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Insurance: Introduction

Insurance is a huge business in the United States. As in the case of liability auto insurance, some insurance is mandated by law and in most states you have to show proof of insurance to obtain a license. Homeowner’s insurance is required from the lending institution as a condition of obtaining a home mortgage. Medical insurance is necessary to reduce the financial impact of uncontrollable events. Life insurance provides financial security to love ones in the event of death. Annuities are basic to retirement planning. Business insurance protects against business interruptions and asset losses. The list goes on and on.

Insurance has also become important to our national economy as well. The billions of dollars of annual premiums paid into insurance companies are invested in a wide range of investments to secure sufficient earnings to meet the contracted coverages. In fact, the insurance industry is reported to be second only to the commercial banking industry as a source of investment funds.

To the average untrained person, insurance as a whole is mind boggling and, since it involves your dollars, it is often scary. There’s no other way to put it. Insurance can be scary. There are so many choices for your money and so many people chasing after it that often times it is difficult to decide the best option for you to take. And talk about options! Life insurance, annuities, variable products, continued care insurance, etc., are all voluntary options. You don’t have to invest in any of these but you want to for a myriad of reasons. Security for those you love, better return on the investment, less risk, retirement, fear of old age, etc., are all good reasons to look at a vehicle to provide those results. Insurance can provide for those reasons but it’s not free. It’s scary!

Through-out most peoples lives they will have to make some sort of decision relating to these options and will need to make these decisions again and again. New and better insurance products, interest rate changes, family changes, etc., will cause you to relook at your position many times. You want to do the right thing each time but, indeed, it is scary!

From a purely financial perspective, both personal and business, insurance plays a very important role in preserving those hard earned dollars you have tried so hard to accumulate and you need to make the best choice possible with each of those dollars. Our purpose is to give you some insight into this voluntary sector of insurance. We will not attempt to discuss auto insurance, mortgage insurance, or other similar insurance purposes. Similarly, we will not attempt to guide you into one product over another or suggest that you trade in your certificate of deposit for an insurance product. Our purpose is to inform you of the various products so you can make an informed decision when the time comes.

At some time you may be asked to exchange one life insurance product for another. Insurance is a constantly evolving industry and there are many new products on the market from when you may have entered into your current policy and you may be shown what appears on the surface to be a better deal. Is it a better deal? Should you exchange your old policy for a new one? That is difficult to say without a thorough review of both your old policy and the new policy but particularly your old policy.

The National Association of Securities Dealers has a very good discussion “…to help you evaluate whether the exchange is right for you, and how you can find out what you need to know to make an appropriate decision.” on the issue in their September 23, 2002, NASD Investor Alert, Should You Exchange Your Life Insurance Policy? at www.nasdr.com/ alert_exchange_lifeinsurance.htm

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This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contract your insurance agent. Our articles are intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.