Life Insurance: When to Change or Replace Your Policy

There are several reasons for changing or replacing your current life insurance policy with new coverage. Some of these may include:

• A new policy may provide you greater coverage or a higher death benefit at a similar or even lower cost than you’re now paying.
• You may have more confidence in a different agent or company than you originally selected.
• Your life insurance needs may have changed as a result of life changes you’ve experienced since your current policy was obtained.

Going From Temporary to Permanent Coverage

One of the more common reasons given for replacing a life insurance policy applies to those individuals currently covered by a temporary term life policy. You may now have elected to convert to a permanent form of coverage, such as whole life. Often, a term life policy is taken out to protect a young family because of the combination of a high death benefit and affordable cost. Once a family’s financial circumstances have improved, however, a permanent form of life insurance may be desired because of the benefits provided that are not available through term life. These include lifetime coverage at a level premium amount (regardless of changing health conditions) and an accumulating cash value.

Many term life insurance policies can be easily converted to some form of permanent coverage, such as whole life or universal life, and there are several good reasons you may choose to do so. Failing health conditions that may prevent you from qualifying for a new term policy when your current term coverage expires is a big one. When converting your term policy to permanent insurance, you won’t be required to undergo a health exam as long as you convert before the stated conversion deadline and you haven’t yet reached the age of 75.

Life’s Big Moments

It’s recommended that you review your insurance policies annually to revisit the coverage you have in force and compare this with your current insurance needs. If, however, you experience one of life’s big moments, such as getting married (or divorced), having a new baby (or grand baby), buying a new home or coming into a large inheritance, your insurance needs will almost surely change. In that case, you should consult your trusted insurance broker or financial advisor to help determine what alterations, if any, should be considered. Often, your current policy, with some slight upgrades, will prove sufficient and brand-new coverage won’t be required.

 

What is Water Backup?

Water damage is one of the most common reasons for homeowners insurance claims here in the Triad, including water backup, damaged plumbing and, although not covered by standard homeowners insurance policies, flooding. In addition to water damage being a common cause of homeowner problems, it’s also one of the most misunderstood portions of a homeowner policy as to what’s covered and what’s excluded. We’ll try to shed some light here on this sometimes confusing area.

Water Backup Defined

 

Under normal conditions, when you run a water faucet or flush a toilet in your home, the water travels down and away from the home either to a sewer pipe or septic tank. If something happens that causes the water to stop flowing, usually involving some type of blockage, it will cause a water backup. The water that’s supposed to run down the drain has been prevented from doing so and, instead, travels back up through the drain and into your home. Often, this water will cause damage to the building structure and/or the personal belongings located therein.

As long as the water that has backed up into your home originated on your home’s premises, it’s likely covered by your standard homeowner insurance policy. Examples of this include:

• The drain for your sink, toilet or shower becomes obstructed and the water overflows onto the floor

• Your house drain becomes obstructed by a tree root out in the yard and the blockage causes water to back up through a toilet or an inside drain 

Many insurance companies offer optional, expanded coverage called Water Back Up & Sump Pump Overflow coverage as an endorsement on your standard policy. Suppose you have a sump pump in your basement designed to remove sub-surface water accumulation from around your home’s foundation and this pump becomes overwhelmed by the volume of water it is having to deal with. If the water backs up into your basement, this optional coverage may help pay for the losses incurred. If a sewer backup from the city’s pipe out in the street becomes obstructed and causes water to overflow through your household drains, this should also be covered.

Water that comes into your home and causes damage will generally not be covered in your standard policy if it originates from anywhere outside the home. This includes flood water or any other water coming in from outside the home, including surface or sub-surface water.   

What Does Flood Insurance Cover?

The City of Greensboro and surrounding areas within Guilford County have a number of waterways that may be subject to flooding during and after heavy rains, as can be seen here on this local area regulated flood plain map. Floods represent some of the most damaging and costly disasters to which property owners can be exposed. Being aware of potential risk areas and having proper protection in the way of flood insurance are important aspects of having a home or business in affected areas. Here’s an informative map put out by the NC Flood Risk Info System that lets you click on your county and enter any address to determine specific flood risk levels.

How Flood Insurance Works

Flood damage is a peril not covered within a general homeowner’s insurance policy. Flood insurance coverage must be purchased separately from your homeowner's policy. While this type of insurance is sold through your insurance agent, it’s actually made available only through the federal government’s National Flood Insurance Program (NFIP). It cannot, however, be purchased directly from the government, but must be obtained through an insurance company. Premiums do not change from one company to the next, and the specific rates are determined by the NFIP in accordance with certain factors such as flood risk level for a specific area plus the date and type of building construction involved. In most cases, there’s a 30-day waiting period after issuance before the coverage is active and premium payments must be made for an entire year.

What’s Covered

Coverage provided by flood insurance is spelled out on several government websites, including here. Coverage is applied to both buildings, and the personal possessions found within them, with certain exclusions such as currency, most valuable papers (such as stock certificates) and precious metals. Building and personal possession coverage is treated separately, with each having its own deductible amount.

Detached garages are covered (up to 10% of building coverage), however, other detached structures require a separate policy. Building coverage includes electrical, plumbing, major appliances, window blinds and permanently installed carpets, paneling, cabinets and bookcases.

Personal possessions coverage includes:

• Clothing
• Furniture
• Electronic equipment
• Washers and dryers
• Portable appliances
• Carpets not covered under building coverage
• Freezers (including food stored within)
• Original artwork, up to a maximum value of $2,500

Items not covered include most vehicles, items located outside the insured building like pools, fences, decks, landscaping, etc.        

 

Term vs. Whole Life Insurance: How to Choose

There are plenty of valid reasons for purchasing life insurance, all of which relate directly to providing funds in the event of premature death of the insured. All that’s required in order to obtain a policy is to be the named insured or have an “insurable interest” in that person and have the ability to pay the premium.

Term vs Whole Life

There are two main types of life insurance: term and whole life. Term insurance has one single benefit, derived should the insured die during the term of the policy. At this point, the beneficiary is paid the face amount stated in the policy. Term insurance is issued for a specific time period, or term, after which point it expires and must be renewed to obtain continuing coverage. It is relatively inexpensive and easy to purchase. Terms generally last between one and thirty years, during which time the premium charged for the coverage remains level. At subsequent renewals, premium amounts increase due to the increased age of the insured, which means higher risk that the insurer will pay out on the policy.

Whole Life

Whole life coverage is usually more difficult to obtain, requiring a medical examination, and it's also more expensive initially. Its coverage is meant to last the insured his/her lifetime, during which premium payments remain level. In addition to the death benefit, whole life also has a cash accumulation feature that slowly builds up over the years. This accumulation may be used to lower premiums, to increase face value or as a source for borrowing. Some whole life policies may also pay annual dividends.

Which is Better?

Term life insurance is what’s typically sold to cover the risk assumed when buying a vehicle or a home. In the event of premature death, funds would be available to pay off the loans, leaving the family of the insured unencumbered by these debts. Policies would be written to cover the time frame (term) the loans are active. Because term life insurance usually costs a fraction of what whole life costs initially, it allows young families on a tight budget to obtain maximum coverage for an affordable monthly premium.

For those able to afford higher premium amounts, whole life insurance is worth considering because of the lifetime coverage and the built-in cash accumulation feature. Your best bet is to discuss the benefits of each with your professional life insurance agent.