Archive for the 'Insurance' Category
Personal Umbrella insurance is additional liability insurance, designed to pay out on top of your existing auto and homeowner’s/renter’s insurance policies. For example, you may only have $300,000 in liability coverage on your car insurance. If you are hit with a claim of $1,000,000, you would be on the hook for $700,000 yourself unless you had an adequate umbrella insurance policy. Here is a diagram explaining this from MSN Money:
In addition, an umbrella policy can also “fill in the gaps” by providing coverage for other incidents like liability for rental properties or being sued for slander or libel. Imagine working and saving for decades, only to have all of it taken away with one incident. Here are my reasons for buying an umbrella policy:
#1. Unlikely, But Actual Scenarios
These days, there are many scenarios where one might be sued for more than $100,000 or even $1,000,000. In my mind, the most likely event is to be found at fault in a car accident. Medical costs alone can exceed $100,000 per person easily. Now imagine if there were 2, 4, or even 6 people in the car. Imagine if some of them were children. Here is one example from a NY Times article on umbrella policies:
One of Mr. Cox’s clients crashed into the rear of a car on a slick highway. A woman and a child were critically injured. After two years of litigation, his client settled the lawsuit for more than $5 million. The client had $15 million in umbrella coverage. The policy paid for the settlement and all legal costs. “Without the umbrella,” Mr. Cox said, “they would have been completely wiped out.”
More recently, I read about a parent chaperone during a field trip being hit with a $700,000 verdict for negligence:
Lauren Crossan, of Randolph, N.J., had traveled to Hawaii in 2004 with Susanne Sadler, Sadler’s daughter, and another New Jersey cheerleader to perform in the halftime show of the Hula Bowl. Within hours of her arrival at the Hyatt Regency Maui Resort, Crossan was seen drinking alcohol. Her body was found the next day on the hotel grounds.
An arbitrator determined last month that Sadler was partially responsible for Crossan’s death and ordered her to pay $690,000 to Crossan’s parents and her estate.
More:
- A blogger writes something bad about a company and gets sued for defamation.
- A man was asked to cut down a tree from his own yard. He refused, and later a hurricane blew the tree down and injured someone in the neighboring house.
- Your child gets in a fight at school, and injures another student.
- Your dog bites someone.
- You have a pool, and a visitor hurts themselves.
- A handyman or contractor hurts themselves on your property.
#2. Have the Insurance Company Lawyers Take Your Side
Forget even getting a large jury verdict against you. If someone simply sues you for a frivolous reason, you’ll have to pay for a $400/hour lawyer to defend yourself. With an adequate umbrella policy, the money at risk will be the insurance companies instead of your own. That means the big corporate lawyers will be on your side, and your defense costs will be covered as part of the umbrella policy.
#3. It’s Cheap, and Easy To Buy
It cost us about $250 a year for $1 million in coverage for the both of us, including 2 cars and a house. That’s basically $10 per month per person. However, we did have to raise the liability limits of our auto and homeowner’s policies slightly to $500,000 each. So if you are only carrying the bare minimum required by law (not a good idea for most people), your actual additional costs may be higher.
It was really simple to get as well; we had an umbrella policy added to our existing policies with just one phone call. No long application or additional fees. But the low cost also means you may have to look out for your own interests. I guarantee that if you mention that you want whole life insurance to your local agent, they will get really excited (big commission) and get you quotes within 24 hours. They’ll even follow up if you forget. On the other hand, selling you an umbrella policy for $200 a year results in a tiny commission. All I got was a “yeah, I suppose that might be a good idea…” They’ll still sell it to you, but it won’t be heavily promoted like other products.
#4. One Less Thing To Worry About
Some people believe that you may be a bigger target for lawsuits if someone finds out you have a $1 million umbrella policy. Here’s how I look at it. If I really wanted to premeditate a lawsuit against someone, I’d pick someone who is worth a lot more than $1M. More like $10 million and up. In a big metro area like mine, multi-millionaires are a dime a dozen. Even if I was frivolously sued, again the whole point is that I’m still covered. To me, this argument is like saying you shouldn’t earn more money because someone will sue you for it.
In the end, we have a $1 million umbrella insurance policy because this is exactly what insurance is for - to protect me from unlikely yet possibly catastrophic events. The likelihood is low, but so is the cost. We chose $1M somewhat arbitrarily because it covers our net worth and also what I feel is a reasonable amount of likely claims. As inflation (and especially medical costs) rises, I could see upping it to $2M since the additional cost is only about another $100/year.
Now, if you have a low or negative net worth, then perhaps there would be less incentive in getting such coverage. I certainly had no idea what umbrella insurance was in college. I would imagine lawyers are less likely to go after those with “nothing to lose”.
Posted in Insurance | 33 Comments »
On a recent episode of the Suze Orman TV show, she announced that you can go to her website and get her Online Will & Trust kit for free for a limited time. Via Slickdeals. Here’s how to get it:
- Go to SuzeOrman.com.
- Click on Will & Trust Kit link on upper left menu.
- Click the orange Gift Code button.
- Type in the code “people first”.
I signed up for the initial profile successfully, but haven’t finished the questionnaires. The software includes the ability to create a will, a revocable trust, Financial Power of Attorney, and an Advanced Directive / Durable Power of Attorney for Healthcare. One less reason for putting off doing one of these if it’s free! 
I’m not sure how this compares to a more established legal service like LegalZoom which I had considered using up until now (I used them to incorporate my home business), but they charge about $100. I suppose I must add that if you have substantial assets an estate attorney might be worth the extra cost.
Posted in Deals & Offers, Insurance | 25 Comments »
This is not how I like to get reminded of things, but sometimes that’s just how it goes. I hope all those out there affected by the floods are at least safe. A few months ago I wrote about buying flood insurance even if you are not required to by your mortgage lender. This means you are outside the 100-year floodplain, but could still be in the 500 year floodplain (1 in 500 chance each year, or 0.2%). Check if you are in a flood plain here. We got quotes, but never actually got around to buying a policy due to a combination of cost concerns and simply forgetting about it.
1 in 500? Why bother? Well, reports say that one third of Iowa is currently underwater. From one local newspaper:
“We’ve been taking a lot of calls, but most people don’t have flood insurance,” said State Farm Insurance Agent Doug Valentine. “This flood has blown through the 500-year flood plain and most only have to have insurance if they are in the 100-year flood plain because the banks require it.”
Valentine said many homeowners will soon face a difficult decision on what they will do given many will still have mortgage payments to be made and no insurance to cover rebuilding. “They may have to plow it down and will have $200,000 in payments on a $100,000 house,” he said.
This got me thinking - how likely do you think it is that your house will burn down, which is a major reason for homeowner’s insurance? Perhaps a 0.2% chance each year of severe flooding is worth insuring against. Insurance is all about paying to transfer the risk for events that can crush you. On that note, I also will need to check if our policy cover sewer backup, which has also caused a lot of damage in the Midwest.
Posted in Insurance | 31 Comments »
There are a bunch of different ways to determine how much life insurance you need, from a simple “ten times your salary” to complex Monte Carlo simulations. Somewhere in between is the “capital needs analysis”, which is often used by insurance brokers and financial planners. This is what most online life insurance calculators use (examples here, here, and here), although I like the idea of doing it by hand to play with the numbers. I have a brochure from my State Farm agent with some stats, and also found another good example in this worksheet.
What is your goal?
Here’s the fun part. You get to imagine you’re dead. Will the remaining partner stay at home with the kids? Work and pay for daycare? Some people basically want to replace everything - their future income and also leave an inheritance or other lump-sum. Others want to make sure their dependents would be able to live as close to the “same life” as possible. This means staying in the same house, working (or not working) at the same jobs, driving the same cars, the same lifestyle. Then there is the “adapted life” approach, where maybe they would downsize somewhat, but have all the critical areas covered.
How much monthly income will your survivors need?
It’s usually easier to think of this monthly, and then multiply by 12. Include housing, transportation, education, childcare, insurance, entertainment, and perhaps also regular retirement savings. The average cost of daycare for a 4-year-old is around $8,000 per year. Now subtract any sources of income. The survivor’s salary, existing passive or investment income, rental income, Social Security benefits, etc.
Then, you have to decide what amount of money can create this income. Lots of guessing on your rate of return and length of withdrawal period is involved here. If you are young, you could buy an immediate annuity which will pay out about 4% inflation-adjusted a year (a certain % will be taxable). This is the same as multiplying by 25. So to create an annual income of $40,000 per year, you’d need a lump sum $1,000,000. As you get older, the payoff gets better. A more conventional approach seems to multiply by about 15.
Add in lump sum expenses
You’ll probably want to take care of debts like student loans, credit cards, funeral costs, and medical bills. A recent survey put the average funeral cost at over $6,000. If you haven’t already accounted for it above in housing, you may want to pay off the mortgage on your home or set aside money for retirement. Finally, you may want to consider the education costs of your children. The average cost for tuition + room/board for an in-state college is now nearly $14,000 per year.
Add these two big numbers up, and you have you future capital needs. You can then subtract out the insurance you have through work if you like. Finally, you should subtract your current assets, taking into account their liquidation restrictions. The difference provides an estimate of how much life insurance to shop for.
This all sounds simple, but in going through it myself there are so many variables. For starters, most couples will probably have different insurance needs for each person. Do I really want to pay off the entire house, or just allot for the mortgage payment? How many kids am I supposed to plan for? I end up with a number anywhere between $500,000 to more than $1M depending on different assumptions. (I’m open to advice here.) The good thing is that I am hoping that each $500k of coverage will only be about $30/month. I also may end up buying multiple life insurance policies as life goes on and stack them on top of each other.
Inflation?
If you buy a 30-year term policy with $500,000 of coverage now, at 3% annual inflation that you benefit will only be worth half as much after 23 years. But I don’t really worry about that, because for every year that I keep living, I should be saving enough that I don’t need as much coverage. And after the end of my term, we should have enough assets so as to not need any life insurance at all.
Posted in Insurance | 11 Comments »
Here are two more consumer reports which you can request free once every 12 months. Isn’t it scary how much of your information is floating around out there?
ChexSystems Banking History
ChexSystems is a consumer information database used by an estimated 80-90% of all banks to help determine the risk of opening new accounts. Think of it as the bank’s version of a credit bureau. If a person commits check fraud or overdraws their account, it will be listed here. In addition, the simple act of opening or closing a bank account may be recorded in their database. Getting an negative ChexSystems record can leave you blacklisted from opening bank accounts at most major banks. Via Fatwallet and my previous post asking Can You Apply For Too Many Bank Accounts?.
See here to get a free copy of your ChexSystems consumer report.
Medical Information Used For Insurance Underwriting
MIB (previously known as Medical Information Bureau) is run by 470 insurance companies and has a “primary mission of detecting and deterring fraud that may occur in the course of obtaining life, health, disability income, critical illness, and long-term care insurance.” Your consumer report “contains information of underwriting significance (medical and avocation information) about North American consumers who have applied for life and health insurance with MIB member companies.” If you have not applied for individually underwritten life, health, or disability income insurance during the preceding seven year period, then you probably don’t have a record. I’m still interested to see what’s in mine before I apply for life insurance.
See here to get a free copy of your MIB consumer file.
Posted in Banking, Insurance | 10 Comments »
Most of us know about the free credit reports from AnnualCreditReport.com. This is mandated by the Fair and Accurate Credit Transactions (FACT) Act, which basically says that consumers should be able to see (and dispute) the massive amount of information contained in private corporate databases. But in addition to credit information, there are a lot of other databases with your personal information floating around. You can get one of each report free every rolling 12-month period.
Insurance Claims History
If you would like to know what the insurance companies are saying about you behind your back, you definitely want to get a free copy of your CLUE Personal Auto Report and Personal Property Reports, which you can get instantly online or by calling 1-866-312-8076. CLUE stands for Comprehensive Loss Underwriting Exchange.
The C.L.U.E. ®Personal Property report provides a seven year history of losses associated with an individual and his/her personal property. The following data will be identified for each loss: date of loss, loss type, and amount paid along with general information such as policy number, claim number and insurance company name.
The C.L.U.E. ®Auto report provides a seven year history of automobile insurance losses associated with an individual. The following data will be identified for each loss: date of loss, loss type, and amount paid along with general information such as policy number, claim number and insurance company name.
In addition, you should also request your free A-PLUS report (Automated Property Loss Underwriting System), which is a smaller database that also contains information about property loss claims. Insurance companies use this data to decide your premiums, so you’ll want to clear up any mistakes right away as they are probably costing you money right now!
This brings me to another use for CLUE reports. If you are seriously looking at buying a home, you should spend the $20 and get the CLUE report for the property and see its claim history. For example, if the water heater broke and flooded the basement two years ago, you may have a hard time finding homeowner’s insurance due to mold concerns.
Employment History Report
When a potential employer runs a background check through ChoicePoint, this is the information they see. It doesn’t seem to claim be comprehensive, as their site states:
The ChoicePoint Workplace Solutions Inc. Employment History report contains information related to your employment history as well as other information regarding your background. […] Our files would only contain information on you if ChoicePoint provided your Employment History Report to an employer.
I would think you’d still want to make sure nothing inaccurate is on there. To get your free employment history report, call 1-866-312-8075. More information here.
Tenant History Report
This report will can be important if you are a renter and someone runs a background check on you at ChoicePoint.
The Resident Data Inc. Tenant History report contains information related to your tenant history as well as other information regarding your background. […] Our files would only contain information on you if ChoicePoint provided your Tenant History Report to a housing provider.
To get your free tenant history report, call 1-877-448-5732. More information here.
Posted in Career, Insurance | 11 Comments »
I’m not an insurance or benefits expert, but while looking at life insurance I wanted to compare the coverage available from my employer vs. what I could buy on my own. As with most things insurance-related, there are big variations in group life insurance coverage, so I can only speak to what I have for the most part. We get a credit each paycheck for which we can spend on health, dental, life, and disability insurances.
Maximum Coverage
For my plan, I can only get up to $500,000 of coverage for myself and partner. So if I want more, my only choice would be to look privately for equivalent term life insurance.
Ability To Find Coverage
The best thing about group insurance from work is that your risk is spread across a big pool of people, so it should be easier to be granted coverage. But many workplaces still require you provide “evidence of insurability” once you increase your coverage limit past a certain amount. This may involve a simple questionnaire, or it could require a doctor exam and bloodwork. It seems unclear exactly how “healthy” you have to be in order to qualify for increased group coverage, but I’m guessing it would preclude major pre-existing conditions like cancer or heart disease. The limit where they start checking can also vary from $5,000 to $500,000.
Portability of Insurance
When you qualify for and buy a level term life insurance policy, you are guaranteed coverage for the length of that term (10, 20, 30 years, etc.). But if you rely on your employer’s group life insurance, usually the coverage stops when you leave the job. It’s almost like a 1-year term policy. My concern is, if you have you leave your job because you are seriously disabled, then you might end up both uncovered and unable to find new insurance.
However, looking around there might be some flexibility in certain plans. For one, you might have a “Waiver of Premium” benefit that continues the insurance protection through age 65 with no further premium payments should you become disabled. Or the policy may allow you to “continue coverage through an individual term policy without evidence of insurability as long as you continue to pay premiums”. Would this still be at the group insurance rates (minus employer subsidies)? A lot of this stuff seems to be left out of my Open Enrollment Guide, so I suppose an e-mail to the correct Human Resource person would be in order.
Cost
Many people get a certain amount of “free” life insurance from work, with the option to buy more. I think anything over $50,000 of coverage is paid with after-tax money, so I plotted out the monthly cost of my group plan vs. coverage levels below. I then went to Term4Sale and found the average of the top 5 quotes for both 15 and 30-year term insurance policy (rated A+ or better), for both the best tier of health (Preferred Plus) and the lowest allowable (Standard).
If you are youngish and in good health, even a long 30-year term policy is comparable to the group rates. Even if you are in average health, the cost of my employer group insurance is comparable to the premium on a 15-year term policy.
Summary
Again, this is only based on my plan, although I found my wife’s numbers to be similar. If you are lucky to have no-questions-asked insurance with high limits and you are in below-average health, it might be good to use your group plan. But if you are looking for extra coverage for a guaranteed period of time and are at least relatively healthy, it’s probably just as cheap if not cheaper to go with an individual plan. If you are an older worker, things may tilt back in favor to group life, but I haven’t run those numbers. In any case, it’s worth a comparison before your next Open Enrollment period.
We used to just buy some extra coverage from work due to the convenience factor, but why pay more when I could both save money and have a better, portable plan?
Posted in Insurance | 15 Comments »
Up until now, there are two reasons I don’t have any privately-bought life insurance. For one, as I’ve mentioned nobody is actually dependent on my income. Wife is doing fine, don’t have any kids yet. We also have 1x annual salary’s worth of life insurance as a benefit from our employers, and she’ll get all my retirement account funds if something happens to me. The other reason is that I know that life insurance is priced based on tiers of health, and I’ve been secretly thinking that I can back into my high-school swim team physique and get the absolute cheapest level of life insurance.
However, I’m starting to think both of these reasonings are flawed.
I used to think that there was no need for life insurance if nobody needs your income. But perhaps I should amend this - You need to weigh the chances that someone will eventually need your income. For example, if I fully plan on having kids within the next 2-5 years then my income will probably be needed at that time. And as someone else mentioned in a comment, life is a funny thing and you never know when my wife might just get pregnant unexpectedly.
So the question is, do I really gain anything by waiting until the last minute? The risk I take is that in the meantime my health deteriorates and I become uninsurable. You might find out you have cancer, fight bank and end up in remission, and lead a long life. You develop a heart condition have it under control, and be perfectly functional. But in either case, nobody will be issuing you an affordable policy.
(This argument has also been used by an insurance salesmen telling me to insure my kids starting at birth with a whole life policy, but I think that is stretching things a bit.)
What about trying to get healthier first? The fact is that if I’m young and even slightly healthy, term life insurance is still going to be relatively cheap, whether or not I manage to stamp out my love of ice cream. One easy-to-use site to do some quick comparisons on is Term4Sale.com. Currently, it says I can get $500,000 of 20-Year Term insurance (non-smoker) for about $25 for the highest Preferred Plus tier. But the lower Preferred tier is only $5 more, and the even lower Regular Plus/Select tier is only $10 more per month. The site estimates that I can have both elevated cholesterol and raised blood pressure and still land in one of these groups.
I would say if you’ve been harboring this desire to get healthy for more than 6 months or so and haven’t made significant progress, it’s time to give it up and pay the extra $5 per month.
Finally, the current cost of term life insurance is still historically low, so there is not much incentive to wait for better overall rates. Here is the general trend over the last 10 years for 30-year term (click to enlarge):
Yet another thing that reminds me that I’m not getting any younger…
Posted in Insurance | 35 Comments »
I recently received a nice greenish pamphlet from the government, my Social Security Statement! I thought it would tell me how much to expect from them in retirement… instead it just says is that I haven’t accumulated enough work credits to get Social Security benefits. Gee, thanks… *toss*. But wait, a few recent events have shown me other ways that it can be useful.
How Do I Get A Copy? If you are 25 or older, you should automatically receive it annually about 3 months before your birthdate. Otherwise, people of any age can request a copy to be sent to them. Here’s a sample statement.
Use #1: Find Out How Much Money Have You Earned In Your Lifetime
One of the books I am currently reading is the much-praised Your Money or Your Life. In it, one of the first exercises is find out how much money you’ve earned in your lifetime. Under the Your Earning Record section of your SS statement, it will break down all the (taxed) income you’ve ever made by year. Add it all up, and you should have your lifetime income. Besides breaking out your old Quicken files or tax returns, this is probably the only place all this information is easily available.
Why do this? For one, you may be surprised by how much money you have been able to earn, and this should boost your confidence. Second, if you compare this number to your current net worth, you may also be surprised by how little you’ve actually kept so far. Hopefully this will motivate you to waste less money.
…Or it could be cool just to know how much money you’ve ever made. 
Use #2: Life Insurance Planning
I’m also (slowly) doing some research on life insurance. In calculating how much life insurance you’ll need, you may want to consider what sources you already have. Many people don’t know that Social Security offers survivorship benefits if you have kids, or spouses of retirement age. In fact, about 20% of all Social Security benefits are paid out to those younger than age 62.
Under the Your Estimated Benefits Section, there is information for your estimated survivor benefits if you die. Currently, it says that my child would get over $1,100 per month if I died, and my spouse caring for the child would get over $1,100 per month as well. Over $26,000 a year? Really? This is much more than I would have imagined. As far as I can tell, this until the child turns 18.
There are also disability benefits listed, but usually privately-bought disability insurance only covers up to 60% of your original income, so I would still try to buy all I could get.
Use #3: Realize The Whole Thing Might Be Wishful Thinking
Finally, there’s a happy message snuck in at the bottom:
Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because, by 2041, the payroll taxes collected will be enough to pay only about 75 percent of scheduled benefits.
Posted in Insurance, Retirement | 27 Comments »
I’ve been noticing that multiple banks like Washington Mutual, Bank of America, and other banks have been offering me “free” Accidental Death & Dismemberment (AD&D) Insurance. Usually I get around $1,000 to $3,000 of complimentary coverage, just for being a valued customer. Awww, how thoughtful! At first glance, it sounds pretty good. That could cover a few funeral expenses in case I decide to go sky-diving again.
Of course, they are always “proud” to be able to offer you more coverage at a rock bottom price. Additional covered for you is only $1 per month for each $10,000 of coverage. But wait, that makes my $1,000 of free coverage worth…. 10 cents a month Hmm, they must value me a lot to spare $1.20 a year for me…
As you might guess, the price isn’t that great. And again it only covers accidental death, so it’s not as comprehensive as traditional term life insurance. But it does cover dismemberment, and somehow my morbid sense of humor was amused by the dismemberment payouts. I can just imagine some actuary researching on how many people lose a thumb and index finger on the same hand. Just a thumb? They’ll be fine.
100% Benefit
Death 
Both Feet or Both Hands
Entire Sight of Both Eyes
One Hand and One Foot
One Hand and Sight of One Eye
One Foot and Sight of One Eye
Speech and Hearing
50% Benefit
One Hand or One Foot
Entire Sight of One Eye
Speech or Hearing
25% Benefit
Thumb and Index Finger on Same Hand
So, should I bother taking it? I’ll probably pass, but it is still free. If I add up all my offers over time I might eventually build up a nice bounty. Probably not worth giving up the personal information needed, though. Anyone else sign up?
Posted in Insurance | 21 Comments »
I received a very sad e-mail today from reader Tina:
…A recent crisis with my cat has deeply taxed my savings. […] I have spent more than $4500 on my pet in the last three months. She developed lymphoma and the initial hospitalization and testing to find out what was wrong accounted for the bulk of the expense. The rest has been spent on follow-up chemotherapy treatments.
I’m curious how you would handle such a crisis (heaven forbid). Do you think you’d ever get to a point where the price was too high to keep your pet alive (assuming doing so will give it a relatively good quality of life)?
I think this is an important topic, but at the same time it’s very touchy because I’ve found that people tend to have very polarized views on pets. Here is a quote from VPI pet insurance founder Jack Stephens:
Pet insurance is a nonstarter for many pet owners, simply because they take a pragmatic approach to their animals. If the cost of treatment got too high, they would choose to put the animal to sleep.
“About half see the pet as disposable. If it got really ill they just wouldn’t treat it,” said Stephens, whose company conducted research on the issue. The other half “were willing to treat, whatever it took.”
Now, I don’t think it’s nearly as black and white as that, as I think most pet owners love their pets to some degree. But the people on the “pets-as-children” camp are often just as militant as the “they’re just animals-not-humans” camp.
Economic Euthanasia
A recent Slate.com article subtitled What I wouldn’t do for my cat also addressed this issue in depth. (The editor’s choice response letters are also thought-provoking.) It refers to refusing care due to cost as “economic euthanasia”. From reading it, cultural norms seem to be shifting. But in the end, I think it still all comes down to personal priorities.
What is the benefit? Are you talking about the cat or dog coming back to 100% health like a broken bone? Or are you paying to extend its life by weeks while lying in pain? There is a time that palliative care is the most humane choice.
Where is this money coming from? Don’t just look at the number, look at what you’d be giving up. At $2,000, is this money that would go to a vacation to Mexico otherwise? A new HDTV? Payment on your nice car? Now, let’s say it means you can’t buy gas for work or food for your kids. Different story.
Give it away? I think most vets can draw their own line as to what is “necessary”. So if you’re not willing to pay, maybe you should let one of them handle it:
Recently, I called our vet, Dr. Timothy Mann of Northside Veterinary Clinic in Brooklyn, N.Y., to ask him what would have happened if we hadn’t opted to pay for surgery.
“We don’t believe in putting animals to sleep because of money,” Dr. Mann said. “If someone can’t afford or won’t pay to save an animal who can be saved, we’ll save the animal and then keep it or find it a good home.”
Also, be sure to contact local rescue groups. They will be happy to take your sick dog, and will find some way to pay for the care. We are signed up for rescue lists for our specific breed of dog, and we would gladly take another one in if the need arose.
Plan Ahead With Pet Insurance
One way to avoid such difficult decisions is to buy pet insurance. Although it can be expensive at around $30 a month, it will definitely help soften the blow of a huge unexpected bill (although it likely won’t cover it all). Alternatively, put away money regularly in a “pet health savings account”. If you put away just $20 a month and your animal experiences issues at 5 years old, you’d already have $1,200 + interest to cover it.
My Own Doggie Evolution
I never had any pets growing up due to a broad parental ban. Not even a goldfish! My wife, on other hand, was always surrounded by animals. Rabbits, hamsters, guinea pigs, fish, dogs… When we got our first dog from the local Humane Society nearly 3 years ago, I didn’t really know how I would react. Would I love it? Would I ignore it? I must say that our little dude has burrowed his way into my heart. I mean, how can you say no to this buttercream-covered face?
For us, we would give up just about all of our luxuries before withholding healthcare for our dog. We are both in agreement as well, which is great because I know for other couples it can be a point of great tension. Heck, my wife the fashionista would probably wear a potato sack around while selling our car and taking the bus 2 hours to work every day if it came down to it.
However, if it meant sacrificing the health or safety of an immediate (human) family member, I would think twice. By this I mean taking on a dangerous level of debt, or cutting corners in the essentials like nutritious food, health insurance, and safe housing.
But this doesn’t mean I spend my time judging other pet owners for deciding against care due to high cost. For many people pets are not humans, and there is a line to be drawn. But again, if you can’t or aren’t willing to pay please make sure you’ve considered all your options.
Posted in Family, Insurance | 80 Comments »
You guys were right. Less than a month since we closed on our mortgage loan, we are already getting bombarded with letters offering “mortgage life insurance”. The official-looking letters seem like they are from your lender, but are really just another piece of junk mail.
The pitch is pretty simple - it will pay off your entire mortgage in the event of your death. You don’t want your family to lose their home, do you? *sniff* *sniff* If I do it soon, I don’t even have to submit to a medical exam. (This is not the same as Private Mortgage Insurance or PMI, which is to protect the lender when you have a small downpayment.) The problem is that it’s usually a better idea to simply buy a plain term life insurance policy with a comparable or greater cash payout. Here’s why:
Term Life Insurance Offers More Flexibility
So let’s see, if I buy mortgage protection insurance and die then my loan is paid off. What about the rest of the monthly bills? Childcare? The house isn’t everything. Wouldn’t you rather leave your family a lump sum of cash to do whatever you want with, rather than have a paid-off home with all of the equity stuck inside? They could even buy an annuity to replicate your income.
Mortgage Life Insurance Has A Shrinking Payout
Remember, this insurance only covers the mortgage. As the years pass, you keep paying premiums, but your loan balance keeps on shrinking! After 10 or 20 years, your benefit will be greatly reduced. Compare this with most term life insurance policies which offer a fixed payout.
Oh, and don’t be fooled by a “return of premium” (ROP) feature. Sure, they’ll refund 100% of your premiums at the end of the term. Not only does this cost more than non-ROP insurance, but that’s ignoring the fact that in the meantime they’ve been investing your premiums and making lots of money off of it (which you could have been doing instead). And if you miss just one premium payment you’ll be disqualified.
Term Life Insurance Is Probably Cheaper
Insurance is all about statistics. If the policy requires “no medical exam”, then it’s going to be more expensive in order to cover everyone. If you don’t smoke and are in average or above-average health, then you should simply apply for insurance that does require a medical exam. Now, if you are in poor health, then this might be an opportunity to get some insurance that otherwise might not be available to you. But remember that there are also a few no-medical-exam term life insurance companies out there.
Mortgage Protection Life Insurance Is Hugely Profitable
In addition, simply since this product is marketed by fear (remember your homeless family!) and primarily through unsolicited mailings, it has a higher profit margin and thus higher cost than regular term life insurance. This is supported by this InsWeb article that states:
The National Association of Insurance Commissioners (NAIC) says that mortgage insurance lenders pay out only about 40 cents in benefits for every dollar consumers spend buying that type of policy, compared with 90 cents on the dollar paid out to consumers who hold regular term life policies.
60% profit vs. 10% profit! I wouldn’t even bother myself, but if you must, simply comparing quotes with an insurance comparison website like SelectQuote will provide you an easy answer as to which is a better deal.
Posted in Insurance, Real Estate | 24 Comments »
When we bought our house, the lender said we weren’t in a flood zone so we didn’t need to buy flood insurance on top of our homeowner’s insurance. I figured if the bank isn’t worried about it, then I shouldn’t be either. Apparently this might not be the best idea.
Virtually every home is in a flood zone
Unless you live on the top of a mountain, just about any area is susceptible to flooding. Heavy rains can make instant rivers where there wasn’t even a trickle before. All it takes is for a big storm to come after the ground is already saturated. Or you could simply ask some of the people who experienced Hurricane Katrina. Dams and levees fail. Just a few inches of water can cost tens of thousands of dollars worth of damage. In fact, 25% of flood claims come from low and moderate risk areas (areas not required to have insurance by lenders). Check out your local flood map here.
Where do I buy flood insurance?
Flood damage is not covered under homeowner insurance policies. You must buy it separately through the National Flood Insurance Program (NFIP), which is run and backed by the US government. However, nearly everyone is eligible to buy flood insurance regardless of risk level (although the premiums will vary).
The policies are available through private insurance companies and agents. You can find agents here for a free quote. Some insurance companies hint that they can offer discounted quotes, but this is not true. The price should be the same no matter who you go through. I actually tested this by asking 5 different agents both local and nationwide for quotes, and they were all exactly the same once adjusted for the same coverage and deductible. Therefore, I would simply get a quote from the same insurer I have for homeowner’s insurance.
How Much Will It Cost?
Chances are if your lender didn’t make you buy it for your mortgage, then your premiums won’t be too bad. You can estimate your flood risk and premium here. Remember, you have a few choices: Your building coverage amount (up to $250,000), your contents coverage amount (up to $100,000), and the deductibles for each (from $500 to $50,000). If you are in a moderate-to-low risk area, you might get coverage for $200-$500 per year.
With a few exceptions, there is a 30-day wait before the policy takes effect, so don’t be thinking you can just buy it at the last minute. Even if you aren’t a homeowner, flood insurance is available to renters who want to cover their contents.
So, it would seem that almost all homeowners should at least consider getting flood insurance even they are not required to. It can’t hurt to get a quote and research your flood exposure.
Posted in Insurance | 27 Comments »
If you’re like me, you don’t rent cars very much outside of work. But when I do, I’m always of mixed emotion when it comes down to the inevitable question: Do you want to buy the Loss Damage Waiver (LDW)? It costs around $20/day, but it basically absolves you of any liability if the car becomes dented, breaks down, gets scratched, blown up, or whatever.
Your Existing Car Insurance Might Extend To Rental Cars
This is the most basic thing to know, but according to a survey by Progressive only about 25% of people bother to ask. Find out if your own insurance will act as your primary rental car insurance! My policy with State Farm does extended to the occasional rental car, but the deductible still applies.
But That Might Not Help…
I have high insurance deductibles, and I’m not worried about a full-on accident. I’m more worried about scratches and dents. If it was my own car, I’d never care about a dented bumper. But a rental car company can charge me $500+ for a new bumper, and also $75 a day that the car is unavailable for rental while they fix it (”loss-of-use” fees). Or they might just charge me $100 for a scratch because they want to squeeze every penny out of me… 2 months after I return the car.
In addition, your own auto insurance may cover collision (damage to the vehicle), but not other things like those “loss-of-use” or other administrative fees. Finally, making a claim on your insurance may jack up your future rates, which is partially why my deductibles are so high in the first place.
Credit Card Secondary Coverage To The Rescue?
The next layer of protection to consider is that offered by your credit card company. All of the biggies - Visa, MasterCard, American Express, and Discover offer some sort of coverage. According a review of the policies done on Wikipedia:
The main difference among the four credit card companies listed below is that MasterCard and Amex cover collisions, theft, vandalism and weather; Visa covers collisions and theft, but omits vandalism and weather; while Discover covers only collisions. However MasterCard is not useful in areas with dirt or gravel roads [paved roads only].
However, details can still vary depending on the specific type (Classic, Gold, Platinum, etc.). Look for specific wording in the paperwork that they mail you with the tiny print on amazingly thin paper. Here’s an excerpt from MasterCard coverage:
MasterRental will pay for covered damages on a secondary basis for which you are, or any other authorized driver is, legally responsible to the rental agency.
Covered damages include:
–Physical damage to and theft of the vehicle, not to exceed the limits outlined below.
- Reasonable loss-of-use charges imposed by the vehicle rental company for the period of time the rental vehicle is out of service. Loss-of-use charges must be substantiated by a location- and class-specific fleet utilization log.
- Reasonable towing charges to the nearest factory-authorized collision repair facility.
If you have, or an authorized driver’s primary automobile insurance or other indemnity has, made payments for a covered loss, MasterRental will cover your deductible and any other eligible amounts not covered by other insurance.
Secondary insurance means that they will cover what your primary insurance doesn’t. Together, this seems like a pretty solid combination. Of course, I’ve never made a claim through any of these card companies so I have no idea how easy they are to deal with. (Anyone have stories?)
An Immature Reason To Buy The LDW
I couldn’t find the clip online, but I remember a stand-up act by Jeff Foxworthy or somebody about rental car insurance that went something like this…. “You mean for 15 bucks I can drive this car like a maniac? Heck yeah I want that insurance! Time to grab some airtime!” I must say that the only time I’ve ever been in a car that did a doughnut in a empty parking lot…. that was a rental car. Of course I don’t drive like that. However, I will admit that have tested to 0-60 times of a few of my rental cars. Too bad in a Chevy Aveo that’s about 38 seconds downhill…
In the end, I have gone both ways depending on my mood. I have bought the waivers on short rentals because I just didn’t want to deal with any potential hassles. Most times, I have refused. I am making another rental later this week, so that’s why I’m pondering this…
Posted in Insurance | 46 Comments »
For a while now, online payment service PayPal.com has offered an extra reason to keep money in their accounts - a money market fund paying around 5% interest annually. I get asked about it regularly, and here I will explain in detail why I do not recommend keeping any significant amount of money in this account.
Now, when you think about a money market account, what are the top three things you look for? Here are mine, from most important down to least important:
- Safety. This is cash savings, so the top priority is that you don’t want any risk or chance of loss.
- Liquidity. This is not a certificate of deposit; You want to be able to access the money at any time.
- Yield. You want to earn a competitive rate of interest.
I’ll address them in reverse order:
Yield
Its 7-day average yield as of 8/16/07 was 5.04%. This isn’t bad, and historically the fund has offered competitive rates, although they are not necessarily the highest. In looking at the prospectus [pdf], these higher yields appear to be the result of temporary fee waivers. Without the ongoing fee waivers, the yield would be about 0.70% lower. Whether or not they will keep the yield competitive with these waivers in the future is unknown.
Safety Concerns
As with all money market mutual funds, they are not FDIC insured. PayPal is not a bank. However, the money market fund is still subject to the same restrictions as any other retail money market fund, and must invest in the highest rated securities out there. In addition, PayPal is a subsidiary of eBay, and the fund is run by Barclays Global Investors, a big name that manages trillions of dollars of assets. A retail money market mutual fund has never gone below the standard $1 per share for an individual investor, and I don’t expect it to here.
However, there is also the different safety concern of what happens if someone fraudulently gains access to your account. If someone hijacks your bank account, what can they really do? They can’t just go out and buy something. In order to set up an online transfer, they still need to provide account and routing numbers to a bank account with the same name on the account. Even if you do lose money, you are protected by Federal Reserve Board?s Regulation E and have your personal liability capped.
On the other hand, PayPal is inherently risky because it allows the instant ability to spend your money! In fact, they can send money to anyone with an e-mail address. If someone steals your password, they can start sending money right away to various vendors and other users. Such fraud can be very hard to track. And then who decides if you get your money back? PayPal.
There are countless complaints of people who’ve been on the bad end of a PayPal dispute. I’d be very careful. Worst case - you lose money!
Liquidity
Again, here PayPal gets to write it’s own rules. It is not a bank, and is not subject to the many regulations that a bank has to follow. They can freeze your account at any time. PayPal froze my account once for no good reason. (Unless you count a complaint of one nervous buyer who mistyped his tracking number and thought I was scamming him.) This can lead to weeks if not months of faxing them different documents in order to prove you’re you, or you didn’t scam someone else, or whatever. Meanwhile, you can’t withdraw any of your money, and they may even take some of it away from you.
The point here is that you are not guaranteed access to your money. Again, PayPal is sole judge and jury.
Conclusions
The PayPal Money Market Fund account, while offering a decent interest rate and a little bit of added convenience, fails to satisfy the two most critical requirements of a cash savings vehicle - to maintain the highest levels of both safety and liquidity. Sure, if you use PayPal a lot, you might sign up for it to earn a bit of interest on your in-transit money, but I wouldn’t keep large sums of money in such an account.
There are so many other FDIC-insured, highly-regulated banks that offer similar levels of interest and easy online access, why would you want to?
Posted in Banking, Insurance | 19 Comments »
