Sunday, December 23, 2007

Homeowners Insurance - What Is Guaranteed Replacement Cost?

Many times when you apply for a homeowners loan, the bank requires you to insure the home for the entire amount of the loan. The value of the land, which may be substantial, is included in the purchase price, and in the event of a catastrophe, the land generally is not going anywhere. To get around that, insurance companies came up with a guaranteed replacement cost policy. If you reasonably insured your house for $100,000, and after totally burning down it cost $150,000 to rebuild it, the insurance company would be on the hook for the entire $150,000. This relieved the homeowner of the responsibility of insuring his home for the entire amount of the loan if it exceeded the replacement cost of his home.

Due to several recent natural disasters, many insurance companies have discontinued their guaranteed replacement cost policies. Some will provide a percentage of the policy coverage amount at no extra cost, but many will only pay up to the policy limits to rebuild your home in the case of a loss. I strongly urge you to determine the replacement cost of your home, contact your insurance company to see if your current policy will cover that value and increase coverage if need be.

Sunday, December 16, 2007

Understanding Gap Insurance

The most significant aspect that differentiates a person who owns a car and a person who takes it on a loan is gap insurance. Gap insurance policy actually covers the gap between the lease amount and the amount provided by the insurance company at the times of vehicle theft or damage. This particular insurance coverage type has been designed so as to protect the investment.

There are several companies offering gap insurance. Many times, gap insurance is included in the lease agreement. Gap insurance is required when the buyer has taken the vehicle on lease without even making 20 percent down payment. Other situations where gap insurance is required include car finance that has been continuing for the last four years or when the existing car loan amount also includes the debt on the previous car.

According to the market, the value of a vehicle depreciates as soon as it is purchased from the dealer. This value is further lowered once the vehicle meets an accident. Depending on the damage and the cause of the accident, insurance companies determine the amount to be reimbursed towards insurance claim. After deducting this amount from the actual loan amount, the consumer is now left with the option of paying the remaining loan amount. This amount could be substantial on numerous occasions that could leave the customer in a financial crunch. Gap insurance protects customers from such situations.

However, gap insurance is not required for every individual who has purchased a vehicle on loan. Gap insurance is not required when the regular insurance policy has the option of paying off the entire finance amount in case of damage or theft.

Saturday, December 8, 2007

Key to Choosing Life Insurance

Term Life Insurance

There are various forms of term life insurance available. The main feature of term life insurance is that it offers death protection, protection for a stated time period, referred to as a term.

Term life insurance is the easiest to understand. It's very simple, and it was intended to provide temporary life insurance for people who have a limited budget available. Term life insurance can be purchased in relatively small amounts.

A good use of term life insurance is to buy a large amount that would cover a loan. For example a loan on the home, a mortgage as that is a temporary and defined time period. For paying off the mortgage, the loan is a short range loan to fulfill a short range goal. This is a good idea to use during the child rearing years.

A term life insurance policy can be renewed once the term is ending. To continue it will continue add higher premiums as the insured is older at the time of renewal. In most states the insurance can be renewed as late as age 85 or 95.

The Advantages of Term Life Insurance.

  • Term life insurance is affordable. The premiums can be adjustable, which means the company may raise or lower them at some point that's been specified in the policy based on changes in the policy owners life.
  • Even though term life insurance can be renewed, at the time of renewal the policy owners life is probably at a different age and his health may be different so the terms of payment may be higher.
  • While term life insurance does not have the greatest long lasting benefit it serves a valuable purpose in the short term. It's easy to understand and easier to afford than other life insurance products.
  • A term life insurance policy can be converted to a permanent life insurance policy within the same insurance company to age 75.
  • Sunday, December 2, 2007

    Mortgage Loan – Loan to Value Ratio Explained

    The loan to value ratio is an important aspect of your mortgage application. This ratio affects your approval status and the interest rate you qualify for. Here is what you need to know about loan to value ratios.

    The loan to value ratio represents the part of home you are financing against the total value of the property. Mortgage lenders have specific guidelines for lending at a certain value of this ratio. If you are outside of the guidelines for a particular lender’s loan to value, your mortgage application will be denied.

    Calculating Loan to Value is easy. Simply divide the total amount you wish to borrow by the value of your home. For example, if your home is valued at $180,000, and you are applying for a $120,000 mortgage loan you divide $120,000 / $180,000, and your loan to value ratio (LTV) is .66 or 66%.

    The higher your loan to value ratio is, the less equity you own in your home. Mortgage lenders consider high loan to value ratios to be a greater risk. If your loan to value ratio is greater than 80% your mortgage lender may require you to purchase Private Mortgage Insurance as a condition for approving your loan. This insurance protects the lender from losses if you default on your mortgage.

    If you are applying for a mortgage with a high loan to value ratio, expect the lender to charge you a higher interest rate for the loan. To avoid higher interest rates and private mortgage insurance you should save money for a larger down-payment. Use a mortgage calculator when shopping for your mortgage to help determine exactly how much mortgage you can afford. To learn more about finding the right mortgage for your situation, register for a free mortgage guidebook.

    Friday, November 23, 2007

    Life Insurance Settlement Loans

    A life insurance settlement refers to selling a life insurance policy to a third party buyer in exchange for a lump sum amount. After the settlement of the policy, the original owners are no longer responsible for paying the premiums. On maturity of the policy, they will not receive any amount as maturity benefit. However, if the policy owners need to raise money for any financial requirement, there is no need to sell the policy. Policy owners can obtain a life insurance settlement loan against the policy.

    To apply for a life insurance settlement loan, the borrower needs to state the reason for the financial requirement in detail. This is where life insurance settlement loan differs from settlement, as there is no need to answer questions about the use of money. The life insurance settlement loan is required to be repaid over a certain period of time. The installments for repayment are monthly as in case of any other loan. The main advantage of such a loan is that, the policy owners get to keep the policy and also receive all the maturity benefits.

    Policy owners need to approach the insurance company, which has written the policy for borrowing the loan. They need to fill an application form, mentioning all necessary personal details as well as details of the policy. It is up to the insurance company, to determine the amount of the loan sanctioned. This approved amount depends on the face value of the policy, and is usually calculated, based on the percentage of the policy value. The insurance company also determines, the period or term of the loan along with the installments. The insurance company applies a rate of interest on the loan during repayment. The policy papers are withheld with the insurance company till the loan is repaid. The policy is considered locked during this period. Policy owners are required to continue paying their premiums for the policy, in addition to the installment on the loan.