INSURANCE

Question: Is an annuity an insurance policy, an investment vehicle, or both? Why should I buy an annuity?

Answer: An annuity is really a very unique product. An annuity is a contract with an insurance company, but it is not an insurance policy. It is a savings vehicle that offers tax-deferred accumulation of earnings, and may offer other features such as a minimum rate of return guarantee or a guarantee of principal if you die. In its simplest form, you pay money to an annuity issuer, allocate your money to either fixed or variable investment options, and then the issuer pays out the principal and earnings back to you or to a named beneficiary. There may be some guaranteed or "insurance" components to an annuity as well. For example, fixed annuities usually guarantee that you will earn a minimum interest rate during the accumulation phase, and that your premium payments will be returned to you. With a variable annuity you may receive a guarantee that your beneficiary will receive at least the amount of your original principal if you were to die, even if the value of the annuity is less. And regardless of whether you purchase a fixed or variable annuity, you are guaranteed to receive payments for life if you elect to annuitize.

Annuities can be an excellent tool if you use them properly, but they are not right for everyone. It is important to understand both the advantages and the disadvantages of using annuities in various situations.

Retirement planning.  Saving for retirement is the most common use of annuities. Tax deferral benefits will allow your dollars to grow faster than a comparable taxable investment. An annuity can be an excellent tool for this purpose. Here are some reasons why you might want to consider an annuity for retirement savings:

• The earnings are tax-deferred.
• Annuitized payouts if chosen, continue until death.
• If you work for a small company or are self-employed, you may not have access to a qualified plan. Annuities may be a way for you to supplement your Social Security income during retirement.
• IRAs place a limit on contribution amounts. Annuities do not have a limit on the amount of funds that you can invest in the annuity.
• IRAs require the holder to begin receiving minimum distributions at age 70.5. Annuities do not have minimum distribution requirements.

Annuities have certain disadvantages, as well. It is important to note that payments into an annuity aren't tax deductible. For this reason, most experts recommend maxing out your contributions to other available retirement plans before you think about an annuity. Additionally, annuity withdrawals made prior to age 59 1/2 are typically subject to a 10 percent early withdrawal penalty. If you plan to retire early, or if you think you might need to access your money before age 59 1/2, you should probably explore other options.

Business planning.  If you are self-employed or own your own business, you may want to consider an annuity to supplement your own retirement. As you probably won't be able to take advantage of a generous pension plan, an annuity can be used to fill in the gaps after you have made the maximum allowable contributions to other available retirement plans. Again, if you plan to retire early you'll have to watch out for the 10 percent early withdrawal penalty.

Question: How can I find insurance for my boat?

Answer: As a responsible boat owner, it's important to make sure you are properly insured before you head out on the water. Fortunately, there are literally hundreds of insurance companies throughout the U.S. that specialize in marine insurance. Many of the nation's major insurers provide policies for boats, yachts, and other watercraft in addition to standard life, auto, and homeowners insurance.

Insuring your boat with the same company that issued your auto, life, or home insurance can have certain advantages. For instance, you may be eligible for a multi-policy discount. If your current insurer doesn't offer insurance for watercraft, you'll need to do some research. You can find many listings simply by looking in the Yellow Pages or on the Internet, or you can ask your insurance agent for a referral. Before you contact an insurance agent about boat insurance, make sure you know what type of policy you need. In the insurance world, watercraft are typically divided into three categories:

• Boats. Generally include watercraft between 16' and 25' 11" in length.
• Yachts. Generally include only watercraft which are 26' or longer.
• Personal watercraft. Includes only jet skis, Waverunners, and other similar craft.

A boat policy is a package contract, similar in many ways to automobile insurance. While there may be some variation in boat policies, the main types of coverage are physical damage and liability coverage. Many boat policies also include legal defense protection, medical payments coverage, and uninsured boater coverage.

A yacht policy is very similar to a boat policy, in that it provides coverage for physical damage to your vessel and for personal liability claims against you. However, in a yacht insurance policy, these coverages are called "hull insurance" and "property and indemnity coverage." Yacht owners can also purchase optional coverage for legal defense, medical payments and uninsured boaters. In addition, yacht owners have the option of purchasing a hurricane protection endorsement, which will pay to haul your yacht out of the water if a hurricane is approaching and put it back in the water after the hurricane has passed.

If you own a personal watercraft, you might actually have a difficult time insuring it. Many insurers refuse to insure these craft, because they pose a much greater liability risk than other types of watercraft. According to some statistics, 45 percent of all boating accidents involve personal watercraft. However, certain insurance companies now specialize in insuring personal watercraft, because of their ever-increasing popularity. If you own a personal watercraft, make sure you purchase an insurance policy that includes bodily injury, property damage, liability, and theft coverage.

Question: What does it mean if someone that cleans your home is "bonded and insured"?

Answer: Advertisements for home cleaning services often state that the cleaning company is "bonded and insured." "Bonding" in this context usually refers to the protection afforded to the cleaning company's customer if an employee steals from the customer. "Insured" should mean that the cleaner carries liability coverage for personal injuries and property damage, as well as workers' compensation insurance (you should verify that this is what the cleaning company means by "insured").

While "bonded and insured" is a desirable distinction for a cleaning service, the insurance coverage carried by an individual cleaner or company should be confirmed. Different cleaners may purchase different bond and insurance coverages, which could provide markedly different degrees of protection.

You should ask the cleaning company for a certificate of insurance documenting the coverage in place. You might also contact the cleaner's insurance agent to verify the existence of insurance and liability limits, and to determine whether the cleaner's work in your home would be covered under the cleaner's policy.

Question: I was treated for cancer 15 years ago, but since then have been cancer free. Do I still have to disclose this when I buy disability insurance?

Answer: Whether or not you have to disclose a pre-existing condition (in this case, your treatment for cancer) to a potential disability insurer depends on the types of questions that are asked on the insurance application. Some applications will ask whether or not you have ever been diagnosed with or treated for a particular illness. Other applications will ask whether or not you have been diagnosed with or treated for a particular illness within a certain number of years (e.g., 10). As a general rule, however, you only need to give the insurer the information it has asked for on the application.

Keep in mind that although disclosing your diagnosis and treatment for cancer on an insurance application may result in denial of coverage, a waiting period for pre-existing condition coverage, or higher premiums, it is better to get this information out up front. If your insurance company finds out that you failed to disclose this information, it could result in your being denied benefits when you put in for a claim or, worse yet, your policy being canceled altogether.

Question: Should my 90-year-old father still be driving?

Answer: It depends upon your father's abilities. While the eyesight, hearing, reflexes, and other faculties of some seniors are more than adequate for driving, the driving abilities of other individuals may deteriorate badly with advanced age. Numerous states have instituted more stringent license renewal policies for elderly drivers, such as more frequent and in-person renewals (as opposed to mail renewals), eye tests, and driving tests upon reaching a designated age.

When measured by crashes per mile driven, drivers between the ages of 25 and 64 have a fairly constant rate of accidents. This rate begins to rise at age 70, and goes up rapidly at age 80. Even more alarming is the fact that drivers 85 and older are 11 times more likely to be killed in a crash than any other age group. This is generally attributable to increased physical frailty. These factors cause insurance premiums to rise for drivers entering their 60s, and to increase thereafter. This increase is often moderated by other factors, which may include discounts for fewer miles driven per year.

One way your father can improve his skills--and perhaps reduce the cost of his car insurance--is by taking a driver improvement course. Many states require insurance discounts for drivers (usually those over 55) who complete a state-certified course, while other states allow insurers to offer voluntary discounts for those who complete such a course. An insurance agent can provide information on available discounts and course requirements.

Question: I broke my ankle when I fell down a flight of stairs and I can't work for six weeks. Can I file a disability claim with my employer?

Answer: If you were injured at work and your disability is work-related, you may be eligible for workers' compensation disability benefits. For instance, if you fell down the stairs at work while on your way to a company meeting, your disability may be considered work-related. On the other hand, if you fell down the stairs at home because you were in a hurry to get to work, your disability is only indirectly work-related and probably won't be covered under workers' compensation. Workers' compensation laws vary from state to state, so you'll have to check the laws of your state or ask your employer to find out if you are eligible for benefits.

Even if you're not covered under workers' compensation, you may still be eligible for disability benefits under an employer-sponsored disability plan if your employer has one. You won't know until you ask, so check with your employer right away.

Question: What is Errors and Omissions insurance? Who offers it?

Answer: Errors and Omissions insurance (also called "E and O") is one portion of a comprehensive professional liability insurance package. It protects business owners and professionals against liability claims or lawsuits for damage that is caused by errors (something they did) or omissions (something they failed to do). For example, if you are an accountant doing tax preparation work for a client and you mistakenly claim a deduction to which your client is not entitled, your client might sue you to recover the penalties imposed by the IRS (plus damages for the mental anguish caused by the audit). Errors and omissions insurance could protect you against such a lawsuit.

Errors and Omissions policies can be quite expensive, and are typically customized to meet the needs of a specific professional group. Professionals who purchase Errors and Omissions policies commonly include lawyers, accountants, engineers, bankers, employee benefit managers, architects, stockbrokers, insurance agents, travel agents, and other professionals who manage money and property for others.

Most states have several insurers who specialize in business insurance. These insurance companies generally sell Errors and Omissions policies, as well as other types professional and commercial liability insurance. Many professional and trade organizations also offer Errors and Omissions insurance, often with discounted rates.

Question: I am buying a home and there is a creek in the backyard. Does this mean I need flood insurance?

Answer: Even if the creek in your backyard were to dry up tomorrow, you should seriously consider purchasing flood insurance. According to the Federal Emergency Management Agency (FEMA), approximately 25 percent of all flood insurance claims come from areas that are at low to moderate risk for floods. Flooding doesn't happen only along the banks of rivers, creeks, or other bodies of water. It can also occur in low-lying areas or can result from heavy rains, melting snow, inadequate drainage, and hurricanes.

In fact, if you're obtaining a federally backed mortgage, your lender will require you to purchase flood insurance if your home is located in a flood zone. To find out if this is the case, your lender will order a flood hazard search that will access FEMA flood zone maps. If your home is found to be in a minimal risk area, you won't be required to purchase flood insurance. However, you will still have the option to purchase it (often at preferred risk rates) if your community participates in the National Flood Insurance Program (NFIP).

You can't purchase flood insurance as an endorsement to your homeowners policy. Instead, you must purchase a separate flood insurance policy through a company that participates in the NFIP. But many companies that issue homeowners policies also issue flood insurance policies, so start by calling your own insurance agent or company. If your company doesn't write flood insurance policies, call the National Flood Insurance Program at 1-800-638-6620 to get a list of insurers that do. And don't delay. Once you've applied and paid your premium, a 30-day waiting period generally applies before the policy is effective (unless the initial policy is issued in connection with a loan or because a flood map has been revised).

Question: I live in a high-rise condo at the beach. Do I need to buy flood insurance?

Answer: It's always a good idea to purchase flood insurance to protect your insurable property, even if you own a condominium. Your homeowners policy (Form HO-6 for condominium owners) does not cover flood damage. The flood insurance policy owned by your condominium association doesn't completely protect you, either. It may cover the residential building, common areas, and even individual units, but it doesn't cover the contents of your unit: your furniture, carpets, art, electronics, clothing, furs, appliances, jewelry, valuables, and so on.

An individual unit owner's flood insurance policy covers your personal belongings and may provide additional building coverage for the unit in which you live. You might consider yourself high and dry because you live on the 26th floor, but when a flood washes away the entire first floor of your condominium building, your penthouse unit may end up at ground level, along with other flood-damaged dwellings in the area. And it may be wrong to believe that federal disaster assistance will cover your losses. In general, federal disaster insurance is available only if the president declares a major disaster. That occurs in less than 50 percent of all flooding incidents. And much of the available federal disaster relief is issued in the form of loans that must be repaid with interest.

Flood insurance is available through the National Flood Insurance Program (NFIP) and is sold by private insurance companies and agents. The federal government backs these stand-alone policies. You can insure your property if you live in a community that participates in the NFIP. Most communities with a serious flood potential have joined the NFIP. Policies are priced according to your level of risk. Be aware, however, that if your condominium at the beach was built after 1982 and sits within an area defined under federal law as part of the Coastal Barrier Resources System, then you can't purchase flood insurance. For more information, contact your insurance agent or call the NFIP at (800) 427-4661.

Question: I would like to take care of my own funeral arrangements before I die. What can you tell me about funeral insurance?

Answer: These days, more and more people are choosing to plan their own funerals. Some feel a sense of relief knowing that their grieving families won't have to make difficult decisions when the time comes, while others want to ensure that their funeral will be exactly the way they want it. To aid in this effort, insurance companies offer a product called "preneed" insurance (also known as funeral or burial insurance). These policies are often sold through funeral directors, who may act as agents of an insurance company and/or receive a commission on each policy they sell.

Although no typical preneed insurance plan exists, preneed insurance is generally a whole life insurance or annuity contract designed to cover the cost of a funeral, taking inflation into account. You choose the products and services you want (up to a certain maximum), and the insurance company writes a policy that will cover the cost. Most insurers require you to make a lump-sum payment to purchase the policy, and the full death benefit is available immediately. Some insurers, however, allow you to pay several premiums over time (depending on your age and health) and may pay a partial benefit should you die. You may be able to name anyone you want as beneficiary, or you may be required to name the funeral home as beneficiary.

As with any sizable purchase, you will need to exercise caution when shopping for a preneed policy - make sure you fully understand what you are buying. It's up to each state to decide how to regulate preneed insurance, so make sure you know your rights in the state in which you live. You may want to involve an attorney in the buying process as well, so that any policy you buy fits in with your overall estate plan.

Question: Some employment ads frequently mention that the company offers "generous insurance benefits." What does this mean exactly?

Answer: Employers know that prospective employees often study benefits packages almost as closely as they do salary ranges. Thus, employers may offer generous insurance benefits to attract qualified job applicants. But to determine whether the benefits offered are truly generous, you'll want to know what types of insurance are offered and who will pay for them.

Today, three out of four employees in the United States belong to health insurance programs offered by their employers. But not all plans are created equal. Take a close look at the health coverage you're being offered. Will the coverage adequately meet your needs? Will you be able to keep seeing your current health-care providers? How much will the insurance cost, and will you have to pay for any or all of it? If you need coverage for a domestic partner, does the company offer that also? In addition to health insurance, does the employer offer dental and/or vision insurance? If you have children who require orthodontia or frequent eye care, this may particularly concern you.

You'll also want to find out about life insurance benefits. Many employers will pay for term insurance coverage in an amount equivalent to your annual salary, and they may pay for some life insurance coverage for your spouse or child as well. You may also be able to purchase supplemental insurance at group rates. If so, what will it cost compared to purchasing additional insurance on your own?

A generous benefits package should also include disability insurance designed to protect you if you are hurt or get sick and are unable to work. Many employers offer short-term disability insurance to their employees typically covering the first six months out of work. However, a good benefits package would include long-term coverage as well. Find out what disability benefits you would receive if you were unable to work, how long you would have to wait before receiving benefits (e.g., 1 day, 30 days) and whether you will have to pay all or part of the group premium for coverage.

Finally, an increasing number of employers are beginning to offer employees the opportunity to purchase long-term care insurance, which covers nursing home expenses. Because Medicare or regular health insurance policies do not cover long-term care, and individual long-term care policies may be costly, this may be a particularly valuable benefit. Some of the employers that offer this also allow you to buy coverage for your parents and parents-in-law, which can be a very valuable benefit.

Since not all employers offer these benefits, any employer offering its employees these options, particularly if they are paid for in whole or even in part by the employer, would be offering "generous insurance benefits."

Question: I do consulting as an independent contractor. What are my options regarding health and disability insurance?

Answer: As a self-employed person, you need health and disability insurance as much as anyone. Most people get these types of insurance through their employers, but unfortunately this is not an option for you. You're your own boss, but that also means you have to supply your own benefits.

Health insurance.  In terms of health insurance, your options may be limited to:

• Individual health insurance coverage purchased directly from a provider.
• Group coverage purchased through a professional association or civic group (e.g., trade group, Chamber of Commerce, etc.).

Individual health insurance covers medical expenses on an individual basis. When you apply for individual insurance, your "risk potential" may be evaluated through a series of medical questions and/or a physical exam in order to determine whether you qualify for health insurance and how much it will cost. Individual insurance is typically more expensive than group coverage, but it may also provide more freedom to customize the policy to suit your personal needs.

Most people get group health insurance through their employers, but you'll have to look a little harder to find group coverage. Trade and professional organizations sometimes offer group insurance coverage, as do some civic groups and churches. With group coverage, the premium from group insurance is calculated based on characteristics of the group as a whole. All eligible members of the group can purchase insurance coverage under the plan, regardless of age or physical condition.

Disability insurance.  Disability insurance for self-employed people is typically available through the same sources:

• Individual disability insurance coverage purchased directly from a provider.
• Group coverage purchased through a professional association or civic group (e.g., trade group, Chamber of Commerce, etc.).

You will probably have to meet certain standards relating to age, income, occupation, health, and lifestyle before you are issued an individual disability policy. You will pay more for individual coverage than for a group policy, but you often get more for your money. Individual disability insurance provides a policy tailored to meet your needs, and may have more liberal benefits than group coverage. For example, an individual policy may have a longer benefit period or may replace a greater percentage of your income than a group policy.

Trade or professional associations sometimes offer disability coverage to their members. Although it is group-sponsored, association policies are actually issued to individual group members who must prove insurability. Insurability standards for association members are sometimes relaxed, however, and you will find it easier to qualify for association disability insurance than for an individual policy. Premiums for an association-sponsored policy are initially less than for an individual policy, but after a certain term (five or ten years) the premium can rise and may eventually exceed the premium for an individual policy.

In addition, government-sponsored programs such as workers' compensation and Social Security provide some disability protection. Unlike other types of disability coverage, you don't have to pay a premium for these programs. However, you do finance some types of government disability insurance by paying taxes. Disability coverage under these programs is extremely basic, and should not be relied upon as your sole source of disability protection.

Question: What does it mean to be an independent insurance agent?

Answer: There are basically two types of insurance agents. Independent agents sell the products of several different insurance and/or financial companies. Exclusive agents (also known as captive agents or career agents) sell and represent insurance and financial products for one particular company. It's up to you to choose the type of agent who best suits your needs. While an exclusive agent at a large company may offer you the services and backing of a big organization, an independent agent (or broker) can pick and choose from a greater number of available products and may tailor policies to meet your specific needs.

Many independent agents work alone, with accounting, clerical, and other office support. Others operate a "brokerage shop," managing a staff of producers (brokers) who market the products they have contracted to sell. Some independent agents may not technically be independent at all. They may be members of an independent marketing organization (IMO) where they have signed a contract (often temporary) to exclusively sell the product line of one company.

No matter which type of agent you choose, make sure that person is someone you like and respect. After all, you'll be revealing a lot of personal information. Find out, too, what professional qualifications and designations your agent has and how long the agency or agent has been in business.

Question: What kind of insurance do I need for a daycare business in my home?

Answer: Running a daycare business in your home exposes you to numerous financial risks (e.g., costs incurred if someone is injured while in your care or property is damaged). Before you start the business, take steps to make sure that your insurance coverage is adequate.

Standard home insurance policies may not provide adequate coverage for property damage and liability claims that can arise from operating a home-based business. In fact, most policies will specifically exclude coverage for daycare operations (although this depends on the number of children you are caring for and the state in which you live). Contact your insurance company to see if it will allow you to attach an endorsement or rider to your existing homeowners' or renters' insurance policy that extends coverage to your daycare business. Alternatively, consider purchasing a separate policy to provide coverage for your business, such as a business owner's policy (BOP).

Some insurance companies offer a special type of insurance policy that is designed specifically for day care (a daycare policy). It is completely separate from your homeowners or renters policy, and it provides you with all the liability coverage you will need. You may need to purchase this type of policy as your daycare business grows (i.e., the number of children you care for increases). Ask your insurance agent for more information on daycare policies.

If you are planning to transport your daycare children in your car, make sure that your existing auto insurance policy provides coverage for the business use of your personal vehicle. If not, consider purchasing a business auto insurance policy.

Note:  You may want to talk to your insurance agent about legal defense coverage, which will pay for legal fees that can result from being sued for the sexual, emotional, and/or physical abuse of a child in your care.

Question: Do I need to worry about insuring my growing coin collection?

Answer: Your coin collection is probably covered to some extent under your homeowners/renters insurance policy. However, most home insurance policies set limits for certain types of personal property (e.g., collectibles). As a result, your coin collection is most likely covered for only a limited amount.

Unless otherwise specified, most home insurance policies offer actual cash value coverage for personal property. This means that if your coin collection is ever destroyed, you will be reimbursed for an amount equal to the replacement value of your collection minus depreciation. In other words, you'll most likely get less than what it would actually cost to replace your collection. You can try to purchase replacement cost coverage, which reimburses you for the cost of replacing your collection without taking depreciation into account. However, many policies will not offer replacement cost coverage for antiques (items more than 25 years old).

If you find that your home insurance policy does not provide adequate coverage for your collection, you have a couple of options. First, you can purchase a floater, which provides you with broader coverage. Or, you can purchase a stand-alone policy designed to protect valuable collections. Some of these stand-alone policies offer automatic coverage for newly acquired collectibles for a limited period of time (e.g., 90 days).

Note:  Keep in mind that insurance companies will often require you to have your coin collection appraised when you purchase a floater or stand-alone policy.

Question: I just got engaged and I'm worried about losing my diamond ring. Can I buy insurance to protect it?

Answer: Your diamond ring is probably covered to some extent for loss due to theft under your homeowners/renters insurance policy. However, check your policy. Most home insurance policies have limits for certain types of personal property--including jewelry.

If the value of your ring exceeds your home insurance policy coverage limits, you have a couple of options. First, you can purchase a floater, which will provide you with a specific amount of coverage for your ring based on its appraised value. Or, you can purchase a stand-alone policy that is specially designed to protect valuable items. Keep in mind, however, that your insurance company will most likely require you to have your ring appraised by a certified jeweler when you purchase either a floater or a stand-alone policy.

Question: Can insurance protect me against investment loss?

Answer: You can't buy insurance to protect yourself against investment losses. If you own things like art, collectibles, real estate, and antiques, you can buy an insurance policy that will cover your losses if something unexpected happens, like fire or theft, but it will not cover losses resulting from bad investment choices or a drop in the market.

If you own stocks, bonds and other securities, you might be able to use a fairly complicated plan called "portfolio insurance." It isn't really insurance. It involves the use of options and various other hedges, that when used right, can protect your investments.

Recently, a few financial companies have offered plans that safeguard the money you put in your mutual funds. Under the plan, you choose one of the company's mutual funds. By paying the company a premium, the original amount you put in the fund, plus about five percent a year, is guaranteed to your heirs when you die. The plan is really a life insurance policy but the amount paid to your heirs is adjusted if your mutual fund does really poorly while you're alive.

Question: How do I insure my laptop computer?

Answer: If you own a laptop computer, you may want to protect this costly investment. There are several insurance options available, depending on how you use your laptop and how much coverage you need.

If your laptop is strictly for personal use, it should be covered under your homeowners policy--at least up to a point. Most home insurance policies have coverage limits for computers and other electronic equipment. If the value of your laptop exceeds your policy's limit, you may want to have the laptop appraised and have a special rider written into your policy to cover its full value.

If you use your laptop for business purposes, there's a good chance that your home insurance policy will not cover it. Some policies provide a limited amount of coverage for business equipment, but this is the exception rather than the rule; read your policy carefully and check with your insurer if you're uncertain about your coverage. In most cases, you'll either need to purchase a business rider to your home insurance policy or a stand-alone laptop policy.

Riders are typically a less expensive alternative, but the coverage may be limited both in terms of dollar amount and extent of coverage. For example, a rider may not cover your laptop while you're traveling. Given the frequency of laptop theft in airports and other public places, this could leave a potentially costly hole in your coverage.

Some insurance companies now offer stand-alone policies to cover laptop computers. Although the coverage offered by such policies tends to be more complete than that of a rider, it is also significantly more expensive. If you choose to go with a stand-alone policy, try to find an insurer that specializes in computer coverage, and ask questions. Make sure you describe exactly how and where you use your laptop so that you can be sure you're getting the right policy to fit your needs.

Regardless of the type of coverage you purchase for your laptop computer, normal wear and tear will not be covered. And unfortunately, you can't insure your computer against obsolescence.

Question: I have a disabled child. Is there any government or private insurance product that will help me save for and fund his future care?

Answer: Although many disabled children and adults receive benefits from two government programs, Supplemental Security Income (SSI) for disabled individuals and Medicaid, no government or private insurance product has been created specifically to save for and fund the future care of disabled children. However, one very common insurance product, life insurance, can play a critical role in securing your child's financial future.

Term or permanent (cash value) life insurance can be used to fund a special needs trust, a legal arrangement that allows you to provide for your disabled child throughout his life (even after you die) without risking his eligibility for SSI or Medicaid. To receive SSI and Medicaid, your child must have minimal income and assets, which means that you potentially jeopardize his eligibility for benefits every time you save a dime towards his future care.

Because the funds in a special needs trust are managed by a trustee and legally do not belong to your child, they are not considered "countable" for SSI and Medicaid eligibility purposes. However, funds in the trust must supplement, rather than replace, government benefits. They must be used for expenses, like clothing and transportation, which are not covered by government programs.

Once the trust is created, you can fund it using any asset you choose (e.g., cash, stocks, personal property, etc.), but many people choose to fund a special needs trust with life insurance. The trust can own a life insurance policy or can be named beneficiary of your policy in the event that you die. Many special needs trusts are funded (at least in part) by "survivorship" or "second to die" insurance because it's less expensive than other types of life insurance, an important consideration if you're trying to find room in your budget to save for your child's future care. However, talk to a professional advisor. Other options are available that may better suit your needs.

Question: When am I too old to be covered by my parents' insurance policies?

Answer: It depends on the type of insurance you're talking about. Regarding personal property protection, as long as you continue to live under your parents' roof, your personal belongings will be covered under your parents' homeowners' policy, no matter what your age. However, some policies may limit the amount of coverage on certain items that young adults are likely to own, such as state-of-the-art computers and stereo equipment. Check with your parents to see if there are any such limits in their policy. Once you move into your own apartment, you will need to purchase separate renters insurance to cover your personal belongings (your landlord's insurance will cover physical damage to the apartment itself). As for liability protection, your parents' homeowners' policy (or your renters policy, if you live on your own) will provide you with liability protection. In other words, the policy will cover you in the event someone sues you.

As for auto insurance, if you continue to live with your parents and drive their car (lucky you!), then you are eligible to remain on your parents' car insurance policy. However, once you buy your own car, most insurance companies will require you to obtain your own insurance policy, even if you still live at home. The reason is that they want to avoid confusion over who actually owns the car. Unfortunately, drivers under age 25 pay higher insurance premiums because they are in a higher risk category. Some companies let you remain on your parents' car insurance policy as long as you live at home, even if the car is yours, but you'll need to do some research to identify those companies.

Regarding health insurance, most health plans will cover you until you are somewhere between 20 and 24 years old, regardless of whether you live at home or at college. After this point, you're on your own. If you are a full-time college student, your college will likely offer a health plan during your college years as well. Many students, especially those who live far from home, choose the college's health plan over their parents' plan because the cost is competitive and health services and personnel are close by. After college, you (along with many other recent graduates) may find yourself without health insurance if you are no longer eligible for coverage under your parents' plan (or the college's plan) and you have not yet found a job with health benefits. Temporary options to fill this gap include short-term health insurance, catastrophic coverage, and COBRA.

Question: What is the benefit of having an umbrella policy and how do I know how much is enough?

Answer: Some people mistakenly believe that personal liability insurance is necessary only if you are wealthy or if you are reckless. But accidents can happen anywhere, to anyone. You might hit a bicycle messenger, your son might hit a baseball through a church window, or a delivery person might slip on your icy porch. No matter how careful you are, you may one day be sued because you injure someone or damage someone's property.

Liability insurance protects your assets in the event that you (or a member of your household) accidentally injure another person or damage someone's property. Standard homeowners insurance, renters insurance, auto insurance, and even some boat insurance policies provide a degree of protection against certain types of personal liability. Personal umbrella liability insurance supplements the basic liability coverage provided by your other insurance--it's designed to kick in when your other liability coverage is tapped out.

Personal umbrella liability insurance is designed to protect you against a catastrophic lawsuit or judgment. It provides expanded coverage and increases the amount of your liability protection beyond the basic coverage provided under your homeowners/renters and auto insurance policies.

There is no exact science when it comes to determining the appropriate level of personal liability insurance coverage, but you probably need more liability insurance than you think. For example, standard home insurance policies usually provide $100,000 to $300,000 worth of liability coverage, but in today's society it's not unusual to hear of $2-million, $10-million, and even $20-million liability judgments. If someone is injured in your home, or if you cause a serious accident, you could be hit with such a judgment. Without a personal umbrella liability policy, a large judgment against you could cost you all the assets you have now, as well as possible future earnings and inheritances. You might think that you only need enough liability insurance to protect your assets, but this figure is practically irrelevant when deciding how much liability coverage you need. Instead, consider factors such as the following:

• Do you entertain often? (Having guests in your home, serving alcohol, etc., can open the door to potential liability claims.)
• Do you have a long commute to work? Do you take frequent auto trips?
• Do you have teenage children? Do they drive?
• Does your lifestyle make you a likely target for a lawsuit (i.e., do you give the appearance of having "deep pockets")?

Personal umbrella liability policies are typically available in coverage amounts ranging from $1 million to $10 million. The amount of coverage you should have depends on the factors mentioned above, as well as your risk tolerance and your financial ability to weather a liability judgment.

Question: What are the issues I should consider with regard to playground safety?

Answer: Playgrounds are full of children having fun and parents nervous about their safety--with good reason. According to the U.S. Consumer Product Safety Commission (CPSC), more than 200,000 children go to emergency rooms in the U.S. each year with playground-related injuries. Although most of these injuries occur on public playgrounds at schools, childcare centers, and public parks, approximately 25 percent of these injuries occur on backyard playgrounds.

Fortunately, playground-related injuries are preventable. Here are some tips that can help you keep your child safe:

• Check playground surfaces. Almost 70 percent of playground injuries are caused by falls; so protective surfacing such as mulch, gravel, sand, or synthetic materials is vital to safety.
• Check swings and other playground equipment for potential hazards. For instance, swings should be anchored and spaced properly, but should not have "S" hooks that could cause strangulation if clothing became entangled. Platforms on slides and other equipment should have guardrails.
• Make sure children play on age-appropriate equipment. Equipment that's safe for children ages 5 and older isn't always safe for younger children.
• Supervise your children on the playground - statistics show that supervised children have fewer accidents. In addition, make sure that they wear clothing that won't become trapped on or in equipment (e.g., no drawstrings or straps).
• Report any safety hazards you see to the playground owner.

More safety tips and information can be found at the CPSC website, www.cpsc.gov. In addition, before your children head out to play, find out how safe your state's playgrounds are by checking out a two-year study published in April 2000 by the National Program for Playground Safety.  It's available at  www.uni.edu/playground/.