Dear Liz: I have a life insurance policy that is worth $16,000 if I cash out. Our agent says if we convert this to an annuity, we would eliminate our monthly fee of $25. The policy is worth $35,000 if I should die with it still in effect. We purchased this only for the purpose to have me buried. Is converting this to an annuity a better option?
Converting to an annuity through what's known as a 1035 exchange means you're giving up the death benefit offered by your current policy for a stream of payments that typically last the rest of your life. You don't pay taxes on this conversion, but taxes will be due on a portion of each withdrawal to reflect your gains.
If you cash out, you'll get money faster — in a lump sum — but will owe taxes on any gains above what you've paid in premiums.
The face value of your policy is far beyond the median cost of a funeral and burial, which the National Funeral Directors Assn. said was $7,181. Before you dispose of the policy, though, you should make sure your survivors will have other resources to pay that cost and that they won't otherwise need the money.
How much liability coverage is enough?
Dear Liz: We are looking to get umbrella insurance coverage to increase the personal liability limits on our homeowners and auto policies. Is there a rule of thumb on how much umbrella coverage is appropriate? Enough to cover one's entire net worth? Or a portion thereof? Granted, no amount of coverage would prevent a lawsuit exceeding that coverage. We have never had a liability claim but are looking for an extra degree of safety and peace of mind. The house (no mortgage) is worth about $2.5 million and we have financial assets of an additional $3 million. The maximum our carrier offers in umbrella coverage is $5 million, with a premium under $1,000 a year.
Answer: Walking the line between prudence and paranoia isn't easy when you're trying to predict the risk of being sued.
A report by ACE Private Risk Services noted that most auto and homeowners liability coverage maxes out at $500,000, but 13% of personal injury liability awards and settlements are for $1 million or more.
That means the vast majority of lawsuits result in six-figure payouts or less, but a spectacular few can cost more.
Insurance experts say trial attorneys typically settle for a liability policy's limits. There are exceptions, though, particularly if the person being sued has substantial assets and income but not a lot of coverage.
One rule of thumb is to get liability coverage at least equal to your net worth, with a minimum of $1 million. A $5-million policy in your case would not be overkill, but you should discuss your situation with an experienced insurance agent to get a better assessment of your risk and options.
How to deal with robocalls
Dear Liz: As to the woman who receives robocalls, this is what I do. Almost all such calls come on my land line, which is now exclusively reserved for telephone solicitors and robocalls. I have it on two rings and never answer it. I will pick it up if I hear someone I know leaving a message. About weekly I go through the messages, and most turn out to be junk calls or automatic calls from doctors' offices reminding me of an appointment. All my friends and people I want to talk with have my cellphone number. If I receive a call on my cellphone that does not have caller ID or is from a number I do not recognize, I push the button to stop the ring and let it go to voicemail. The majority of such callers do not leave a message, so I assume they are junk callers and I go into history and block all calls from those numbers. Problem solved. With modern technology there is no reason to ever speak to any person you don't want to speak with.
Answer: The technology exists to prevent many junk calls from even reaching that land line you're paying for but essentially can't use.
Consumers Union, publisher of Consumer Reports, is calling for phone companies to provide free tools to block these calls. You can sign its petition at consumersunion.org/end-robocalls/.
In the meantime, you can use the free NoMoRobo service on a digital phone line or use anti-robocall tools such as Digitone Call Blocker Plus ($110), HQTelecom.com ($59) or Sentry Dual Mode Call Blocker ($52).