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Does Your Credit Affect Your Insurance Premiums?

By JMcHood January 4, 2019

Your credit score affects many things including your homeowner’s insurance premiums. While the way insurers look at your credit isn’t the same as a mortgage lender looks at it, there’s still a need to have good credit if you want the best homeowner’s insurance rates available today.

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What Credit Score do You Need?

There isn’t a specific credit score that you need to get good insurance rates. Each insurance company uses your credit score differently. Some don’t even look at the score itself, but rather focus on certain factors in your credit history, such as:

  • Your payment history – Do you pay your bills on time or do you have a lot of late payments? This gives the insurance company an idea of how well you might pay your insurance premiums.
  • The type of credit outstanding – If you have a lot of revolving debt, you pose a higher risk to insurance companies than if you had mortgage-related debt. Some revolving debt is okay, but within reason. If you have overextended credit lines and a lot of them, insurance companies see you as high risk.
  • The number of recent inquiries – Insurance companies also focus on the number of inquiries on your credit report in the last year. If you’ve applied for numerous loans or credit cards, it throws up a red flag.

What Insurance Companies Use Your Credit Score For

Once an insurance company knows your credit score and/or credit history, they use it to decide if they want to insure you. If they do, they use this information to come up with a credit-based insurance score. This score will determine the premiums that the insurance company charges you.

Your credit score/history is one of the main factors in this score. Insurance companies use it to determine how likely you are to file a claim on your homeowner’s insurance. There’s a correlation between poor credit history and multiple homeowner’s insurance claims. An insurance company obviously wants to make sure that you pose a low risk for a claim.

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Just as an insurance company wouldn’t offer you insurance if you previously filed 3 claims on your homeowner’s insurance, they may not offer you insurance if you have bad credit. They want to minimize the risk of claims, as that is how insurance companies make a profit.

Reasons Your Credit Score can Make it Hard to Get Homeowner’s Insurance

Luckily, your credit score alone won’t make you ineligible for homeowner’s insurance. Just as is the case with a mortgage, insurance companies look at the big picture. Your credit-based insurance score is just a piece of the picture. They also look at your history of owning a home. Did you file claims before? What did you file them for? Were they avoidable claims? Were they large claims?

If you have a history of making claims combined with a low credit score, your chances of getting insurance with good rates are slim. If you have a high credit score and say one claim in the past, though, you have a higher likelihood of getting the insurance rates you wanted.

The best thing you can do to make sure you get the best insurance premiums is to maximize your credit score. Make your payments on time; don’t overextend your credit, and don’t apply for new credit. This way you can increase your chances of securing good insurance rates.

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Does Loyalty Matter With Insurance Companies?

By JMcHood August 22, 2018

Do you shop for new insurance every year or every other year? You aren’t alone. This necessary, but often expensive cost, makes people want to find a cheaper alternative. But does loyalty ever play a role? Should you stick it out with the same insurance company in order to save money?

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Unfortunately, you probably won’t save money by staying with the same insurance company year after year. Insurance companies base their prices on hard data. Neither of you can do anything to change that, which usually means higher premiums.

But sometimes loyalty means more than worrying about the cost of the insurance.

Service May be Worth It

If you stay with the same insurance company for several years, you build a relationship with the insurance agent and/or company. When you build a relationship, what generally happens? You get better service. The agent will be more likely to help you if you are in a bind.

For example, let’s say that you missed a payment accidentally. A new insurance company that doesn’t know you might just cancel your policy. They believe you are a high risk so they don’t want to insure you any longer. An insurance company you’ve developed a relationship with over the years, however, may be willing to cut you a break. Knowing that you don’t normally make late payments, they may be willing to grant you an exception, and not cancel your policy.

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An insurance agent that knows you may also be able to help you with odd issues when you have to make a claim. Maybe you have a situation where the blame can fall on either party for the accident. The other party’s insurance company is trying to get you to take the blame. Your insurance agent will likely step up to the plate and help you in this situation. A new customer, that they don’t know though, may be left on his own to fight the battle.

Shopping Around for Insurance

Of course, if low premiums mean more to you than service, you may want to shop your insurance every so often. Some people religiously shop for insurance every year. They don’t want to pay the higher premiums that inevitably occur when you stick with the same company. Going to a new insurance company will help you get the lower rates because they are trying to entice you – they want to get you into the company in the hopes that you’ll become a loyal customer.

As you shop around, though, don’t forget to negotiate with your current insurance provider. There’s something to be said about loyalty. If you call your insurance agent and let him know that you may cancel because premiums increased, there may be some wiggle room for him, allowing you to secure lower premiums without changing insurance companies.

So does loyalty matter with insurance companies? It really does, as there are benefits that you realize by sticking with the same company, even if you end up paying a little more.

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How is a Premium Different From a Deductible?

By JMcHood August 6, 2018

When you shop for insurance, whether it’s medical, homeowner’s, or auto insurance, you’ll hear two different terms thrown around. They both affect how much you pay for insurance, so they are important terms to understand. They are premium and deductible.

What is the Insurance Premium?

The insurance premium is what you pay each month for your insurance. Insurance companies determine your premium based on your risk level. The riskier you are, the higher premiums an insurance will charge you. They base their premiums on your likelihood of filing a claim.

You have to pay your premium each month, or your insurance could lapse. It’s important to choose a policy that has a premium that you can afford. Remember, you will pay the premiums whether you use the insurance or not.

What is the Deductible?

The deductible is the portion of the claim that you will pay before the insurance will take effect. Let’s say you have auto insurance with a deductible of $1,000. You get into a car accident and need to file a claim. The insurance company will require that you pay the first $1,000 of the damages before they will start paying for the damages.

You will find deductibles that range from $100 to several thousand dollars. Typically, insurance companies offer a variety of deductibles to help you choose the program that fits your budget. You should choose your deductible based on what you can afford.

For example, if you have the option of a $1,000 or $2,500 deductible, but you don’t have $2,500 in a liquid account, such as checking or savings, you shouldn’t choose the higher deductible. Even though you don’t need to pay the deductible unless you need to make a claim, there’s no guarantee that you won’t have to use the insurance.

How Deductibles and Premiums are Related

While the premium and deductible are two different things, they do coincide. As we said above, you have a choice on your deductible on most insurance programs. The larger deductible that you choose, the lower the premium an insurance company will charge.

Insurance companies charge the lower premium because they take a lower risk when you have a larger deductible. Going back to the auto insurance example with the $2,500 deductible. If you were in an accident, the likelihood of the insurance company having to pay anything beyond the $2,500 that you are required to pay is small. In exchange for this low risk, the insurance company will give you a lower premium.

Before you choose a premium and deductible, think carefully about what you can afford. The premium is something you will pay on a regular basis, so you should make sure that it fits within your monthly budget. Your deductible is something you will pay should you need to make a claim. You need to decide if you can afford a higher deductible should something happen or if you should take the lower deductible and pay the higher premium instead. The choice is yours and you can always revise your plan should your financial status change, making it easy for you to always stick within your budget.

The Top Reasons People File For Bankruptcy

By JMcHood March 26, 2018

 

It used to be that people that filed for bankruptcy had bad habits. They shopped too much and lived a life outside of their budget. Today, however, that’s not top reason. Yes, people do still overspend and have to file for BK as a result, but today there are many other reasons people do so.

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People that go bankrupt often do so because of reasons outside of their control. Keep reading to learn the most common reasons people end up in despair.

Medical Reasons

According to a study, more than 2 million people filed bankruptcy due to medical expenses. In fact, it’s the number one reason people file for a BK. Even if consumers don’t get to the point of filing, millions of people suffer as a result of their high medical bills. Believe it or not, a majority of those that filed also had medical insurance. There just wasn’t enough coverage to help them afford the expenses that hospitals and doctors charge.

Credit Card Debt

You probably guessed that credit card debt would be a reason. However, the reason for the credit card debt may come as a surprise. Again, it’s not due to shopping sprees. People use their credit cards just to afford daily living. It could be medical expenses, emergency repairs, or just daily living as a result of job loss or reduced income. Eventually, the bills get so high that consumers cannot afford them.

Company Downsizing

Many companies have changed their pay structure or have downright downsized. This has affected millions of employees throughout the country. Whether they experienced a pay cut or lost their job altogether, it affects their bottom line. Losing income or a job altogether suddenly can have a dire impact on a person’s ability to afford their bills.

Emergency Expenses

It’s recommended that everyone has an emergency fund with at least 3 months’ worth of expenses in it. Six months is even better, but a little is better than nothing. Even with insurance, emergency expenses can wipe a bank account clean. Car accidents, house emergencies, and medical emergencies are just a few examples of what can occur. Without the money to cover these occurrences, you could find yourself in tremendous debt and unable to dig your way out.

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Divorce

Dissolving a marriage is expensive. First, you have to be able to afford the divorce which can result in very high legal fees. Next, you have to divide up the assets and be able to afford certain expenses, such as child support or alimony. If you don’t pay the court ordered expenses, you could have your wages garnished or have a lien put against your property. Many people end up filing for bankruptcy just to get some help in getting their financial life back in order after divorce.

Paying for College

Parents often get in over their heads trying to pay for their child’s education. Student loans come at hefty costs that can put parents in financial destruction. Once the loans are no longer in deferment, large payments are expected. Even the payment plans that are available are often unaffordable, putting unnecessary strain on parents or even the students themselves. While bankruptcy does not dissolve student loans, it could help reorganized the debts to make them for affordable for you.

Overspending

We could not talk about bankruptcy without covering the fact that some people do overspend. Whether it’s due to bad budgeting, an unexpected occurrence, or a job loss, if the spending habits do not change with the income, financial despair can occur.

If you find yourself in financial trouble, the best thing you can do is talk to someone. Start with the creditors who you are having trouble paying. For example, if it’s your mortgage you can’t pay, talk to your mortgage company right away. They may have a payment plan that they can work out with you to help you get caught up. If it’s your credit cards, student loans, or any other loan, do the same thing – talk to the bank.

The earlier you let a creditor know what’s going on with your finances, the more they can help you. If you just let your bills go unpaid and ignored, your creditors will take adverse action against you. It’s hard to dig yourself out of that, which then leads to filing for bankruptcy.

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Does Bundling Your Insurance Policies Really Save you Money?

By JMcHood March 7, 2018

If you have ever shopped for insurance before, you have probably experienced an agent selling you on other policies at the same time. It makes sense, they want to make money and why not hit you up for other insurance policies while they are at it?

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Many companies will lure you in with bundling discounts. Who doesn’t love to save money, right? But is it really cheaper? We help you discover the answer below.

Incentives and Savings Usually Occur

Generally, yes, you can save money off a particular insurance company’s standard rates. If you have say, homeowners insurance, and auto insurance with the same company, they will likely give you a discount. So it looks like you are saving money. But, there’s a catch.

Did you shop around at other agencies as well? How do you know you are really saving? You are saving on the standard premium of one particular company. What about the other companies? Unless you shop around for each type of coverage you need, you won’t know if the discount is really worth it or not.

However, some insurance companies offer incentives that make it worth bundling. If, for example, one company allows you to pay only one deductible if a singular event affects multiple items, it could be saving to you. But, again, you need to see just how much you are actually saving before deciding.

Lower Premiums on Insurance Policies May Exist

As we discussed above, if you just stick with your current insurance company because they offer you a discount, you won’t know what else is out there.

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Let’s say you need auto insurance but already have homeowners insurance. You should shop not only at your current insurance company, but also smaller companies that offer just auto insurance. These companies may specialize in auto insurance and be able to offer much lower rates. Companies that have their hands in many different baskets are unable to provide the same discounts. They have to cover themselves in too many areas, making it harder to provide as great of savings.

Other Benefits of Bundling

Besides the money you may save, there are non-financial benefits of bundling insurance that may help you make your decision.

  • Convenience – If paying bills to different companies each month seems too confusing or time-consuming, the convenience of bundling may be big to you. You only have one insurance company you have to deal with when you have a claim as well.
  • Proper coverage – An insurance company that holds all of your policies knows more about you. They may be able to suggest other types of coverage or help you know how much coverage you need for each policy. This could help you save money rather than paying for coverages you don’t need because policies overlap.
  • Keep lower premiums – Sometimes, keeping all of your policies with one company can help your premiums stay stable even after you file a claim. If you only have one type of insurance with a company, they may not hesitate to raise your premiums. If you have several though, they will work harder to keep your business as losing more than one insurance coverage could be detrimental to them.

It’s important to look at the big picture when determining whether bundling insurance policies is worth it. You might save money, but you also might not. You have to shop around and see what insurance companies say about your individual factors. Only then can you decide what is right for you. Shopping around for insurance every few years should also be a part of your routine as you may find lower rates as you shop around.

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Do Beneficiaries Pay Taxes on Life Insurance Proceeds?

By JMcHood January 18, 2018

You buy life insurance to protect your loved ones in the event that you pass away. You want them to be protected. But, what happens when they receive that money? Are the proceeds taxable? Paying taxes would certainly take away from the money they receive.

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Luckily, most proceeds are not taxed. There are exceptions to the rule, but a majority of the money beneficiaries receive is untouched by the government.

We look at the specifics below.

Standard Proceeds Payouts

Standard payouts to your beneficiaries remain untouched by the government. Your beneficiaries can receive the full amount you designated them to receive. The exception to this rule is if the payout becomes a part of your estate and your estate is large enough to be taxed. In 2017, the estate can be worth up to $5.49 million in order to remain untaxed.

Your beneficiaries have choices when it comes to payouts upon your death. They can take one lump sum, which remains untaxed, as we discussed above. They can also take the money in installments. In this case, they may pay some taxes. The interest they make on the money that remains untouched becomes a tax burden for them as it’s profit on top of the money you left them.

Spouses Never Pay Taxes

Luckily, no matter the size of your estate, your spouse will never pay taxes on a life insurance payout. This gives you the reassurance that your spouse will receive the full amount you purchase upon your passing. This is true even if the estate exceeds the $5.49 million threshold. The money you leave from a life insurance policy is excluded.

Cashing in a Life Insurance Policy

If you bought permanent life insurance, but then decide you need the money rather than leaving it for your beneficiaries, you have that right. You can cash the policy in without paying taxes as long as one condition occurs. You cannot make any capital gains on the investment. In other words, as long as you take out less than or equal to what you put in, you walk away tax free. If there are any capital gains, though, you will pay taxes – see below.

Capital Gains on Permanent Life Insurance

Here’s where the exceptions come into play. If you die and you have capital gains on your life insurance policy, your beneficiaries do not pay tax on it. However, if you surrender the policy before you die, you will pay taxes on the capital gains. You would owe taxes on any money you make outside of what you paid for the policy. This is an incentive to leave the investment untouched until your beneficiaries need it upon your death.

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Receiving Premium Dividends

Some permanent life insurance policies pay their insured dividends when certain situations occur. For example, if payouts were less than the company predicted for the year, they may pay dividends to policyholders. The amount paid to holders is generally not taxed. The threshold, however, is the amount of premium you paid. If your dividends received do not exceed the premiums you paid, you do not pay taxes. If, however, you receive more than you paid, it’s a capital gain and you’ll owe the IRS.

This is the case no matter how you receive the dividends. You often have the choice to receive it in cash, keep on deposit, or to use to buy more life insurance. No matter the choice you make, you won’t owe taxes unless the amount exceeds the threshold.

Taking a Loan on Your Life Insurance

If you have permanent life insurance, you have the option to ‘borrow’ your money. You then pay the money back as you would any other loan. You pay interest on the money borrowed. However, if you surrender the policy before you pay the loan back, you’ll owe interest on any money you receive that is above what you paid. Basically, any money you have in your pocket that exceeds the value of the life insurance policy becomes a tax burden.

Life insurance policies can help you decrease your tax liability in certain cases. Discuss your options with your insurance advisor to see how they may help you lower your tax liability while helping your loved ones in the face of your death.

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