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Home » Business And Finance Articles » Picking The Right Insurance Program

Picking The Right Insurance Program

Most aspects of capitalism is win-win. If employers make a lot of money from workers due to increase of workers productivity, those employers will hire as many workers as possible -- increasing workers' salary.

Hence, in most aspects of capitalism, people try to profit from others in any way they can.

However, not all aspects are win-win. If same shops sell the same product at a different price, of course, you'll pick the cheaper package. In this case, picking a package that makes the shop profit more will tend to hurt you.

The same thing works for insurance. A good rule of thumb on whether an insurance package is good for you or not is whether the insurance program makes a lot of money doing it or not.

No, I am not advocating that such huge profit should be prohibited. To the opposite, when an insurance company makes a lot of money, then they'll invite competitors that'll shift their profit back to you. Free market is still the best in this area. I am advocating that you don't buy such insurances.

The same way, I am not advocating that merchants shouldn't make a lot of money selling their products to you. I am advocating that you should buy from the business providing the best product, and service, at the least costs. That's how capitalism works.

The following are insurance programs where insurance companies make a lot of money. Hence, avoid these programs like plague.

Flight Insurance

The safest way to travel is by airplane. There is a statistic that says that if you travel by airplane every day for 1000 years, you'll probably get a plane crash once. Even then, you'll survive. However, plane incidents are always reported on TV. That causes fear. Humans act based on emotions and feel that flights are much less safe. Not only that, you also have life insurance covering your life.

Mortgage Life Insurance

I have found out that you're better off buying term life insurance. Again, in general, insurances that are mixed with something else, like mortgage, or savings, are usually bad ideas. The more things are mixed, the more consumers are confused. The more confused the consumer, the more money insurance companies make.

Credit Card Lost Prevention Insurance

By law, your lost is limited to $50. So don't buy.

Accidental Death Insurance

Stick to regular good old term insurance. The probability that you'll die due to accident is lower than you think.

Rental Car Insurance

This is also another rip off. Insurance companies make too much from this. Chances are, it's already covered with your regular car insurance. Think of it this way, you use your car for a whole year. If you rent a car for 1 day, then the probability that you will have a car accident within that 1 day should be around 1/365 of your regular car insurance. However, rental car insurance is sold at much higher price than that.

Children Insurance

"Mommy, our kids are dead, I am so sad. But fortunately, we got them insured. So we got cash." There are only two ways why you should buy children insurance. First if your child is the bread earner of the family. Second if you plan to hack them into pieces. I'll explain more why when we understand the true nature of insurance on http://FasterFinancialFreedom.com/art.390.0.html.

Identity Theft Insurance

The hassle of going through claiming the insurance coverage is better spent on checking your free credit report.

Insurance, Risk, and Investments

Every time you put $1 in an insurance, you'll probably get $.50. The other $.50 goes to the insurance companies and to their seller. Most of the time, the ratio is even higher.

For example, say you buy term insurance for $1 million. Say you paid $2000/year for that kind of insurance. Then I bet, the insurance companies know all along that the probability you're going to die that year is only 1%. Hence, the insurance companies make $2 for every $1 they pay in claims.

The more complicated the insurance, the larger the ratio. In permanent insurance, for example, insurance companies probably make $5 every $1 they pay.

You can't win in insurance by buying more insurance. Your true gain doesn't come from the higher expected value of your return. Your gain comes from increased stability of your business. Say you have a lot of houses that's all in the bank. Say one of them is on fire. Then a $100,000 lost can cost you way more than $100,000. Perhaps it'll force you to fire sale your other houses at cheap price. You see how financial instability can knock you out of business? Insurance addresses this.

Also, with insurance, your income from year to year becomes smooth. Women like stable income. IRS are more lenient towards stable income too. You'll pay less tax if you earn $50,000 per year for 10 consecutive years than if you earn $100,000 per year for 8 years and lost $150,000 per year the next 2 years. The former case will put you on lower income tax bracket and relieve you from paying the tax on the extra $50,000/year that you're going to lose.

So what are the tips?

Do not over Insure

Remember, the benefit of insurance is stabilizing your income. If you over insure, your income will be instable again because you'll actually make more money if your house is on fire than if it stays in charge.

Now, some people love to over insure. The only time this can be profitable is if you plan to burn your house. This is illegal, however. Insurance companies understand that those who are over insured are less likely to guard his house well, observe fire codes, and so on. So, they charge much higher premiums.

Keep the Co-payment Threshold High

In many insurances, you pay the first $10,000. The insurance pay in addition to that cost. Say you wreck your car. Say the cost is $5,000. You pay for it. However, if the cost is $100,000, then you pay the $10,000 of the cost, and the insurance pays $90,000.

Why is the co-payment high? First, insurance claiming is not easy. There's a lot of fraud going on and there's a lot of administrative processes that need to be done. If the insurance company puts the administrative cost to the claimant, they'll lose customers.

"Oh I lost my house, but I have to cough up even more money to get money from my insurance." Only governments can do such cruelty and stay in business.

So what do insurance companies do? They put the administrative cost in the premium.

So the premium becomes high. After all, if your loss is small, why not just pay for it? Saving the lesser premium in investments will be more than enough to pay small losses without losing your financial stability.

It's also never a good idea to file a claim for small losses. Filing such claims will make insurance companies mark you as a high risk. Hence, they'll raise the premium even more.

Sell Life Insurance Policy

The problem with term life insurance is you receive it after you're dead. Well, sometimes you can get your money before you die. That process is called viatical settlement. It'll only work for those whho are terminally ill. So an investor pays a reduced version of the coverage. After you die, the investor gets the coverage from the insurance company.

And here is another random article you might be interested in...

Attention Shoppers - Retail Stores Are Destroying Our Credit Scores

Imagine this...

You walk into a department store to purchase something you need. Then the friendly young person at the cash register says, "You can save 20% off your purchases today if you apply for our store credit card right now."

Save 20%? Wow! Sounds like a great deal, doesn't it? But let's take a look at what really happens to your credit when you give in to that temptation.

How Department Store Credit Cards Work

First of all, you have to remember that the young clerk, who barely looks old enough to drive, doesn't understand how the system works. They just focus on how many applications they can "sell" during the holiday season. Clerks who sign up the most people get some kind of bonus in returnâ€"usually cash or company merchandise.

Let's assume you agree and fill out a credit application. The clerk presses a few buttons and processes it on the spot. (Guess how? Yup, by quickly making a decision based on how high one of your FICO credit scores is.) This is called "instant credit." You see, retailers know that the best time to sell you something is while you're still in the store.

Whether or not you get approved, you have a credit inquiry from that store on your credit reports.

Your FICO Scores Can Plummet Up to 12 Points Per Inquiry

According to our research, each credit inquiry can lower a person's credit scores up to 12 points. And here's the kicker...EACH department store credit inquiry will affect your scores for 12 months. That's 1 year! 365 days! 8,760 hours!

Let me repeat that: EACH inquiry from any retail store will count against your credit scores. Sometimes you end up going to 8, 10, or 20 different stores. If you're applying for cards at all those stores, your scores are going to take a major dive.

Meanwhile, Back at the Department Store...

The young person behind the register suddenly announces (loudly, of course) that you were denied credit, gives you a receipt, and says, "Thank you, please shop with us again." You walk out of the store rejected. Not to mention embarrassedâ€"and you didn't even save any money because you have to actually qualify for the card to save the 20%. Punks.

What went wrong?

You weren't prepared.

I remember the fear that ran through me every time I filled out a department store credit application after my bankruptcy. I would actually wait until there was no one in line at the cashier! That way, if I got declined at least I wouldn't get too embarrassed.

In the Snyder household, we don't apply for this type of credit anymore. It was one of the reasons we filed bankruptcy 12 years ago. So we stay clear of department store credit. It's expensive credit (the interest rates usually hover around 23%) and it's too tempting and too easy to go into debt.

And the worst thing about department store credit is that the negative impact of the inquiries will last 12 months...so any store credit card applications you fill out will haunt you for the next year. It can be a vicious cycle if you don't break it. You can do it...break the cycle.

There's very little a retail store credit card can do for you that your normal VISA or MasterCard can't. I should know...before I filed bankruptcy I was the king of buying on store credit! The more store credit I got, the more successful I felt. I don't do that anymore. Now I know better. And so should you.

Who you are isn't determined by how many credit cards you get approved for. Do you even need their credit card? Is saving 20% of $50 really worth the trouble? (Seriously, do the math...10 bucks is all you would save.) Remember, whether you get approved or declined, your credit scores are going to take a hit. And when you're recovering from bankruptcy with credit scores that are already low, every point counts.

The Best Way to Apply for a Department Store Credit Card

But let's assume you're smarter and more responsible than I was when I was younger, and that you've never had a problem with spending more than you can afford (after all, we don't all go bankrupt because of overspending). Here's how to properly master this process.

1. Find out what their credit guidelines are. Specifically, you want to know what credit reporting agency they use to make a lending decision and what minimum FICO credit score is required to get approved. Don't bother asking the young people at the checkout registerâ€"they won't have a clue. Your best bet is to call someone in the store's credit department.

2. Know all three of your FICO credit scores. You can purchase them through www.myfico.com/12. This way, if the credit card issuer tells you their credit guidelines, you'll know whether you'll qualify or not.

3. If the credit card issuer cannot give you straight answers to the questions you're asking, then talk to another person within the department that will. If no one will tell you what you need, you're either not asking the right people, or you should take it as a sign you shouldn't be applying for that credit card.

By knowing the retailer's credit guidelines and your FICO credit scores you can apply for credit with confidence.

Last Words...

Of course, it's easy to get caught up in the joy of bringing a smile to someone's face when you think you're being a good parent or spouse by spending more than you can afford on credit. You must remember, the joy your children will get from a bunch of small gifts now will be multiplied by a hundred when you're financially stable enough to pay for their college education...or buy them their first car...or help them with a down payment on a new home. Plus, your financial responsibility will set a great example for your children.

The bottom line is: you need to think twice about the negative effect credit inquiries have on your ability to finance more important things such as mortgages, home equity loans, new cars...not to mention your insurance premiums could skyrocket!