Merging Into Life Podcast: Insurance 101

[00:01:50]
Emily Buckley: I am an assistant sales manager here at AAA Northeast.

[00:01:54]
Amanda Greene: So what kind of insurance do you deal with?

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Emily Buckley: Car, home, umbrella, boat. Basically anything you can operate or live in, we can insure it.

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Amanda Greene: So, at what point in our lives should we consider thinking about these kinds of insurance?

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Emily Buckley: I like to say whenever you have something like your first car that’s strictly in your name where you are financially responsible for it, that would be I would say arguably the first time you should think about it. And then anytime you buy a home, anytime you have something that could potentially put you at risk to get sued for all your worth, is really the time to start thinking about that sort of thing.

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Amanda Greene: Wow. So when do we start to amass financial value of any sort?

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Emily Buckley: The thing with insurance is we buy it so that we don’t have to use it. So it’s protection in case the worst-case scenario happens.

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Amanda Greene: Earlier you mentioned a few different types of insurance. What is umbrella insurance?

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Emily Buckley: So, an umbrella, if you want to use your hands as an example, you have your auto in one hand, you have your home in your other hand, and then the umbrella will cover both of them. Just like with rain, umbrella insurance will cover everything. In case anybody tries to sue you for all your worth, it is in denominations of a million, usually the minimum is a million. And you will have that extend over a really bad car accident, somebody gets very badly injured, or if you have somebody who trips and falls on your property. I mean, there’s a plethora of reasons why people would want an umbrella policy, so yes, umbrella insurance is worth it.

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Amanda Greene: Is that something that would cover you if you were injured and out of work?

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Emily Buckley: No. Umbrellas are really strictly third-party liability. When we say third-party, I know it sounds scary, but all it means is other people. So it means not you personally or people.

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Amanda Greene: Someone else?

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Emily Buckley: Exactly.

[00:03:29]
Amanda Greene: That feels like an ultimate protection. But who will need umbrella insurance?

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Emily Buckley: Oh, for sure. I know more often than not, people say if you’re a homeowner, you want to have an umbrella, but I think that anybody who owns a car should have an umbrella policy, anybody who wants to make sure that their livelihood is protected.

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Amanda Greene: What sort of things do we need to think about before we meet with an agent?

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Emily Buckley: First, think about net worth. If you were to have a situation where you had to forego everything  – your home, your cars, everything like that  – what is the dollar value? And that’s really what you should be insuring for liability-wise. That’s why umbrellas are more often important.

I live in New York. New York is expensive. And I live on Long Island, and it’s one of the more expensive places to live. And the average cost of a home out here is definitely north of $500,000. So, if your underlying policy’s only insuring you for that much, you want to make sure that you have that excess liability policy to protect above and beyond that. So insuring your value, that’s one of the first things you want to think about.

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Amanda Greene: So, that would fall under umbrella. What about auto policies?

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Emily Buckley: You want to think about deductible-wise, if you get into an accident and your car gets damaged, how much do you want to pay out if something were to happen, or do you even deem this vehicle worth it to cover it for physical damage? Oftentimes, because people will say to me all the time when I’m quoting them or what have you, I’ll say, “What deductibles do you currently carry?” And they’ll say, “Oh, I don’t know. Give me what you think.” And I’m like, “Well, it’s a personal question, are you willing to pay $500? Are you willing to pay $1, 000? Do you want to self-insure a little bit more and have maybe even a $2,500 deductible?” It’s your call financially. You know at the end of the day what you can afford.

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Amanda Greene: I like to take out a little bit more so that I pay less out of pocket when something, God forbid, happens.

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Emily Buckley: Same here. I don’t want to have that financial burden on me, because everybody has an emergency fund, I would hope, but you don’t want to be in a position where you find out, “Oh my gosh, my emergency fund was not sufficient, and now I’m at a position that I have to save up for this loss.” I mean, this is why we purchased the insurance, so that we don’t have these oh-my-gosh moments of “I’m not covered” or “I don’t have enough coverage.”

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Amanda Greene: There are so many options when it comes to choosing an insurance company. What should someone even look for when choosing an insurance carrier?

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Emily Buckley: I would say that one of the main things you should look at when you’re looking to move forward with an insurance company is their financial responsibility. If something really awful were to happen, another Hurricane Sandy happens, another massive hurricane, tsunami, anything along those lines occurs, will that insurance company be solvent enough to pay out all the claims and still be above water? And the best way to do that is AM Best, it’s one of those unbiased rating companies that will determine their customer service value, their financial responsibility, their money in the bank and so on and so forth. You want to look for a company that’s usually, I would say, A-rated or higher.

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Amanda Greene: What are some common things that you see people get wrong, or maybe they misunderstand when it comes to insurance?

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Emily Buckley: There’s something called loss of use, technically coverage D. Loss of use covers you if, let’s say, we’ll use renters for this example, something occurs in the apartment building and you’re not able to live there and it’s a covered loss. So, there was a fire, something along those lines. They’ll give you money to go live somewhere else. Think about any situation where you move to a new location and you don’t have family and friends to fall back on. And if a fire happens in your building, where do you go? You have to all of a sudden now pay for a hotel in an area that you’re not familiar with. So, loss of use is huge, in my opinion.

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Amanda Greene: And that is not something that just comes with renters insurance. That’s its own separate policy?

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Emily Buckley: It comes with the renters insurance, but oftentimes people will allow for a minimum on that, because they don’t see the value in it. They see they are only getting minimum coverage on the content, let’s say $20,000, and think “I’m only going to need $4,000 for loss of use.” $4,000 is going to cover you for how long? Especially in New York City, Boston, not a lot.

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Amanda Greene: The way you’re talking, I’m surprised people really even understand the policies to begin with. Actually, I lived on Long Island in New York for college, and I took out renters insurance. I couldn’t tell you what I took out, I just knew it was something I was supposed to do, so I did it. I was like, “Check it off the list.”

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Emily Buckley: Oh, yeah.

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Amanda Greene: … I did the renter’s insurance. Not sure what it’s going to do for me, but I bought it.”

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Emily Buckley: Yep. Or the landlord requires it, or your college or whoever you’re renting from, they might say, “Oh, you need to have this.” And you’re just thinking, “This is compulsory because the landlord needs it, not because I should have it.” Right?

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Amanda Greene: Right.

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Emily Buckley: That’s a common misconception for sure.

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Amanda Greene: How about this: Does the kind of car you drive affect your auto insurance premiums?

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Emily Buckley: 100%, because at the end of the day, insurance is statistical. They don’t just look at a person, an individual, a situation and say, “Hey, we’re going to charge them that because we feel like it.” There’s a reason.

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Amanda Greene: According to Emily, insurance companies set rates based on a bunch of factors. And that can include things like who’s covered, how long they’ve been driving in their driving record, the cost of repairs for your car and the type of coverage you’re looking to get.

[00:08:36]
Emily Buckley: You want to make sure that every time you shop around, you’re putting yourself in the best position to shop around. Pay your bills on time so your credit is good, make sure that you stay with the insurance companies at least three to five years so that you look like a loyal client.

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Amanda Greene: I feel like I’ve seen insurance companies offer a deal if I switch before my renewal. Is that a thing, if I shop in advance?

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Emily Buckley: Often insurance companies, they’ll give you something called an early shopping discount, usually about seven to eight days in advance of your renewal. It depends on the insurance company, but it’s a good thing to know about, because you don’t want to wait and think, “Oh, I’m just doing this because it’s on my to-do list, my renewal’s tomorrow.” No, give yourself a little bit of time so that they can, one, do their due diligence when it comes to shopping around, but also make sure that you are getting the right discounts, credits, everything like that on that insurance policy.

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Amanda Greene: Good info. I once again have more homework to do. It happen after every conversation I have here on this podcast.

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Emily Buckley: But hey, hopefully you get cheaper insurance rates next time.

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Amanda Greene: Well, I hope so. It would be nice to know my things are taken care of, but what about insuring me?

[00:09:36]
Brad Ferris: So, there is this misconception that everyone has in their own little way, where life insurance is more like death insurance. So I think people tend to look at it in that negative light, which is also part of why people don’t want to talk about it in general. But it’s not death insurance, it truthfully is life insurance.

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Amanda Greene: That’s Brad Ferris. He’s a life insurance and annuity agent with AAA Northeast. Okay. So Brad, you are an expert in a subject that I know nothing to very little about. And it feels like a very serious topic and an important topic to get right. So I would love to start off with what is life insurance, and what are the most common types?

[00:10:19]
Brad Ferris: There are two types of life insurance that people generally tend to go towards. There’s what’s referred to as term insurance, and then there’s permanent or whole insurance. Term insurance is, as the name says, is for a term, a period of time. This is really common. People will use this to cover, say the balance on their mortgages, if they have loans of some kind, if they have children that they want to put through school – those bigger face-value obligations. People can take care of those because they’re time-bound. So, if you have a mortgage that will be paid off in, say 20 years, you could have a 20-year policy for the value of your mortgage that protects it, provided obviously nothing happens to you.

And then there’s what is referred to as permanent insurance, which is a policy that is meant to last somewhat indefinitely. If you live to be 120, regardless of what age you started the policy at, it’s going to pay out. It’s also a little different from term because it’s not strictly a death benefit kind of a thing, where in the event that someone passes, it pays out. It also has a similar to a savings-account aspect to it as well. So, while it does function as insurance – that in the event someone passes, it pays out – on a tax-free basis, it aggregates cash value that accumulates over time, which you can then use pretty much at your discretion. It’s similar to an unstructured loan as opposed to say, going to the bank where you need to apply for it, they run your credit score, things like that. If you’ve amassed these funds over time, you can use them at your discretion.

[00:11:47]
Amanda Greene: So, a term life insurance is like a safety net to make sure that if something happened to the policyholder’s spouse, that they would be able to continue paying their mortgage, continue paying tuition and bills and keep their life maybe a little more comfortable. But the other, the permanent life insurance, is not that necessarily?

[00:12:05]
Brad Ferris: Absolutely. And safety net, I think is definitely the right phrase to use. This kind of a thing in the industry where it’s almost referred to as death insurance instead of life insurance, is because in that specific instance, yes, it is exactly to protect against those horrible events that may happen in an untimely way.

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Amanda Greene: I find this all very interesting, because I love feeling the safety of being covered, and I guess investment is the wrong word, but it does feel like just a good place to put your money to feel taken care of. I hear a word all the time in the life insurance world, and I have no idea what it means: annuity. What is that?

[00:12:39]
Brad Ferris: Yes. So an annuity, in some senses, it’s a retirement vehicle. In some senses it could almost be looked at as a bond alternative, for a bank, like a certificate of deposit. So what it is, it’s a way to guarantee growth in a vehicle without having market exposure. So, there are people who, they don’t want to worry about the ups and downs of their market, they want to still have some kind of growth. So, what people will do is, they’ll take some funds from their 401( k), some funds that they just have on the side, and they say, “Well, I love the idea of being in the market, that’s where I can generate the most returns, but I don’t want to be susceptible to risk. So I can have funds that grow in a more conservative way, but protect against loss.”

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Amanda Greene: And so does this fall under the life insurance umbrella?

[00:13:26]
Brad Ferris: It does.

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Amanda Greene: Are there any other myths that you hear within your office that you want to debunk, something you hear a lot and you’re like, “People are getting this wrong all the time”?

[00:13:37]
Brad Ferris: Oh, yeah. There is a huge misnomer, which is that if you have insurance through your work, that that means that you are all set. People say, “Oh, I have this insurance, I have that insurance.” And all of those things are wonderful. A problem that exists with life insurance specifically is that people assume that if they leave their job, that they can keep it. That’s usually not the case. If you leave, if you’re fired, if you even retire, that does not mean that you get to take it with you. There are health insurance policies that you can take with you under laws that were made back in the ’80s that allow for that to happen, but that’s not the case with life insurance.

[00:14:12]
Amanda Greene: And the policy is probably much lower than it would be if you went out and sought it on your own?

[00:14:19]
Brad Ferris: You will always be able to get more independently. Usually, what ends up happening from what you get through your work, if it’s not your income exactly, it’s a multiple of your income, maybe two or three years of salary so to speak, approximate earnings. Or it’s a flat rate, which then is irrelevant to what you make a year. So you would then have to toe that line, be at their discretion.

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Amanda Greene: So many factors that have never crossed my mind. Thank you so much, Brad. That was Brad Ferris. And before we go, it’s time for our pop quiz, and today it’s a special little game show called Can You Claim It? Let’s bring back Emily Buckley as our contestant. I’m going to give you some examples, and you can tell us whether or not this is something you can claim.

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Emily Buckley: Love it.

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Amanda Greene: Are you ready?

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Emily Buckley: I am ready. I will give a disclaimer though, I am not a claims adjuster. So I’m giving you general responses, but technically I’m not allowed to say you are 100% covered. I will give you the yes or the no and why.

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Amanda Greene: So, let’s say you’re driving one night and a deer comes out of nowhere and you hit it. You’re okay, but the car is not. Can you claim it?

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Emily Buckley: Yes, if you have physical damage coverage. Specifically comprehensive coverage, which is super inexpensive because oftentimes it also comes with full glass coverage. The full glass is what would kick in if the deer hit the windshield, if it damaged the front of the car. The deer hitting the vehicle, if it’s a moving object that it’s hitting, that would be something covered by comprehensive subject to the deductible that you select.

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Amanda Greene: That’s the only kind of car accident I’ve ever been in.

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Emily Buckley: Really?

[00:15:49]
Amanda Greene: Me with a deer.

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Emily Buckley: Oh, no. Was it late at night too?

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Amanda Greene: Yeah.

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Emily Buckley: That’s got to be so scary.

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Amanda Greene: Well, seven o’clock, but in the winter, so it seems like it’s midnight, you know?

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Emily Buckley: Yeah, for sure.

[00:15:58]
Amanda Greene: As kid, I was told a million times over, not to drive someone else’s car. Let’s say your friend grabs your car for an hour to run errands while theirs is in the shop, but they get into a fender bender. Can you claim it?

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Emily Buckley: Yes, but not on your insurance policy, on your friend’s insurance policy. So there’s something called permissive use, which means that you give permission for somebody else to use your vehicle on an occasional basis. This definitely falls under that, and it would cover as if you were operating the vehicle. It’s basically you giving the okay for that person to be a temporary driver.

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Amanda Greene: Okay, picture it: You wake up after a wonderful night’s sleep, and your first cup of coffee that morning is especially delicious, you are having the best day. Then you walk out the front door with a spring in your step, and your car’s been stolen. Can you claim it?

[00:16:47]
Emily Buckley: Yes, if you have comprehensive, that’s physical damage coverage, because technically, if they were to steal the vehicle, it’s subject to the deductible on the policy. So, yep.

[00:16:55]
Amanda Greene: What a feeling. Icky.

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Emily Buckley: People don’t realize, these coverages are there, and you look at them and you think, “Oh goodness, I don’t need that. This car is old, I don’t care.” But if the car got stolen and you then didn’t have a vehicle to get to and from work, paying $ 500 is a lot cheaper than buying an entirely new vehicle.

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Amanda Greene: Mm-hmm. Your beloved dog has a bad day and chews the neighbor’s fence. Can you claim it?

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Emily Buckley: Yes, actually. So your homeowners insurance policy would extend coverage in that situation.

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Amanda Greene: How about a severe storm hits while your mother-in-law is visiting, and a branch from your tree smashes her car parked in your driveway. Can you claim it?

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Emily Buckley: No, technically, you wouldn’t put it through your insurance policy. She would have to file a claim through her insurance policy, and hopefully she has physical damage coverage because comprehensive would kick in there too.

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Amanda Greene: That delicious-smelling candle that you spent way too much money on was knocked over on a trip to the fridge for a snack. You catch it before it gets totally out of control, but the couch and rug are ruined. Can you claim it?

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Emily Buckley: So that’s a good one. And the reason why this is a good one is because homeowner policies or renters policies normally have higher deductibles than car policies. So in this case, yes, fire is a covered loss, but then you’d be subject to the deductible. So it depends on the value of the couch, depends on the value of the rug, I’d say, but yes.

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Amanda Greene: And finally, you just finished a lovely meal with friends at your place, and while chatting and finishing the dishes, your wedding ring is sucked down the drain. Can you claim it with wedding ring insurance? How do you even insure a wedding ring?

[00:18:33]
Emily Buckley: Yes, if that ring is scheduled on your homeowners insurance. This is probably one of my favorite coverages to talk about. Scheduling a ring is when you call your insurance agent and say to them, “Hey, I want to cover my engagement ring. Here’s my appraisal. It’s valued at this.” Mysterious disappearance is often covered under those types of policies. And when I say mysterious disappearance, it sounds mischievous, but all it means is that you could lose it, and you would have that coverage extended. So yes, if you endorse that ring on your homeowners insurance policy, you would have the coverage to replace it.

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Amanda Greene: Thank you, Emily, for coming on and sharing all of your expertise. You had a lot of hot tips.

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Emily Buckley: Yeah. No, my pleasure.

[00:19:12]
Amanda Greene: Okay, after hearing all of that, there is no way my wedding ring is covered. I’ve never had it appraised, I’ve never talked to an insurance agent about it. And imagine if it had gone down the drain. I’m getting this thing insured ASAP. And until then, it’s my excuse for no dishes.

You’ve been listening to Merging Into Life, where we navigate life’s milestones one episode at a time, brought to you by AAA Northeast, with production assistance from JAR Audio. I’m your host, Amanda Greene. If you had anywhere as much fun as I did, follow us wherever you get your podcasts. And tell us what you think or leave a review. We would love to hear from you. Email podcast@aaanortheast.com. Talk to you next time.

The views and opinions expressed in this podcast are not necessarily the views of AAA Northeast, AAA and, or its affiliates.