Insurance World

For the first time in more than 25 years, Congress has raised the limit on federal deposit insurance coverage, which protects against loss if a banking institution fails. However, the higher insurance limit only applies to certain kinds of retirement accounts that people may have at banks and savings associations insured by the Federal Deposit Insurance Corporation (FDIC) and at credit unions insured by the National Credit Union Administration (NCUA).

The FDIC wants bank customers to know what’s new and what hasn’t changed.

1. Certain retirement accounts at federally insured banks and savings associations soon will be insured up to $250,000, up from $100,000 previously. The higher insurance coverage applies primarily to traditional and Roth IRAs (Individual Retirement Accounts). Also included are self-directed Keogh accounts, “457 Plan” accounts for state government employees, and employer-sponsored “defined contribution plan” accounts that are self-directed, which are primarily 401(k) accounts. In general, self-directed means the consumer chooses how and where the money is deposited.

Under the FDIC’s new rules, which take effect on April 1, 2006, all deposits at a single banking institution that are held in this broad category of retirement accounts are added together and the total is insured up to $250,000, separately from any other deposit accounts you may have at the same institution.

With FDIC coverage for retirement accounts raised to $250,000, more Americans who rely on banking institutions for safety and easy access will know that more of their money for retirement will be completely protected if their financial institution were to fail. There’s also the added convenience for people who, previously, might have gone to more than one institution to get full coverage of retirement deposits of more than $100,000.

2. Other deposit accounts are still insured up to at least $100,000. However, as before, there are ways to qualify for more than the basic coverage at one insured institution.

For example, four distinct categories of accounts-checking and savings accounts in your name alone that are not retirement accounts; checking and savings accounts held jointly with other people; business accounts; and employer-sponsored pension or profit-sharing plans-each qualify for separate insurance coverage of $100,000 (as much as $400,000 combined).

In addition, trust accounts may qualify for separate insurance coverage of $100,000 per beneficiary (not per depositor) if certain conditions are met. And remember, under the new rules, your self-directed retirement accounts at the same institution are insured by the FDIC to $250,000 separately from any other accounts you may have there. This can be confusing, so to learn more about how to qualify for additional insurance coverage contact the FDIC as listed below.

3. The insurance limits could rise in the future, but not until 2011, if at all. The new law establishes a method for authorizing an increase in the insurance limits on all deposit accounts (including retirement accounts) every five years starting in 2011 and based, in part, on inflation. Otherwise, your accounts will continue to be insured just as described.

Term life insurance is basically a “no frills” type of life insurance. It is a life insurance for a specified duration limit, or time. You buy a specific amount of coverage for a specific time period by signing a contract. You pay for that coverage period and at the end of the term the policy expires. For example, the term might be until retirement, or until children are grown, or until college is paid for.

Term life insurance is the least expensive available insurance policy and allows you to spend a lot less and use the extra money in a better investment. It does not build up cash value and the premium normally increases as the policy owner gets older. Usually term life insurance covers
a specific term such as term of 1year, term of 20 years or term of 30 years.

If you die while the policy is active, term life insurance provides a stated benefit for it; and your survivors will be paid the agreed upon amount. However, the policy does not provide any returns beyond the stated benefit and once the policy expires, the insurance coverage ceases and the insurance company keeps the money. Some term insurance policies give you the right to renew at the same rate for multiple years, while others do not. The former are generally a bit more expensive.

Term life insurance is most suitable for you, if you are:

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in need of coverage for a limited period of time,
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young and looking for lower premiums,
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buying a home or car, where the financial burden of a loan will disappear in time.

Term life insurance policies must be renewed when each term ends. Before buying a term life insurance policy, you should ask about the renewal provisions for the protection of your future insurability. There are some typical choices:

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Annual Renewable—–the premium go up each year.
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Level Term—–the premium stays the same for specific period like 5, 10, 15, or 20 years, then increases sharply.
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Automatic Renewable—–you’ll have to pay more for this feature.

Some other options on term life insurance policies may include:
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Re-Entry - it requires a lower premium than an automatically renewable policy. You can renew at the same low rate offers to new customer; but you’ll have to pass a physical examination. If you’ve developed any health problems, your premium could go up and cost more than an
automatic-renewable policy.
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Convertable term - you’ll have the option to convert to a whole life insurance policy in later years.