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Sunday, July 8, 2007

All You Need to Know About Health Insurance

What types of health insurance are available? Health insurance plans generally fall into one of two categories: indemnity plans (also known as reimbursement plans) and managed care plans such as health maintenance organizations (HMOs), preferred provider organizations (PPOs), and point of service (POS) plans. more...

How to Buy Life Insurance

Why buy life insurance? Topping the list of reasons to buy life insurance is the financial protection life insurance offers. If you're single and just starting out, you may not need life insurance. But as you take on more responsibilities and your family grows, your need for life insurance increases. more...

8 Things You Should Know About Auto Insurance

Dealing with the ins and outs of auto insurance can be as tricky and confusing as trying to untie the Gordian knot. Although we can`t help you with the knotty Gordian problem, the following recommendations could help you figure out some of the more complicated points of auto insurance. more...

Mississippi Attorney General’s Lawsuit Threatens to Disrupt Hurricane Katrina Settlement Process with Mississippi Insurance Department

Bloomington, Illinois, June 11, 2007 -- “Sadly, it appears that Mississippi’s attorney general is more interested in making headlines in an election year than in making headway for the people of Mississippi,” said Mike Fernandez, State Farm vice president of public affairs, in referencing Mississippi attorney general Jim Hood’s announcement today that he is filing a civil suit alleging breach of his agreement with State Farm. more...

Allianz acquires Russiann insurer Progress-Garant

Allianz further expands its activities in Russia and is strengthening its position in this rapidly growing insurance market. Todaay it has finalized the acquisition of the Russian insurer Progress-Garant, whereby Allianz has purchased all shares in Progress-Garant from the management of the company. The parties involved have agreed not to disclose further details of the transaction. more..

Allianz acquires Russian insurer Progress-Garant

Next step into the promising Russian insurance market
Munich, May 21, 2007
Allianz further expands its activities in Russia and is strengthening its position in this rapidly growing insurance market. Today it has finalized the acquisition of the Russian insurer Progress-Garant, whereby Allianz has purchased all shares in Progress-Garant from the management of the company. The parties involved have agreed not to disclose further details of the transaction.
Progress-Garant is active in the Property/Casualty insurance business in Russia. The company ranks among the top 20 Russian insurers with gross premiums written of more than 120 million US Dollars in 2006. This step will further strengthen Allianz’ position as one of the leading insurance companies in Russia. more...

Goldman Sachs European Financials Conference

The Goldman Sachs "European Financials Conference" took place in Lisbon on June 13, 2007. Klaus Rosenfeld, member of the Board of Management of Dresdner Bank AG (CFO), presented the strategy of Dresdner Bank. more...

Saturday, July 7, 2007

Retirement Income You Will Never Outlive

If your family has a history of longevity, outliving your money might top your list of retirement worries. At age 64, Phyllis Chandler is a mere youngster among her relatives: "My father lived to 93, his mother was 98, and I have an uncle who will be 100," says Chandler, who lives in Omaha.

Chandler is retired from her full-time job in early-childhood education and continues to work as a consultant. She plans to delay drawing down her retirement savings for as long as possible, but she also wants to lock in guaranteed income for the future.

So she recently invested a chunk of her retirement savings in longevity insurance, a new type of annuity that will pay her a lifetime income when she gets older. With her house paid for, she hopes that the insurance payouts plus Social Security will be enough to cover her basic living expenses.
Powerful appeal. If you have enough money to live on during the early years of retirement, you may not need a lifetime paycheck just yet. But when you reach your eighties, lifetime income exerts a powerful appeal. Set aside a lump sum when you retire to buy longevity insurance, and you're assured of a steady paycheck if you live past a certain age, such as 80 or 85.

For example, a 65-year-old man who invested $50,000 in MetLife's Retirement Income Insurance would receive $3,405 per month starting at age 85. That's $40,860 per year, which buys a lot of security.

The reason that insurers can offer so much money is that you're making a huge bet -- that you'll be around at age 85 to collect. To put it bluntly, insurers that offer longevity policies can afford tantalizing payouts because they're certain many policyholders will never collect a dime.

What's more, the basic longevity policy offers no escape hatch to retrieve your money during the 20 years or so you're waiting for benefits to start. And your heirs won't get death benefits if you die before you begin to collect.

Recognizing that many people might balk at these limitations, insurers offer both perks as options. But choosing such additional sweeteners reduces your payout.

For instance, MetLife offers a plan that pays a death benefit equal to the original investment plus 3% per year if you die before payments begin. If a 65-year-old man invested $50,000 in MetLife's policy, he'd get $1,965 per month for life starting at age 85 -- more than $17,000 less each year than he'd get without the death benefit. The payout for a 65-year-old woman would be even less.

The Hartford's basic policy pays about $3,400 a month at age 85 for a 65-year-old man who invests $50,000. Another version of the plan comes with a reduced, $3,000 monthly benefit, but pays out early if the policyowner moves into a nursing home or an assisted-living facility after owning the policy for at least ten years. However, a long-term-care policy would offer more-comprehensive benefits.

Do it yourself. Think of these policies as insurance rather than as investments -- meaning you may never get your money back, especially if you choose the option with the highest payout. "This has to be done very judiciously because it's irrevocable," says Kevin Wells, an adviser with broker Linsco Private Ledger, in Indianapolis.

Or you could skip the insurance and accomplish a similar result by investing $50,000 at age 65. With an average annual return of 4.5% after taxes, you'd be able to accumulate more than $120,000 in 20 years.

At age 85, you could begin spending the money or use it to buy an immediate annuity. An 85-year-old man who invested $120,000 in an immediate annuity would get about $1,600 per month for the rest of his life. That's much less than he'd receive with the longevity policy, but he'd have access to the money for emergencies or to bequeath to his heirs.

Copyrighted, Kiplinger Washington Editors, Inc.

The Consequences of Not Having Auto Insurance

When young adults graduate college they have aspirations of starting their first "real world" job, getting their own place and buying a brand new car - one that does not need a screwdriver to start. However, college students are also graduating with much more than just a college degree and a dream, they are graduating with a substantial amount of debt. In fact, many students graduate with an average of $3,262 in credit card debt - 10 percent of that group owing more than $7,000 in credit card charges.

Students forget to factor in other life costs, such as health care, 401K deductions, income taxes, car payments, auto insurance, rent, utility bills, student loans, credit card bills and food expenses into their monthly budget. "After you graduate and land your first job, you do not think about having to pay for all of these expenses," stated a graduate from Ohio University. "Unfortunately, reality sets in pretty fast and you realize you do not have the money to make ends meet - it is a hard lesson to learn!"

College Debt
Why is there so much credit card debt among college students? "Many credit card companies set up kiosks on college campuses offering free pizzas and t-shirts to try and entice students to sign up for a credit card," noted David Roush, CEO of Insurance.com. "The problem is many college students do not have the income or financial knowledge to manage a credit card - a problem that is leading students into a lifetime of financial despair."

In addition to the outrageous credit card bills, students are also graduating with student loans ranging from $10,000 to $52,000 or more. Often students figure they will be able to pay everything off once they get a job and start making "real" money, but that simply is not the case.

Not only are credit card and student loan bills financially crippling to many new graduates, it is also forcing grads to cut back on other necessary expenses, such as auto insurance - one bill you legally cannot drive without! "Driving without auto insurance is illegal in all 50 states, however, many young adults elect to go without auto insurance because they think they cannot afford to have it," stated Roush. "A scary thought when 15.3% of all automobile accidents are caused by drivers between the ages of 20 - 24."

While deciding not to pay for auto insurance may seem like a good idea at the time, graduates are not considering the expense of getting caught without auto insurance or the cost of getting into an automobile accident. "Imagine if you had to pay the medical bills of someone who gets injured in car accident when you are at fault - suddenly paying for car insurance does not seem so bad," says Roush.

The Penalty of Driving Without Auto Insurance
According to the Insurance Information Institute, the cost of driving without auto insurance can vary from state to state, depending on the percentage of drivers who are uninsured in that state. For instance, in Massachusetts residents can be charged anywhere from $500 to $5,000 in fines and receive a one-year jail sentence. In Florida, Louisiana, Connecticut and New Jersey, drivers operating a vehicle without the state required minimum will have their vehicles impounded - which can cost you thousands depending on how long it takes you to get your car out.

To find out the auto insurance state minimum and fines and penalties for driving without insurance in your state, visit the Department of Motor Vehicles' website.

How to Budget For Auto Insurance
As you look for auto insurance, make sure to check if the insurer offers a 6-month or 12-month payment plan to help you manage your auto insurance payments better. In addition, many auto insurance providers offer a variety of discounts, including alumni discounts. So make sure to ask if your college or university is eligible for a discount, because every bit helps when you are first starting out on your own.

To help make researching auto insurance rates easier, Insurance.com offers an auto insurance comparison application. Here, you will be able to evaluate multiple rates from best-in-class insurance providers - helping you find the best auto insurance coverage for your newly graduated budget.

How much life insurance do I need?

In most cases, if you have no dependents and have enough money to pay your final expenses, you don’t need any life insurance.If you want to create an inheritance or make a charitable contribution, buy enough life insurance to achieve those goals.
If you have dependents, buy enough life insurance so that, when combined with other sources of income, it will replace the income you now generate for them, plus enough to offset any additional expenses they will incur to replace services you provide (for a simple example, if you do your own taxes, the survivors might have to hire a professional tax preparer). Also, your family might need extra money to make some changes after you die. For example, they may want to relocate, or your spouse may need to go back to school to be in a better position to help support the family.

You should also plan to replace “hidden income” that would be lost at death. Hidden income is income that you receive through your employment but that isn’t part of your gross wages. It includes things like your employer’s subsidy of your health insurance premium, the matching contribution to your 401(k) plan, and many other “perks,” large and small. This is an often-overlooked insurance need: the cost of replacing just your health insurance and retirement contributions could be the equivalent of $2,000 per month or more.

Of course, you should also plan for expenses that arise at death. These include the funeral costs, taxes and administrative costs associated with “winding up” an estate and passing property to heirs. At a minimum, plan for $15,000.

Other sources of income

Most families have some sources of post-death income besides life insurance. The most common source is Social Security survivors’ benefits.

Social Security survivors’ benefits can be substantial. For example, for a 35-year-old person who was earning a $36,000 salary at death, maximum Social Security survivors’ monthly income benefits for a spouse and two children under age 18 could be about $2,400 per month, and this amount would increase each year to match inflation. (It drops slightly when the survivors are a spouse and one child under 18, and stops completely when there are no children under 18. Also, the surviving spouse’s benefit would be reduced if he or she earns income over a certain limit.)

Many also have life insurance through an employer plan, and some from another affiliation, such as through an association they belong to or a credit card. If you have a vested pension benefit, it might have a death component. Although these sources might provide a lot of income, they rarely provide enough. And it probably isn’t wise to count on death benefits that are connected with a particular job, since you might die after switching to a different job, or while you are unemployed.

A multiple of salary?

Many pundits recommend buying life insurance equal to a multiple of your salary. For example, one financial advice columnist recommends buying insurance equal to 20 times your salary before taxes. She chose 20 because, if the benefit is invested in bonds that pay 5 percent interest, it would produce an amount equal to your salary at death, so the survivors could live off the interest and wouldn’t have to “invade” the principal.

However, this simplistic formula implicitly assumes no inflation and assumes that one could assemble a bond portfolio that, after expenses, would provide a 5 percent interest stream every year. But assuming inflation is 3 percent per year, the purchasing power of a gross income of $50,000 would drop to about $38,300 in the 10th year. To avoid this income drop-off, the survivors would have to “invade” the principal each year. And if they did, they would run out of money in the 16th year.

The “multiple of salary” approach also ignores other sources of income, such as those mentioned previously.

A simple example

Suppose a surviving spouse didn’t work and had two children, ages 4 and 1, in her care. Suppose her deceased husband earned $36,000 at death and was covered by Social Security but had no other death benefits or life insurance. Assume the surviving spouse is 36.

Assume that the deceased spent $6,000 from income on his own living expenses and the cost of working. Assume, for simplicity, that the deceased performed services for the family (such as property maintenance, income tax and other financial management, and occasional child care) for which the survivors will need to pay $6,000 per year. Assume that the survivors will have to buy health insurance to replace the coverage the deceased had at work, and that this will cost $12,000 per year.

Taken together, the survivors will need to replace the equivalent of $48,000 of income, adjusted each year for an assumed 4 percent inflation.

Thanks to Social Security, the survivors would need life insurance to replace only about $1,700 per month of lost wage income (adjusted for inflation) for 14 years until the older child reaches 18; Social Security would provide the rest. The survivors would need life insurance to replace about $2,100 per month (adjusted for inflation) for three more years when the non-working surviving spouse has only one child under 18 in her care.

The life insurance amount needed today to provide the $1,700 and $2,100 monthly amounts is roughly $360,000. Adding $15,000 for funeral and other final expenses brings the minimum life insurance needed for the example to $375,000.

What’s left out?

The example leaves out some potentially significant unmet financial needs, such as

* The surviving spouse will have no income from Social Security from age 53 until 60 unless the deceased buys additional life insurance to cover this period. It could be assumed that the surviving spouse will obtain a job at or before this time, but she could also become disabled or otherwise unable to work. If life insurance were bought for this period, the additional amount of insurance needed would be about $335,000.

* Some people like to plan to use life insurance to pay off the home mortgage at the primary income earner’s death, so that the survivors are less likely to face the threat of losing their home. If life insurance were bought for this goal, the additional amount of insurance needed is the amount of the unpaid balance on the mortgage.

* Some people like to provide money to pay to send their children to college out of their life insurance. We may assume that each child will attend a public college for four years and will need $15,000 per year. However, college costs have been rising faster than inflation for many decades, and this trend is unlikely to slow down. If life insurance were bought for this goal, the additional amount of insurance needed would be about $200,000.

* In the example, no money is planned for the surviving spouse’s retirement, except for what the spouse would be entitled to receive from Social Security (about $1,200 per month). It could be assumed that the surviving spouse will obtain a job and will either participate in an employer’s retirement plan or save with an IRA, but she could also become disabled or otherwise unable to work. If life insurance were bought to provide the equivalent of $4000 per month starting at age 60 until 65 and $3,000 per month from 65 on (because at 65 Medicare will make carrying private health insurance unnecessary), the additional amount of insurance needed would be about $465,000.