Frequently Asked Questions about Insurance

1. What is an umbrella policy?

2. What is an independent insurance agent?

3. My child is heading off to college this fall. What insurance issues does this raise?

4. If someone borrows my car, are they covered under my auto insurance?

5. I heard that some companies cancel people's insurance if they have just one claim. Is this true?

6. How do points affect your insurance rates, and when do insurance companies check driving records?

7. Why do auto insurance applications ask for credit information or if you have claimed bankruptcy?

8. What is SR-22 insurance?

9. I lease my car. Do I need GAP insurance?

10. I am adding my son to my auto insurance policy, and he'll be taking one of my cars with him to college. Does this mean that he'll be considered the principal driver on the policy?

11. My teenager just got his license. How can I insure him without going broke?

12. Why do certain sport utility vehicles cost more to insure than others?

13. I don't live near water,  why I would need flood insurance?

14. Will my homeowners policy cover me for losses that occur outside of my home?

15. I'm building a new home. Do I need to insure it while it's under construction?

16. How much of the exterior of my property is covered by homeowners insurance--fencing, driveway, etc.?

17. My neighbor's tree fell across my fence. Will their insurance cover the damage?

18. Can you get specific insurance for jewelry or art? Would that be covered under a homeowners policy?

19. If I install a home security system, will my insurance premium go down?

20. I purchased several expensive plants for my yard. Are these covered by my homeowners insurance policy?

21. I'm purchasing an  racing  bicycle. Will it be covered under my homeowners policy?

22. I do consulting as an independent contractor. What are my options regarding health and disability insurance?

23. If a company goes out of business, are employees eligible for COBRA even though there is no longer a health insurance policy for the company?

24. Do I need prescription coverage if I already have major medical coverage?

25. I am in between jobs and need short-term medical insurance. How broad is the benefit coverage under short-term medical insurance?

26. My insurer will only cover a generic equivalent of a drug my doctor prescribed. What should I do?

27. Is an annuity an insurance policy, an investment vehicle, or both? Please explain the reasons to buy an annuity?

28. I need assistance finding insurance for my boat. What can I do?

29. What is Errors and Omissions insurance?

30. My coin collection is growing. Do I need to worry about insuring it?

What is an umbrella policy?

Personal umbrella liability insurance is designed to protect you against a catastrophic lawsuit or judgment. It provides additional coverage and increases the amount of your liability protection beyond the basic coverage provided under your homeowners/renters and auto insurance policies.

 What is an independent insurance agent?

Independent agents sell the products of several different insurance and/or financial companies. Exclusive agents sell and represent insurance and financial products for one particular company.

 My child is heading off to college this fall. What insurance issues does this raise?

Health insurance - make sure your child is covered. Your medical plan probably covers your children until they are between the ages of 20 and 24 years, regardless of whether or not they live at home. But if the plan is an HMO and your child's is far from home, accessing an approved provider may be difficult.

Homeowner's/Renters insurance - make sure your child's possessions are covered.

Auto insurance - make sure the car is covered.
If your child will be taking a car to school, make sure the car is properly insured. If the child owns the car, then the insurance policy must be in the child's name as well. If the child is "borrowing" a car from Mom and Dad, the child must be listed on the insurance policy.

 If someone borrows my car, are they covered under my auto insurance?

People are often confused as to who is covered under a standard auto insurance policy. There are typically only one or two names listed in the "Named Insured" section of an auto insurance policy, but that doesn't mean that those are the only people who are covered under the policy. As a general rule, auto insurance coverage actually follows the vehicle, not the driver. So if your car is involved in an accident, the car typically receives the full coverage provided by the auto insurance policy, regardless of who is driving. 

 If  you have a teenage driver under your roof, he or she should be listed on your insurance policy even though your insurance rates may increase substantially. Technically, a teen who is not listed on your policy would still be covered if he or she had an accident. But your insurer could charge you retroactively for coverage on your teen from the date that your teen became a licensed driver.

I heard that some companies cancel people's insurance if they have just one claim. Is this true?

It is very unlikely that any type of insurance would be canceled after you file a single claim. However, filing a claim could increase your premium on certain types of insurance.

How do points affect your insurance rates, and when do insurance companies check driving records?

In most states, the motor vehicles department has a "point" system which is used to track your driving record. Generally, each type of infraction (moving violations, parking tickets, at-fault accidents, driving under the influence, etc.) is assigned a certain point value. When you are found guilty of one of these infractions, the appropriate number of points is added to your driving record. 

Your insurer probably has the right to review your driving record at any time (this may vary from state to state).  Few insurers have the resources or the inclination to run daily checks on the driving records of every policyholder, so the frequency of these checks may actually be quite low. There are certain times when you can be relatively sure an insurance company will be checking your record. These include:

• When you initially application
• A change to your policy (increased coverage amounts, etc.)
• Adding a vehicle to your policy, or change the covered vehicle
• Renewal

As you accumulate points, you are assessed surcharges that generally result in higher insurance rates. The number of points charged determines a premium increase.   

Why do auto insurance applications ask for credit information or if you have claimed bankruptcy?

 The connection between a driver's safety record and credit rating is not readily apparent to most. Many consumers feel that insurance companies are intrusive when they request such information on an automobile insurance application. Many legislators, insurance commissioners, and consumer rights advocates agree, and have questioned the practice in recent years. Still, insurance companies explain that credit information is needed to make a complete risk analysis when evaluating an insurance application.

 It seems that there is a connection between credit risk and safety risk. Some insurance company statistics show that drivers with derogatory credit, historically file more accident claims than drivers without derogatory credit. Insurers reason that a consumer who is careful with one aspect of their life (e.g., financial affairs) is also likely to be careful with other aspects of their life (e.g., driving habits). Credit information is also needed to determine whether an applicant is likely to pay premiums in a timely fashion.

 What is SR-22 insurance?

  SR-22 insurance is used differently in different states.  An SR-22 insurance policy is generally a motor vehicle liability insurance policy required for reinstatement after your drivers license has been suspended or revoked. SR-22 insurance is uniquely suited for these situations, because it requires the insurance company to notify the department of motor vehicles if the policy is canceled, terminated, or lapses. If any of these things happen, your license will typically be suspended until the policy is brought current or reinstated. Under the laws of most states, you must carry SR-22 insurance for a certain period (often three years) after the end of your suspension or revocation.

Not all insurers offer SR-22 insurance. You may need to find an insurance company that specialized in high-risk drivers. Once you have purchased the insurance, you have to provide proof of SR-22 insurance to the department of motor vehicles before your license will be reinstated. Some states require you to present a copy of your SR-22 binder , while other states have an SR-22 form that can be used as a substitute for the actual insurance binder.

In some states, SR-22 is used strictly in DUI cases. Some states also require SR-22 insurance to prevent license revocation or suspension in certain cases--for example, if you have an uninsured accident or you get several tickets in a short period of time.

 I lease my car. Do I need GAP insurance?

GAP insurance can provide valuable protection during the early years of your car's life. As we all know, a new car's value drops the minute you drive it off the lot. Unfortunately, if you have an accident  five minutes after you drive it off the lot, your insurance only covers the actual cash value of the car. At this point, there's a good chance the insurance payoff isn't enough to pay off your outstanding lease (or loan) balance.

If a loss occurs (theft, total loss in a collision, etc.), GAP insurance will pay the difference between the actual cash value of the vehicle and the current outstanding balance on your loan or lease. Some lenders and lessors actually require you to carry GAP coverage until the outstanding loan/lease amount drops below the value of the vehicle.

 I am adding my son to my auto insurance policy, and he'll be taking one of my cars with him to college. Does this mean that he'll be considered the principal driver on the policy?

 If your son is borrowing your car to take with him to college, he must be listed as either a principal driver or an occasional driver on your insurance policy. Most insurance companies will consider someone as the principal driver on the policy if he or she:

• Is the registered owner of the vehicle,
• Drives the vehicle to work or school, or
• Drives the vehicle more than anyone else.

Check with your insurance company to see if you should list your son as a principal driver, and if so, how your insurance coverage and premiums will be affected.

 My teenager just got his license. How can I insure him without going broke?

As you have probably discovered, insuring a teenage driver can be very expensive. Drivers under the age of 25 pose the greatest risk to insurers because of their high level of at-fault accidents. Insurance companies seek to limit their exposure by charging higher insurance rates for 16- to 24-year-olds than for any other age group.

The least expensive option would probably be to add your teenager to your existing auto insurance policy once he gets his permanent driver’s license. Although this can still be an expensive prospect, your teen might be able to take advantage of certain discounts as a driver on your policy.

If you drive an expensive vehicle, it will be even more costly to add your teen to your policy. In this case, you might want to buy your son his own car (a used economy model, of course) and insure it in his name, rather than add him to your own policy. Older vehicles generally pose less risk to insurance companies, because repairs tend to be less expensive than repairs to newer models. 

 Why do certain sport utility vehicles cost more to insure than others?

Insurance companies consider the likelihood that a particular brand of vehicle will be stolen, vandalized, or involved in an accident. They also track the costliness of repairs. Insurance companies obtain their information by consulting various claim statistics. The Highway Loss Data Institute, for example, indexes the amount of money insurance companies have paid out (on average) for collision, injury, and theft claims for various types of motor vehicles. Therefore, the SUV that is most attractive to thieves across the country will probably be more expensive to insure than the one that is stolen least often.

 I don't live near water, why I would need flood insurance?

You should consider purchasing flood insurance even if you don't live in a high-risk area for floods. Factors such as storms, inadequate drainage, melting snow, and hurricanes can cause serious flooding even if you don't live near a river or other body of water. And if you are purchasing a home in a designated flood zone, you may be required to purchase flood insurance before obtaining a mortgage.

Despite what you may think, your homeowners insurance policy doesn't cover damage from flooding. To complicate matters further, you can't simply buy flood insurance as an endorsement to your current policy.  You must purchase a separate flood insurance policy through an insurance company that participates in the National Flood Insurance Program (NFIP).

A flood insurance policy offers flood protection for both your home and its contents. You can purchase up to $250,000 worth of coverage for the building itself, and up to $100,000 worth of coverage for the contents. However, a flood insurance policy is not a catch-all. For example, flood insurance offers some degree of protection for flood-related basement damage, but it doesn't cover all types of damage. Flood insurance does not cover events such as sewer backups unless they are directly related to a flood.

The average flood insurance policy costs around $300 per year. However, if you live in a lower risk area, you can typically reduce the cost by purchasing a lesser amount of coverage.

Will my homeowners policy cover me for losses that occur outside of my home?

The only way to know what is covered is to carefully check your policy. Homeowners policies regularly provide protection for off-premise destruction or theft, which covers your possessions while they are outside your home. For example, if your luggage were stolen while you're on vacation, a homeowner's policy containing off-premise protection would cover the loss. This type of protection can also protect your kids' stereo equipment and other possessions when they go off to college - if they live in a dormitory. Once a child moves to an off-campus apartment, he or she will typically need to purchase a separate renters insurance policy to cover their personal property.

If your homeowners policy does not contain off-premise protection as part of your standard coverage, you may be able to purchase this coverage for an additional charge.

You should check the liability portion of your policy to determine your level of coverage for accidents that occur outside your home. Homeowners policies typically cover accidents that occur on your property - if the mailman slips on your sidewalk, or if a neighbor is injured in your backyard. Many policies will even cover you for accidents that occur away from your property. For example, if you run a shopping cart over someone's foot at the grocery store, many policies will cover the medical bills. 

 I'm building a new home. Do I need to insure it while it's under construction? 

You should consider insuring your new home during construction. If you don't, you may be exposing yourself to a great deal of risk if a fire, theft, or other event damages or destroys your partially-completed home.

One way to cover your new home during construction is by purchasing a standard homeowners policy. This will cover you for any damage to the building as it's being built, and may also provide some coverage for theft of building supplies (although the contractor's insurance should also cover this). It also provides liability coverage, which may come in handy if one of your friends becomes injured  during a "tour" of your new house and decides to sue you. This type of  policy will not cover your personal property until the building is secure or "lockable." Once construction reaches this point, you can add on coverage for your personal property. 

 How much of the exterior of my property is covered by homeowners insurance--fencing, driveway, etc.?

Homeowners insurance covers a lot more than just your house. A standard homeowners insurance policy provides broad protection for personal property and other structures located in and around your home.

Several different types of coverage are included in every standard homeowners insurance policy (HO-1, HO-2, and HO-3--the three standard policy types available for most homes). Coverage A is strictly for the physical structure of your home, including additions permanently attached to the structure (such as an attached garage). Coverage B insures other structures on the premises, including detached garages, fences, swimming pools, driveways, and sidewalks. The limit on this coverage is typically 10 percent of the Coverage A amount. Coverage C insures your personal property, including all of your household possessions and other items such as awnings, outdoor antennas, and carpeting. The limit on Coverage C protection is typically 50 percent of the Coverage A amount. Additionally, all standard homeowners policies include various "additional coverages" for items such as debris removal, trees, and shrubs. Each of these coverages has its own dollar limit.

While homeowners insurance coverage is very broad, there are certain items which are not covered. For example, motorized vehicles are not covered by your homeowners insurance. Animals, birds, and fish are not protected under homeowners insurance, either.

Keep in mind, too, that your homeowners insurance policy only covers the above-listed property if it is damaged or destroyed by an insured peril. Personal property is only protected against the perils listed in your policy, while your dwelling may be insured against named perils (HO-1 and HO-2) or open perils (HO-3).

 My neighbor's tree fell across my fence. Will their insurance cover the damage?

In most cases, your insurance will be the one to cover the damage. Although the tree fell from your neighbor's property, the damage affected your property. Your homeowners insurance covers damage to your property, so you should make a claim under your policy. Your policy probably also provides coverage to remove the debris from your property (typically up to $500).

There are a few exceptions to this general rule, however. For example, say you notice that your neighbor's tree has a large, dead branch hanging precariously over your property. You notify your neighbor in writing of this hazard and ask him to address the problem, but he chooses to ignore it. Two weeks later, the branch comes crashing down and destroys your fence. In this case, you may have some recourse against your neighbor's insurer, because your neighbor had notice of a potential hazard and did nothing to improve the situation. Make sure you keep records of all correspondence and actions regarding the situation, so that you have something to back up your story if you have to contact your neighbor's insurer.

Complications may also arise depending on what actually caused the tree to fall. If the tree fell in a windstorm, or if it was struck by lightning, there is little question that the damage will be covered. However, certain perils such as floods and earthquakes are not covered under standard homeowners policies. If the tree fell as a result of such an event, the damage may not be covered at all. To find out for sure, you'll have to contact your insurer.

 Can you get specific insurance for jewelry or art? Would that be covered under a homeowners policy?

  Homeowners insurance does provide coverage for personal property, but this coverage is limited. Under a standard homeowners policy, the coverage for all your personal property is limited to 50 percent of the coverage amount on your home.

Homeowners policies also set specific dollar limits for particular categories of personal property. For some categories (such as jewelry, firearms, and furs), the policy specifies a limit only for theft, not for damage or destruction. The reason is that these items are especially susceptible to theft, and insurance companies want to limit their exposure to these fairly common incidents. Damage or destruction of these items is less common, and insurance companies are willing to cover them up to their actual cash value.

Some standard coverage limits for particular categories of personal property are as follows:

• $200 for money, bank notes, bullion, gold, silver, coins, and metals
• $1,000 for securities, accounts, deeds, letters of credit, notes other than bank notes, manuscripts, personal records, passports, tickets, and some other related items
• $1,000 for the theft of jewelry, furs, watches, and precious and semi-precious stones
• $2,000 for the theft of firearms
• $2,500 for the theft of silverware, silver-plated ware, goldware, gold-plated ware, and pewterware
• $2,500 for property at the residence used for business purposes
• $250 for property used away from the residence for business purposes

Note that there is not a standard coverage limit for artwork (although your policy may vary). It would usually be included with all your other personal property, and the cumulative coverage would be limited to a maximum of 50 percent of the dwelling coverage amount. Keep in mind, however, that it could be difficult to convince your insurer of the value of your art collection without a professional appraisal.

You have the option of increasing your personal property coverage by purchasing either an endorsement or a floater. You may need an increased jewelry limit, for instance, for covering engagement or wedding rings. Or you might wish to purchase separate coverage for your postmodern art collection, because its value is far more than 50 percent of your dwelling. In order to buy additional personal property coverage, you must be able to verify the cost and condition of the item. Photos or a video can be used to inventory your property; however, you should be sure to keep the inventory away from the premises (i.e., in a safe deposit box). Professional appraisals are needed for certain items, such as jewelry, antiques, art, and camera equipment (beyond a basic camera)

 If I install a home security system, will my insurance premium go down?

Most, if not all, insurers will give you a discount on your homeowners policy premium if you install a home security system. The performance and sophistication of the typical home security system varies dramatically depending on what you buy and how much you spend. Similarly, the premium discounts will vary too. Usually, insurers will give you a 5 percent discount merely for installing dead-bolt locks. A simple burglar alarm is likely to get you yet another 5 percent. If you decide to go with a more sophisticated home security system, complete with monitoring services, then you can expect a discount of up to 20 percent. (In addition to discounts for security devices, you can also get discounts for installing safety devices such as smoke detectors or sprinkler systems). Check with your insurance agent to make sure you are currently receiving any discounts you qualify for, and to see if you can save any more on premiums by installing additional security equipment.

I purchased several expensive plants for my yard. Are these covered by my homeowners insurance policy?

Homeowners insurance does provide coverage for damage to trees, shrubs, plants, and landscaping. However, the amount of coverage can vary significantly from one policy to another.

Standard homeowners policies often have a per-item limit as well as a per-incident limit. A basic policy may cover $250 per item with a maximum of $1,000 per incident. More generous policies may provide coverage of $500 or more per item, with a limit of up to 5 percent of the house’s insured value.

Some insurers also offer a landscaping endorsement, which is added to the standard policy to increase the coverage limits. Of course, your premium will increase as you add extra coverage.

Landscaping coverage typically includes plants, shrubs, trees, and lawns. Mulch and supplies are generally not covered. Under a standard homeowners policy, your landscaping is protected from the following perils: fire, lightning, explosion, riot or civil disturbance, vandalism, criminal mischief, theft, and loss caused by motor vehicles or aircraft not owned or operated by the property owner. Insect or pest infestation, wind damage, and other weather damage are typically excluded from coverage. Some endorsements may broaden the scope of coverage for landscaping.

Many homeowners policies provide a certain amount of coverage for removing downed trees following a storm. This coverage may be subject to a deductible and may only be applicable if the fallen tree caused damage to covered property..

 I'm purchasing an expensive racing bicycle. Will it be covered under my homeowners policy?

Like most of your personal property, your racing bicycle should be covered under the named perils section of your homeowners insurance policy for both on- and off-premises damage. In other words, if your bicycle is lost while you are on vacation or stolen from your home, it will most likely be covered under your homeowners policy.

One thing to keep in mind is that if something happens to your bicycle and you need to replace it, your policy deductible may exceed the actual value of your bicycle (e.g., your policy has a $500 deductible and your bicycle is valued at $400). Therefore, it might not always make sense to file a claim for your bicycle with your insurance carrier. You can always try lowering your deductible amount, but this usually increases the cost of your homeowners insurance coverage.

If you do file a claim for your bicycle, it's important to note that most homeowners insurance policies offer actual cash value coverage, which would reimburse you for the replacement value of your bicycle minus depreciation. This means that you could end up being reimbursed for less than what it would actually cost to replace your bicycle. To make sure that your bicycle is adequately covered, find out if your insurance carrier offers replacement cost coverage, which would reimburse you for the actual cost of your bicycle without taking depreciation into account.

If your homeowners policy does not provide adequate coverage for your racing bicycle, consider purchasing a floater. A floater covers more perils, provides replacement cost coverage, and has no deductible. However, an insurance company will probably require you to have your bicycle appraised when you purchase a floater.

 I do consulting as an independent contractor. What are my options regarding health and disability insurance?

Individual health insurance covers medical expenses on an individual basis. When you apply for individual insurance, your "risk potential" may be evaluated through a series of medical questions and/or a physical exam in order to determine whether you qualify for health insurance and how much it will cost. Individual insurance is typically more expensive than group coverage, but it may also provide more freedom to customize the policy to suit your personal needs.

Disability insurance
You will probably have to meet certain standards relating to age, income, occupation, health, and lifestyle before you are issued an individual disability policy. You will pay more for individual coverage than for a group policy, but you often get more for your money. Individual disability insurance provides a policy tailored to meet your needs, and may have more liberal benefits than group coverage. For example, an individual policy may have a longer benefit period or may replace a greater percentage of your income than a group policy.

In addition, government-sponsored programs such as Social Security provide some disability protection. Unlike other types of disability coverage, you don't have to pay a premium for these programs. However, you do finance some types of government disability insurance by paying taxes. Disability coverage under these programs is extremely basic, and should not be relied upon as your sole source of disability protection

 If a company goes out of business, are employees eligible for COBRA even though there is no longer a health insurance policy for the company?

In most cases, no. Under the Consolidated Omnibus Budget and Reconciliation Act of 1985 (COBRA), workers who lose their jobs may have the right to continue group health care coverage under their employers' plans. Unfortunately, however, if the company goes out of business and no longer has a group health insurance policy in force, then COBRA coverage is no longer available. One possible exception: union employees who are covered by a collective bargaining agreement may be entitled to COBRA coverage if the agreement provides for a medical plan.

Do I need prescription coverage if I already have major medical coverage?

Major medical insurance generally does include prescription drug coverage, so a separate prescription plan is usually not necessary. However, not all major medical plans are alike. In order to make sure that your medical insurance is sufficient, you'll need to read your policy carefully and find out exactly what it covers.

If you have a comprehensive major medical plan, your health insurance needs are most likely satisfied, so there's probably no need to get a separate prescription drug plan. However, you should still consider whether other types of health-related coverage (such as disability insurance and long-term care insurance) are appropriate for you. If you have a supplemental major medical plan and you need prescription drug coverage, consider purchasing a separate plan to meet this need.

I am in between jobs and need short-term medical insurance. How broad is the benefit coverage under short-term medical insurance?

Short-term medical coverage is designed to fill the temporary coverage gap that can occur when you are between permanent plans. Such a gap can occur when you are between jobs, laid off, or waiting for group coverage, among other reasons. You and your dependents may be eligible for coverage if you you meet certain age, health, and U.S. residency requirements.

To keep the premiums affordable, coverage is not as extensive as that under permanent plans, but it generally covers basic charges in the event of an accident or sudden illness. Like other medical insurance plans, short-term medical coverage may subject you to co-payments and benefit limits.

Generally, short-term medical plan coverage does not include:

• Preexisting conditions
• Routine medical exams
• Dental care
• Pregnancy and childbirth expenses
• Intentionally self-inflicted injury
• Expenses not medically necessary
• Medical expenses outside the U.S.

Short-term medical coverage is typically available for periods of 30 to 180 days, although some plans offer initial coverage for as long as 12 months. While you may be able to renew your plan, generally short-term coverage cannot continue for more than 365 total days.

My insurer will only cover a generic equivalent of a drug my doctor prescribed. What should I do?

Prescription drug plans often encourage the substitution of generic drugs for brand names by requiring a higher co-payment for brand-name drugs than for their generic equivalents. In some cases, an insurer may refuse to cover certain brand-name drugs altogether and offer coverage only for the generic equivalents.

If you have a question about whether a prescription drug you need is covered by your health insurance, you should first verify your coverage with your physician or your insurer. Your pharmacist may be required to fill a prescription for a brand-name drug with a generic equivalent if your doctor has not marked the prescription "DAW" (dispense as written). Your doctor should make sure that the prescription is marked DAW if a generic equivalent is not appropriate for your condition.

All drugs, both brand-name and generic, must be approved by the U.S. Food and Drug Administration. In the vast majority of cases, the generic equivalent is a suitable (and less expensive) substitute for the brand-name medication. If your doctor feels that your condition requires the brand-name drug, but the drug is not covered under your prescription plan, ask your doctor to petition the insurer for coverage due to medical necessity. Your insurer may indeed cover the brand-name drug after your doctor provides the facts of your case.

Is an annuity an insurance policy, an investment vehicle, or both? Please explain the reasons to buy an annuity?

An annuity is really a very unique product. An annuity is a contract with an insurance company, but it is not an insurance policy. It is a savings vehicle that offers tax-deferred accumulation of earnings, and may offer other features such as a minimum rate of return guarantee or a guarantee of principal if you die. In its simplest form, you pay money to an annuity issuer, allocate your money to either fixed or variable investment options, and then the issuer pays out the principal and earnings back to you or to a named beneficiary. There may be some guaranteed or "insurance" components to an annuity as well. For example, fixed annuities usually guarantee that you will earn a minimum interest rate during the accumulation phase, and that your premium payments will be returned to you. With a variable annuity you may receive a guarantee that your beneficiary will receive at least the amount of your original principal if you were to die, even if the value of the annuity is less. And regardless of whether you purchase a fixed or variable annuity, you are guaranteed to receive payments for life if you elect to annuitize.

Annuities can be an excellent tool if you use them properly, but they are not right for everyone. It is important to understand both the advantages and the disadvantages of using annuities in various situations.

Retirement planning
Saving for retirement is the most common use of annuities. Tax deferral benefits will allow your dollars to grow faster than a comparable taxable investment. An annuity can be an excellent tool for this purpose. Here are some reasons why you might want to consider an annuity for retirement savings:

• The earnings are tax-deferred.
• Annuitized payouts if chosen, continue until death.
• If you work for a small company or are self-employed, you may not have access to a qualified plan. Annuities may be a way for you to supplement your Social Security income during retirement.
• IRAs place a limit on contribution amounts. Annuities do not have a limit on the amount of funds that you can invest in the annuity.
• IRAs require the holder to begin receiving minimum distributions at age 70½. Annuities do not have minimum distribution requirements.

Annuities have certain disadvantages, as well. It is important to note that payments into an annuity aren't tax deductible. For this reason, most experts recommend maxing out your contributions to other available retirement plans before you think about an annuity. Additionally, annuity withdrawals made prior to age 59 1/2 are typically subject to a 10 percent early withdrawal penalty. If you plan to retire early, or if you think you might need to access your money before age 59 1/2, you should probably explore other options.

Business planning
If you are self-employed or own your own business, you may want to consider an annuity to supplement your own retirement. As you probably won't be able to take advantage of a generous pension plan, an annuity can be used to fill in the gaps after you have made the maximum allowable contributions to other available retirement plans. Again, if you plan to retire early you'll have to watch out for the 10 percent early withdrawal penalty

I need assistance finding insurance for my boat. What can I do?

Insuring your boat with the same company that issued your auto, life, or homeowners insurance can have certain advantages. For instance, you may be eligible for a multi-policy discount. If your current insurer doesn't offer insurance for watercraft, you'll need to do some research. You can find many listings simply by looking in the Yellow Pages or on the Internet, or you can ask your insurance agent for a referral. Before you contact an insurance agent about boat insurance, make sure you know what type of policy you need. In the insurance world, watercraft are typically divided into three categories:

• Boats. Generally include watercraft between 16' and 25' 11" in length
• Yachts. Generally include only watercraft which are 26' or longer
• Personal watercraft. Includes only jet skis, Waverunners, and other similar craft

A boat policy is a package contract, similar in many ways to automobile insurance. While there may be some variation in boat policies, the main types of coverage are physical damage and liability coverage. Many boat policies also include legal defense protection, medical payments coverage, and uninsured boater coverage.

A yacht policy is very similar to a boat policy, in that it provides coverage for physical damage to your vessel and for personal liability claims against you. However, in a yacht insurance policy, these coverages are called "hull insurance" and "property and indemnity coverage." Yacht owners can also purchase optional coverage for legal defense, medical payments and uninsured boaters. In addition, yacht owners have the option of purchasing a hurricane protection endorsement, which will pay to haul your yacht out of the water if a hurricane is approaching and put it back in the water after the hurricane has passed.

If you own a personal watercraft, you might actually have a difficult time insuring it. Many insurers refuse to insure these craft, because they pose a much greater liability risk than other types of watercraft. According to some statistics, 45 percent of all boating accidents involve personal watercraft. However, certain insurance companies now specialize in insuring personal watercraft, because of their ever-increasing popularity. If you own a personal watercraft, make sure you purchase an insurance policy that includes bodily injury, property damage, liability, and theft coverage.

What is Errors and Omissions insurance?

Errors and Omissions insurance (also called "E & O") is one portion of a comprehensive professional liability insurance package. It protects business owners and professionals against liability claims or lawsuits for damage which is caused by errors (something they did) or omissions (something they failed to do). For example, if you are an accountant doing tax preparation work for a client and you mistakenly claim a deduction to which your client is not entitled, your client might sue you to recover the penalties imposed by the IRS (plus damages for the mental anguish caused by the audit). Errors and omissions insurance could protect you against such a lawsuit.

Errors and Omissions policies can be quite expensive, and are typically customized to meet the needs of a specific professional group. Professionals who purchase Errors and Omissions policies commonly include lawyers, accountants, engineers, bankers, employee benefit managers, architects, stockbrokers, insurance agents, travel agents, and other professionals who manage money and property for others.

My coin collection is growing. Do I need to worry about insuring it?

Your coin collection is probably covered to some extent under your homeowners/renters insurance policy. However, your coin collection is most likely covered for only a limited amount.

Unless otherwise specified, most homeowners/renters policies offer actual cash value coverage for personal property. This means that if your coin collection is ever destroyed, you will be reimbursed for an amount equal to the replacement value of your collection minus depreciation. In other words, you'll most likely get less than what it would actually cost to replace your collection. 

If your homeowners/renters policy does not provide adequate coverage for your collection, you have a couple of options. First, you can purchase a floater, which provides you with broader coverage. Or, you can purchase a stand-alone policy designed to protect valuable collections. Insurance companies will often require you to have your coin collection appraised when you purchase a floater or stand-alone policy.

Top