conditions. These types of policies often provide a cash benefit for just about every part of the treatment regimen, from hospital confinement to treatment and drugs. Benefits are often paid directly to the policy owner. When considering this type of policy, it is important to determine the waiting period required before benefits are paid, the maximum benefits and maximum length of time benefits are payable, as well as the exact definition of the disease covered.

Professional Liability Insurance 
Professional liability insurance is a specialty coverage not covered under any property or homeowners endorsements. Professional liability coverage protects professionals, such as doctors, financial advisors, etc., against financial losses from lawsuits filed against them by their clients or patients. While practitioners from different professions are expected to have extensive technical knowledge and experience, mistakes might happen and they can be held responsible in a court of law for any harm they cause to another person or business. These types of policies are often called "errors and omissions" or "malpractice" policies.

Title Insurance 
Title insurance offers protection against loss arising from problems connected to the title to your property. This is often incorporated with the home-buying process, when a formal title search is completed before a lender extends credit toward the purchase of a home. As with mortgage insurance, it protects the lender but the borrower must pay the premium, which is a single payment, up front. You may want title insurance because it will protect you against human errors or oversights relating to the clean transfer of property titles. Consumers can choose among a variety of options, but the top three policies include owner's, lender's and extended coverage title insurance.

Credit Insurance
Credit insurance is an optional protection purchase from lenders and is often associated with mortgages, loans or credit cards. It protects the lender and the borrower on the chance that he or she is unable to repay the debt due to death, disability or involuntary unemployment. Before you consider buying this type of insurance, do your homework. It might make more sense, and may be more cost effective, to purchase life, disability or other types of coverage that do not limit you to a specific debt.

Conclusion

Insurance is an integral part of any personal financial plan. The type of insurance and the amount of coverage you obtain all depends on your unique financial and family circumstances, and must be evaluated carefully. When considering purchasing coverage, you should review all the potential risks and the financial impact of these risks on your financial health. This will help you determine what options to look for and what questions to ask. What you need to keep in mind is that you do not want to be underinsured or overinsured, which means you have to do your homework before you buy. And as with any type of financial product, you must read the fine print and consult with a competent advisor.

Let's review what we've learned:

 Insurance is a form is risk management in which the insured transfers the cost of potential loss to another entity in exchange for monetary compensation known as the premium.
 Insurance works by pooling risks. Because the number of insured individuals is so large, insurance companies can use statistical analysis to project what their actual losses will be within the given class. This allows the insurance companies to operate profitably and at the same time pay for claims that may arise.
 Underwriting is the process of evaluating the risk to be insured. This is done by the insurer when determining how likely it is that the loss will occur, how much the loss could be and then using this information to determine how much you should pay to insure against the risk.
 The insurance contract is a legal document that spells out the coverage, features, conditions and limitations of an insurance policy.
 Property and casualty insurance is insurance that protects against property losses to your business, home, or car and/or against legal liability that may result from injury or damage to the property of others. This type of insurance can protect a person or a business with an interest in the insured physical property against losses.
 An auto insurance policy typically covers you and your spouse, relatives who live in your home and other licensed drivers to whom you give permission to drive your car.
 Homeowners insurance typically covers the dwelling (the structure), personal property and contents, and some forms of personal liability. The policy may cover direct and consequential loss resulting from damage to the property itself, loss or damage to personal property, and liability for unintentional acts arising out of the non-business, non-automobile activities of the insured and members of that insured's household.
 Umbrella insurance helps you protect your assets if you are sued.If you are worried that the liability insurance coverage you have through your auto or property policies is still not enough, you can consider adding an umbrella policy.
 Health insurance is a type of insurance that pays for medical expenses in exchange for premiums. The way it works is that you pay your monthly or annual premium and the insurance policy contracts healthcare providers and hospitals to provide benefits to its members at a discounted rate.
 An indemnity plan, sometimes called a fee-for-service plan, is a type of insurance that reimburses you according to a schedule for medical expenses, regardless of who provides the service.
 The HMO is the most common type of insurance policy people own and the one most frequently provided by employers. HMOs provide a wide range of comprehensive healthcare services to a group of subscribers in return for a fixed periodic payment.
 PPOs are a group of healthcare providers that contract with an insurance company, third-party administrators, or others (like employers) to provide medical care services at a reduced fee.
 A point of service plan is a hybrid plan that combines aspects of an HMO, PPO and indemnity plan. This type of plan is more flexible in that it allows you to decide at the time you need services to elect to use the POS plan's physician to arrange in-network care (HMO feature), or to go outside the network or hospital and pay a higher portion of the cost.
 Disability insurance can replace a portion of the salary you were making before you became disabled and unable to work after a serious injury or illness.
 Disability insurance providers rate their premiums based on your job and the level of risk involved in doing that job.
 The reason to buy long term care insurance is to protect your assets in case you need to pay for assisted living, home care or a nursing home stay.
 Life insurance provides you with the opportunity to protect yourself and your family from personal risk exposures like repayment of debts after death, providing for a surviving spouse and children, fulfilling other economic goals (such as putting your kids through college), leaving a charitable legacy, paying for funeral expenses, etc.
 Whole life insurance provides guaranteed insurance protection for the entire life of the insured, otherwise known as permanent coverage. These policies carry a "cash value" component that grows tax deferred at a contractually guaranteed amount (usually a low interest rate) until the contract is surrendered.
 Universal life insurance, also known as flexible premium or adjustable life, is a variation of whole life insurance. Like whole life, it is also a permanent policy providing cash value benefits based on current interest rates.
 Variable life insurance is designed to combine the traditional protection and savings features of whole life insurance with the growth potential of investment funds. This type of policy is comprised of two distinct components: the general account and the separate account. The general account is the reserve or liability account of the insurance provider, and is not allocated to the individual policy. The separate account is comprised of various investment funds within the insurance company's portfolio, such as an equity fund, a money market fund, a bond fund, or some combination of these.

Life Insurance (Part 3)

Life Insurance Considerations
There are other important considerations that you should know about life insurance before you buy it.

Tax Treatment 
The death benefit proceeds of life insurance policies are not taxable to the beneficiaries. They are, however, included as a part of the estate in some cases, depending on how the life insurance policy is owned. This, however, is beyond the scope of this tutorial. Distributions from cash values of whole life policies (loans or withdrawals) may be tax-free or taxable depending on whether they exceed the cost basis (or premiums paid) of the policy. Meanwhile, the earnings or growth of the cash value is tax deferred until a distribution is made.

Standard Provisions
A life insurance policy and your application for the coverage constitute a binding contract between the applicant and the insurer. It is understood that the information provided by the applicant is warranted to be true and that no misrepresentations have been made to attain coverage. The incontestable clause protects the insurance company if at a later date, as benefits are paid, it is revealed that the insured lied about his or her health or risk exposures. Once a policy is in force for at least two years, the validity of that contract cannot be questioned under the incontestable clause, unless in the case of fraud. If the insured commits suicide within one or two years of the policy being in force, then no death benefits will be paid, only a refund of premiums.

Beneficiaries 
In the assignment of beneficiary designations, there are always two categories: primary and contingent beneficiaries. The primary beneficiary is the person (or entity) who is first entitled to the death proceeds. Of course, more than one primary beneficiary can be named. The contingent beneficiary is the person (or entity) who would be entitled to the death benefits if the primary beneficiary or beneficiaries are dead or unable to receive benefits. One easy way to deal with beneficiary assignments of multiple family generations is to use either the "per capita" or "per stirpes" description. It's easy to accidentally disinherit family members without proper wording. If your intent is to leave your benefits, for example, to your surviving children, a "per capita" designation might be appropriate, whereby your surviving children would share the proceeds equally. If however, your intent is to fairly distribute proceeds by line of descent, then the "per stirpes" designation accomplishes this. If this is done, the children of a deceased beneficiary will each receive an equal share of the benefits intended for that family line. It is critical that both primary and contingent beneficiaries be named to ensure the proper planning.

Beneficiary designations can be deemed revocable or irrevocable, depending on the contract's flexibility. If revocable, the policy owner can change the beneficiary designation at any time without the beneficiary's consent or notification. With an irrevocable designation, the policy owner cannot change the beneficiary designation without the beneficiary's consent, such as in a business or key man policy.

Distribution Options
Life insurance benefits can be distributed in a number of ways. The most obvious is the lump sum distribution, which is essentially a one-time payment in cash. With an "interest option", the death benefits are left with the insurance company but paid out at a later time, in which case a minimum guaranteed rate of interest is paid to beneficiaries. Beneficiaries can also opt for an "installment option", whether a fixed installment period or fixed installment amount. The latter option is sometimes used by policy owners to ensure that the beneficiary does not spend all the money at once. Finally, the "life income" option, which is much like an annuity, also pays the life insurance proceeds over time, but based on the beneficiary's life expectancy. The life income option has several payout possibilities:

Straight Life Income:
 Proceeds are paid to the beneficiary on the basis of life expectancy.

Life Income with Period Certain:
The beneficiary is paid for as long as he or she is alive, but with a minimum number of guaranteed payments. Life

Income with Refund:
The beneficiary is paid as long as he or she lives, and if original principal remains after the beneficiary dies, then it is paid to a contingent beneficiary.

Joint and Survivor Income:
Income is paid to two beneficiaries, with payments continuing to the survivor after the first payee dies.

Life Insurance (Part 2)

Life insurance was initially designed to protect the income of families, particularly young families in the wealth accumulation phase, in the event of the head of household's death. Today, life insurance is used for many reasons, including wealth preservation and estate tax planning.

Life insurance provides you with the opportunity to protect yourself and your family from personal risk exposures like repayment of debts after death, providing for a surviving spouse and children, fulfilling other economic goals (such as putting your kids through college), leaving a charitable legacy, paying for funeral expenses, etc. Life insurance protection is also important if you are a business owner or a key person in someone else's business, where your death (or your partner's death) might wreak financial havoc.

Life insurance is a great financial planning tool, but should never be thought of as a savings vehicle. In general, there are often far better places to hold and grow your money as you get older.

Who Needs It?
Not everybody needs life insurance. If you are single and have no dependents, it may not be worth the expense. If, however, you have anyone who financially depends on you (even partially), life insurance may be appropriate for you. When considering life insurance, the questions to ask yourself are this:


 Do I need life insurance?
 How much do I need?
 How long will I need it?
 What type of policy makes sense for me? (this will be answered in our next section)

Your need for life insurance will depend on your personal circumstances, including your current income, your current expenses, your current savings and your family's goals. Rules of thumb might indicate that purchasing life insurance that covers six to 10 times your gross annual income is the right amount of coverage. But, that's merely a guide. Your family may need more or less than that. When deciding how much coverage is necessary, you really have to lay out the details of what you have versus what goals you'd like for your family once you are gone, keeping in mind that their security can often carry a higher price tag than you originally thought.


Types Of Life Insurance
Life insurance protection comes in many forms, and not all policies are created equal, as you will soon discover. While the death benefit amounts may be the same, the costs, structure, durations, etc. vary tremendously across the types of policies.

Whole Life
Whole life insurance provides guaranteed insurance protection for the entire life of the insured, otherwise known as permanent coverage. These policies carry a "cash value" component that grows tax deferred at a contractually guaranteed amount (usually a low interest rate) until the contract is surrendered. The premiums are usually level for the life of the insured and the death benefit is guaranteed for the insured's lifetime.

With whole life payments, part of your premium is applied toward the insurance portion of your policy, another part of your premium goes toward administrative expenses and the balance of your premium goes toward the investment, or cash, portion of your policy. The interest you accumulate through the investment portion of your policy is tax-free until you withdraw it (if that is allowed under the terms of your policy). Any withdrawal you make will typically be tax free up to your basis in the policy. Your basis is the amount of premiums you have paid into the policy minus any prior dividends paid or previous withdrawals. Any amounts withdrawn above your basis may be taxed as ordinary income. As you might expect, given their permanent protection, these policies tend to have a much higher initial premium than other types of life insurance. But, the cash build up in the policy can be used toward premium payments, provided cash is available.
This is known as a participating whole life policy, which combines the benefits of permanent life insurance protection with a savings component, and provides the policy owner some additional payment flexibility.

Universal Life
Universal life insurance, also known as flexible premium or adjustable life, is a variation of whole life insurance. Like whole life, it is also a permanent policy providing cash value benefits based on current interest rates. The feature that distinguishes this policy from its whole life cousin is that the premiums, cash values and level amount of protection can each be adjusted up or down during the contract term as the insured's needs change. Cash values earn an interest rate that is set periodically by the insurance company and is generally guaranteed not to drop below a certain level.

Variable Life
Variable life insurance is designed to combine the traditional protection and savings features of whole life insurance with the growth potential of investment funds. This type of policy is comprised of two distinct components: the general account and the separate account. The general account is the reserve or liability account of the insurance provider, and is not allocated to the individual policy. The separate account is comprised of various investment funds within the insurance company's portfolio, such as an equity fund, a money market fund, a bond fund, or some combination of these. Because of this underlying investment feature, the value of the cash and death benefit may fluctuate, thus the name "variable life".

Variable Universal Life
Variable universal life insurance combines the features of universal life with variable life and gives the consumer the flexibility of adjusting premiums, death benefits and the selection of investment choices. These policies are technically classified as securities and are therefore subject to Securities and Exchange Commission (SEC) regulation and the oversight of the state insurance commissioner. Unfortunately, all the investment risk lies with the policy owner; as a result, the death benefit value may rise or fall depending on the success of the policy's underlying investments. However, policies may provide some type of guarantee that at least a minimum death benefit will be paid to beneficiaries.

Term Life One of the most commonly used policies is term life insurance. Term insurance can help protect your beneficiaries against financial loss resulting from your death; it pays the face amount of the policy, but only provides protection for a definite, but limited, amount of time. Term policies do not build cash values and the maximum term period is usually 30 years. Term policies are useful when there is a limited time needed for protection and when the dollars available for coverage are limited. The premiums for these types of policies are significantly lower than the costs for whole life. They also (initially) provide more insurance protection per dollar spent than any form of permanent policies. Unfortunately, the cost of premiums increases as the policy owner gets older and as the end of the specified term nears.

Term polices can have some variations, including, but not limited to: 
Annual Renewable and Convertible Term: This policy provides protection for one year, but allows the insured to renew the policy for successive periods thereafter, but at higher premiums without having to furnish evidence of insurability. These policies may also be converted into whole life policies without any additional underwriting.

Level Term: This policy has an initial guaranteed premium level for specified periods; the longer the guarantee, the greater the cost to the buyer (but usually still far more affordable than permanent policies). These policies may be renewed after the guarantee period, but the premiums do increase as the insured gets older.

Decreasing Term: This policy has a level premium, but the amount of the death benefit decreases with time. This is often used in conjunction with mortgage debt protection.

Many term life insurance policies have major features that provide additional flexibility for the insured/policyholder. A renewability feature, perhaps the most important feature associated with term policies, guarantees that the insured can renew the policy for a limited number of years (ie. a term between 5 and 30 years) based on attained age. Convertibility provisions permit the policy owner to exchange a term contract for permanent coverage within a specific time frame without providing additional evidence of insurability.

Food for Thought
Many insurance consumers only need to replace their income until they've reached retirement age, have accumulated a fair amount of wealth, or their dependents are old enough to take care of themselves. When evaluating life insurance policies for you and your family, you must carefully consider the purchase of temporary versus permanent coverage. As you have just read, there are many differences in how policies may be structured and how death benefits are determined. There are also vast differences in their pricing and in the duration of life insurance protection.

Many consumers opt to buy term insurance as a temporary risk protection and then invest the savings (the difference between the cost of term and what they would have paid for permanent coverage) into an alternative investment, such as a brokerage account, mutual fund or retirement plan...

Disability Insurance

Disability Insurance
Aside from health insurance, disability is a very critical type of insurance individuals should consider having. When it comes to your personal finances, long-term disability can have a devastating effect if you are not prepared. Think about this: the probability of becoming at least temporarily disabled during your working years is higher than the probability of dying during your working years.

Disability insurance can replace a portion of the salary you were making before you became disabled and unable to work after a serious injury or illness. But before you seek coverage, you should first understand the different types of disability definitions used by insurers.

Definitions of Disability
Different policies offer many characteristics and definitions for disability including:

Any Occupation: 
This is the strictest definition in which the insured is considered disabled only if he or she is unable to perform any duties pertaining to any occupation.

Modified Any Occupation:
Disability applies only if you are unable to perform any duties pertaining to any occupation for which you have been trained, received education or have work experience.

Own Occupation:
This is the most flexible definition for liability. You are deemed to be disabled if you are unable to engage in the principal duties of your own occupation. Most insurance carriers are doing away with this definition.

Split Definition: 
This definition can be within one's own occupation for a specific time period or with any occupation after the maximum benefit period has passed.

 Loss of Income: 
This definition avoids the problem of having to determine partial or total disability. A policy with this definition pays the insured in the event of loss of income due to illness or injury.



The Impact of Disability Definitions
How your disability policy defines disability will influence many things including:
 When you are eligible to receive benefits
 How much the policy will cost - the stricter the definition, the higher the cost
 How long the benefits will last

Obtaining Coverage
You can obtain disability coverage on your own or through your employer. Disability polices tend to be cheaper and have simpler underwriting (if any) than individual policies. Many of these policies have dual definitions of disability and others have restrictive provisions. Most group policies offered through work usually end after you leave your employer, or may only pay benefits for a specific amount of time or have caps on the amount of monthly benefits you can receive (ie. max of $5,000 per month). If the employer pays the premium, the benefits are taxable income to the employee. If the employee pays the premium, then the benefits are tax free.

Disability insurance providers rate their premiums based on your job and the level of risk involved in doing that job. Moreover, certain risky careers - skydiving or deep-sea diving instructors, roofers, etc. - may not even qualify for coverage.

Other factors to consider when obtaining coverage include: 

Elimination Periods: This is the amount of time you have to wait before benefits are paid after your disability begins - the longer the elimination period, the lower the premiums. The most popular elimination period ranges from 30 days to 90 days, but can be longer. This waiting period acts as a deductible, forcing the insured to bear part of the loss. Also important to remember is that payments normally begin 30 days after your elimination period has ended.


Probation Period: This is the time period a policy must be in force before it covers the insured for specific perils such as undisclosed pre-existing conditions. This protects the insurance company from selling a policy to someone who is ill or recovering from an illness or other condition.

Disability Insurance Riders:
As with any type of insurance you can add additional features to your coverage for an additional premium. These may include:

o Guaranteed Insurability: This rider guarantees your right to purchase additional disability insurance on specific dates or occurrences without having to show that you are in good health, but only that your income is sufficient to meet the underwriting requirements.

o Cost of Living adjustments (COLA): This rider increases policy benefits by a certain amount annually to match inflation, usually equal to the percentage increase in the Consumer Price Index, subject to a maximum specified in the contract (ie. 5%). The cost of living adjustment increases usually happen after your disability begins and generally start after the disability has continued for a year. It is highly recommended that anyone owning or considering a disability policy purchase a COLA rider in order to help protect the value of the policy's real benefits each year.


Duration of Benefits
When talking about disability insurance there are two types of duration:

Short Term: This type of coverage provides coverage for disabilities of up to two years, but most policies pay up to six months on average.

Long Term: This type of coverage protects for a longer time period (on average more than six months), often until age 65 or for life. Certain exclusions may apply to disability policies that are worth identifying, and these may vary from policy to policy.

 Two-year maximum benefit period for mental or nervous disorders
 One-year maximum benefit period for alcohol or drug abuse related claims
 Exclusion for payment of disability claims if injury or disability occurred during the commitment of a crime
 Exclusion for disability claims resulting from an act of war. This is not very common, but may exist in certain contracts.


Long-Term Care Insurance
As our lifespans are extended, our family structures change and medical care improves, the need for long-term care will continue to increase. A great number of people over 65 will spend some time in a nursing home, assisted living or extended care facility. The cost of such care can quickly erode the assets of even the most well-prepared savers. The risk of outliving your money in this situation can be great, and one of the best ways to transfer this risk is to purchase long term care.

Long-term care (LTC) is defined as a need for assistance with some of the activities of daily living (often called ADLs). ADLs include functions that most of us perform each day, like eating, bathing, using the bathroom, dressing, transferring and maintaining continence. The need for assistance may be due to physical inability or mental impairment, such as memory loss, Alzheimer's or dementia.

The reason to buy long term care insurance is to protect your assets in case you need to pay for assisted living, home care or a nursing home stay. Long-term care insurance helps you pay for these services, which can be very expensive and, over time, can be financially devastating. A policy also ensures that you can make your own choices about what long-term care services you receive and where you receive them in advance.

Within the long-term care insurance contract, there are two broad levels of care outlined in the policy, including:


 Skilled Nursing Care: This is usually for someone with an acute condition that requires intensive medical attention for a period of less than 100 days. The two objectives of skilled care are to help the person with comfort and assistance if the situation is terminal or to assist the person during a recovery period.

 Hospice Care: This is the term used for the care provided to individuals facing a terminal condition, or who have less than six months to live. This care can be provided in a home or a facility.

 Non-Skilled Nursing Care/Custodial Care: This is for a person with a chronic condition from which he or she will not recover. This type of care is usually received at home or in assisted living facilities. This type of care lasts beyond 100 days, and even up to several years.

There are many settings in which long-term care can be administered or provided. The type of LTC policy determines where you can receive your services.


 Home Care: Pays for care in your home. According to "Long-Term Care Planning" (2007) by Allen Hamm, as of 2007, more than 10 million people received care at home and home care is projected to increase 178% by 2030.

 Facility Care: Pays for care in a facility, such as an assisted living community, adult day center, continuing care retirement community or nursing home.

 Respite Care: Pays for services that enable some relief (rest or vacation period) to family members providing care giving. This can be provided either in the home or at a facility.

Like other types of insurance policies, the cost of insurance coverage depends on the specifics of that coverage. Several factors can influence how much a policy may cost the insurer, including the place in which the care is received, the reason for care or severity of the patient/insured's condition, the geographic location of the care, the daily benefit amount, the elimination period, the time frame in which benefits will be paid, etc. One thing is certain: the actual cost for continued medical care is not cheap, with some nursing homes costing upwards of $75,000 a year for private rooms. The national average daily rate for nursing home care is $206 for a private room and $188 for a semi-private room ("Long-Term Care Planning" (2007) by Allen Hamm).

Who Needs It?
You may never need long-term care. But one thing is for sure: the need for care assistance dramatically increases after age 65. One study from the U.S. Department of Health and Human Services reveals that one in four people turning age 65 will spend one year or longer in a nursing home, and by the year 2020, 12 million older Americans will need long-term care. So, when should people consider buying LTC insurance and how are other assets considered? While anyone between the ages of 18 and 84 can probably buy long-term care insurance, if you are in reasonably good health, the younger you are when you acquire the policy, the cheaper it will be. On the flip side, the average age of people admitted to a nursing home is 83. That means you might pay for nearly 40 years before ever using the policy.

Types of Policies
There are a few types of policies available for consumers today. Most are known as "indemnity", "expense incurred", or "cash" policies. Indemnity plans are also called "per diem" policies that pay up to a fixed benefit amount regardless of what you spend (ie. you may spend more or less than the policy covers). Expense-incurred policies reimburse you for actual expenses incurred up to your fixed benefit amount, as defined by the daily benefit you purchased with the policy. With a cash-based policy, as long as the policy gets triggered by the ADLs, you will not be required to incur expenses to receive the benefits of your claim. So, for example, if you are being cared for by a relative

Final Considerations
The purchase of LTC insurance should not be a stand-alone decision and must be incorporated with all other planning. When considering the purchase of an LTC policy, you may wish to consider purchasing optional benefits. One such option might be to buy a policy that is guaranteed renewable. You don't want to be surprised should your health decline one day that your policy is not renewable. You should also consider investing in an inflation rider to protect the purchasing power of whatever daily benefit you purchase.

Typically, those who apply for LTC are given the option to buy a 3% or 5% inflation rider using simple or compound interest. Of course, compound interest at 5% gives you the best inflation hedge, but also costs you more money. Additionally, if you think there is any possibility that you may not use your benefits, you may want to consider a "return of premium" rider. Finally, given that the average stay in a nursing home is about 30 months, you may want to consider a policy that will give you benefits for a minimum of three years (this is referred to as a policy's maximum benefit period).