Making Cents: Uncovering Overlooked Insurance Cash Drains
By: John P. Napolitano, CFP®, CPA, PFS, MST
Whether you earn more than you spend or you are living wholly from your savings, it’s a good idea to know your monthly cost of living. Many of us became serious about how much we were spending during the last recession. Some are still suffering and watching every dime carefully. But they’re not the only ones who would benefit from a solid review of what cash flows out the door. This is just as important to both those with minimal assets and those with more income than they need. It is important because many still have unfulfilled dreams or areas where they wastefully send out checks or have automatic withdrawals from accounts. Here are some common examples.
In the areas of property and casualty insurance, most people haven’t reviewed their policies in a while. While I’m an advocate of having abundant coverage, especially for catastrophic events, you may have coverage that just isn’t needed anymore. Commonly, we see children that remain on their parents’ auto policies after they’ve moved out. Sometimes it’s a special item, like a valuable artwork or collectible that you sold and forgot to inform your agent.
The same may be true for life insurance. Although aging isn’t typically a premium reduction condition, you may in fact be able to lower your premiums with a new contract because of differences in the contract structure and pricing. In recent times insurers have migrated to a newer mortality table with extended life expectancies and lower costs of insurance. Conversely, we find many retirees and families who are already financially independent and are paying premiums that they just don’t need anymore. Seldom would a life agent suggest that you drop a policy, but in many cases it may make sense to let them go.
Excessive insurance costs are often found in voluntary group benefits at work. Group products don’t automatically translate into the lowest cost option. Consider this: if your company offers up to $XX of voluntary group life insurance, who takes it? The answer: anyone who thinks it’s a good deal and those who may be uninsurable under a traditional underwritten personal life policy. As a result, it’s possible that your premiums for the guaranteed issue contract may be higher than what you can get on your own if you are in good health.
This is especially true if you have any type of single illness or other voluntary group policy of short or long term disability. Don’t buy these coverages just because they are offered. Buy them if you need them and can’t get a better product or price through an independent agent.
Consider getting a thorough analysis of your true insurance needs from an independent financial planner who is a practicing fiduciary. At least here, the planner has the fiduciary responsibility to represents your best interests versus trying to sell you something that you may not need.
John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.