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Annuity Guide
An annuity is a contract where the person who pays for the annuity (the annuitant) will receive a set amount every year for a certain period. Despite the name annuity, the payments may be made monthly and the cost of the annuity will depend on the likely length of time for which it will be paid.
Most annuities are bought for a lump sum, i.e. single premium, and start immediately – known therefore as immediate annuities. Regular premium annuities are also available.
Annuities are normally expressed in terms of annual amounts payable, though in practice, they can be payable monthly, quarterly, half-yearly or annually. An annuity can be paid in advance or arrears, for example, where an annuity is effected on 1st January 2003, the first annual payment is due on the same date if it is paid in advance, or on 1st January 2004 if it is paid in arrears.
All types of annuity have in common the fact that they provide certainty of income over a given period. They are not usually savings schemes and it is possible that the amounts recovered will be less than the cost of the annuity. This is particularly true for a purchased life annuity. In return for the premium (single or regular), annual payments are made for the duration of the annuitant’s life, however long or short that might be. There are also annuities where the amounts paid depend on the growth of the sum invested, which might be used to buy units.
Where an annuity is payable in arrears, it can either be with proportion or without proportion. This is because each payment is made at the end of the period to which it relates. Thus, when the annuitant dies, there will be a period since the last instalment date for which no payment has been made. Under a with proportion annuity, a proportionate payment will be made to cover this period. This is not the case for a without proportion annuity, where no payment is made.
How to determine your homeowner's coverage
Your first step in determining the right homeowners coverage is estimating the replacement cost of your home. The second step is selecting the coverage amount that best fits your needs. We recommend that you purchase an amount of coverage equal to the estimated replacement cost. But the choice is yours. Determining your home’s estimated replacement cost is important because this will ultimately determine which policy options are available to you. Since it is impossible to predict today what the exact cost will be to replace your home in the future, it’s important to have enough coverage to account for unforeseen circumstances.
Understand the difference between market value and replacement cost
“Replacement cost” is the amount needed to repair the damage or to rebuild the home to its pre-loss condition. The replacement cost of a home is NOT the market value of the home, its purchase price or the outstanding amount of any mortgage loan. It does not include the value of the land, but is the cost of rebuilding your home. New improvements or required upgrades are also not accounted for in the replacement cost.
You've worked hard to get your home. We’ll work hard to help you protect it
Before you purchase a new home, make sure that you determine the appropriate amount of coverage needed. When you have the home appraised, ask if a replacement cost estimate is available. Or consult with your local builder association or a reputable builder for an estimate.
Be aware of any architectural details or unique building materials that may affect your estimated replacement cost, such as: - Upgraded bathrooms or kitchens (including cabinets)
- Additional rooms
- Custom molding or arched windows
- Other unique features
A contractor or appraiser can help estimate your home's replacement cost
Building contractors or professional replacement cost appraisers are a good source for obtaining an estimated replacement cost of your home. Estimates from these sources should reflect your home’s features, like those mentioned above. If you are unable to obtain a detailed estimate from these sources, your State Farm agent can help provide one for you.
Review your policy annually to make sure that your coverage meets your needs - Have you recently remodeled or improved your home? When you upgrade or improve your home, you may increase your home’s estimated replacement cost.
- Has the rate of inflation risen since your last appraisal? Your agent provides coverage that automatically adjusts each year in an effort to compensate for increases in construction costs in your area. However, certain conditions such as severe weather can increase the demand for labor and materials, and raise costs beyond normal inflation. It is important to update your coverage amount each year to keep up with the changing economy.
- What influences the building costs in your area? Market conditions in your area may impact the amount it will cost to rebuild your home if you experience a loss. Replacement cost estimates are influenced by supply of labor, demand for labor, and cost of construction materials. Staying abreast of the current market conditions in your area, and changing your coverage amount accordingly, will help you maintain 100% estimated replacement cost coverage for your home.
Some important things to consider when determining your coverage amount: Your home’s estimated replacement cost is different than its market value (real estate cost) - Each time you remodel or improve your home, you should adjust your coverage amount accordingly.
- If your home is made of unique building materials, make sure they are reflected in your replacement cost estimate.
- Stay abreast of the fluctuating building costs in your area and update your coverage amount accordingly. Make sure that you maintain coverage at 100% of your home's estimated replacement cost at all times.
- It is important to review your coverage annually and inform your agent of any changes you’d like to make.
Basic Coverage included in Homeowner's insurance
The homeowner’s insurance policy is a package policy that combines more than one type of insurance coverage in a single policy. There are four types of coverages that are contained in the homeowner’s policy: dwelling and personal property, personal liability, medical payments, and additional living expenses.
Property Damage Coverage
Property damage coverage helps pay for damage to your home and personal property. Other structures such as a detached garage, a tool shed, or any other building on your property are usually covered for 10% of the amount of coverage on your house.
Personal property coverage will pay for personal property including household furniture, clothing, and other personal belongings. The amount of insurance coverage is usually 50% of the policy limit on your dwelling. The coverage is also limited by the types of loss listed in the policy. The coverage only pays the current cash value of the item destroyed, unless you purchased replacement cost coverage.
Your homeowner’s policy also provides off-premises coverage. This means that the policy covers your belongings against theft even when they are not inside your home. Your insurer will reimburse you for the cost of replacing your suitcase and its contents if it were lost or stolen while you were on vacation, but only for replacing them with items of like kind and quality.
Personal Property Floater
Your homeowner's insurance policy may provide only limited coverage for furs, jewelry, silver, and other valuables. It may be necessary to insure these valuables with a special addition to your homeowner's policy, such as a personal property floater. A personal property floater itemizes each article, gives a description of the article insured, and lists excluded perils. It often provides coverage that is broader than the coverage granted in the home insurance policy. You should discuss this with your insurance company or agent to determine the availability and cost of this additional coverage.
Your homeowner’s insurance policy does not cover your pets, your car, and any aircraft. Although your policy does not cover your pet or damage it does to your possessions, it will cover damage your pet does to others or their possessions.
Personal Liability Coverage
Homeowner’s policies provide personal liability coverage that applies to nonauto accidents on and off your property if the injury or damage is caused by you, a member of your family, or your pet. The liability coverage in your policy pays both for the cost of defending you and paying for any damages the court rules you must pay. And unlike the other coverage in your policy, liability insurance does not have a deductible that you must meet before the insurer begins to pay losses. The basic limit for liability coverage is usually $100,000 for each occurrence. You can request higher limits that are available for an additional cost.
Medical Payments Coverage
Medical payments coverage pays if someone outside your family is injured at your home regardless of fault. This includes payment for reasonable medical expenses incurred within one year from the date of loss for a person who is injured in an accident in your home. The coverage does not apply to you and members of your household. The medical payments portion of your homeowner’s policy will also pay if you are involved in the injury of another person away from your home in some limited circumstances. Medical payments coverage limits are generally $1,000 for each person. Higher limits of medical payments coverage are available at additional cost.
Additional Living Expenses
If it is necessary for you to move into a motel or apartment temporarily because of damage caused by a peril covered by your policy, your insurance company will pay reasonable and necessary additional living expenses. The typical policy will pay an amount up to 20% of the policy limit on your dwelling for these expenses. If you move in temporarily with a friend or relative and do not have any extra expenses, you will not be paid any additional living expenses by your insurance company.
Why you need a Homeowner Insurance?
The largest single investment most consumers make is in their home. The consumer can protect his or her home, possessions, and liability with a homeowner’s insurance policy.
In addition to its availability to homeowners, similar coverage is available to those who rent homes or apartments. These policies are referred to as tenants’ or renters’ homeowner’s policies. If you are a renter, you do not need protection against damage to the building itself, but you do need protection against damage to or theft of your personal property and liability in the event someone falls or gets hurt on the part of the premises you rent.
A condominium owner may purchase a condominium homeowner’s policy to insure personal property. Some policies may also include any additions or alterations not insured by the condominium association. It is important to check with your condominium association and your agent before buying a policy to make sure you are adequately covered.
What is homeowner insurance?
Homeowners is one of the most popular forms of personal insurance on the market. The typical homeowners policy has two main sections: Section I covers your property, and Section II provides personal liability coverage (to cover you in case of lawsuits arising from things that happen on your property). Almost anyone who owns or leases property should have this type of insurance. Often, homeowners insurance is required by lenders as a requirement to obtain a mortgage.
The Basics of Long Term Care Insurance
The harsh realities of aging in America are coming into sharp focus. Soon, a 95-year-old baby boomer without long term care insurance may have to rely on a 90-year-old spouse or a 70-year-old son or daughter for personal care.
Consumers can't rely on Medicare, Medicare supplementary insurance, or health insurance to help them meet long term care costs. They don't cover most long term care expenses.
When to Buy a Long Term Care Policy
When buying long term care insurance, your age is a primary factor in determining its cost. The younger you are when you get the policy, the cheaper your premiums will be. Of course, you also will be paying those premiums for a longer period of time before taking any benefits.
A good time to buy long term care insurance is between ages 50 and 55, according to the American Health Care Association (AHCA), a federation of 50 state health organizations representing assisted living, nursing facility, long term care, and subacute care providers. A policy that costs you $800 annually when you're 55 will cost you nearly twice as much if you wait to buy it when you're 65.
There is an exception, however. You might want to purchase a long term care policy before age 50 if your employer sponsors an attractive long term care group plan at an affordable price.
Most insurers won't sell you long term care insurance if you're over 85 or if you have a pre-existing medical condition such as heart disease or diabetes. A reputable insurer only sells long term care policies to reasonably healthy people who are at low risk of needing their benefits in the foreseeable future. So beware of policies and premiums that sound too good to be true.
Important Policy Features
The most crucial factor when choosing a long term care policy should be its benefit triggers, the set of conditions that must exist before you begin receiving coverage. Ordinarily, you must have an acute medical condition that requires skilled nursing care before your benefits kick in. The best, and most expensive, policies allow you to start receiving benefits if you suffer from a cognitive impairment such as Alzheimer's disease, even if you can bathe and dress yourself.
Bathing is one of several activities of daily living, or ADLs, which are the most commonly used benefit triggers. Your benefits begin when you are no longer able to perform a certain number of ADLs without assistance. (Your policy will determine that number. A good LTC policy will require the inability to perform two ADLs.)
A good long term care policy also will cover all levels of care — including custodial or personal care — in a variety of settings. Those settings include: - Adult day care: Sites that provide personal and skilled care, and recreational services.
- Assisted living facilities: Living quarters that provide individualized personal care and health services for people who need help with personal care.
- Facility care services: Licensed agencies that provide skilled nursing care, speech, physical, or occupational therapy, or help from health aides.
- Nursing facilities: Residential sites for people who need daily medical care. Many nursing home stays are for a short rehabilitative period after an acute illness or injury such as a hip fracture.
Make sure you know exactly what types of services and facilities are covered by your long term care policy. If you don't go to the right kind of facility, your insurance company can refuse to pay for your care.
You also should investigate whether your policy has a nonforfeiture benefit, which is additional long term care coverage you can buy that protects some of your policy's value if you drop your policy or let it lapse. While this benefit offers some protection for your investment, it will raise your premiums. If you are confident you will be able to pay your premiums, even if there are future rate hikes, you can lower your costs by passing up this option. See Insure.com's "Choosing among long term care insurance riders".
Waiver of premium is another important feature in a long term care policy. This provision lets you stop paying premiums during the time you are receiving benefits. Read your policy carefully to see whether there are any restrictions on this feature, such as a requirement to be in a nursing home for a period of time (60 to 90 days is standard) before your premiums are waived.
Most long term care policies sold today must be guaranteed renewable, which means the insurer guarantees you the chance to renew your policy. It doesn't mean the insurer guarantees you a fixed premium. Note: Your premium will probably increase over time. While you can't be singled out for a rate increase — no matter how many claims you file — you should know that state regulators routinely grant increases to insurance companies to cover whole classes of policies that experience a large number of expensive claims.
The Basics of Short-Term Health Insurance
Whether you're graduating from college, leaving home for the first time, or between jobs, a major change in your lifestyle often dictates a change in your health insurance coverage. For these circumstances, some health insurers offer short-term or temporary health plans (sometimes called "major medical" plans) to fill in the gaps between traditional policies.
With low premiums and high deductibles, short-term policies are designed to be more of a low-cost safety net in case of serious injury or illness than a comprehensive day-to-day health insurance plan. Benefits are limited and there are strict eligibility requirements to qualify. Additionally, temporary health insurance is just as the name implies, only a temporary solution. While some plans offer coverage for up to a year, most short-term policies offer between one month and six months of coverage.
Who needs short-term health insurance?
Despite its limitations, short-term health insurance serves an important function for certain groups of people: - Recent college graduates are among the most likely consumers of short-term health insurance, according to insurers such as GradMed that specifically target graduating students who will lose their health insurance when they leave school. Many grads will look for jobs that will offer health insurance benefits, but until they find that job, short-term insurance can fill the gap. (For recent grads looking for more permanent coverage, many college alumni associations offer some sort of group health policy to their members.
- Short-term plans may also be attractive to individuals who are temporarily out of work. Many people who are laid off or are between jobs can continue coverage with their previous employer under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) for up to 18 months, until a new employer's plan kicks in. However, some people may find that COBRA premiums are too high for their budget. A short-term policy with lower premiums may be the solution.
If your previous employer is a small business with less than 20 employees, you may not be covered under COBRA. Also, if your previous employer goes out of business, you will not be covered by COBRA because the insurance pool to which you once belonged will be dissolved. In these instances, a short-term policy may be your best option until you can find coverage elsewhere.
- Those losing dependent status under their parents' health coverage are also likely consumers of short-term coverage. If you reach age 18 and are not enrolled as a full-time student, you will most likely be dropped from your parents' health insurance policy. In this situation, you will be eligible for COBRA, but premiums can be very high. A short-term policy can keep you insured for less until you find a job that offers health insurance, or you enroll in an individual health plan.
- Finally, you might consider a short-term plan if you are temporarily without insurance for some other reason. Maybe you are out of work on strike, recently discharged from the military, or have retired early and need coverage until you qualify for Medicare.
How does it work?
One advantage to a short-term health insurance plan is that it works like an "indemnity" plan in the sense that you have no preferred care provider (PCP) or gatekeeper, and you are not confined to an HMO network of doctors. Short-term plans give you the freedom to go to any doctor or specialist you like.
The kind of treatments covered by a short-term policy are fairly comprehensive. Surgery, hospital care, emergency services, diagnostic tests, prescription drugs, follow-up office visits, and even limited mental health care are included under short-term coverage.
There are, however, several areas where short-term coverage falls short of a traditional policy: - Preventative care, including physical exams, immunizations, and PAP tests, as well as child-wellness care, are not covered, except where required by state law.
- Like most individual health insurance policies, short-term coverage excludes pre-existing conditions. The "look-back" period for these conditions varies by state, but the most common rule for short-term policies is that providers may exclude coverage for conditions diagnosed or treated within the last five years. Because temporary policies are so short, the exclusion of pre-existing conditions will last the life of the policy.
- Maternity care is almost never covered by short-term insurance. Most plans will cover complications arising from pregnancy, but routine doctors' visits are excluded.
- Most short-term policies are nonrenewable. If you decide that you want to extend your short-term policy, your provider will make you apply for a new policy.
Most insurers will let you reapply only once, and the two policies together cannot exceed the maximum length of coverage issued by your insurer. For instance, if your insurer issues short-term policies for a maximum of six months, and your first policy was for four months, your second policy will only be good for a maximum of two months.
Some insurers will flatly refuse to issue you a second policy if you filed any claims under your previous short-term policy. Others might offer you another policy, but they will treat any injuries or illnesses that occurred during your previous short-term policy as pre-existing conditions and thus will not cover treatment related to such conditions.
What will it cost me?
One of the major appeals of a short-term policy is its low premiums. A typical plan can cost as little as $30 a month for a single male in his early 20s, according to quotes provided by Fortis Health (premiums vary significantly according to factors such as your age and where you live).
The flip side of paying such a low premium is the high deductible that accompanies this type of policy. While traditional policies require you to make co-payments for medical care as low as $5, short-term deductibles start at $250 and range into the thousands.
To illustrate the point, consider the single male in his early 20s who is paying only $30 a month for short-term coverage. The reason his premium is so low is that the deductible is a whopping $2,500.
Another thing to keep in mind is that with some short-term policies you must pay a deductible per injury or illness. That means that the deductible must be met each time you are treated for a new condition. With the high deductibles required by short-term providers, the money you pay out of pocket can really add up.
Even after you've met your deductible, most insurers won't pay the total remaining bill. Most plans let you choose one of two payment plans. Under the first plan, the insurer will pay 80 percent of the first $5,000 (this amount may vary among policies), and 20 percent of the costs thereafter. The second plan requires the insurer pay 50 percent of all costs after the deductible is met, up to the maximum benefit (usually $1 million or $2 million).
Many plans will also allow you to choose whether you want to pay a lump sum for a designated period of coverage or you want to pay your premiums on a monthly basis. The advantage of the monthly payment option is that it allows you to continue coverage for an unspecified number of months (but not more than a year). You will pay more for this flexibility, however.
Who's eligible?
In the end, if you still think that a short-term health insurance policy is right for you, there's a good chance that you won't qualify to get one.
Short-term policies with low premiums and high deductibles are designed to be a safety net and insurers don't want to provide safety-net policies with low premiums to people who are likely to need them.
Consequently, most insurers require that you are at least two weeks old and that your age will not advance past 65 during the life of the policy. If you have ever been denied health insurance before, you won't be eligible for short-term insurance, because a previous denial indicates you might have significant health problems.
In addition, you won't be eligible if: you are covered by another health insurance plan already, you work in a hazardous industry such as construction or aviation, or you play in collegiate or professional sports.
While no short-term health insurance provider will cover routine maternity care, some providers won't even issue a policy to a pregnant woman.
Many people may find short-term health insurance coverage appealing because of its relatively low price tag. However, it is important to remember that like any other product or service, you get what you pay for.
