1) What are the insurance steps involved in buying a house?
2) Do I need Flood Insurance if I don’t live in a flood zone?
3) What should I know about Coinsurance?
4) Do homeowners need Workers’ Compensation Insurance?
5) What is disability insurance?

COVERAGE TERMS

What are the insurance steps involved in buying a house     ^ BACK TO TOP

If you use a mortgage to finance your home, the bank, homestead, or mortgage broker usually requires both Homeowners' and Flood Insurance. Homeowners' Insurance must have a limit on the house equal to at least 80% of the replacement cost, and some insurance companies require a limit equal to the full replacement cost. If you carry only the amount of the mortgage, you may not be fully compensated in the event of a loss.

A flood elevation survey may be performed to determine the elevation of your house and how it compares to the flood level of the area in which it is located. Flood Insurance may be required if the house is in a flood zone. If so, the bank requires you carry a limit of at least the value of the loan, or $250,000, whichever is less. Homeowners must request Contents Coverage, as it is not automatcally provided by flood policies.

Even if you are not financing the purchase of the home, you should carry these coverages.

Do I need Flood Insurance if I don’t live in a flood zone?     ^ BACK TO TOP

Though flood coverage is not always required by lenders for property outside flood zones, floods can occur virtually anywhere. You should consider carrying the coverage regardless of your location.

What should I know about Coinsurance?       ^ BACK TO TOP

Most property policies have Coinsurance clauses requiring a limit of insurance equal to or greater than a certain percent of the property's replacement value. For instance, if the value of the property is $100,000 with a Coinsurance clause of 80%, you must insure the property for at least $80,000. If you insure it for half that amount, you will only receive compensation for half of your loss.

Do homeowners need Workers’ Compensation Insurance?       ^ BACK TO TOP

Different states have different laws on this subject. In Louisiana, homeowners are not required to carry Workers' Compensation Insurance. The liability portion of most homeowners' policies protects against allegations that a homeowner's negligence caused injury to a household employee or someone performing work on the house. However, some people prefer to take a "belts and suspenders" approach and carry this coverage anyway.

What is disability insurance?       ^ BACK TO TOP

Disability income insurance policies can help replace a portion of the loss of income due to disability during one’s working years. The following is a list of features disability income policies can include:

Non-cancelable, guaranteed renewable provisions.

Protection against inflation for future benefits paid, referred to as Cost of Living Adjustment (COLA).

Various elimination periods before benefits begin, typically 30, 60, or 90 days, 6 months, or one year. The longer the elimination period, the lower the premium. A person’s liquid reserves, income, and existing disability income insurance must be considered when selecting an appropriate elimination period.

Some policies provide “Own Occupation” coverage and will pay benefits if those insured are unable to work in their specialized field.

Policies offer varying benefit periods. Some policies, for example, offer a lifetime benefit if the disability was caused by an accident, and to age 65 for a disability caused by illness. Disability can last for a long time. The longer the period covered by the policy, the higher the premium.

Disability policies may be purchased by an individual or by a company. Others may be acquired on a group or association basis.

Other types of Disability Income Insurance policies include:

Key Employee Disability Insurance – When the employer owns the policy, the insurance benefits can provide funds to help cover expenses related to the loss of services of a disabled employee, such as hiring and training a replacement.

Disability Buy-out – Funds can be provided to help effect a buy-out of a disabled business owner or professional under the terms of a Buy-Sell agreement.

Business Overhead Expense – If a business owner or professional becomes disabled, these policies can provide funds to help cover ongoing expenses such as rent, employee salaries, ect., to keep the business open during the period of disability.

Coverage Terms       ^ BACK TO TOP

Decreasing Term – Level premiums and decreasing death benefit. No cash accumulation. Frequently used for short-term decreasing financial liabilities, like a mortgage.

Annual Renewable Term – Increasing premiums with level death benefit. No cash accumulation. The strength of term is its low cost for large death benefits, particularly beneficial to younger families with limited resources and the need for maximum protection.

Level Term – Premiums stay level for stated term. Usually 5, 10, 15, or 20 years. Level death benefit. No cash value. Frequently used to cover short or intermediate-term obligations.

Cash Value – Ordinary Life or Whole Life – Premiums and death benefit are level. Cash accumulation. Provides for long-term needs, such as survivor income for a spouse or minor children. Other uses could include paying off debt and paying estate taxes.

Universal Life – Premiums and death benefit are flexible. The monthly cost of insurance and administrative charges are deducted, the balance of the premium goes to cash values. The benefits and uses are very similar to whole life. Cash values can increase based on current interest rates.

Variable Life – Premiums and death benefit may be flexible. Cash accumulation is directly affected by the performance of the separate accounts selected. Clients allocate their cash values among various types of investment options such as stock funds, bond funds, money market funds, ect. Cash values may increase or decrease depending on account performance.

Single Premium Life – A single premium paid up front. Level minimum death benefit. Cash accumulation. Provides long-term security. Different tax rules generally apply.

First to die – May have flexible premiums and death benefits. Provides death benefits at the death of the first two or more parties covered by the policy. Most often used in business insurance situations.

Survivorship Life – May have flexible premium with a level minimum death benefit. Most often used to pay death taxes and expenses due at second death.