How Do Smoking Cessation Products Affect Life Insurance Rates?

Are you using cessation products to quit smoking?  There are ways for you to get great non-smoker prices on life insurance.  There are endless benefits to quitting a smoking habit.  It helps to increase both your lifespan and your wallet.  To quit smoking you need strong will power and sometimes the help of products whether those are gum, lozenges, patches, or e-cigarettes.  These products all contain nicotine and are used to wean your body off cigarettes while supplying you with the nicotine but sparing you from the other chemicals found in tobacco.

Because there is nicotine in these products, some life insurance companies will still classify you as a smoker even if you don’t actually smoke anything.  The use of these products will cause cotinine to show up in your urine test which would be enough for the carrier to classify you in one of the tobacco risk classes and issue you smoker rates.

Have no fear cessation product users!  There are insurance companies that will consider you for the non-tobacco risk classes and therefore be given non-smoker pricing.  To be offered non-smoker rates, you have to be cigarette-free for at least 12 months.  Let’s say you have been using a cessation gum to quit smoking, but you have only been cigarette-free for 5 months.  Even though you currently do not smoke, you will still get the smoker-rate because it has not yet been at least 12 months.  However, if you have been cigarette free for at least a year but still, for example, chew Nicorette Gum daily there are insurance carriers who will offer you non-smoker pricing.

Insurance carriers rate certain tobacco/nicotine uses differently.  While one company may give non-smoker rates to gum and e-cigarettes, another company may only give non-smoker rates to gum.  We asked 20 life insurance carriers if they would consider giving a non-tobacco risk class to an applicant who uses nicotine gum and four carriers said they would consider it.  Of these carriers, three said they would consider giving a non-tobacco risk class to e-cigarette users.

These examples explain why it is very beneficial for you to work with an independent life insurance agency, like Quotacy, who has contracts with multiple carriers.  It also shows how important it is for you to be very detailed about your tobacco and nicotine product use on your life insurance application.  If we have all the correct information we are able to go to the appropriate life insurance carrier to ensure you get the best policy for your individual situation.

You can still protect your loved ones with life insurance even if you use smoking cessation products, and what’s better is that there is even a possibility you can get great non-smoker rates.  No one ever anticipates needing to use life insurance, but the unexpected happens.

MONEY SAVING TIPS FOR YOUR NEXT ROAD TRIP

Road Trip Savings

A road trip is always a fun experience, but it’s not exactly known to be an affordable one. That’s why it pays that you know how to manage your financial matters well when going on a road trip. You’ll never know when you’ll have to pay extra especially when you’re having too much fun. Let these money saving tips ensure your next road trip does not turn into a financial owe.

Indeed, there’s nothing wrong with making your road trip financially savvy. After all, we all like saving money. Anyone can always have fun for less, even in the case of road trips. For that, consider our money saving suggestions for your next road trip.

1. Money Saving Tips Start With Setting a Budget

Oftentimes, road trips become frustrating ordeals the moment it starts prompting you to spend more. Although you can always derive pleasure from the fact that you’re trading in your cash for leisure-related goodies, the fact that you’re creating for yourself a tiring cycle of earning money just to suffice for that lifestyle can drain you to no end.

That’s why it’s essential that you identify a budget cap when going out on a road trip. Make sure that you’re judicious enough in setting the right allocations for each aspect of your road trip. For that, you should always do your research – derive experiences from other people’s feedback, consider money saving tips, and read up on typical financial pitfalls in road trips.

2. Identify all Possible items in your Expenditures

Given the costliness of road trips, it pays that you know very well the things that you need to do when you’re confronted with situations that prompt you to take out money out of your wallet. Identifying those situations is an ideal step to the right financial track: restaurants, lodging accommodations, admission payments, vehicle-related expenditures, and the like.

One important thing that you must remember is that all vehicle-related expenditures are almost always better when used with credit cards, in that those offer incentives in the form of discounts and points. A CarCareONE credit card, for instance, allows you to take advantage of various financing options related to any car related concerns, specifically for repair and maintenance.

3. Apps, apps, and apps

If you think that you’re bad at monitoring expenditures related to your road trip, then always remember this popular saying of late: “there’s an app for that!” Apps, may it be on the App Store or Play Store, that allow you to manage your road trip-related expenses can help save the day, especially if you only have a specific budget that can only last as much when spent judiciously.

Navigation apps like Google Maps and Waze can help you save both time and money through travelling along the shortest and most effective routes. An expense manager like Road Trip can help you keep track of your road trip costs. Repairpal enables you to call roadside assistance with one click. Altogether, those sorts of apps can help you conserve your road trip resources.

Separating Fact From Fiction When It Comes to Long-Term Care Insurance

Few people are prepared to handle the financial burden of long-term health care. In fact, many people have a false sense of security when it comes to long-term care. Let’s separate fact from fiction:

“Medicare and my Medicare supplement policy will cover it.”

FACTS:

  • Medicare and “Medigap” insurance were never intended to pay for ongoing, long-term care. Only about 12% of nursing home costs are paid by Medicare, for short-term skilled nursing home care following hospitalization. (Source: Guide to Long-Term Care Insurance, AHIP, 2013)
  • Medicare and most health insurance plans, including Medicare supplement policies, do not pay for long-term custodial care. (Source: 2017 Medicare & You, Centers for Medicare & Medicaid Services)

“It won’t happen to me.”

FACTS:

  • Almost 70% of people turning age 65 will need long term care services and supports at some point in their lives. (Source: LongTermCare.gov, November 2016)
  • About 67% of nursing home residents and 70% of assisted living residents are women. (Source: Long-Term Care Providers and Services Users in the United States, February 2016, National Center for Health Statistics)

“I can afford it.”

FACTS:

  • As a national average, a year in a nursing home is currently estimated to cost about $92,000. In some areas, it can easily cost well over $110,000! (Source: Genworth 2016 Cost of Care Survey, April 2016)
  • The average length of a nursing home stay is 835 days. (Source: Centers for Disease Control and Prevention, Nursing Home Care FastStats, last updated May 2014)
  • The national average cost of a one bedroom in an assisted living facility in the U.S. was $43,539 per year in 2016. (Source: Genworth 2016 Cost of Care Survey, April 2016)
  • Home health care is less expensive, but it still adds up. In 2016, the national average hourly rate for licensed home health aides was $20. Bringing an aide into your home for 20 hours a week can easily cost over $1,600 each month, or almost $20,000 a year. (Source: Genworth 2016 Cost of Care Survey, April 2016)

“If I can’t afford it, I’ll go on Medicaid.”

FACTS:

  • Medicaid, or welfare assistance, has many “strings” attached and is only available to people who meet federal poverty guidelines.

Whether purchased for yourself, your spouse or for an aging parent, long-term care insurance can help protect assets accumulated over a lifetime from the ravages of long-term care costs.

Umbrella Insurance for a Very Rainy Day

Many consumers are not aware of the benefits provided by an umbrella policy and many may not even be aware of the existence of such a policy. Others might just view it as an “upsell” offered by insurance companies and agents hoping to make some extra income. However, the policy actually offers significant benefit to individuals and, according to the Insurance Journal, the state of Maryland’s Insurance Administration has issued a consumer advisory explaining the policy’s benefits. If you don’t currently have an umbrella policy, you’ll want to read on to understand better what it can do for you and your family.

In your standard home insurance policy, there’s a limit of liability for personal liability claims. The usual coverage that’s automatically provided is generally $100,000. However, given today’s litigious society and the cost of medical care, a claim can easily exceed that amount. If you are a homeowner, your assets, including your house, can be attached in the event of a judgment against you. This is where an umbrella policy can really help out.

The personal umbrella policy is given its name because it acts as an umbrella over more than just your personal liability policy. Most people who have umbrellas use the policy as extra protection for both their personal liability and automobile liability coverages. For example, if you have a $1 million umbrella policy, it will provide the $1 million in protection if either your personal liability or auto liability policy limits were exhausted.

Keep in mind that this is a liability policy and not a property policy. Therefore, even though your home insurance policy has two main types of coverage, the umbrella only applies to the personal liability portion of the coverage. As an example, if you have not insured your home for the proper amount and have a large claim, the umbrella policy will not provide you with any benefit. On the other hand, if someone is injured on your property and sues you, the umbrella policy will be prepared to step in if your home insurance policy’s personal liability limit is exhausted.

It’s common for people to consider the umbrella policy as an optional item and not necessary. Even if they are aware of the existence of umbrellas, many people choose not to purchase them, thinking that a very large loss will never happen to them. Unfortunately, when something unforeseen actually happens, it’ll be too late to purchase the coverage. Umbrellas are generally inexpensive when viewed in relation to how much coverage they provide. That low premium is a good sign of the relative infrequency of loss contemplated by the insurance companies in underwriting the policies. However, just because everyone thinks it’s rare for a loss to occur doesn’t mean they don’t believe it will never occur.

You should also keep in mind that there might be some ways to save on insurance premiums by purchasing an umbrella policy. Because many insurance companies offer a multi-policy discount, you might find that it’ll defray the cost quite a bit. When I first started purchasing an umbrella policy, the discount I received from adding it to my existing home and auto policies with the same insurer almost covered the entire cost of the umbrella! Given its low cost and potentially great benefit, you should really invest in an umbrella policy.

Blood Cancers and Buying Life Insurance

According to the American Society of Hematology, blood cancers affect the production and function of your blood cells and end up preventing your blood from performing many of its functions, such as fighting off infections or preventing serious bleeding.  Approximately every three minutes, one person in the U.S. is diagnosed with a blood cancer.  September is both Life Insurance Awareness Month and Blood Cancer Awareness Month.  In this post, let’s discuss the different types of blood cancer and how these conditions can affect buying life insurance.

What are the different types of blood cancer?

There are three main types of blood cancer: leukemia, lymphoma, and myeloma.  An estimated 1,290,773 Americans are either living with, or are in remission from, leukemia, lymphoma, or myeloma.

Leukemia – cancer of the body’s blood forming tissues.

  • Mainly affects bone marrow and the lymphatic system
  • Usually, affects white blood cells – the infection fighting cells
  • There are many types of leukemia

Lymphoma – cancer of the lymphatic system.

  • Affects the lymphatic system – the body’s germ-fighting network – which includes the lymph nodes, spleen, thymus gland, and bone marrow
  • There two categories: Hodgkin lymphoma and non-Hodgkin lymphoma

Myeloma – cancer of plasma cells.

  • Plasma cells are white blood cells that produce disease- and infection-fighting antibodies
  • Cancerous plasma cells release too much protein and can cause organ damage
  • Cancerous plasma cells can also crowd the normal cells in your bones and weaken them

How does leukemia affect buying life insurance?

Leukemia can be either acute or chronic.  Chronic leukemia progresses more slowly than acute leukemia, which requires immediate treatment.  There are five types of leukemia: acute lymphoid leukemia (ALL), acute myeloid leukemia (AML), chronic lymphoid leukemia (CLL), hairy cell leukemia, and chronic myeloid leukemia (CML).  ALL is the most common form of childhood leukemia and AML and CLL are most common in adults.

Although individuals who have been diagnosed with leukemia generally cannot get preferred life insurance risk classes, that is Preferred Plus or Preferred, once treated with no recurrence, individuals can be considered for Standard life insurance rates.  Risk classes are dependent on the type of leukemia, your age at diagnosis, and how long it has been since completion of treatment.  The more years that have passed since treatment, the better your chances are for qualifying for Standard or Standard Plus.

Risk Classes
Preferred Plus
Preferred
Standard Plus
Standard

If you do not qualify for standard risk classes, you may be table rated and/or be required to pay a flat extra.  A table rating typically means you will pay the standard prices plus a certain percentage.  A flat extra is an additional fee that cushions the risk for the insurance carrier.  A flat extra can last the entire life of a policy or just a few years.

Table Rating
(alphabetical)
Table Rating
(numerical)
Pricing
A 1 Standard + 25%
B 2 Standard + 50%
C 3 Standard + 75%
D 4 Standard + 100%
E 5 Standard + 125%
F 6 Standard + 150%
G 7 Standard + 175%
H 8 Standard + 200%
I 9 Standard + 225%
J 10 Standard + 250%

Let’s take a look at a few examples.

Example 1

 

Jane Doe was diagnosed with acute lymphoblastic leukemia (ALL) when she was 8 years old.  She is now 30 years old and it has been over 20 years since treatment was completed.  Jane is a non-smoker and aside from her history of childhood cancer, she has a clean bill of health.

She applies for a 30-year $500,000 life insurance policy and is approved at Standard Plus.  Her monthly premium payments will be $50.

Example 2

 

John Smith was diagnosed with acute myeloid leukemia (AML) when he was 18 years old.  Part of his treatment was a bone marrow transplant.  He is now 32 years old, does not smoke, and it has been 13 years since treatment was completed.

He applies for a 20-year $500,000 life insurance policy and is approved at Table B.  His monthly premium payments will be $60.

Keep in mind that no life insurance company underwrites the exact same way.  (Underwriting is the process of evaluating an application and determining a risk class.)  Some will be stricter with leukemia than others.

How does lymphoma affect buying life insurance?

There are two categories of lymphoma: Hodgkin and non-Hodgkin.  The difference between the two is based on the type of cancer cells present.  According to Cancer Treatment Centers of America, Hodgkin lymphoma is rare, accounting for about .5 percent of all new cancers diagnosed.  Non-Hodgkin lymphoma is more common being the seventh most diagnosed cancer.

In the majority of cases, applicants with a history of lymphoma will be assigned a flat extra for the first few years, unless a good number of years (like ten) have passed since treatment.

Let’s take a look at an example.

Example

 

John Doe is a 54-year-old male, non-smoker, applying for a 20-year $250,000 term policy.  He was diagnosed with stage 3 non-Hodgkin lymphoma five years ago.  He went through chemotherapy that same year and continued preventative treatment for two years following.  There has been no sign of recurrence.  He gets check-ups once per year.

John is approved at Table B with a flat extra of $15 per thousand for five years.  Here’s what all that means.  John is getting $250,000 in coverage, so to calculate the flat extra you multiply 15 by 250.  John will have to pay an extra $3750 per year on top of his normal premiums for five years.  Once year five is over, his premiums will drop to the regular Table B premium which will be $140 per month.

Again, no life insurance company underwrites the same way.  There are insurance carriers that would decline John outright.  This is why working with an independent agency like Quotacy is beneficial.  We have contracts with multiple A-rated carriers, so your chances of being approved are better.

How does myeloma affect buying life insurance?

Myeloma has different forms, but 90 percent of people who have been diagnosed with myeloma have multiple myeloma.  It’s called such because it affects several areas of the body versus just one site.  There is currently no cure for multiple myeloma, so life insurance approval may prove difficult.  Unless you have had a bone marrow transplant, an applicant diagnosed with multiple myeloma will typically be declined for life insurance.  Myeloma is, however, the least commonly diagnosed type of blood cancer.

Plasmacytoma and localized myeloma diagnoses, these are forms of myeloma in which cancer cells are found in only one site, have higher chances of life insurance approval.  Standard rates are even possible if enough years have passed since treatment.

If you have a history of blood cancer, don’t hesitate to apply for life insurance.  Applying for life insurance is free and there is no commitment to buy.  Here at Quotacy we have access to many life insurance carriers and will help to get you approved for coverage.  Start out by using our term quoting tool to run as many quotes as you would like – no contact information required.  We look forward to helping you get life insurance.

Home Insurance for Protection of Your Most Valuable Asset

Is Home, your most valuable asset? In fact, for most of us, it is. We spend a substantial part of our lifetime’s earnings on a Home. We spend some of the best moments of our lives in our homes. We take all care to ensure that our homes and possessions are protected from any damage or loss. However, mishaps still happen. We can do little about the natural disasters that can potentially cause major damage. Housebreakings are not rare despite us installing best protection equipment with burglars finding ways to outsmart the technology.

Any damage to the exterior or the interiors of our homes or its content can cause emotional and financial distress. There could be many things to fix and replace. As our homes protect us from the heat, dust, rains and many other troubles, it is only fair that we protect our homes from any damage / untoward incidence. In order to protect your home and protecting yourself against any potential losses due to any damage to your home, you need a Home Insurance.

Traditionally, Indian homeowners’ attitude towards Home Insurance has been somewhat indifferent. A Home Insurance has been considered as an avoidable expense in India till recently. However, Home Insurance in India is getting recognized as a crucial protection product after instances of natural disasters in Nepal and India, when many houses were seriously damaged. Thefts have been common for years; however, stakes have gone up of late with homeowners’ preferences for high-value gadgets like LED Television Sets, Home Theatre Systems, Air Conditioners and even rare Antiques. Home Insurance plans are designed to protect the insured against a wide range of perils that put them at risk.

A standard Home Insurance not only safeguards the structure of your home but also covers all the belongings and prized possessions collected over the years. A standard Home Insurance cover gives you a chance to choose either the house structure or the household contents in a single policy.

Let’s understand in detail what a standard Home Insurance plan offers:

Fire: A house can catch fire due to many possible reasons. One may forget to switch off the stove or a spark emanating from an electrical appliance may result in something big and devastating. Short-circuits are common in rainy seasons. A Home Insurance plan offers protection against losses due to fire. It can leave a devastating effect. The property structure can become severely damaged, such that you have to rebuild it. In such a situation, a Home Insurance policy pays for the expenses incurred on repair and reconstruction work. With financial support from the Home Insurance policy, you can focus on getting the house back to its original condition.

Theft: Another problem that worries most homeowners is a possibility of theft. A burglary can result in loss of precious contents such as jewelry, documents, and electronic appliances. One can protect against such possibilities by taking optional burglary coverage. This coverage pays out in the event that the home's contents are stolen.

Storm, Flood, Inundation: With rising instances of Flood, inundation in the last few years, Home Insurance is gaining the attention of the homeowners as an important protection product. There have been a number of instances of people have become the victims of natural disasters in which their houses have been damaged to great extent.

Earthquake: One can also opt for an Earthquake coverage which offers compensation if the structure or the contents of the home are damaged due to Earthquake.

Others: One can also opt for a terrorism coverage which offers compensation if the structure or the contents of the home are damaged by acts of terrorism. Home Insurance in India is becoming important with changing dynamics of Home ownership. A house can get damaged due to so a number of external factors beyond the control of the owner. In the case of a serious damage, it may not be possible to restore everything to its original state because of the enormous expenses that it may involve. With Home Insurance, you can make a claim on the policy and recover the expenses arising from the loss.

In the event of a mishap, making a home insurance claim is not complicated. The homeowner needs to fill in the claims form and submit it with relevant documents to the insurance company. All documents supporting your claim must be provided for it to be approved. The insurance company surveyor will scrutinize the loss and the claim and arrive at a compensation based on the replacement cost.

Home insurance quote depends on various factors like if the premise to be insured is rented or owned accommodation, the Type of property (flat or individual house), the age of the property and the coverage type (the structure or the content or both). Coverage amount is the maximum limit that would be paid if some damage occurs to the house. The major factor that determines the coverage amount is reconstruction cost of the house. Reconstruction cost is ascertained by the following formula:

Total constructed area X Construction cost per square feet With a good home insurance in place, you can have complete peace of mind regarding your property investment. In events like damage to your house due to an earthquake and flood/, inundation, you can avail emergency repairs,. Interestingly, the Home Insurance premium is reasonably low in most cases so as not to put extra financial burden on you. Whether you live in a city or a small town, a Home Insurance is becoming essential. If you have invested a substantial amount of your lifetime’s earnings on your home and its contents, then not having a Home Insurance can be risky.

What to Ask When Choosing a Home Warranty

There are a number of things to know about before getting your first Home Warranty Plan. Here are 10 questions to ask yourself and the provider when comparing your options.

Purchasing a home warranty to cover your major appliances and system components (refrigerator, dishwasher, garage door entry system, HVAC unit, etc.) can be tricky. You have to balance consideration of each warranty's options, premiums, deductibles, terms, and conditions. At the end of the day, what you really want is some assurance that, in times of need, you and your family will remain safe, comfortable and suffer the least amount of inconvenience.

What should you look for in a home warranty? There is no simple answer, and there is no one-size-fits-all home warranty solution. As with all your other investments, one of the best things you can do for yourself is to enter negotiations as well-prepared as possible. So we’ve assembled this checklist of questions to ask before you commit to a home warranty agreement to help you better understand your needs, your expectations, your reservations, and your own attitudes towards what makes a house a home.

1. How much wear and tear do your appliances already have?

Appliances exist for one reason: to make our lives easier and that means taking on the dirty work (literally, in the case of a dishwasher or washing machine). Some of us use them harder than others and age can add up over the years, but as long as you use your appliances according to manufacturer's instructions, a home warranty can help you keep your machines running without worrying about unexpected repair or replacement costs. Should your appliance's or system's major components break down due to your normal use, a home warranty can be there to help cover the costs to get back in working condition.

2. Do you plan on upgrading or replacing your appliances any time soon, even though they are still functioning?

New appliances and systems come with manufacturer's warranties which are great protection, however, they run out and are unit specific. A home warranty can provide more of an umbrella of protection for your home to cover multiple appliances and systems. Plus, some companies, americansfirstinsurance, for example, provide programs such as the Appliance Discount Program that can save you money on the purchase of brand new, brand-name appliances.

3. Are you aware of any pre-existing conditions or problems with your appliances that have gone unaddressed?

Home warranty companies want to help you keep your home in working order but there may be some limitations when it comes to addressing certain pre-existing conditions. Check with your potential provider.

4. Are there any essential components on your appliances (e.g., your refrigerator’s ice-maker; your HVAC system’s ductwork) that may not be covered by a particular warranty?

Today's appliances are amazingly complex machines with evolving pieces and parts. However, they still basically rely upon essential core parts to perform their necessary duties. Those components are what require protection and often can be most expensive to repair. Your home warranty should cover these core components.

5. How does a particular warranty complement or supplement your existing homeowner's insurance policy?

Home insurance is great protection for your home for what MIGHT happen (fire, flood, natural disaster, etc.). However, what about protection for things that WILL happen? For example, your air conditioner condenser finally giving out or your clothes dryer refusing to dry your clothes. Having a home warranty plan to work side-by-side with your home insurance can greatly help your home remain a comfortable and happy place.

6. Will a specific home warranty policy help you pay for routine preventative maintenance of your major appliances?

A home warranty may not cover your routine preventative maintenance, however, they may penalize you for NOT taking that action. American Home Shield will not do that. We understand you're busy and that time gets away from you. That's why we can help cover you when your major system and appliance components break down from normal use.

7. Will a specific home warranty policy help you to pay for significant cosmetic damage to your major appliances?

Home warranties are designed to cover parts and components that are designed to wear down from normal wear and tear. If that normal use causes cosmetic damage, you should be covered. However, if an overly excited family member causes damage to your dishwasher door, for example, you will not be covered.

8. Are any repairs, services or appliances too minor (e.g. your microwave oven) to be covered by a specific warranty?

It all depends on your provider and your contract. An americansfirstinsurance Home Warranty Plan, for example, covers every part of your refrigerator. Other companies may exclude coverage for a dozen or more parts. 

9. What is the upper limit for repairs and replacement that the warranty will cover?

This depends on your prospective provider, but AHS offers some of the most competitive levels of coverage. In some cases, americansfirstinsurance provides twice or even five times as much in terms of replacement coverage.

10. When can you make a claim with your prospective warranty provider?

You may currently have appliances in need of repair. Most companies may make you wait 30-60 days before you are able to submit a service request. 

So, which home warranty combines the best reputation, the greatest expertise, and the most satisfactory customer service?

That warranty is the one that can be of the most benefit to you when the time comes for you to maximize your home’s equity. And American Home Shield is confident that the home warranties we offer are world-class in that regard. As the home warranty industry creator and leader, we are proud to offer the best, most comprehensive and award-winning home warranty plans. Learn more about americansfirstinsurance Home Warranty Plans and get a quote today.

Term Life Insurance for 35 Years

35 years is a long time.

Think about some of the things that happened or were popular in 1981.

  • Raiders of the Lost Ark
  • MTV began
  • Prince Charles and Lady Diana married
  • Hall & Oates
  • The Rubik’s Cube
  • Donkey Kong

A lot can happen in that time of time. The fall of The Soviet Union. The Internet. Mobile phones. Emoji. 35-yr term life insurance.

Yes, you read that right. You can now buy term life insurance with a term period of 35 years from American General Life Insurance Company.

Until now, the longest term period available was 30 years. But with the new term length, you can lock in a low rate up to age 45 and keep it until you are 80 years old.

Will you need term life insurance for 35 years?

Maybe and maybe not. It all depends on your unique circumstances. Things to consider include:

  • How many years until your youngest child leaves home?
  • How many years until all your children (and perhaps grandchildren) graduate college?
  • How many years until you pay off your mortgage?
  • How many years until you retire?

This is a start, but there’s more to it. Thankfully, we’ve written a thorough guide to help you find out how long you will need term life insurance.

It’s important to note that you are never ‘stuck’ in a policy for the entire term length. Meaning, you can always cancel the policy before the term expires without incurring any penalties or fees. Most life insurance companies will refund any unused premiums as well. Just in time for last-minute holiday shopping!

The Truth About Home Warranties And Are They Worth It?

When you buy a new home you always have the option of purchasing a home warranty that, theoretically, covers the cost of repairs to various appliances and other home systems. But are these home warranties worth it and what should you be aware of before you actually buy one of these?

Before I get into some of the nuts and bolts behind these home warranty products let me explain that I actually managed the extended warranty program for Circuit City Stores for a period of time and these home warranties are a very similar product. In addition, I've studied the economics of insurance before and home warranties are basically insurance policies. So I know a fair amount about the economics of home warranties.

A Home Warranty Is An Insurance Policy

When you buy a home warranty - and they start around $420 - you are basically buying an insurance policy. The reason this is important to recognize is that insurance companies are in business to make money and that means that they expect to make money on the average policy they sell, which means that on average the people who buy these policies will lose money. Buyers will most likely pay more for the policy than they receive in return over the life of the policy.

Then why would you ever buy an insurance policy? Because you are willing to trade off the certain cost for a very uncertain cost. The insurance company can play the averages game but many consumers cannot or don't want to play that game and they are willing to pay a premium for the certainty. This is especially true as it relates to health care where a catastrophic illness can cost over $1 MM.

But when it comes to home appliances and other systems what is the worst thing that can happen? Maybe you need a new air conditioner or a refrigerator that might cost you a couple of thousand dollars. So for people who can handle that type of expense out of the blue, there is no need for them to buy an insurance policy - they basically "self-insure" from their own savings. But if a new air conditioner would break the bank then you might want to consider getting a home warranty.

How To Beat The Home Warranty Companies At The Averages

There is one advantage that the homebuyer has over the home warranty companies. They know more about what is being insured than the warranty company does and this asymmetrical information allows them to make a better decision about when to buy the warranty than the companies can make about when to sell the warranty. In fact, the companies will pretty much sell a policy on any property to any buyer because they just can't afford to inspect every home before issuing a policy. But a buyer is going to be more likely to buy a policy when they can see that a home has been poorly maintained - e.g. a trashed short sale - and is, therefore, more likely to develop problems. That's what I did when I bought my short sale. I bought a policy from Home Warranty.

This asymmetrical information leads to a problem for the warranty companies called adverse selection - the tendency of these companies to get stuck with bad deals. Consequently, they have to raise their prices to offset this bias, which means that anyone who buys such a warranty on a well-maintained property is overpaying.

Beware The Exclusions

It's important to understand what you are really buying when you get one of these home warranties. The contract is full of fine print which excludes a huge list of situations that you would reasonably expect to be covered such as:

  • Improper installation
  • Plumbing fixtures
  • Whirlpool jets
  • Ejector and sump pumps
  • Doorbells associated with intercom systems
  • Alarm system repairs above $400
  • Security video equipment
  • Central vacuum cleaner repairs above $400
  • The remote components of an automatic garage door opener
  • Ice and water dispenser in a refrigerator. In fact, it's not even clear if they cover the ice maker in the standard policy. I don't think they do.

That's just a small sample of my americansfirstinsurance Home Warranty contract. The entire list is enormous. But you can buy a higher cost policy that will cover some of these excluded items. Like I said...these guys are in business to make money.

Beware The Pre-Existing Condition

Just like in healthcare these home warranties have pre-existing condition clauses. When you call in a claim they will ask you a series of questions and if your answers indicate that you don't know for sure that this item ever worked properly since you owned the home then they will simply deny the claim. Now you can buy a premium plan that will cover unknown pre-existing conditions but, even then, if they somehow determine that you knew the item wasn't working when you bought the plan th