Protecting life insurance

The last issue of Fortune ran a blurb on what happens to your life insurance policy if your insurer goes bankrupt. (Unfortunately, the story is not available online.) In the event of an insurer's bankruptcy, the guaranty association for the state in which the insurer is located takes over the failed insurer and either pays the claims or transfers policies to a solvent insurer.

Since insurance is regulated by the states, the amount insured varies, but the story states most benefits are capped at $300,000. The National Organization of Life and Health Insurance Guaranty Associations has more information. As an example, in 2004, when a Pennsylvania insurer went bankrupt, the state guaranty association transferred most policies to stable Pennsylvania insurers.

The story also notes that in the case of AIG, it's the parent company and not the life insurance subsidiary that is experiencing problems. It might be a good idea to check on your insurers corporate structure to know what your insolvency risk could be.

Insuring the 70s Dodge Challenger

So you've got a classic American muscle car and you want to insure it. Insurance options should be getting better.

Earlier this year, Chubb ended its exclusive arrangement with Grundy Worldwide, the oldest insurance agency specializing in classic and antique cars, and now sells policies directly to collectors as well. To attract business, Chubb lifted a previous mileage restriction on coverage, provides free towing after a breakdown to the garage of your choice and has increased liability limits up to $50 million. Fireman's Fund Insurance Co., a unit of Allianz SE, and American International Group's Inc. Private Client Group are two other high-end property insurers expanding into the market. Added to the longtime players in the market, these new insurers -- which are trying tactics like dropping mileage limits or adding extra coverage -- give consumers more coverage choices.

Life insurance calculators

SmartMoney has a fairly comprehensive life insurance needs calculator. I used several online calculators when calculating how much life insurance I needed. In the end, I found the rule of 10 times my annual salary worked as well as the more involved calculators (and was much easier to calculate).

Have over $100,000 in cash but want full FDIC insurance

Here's a tip in the Journal's R.O.I. column about how to get full FDIC insurance on deposits over $100,000 (free WSJ Digg link) (the money has to be broken up across multiple accounts).

[...] you can take part in a program known as CDARS run by Promontory Interfinancial. Details are here. This allows you to deposit your money in one bank, which will then parcel it out in federally-insured $100,000 lots to various other banks. Net result: The whole thing is insured.

With CDARs, someone else is breaking up the money into less than $100,000 chunks for you. Their Web site says you can get full FDIC protection up to $50 million. And there aren't any fees. Sounds like a useful service for a mass affluent depositor.

Big Brother device lets drivers cut auto insurance bill

Progressive Corp. and GMAC Insurance are testing devices that track driving habits, and offering discounts on auto insurance for measured good driving.

Drivers who participate in these plans have devices installed in their cars that, depending on the technology used, can track the number of miles driven, the speed at which cars are driven and even how often and how hard the brakes are used. By allowing their habits behind the wheel to be monitored, drivers get lower insurance rates -- or pay higher premiums if they're lead-footed road hogs.

Usage-based insurance pricing would mean an estimated two-thirds of households would pay less in premiums than they do now, according to a report by the Hamilton Project at the Brookings Institution, a think tank. Researchers Jason Bordoff and Pascal Noel calculated average savings at about $270 per car, per year. Some analysts and insurers believe that after a slow start, usage-based insurance could take off now that higher gas prices are forcing consumers to drive less anyway.

So, there's a chance that using the device can backfire on a driver, increasing his or her premiums. I can imagine the arguments among family members using a shared car when the insurance company reports bad driving based on the device and ups the insurance premiums.

Making the choice to get long-term care insurance

Money Magazine has provided a story on the difficult decision each of us should contemplate on whether or not to get long-term care insurance. The long-term care insurance choice isn't a lay-up like the getting life insurance choice is, where most everyone you speak to will tell you that you need at least some life insurance. Look at some stats from the story:

There's no question that years in a nursing home can decimate your savings. The average facility now costs $213 a day, according to a MetLife survey; based on last year's 3% yearly price increase, by 2030 you can expect to pay $408 a day, or $148,967 a year. For a 2½-year average stay, the tab would be about $372,000.

The chances that you'll need that much care, however, are small. Only 9% of 65-year-olds can expect a lengthy nursing-home stay, according to Milliman (another 18% will need long-term assisted-living care).

Like most other insurances, long-term care insurance gets more expensive as you get older. If you don't get the low rates in your 20s and 30s, it may become prohibitively expensive in your 40s and 50s, as you get closer to the time when you'd need it.

Rich get richer - this is not a capital gains tax rant

This week's Getting Going column in the WSJ discusses how 'wealth begets wealth' (free WSJ Digg link). Mass affluent consumers should be taking advantage of everything mentioned. Looking at the points made:

Financial-account fees. For instance, once you've built up some savings, you are less likely to get hit with bank charges, you will avoid the account-maintenance fees often levied on smaller brokerage accounts, and your mutual-fund company might waive its annual individual retirement account fee.

Keep over the minimum balance in order to avoid these fees. The minimum balances I've seen range up to about five thousand dollars. Also, I make absolutely sure that each individual account kept with a financial institution meets these minimums. Some financial institutions do a total balance across all accounts for fee determination, but some make the fee determination per individual account, and many mutual fund companies set up a separate account for each fund of theirs in which you invest. You could have hundreds of thousands of dollars with a mutual fund company, but if the company has a $5,000 per account minimum and just one of your accounts falls below that $5,000 threshold, you'll get hit with a fee. (Of course, you should call and complain to them and point out how much money you have with them if this happens.)

Even bigger savings could lie ahead. Fund investors with $25,000 or $50,000 invested may pay reduced commissions on broker-sold "A" shares. Favor no-load funds? If you have $100,000 in a Vanguard Group fund -- or $50,000 and you've been invested 10 years -- you can qualify for the firm's lower-expense share class. Similarly, Fidelity Investments offers lower-cost shares to index-fund investors with a $100,000 fund balance.

I'm not even going to get into how anti broker-sold mutual funds I am, so I'll skip that sentence. I didn't know the fact about the Vanguard no-load funds, but sure enough, when I looked at some of my funds' prospectuses, it says that you will get a break on annual expenses the more you have invested.

I'm skipping the part about credit cards because I don't carry a balance, and I wish it was within everyone's means not to have to carry a balance. Borrowing costs, ok,;buy car instead of lease; avoid PMI, yep. Next up, insurance, all right:

Insurance premiums. With your wealth ballooning, your tolerance for financial risk will rise. Before long, you may be comfortable raising the deductibles on your homeowner's and auto insurance, because forking over $1,000 or $2,000 toward fixing storm damage or repairing your crashed car will no longer seem like a financial catastrophe.

Automobile deductibles. My personal feeling on cars is that I don't need a big fancy nice car, and I have the highest possible car insurance deductible. I have some scratches and a cracked plastic panel on my car that I just don't care enough about to get fixed. I'd rather use the money on something else. Now, that will change, of course, when I can get a classic mint condition gas guzzling American muscle car, but I'd still take the highest possible deductible on that. (It's only coming out for Sunday drives. The enviro-liberal-commie in me won't let my childhood fantasies take over that much. Besides, I'll be washing and waxing it the other 6 days of the week.)