Homeowner’s Insurance: How Much Can You Save By Comparison Shopping?

In an ideal world, you would always comparison shop every product or service. But in the real world, that takes time and effort. Is is worth the bother? To estimate the potential benefit of shopping around, Priceonomics analyzed homeowner’s insurance premiums across 12 states (for a similar level of coverage).

ho_ins

They ranked each state by taking the difference between quotes in the 25th and 75th percentiles.

We found that the difference between the premiums was substantial, and shopping around can lead to dramatic changes in pricing. Of all the states we looked at, Texas had the biggest discrepancy in prices — there was a $2,182 range in insurance prices between a 25th and 75th percentile quote. Even at the low end, in New Hampshire the price ranges between quotes at these percentiles was $363 per year.

The article does a deeper analysis for California and Texas:

It’s night and day between California and Texas. Texas is one of the most expensive states to get home insurance in the country, owing partly to the frequency of catastrophic weather events and partly due to higher insurer expenses. Not only does zip code 78521 in Brownsville have a 25th percentile of premium greater than San Francisco’s 75th percentile, but it’s 75th percentile is more than double that!

Basically, you should shop around everywhere as you could save hundreds per year at a minimum. But you should really shop around in Texas. You know, unless you don’t want to save potentially $2,000 a year.

Here Are 11 Reasons We Have An Umbrella Liability Insurance Policy

Personal Umbrella Insurance is additional liability insurance, designed to pay out when your existing auto and homeowner’s/renter’s insurance policies are exhausted. For example, you may only have $300,000 in liability coverage on your car insurance. If you are in a car accident and found liable for $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:

umbrellahow

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.

Real-world examples of $300,000+ liability claims. Every time I read about one of these scenarios, I think of them as a reason to keep paying for my umbrella insurance policy.

Do you drive a car? In a sever 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. 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.”

Are you ever a parent chaperone? A high school field trip led to 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.

Do you have a dog? This Reuters article discusses the increasing number of dog-related claims. Here are two examples that didn’t even involve a bite:

State Farm public affairs specialist Heather Paul’s dog ran out through her open gate and scared an elderly neighbor, who fell off the curb and broke her ankle. The lady filed an insurance claim with Paul’s carrier, but the standard liability coverage of $100,000 was not enough for her bone reconstruction. Luckily, Paul had an additional umbrella policy, which kicked in and covered the rest.

A California woman went through a two-year lawsuit after her dog got loose and knocked over a postal worker. The dog did not bite anyone, but the worker claimed damages greater than the homeowner’s policy covered. […] This owner said she had no umbrella policy, and now she cannot get one. Her homeowner’s premium has skyrocketed.

More scenarios:

  • You leave a negative Yelp review about a company and the business sues you for defamation. Look what can happen with a mediocre 3-star Yelp review.
  • 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.
  • You have a pool, and a visitor hurts themselves.
  • A handyman or contractor hurts themselves on your property.

Have the insurance company lawyers be on 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 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.

The premiums are relatively affordable. 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, your actual additional costs may be higher. If your net worth is higher, then you’d want to buy higher limits, but it should still be affordable on a relative basis.

It’s often easy to add to your existing policy. It was really simple to get as well; we had an umbrella policy added to our existing policies with just one phone call. We already had our homeowner’s and auto insurance at the same company. We didn’t have to fill out a long application or go through a credit check. If the cost is a shock, consider contacting an independent insurance broker and shopping around. You may find a better deal and get a multi-line discount.

But the low cost also means you may have to look out for your own interests. Something that involves a big commission like universal life insurance is more likely to generate interest from your insurance agent. On the other hand, selling you an umbrella policy results in a tiny commission. When I asked about it initially, all I got was a “yeah, I suppose that might be a good idea…” and they never followed-up. You need to take action on your own behalf.

One less thing to worry about. Peace of mind. 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.

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 a big amount if you are “judgment-proof”. However, consider that your net worth may change quickly in the future, and if you did have an incident it may affect your future insurability.

Bottom line. Umbrella insurance gets to the core of the purpose of insurance. You pay money to share the risk with others and protect you and your family from a catastrophic event that could ruin your lives. In other words, you pay the premiums with the hope that you will never have to make a claim on it.

Auto Insurance: How Much Will An Accident Claim Increase Your Premium?

Here’s an infographic from HowMuch.net that charts how much your annual auto insurance premium will go up after just one claim:

Auto insurance companies portray themselves as friendly and forgiving in television commercials, but they are less friendly than you might think. After filing just one claim, car insurance premiums increase by an average of 41.81%, according to an annual study by insuranceQuotes and Quadrant Information Services.

autoinsaccident

I was somewhat surprised at how much the initial premiums and subsequent hikes varied state-by-state. On average, the annual premium is $842, but after a single $2,000+ accident claim, it goes up by $352. The source article also states that you should expect rates to remain high for three to five years, depending on the severity of the claim. Ouch.

I didn’t see similar data about smaller claims like a dented bumper. I keep my collision deductible at $1,000 because I’d rather self-insure below that amount, pocket the premium savings, and avoid any rate hikes if I did make a claim. In general, I always try to only pay for insurance when an incident would cause significant financial difficulty (your number may vary).

NYT Financial Tuneup Day 6: Property Insurance

nyt_ftuDay 6 of the NY Times 7-Day Financial Tuneup is about insurance. Specifically, either homeowner’s or renter’s insurance to protect yourself against a large financial hit. (Sign up for your own personalized tune-up here.)

Do a home inventory. Basically, take a video of everything you’d want an insurance company to replace if your home was destroyed. Store the video somewhere safe, like the cloud or a flash drive in a secure location. You can use this video to both get appropriate insurance coverage and if you do end up filing an insurance claim. I’ve seen some apps that help you do this in detail, but I agree that a simple video is a reasonable solution.

Check your current policy. Find a copy of your insurance policy. Make sure you have enough coverage. Note the difference between a “replacement value” and “fair market value” policy.

Shop around with some competitors. The NYT recommends picking two of the major insurance companies (Geico, Progressive, Allstate, State Farm, etc.) and call them for an insurance quote armed with your home inventory list. If you are willing to try a start-up insurance company, I would throw in a free online Lemonade quote if you are in one of their 9 covered states – New York, California, Illinois, New Jersey, Rhode Island, Texas, Nevada, Ohio, and Georgia. If you get a quote that is too high, simply move on.

I also recommend doing a search for “[Your State] Department of Insurance” and look for a “Homeowner’s Insurance Guide” of some sort. Insurance companies are closely regulated on the state level and you can often find a list of sample premiums, a ranking based on complaints ratio, or other useful information. This can help you narrow down your initial search and save time. For example, here are some links for New York and California.

Call your current insurance company. Call your current insurance company and first, confirm that your policy coverage details. Then, ask if there’s any way to reduce your insurance rate. Mention a competing quote if you have one.

Financial Tuneup Recap (still in progress)

NYT Financial Tuneup Day 3: Apply For a Better Credit Card

nyt_ftuDay 3 of my NY Times 7-Day Financial Tuneup is called Find the Best Credit Card for You. (Sign up for your own personalized tune-up for full details.) The key again is to actually apply for a better card, not just think about it and then keep your old card with lukewarm rewards and/or high interest rates.

Scenario 1: Carrying a balance

If you are still working on paying down your credit card balance, the NYT (surprise!) recommends a credit card with a low interest rate and fees. The average credit card interest rate is something like 17% APR, which is simply nuts. Ignore cashback and rewards credit cards, as they have higher interest rates in general that will overwhelm any potential rewards. The NYT specifically mentions the following cards:

  • Simmons Bank Platinum Visa has a lower variable APR (currently 9.5%) with no balance transfer. This might be a better solution if you plan on carrying a balance forever (why?!?).
  • Discover it Secured credit card improves your credit score (and thus perhaps your interest rates) as it will help build a positive credit history with no annual fee. You can have poor credit as a $200 security deposit is required for a $200 credit line.

The Citi Secured Mastercard is a very similar card and will also help build a history of on-time payments to the credit bureaus and has no annual fee.

If you’re going to apply for a new card, I prefer the following cards with 0% introductory APRs with no balance transfer fee. Here, the plan would be to consolidate balances and design a plan to pay it all off within the promotional period. After that, the rates will shoot back up again unless you do another balance transfer.

Scenario 2: No credit card debt

If you do pay off your balances every month, then you can ignore interest rates and focus on getting points, miles, or cash back on your purchases. The NYT specifically mentions the following cards.

  • Citi Double Cash card for simple cash back. It pays “1 percent back when you make the purchase and another 1 percent when you pay the bill. The best part? There’s no need for you to track points or decide when to cash out. The money comes back to you automatically.”
  • Bank of America Travel Rewards Card for simple travel rewards with no annual fee.
  • Chase Sapphire Preferred for those that collect airline miles and know how to use them efficiently.

Your goal with your new card should be to get all of the rewards you can just for spending as much as you normally would.

I’m giving the NYT an overall thumbs-up on these recommendations for most people. However, I would only recommend the Bank of America Travel Rewards card if you can participate in their Preferred Rewards program and reach the Platinum (2.25% back towards travel) or Platinum Honors (2.62% back towards travel) tiers. Otherwise, the Citi Double Cash is better than 1.5% back.

The hard part: Actually applying for a new card! The reason why there are so many juicy incentives for credit cards is that most people still don’t like to bother with applying for a new card. Change can be hard. If you’ve been thinking about making a switch, let today be the day!

Financial Tuneup Recap (still in progress)

Big List of Free Consumer Data Reports (2/2): See Your Confidential Rental History, Insurance, & Employment Data

magLinks updated 2018. Here is the second part of my big list of free consumer reports from over 50 different reporting agencies. The first part included your credit, banking, and subprime lending-related information. This part includes your housing, insurance, and employment history. Request a free copy every 12 months of what these databases have stored about you and are telling prospective landlords, insurers, or employers.

Again, you may not need to check all of these, and many may not even have a file on you anyway. But for example if you are a renter then you’d want to make sure your rental history is clean and correct, because if I was a landlord I’d avoid anyone with previous blemishes on their record.

Rental History

Realpage Consumer Report. Provides tenant screening through their LeasingDesk product, including “the industry’s largest rental payment history database.”

CoreLogic SafeRent. SafeRent provides both tenant and employment screening data, including information regarding landlord tenant and criminal public court records. One free report every 12 months.

Experian RentBureau Rental History Report. “Every 24 hours, Experian RentBureau receives updated rental payment history data from property owners/managers, electronic rent payment services and collection companies and makes that information available immediately to the multifamily industry through our resident screening partners.”

First Advantage Resident History Report. Tenant and employment background checks. One free report every 12 months.

Contemporary Information Corp. CIC provides background checks on prospective tenants and/or employees and contractors for landlords and management companies. Keep records of any rental evictions.

Tenant Data. Provides tenant history reports, including any reported damages, unpaid balances, evictions, lease violations, noise complaints, or unauthorized pets.

Screening Reports, Inc. A national provider of background screening service to the multi-family housing industry.

TransUnion Rental Screening Solutions, Inc. SmartMove provides tenant credit, eviction, and background checks.

  • MySmartMove.com FAQ page
  • SmartMove will disclose the contents of a criminal and/or credit report retained by SmartMove to an individual who requests a copy of their report. To verify your identity and obtain a copy of your report(s) or dispute any information within that report, please contact customer service at 866-775-0961.

Auto and Property Insurance

C.L.U.E. Personal Property Report. A division of LexisNexis, CLUE stands for Comprehensive Loss Underwriting Exchange, which collects information that is used to calculate your insurance premiums. This report provides a seven year history of losses associated with an individual and his/her personal property. Includes date of loss, loss type, and amount paid along with general information such as policy number, claim number and insurance company name. This also means you can find out about previous claims on the house you are currently renting or recently bought, even if they weren’t made by you.

C.L.U.E. Auto Report. This report provides a seven year history of automobile insurance losses associated with an individual. Includes date of loss, loss type, and amount paid along with general information such as policy number, claim number and insurance company name.

Verisk Analytics aka ISO aka A-PLUS Loss History Reports. ISO stands for Insurance Services Office, A-PLUS stands for Automated Property Loss Underwriting System. Auto and property loss claim history.

Insurance Information Exchange (now owned by Verisk). Provide reports including your motor vehicle records and driver history, including any traffic violations or related criminal history. May require proof of adverse action to obtain free report.

Drivers History. Provides reports to its insurance clients containing information and data collected from open public sources and governmental agencies regarding driving violations issued to specific individuals.

Utilities

National Consumer Telecom and Utilities Exchange. NCTUE is a “membership of companies that provide services (telecommunication, pay TV, and utilities) […] to aid in risk mitigation.” Basically they track when people don’t pay their phone, cable, or utility bills. One free report every 12 months.

Medical History

MIB (previously known as Medical Information Bureau). Run by 470 insurance companies with 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.” They record information of “underwriting significance” like medical conditions or hazardous activities. 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.

Milliman IntelliScript. Tracks your prescription drug purchase history. “Milliman IntelliScript will have prescription information about you only if you authorized the release of your medical records to an insurance company and that company requested that we gather a report on you.”

Employment History

The following companies all offer background screening services for employers. Most will not have any information about you unless you authorized a potential employer to run a background check on you (probably during the application process). Some will not provide you information unless there was adverse action. Otherwise, you can get one free copy every 12 months.

The Work Number. (division of Equifax) They also keep historical income records.

Accurate Background, Inc.

American Databank, LLC.

Backgroundchecks.com.

EmployeeScreenIQ.

General Information Services.

HireRight.

Info Cubic.

IntelliCorp.

OPENonline.

Pre-employ.

Professional Screening & Information, Inc.

Sterling Talent Solutions (formerly Sterling Backcheck or Sterling Infosystems)

Trak-1 Technology.

Reminder: Also see Part 1: Big List of Free Consumer Reports with Your Credit, Banking, and Payday Lending Data.

Sources: ConsumerFinance.gov, FTC.gov, Wikipedia

Big List of Free Consumer Data Reports (1/2): See Your Confidential Credit, Banking, and Payday Lending Data

magLinks updated for 2018. Since these are available every 12 months, it is a good idea to check these near or around the same time each year. A lot of companies make their money by collecting and selling data – your personal data. In the past, it was often difficult if not impossible to see what they were telling prospective lenders, landlords, even employers about you. Under the FCRA and/or FACT Acts, many consumer reporting agencies (CRAs) are now legally required to send you a free copy of your report every 12 months, as well as provide a way to dispute incorrect information.

Some have an online request form, but some require snail mail with proof of identity. (Some are shady and really try to hide information about requesting reports.) You probably won’t want to bother checking all of them, but if you’ve experienced any sort of rejection or adverse reaction in these areas the cause might be found inside one of these databases. Keep in mind that you may not have a file with all of these places.

Credit-Related

Experian, Equifax, and TransUnion. The three major credit bureaus track your credit accounts, payment history, and other related information like bankrupts and liens. Free copy of each once every 12 months.

CoreLogic Credco. One of the largest credit-related CRAs and often used by mortgage lenders, your CoreLogic Credco Consumer File can contain: previous homeownership and mortgage info, rental payment history, any reported delinquencies, and other debt obligations like child support. Free copy once every 12 months.

LexisNexis. One of the largest personal information databases that includes public records, real estate transaction and ownership data, lien, judgment, and bankruptcy records, professional license information, and historical addresses on file. Free copy, must mail in form.

Innovis. A supplementary credit report and identity verification provider. Free copy once every 12 months.

SageStream, LLC (formerly IDA, Inc.) Per their site, they are a “a credit reporting agency that produces credit reports and scores from our repository of consumer information contributed by a wide array of companies including leading financial services organizations, wireless providers, utilities, retailers, auto lenders and many others” Free copy, must fax or mail in a written form.

Microbilt and subsidiary Payment Reporting Builds Credit (PRBC). Microbilt is a credit reporting agency, per their site a “leading provider of alternative credit data to businesses that want to offer credit and other financial services to the approximately 110 million underserved and underbanked consumers in the United States.” Free copy once every 12 months.

Banking-Related

Chexsystems. 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 banks’ 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. Having a negative ChexSystems record can leave you blacklisted from opening bank accounts at most major banks. Free copy once every 12 months. You can now request your report online.

TeleCheck. Per their site, they provide “industry-leading check acceptance, check processing and risk analytics services to merchants and financial institutions.” One of the major companies that protect businesses and banks from bad checks. Must order by phone or mail.

Certegy Check Services. Per their site, a “check risk management company that provides verification, guarantee and risk analytics to thousands of businesses that choose to accept checks as a form of payment for goods or services.” Clients include check-cashing stores and casinos. Free copy once every 12 months. Must order by phone or mail.

Early Warning Services. A collaboration between a group of big banks including Bank of America, BB&T, Capital One, JPMorgan Chase and Wells Fargo. Provides fraud prevention and risk management in relation to bank accounts and payment transactions. Must order by phone.

Subprime-Related (Payday Lending)

The following companies focus on subprime customers with clients including payday lenders, title loan lenders, rent-to-own stores, and subprime auto loan providers.

Teletrack (affiliated with CoreLogic).

FactorTrust. Free copy once every 12 months. Recently acquired by TransUnion.

Clarity Services, Inc. Must mail or fax form.

DataX Ltd. Must mail form.

Next up, see Part 2: Rental History, Insurance, & Employment Data.

Sources: ConsumerFinance.gov, FTC.gov, Wikipedia

Lemonade Insurance Review: Home & Renters Insurance With No Incentive To Deny Your Claim?

lemon_logoUpdated. Lemonade continues its rollout – see map above. Get a free quote from Lemonade and see if they are cheaper than your current homeowner’s or renter’s insurance policy. Feel free to leave a comment about whether they were more or less expensive at the same coverage and deductible level.

Right or wrong, many people view insurance companies with suspicion. Even though you pay them money every month for protection, you worry if you’ll actually get paid when you experience a problem. The problem is that with most insurance companies, every dollar they don’t pay you ends up in their pocket. The incentives are not aligned. Will they find a reason to deny your claim? Will they make it such a pain that you’ll just give up? Recall the Insuricare scene from the movie The Incredibles.

Lemonade is a new insurance company that takes a flat cut upfront, and the rest is put aside to payout claims. They are starting out with homeowner’s and renter’s insurance. The specific breakdown is below.

  • 20% to Lemonade.
  • 40% into a pool to pay out for claims (or charity).
  • 40% to reinsurance in case that pool is exhausted (catastrophic cases).

Reinsurance is basically what is sounds like – insurance for insurance companies. This provides additional safety that there will be money to pay out your claim in cases of catastrophic losses (i.e. certain natural disasters). Examples of reinsurance companies are Lloyd’s of London and Berkshire Hathaway.

If there are fewer claims than expected, Lemonade will donate the money to a charity of your choice. Therefore, they have no direct incentive to deny a valid claim. In turn, hopefully their customers will also not make false claims because they will only be taking money away from charities and not the big bad insurance company. When signing up, you even take a “honesty pledge”. Here’s how behavioral economist Dan Ariely, who is their “Chief Behavioral Officer”, puts it:

Knowing that every dollar denied to you in claims is a dollar more to your insurer, brings out the worst in us all… Since we don’t pocket unclaimed money, we can be trusted to pay claims fast and hassle-free. As for our customers, knowing fraud harms a cause they believe in, rather than an insurance company they don’t, brings out their better nature too. Everyone wins.

Lemonade is also structured as a Public Benefit Corporation (B-Corp), which makes it the “World’s Only Public Benefit Insurance Company”.

Update: In July 2017, TechCrunch reported that Lemonade made its first annual donation of $53,174 or 10.2% of first year revenues. So that’s 10% out of the 40% pool reserved for claims (or charity).

Lemonade also saves money with tech start-up tricks. No human salespeople. No brokers. No physical branches. Apply online. File your claim online. You can do nearly everything via smartphone app (iOS and Android) with a chat-based AI interface. (Fewer adjusters and customer service reps.) If you have to file a claim, you can take a video of the damage using their app and explain the situation.

It remains to be seen if they can truly disrupt the industry. In the meantime, they need competitive premiums. Uber would not be so successful if they weren’t also cheaper than traditional taxis.

Live Policy and Zero-deductible option. In September 2017, Lemonade rolled out a new option with a zero deductible. If you pick this option, you won’t have to pay any deductible and thus get the full value of even a smaller claim like a $250 bike or smartphone. Importantly, Lemonade also promises not to hike your premium after making a claim (you are limited to two claims per year). You can preview how much this option changes your premium with their “Live Policy” system where you can make changes to your policy instantly via the Lemonade app.

lemonadezero

As of May 2018, Lemonade offers renters, condo and/or homeowners insurance in New York, California, Illinois, New Jersey, Rhode Island, Texas, Nevada, Georgia, Ohio, Pennsylvania, Maryland, Iowa, Wisconsin, Arizona, New Mexico, Michigan, and the District of Columbia. Get a free online quote from Lemonade and compare with what you have now. Prices start at $35 $25 a month for homeowner’s insurance and $5 a month for renter’s insurance.

Also see: I asked for more clarification on how Lemonade differs from mutual insurance.

Scott’s Pizza Tours: Unconventional Entrepreneur Turns Passion into Business

sptmovieI’m a sucker for people turning their unique interests into a profitable small business, especially a quirky one-person business (like this person who farms food from other people’s yards). My newest discovery came from watching the Scott’s Pizza Tours documentary about Scott Wiener, who turned his passion for pizza into a successful tour business and more. Below is a more bio and the trailer (direct link):

He runs a successful tour business in NYC, where he leads visitors to some of the best and most historic pizzerias in the world, teaching the history and science of pizza making. He writes a monthly column in Pizza Today magazine, is a legend in the pizza industry, judges pizza competitions, eats 15 slices per week, and–oh, yeah–he’s the Guinness World Record holder for the largest collection of pizza boxes, now numbering nearly 1,000 different boxes from 55 countries, selections of which are currently touring through gallery spaces in the U.S. and Europe, with tentative exhibitions planned for Asia and Latin America. In his spare time, he founded and organizes Slice Out Hunger, an annual event, which has raised over $70,000 for hunger relief organizations in NYC.

Are you happy with the path are you on? In one scene, Scott describes how he used to have a desk job with the government. After his first year, they had a little celebration and said “Hurray, only 24 years left until retirement!”. That statement really shook him, and he put in his resignation notice the next day.

“Follow Your Passion”: Too idealistic… or actually practical advice? You can’t make good money at something unless you’re good at it, and it’s very hard to get good at something if you don’t like it. That means passion fuels 2 out 3 parts of the pie (pun intended). If you can figure out how to make it well-compensated, you’re golden. Here’s a quote from Charlie Munger:

I have never succeeded very much in anything in which I was not very interested. If you can’t somehow find yourself very interested in something, I don’t think you’ll succeed very much, even if you’re fairly smart. I think that having this deep interest in something is part of the game. If your only interest is Chinese calligraphy I think that’s what you’re going to have to do. I don’t see how you can succeed in astrophysics if you’re only interested in calligraphy.

Dream job: Goal vs. Journey. Did Scott Wiener write down one day that his dream job would be to teach tourists about pizza history? No, it was a result of incremental daily movements. I’m reminded of the High Fidelity movie scene where John Cusack’s character makes a list of his top 5 dream jobs if “qualifications, history, time, and salary were no object.” After going through them, he realizes that he is already doing one of his dream jobs, owning his own record store.

I saw Scott’s Pizza Tours on the Viceland cable TV channel, but you might also be able to see it for free on Hoopla if supported by your local library. Otherwise, you can buy/rent on Amazon/iTunes/YouTube.

p.s. If you live in the NYC area, the 2017 edition of Slice Out Hunger’s $1 Pizza Party is on Wednesday, October 4, 2017. I’m impressed he even leverages his passion to raise money for a good cause (over $70,000 so far).

Health Insurance Premiums: Average Annual Cost $19,000 Family, $6,000 Individual

healthThe Wall Street Journal recently published (paywall?) a chart showing how the average cost of employer-provided health coverage for a family has changed from 1999-2017. The total average annual cost was $18,764 for a family and $6,690 for an individual in 2017. The data source is an annual poll of employers performed by the nonprofit Kaiser Family Foundation along with the Health Research & Educational Trust, a nonprofit affiliated with the American Hospital Association.

wsj_health

In very rough terms: a single adult is ~$500 per month ($6,000 per year), and a family is about $20,000 a year. These numbers agree overall with the preliminary health insurance quotes that I have gotten for my own family.

In addition to the rising premiums, the average annual deductible is now over $1,200 for a single worker.

The implications for an prospective early retirees are obvious. How are you going to cover this huge expense? Here’s a quick brainstorm of options. Spoiler alert: There is no easy fix.

  1. Use an Affordable Care Act (ACA) plan and get a subsidy if your income is low enough to qualify. Do a lot of reading, then hope it doesn’t change?
  2. Plan ahead with a job that offers health insurance benefits in early retirement (don’t have to be a certain age). You’ll probably have to hunker down with the same employer for a number of years.
  3. Save enough money (or create enough income) to pay for health insurance premiums. Try a managed-care system like Kaiser for a low-cost HMO plan.
  4. Find a part-time job that you both enjoy and offers health benefits.
  5. Run a part-time side business that earns enough profit to cover health insurance costs. Look for potential group discounts or tax breaks that are available as a business instead of a consumer.
  6. Now and later, look for a high-deductible health plan (HDHP) and fund a Health Savings Account (HSA) due to the tax advantages.
  7. Join a direct primary care arrangement or health care sharing ministry that is exempt from ACA.
  8. Extend your current employer coverage for up to 18 months through COBRA (check cost).
  9. Move to a foreign country with reasonable and transparent cash pricing.

Am I missing anything? Right now, we have #4. My family’s future plan is a mix of #1, 3, and 5. However, #5 could push us over the income limits for #1.

Best HSA Plan Provider For Long-Term “Healthcare IRA” Investing – Morningstar

piggy_hsaNearly 30% of covered workers are now enrolled in a high-deductible health plan (HDHP). This means a lot more people are also eligible to contribute to a Health Savings Account (HSA). HSAs have the unique feature of triple-tax-free savings when used as designed:

  • HSA contributions are tax-deductible,
  • HSA investments can grow tax-deferred, and
  • HSA withdrawals are also exempt from taxes if spent on qualified medical expenses.

(Penalties: Funds withdrawn for non-healthcare expenses are taxable. If withdrawn before age 65, there is an additional 20% penalty.)

HDHPs have lower premiums in exchange for higher deductibles and higher out-of-pocket maximums. As of 2017, in order to qualify for an HSA, an HDHP must have a deductible of at least $1,300 for individual coverage or $2,600 for family coverage. Many people will use their HSA balance to cover current health expenses. However, if you can manage to pay for your current expenses out-of-pocket while also contributing to the HSA, you have the opportunity to maximize the tax advantages by investing the funds into long-term vehicles like stocks. Here are the annual contribution limits:

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You can then use the future balance to pay for Medicare premiums or other eligible healthcare costs in retirement.

We personally don’t have an HDHP/HSA option from our employers, so I don’t have much first-hand experience. However, Morningstar just released an HSA research whitepaper by Leo Acheson that examined 10 of the largest HSA plan providers:

  • Alliant Credit Union
  • Bank of America
  • BenefitWallet
  • HealthSavings Administrators
  • HealthEquity
  • HSA Bank
  • Optum Bank
  • SelectAccount
  • The HSA Authority
  • UMB Bank

In terms of using an HSA simply as a way to grab the upfront tax break on contributions, you really just want to find an HSA provider that offers a checking account without monthly maintenance fees. Earning 0.50% APY on a $2,000 balance will earn you $10 a year, but a $4 monthly fee will cost you $48 a year. The top plans listed by Morningstar for this short-term purpose were Alliant Credit Union, SelectAccount, and The HSA Authority.

In terms of using an HSA as a portable, long-term investment vehicle (think “Healthcare IRA”), the top plans listed by Morningstar were Bank of America, HealthEquity, Optum, and The HSA Authority. However, as a firm believer in the “Costs Matter Hypothesis”, I would personally narrow it down based on the lowest overall expense ratios (underlying fund + manager fee). Here’s a chart comparing costs for a $15,000 balance (click to enlarge):

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The same cost chart but for a $50,000 balance:

hsa_morn4

The two cheapest plans recommended by Morningstar are HSA Authority and HealthEquity. You can see that overall HSA costs are still higher than what you can get in a IRA or better 401(k) plan. At least the selection is pretty good. See HSA Authority investment options and HealthyEquity investment options [pdf]. Below is a sampling from the HealthEquity menu.

hsa_morn3

Keep in mind, this is not my list but what Morningstar recommends. One option not listed here is Saturna, which may make sense if you only plan on making a single lump-sum max contribution each year and buy an all-in-one Vanguard mutual fund with one transaction per year.

Please feel free to share your own experiences in the comments below.

How is Lemonade Different Than Mutual Insurance?

lemon_logoAfter my initial post about Lemonade insurance, there was a discussion in the comments about how Lemonade’s business model compares with existing mutual insurance companies. Lemonade reached out to me and wanted to clarify some things, and I suggested that they write a guest post about the topic. Lemonade agreed and below is their response:

A Deeper Dive Into the Lemonade Business Model

Not all insurance companies work the same way. Beyond the technology and AI, behind its slick app and website, Lemonade’s different because its business model is different.

As opposed to traditional insurers, Lemonade takes a fixed 20% fee out of your monthly payments, pays reinsurance and other unavoidable expenses, and uses the rest for paying claims. If there’s money leftover, Lemonade returns it in the annual Giveback. Giveback is a unique feature of Lemonade, where each year leftover money is donated to causes our policyholders care about. Policyholders who care about the same causes are virtual groups of ‘peers.’ Lemonade uses the premiums collected from each peer group to pay the group’s claims, giving back any leftover money to their common cause. And, if the group’s claims exceed what’s left in the pool, reinsurance covers it! (Reinsurance = insurance for insurance companies!)

That changes everything.

Insurers typically make money by investing your premiums (“float”) and by paying out less in claims and expenses than they took in premiums (“underwriting profit”).

Lemonade relies on neither. We collect premiums monthly, so the money earns interest in your bank account, not ours, and we return unclaimed money to the causes customers care about at year’s end.

So what does Lemonade do with the remaining 80%?

In a nutshell: pays claims.

Lemonade spends approximately 20% buying ‘reinsurance’ from folks such as Lloyd’s of London, to ensure there will be enough money for claims even in ‘bad’ years. This kind of reinsurance buys peace of mind, but it is costly.

So our data scientists have modeled an optimal mix of internal and external ‘reinsurance’, and set aside another ~20% as the ‘Lemonade Reinsurance’. Think of it as a ‘rainy day fund.’ The costs of reinsurance fluctuate over time, and there are other smaller expenses (transactional fees, premium taxes and others) that are also paid out from this combined 40%.

The final 40% goes towards the Giveback to the cause selected each year, if none of the people who selected that cause make a claim.

Most years, there will be some claims, so the amount available for Giveback will average less than 40%. But our number crunchers tell us there should be a nice amount left for most causes most years.

What about the ‘bad’ years? Fear not. That’s what the reinsurance is for, and Lemonade Reinsurance as well as the reinsurance partners have set aside funds for exactly such a situation.

In short, job #1 is to make sure your claim is paid, job #2 is to Giveback what’s left.

Wait, so how is that different from mutual insurance, you may ask?

Lemonade is the oldest new idea in insurance. And whether you view its tech and user experience as being radically new, or its business model as centuries-old infrastructure, Lemonade is using technology to reconstitute a business model which was once prevalent.

Look at Uber or AirBnB: Neither have created spanking new markets. It’s their technology packaged with a sharing economy-esque business model that is novel. Similarly, there’s nothing new about renters and homeowners insurance, but the technology, together with the behavioral economics and unique business model, differentiate Lemonade from the rest. Lemonade writes policies on your phone in seconds, pays claims in minutes, gives back money to nonprofits, all using AI and other tech that incumbents have not used.

The mutual companies started with the notion that pooling people into meaningful communities, instead of meaningless masses, is better for consumers. But the mutuals of today have wandered off into a different direction from that sense of community that started hundreds of years ago.

What made mutuals stray this way? Well, if you take any community and you enlarge it with millions of anonymous people, the social bonds between the people break down. Insurance companies have tried to cope with the challenge of pursuing growth, but it came at the expense of group affinity.

Yet with technology, you don’t have to trade off affinity for growth. Specifically, affinity in Lemonade has spurred growth, and has not been an obstacle of growth. Think of Lemonade as having thousands of mutuals under one company, rather than being one giant mutual.

Lemonade is a Public Benefit Corporation, a certified B-Corp and our team genuinely wants to do the right thing. Lemonade takes a flat 20% fee so as to never be in conflict with our customers, and never make money by denying claims. By placing ‘unclaimed money’ beyond reach, we removed temptation, and changed the game.

That’s a first for insurance.

Get a free online quote from Lemonade and compare with what you have now if you live in California, New York, and Illinois.