The best-laid financial plans can easily be undermined by sudden disaster-an accident, death, illness, natural catastrophe, acts of terrorism, or even a lawsuit. I have seen people lose hard-earned money and long-held investments in a single moment.
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The primary purpose of life insurance is to provide a death benefit to the policy's beneficiary. The proceeds can be used to replace income lost due to the insured's death, as well as to pay death-related costs, such as funeral expenses, probate costs and death taxes. In the case of a business owner, the proceeds may be needed to fund business-buyout obligations on an owner's death.
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There are two main categories of life insurance-nonpermanent and permanent coverage. Nonpermanent insurance is term insurance, which provides a fixed benefit payable on the death of the insured (though, for a slightly higher annual premium, there is a guaranteed money-back payment at the end of the term). Generally, premiums for term insurance escalate with age. Premiums soar as the insured passes middle age. But premiums may be fixed ("level") for a set period. For example, a level-premium five-year or 10-year renewable term policy would fix the premium payments for that five- or 10-year period.
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If the insurance policy has built up sufficient cash value, the owner can borrow against this amount, usually at attractive interest rates.
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Whether you own or rent your home, you should carry homeowner's insurance or renter's insurance. Make sure the amount of coverage is sufficient to protect you against two types of loss:
? Personal property protection-reimbursement if your property is damaged or destroyed as a result of a fire, storm or other casualty.
? Liability protection-coverage for personal injury claims made by visitors.
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Homeowner's coverage can be costly, especially as you increase the extent of coverage. To reduce your premiums, take advantage of any discounts to which you may be entitled:
? Multiple policy discounts. If you have your car insurance with the same carrier as your homeowner's policy, you may be eligible for a multiple policy discount (Range: 3%-5%).
? Special homeowner's equipment. Discounts generally apply if the home has a burglar alarm (Range: 2%-5%), deadbolts (Range: 2%-5%), smoke alarm (Range: 2%-5%) or a sprinkler system (Range: 15%-20%).
? Homeowner characteristics. You may be eligible for discounts just because you're you-for example, if there are no smokers in the home or if the residents are 55 or older.
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Whether you own or lease a car, you need to carry insurance to protect yourself in case of accidents and other claims. Car insurance consists of four types of coverage:
? Damage to someone else's property (for example, damage to another driver's car).
? Bodily injury. This provides coverage for injury to other parties. In states with "no fault" laws, your insurance provides coverage for injury to you.
? Comprehensive coverage. This provides protection if your car is stolen or damaged other than in an accident.
? Collision. This coverage will restore your car in the event of an accident. If the car is beyond fixing (i.e., the insurance company considers it a total loss), you'll receive compensation for its value (as determined by the insurance company).
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Although many people have medical insurance through an employer, their spouse's or partner's employer or under a government program, the US Census Bureau estimated that in 2004, there were 45 million Americans with no medical insurance at all. These people may have high out-of-pocket costs for even routine medical care, only part of which may be tax deductible, and they face the daunting prospect that a serious accident or illness could wipe out their life savings. But there are options available for finding and buying affordable health coverage.
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This is a federal program of health coverage for those age 65 and older who have worked for the required period to qualify for free coverage or who agree to pay for this coverage. In general, Medicare Part A covers the cost of hospital stays and Part B covers doctors' bills and certain other outpatient costs. As of this time, only a limited amount of prescription drug costs is covered by Medicare.
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The average cost of nursing home care is now nearing $60,000 annually (but more than $100,000 in some locations) and is projected to exceed $190,000 by 2030. Middle-income consumers who want to protect their life savings for their heirs need to consider long-term-care policies. Medicare and other medical insurance policies generally do not cover the cost of long-term care. You'll need a separate policy, called a long-term-care policy (also referred to as a nursing home policy). This policy provides a fixed dollar benefit per day (for example, $150 per day).
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Example: Assume you're 54 years old and your employer pays for $100,000 of coverage. You're not taxed on the first $50,000 of coverage; your additional income from the excess coverage for the year is only $138 ($2.76 x 50).
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