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Applying for life insurance is a simple process for most. Let’s take a look:

1: Submit the paperwork

The company you are dealing with will need to get some preliminary information about you to start the underwriting process. The paperwork require that you supply your personal identification information, current job status, income information, and health background.

Some insurance carriers will require a proof of income as well, so be prepared to supply a most recent paystub or tax return.

Additionally, you will sign a few forms that will allow your medical records to be released to the insurance company for review.

2: Complete a phone interview

Once you have supplied the life insurance company with your application, they will want to schedule a phone interview with you to discuss your decision with you and to gather some additional information needed for underwriting. It is extremely important that you are open and honest with the interviewer. All of these calls are recorded and will be reviewed if you die within a certain window of time. If it is proven that you lied in the application or the phone interview, the insurance company may deny the claim.

3: A medical exam, performed by a company hired by the insurance carrier.

A paramedic will call you to set up an appointment to do a basic health screening. They are typically available 7 days a week and they will come to your house and your place of work. Be prepared for them to take your blood pressure readings, resting heart rate, draw a blood sample, and have you pee in a cup.

4: Wait

For the next few weeks an underwriter will review the application, medical records, and the results from the health exam. During this process they may reach out to you for additional clarification on certain items, but many times you won’t hear anything at all. It’s during this process that you rates will be factored.

5: Application Approval or Decline

The underwriter will make a decision on if they believe you are insurable. Some people do get declined, and if you do, don’t worry. The insurance company will release your medical records that you can take to your doctor to get whatever health issue you have checkout out. If you are approved, you will receive an approval letter with an offer of insurance along with the rates you will need to pay to keep the policy inforce.

6: The policy goes into effect

Once you sign your acceptance of the policy, you will need to immediately make a payment to satisfy the inforce requirements.

You will receive an official policy by mail. Be sure to store it in a protected place and let the beneficiaries know where to find it should something happen to you.

 

Today I received a call from one of my long time clients who was madder than hell about an accident his wife was involved in. An elderly woman had accidently pressed the accelerator in her 4Runner instead of the brake when pulling into a parking spot and plowed into my client’s vehicle causing $8,500 in damage. You see, Mr. Smith (not his real name) is a plumbing contractor in a small mountain town in Boone North Carolina who has worked his ass off his entire life and had just purchased this Chevy Tahoe for his wife – it was the first new vehicle she had ever owned.

Mr. Smith raised one of the recurring questions I get from insureds suffering auto damage. He asked “I understand that the woman who hit my parked car is liable for the damage. But what about the depreciation? What happens when I trade it in or try to sell it and they see the CARFAX report?”

He asked because he intuitively understood the fact that when a vehicle is damaged in an accident, the resale value will be less than a vehicle that has not been in an accident...even if the vehicle has been repaired to 100% of its previous state. In legal terms, the damage resulted in reduction or “Diminution Of Value” in the marketplace, even though repairs have been made. Insurance professionals call this a “D.O.V. Claim” and there are steps to take to ensure you get made whole.

First off, the definition of “diminished value” can be confusing. There are three types that are defined here by the partners at Matthiesen, Wickert & Lehrer in South Carolina:

Immediate Diminished Value

This is the loss in value that results immediately after an accident before any repairs are made. It is the difference in market value immediately before and after an accident caused by a negligent tortfeasor. In many states, this is the measure of damages for injury to personal property.

Inherent Diminished Value

This refers to the loss in value of a vehicle that remains after it is completely and professionally repaired. It is the loss of value that results from the simple fact that the vehicle has been in an accident. This type of diminished value is also known as “stigma damage.” Given two identical vehicles on a car lot, the one which has not been involved in an accident is preferable to the one which has been damaged and repaired.

Repair-Related Diminished Value

This refers to the additional loss in value to a vehicle which results from incomplete or poorly-performed repairs. It could include simple cosmetic damages that remain after repair or major mechanical or structural deficiencies.

You can read their full article here:

https://www.mwl-law.com/a-primer-on-diminution-in-value-claims/

Please note that inherent diminished value is the most common form used by insurance companies. There are two types of inherent diminished value claims, both of which can use the tips below:

1.First-Party Claims: These are claims made by the vehicle owner against their own insurance company 2.Third-Party Claims: These are claims made by the vehicle owner against another person for negligently causing damage to the owner’s vehicle.

Here are my 5 tips when making a diminished value claim.

5 TIPS WHEN MAKING A DIMINISHED VALUE CLAIM

1. Don’t file until the vehicle is fully repaired

Picture this: In Mrs. Smith’s haste, she files a DOV claim immediately after the accident. She already has the repair estimate of $8,500 from her local Chevy dealer and the dealer was kind enough to give her trade in values for the vehicle from before the accident and after the accident so she could reference them when discussing the claim with us, her insurance carrier. The difference from pre to post accident trade in value is $3750 after the car was repaired 100%. The insurance company representing the driver that hit Mrs. Smith’s Tahoe may very well accept that initial estimate of $3750 on the spot.

Here is the concern with that. What if the damage exceeds the estimate? What if instead of simple body damage, the frame is bent and the transmission is out of alignment? In that case the perceived damage to this vehicle in its future owner’s eyes is much worse than body repair. It’s important that you wait until you know the full extent before you file. By waiting for the final repair to be completed you can have much more confidence that you are getting a fair value for the depreciation.

2. Make sure your vehicle is repaired with OEM Parts

For new vehicles like Mr. and Mrs. Smith’s it’s important that the vehicle is repaired with parts made by the original equipment manufacturer (OEM). Often times, repair shops will try to install generic or aftermarket parts to keep the repair cost down. Many insurance companies will encourage this as it will decrease their costs in the claim.

When working with the claims adjuster, you need to keep stating that you expect your vehicle to be restored to its “pre-loss condition”. Be prepared for a lot of pushback.

3. Gather evidence of your vehicle’s the lost value

Let’s circle back to my insured’s claim. They did a good job of getting the trade in value differences (even though she should have waited until after the vehicle was repaired). Additionally I would encourage her to shop multiple dealers for trade in information while making sure to disclose the damage.

On top of dealerships, please advertise the vehicle independently and record the offers made. Craigslist, autotrader.com, cars.com, carsguru.com are the big 4.

4. Negotiate

The insurance company is out to keep their premiums low for all of the policy holders so they will always try to minimize their losses. With this in mind, you need to know that whatever they offer to you is negotiable.

Let’s play out an example. If your estimated loss in value is $3750 like my clients, you should file a claim for $6000. They will offer you $2000. You need to provide evidence (gathered from the previous step) that your car has lost much more than $2000 and you expect to be made hole for this loss. The insurance will never come up to the $6K, but they may get to the $3750 that will make you whole.

5. Be prepared to sign a release

Finally, once you come to an agreeable number, the insurance company will ask you to sign a release. This form will state that the insurance company is no longer liable for any additional losses. Before you sign this, make sure you are ok with the settlement and what it represents.

 

If this is a situation you are facing, please feel free to contact me at any time. I’d love to help in any way I can.

All the best,

Aaron Peacock

828-434-3215

704-236-5598

[email protected]

Insurance companies have created calculators that offer multiple methods for determining the value of a human life. These methods are:

  1. Debt; Income; Education (D.I.E Calc.)
  2. Survivors’ Needs (the difference between future expenses and income)
  3. Lost Future Family Income (method developed by the federal government)
  4. Multiple of Earnings

In this post, let’s take a look at an example using the DIE Calculator. Debt; Income; Education is a simplified calculation and the inputs are a condensed version of the more complete list of Questions I always ask business owners about their current financial protection plan. Here’s an example based on business owner in the construction industry that I work with regularly:

  • DEBT
    • Financial Obligations of the Business: $350,000 building loan, $225,000 Equipment Debt, $12,300 Accounts Payable, $55,000 credit line, 45,000 vehicle loans, $75,000 3 months payroll
    • Personal Debt (Mortgages, Loans, Credit Card): $300,000 mortgage, $6000 credit card
  • INCOME
    • Annual Income Need for Spouse $50,000
    • Number of Years Needed: 20
  • EDUCATION
    • Child #1 Age: 10
    • Child #1 Type of Schooling (public/private) public university
    • Child #2 Age 15
    • Child #2 Type of Schooling (public/private) public university
    • What percentage do you expect to pay? 100%

Total Life Insurance Needs Based on DIE: $ $2,268,300

Less Existing Life Insurance Currently Inforce: $1,000,000

Additional Life Insurance needed based on the DIE Calculator: $1,268,300

 

This method does a pretty good job figuring out how much life is needed for many small business owners and for the personal needs of individuals outside of business. Once your business reaches a certain size you should consider a more in depth analysis, but if you have nothing in place currently, this is a great place to start!

Next week, we’ll dig into a more popular method for non-business owners: the Survivors’ Needs Analysis.

Questions I always ask business owners about their current financial protection plan.

Business Continuation

Who are the shareholders in the business and what percentage do they own?

Are there any inactive owners?

If you died today, what would the business status be at death? Continued by heirs? Sold to surviving owners? Sold to Key Persons? Liquidated?

Do you have a written Buy Sell Agreement?

If there is no Buy Sell agreement, how will remaining owners determine how much to pay your heirs?  Will they pay them enough?

If you do have one, what date was your Buy Sell Agreement was last reviewed?

What type of Buy Sell Agreement is it? Cross Purchase Plan? Stock Redemption? Unsure?

What is the approximate value of the business?

How did you come up with thus valuation? (Book Value, Capitalized Earnings, From Attorney or CPA?)

Is the business growing? If so, at what rate?

How do you plan to fund a buyout? (Life Insurance, Sinking Fund, Bank Loan?)

Regarding Key Person Protection & Employee Retention

Who else, other than you, is critical to the operation and proifability of your business?

Do you currently have any protection against the loss of a key employee?

Do you want to retain the key employee(s)? (i.e. through a private bonus, or golden handcuff plan)

If a Key Person dies, would you feel obligated to help provide continued family income with personal life insurance?

Business Debt Protection

How would you repay business debts should you (or one of the other owners) die prematurely?

How much long term debt does the business have? (i.e. Buildings, Land, Heavy Equipment)

How much short term debt does the business have? (Contents of buildings, vehicles, revolving credit line)

Who signed the note at the bank? Owners? Spouses? Business?

Personal Long Term Disability Coverage for Owners

What sources of income will be available to you and your family if you are unable to work due to illness or an accident? What would the impact be on the business?

What is your gross annual income? What is your Spouse's gross annual income?

Any other sources of income? Rentals?

What is your mortgage balance and monthly payment?

How much other personal debt do you have?

Do you plan to pay for your children's education if they decide to go?

Personal Life Insurance Coverage for Owners

Who presently depends on your income? (rule of thumb is at least 10x your income for personal coverage)

Do you have any special needs children?

If you intend to pay for your children's college education, what percent? Will they go to a public or private school?

Do you want to provide continued spousal benefit? If yes, how much income do you want to provide annually?

Do you have any other life insurance? (subtract this amount from your total need that we come up with)

Estate Protection

Have you made any specific plans for conserving and distributing your assets when you die?

Do you have a will?

When was your will prepared?

Do you have a trust in effect?

Do you have any anticipated family inheritances?

What is your estimated net worth?

Which of the following estate planning objectives are most important to you? Avoiding probate, minimizing taxes, equalizing the estate among children, provide for spouses, paying of debt, making charitable gifts, providing for grandchildren, providing college education.

Problem:

Knowledgeable business owners know their business runs several risks for which life insurance is a prudent purchase. These include such things as key person indemnification, debt-protection, stock-purchase funding, and funding for carefully selected employee benefits. Sometimes, meeting these needs creates unnecessary, multiple policy charges and processing fees.

Solution:

Let me audit your existing insurance program or design a new program to make sure your insurance premiums work as hard as possible for you. Sometimes this may only save a modest amount of money, but it will always simplify things for you.

Often, one policy can be designed to do double, triple, or even quadruple duty. One policy can provide key person and debt protection, as well as funding for stock purchase and employee benefits. This simplification and efficiency in premium use can help make sure hard-earned dollars work harder for you.

Here’s an example of “premium shaving” for a business that wants to insure an owner who is a 45-year-old male, at standard non-smoker rating:

# of Polices 4 # of Policies 1
Key Person $100,000
Debt Protection $250,000
Stock Redemption $500,000
Deferred Compensation $150,000
Total Insurance $1,000,000 Total Insurance $1,000,000
Total Premiums $12,562 Total Premium $12,100

 

*Premiums in this post are for illustration purposes only and it provides only general information.

Unfortunately, a lot of people haven't considered the fact that one day they may become disabled. Most will readily admit that contracting cancer, having a stroke, or sustaining a long term disabling injury is a real risk, but all too often those same people say it won't happen to them.

Your income is such a valuable asset, but for many, it is something that is assumed and even taken for granted. When I discuess this exposure with the business owners I serve, I always as the same question:

How long could you go without an income?

Let's assume you have a savings rate of 10% of your annual income per year. Just one year long disability could wipe out 10 years of savings just to support you while you recover! Now what if you couldn't work for 2 years, 5 years, or what if you contract Myasthenia Gravis like my uncle and become bedridden for many years?

Having an income during this painful time, doesn't make the situation better, but it sure does relieve a huge burden for you and those supporting you. And the cost to provide that protection is not nearly as expensive as you might think.

Read more

Everything you need to know about Entity Purchase Buy/Sell Agreements

Have you thought about what would happen to your business after an owner's death or disability? Business owners may not want to be in business with the departing owner's non-active spouse and/or children. Failing to plan for this transition can be the greatest threat to the business's survival.

A buy/sell agreement provides an orderly process for a business to pass from one owner to another. The individuals agree in writing that the business interest will be sold for a negotiated, predetermined price upon the occurrence of certain events including:

  • Death
  • Disability
  • Retirement
  • Divorce
  • Bankruptcy of Owner

How It Works

An Entity Purchase (or Stock Redemption) Buy/Sell is a written agreement between the business (entity) and the owners of a business for the sale and purchase of business interests. This type of agreement is often used when there are multiple owners.

Read more

What Is A One Way Buy-Sell Agreement?

When people think of Buy-Sell Agreements, they often assume they are only for businesses that have multiple owners. But what happens if you are a business owner that dies and you don't have a partner to buy out your shares from your spouse or kids?

A great solution to this is a One-Way Buy Sell Agreement.

Sometimes there is only one logical buyer for a business--whether that buyer is already indetified or has to be fond. In this situation, it's a given that only one person will be buying out the current owners.

A one way buy sell agreement is a written contract for the sale and purchase of an owner's business interest where only one party has the right and obligation to buy.

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Recent Insurance Claims from Specialized Contractors

People ask me this question all the time: "yea, but really Aaron. How often does that actually happen?" Its gotten to the point that its almost comical. Here's a list my company has compiled of our most recent claims for specialized contractors. This is just from our book of business in the construction industry....from masonry and concrete guys, to grading, paving, HVAC, Plumbing, Electrical.

Take a look for yourself! The claims are outrageous:

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Why You Should Never Have An Informal Buy-Sell Agreements

Have you ever thought about what would happen to your business after an owner's death or disability? Often times business owners may discuss what they want to happen, but they do not take the necessary steps to lock these plans in. Trying to rely on these discussions after something happens can be one of the greatest threats to your businesses survivial.

How Do Informal Buy-Sell Agreements Work?

During the business owners lifetime, the multiple owners discuss some general terms for a future buyout situation, but do not put anything in writing. Some day in the future, one owner dies. Since prior verbal agreements were informal, all surviving parties must negotiate the terms at the worst possible times to negotiate. If the parties are unable to come to an agreement, then legal intervention is usually required for a resolution.

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Aaron Peacock

Aaron Peacock

Hi, I'm Aaron and I'm a marketing representative for Federated Mutual Insurance Company - a Ward's Top 50 and an A.M. BEST A+ Superior rated insurance carrier. After my wife was severely injured in an accident involving a distracted driver, I've found one of my passions in life is to help educate people about the Danger of Distracted Driving and have started speaking to businesses in Western North Carolina on implementing the Federated Insurance DriveS.A.F.E. program. Click here to read more...

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