NAVIGATION - SEARCH

How to Avoid Trading in a Car with Negative Equity

A recent survey DealerRater conducted for Automotive News looked at the different ways car buyers deal with negative equity on their trade-ins. It found that the majority of consumers deal with this all-too-common situation in the worst possible way. 

Automotive News-DealerRater Survey

The Automotive News informal survey, conducted by DealerRater, looked at the most common actions that buyers take when trading in a car with negative equity ("negative equity" is when your car's value is less than the loan balance).

From May 5th to the 24th of this year, DealerRater interviewed 88,874 consumers who visited a dealership to shop or to have their car serviced. Of those, 46,700 respondents traded in their previous car when they bought or leased their most recent vehicle.

Over one third (37 percent) of those 46,700 respondents said they had negative equity in their trade-in. Here is how those buyers dealt with that situation:

  • 54 percent rolled their negative equity into their next loan or lease.
  • 21 percent "took some other action" (Automotive News did not specify what these other actions were).
  • 19 percent increased the amount of their down payments.
  • 6 percent opted to buy or lease a different vehicle than they had originally planned to.

Over half of the buyers polled rolled the debt into their next loan or lease. From a financial point of view, this is disappointing since this is the worst way to deal with this situation. Not only does it make your next loan or lease more expensive, it can put you in a debt spiral that's hard to escape.

Avoid Trading in a Car with Negative Equity at All Costs

Having negative equity is sometimes also referred to as being "underwater" or "upside down." Regardless of the word you use, negative equity is a growing problem with loan amounts rising and loan terms increasing.

Having negative equity isn't typically an issue if you plan to keep your car for a while and/or pay off the loan in full. It only becomes a problem when your vehicle is totaled, stolen, or you want to trade it in halfway through the loan term.

Let's look at an example of why being upside down can present an issue if you want to trade in your car. Say you have a balance of $12,000 left on your auto loan, but the vehicle is only worth $10,000. This means you have $2,000 worth of negative equity—and it isn't going to just disappear. Your options are to either deal with it now or deal with it later.

If you want to trade in your car, rolling the balance over into a new loan means paying on the new vehicle, plus the $2,000 from your last car. This means you're making payments on two cars at once, and your monthly payment and interest charges will be larger, as a result.

Worse yet, it typically means you'll be further upside down in the new loan. Rolling negative equity into a new loan just compounds your problem, which can create a debt cycle that can quickly spiral out of control.

For these reasons, every expert on the subject, including the team here at Auto Credit Express, will tell you that trading in a car with negative equity should always be viewed as a last resort option. This statement rings more true for those dealing with less than perfect credit, especially considering the higher than average interest rates these borrowers face.

Instead, it will be in your best interest to look at these alternatives:

  • Cover the negative equity out of pocket.
  • Find a new car with a big manufacturer rebate attached. If you don't have the cash to cover the difference out of pocket, this is a good alternative to explore.
  • Hold off on trading in your vehicle until you are no longer underwater or you have paid off the loan. Try making larger payments than your minimum amount to take care of this faster.
  • Try to sell the car yourself to get more than you would if you were to trade it in.

The Bottom Line

In an ideal world, you would always have equity in your vehicle so you could avoid this situation. Because negative equity is a common issue, however, it's best to figure out a way to avoid trading in a car when you are upside down in your loan. Buyers, especially those dealing with credit issues, should do whatever it takes to avoid this situation.

Another car buying roadblock can be your credit. Having bad credit or no credit can make it difficult to get approved for a car loan. Luckily, Auto Credit Express is here to try to make that process easier.

We connect car buyers to local special finance dealerships that know how to work with challenging credit situations. Our service is free of charge and obligation, so go ahead and get started by filling out our car loan request form right now.

Share or Bookmark this post…
  • Facebook

Should You ‘Restart’ Your 30-Year Mortgage When You Refinance?

we adhere to strict standards of editorial integrity to help you make decisions with confidence. Many or all of the products featured here are from our partners. Here’s how we make money.

Low mortgage interest rates have made refinancing a good option for many homeowners who can sign up for a lower rate and even take cash out of their home equity while still lowering monthly payments.

But what if the homeowners already have a few years of equity built up in the home — should they take on a new, 30-year loan or refinance closer to their current loan term, such as 25, 20 or even 15 years?

By extending to a new, 30-year loan, the homeowners would pay even less per month, because the loan amount would be spread out over a greater number of years than the current loan — but they would also pay more overall due to interest being applied for a longer period.

We asked Forrest Baumhover — a financial planner in Tampa, Florida, and a member of NerdWallet’s Ask an Advisor network — about the key factors homeowners should consider when deciding whether they should refinance.

 
 

What are the advantages of refinancing to a new, 30-year loan instead of keeping the same term?

The advantages of refinancing to a 30-year loan include being able to lock in a low refinance rate for such a long time, while freeing up your money to work for you in long-term investments. Also, locking in your rates for 30 years acts as a hedge against inflation, ensuring that your mortgage payment stays the same, even as house prices and rents go up over time.

What are the disadvantages of this strategy?

One issue that people might consider a disadvantage is that you pay more interest over the cost of the loan. While that’s true, you could also argue that the financial flexibility is more than worth it. First, with the power of compounding interest, the money you’re able to invest by having a lower mortgage payment will earn more over the life of the loan than the additional mortgage interest will cost you. Also, you have available funds in case of an emergency.

One disadvantage is that some 30-year loans might have a higher interest rate, although you might find some loans where 15- and 30-year mortgage rates are similar.

Is there anything else homeowners should keep in mind about mortgages?

Homeowners or people looking to buy a home should keep in mind that looking at a mortgage as strictly a tax write-off is a bad approach. Toward the end of a mortgage, many people find that if their mortgage is their only itemized deduction, it may be less than the standard deduction, making it worthless. This is especially true in areas with low real estate taxes.

 

 

Share or Bookmark this post…
  • Facebook

5 Tips for Finding the Best Refinance Mortgage Lenders

 5 Tips for Finding the Best Refinance Mortgage Lenders
we adhere to strict standards of editorial integrity to help you make decisions with confidence. Many or all of the products featured here are from our partners. Here’s how we make money.

When you decide it’s time to refinance your mortgage, either with a better rate, lower payment or a change in terms — or to get some cash — it’s natural to think, “I’ll just go to my current mortgage lender.”

And that’s fine, as long as you take these 5 steps to make sure you get the best refi deal.

How to find the best refinance mortgage lender

1. Get your credit score for free


2. Shop around for the best refi
 
3. Negotiate for the lowest lender fees 
 
4. Know the difference between your payment rate and APR
 
5. Consider how well lenders match your situation 

Best refinance lenders for the online mortgage experience

These lenders offer easy-to-use web portals and online support for borrowers who want to apply for, track and close a refinance online.

    
4.5NerdWallet rating
 
  • The biggest online mortgage lender in the U.S.
  • Fully automated process that imports employment and income data, credit scores, property info and more
  • Gives a loan decision in minutes
  • Rocket Mortgage review
Get started
    
4.0NerdWallet rating
 
  • Offers refinance mortgages with no origination fees or broker commissions
  • Minimum 620 credit score qualification
  • Automated suggestion engine will determine if there are things you can do to lower your rate
  • Lenda review
Get started

Best refinance lenders for customer service

If quality customer service is a top priority, look into one of these lenders.

suntrust mortgage
    
4.0NerdWallet rating
 
  • Flexible options for borrowers with low down payments and nontraditional credit histories
  • Offers assistance at every point during the mortgage process
  • Provides customer service in its physical locations, online and via chat or phone
  • SunTrust Mortgage review
Get started
    
4.5NerdWallet rating
 
  • Has hundreds of positive reviews on sites such as the Better Business Bureau, Yelp and LendingTree
  • Boasts a more than a 95% customer satisfaction rate
  • Provides a completely digital mortgage platform for both refinance and purchase customers
  • Guaranteed Rate review
Get started

Best credit union refinance lenders

If a big bank or online lender just isn’t for you, consider joining and refinancing through a credit union.

    
3.0NerdWallet rating
 
  • A national lender with nine branch locations in four states
  • Get a no-hassle mortgage comparison by filling out an online form. A loan officer will respond within two days.
  • Considers alternative credit data when underwriting
  • Connexus Credit Union review
Get started
    
3.5NerdWallet rating
 
  • A smaller lender that offers more personalized service
  • One of the leading digital-first credit unions in the country
  • A portfolio lender with flexibility in its lending criteria
  • Alliant review
Get started

Best mortgage refinance lenders: summary

  • Rocket Mortgage: Best for online experience
  • Lenda: Best for online experience:
  • SunTrust Mortgage: Best for customer service
  • Guaranteed Rate: Best for customer service
  • Connexus Credit Union: Best for credit union lenders
  • Alliant Credit Union: Best for credit union lenders

More from NerdWallet

  • How much house can you afford?
  • Compare current mortgage rates
  • Calculate your refinance savings
NerdWallet’s selection of mortgage lenders for inclusion here was made based on our evaluation of the products and services that lenders offer to consumers who are actively shopping for the best mortgage. The six key areas we evaluated include the loan types and loan products offered, online capabilities, online mortgage rate information, customer service and the number of complaints filed with the Consumer Financial Protection Bureau as a percentage of loans issued. We also awarded lenders up to one bonus star for a unique program or borrower focus that set them apart from other lenders. To ensure consistency, our ratings are reviewed by multiple people on the NerdWallet Mortgages team.
Share or Bookmark this post…
  • Facebook

Ask These 5 Questions Before You Refinance to a Shorter Mortgage

 Ask 5 Questions Before You Refinance to a Shorter Mortgage
we adhere to strict standards of editorial integrity to help you make decisions with confidence. Many or all of the products featured here are from our partners. Here’s how we make money.

You might think that refinancing your mortgage to a shorter-term loan is a win-win: You save on interest and pay off your home sooner. But many mortgage experts say there are better ways to invest extra money you might have than putting it into your home.

After all, paying off your home is just one of many important financial goals. You also need to save for retirement, put money aside for college if you have children, and buy life insurance, to name just a few. These may pay off in ways that make them wiser investments than paying down your mortgage faster.

Sometimes sticking with a longer-term loan just makes more sense: The tax benefits of the mortgage interest deduction last longer and you’ll almost certainly have a smaller monthly payment, leaving more cash on hand to help you reach those other goals.

Don’t get us wrong: Refinancing to a shorter-term loan might be a great move if you have extra cash and a stable job situation, but remember, your mortgage is just one piece of your personal-finance pie.

To figure out whether paying your home off sooner makes sense for you, ask yourself these five questions:

See current cash-out refi rates

How much will my monthly payment be?

For some homeowners, especially those who have young families or who are cash-strapped for other reasons, squeezing an extra few hundred dollars out of the monthly budget and limiting access to ready cash isn’t advisable, says Michael Dunsky, branch manager of Guaranteed Rate in Franklin, Massachusetts.

“The first question I usually get from borrowers is, ‘What’s the lowest rate I can get?’ ” Dunsky says. “The answer is always a shorter-term loan, but the mortgage payments are about 25% higher on a 10-year fixed-rate loan, for example, than a 30-year loan. That’s not sustainable for a lot of people.”

Also, if you want to refinance to a shorter-term loan, your debt-to-income ratio must be low enough to prove to a lender that you can afford the higher monthly payment. For most loans, your DTI should be no more than 36%, according to Fannie Mae. Keep in mind that lenders include all your debt when calculating DTI and will hit you with a higher rate if you have a high ratio. So if you have a lot of credit card debt or a sizable car payment, prepare yourself for a higher mortgage rate.

See current cash-out refi rates

Will I be able to meet my other financial goals?

A mortgage refinance to a shorter-term loan may work if you have few long-term debts and you have enough money coming in each month to pay all of your bills (with extra cash to spare). But if your budget is tight or you’re not paying attention to other savings, putting more money into your home could mean you’re selling yourself short, says Craig Strent, CEO of Apex Home Loans in Rockville, Maryland.

“When you invest outside of your home there are additional tax benefits, and you’ll have more liquidity,” Strent says, adding that you’ll also build wealth more quickly this way.

Rather than building equity in your home faster, it might make better financial sense to put that money to work in other ways, such as a 529 college fund, retirement and brokerage accounts, life insurance policies, and savings funds for big purchases down the road (vacation home, anyone?).

See current cash-out refi rates

Is being completely debt-free a priority for me?

It used to be that people stayed in one house for the long haul and aimed to own it free and clear. (Oh, and they paid off their credit cards every month and had little to no student loan debt. Those were the days, huh?)

You’ve probably heard finance experts tout the debt-free philosophy in books and on TV. Although being debt-free is an admirable goal, it’s not always practical when you take into account increases in the cost of living, limited income growth and fluctuating property values, Dunsky says.

“When you invest more money into your home, you won’t be able to tap into that equity until you sell or refinance,” Dunsky says. “Figure out whether you can do all the things you want to do with your money without relying on your home’s equity. If the answer is ‘no,’ then a shorter-term loan probably isn’t the way to go.”

See current cash-out refi rates

How long have I lived in my home, and do I plan to stay?

Depending on how far along you are on repaying your mortgage — and how long you plan to stay in your home — moving to a shorter-term loan can be an expensive mistake.

Mortgage payments are front-loaded with interest. So if you’re on year 18 of your mortgage, for example, you’re likely paying more toward your principal than interest at this point. If you refinance to a 10-year loan, you’ll pay more in interest upfront, Dunsky says, and you might actually lose money once closing costs and refi fees are taken into account.

Also, the average first-time homebuyer plans to stay in the home for just 10 years, according to the 2015 National Association of Realtors Profile of Home Buyers and Sellers survey.

If you plan to stay in your current home just a few more years, refinancing to an adjustable-rate mortgage at a five- or seven-year term will save money overall, Strent says.

With an ARM, your interest rate stays the same for the first few years. After that initial fixed-rate period ends, the rate can adjust up or down annually over the remaining life of the loan. You’ll need a larger down payment to qualify for an ARM, but it provides the stability of a fixed-rate mortgage for a set time at a lower cost than many other loan types.

Strent notes that a lot of first-time homebuyers overpay tremendously on their loans. Why? They stay in their homes for a relatively short time, so they could have used lower interest rates with an ARM rather than having paid more with a 30-year fixed-rate loan.

See current cash-out refi rates

Can I pay my loan off faster in other ways?

Refinancing isn’t the only way to shorten your mortgage. You can simply pay more each month without committing to a shorter-term loan.

One approach is to take your current mortgage payment, divide it by 12 and add that amount to your monthly payment, Dunksy says. (Be sure to note that the extra amount is to go toward principal, not interest.) If you make those additional payments consistently over time, you could pay off your mortgage in 23.5 years instead of 30, he adds.

Or, you could have your mortgage broker crunch numbers on what the payments would be on shorter-term loans and simply make those exact payments each month without going through the motions of refinancing. If you’re short on cash some months, you can simply revert to your standard payment amount without the risk of penalties, Dunsky says.

Strent offers this tip: If you can afford only one extra payment each year, make January’s payment before Dec. 31 to get the interest counted toward the current year’s interest deduction on your tax bill. You’ll realize the savings now rather than later, which adds the instant-gratification factor.

Whatever you do, both Dunsky and Strent agree that going on a biweekly schedule (paying your mortgage every other week) is a bad move; the penalties are stiff if you miss a payment, and there are setup fees.

See current cash-out refi rates

Share or Bookmark this post…
  • Facebook

Best Mortgage Refinance Lenders of February 2019

we adhere to strict standards of editorial integrity to help you make decisions with confidence. Many or all of the products featured here are from our partners. Here’s how we make money.

The best thing about refinancing your mortgage is that you’ve been through the home loan process before — but a lot may have changed since then. And there are more refinance lenders and more loan options now than ever.

Some refinance lenders offer the latest in online capabilities, others specialize in Federal Housing Administration or Veterans Affairs loans, and others will still discuss your loan options with you face to face.

» MORE: Get notified when refinancing will save you money

NerdWallet has picked some of the best mortgage refinance lenders in a variety of categories so you can quickly determine which one is right for you.

Best overall refinance lenders

Rocket Mortgage
LEARN MORE

at Rocket Mortgage

Min. credit score

620

National / regional

National

NerdWallet rating
 
Why we like it

Ideal for refi borrowers with little time. Rocket Mortgage brings smart-phone app convenience to the refinance process. And online income and asset verification speeds the process.

 

Lenda
LEARN MORE

at Lenda

Min. credit score

620

National / regional

Regional

NerdWallet rating
 
Why we like it

Ideal for refinance customers in the states it serves. Lenda doesn’t charge upfront origination or broker fees on refinance loans, which close in around 36 days.

 

Navy Federal
LEARN MORE

at Navy Federal

National / regional

National

Min. down payment

0%

NerdWallet rating
 
Why we like it

Ideal for military members and their families. Navy Federal Credit Union offers a wide range of mortgage products and low minimum loan amounts, and considers alternative credit data.

 

Veterans United
LEARN MORE

at Veterans United

Min. credit score

620

National / regional

National

NerdWallet rating
 
Why we like it

Ideal for military-connected customers looking to refinance. Veterans United's streamline VA refis require a lot less paperwork with lower closing costs.

 

SunTrust
LEARN MORE

at SunTrust

Min. credit score

620

National / regional

National

NerdWallet rating
 
Why we like it

Ideal for the homeowner who wants to refinance, but needs help figuring out which type of mortgage to choose. SunTrust offers a broad range of loan types, including FHA, VA, USDA and conventional mortgages.

 

Guaranteed Rate
READ REVIEW

at NerdWallet

Min. credit score

620

National / regional

National

NerdWallet rating
 
Why we like it

Ideal for homeowners who are looking to refinance into conventional, FHA or VA mortgages. Guaranteed Rate works with almost anyone with a good credit score and stable income.

 

 See current cash-out refi rates

Chase
LEARN MORE

at Chase

Min. credit score

620

National / regional

National

NerdWallet rating
 
Why we like it

Ideal for refinancing any way you want: in person, online or over the phone. With branch locations in 22 states, Chase has a strong face-to-face presence, but refinancers can apply through other channels, too.

 

Bank of America
LEARN MORE

at Bank of America

Min. credit score

620

National/regional

National

NerdWallet rating
 
Why we like it

Ideal for borrowers who like options. Bank of America offers multiple refinance loans, including FHA, VA and cash-out.

 

Connexus
LEARN MORE

at Connexus

Min. credit score

600

National / regional

National

NerdWallet rating
 
Why we like it

Ideal for homeowners who want to refinance their mortgages in any state but Alaska and Hawaii. Connexus aims to make the application process as seamless as possible through its online portal.

 

Alliant
LEARN MORE

at Alliant

Min credit score

NA

National / Regional

National

NerdWallet rating
 
Why we like it

Ideal for borrowers who like to save money. Through Alliant's Advantage Mortgage (AAM) program, borrowers may be able to refinance and eliminate mortgage insurance with just 5% equity.

Share or Bookmark this post…
  • Facebook

Should You ‘Restart’ Your 30-Year Mortgage When You Refinance?

A cash-out refinance is best for home improvements and when you can lower your interest rate. Be careful using it to pay off credit cards; you're putting your home at risk.
 
we adhere to strict standards of editorial integrity to help you make decisions with confidence. Many or all of the products featured here are from our partners. Here’s how we make money.

IN THIS ARTICLE:
What is a cash-out refinance?
Pros of a cash-out refinance
Cons of a cash-out refinance
The bottom line

What is a cash-out refinance?

A cash-out refinance replaces your existing mortgage with a new home loan for more than you owe on your house. The difference goes to you in cash and you can spend it on home improvements, debt consolidation or other financial needs. You must have equity built up in your house to use a cash-out refinance.

Traditional refinancing, in contrast, replaces your existing mortgage with a new one for the same balance. Here’s how a cash-out refinance works:

  • Pays difference of your mortgage balance and home’s value.
  • Has slightly higher interest rates due to a higher loan amount.
  • Limits cash-out amounts to 80% to 90% of your home’s equity.

In other words, you can’t pull out 100% of your home’s equity these days. If your home is valued at $200,000 and your mortgage balance is $100,000, you have $100,000 of equity in your home. Let’s say you want to spend $50,000 on renovations. You can refinance your loan for $150,000, and receive $50,000 in cash at closing.

 

The pros of a cash-out refinance

Lower interest rates: A mortgage refinance typically offers a lower interest rate than a home equity line of credit (HELOC) or a home equity loan (HEL).

A cash-out refinance might give you a lower interest rate if you originally bought your home when mortgage rates were much higher. For example, if you bought in 2000, the average mortgage rate was about 9%. Today, it’s considerably lower. But if you only want to lock in a lower interest rate on your mortgage and don’t need the cash, regular refinancing makes more sense.

Debt consolidation: Using the money from a cash-out refinance to pay off high-interest credit cards could save you thousands of dollars in interest.

Higher credit score: Paying off your credit cards in full with a cash-out refinance can improve your credit score by reducing your credit utilization ratio — the amount of available credit you’re using.

Tax deductions: Unlike credit card interest, mortgage interest payments are tax deductible. That means a cash-out refinance could reduce your taxable income and land you a bigger tax refund.

The cons

Foreclosure risk: Because your home is the collateral for any kind of mortgage, you risk losing it if you can’t make the payments.

New terms: Your new mortgage will have different terms than your original loan. Double check your interest rate and fees before you agree to the new terms.

If you’re doing a cash-out refinance to pay off credit card debt, avoid running up your cards again.

Closing costs: You’ll pay closing costs for a cash-out refinance, as you would with any refinance. Closing costs are typically 3% to 6% of the mortgage — that’s $6,000 to $10,000 for a $200,000 loan. Make sure your potential savings are worth the cost.

Private mortgage insurance: If you borrow more than 80% of your home’s value, you’ll have to pay private mortgage insurance. For example, if you have a mortgage of $100,000 on a home valued at $200,000 and do a cash-out refinance for $160,000, you’ll probably have to pay PMI on the new mortgage. PMI typically costs from 0.05% to 1% of your loan amount each year. A PMI of 1% on an $180,000 mortgage would cost $1,800 per year (read more about PMI here).

Enabling bad habits: If you’re doing a cash-out refinance to pay off credit card debt, you’re freeing up your credit limit. Avoid falling back into bad habits and running up your cards again.

The bottom line

A cash-out refinance can make sense if you can get a good interest rate on the new loan and have a good use for the money. But seeking a refinance to fund vacations or a new car isn’t a good idea, because you’ll have little to no return on your money. On the other hand, using the money to fund a home renovationor consolidate debt can rebuild the equity you’re taking out or help you get on a sounder financial footing.

Just remember that you’re using your home as collateral for a cash-out refinance — so it’s important to make payments on your new loan on time and in full.

See current cash-out refi rates
Share or Bookmark this post…
  • Facebook

Going in for Surgery? Avoid Surprise Medical Bills

It’s always a good idea to confirm that your hospital is in your health plan’s network before you go in for a procedure – but this proactive step still may not be enough to avoid surprise medical bills.

Millions of Americans get surprised bills from doctors who don’t participate in their health plan but who practice in hospitals that do. This often happens when an anesthesiologist or assistant surgeon you didn’t even know was going to be in the room during your surgery (and who doesn’t participate in your health plan), scrubs up and steps in during your procedure. When it’s all over, the out-of-network doctor bills you for the difference between what your insurer paid and what the doctor charges. The practice is called “balance billing.”

The Affordable Care Act requires insurers to cover out-of-network emergency services at in-network rates. But the law doesn’t stop doctors from balance billing, and it doesn’t release patients from their responsibility to pay surprise medical bills.

Although you don’t have complete control over whether or not you’ll get a balanced bill, there are steps you can take to reduce the likelihood and to fix the problem once it happens.

Plan ahead. Before a planned surgery ask about the team of healthcare providers who will treat you while you’re hospitalized.

It’s very difficult to control who sees you at the hospital or to know which doctors participate with your health plan. But it can’t hurt to ask that they keep non-participating providers out of your room.

Check for mistakes. It may be that an in-network provider got recorded incorrectly as out-of-network in your insurer’s system when your claim was processed.

When you get a bill, don’t pay it right away. Instead, call your health plan to discuss the bill you received and ask if you can get the charges removed if they’re incorrect.

If you get health insurance at work, your employer may be able to help dispute the bill.

Talk to your doctor. Physicians are sensitive to the financial burden patients are under these days, including those caused by surprise medical bills. It’s worth calling to ask if the doctor is willing to reduce the price of the bill.

Your health plan should also be able to step in and help. In some cases, your insurer will negotiate for you with physicians to either lower or waive out-of-network charges.

Check your state. Federal law does not protect patients from balance billing. However, about a quarter of the states do have laws in place that protect consumers from balance billing by health care providers that don’t participate in their health plan. Check with your state’s department of insurance to learn about the protections where you live.

File an appeal. The law entitles you to both an internal appeal with your insurer and an external review by an independent third party. Your health plan must provide guidelines about how to go about the appeal process.

Share or Bookmark this post…
  • Facebook

Is Guaranteed Issue Life Insurance a Good Option?

We often get asked questions along the lines of “My aging parent is very ill and medical bills have drained his/her savings account, but I cannot afford to pay for the funeral if he/she should pass away.  Can I buy life insurance on my parent?”  In this scenario, we do not advise purchasing “regular” fully underwritten life insurance.  More often than not, term life insurance is going to be ideal for most people, but not in this scenario.

Why we wouldn’t recommend term insurance in this case…

Term life insurance would typically not work in this case because the coverage amount would be too small, the client would likely be uninsurable because of health issues, and the client’s age would be outside the range a life insurance company would approve coverage for.

What we would recommend…

When we get this question, we usually tell inquirers that they have two options:

  1. Take the money you would have spent each month on term insurance and instead put it into a savings account so it can start accruing interest. You can then access these funds later when in need of money for your loved one’s final expenses.
  2. Purchase a guaranteed issue life insurance policy.

What is a guaranteed issue life insurance policy?

Guaranteed issue life insurance is a type of life insurance that you cannot be denied coverage on, hence “guaranteed”.  There are a few things you should know about this type of insurance.

  1. Guaranteed issue life insurance is typically known as “last resort” life insurance. It’s meant for those who may have been denied previously and/or are not in good health.
  2. Guaranteed issue life insurance policies are designed so that surviving loved ones can pay for your final expenses, such as a funeral, burial, and medical bills.
  3. Guaranteed issue life insurance premiums will never increase.
  4. A guaranteed issue life insurance policy accumulates cash value.
  5. Guaranteed issue life insurance policies have significantly lower death benefit amounts compared to term or permanent policies.
  6. There is no medical exam or questionnaire required for guaranteed issue life insurance. The only factor that is really taken into consideration is the age of the insured.  Because of this, guaranteed issue life insurance premiums are higher per thousand than most other types of life insurance.
  7. Benefits are limited within the first two years. This is called a Graded Death Benefit period.  What this means is that if you die within two years of buying the policy for any reason other than an accident, your beneficiaries typically only receive the total amount of what you paid in premiums.  (This can vary depending on the carrier.)

So, if you’re in relatively good health, fully underwritten life insurance may be a better option for you.  However, guaranteed issue life insurance is a great option for those with a desperate need.

How much does guaranteed issue life insurance cost?

While you can get millions of dollars’ worth of term life insurance coverage, guaranteed issue life insurance coverage often caps at $50,000.  Again, its design is based around simply helping your surviving loved ones pay for your final expenses.

Quotacy works with Gerber Life to provide guaranteed issue coverage options.  Gerber’s guaranteed issue policy is available in all U.S. states except for Montana.  Take a look at the examples and table below to get an idea on what a guaranteed issue policy can cost.

John Smith is 55 years old and has been denied for traditional life insurance because of his Stage IV prostate cancer.  He does not want to burden his children with his final expenses so he plans on purchasing guaranteed issue life insurance.

He’s automatically approved without having to undergo a medical exam or fill out any health forms.  John obtains $20,000 in coverage and his premiums are $91.30 per month.

If John passes away within two years, Gerber Life will refund to his beneficiaries all premiums that had been paid plus 10% interest.  However, if John happens to die because of an accident unrelated to his health within those two years, his beneficiaries will receive the full $20,000 death benefit.  After two years, his beneficiaries will receive the full death benefit regardless of how he dies.

Jane Doe takes care of her 79-year-old mother Sally.  Sally does not have any life insurance and Jane is worried that she won’t have the funds to give her mother the funeral she deserves.  Jane decides to buy a guaranteed issue life insurance policy on Sally.

A $12,000 policy is enough for Jane to ensure she can pay for a proper funeral and burial.  Sally is approved for coverage and the policy will cost $165.70 per month.

Although this type of policy is easy to acquire, it offers less coverage and higher premiums than traditional life insurance, so explore all your options.  If you aren’t sure if guaranteed issue life insurance is the best choice for you or want more information, contact us here at Quotacy and we can help you.

Recap of Guaranteed Issue Life Insurance:

  • If you’re between 50 and 80 years old, you can be accepted for guaranteed issue coverage regardless of your health.
  • There are no medical exams to complete or health questionnaires to fill out.
  • Cash value accumulates within the policy.

Remember, term life insurance quotes are free to run on Quotacy.com and there is no penalty for applying.  It doesn’t hurt to apply for term life insurance, then opt for guaranteed issue if you end up being denied.  The more options you have, the better decision you can make.

Share or Bookmark this post…
  • Facebook

The difference between an Automobile Warranty and an Extended Auto Warranty / Extended Service Program

When you buy a vehicle you will be provided various options to buy along-side of it and one such choice is that of extended automobile warranty. Sometimes referred to as a service contract, or extended service program, an extended automobile warranty is designed to offset repair expenses following the purchase of a new or used automobile. In essence, an extended warranty is a safeguard against costly, unforeseen repairs. Not to be confused with manufacturer’s warranties, an extended warranty kicks in subsequent to the expiration of the manufacturer’s bumper to bumper warranty. An extended auto warranty is typically sold as a separate contract, and – unlike a manufacturer’s auto warranty – is not included in the purchase price.

You need to be aware of the benefits of this extended service program which coincide with this option even as you consider whether to obtain this kind of warranty for your car and this will assist you to find out whether an extended auto warranty is the suitable choice for you. There are a couple of benefits of having this kind of warranty. First, it provides the car owner of with peace of mind in recognizing that a number of aspects are covered. Because each warranty type will differ with regards to what’s covered under it, it’s imperative to peruse the extended service program document in order to see the coverage points included. By choosing an extended auto warranty you will understand that certain areas are covered on your vehicle in case something happens, which will result in the vehicle requiring to be fixed.

Extended auto warranties will also ascertain that your financial investment gets protected. Because many people live on a restricted budget, it is usually a good idea to put forth the finances whenever you have them in order that you won’t be caught short in the future should anything go wrong with the automobile and you’ll have to get it fixed. Besides, the cost of an extended automobile warranty is oftentimes much more reasonable as compared to what you would be needed to pay should one necessitate to have their car fixed in the future. As a result, by you spending a smaller sum of money in the beginning you might save quite a couple of dollars eventually should replacement parts or repairs be necessary for your automobile.

In the strictest sense of the word, this is not a warranty at all. Like auto warranties, this plan covers repairs for an agreed upon period of time. True warranties, however, are included in the cost of the car; extended auto warranties are actually service contracts, or extended service program because they cost extra and are sold separately. An extended automobile warranty may be bought at the time you purchase your vehicle; it is also possible to buy one much further along in your car ownership experience. If you are the type who prefers to be prepared for all eventualities, an extended warranty may be just what you are looking for. Considering the ever-increasing cost of car repairs, these service contracts do make a lot of sense. If you are interested in buying an extended automobile warranty, you need to know that the car service contracts industry is slowly moving away from the phrase “warranty” since it is confusing to consumers. Try looking for “Extended Service Programs” instead.

Share or Bookmark this post…
  • Facebook

The Problem with Employer-Provided Life Insurance

Working for “the man” got you down? Just wait till he takes your life insurance policy away.

If you’re fortunate enough to work for a company that offers employee benefits, life insurance through a group policy might be among the perks you can take advantage of. Group life insurance policies generally offer a decent amount of coverage at a reasonable price and some give the option of adding a certain level of additional (supplemental) coverage.

Sounds great, right? Now you can check getting life insurance off of your “to do” list.

Or not.

While group life insurance through your employer is far better than no life insurance at all, it may not be enough to protect your family from financial hardship if the unthinkable were to happen to you.

The Downsides to Many Group Insurance Policies 

  • Coverage Limits—Some policies may set a limit on the amount of coverage you can get. Often, the coverage you’re eligible for will be based on some multiple of your income. To obtain more coverage, you may have to apply for an additional policy from another source.
  • Less Flexibility in Benefit Options—Group life insurance doesn’t typically provide the option of adding benefit riders like those for accelerated death, child term, or disability.
  • Lack of Control Over Your Policy—With the policy owned by your employer, not by you, you could find yourself with no life insurance if your boss reduces the benefits or entirely drops the group policy.

And there’s more. 

The Biggest Potential Problem with Group Life Insurance 

Now you Have it, Now you Don’t—A group policy typically disappears if you’re laid off or if you voluntarily leave the company. So, if that’s your only source of life insurance, you’re banking on the idealistic vision that you’ll be working for your employer for a long time. Unfortunately, real world data shows that’s not very likely. According to the U.S. Bureau of Labor Statistics, the median number of years that wage and salary workers had been with their current employer was 4.6 years in 2014.

While some group policies are portable, allowing you to take coverage with you by remaining a part of the group after you leave a company, with most you simply lose coverage. If you opt to continue coverage with the group policy, be warned—you might find yourself paying a rather hefty premium to the insurance company.

Some group life policies offer the option to convert them to individual policies. These are also generally quite expensive, but they offer the advantage of being guaranteed issue. 

Term Life: An Affordable Way to get More Peace of Mind

According to LIFE Happens.org, four out of every ten married couples have only group coverage. And one in four Americans believes he/she needs more life insurance. If your only form of life insurance protection is through your company’s policy, individual term life insurance might be just the thing you need to protect your loved ones financially and give yourself peace of mind.

Term life insurance offers coverage at premiums often significantly less than those for portable group and whole life policies. Best of all, they’re flexible in the amount of coverage you can apply for and the length of the time (the term) your policy will be in effect. Typical term periods are 10, 15, 20, 25, and 30 years. The term period locks in the policy cost for that specific time and your rates will not increase at any point during your coverage.

You can quickly and easily get a term life quote online. And if you need help determining how much coverage your family might need or have other questions about term life insurance, reach out to a trusted life insurance professional for guidance.

Share or Bookmark this post…
  • Facebook