Bond Publishing ‘Insure and Invest’

Feature Article for 1997-1998 Triangle Newcomer

Insure & Invest

Relocating usually means making a fresh start in a new job and a new home with new friends and neighbors. It is also an excellent time to update financial plans and make sure insurance coverage and investments are appropriate for your new situation.

“Relocation time is an ideal time to establish a relationship with a local insurance professional and financial advisor,” noted Herb Council, an agent with Council & Associates in Cary. As an independent agent, Council sells life and health insurance for a variety of companies and a broad portfolio of investment products.

“As soon as you’re settled in, you need to sit down with someone you’re comfortable with and let them take you through a financial needs analysis or an estate planning analysis,” he continued. “A qualified professional can help you figure out where you want to be five or 10 or 20 years from now and make sure you’re moving in the right direction and have planned for all the contingencies.”

“Newcomers definitely need a relationship with a local insurance professional,” agreed Jim Adcock, AAI, of The Adcock Agency Inc. in Cary. “If you come into a new community, especially from another state, you definitely need to review your insurance program with someone familiar with North Carolina’s insurance regulations and distinctive coverage forms to make sure the exposures you have in your new situation will be covered.”

How do you find a qualified agent when you’re new in town?

“Asking around your new workplace or neighborhood is a good way to start,” said Judy Fourie of J. Fourie & Co. Fourie is an independent broker specializing in health insurance who also sells life insurance, disability income and other types insurance for individuals and groups. “Once you have two or three names of recommended agents, I believe you should approach all of them and interview them to determine if they’re really qualified and if you’ll be comfortable working with them. In the long run, choosing the person you feel really cares about you—someone who’ll provide good service and be there for you if you have a problem—is much more important than getting the lowest rates.”

Insuring Against Financial Loss

The primary purpose of any insurance policy is to help you secure yourself and your family against possible financial losses. Knowing you have the insurance coverage you need on your life, health, home, business and automobile can give you peace of mind, too—particularly in emergencies.

“Insurance helps families protect their assets,” said Eddie Beverly, an agent with Nationwide Insurance and Beverly’s Insurance Agency in Durham. “It also provides important protection, should an emergency arise.”

Life Insurance

The main purpose of life insurance is to protect immediate family members and financial dependents against loss of income if the policyholder dies. There are two types of life insurance—term and permanent.

Term insurance will provide death benefits for a specific time period or term. There are three basic types of term life insurance: annual renewable term, in which the cost goes up each year as you get older, level term, which locks in premium amounts for a period of five, 10, 15 or 20 years, and decreasing term, in which the premium amount remains the same, but the death benefit decreases as you age and the likelihood of death increases.

As with term insurance, there are three basic types of permanent life insurance: whole life, universal life and variable life.

Permanent life insurance policies guarantee the cost of the policy, the death benefit, the future cash value and the interest rate the policy earns. Universal life policies guarantee a minimum rate but will pay a higher rate if the insurer earns more on the policy’s cash value. Variable life policies allow you to invest excess premiums into mutual funds.

When considering proposals for life insurance policies paying variable rates of interest, bear in mind that the rates may change dramatically during the life of the policy. While your return will never drop below the guaranteed minimum, it could be substantially lower than projected values, depending on the assumed rate used to prepare the policy illustration.

Health & Disability Income Insurance

Relocating can mean changes in your health insurance coverage. Although most employers offer health insurance, some have a waiting period of up to one year before coverage begins. Short-term health insurance may fill the gap, covering you for up to six months. Policies can be reissued if necessary for a second six-month period. By adjusting your deductible or co-payment amount, you can tailor a plan to fit your budget.

If you do not have coverage at work and you do not belong to a group offering group health benefits, you will need to shop for an individual health insurance policy. “There are a lot of people moving here to start their own businesses, and they need health insurance,” Fourie said, adding that recent radical changes in the health care industry have made health insurance increasingly complex. “From the traditional indemnity policies to PPOs to HMOs, there are many new options to consider. With all these changes, it’s more important than ever to work with an experienced agent who specializes in health insurance.”

Disability income policies insure your ability to produce an income. While fewer than 15 percent of all workers in the United States have disability income coverage, many experts consider it one of the most important types of coverage to carry because your lifetime earning power represents your most valuable asset.

“Disability income insurance is very under-sold,” said Fourie. “Depending on your income amount and how old you are, it can be an expensive product, but still a very important one.”

As insurance companies develop new policies to attract middle-income workers, the costs of disability income policies appear to be coming down. If you are considering individual coverage, the three key elements of the policy to compare are the definition of disability, the length of the benefit period, and the waiting period between the time you are disabled and when benefits begin.

Homeowners Insurance

If you’re like most people, your new home represents the single largest purchase of your lifetime. Homeowners insurance protects your home and its contents from a variety of perils such as fire, theft, lightning, floods and earthquakes. The policy also will protect you if a visitor to your home is injured on your property. Read your policy carefully to determine what types of damage the policy will cover and what types are excluded from coverage.

Many Triangle residents learned first-hand just how important having good homeowners coverage is on September 5, 1996, when Hurricane Fran swept through the area, causing severe, widespread damage. “Those who were improperly insured or who were insured by less-than-service-minded insurance companies were also less-than-happy in the aftermath of Hurricane Fran,” said Adcock.

If you’ve just bought your home, the purchase price is an indicator of its current market value, but market value may be less than the cost of rebuilding your home in the event of damage, so set your coverage amounts accordingly.

To determine the value of the contents of your home, it’s a good idea to update your household inventory as you unpack. Experts recommend photographing your valuables and storing the photographs, along with receipts, away from home.

If you have jewelry, furs, silver, art works and other personal property that is extremely valuable, you will need to cover those items separately, either using a rider to your basic policy or with a separate policy.

Some policies pay actual cash value on personal property claims, while others require a special rider to be added before replacement costs are paid. Because most homeowners want to replace stolen property with new items, most property and casualty experts recommend spending the few extra dollars in premium to have this potentially valuable coverage.

If you are among the 12 million Americans who operate full-time businesses out of a home or if you moonlight in a home-based business, you probably need additional coverage on your business equipment, plus coverage to protect you in case a worker or client gets hurt in your home office. Ask your agent about adding a rider to your homeowners policy and, perhaps, taking out a separate business owner’s policy.

If you are renting your home or an apartment, perhaps while your new home is being built, you should insure your possessions with a renter’s policy.

Automobile Insurance

North Carolina drivers enjoy the sixth-lowest automobile insurance rates in the nation and the lowest rates east of the Mississippi River. Basic automobile liability insurance, which includes property damage and bodily injury coverage, is mandatory in North Carolina. Automobile insurance rates are unisex, and age is not a factor. However, premiums are slightly higher for inexperienced operators—those who have been driving fewer than three years.

North Carolina has two point systems for driving offenses. The first, administered by the Department of Motor Vehicles (DMV), determines whether or not you will be able to keep your driver’s license. The second system is used by the insurance industry to determine the amount you pay for insurance coverage. Premiums can increase substantially if you accumulate insurance points, making speeding and other forms of careless driving particularly risky in North Carolina.

The North Carolina Department of Insurance offers these tips to lower your automobile insurance costs:

• Raise your deductible. The amount of a loss you pay personally often can lower your premiums substantially.
• On older vehicles, consider dropping collision coverage. The value of the covered vehicle may not be worth the cost of this optional coverage.
• Be selective in choosing coverage options. Contact your agent or the Department of Insurance for a full explanation of all optional coverages.

For more information on insurance, call the North Carolina Department of Insurance, Jim Long, Commissioner, (800) JIMLONG (546-5664).

Investment Options

There are many investment opportunities offered by financial advisors, insurance agents, banks and other financial services professionals. Common options include annuities, mutual funds, individual retirement accounts (IRAs), and money market and pension plans.

A key reason newcomers should consult with a local financial advisor can be summed up in one word: taxes.

“Beginning investors should take advantage of all possible tax savings programs while advanced investors should work to protect their investments against estate tax losses,” explained Ted Seagroves, an agent with the Seagroves Insurance Agency. A Nationwide agent, Seagroves offers both insurance and investment options.

Another option for investment advice is a Triangle area bank. BB&T, The Fidelity Bank and First Citizens Bank, for example, all offer investment planning. Other banks, including Central Carolina Bank (CCB), Centura Bank, Nationsbank, United Carolina Bank (UCB) and Wachovia offer a wide array of investment, securities and brokerage options, including stocks, bonds, trusts, estate planning and will review.

One hot new investment, according to Council, is viatical settlements. In the first two weeks he offered viaticals, 10 clients chose to invest.

The investor in a viatical arrangement purchases the right to receive death benefits from a life insurance policy on a terminally ill person’s life. The amount paid to the terminally ill insured ranges from 40 percent to 90 percent of the face value of the life insurance policy, once a viatical company determines the policy is valid, incontestable and may be sold. Viatical companies also consider the strength of the insurer and will not purchase policies underwritten by companies with substandard ratings.

“Some people find the idea difficult to accept at first,” noted Council, “but after they understand how viaticals work, they see it’s really quite humanitarian. In many cases, these terminally ill people desperately need money now—not after they’re gone—so viaticals bridge the gap and put money in their hands at the time they need it most.”

The longer the life expectancy of the insured, the lower the payment for the policy to the insured and the lower the investment required to be assigned policy death benefits. Investors have no contact with or knowledge of the insured. Council said the investor’s rate of return on viaticals normally ranges from 12 percent to 14 percent.

Be Prepared

Fortunately, there are many qualified experts in the Triangle who can help serve both your insurance and investment needs. These individuals provide the know-how to assist you in building and protecting your assets while you learn to navigate the sometimes-turbulent waters of the financial world.