Do I have to keep Paying for a Stolen Car?

Years ago the father of a friend passed away unexectedly and his mother returned the father's new car to the dealer. She thought that would stop the payments but she was wrong. Since the "used" value of the car was less than what was still owed, she was billed for the difference.

A similar situation was described recently on FoxBusiness.com, Why You Must Keep up The Payments on a Stolen Car

"Until your car loan is satisfied, you are obligated by the terms of your finance agreement to keep up with your payments, and your insurance policy needs to be kept until the stolen car is no longer registered in your name."

A stolen car claim can take 30 days or more to settle and during that time you're on the hook for all payments. You definitely want to keep the insurance active in the hope that they'll pay for the car loss if it's not recovered or any damages sustained when it is recovered. There may be a gap between the used car price that insurance will pay and what is owed. There are special "gap" insurances policies you can buy to cover this (before the fact of course.)

Important Age Milestones when Retiring

The Money column at USNews has identified several critical ages on the road to retirement. Personally I'd love to retire early but it will be many years before I can touch my 401-K without penalty and private health insurance is terribly expensive.

• 59½. Earliest age for withdrawals from tax-deferred retirement accounts like 401(k)s, 403(b)s, and IRAs without a penalty.
• 62. Earliest age to collect Social Security benefits. But you may want to wait. If you collect at 62 you'll only get 75% of what the government will pay if you wait until 66 or 67 (for people born after 1943).
• 65. Eligible for Medicare benefits. If you don't have employer insurance then pay attention to the seven-month window (three months before 65 up to four months after your birthday) to sign up. If you miss this window, you may wind up paying higher Medicare premiums for the rest of your life.
• 66. Your full retirement age (FRA) for Social Security benefits if born between 1943 and 1954, 67. Your Full Retirement Age if born in 1960 or later.
• 70. The oldest age at which your Social Security benefits increase if you defer collecting. After your FRA benefits rise by about 8% a year each year until you turn 70.
• 70½. If retired, you MUST begin taking money from your tax-deferred retirement accounts.
• 85. This one was new to me. It's a standard age of payments of "longevity annuities" purchased 20 or even 30 years earlier. Insurance companies sell these for for people who are worried about running out of money in their final years. If you die before the payoff age or 80 or 85, then you and your heirs get nothing. If you live to the payoff age, you get a monthly check for the rest of your life.

Bottom Line

Keep these age dates in mind. They are very important to a successful retirement.

Things that are Worth the Money

“Money never made a man happy yet, nor will it. The more a man has, the more he wants. Instead of filling a vacuum, it makes one.”
-Benjamin Franklin

Typical financial advice tells you how NOT to spend money. But I like the list at wisebread.com of 11 Things That Are Worth the Money.

1. Insurance - spend a little to avoid having to pay a lot
2. Culture - I'm all for culture, my wife & I love museums and visited one just a few days ago. But it's also easy to overspend here. We don't do Broadway Plays - I'd love to but the cost is ridiculous. We also save money by renting CDs instead of going to movie theaters.
3. Doctor Visits - your health is worth spending a co-pay for
4. Education - maybe. There is much talk of a "higher-education bubble" where the cost of college now exceeds the benefits. Education is great - but look for cheaper ways to get a college degree.
5. A Haircut - it is important to look nice, people do judge by looks. Just don't overspend at post hair salons.
6. Health - buy healthy food and do what is necessary to get some exercise
7. Home Maintenance & Repair  - a home is the most expensive thing you own - treat it well.
8. A Sharp Interview Outfit - see #5
9. Well-Made Shoes - Not sure if the list is thinking of dress shoes for looking good, like #5 and #8, or well-made shoes that won't hurt your feet.
10. Travel - Don't go into debt but travel is a great form of education. And fun too.
11. Visiting Family & Friends - "maintaining those relationships is something you can't afford to not do"

Bottom Line

What items do you think are worth the money?

Things hidden underground

Police Captain Renault: I'm shocked, shocked to find that gambling is going on in here!
[a croupier hands Renault a pile of money]
Croupier: Your winnings, sir.
Captain Renault: [sotto voce] Oh, thank you very much.
-Casablanca

There has been much to-do made over the Keystone XL Pipeline project from Canada down to Texas. Even the President has opposed it. But a graphic shows this is much ado about nothing. Closing the barn door after the horse has fled. Etc.

Here's a chart of EXISTING pipelines

Bottom Line

The Canadian pipeline is nothing new. So why all the debate over it? What's the real reason for the opposition?

P.S.
I also want to mention that it is important to know what lies underground at your house. Utility companies warn, call us before you dig. It's way too easy now-a-days to cut through a buried power line or cable.

A co-worker has lost her home due to a hidden surprise. An electrician sank a new grounding rod for an upgrade to her home's electrical system. Problem was, unbeknownst to anyone, the rod cut through the pipe leading from the underground oil tank to the home's furnace. The tank was refilled a few days later and all that oil leaked into the soil under the house. After much wrangling with lawyers and insurance companies, the insurer for the electrician agreed to dig up and rebuild the kitchen over the spill. The kitchen was demolished but further environmental testing showed the oil had spread far under the foundation - the entire house would have to be demolished. At this stage the insurer is negotiating to buy the house and write it off as a complete loss instead of rebuilding.

When to take a pay cut

"No success in public life can compensate for failure in the home."
-Benjamin Disraeli

There's a interesting article at Penelope Trunk Blog about the times in your life when it's OK to take a pay cut.

1. For emotional Independence. Yes you could make more with a large firm but you want to be your own boss and run your own business.
2. When changing careers. You're doing something new for you, why should you still get the big bucks.
3. When you're over 40 years old. Salary peaks at age 40! (that's a rude shock to learn). There are exceptions - lawyers, surgeons(?), and those who succeed in climbing the corporate ladder.
4. If unemployed for six months.  You'll most like need to take a pay cut to get hired again.
5. If changing jobs to be close to family. Relationships trump money.
6. If you get a great boss.
7. If you can not cope with the stress of not working.
8. If you need better insurance.

Bottom Line

Penelope has an excellent conclusion,

You are not your salary. You are not worth less in the world because you are paid less in your job. Get your self-worth from a wide range of things and a pay cut won't matter to you. Focus on the components of a good job: learning, personal growth, friends at work, and a good family life. All those things are worth a lot more than a pay cut.

If you Rent, get Renters insurance

“I installed a skylight in my apartment... The people who live above me are furious!”
- Stephen Wright

A co-worker recently experienced a fire in the apartment he rents. He did not have renter's insurance and must pay out of his own pocket the expense of a hotel room while looking for a new place to live and out-of-pocket to replace his belongings.

You might be thinking you could afford that if your belongings are few and/or modest. But there is another important component of Renters Insurance that no renter should be without - Liability protection. If a fire starts in your apartment and it looks like your fault (smoking in bed, a candle, a stove fire, etc) the landlord can sue you for damages and the cost to repair the entire building AND other residents can sue you for the damage they incurred from smoke, fire, and water.

Here are two examples I found on the Internet.

1. Insurance company for the apartment complex just had a law firm send a letter addressed to my sister-in-law and niece. It stated they were deemed at fault for the fire by the insurance company's fire investigator. [The bill is ] $180,000.

2. I am aware that i have to pay for the damages of the fire in my apartment that i caused accidentally. Now i get a bill & they're making me responsible for the buildings under me since i am on the 3rd floor. I don't have rentals insurance, so am i responsible for paying their damages as well? ...
[Answer] You are liable for all of the structural damage you caused ... You caused the damage, this is your puppy.

Bottom Line


There is just no excuse for not having renter's insurance, it can cost as little as $10/month!

Apartment fires are very common; most of the events I respond to as a Red Cross volunteer are apartment fires.

See also What to Do after an Apartment Fire http://www.apartmentinsurancerates.com/after-an-apartment-fire.html

If a tree falls on your house, who pays?

“We must build dikes of courage to hold back the flood of fear.”
- Martin Luther King, Jr.

Hurricane Irene caused serious flood damage along some coasts and (to the surprise of some) along rivers far inland. Locally the Hudson River rose over ten feet and flooded our community boat club. Train tracks were covered in water and mud.

Two very common problems with heavy rain and/or flooding is fallen trees and swamped cars. If your neighbor's tree falls on your property - who pays? CBS-Philadelphia looked into the question and learned:

1. If a tree falls on a house, the home owner's insurance of the damaged house should cover it as "an act of God" regardless of where the tree came from.

2. If a tree falls on a car, the car owner's insurance will cover the damage under comprehensive coverage.

3. If a tree falls and nothing is damaged, you're on your own getting it removed.

The situation could change if the tree was old or pre-damaged and the owner allowed it to decay and fall. The owner might be sued for negligence.

If your car was flooded, FoxBusiness has the answers:

1. Liability auto insurance does not cover flooding; you need comprehensive insurance for that.

2. Is the car repairable? "In general, water that goes past the floorboards -- into the areas where electronics begin -- will mean the car is totaled."

OK, my car is flooded. What should I do?

If your car did flood, don't start it until it's been cleaned and inspected. Try to dry it out as quickly as possible. The less time its exposed to water, the better. Record the maximum height the water went to and call your insurance company. Then, get a qualified and certified tech to check out all your wiring and electrical components, as well as all the mechanical ones. Make sure to flush all fluids and replace all filters and gaskets. While a flood-exposed car may drive, the longer internal components sit with water damage, the greater the risk of damage to the engine and other parts. - Consumerist summary of FoxBusiness advice

Bottom Line

Sometimes a flood keeps on giving grief long after the event.

• Mold may pop up days or weeks later as discussed yesterday in your home and car.
• Contaminated flood water can cause illness afterwards.
• Fallen limb damage might not be obvious at first. We discovered damage to our roof over a month after a storm when the next rain leaked into our attic.
• Car damage might not surface earlier than 90 days, when computer and other electrical components begin to corrode.

Retirement Savings

The trouble with retirement is that you never get a day off.
~Abe Lemons

How much retirement savings do you need? Probably more than you think. I read one column about a couple that thought 1 million dollars would be enough. But the children needed help with their mortgages and the money was greatly depleted.

Megan McArdle at TheAtlantic.com says, You Need More Retirement Savings. The old school thinking was that your expenses will be less during retirement. The house is paid off. (Maybe? Did you get a second mortgage or treat the house as an ATM with repeated home equity loans?) The kids have graduated college. Your house is furnished and you're not planning any major changes. Only a car loan remains.

In retirement the work expenses of commuting driving or train, business lunches, business clothes, etc are a thing of the past. But there'll be new expenses for health care - especially once you're off the Cadillac quality health plan and facing higher copays and deductions.

"Medicare does not cover everything--Medigap insurance is costly, and may still leave you with considerable out-of-pocket expenses."

You may also find that you'll need to hire a maid service to keep the house clean, or someone to mow the lawn, shovel the snow, etc. Not that you're lazy or lack the time but you might be physically unable to do the labor like you used to.

But I've thought of that you say. I'm planning to sell the house, buy a cheaper condo or assisted living apartment and pocket the difference. But suppose you're trapped in a terrible housing market like we have now where no one is buy or you get half of what your home used to be worth? Or you're competing with the other baby boomers for decent retirement space and prices for "retiree" homes shoot up.

Bottom Line

McArdle concludes that you retirement spending habits will be "about the same amount as I need now ... Even assuming that Social Security continues as promised, most people don't have nearly enough saved to make up their current incomes."

Confusing Credit Terminology

The creditor hath a better memory than the debtor.
James Howell

John Ulzheimer, President of Consumer Education at SmartCredit.com, explains seven pairs of confusing credit terms at http://www.mint.com/blog/how-to/confusing-credit-terms-02212011/

I'll paraphrase and elaborate and try not to make any mistakes.

Credit Report vs Credit Score

A credit score is a financial "grade" based upon an interpretation of your current credit report by a credit agency. (See FICO score below)

Credit Report vs Credit File

A credit file is all the information about you that is floating around a credit bureau’s database waiting to be compiled into an official credit report. No one outside a credit bureau should see your credit file while your credit report can be purchased by banks, auto dealers, etc.

Credit Reporting Agency vs Consumer Reporting Agency
“Consumer reporting agency” is a legal term describing any organization that regularly compiles information about consumers for the purposes of selling it to a 3rd party. 

A credit reporting agency is just one example of a consumer reporting agency. A non-credit example is LexisNexis; they collect personal data and create consumer reports for employment screening, resident screening, insurance underwriting, and volunteer background checks.

Credit Score vs FICO Score

FICO is an acronym for the Fair Isaac Corporation, the creators of the very popular FICO credit score. There are other credit scores like NextGen and VantageScore but hardly anyone uses them. It is important to know which type of score you have because the ranges are different: A FICO score is between 300 and 850. A VantageScore score ranges from 501-990.

Home Equity Loan vs Home Equity Line

A home equity loan is a loan with a fixed payment for a fixed number of months. (Ignoring for simplicity variable rate loans.)

A home equity line is a revolving line of credit, just like a credit card. You can borrow against it, pay it back, and borrow again.

In both cases the loan/line is secured by your home, which means if you default on your payments you could lose your house.

Credit Card vs Charge Card

A credit card is a revolving account, which means you have a variable payment depending on your outstanding balance for the month. 

A charge card (like American Express) requires payment in full each and every month. There is no minimum payment and no rolling the rest over with interest to be paid in the future.

Chapter 7 vs Chapter 13

Both are types of consumer bankruptcies.  Under Chapter 7, “liquidation”, any "statutorily dischargeable debt" is eliminated. 

Under Chapter 13 the debt is "adjusted." The consumer pays to a trustee who then distributes the money to the consumer’s creditors.

Bottom Line

When my wife got a home mortgage she had a great lawyer. He made her read the entire contract with the bank. She said, but that's your job.

He replied, no. It's your money and your home. You must understand what you are signing. His job was to make sure the contract was fair and to help her to understand the language of the contract she would have to live with for the next 20 or 30 years.

Always read and understand any financial document you sign.

Common Money Mistakes

Picasso, self portrait

“I'd like to live as a poor man with lots of money.”
- Pablo Picasso

The website GetRichSlowly has a guest post from Money Girl, Quick and Dirty tips for Richer Life that describes Common Money mistakes at different stages of life.

Your 20's - You've graduated college and are good making money (hopefully). Don't spend it all! And don't get cocky:
- Avoid accumulating credit-card debt: don't fall into the trap of spend and pay later
- Do participate in a 401(k): yes retirement is far away but it takes time to build a nestegg that will last for decades of retirement. Start now!
- Seek professional advice: admit it, you've new to managing money. Learn how to do it right with an advisor or financial coach.

Your 30's - at this stage you most likely have a family and home to care for. Watch out for the following:
- Emergency Fund: you should have emergency savings to cover at least six months of living expenses like rent, groceries, and utilities. Given the current economy, unemployment is lasting for more than six months so go for a year of savings if you can.
Be honest in what a month of expenses is. Look at your bank account and credit cards to see what you really spend monthly.
- Don't skimp on retirement savings: invest all you can for retirement, you won't regret it.
- Insurance: be fully insured to protect yourself from financial disaster if you lose your house, your car, or suffer extreme illness with huge bills.

Your 40's - the kids are leaving the nest, retirement is only two decades away
- Don't ignore retirement:  use online retirement calculators to see if you are on track or falling short. It is not too late to invest with 20 or 25 more years of employment
- Don't accumulate debt: Debt is the opposite of retirement savings. It eats aways at your net worth with interest payments. Aim to be debt free ASAP.
- Don't raise financially ignorant children - teach your kids to manage money. Don't let them become adult leeches that will suck you bank accounts dry. And don't pay their way into an expensive car or home. It took you years of hard work to get the lifestyle you have. They should not expect to start at your level. Also be careful with loaning money - loans to relatives are the cause of much bitterness

Bottom Line

"Taking the time to learn about money and wealth pays off whether you’re a young student, a grandparent, or somewhere in between." - Money Girl

Things to do before a house fire

Mae West

"A man can be short and dumpy and getting bald but if he has fire, women will like him."
-Mae West

From the Consumerist.com a house fire victim lists

9 Things We Wished We Did Before Our House Burned Down

1. Subscribe to an online data backup service.They had an external back-up drive but it sat right next their laptop and both burned up. We use Windows Live Mesh which gives 5 GB of storage on the Internet.

2. Keep passports in a safe deposit box
Passports are handy if you need to prove your identity and you've lost your wallet or purse.

3. Take pictures of each room initially and update them as improvements are made (store them offsite - like Flickr)
The photos will come in handy when inventorying what you lost.

4. Take pictures and keep hyperlinks of all expensive purchases, including jewelry. Scan receipts[for expensive purchases] and store offline.
You'll want this for insurance recovery.

5. Hire an architect (my dad in our case) or use floorplanner.com to document each floor layout along with precise wall/ceiling measurements, each outlet, light switch, crown molding, other trim, type of flooring, any unique items to structure of property
Not sure why. So you can rebuild an exact duplicate of your house?

6. Put phones in a consistent place each night
When you need to call 911 you want to know where the phone is!

7. Get fire ladders for any second floor bedrooms
Safety first. And drill yearly. A fire is a bad time to learn the window is painted shut.

8. Scan each photo, again keeping them offsite, or on an online data backup service
We opted NOT to back up music files, those are replaceable. We do back-up all digital photos.
9. Do not be frugal with homeowner's insurance. Spend the extra $50 per year for the most coverage.

Bottom Line

This is good advice and the time to do it is now. You hope never to have a home fire but it is frighteningly common. U.S. fire departments responded to nearly 1.6 million fire calls in 2007 that resulted in thousands of deaths, tens of thousands of injuries, and billions of dollars in property loss.
At 40 percent, cooking is the leading cause of residential structure fires. Heating causes another 14 percent.

Privacy

"Relying on the government to protect your privacy is like asking a peeping tom to install your window blinds."
-John Perry Barlow

Many people are concerned about their privacy being violated by the Internet. Information about you is collected and sold in ways you might not be aware of. For example, if you unsubscribe to a spam email then you've just told them that the email is an active account reaching a live person. They can sell that fact to other spammers.

dailyfinance.com reports on other agencies that collect information about you in Who Is Watching You?

The IRS "knows everything about what you earn and any major transactions you make. It can access every bit of information it needs to determine how much money" you owe in taxes.

The FBI "keeps a database of over 90 million fingerprints, ... It also has an extensive database of DNA, [since 9/11] It now tracks a large portion of mail, cell phone traffic and Internet activity of people it deems suspicious.

The article also list 9 industries that collect personal information ranked by the number of people they track.

1. Credit Rating Agencies: Equifax, Experian, and TransUnion
2. Cell Phone Service Providers
3. Social Media Companies (Facebook)
4. Credit Card Companies
5. Search Engines (Google)
6. Retail Chains (Walmart)
7. Casinos
8. Large Banks (Bank of America, Chase, Citibank)
9. Life Insurance Companies

Bottom Line

Visit the full article for details on how each company is recording what you do. It's quite scary.

Fruits of Obamacare

“Insurance: An ingenious modern game of chance in which the player is permitted to enjoy the comfortable conviction that he is beating the man who keeps the table.”
- Ambrose Bierce

The Washington Post reports that, "Some of the country's most prominent health insurance companies have decided to stop offering new child-only plans, rather than comply with rules in the new health-care law that will require such plans to start accepting children with preexisting medical conditions after Sept. 23." Existing policies will be honored but no new child-only polices. An industry spokesman points out that with no right of refusal, parents can "wait until their child becomes very sick before purchasing coverage." Under Obamacare, child-only plans could rapidly skew towards mostly children with expensive medical bills, either bankrupting the plans or forcing insurers to make up their losses by increasing premiums for all customers.

The skewing of insurance to the very sick is already happening in Massachusetts where anyone can buy health insurance last second. Many individuals buy when sick and cancel after treatment. In Massachusetts it is cheaper to pay the uninsured penalty than pay for coverage when not needed. Health care advocates can yell and scream, "[It] is immoral, and to blame their appalling behavior on the new law is patently dishonest." But it is the advocates who are dishonest. The Health Insurance is a for profit business, not a charity, and the advocates conveniently forget how Insurance companies work.

The theory behind insurance is simple: spread the risks of a few amongst the many. The sick are subsidized by the many healthy who are paying in. Just like Social Security for retirement is covered by the many employed paying in. Imagine that the aging population reaches the point where 50% of all adults in America are retired seniors. Then every person on Social Security would be funded by one working person. A working person would have to earn enough for his/her own family plus taxes plus enough to give a retiree a living income plus the overhead cost of a government bureaucracy managing the money. That just not feasible. Likewise with heath insurance, the system collapses if mostly the sick are the only ones making payments since each sick person is receiving back more than they are paying in.

A spokeswoman for the Department of Health and Human Services says, "We expect [insurance companies] to honor that commitment. Insurers shouldn't break their promise and turn their backs on some of our most vulnerable Americans." This is just absurd. There is no promise, no commitment, there is only business and the new law allows families to "game" the system and violate the priciple of insurance with a large pool where many contribute but only a few collect.

People may think the insurance model is "unfair". But it is no different than lottery systems or any gambling business. Many pay a small amount with the hope of a big payout. The size of the payout and the odds of winning are carefully balanced against the number of people paying. The lottery system would collaspe if there were "high risk" individuals who were super lucky and frequently picked winning numbers. The lottery would want to ban these individuals just like Casinos ban card counters from Black Jack or anyone else they think is having above average luck at winning. Obamacare is equivalent to telling the Lottery and Casinos that they must accept all players no matter how "lucky" they are. In response I would expect Casinos to stop playing Black Jack to prevent losses from card counters.

Bottom Line

The Washington Post article ends by pointing out that "most poor children with preexisting conditions already qualify for insurance through programs such as Medicaid and the Children's Health Insurance Program. And those who are not poor will be able to apply to new high-risk pools established by the law."  Also the insurers who will stop child-only policies will still accept children with pre-existing conditions with new family plans. The healthy family members help cover the costs of the sick child.

The idea that insurers "turn their backs" on sick children is just spin. What has happened is that government has changed the law in such a way that child-only policies may become unprofitable. Insurers are jumping ship before they get stuck with a loss for these specialized policies. Families may still buy family policies.

Ten Worst Money Mistakes Anyone Can Make

"Money get back,
I'm alright Jack keep your hands off my stack."
-lyrics to Money by Pink Floyd

FreeMoneyFinance.com says there is just one rule to managing your money:
Spend less than you earn over a long period of time

While this is great advice, you can still lose your shirt by making one these Ten Worst Money Mistakes.

1. No Emergency Fund
Things happen; the washing machine breaks, car needs repairs, kids need braces, and so on. Borrowing money to pay for life’s emergencies will just put you deeper in debt. Protect yourself by keeping six months of living expenses in a SAFE place. Safe means not in stocks or any investment that can lose value suddenly. CDs are nice but the money is locked up for months or years. I keep six months in a savings account. It earns peanuts but it’s always there if I need it.
Corollary: if you use your emergency fund, pay it back ASAP.

2. No Will
57% of Americans have no will, including 69% of parents with kids under 18. If the parents die the State will decide how the money is allocated.

3. Not Enough Insurance
Insurance is the ultimate emergency fund for really big events like the total loss of your house or car. Consider also an umbrella policy on your house that covers lawsuits and liability like someone slipping on your icy sidewalk. Our umbrella policy paid off when a small leak was found in our underground oil tank.

4. Marrying the Wrong Person
Marry someone who agrees with your money style. A miser and a spendthrift are incompatible and divorce is expensive.

5. Not Saving
Put away at least 10% of each paycheck for future expenses like a new car, college tuition, vacation, etc. Don’t borrow for these big ticket items. The only item that is just TOO big to save for is a new house.

6. Too much house
Speaking of houses, don’t buy more house than you can afford. Don’t count on overtime or a future raise to pay the mortgage. Put as much money down as you can, say 20%, and aim to pay off the loan within ten years. The interest on a 20-30 year loan is a monster. My parents bought a $70,000 home but the total mortgage payments over 20 years would total $240,000.

7. Waiting to Invest
Don’t wait for a “good time” to invest. I’ve had stocks plunge to half their value and thought they would never recover. But they did. The NY Lottery (which I don’t recommend) says you have to Play to Win. Likewise you have to invest to make any gains.

8. Being in Debt
Debt eats your money. The goal is to earn interest and make money, not pour it down a hole to make someone else wealthy.

9. Not maximizing your Career
Your job is where you’ll earn most of your money. Even a small raise in pay will accumulate over the years to a nice amount. Work hard and get paid what you’re worth.

10. Over Spending
This violates the prime directive (spend less than you earn) and is a sure way to go into debt. Everyone says, “I don’t earn enough”, but in reality it’s how you spend, not what you earn that makes a difference. Boxer Mike Tyson earned $300 million in his career, but it wasn’t enough for his lavish lifestyle. He filed for bankruptcy in 2003, owing $27 million.

Bottom Line

Check out the full article at Ten Worst Money Mistakes Anyone Can Make. It contains dozens of useful links for Estate Planning, emergency fund planning, Insurance planning, etc, contained within the story.

Travel Insurance vs Volcano

All my bags are packed I'm ready to go
I'm standin' here outside your door
... Don't know when I'll be back again.
- lyrics from "Leaving On A Jet Plane"

If you're worried about flying to Europe right now and are thinking about buying travelers insurance, "just in case" the flight is cancelled because of Iceland's Eyjafjallajokull volcano - forget about it. The Wall Street Journal reports that the volcano is excluded from all policies purchased on or after April 13.

"It’s called the theory of the burning house. If your house is ablaze, you can’t go out and quickly buy homeowners coverage. In travel, as soon as a storm or event is known, you can buy all the insurance you want but it won’t cover those “known’’ events. Once a hurricane is named, most policies won’t cover it
if the insurance was sold after the moment the storm was identified." - WSJ

The WSJ points out that even if purchased before April 13, travel insurance may be of limited use. When airlines refund tickets for canceled trips, there’s no claim with insurers. Many policies have limits on daily expenses if you are stranded away from home. If you can’t get to a hotel that you prepaid, insurance may not kick in because the hotel isn’t “uninhabitable.’’ It's your fault for not finding another way to get to it.

Travel insurance rarely covers your cancelling due to fear of unsafe travel or unsafe conditions—for example fear of terrorism is covered only if the attack happens in your destination city. Everywhere else is safe to fly. Same with hurricanes – your resort may have to be declared uninhabitable before your insurance would cover you. It's not enough that your resort was hit hard, barely functioning, and won't be the dream vacation you paid for.

Bottom Line

Read insurance policies carefully before buying. What you have in mind may require a more-expensive “cancel for any reason’’ policy that will cover pre-existing medical conditions, family emergencies, etc. Check the daily limits for reimbursing hotels, lost luggage and other expenses.

Disability Insurance

"Insurance: An ingenious modern game of chance in which the player is permitted to enjoy the comfortable conviction that he is beating the man who keeps the table."- Ambrose Bierce

Shortly after I got married, my new wife and I attended a free financial planning seminar. We were by far the youngest persons in the room (I was in my late 20's at the time.) Everyone else was near retirement by which point it's a bit late to begin "planning." As a follow-up to the seminar we were offered a free review of our assets with a Financial Planner. We listened carefully to the advice offered and followed all of it EXCEPT for one item: buying Disability Insurance.

The purpose of disability insurance is to compensate for lost wages if you are unable to work due to injury or medical reasons. (AFLAC says the duck.) We decided against buying disability insurance because of the high cost - much more than our car or home insurance.

A reason for the high cost might be the high odds of collecting on the insurance. The book “How To Insure Your Income” claims everyone has an 80% chance of being disabled for 90 days before age 65. Others set the odds much lower at 30% for blue collar jobs and 10% for white collar jobs. In my case I've been "disabled" twice for back surgery, each requiring a six week recovery. In both instances I took a brief sick leave and was allowed to work from home with a laptop computer. I was fortunate.

Alternatives to disability insurance include:

-Social Security. It may take more than a year for your claim to be processed and longer if you appeal a rejection. It pays at best a few thousand dollars a month.
- Worker’s compensation. Covers you only if you were hurt on the job.

Bottom Line

If you're interested in Disability Insurance, check out Questions to Ask Before Buying Disability Insurance. Questions include:

• What percentage of my income will you replace if I become disabled?


• Is there a maximum payout that you’ll make (in dollars) per year, no matter what I earn?


• If I can’t return to the job I had before, can I continue to draw payments forever? Until I’m 65? Or some shorter period of time?


• Will you guarantee that I can renew the policy each year, at the same price? What about at a higher price?


• If I’m paying the premium on time, are there any circumstances under which you can cancel my policy?


• What if I’m unemployed and can’t pay the premium for a short period of time?


• Is there a waiting period after you become disabled before you can start collecting on a claim?


• What injuries or illnesses does my policy exclude? If I’ve already been treated for depression or back pain or cancer will you not cover those maladies at all in the future?

Get the answers in writing!

The danger of saying too much

"Facts do not cease to exist because they are ignored." -Aldous Huxley

The ending of the article discussed yesterday, 5 things never to tell your insurer, is so good that I wanted to give it a day of its own.

Here are things NOT to do after a car accident.

* Do not give a recorded statement to the other driver's insurance company. It will be used against you later on. Insurance companies must ask you for your permission in order to record an interview. Talk to your own insurer first.

* Do not make friendly conversation with adjusters. Stick to business and only tell them the "who," "what," "when" and "where." Don't tell them the how – that is just your opinion.

* Do not give out any information about your family. Do not give out the names of your doctors.

* Do not sign a medical release. Federal law protects your medical records. The insurance companies may use your release to dig through your medical history looking for a cause like dizziness.

Bottom Line

As children we are taught to be nice. To be helpful and friendly. But it can be a mistake to treat an insurance agent or any official as "a friend". I was very impressed with my wife's estate lawyer when introduced. We had a long friendly chat. Imagine my shock at learning later that our "chat" was being charged at lawyer hourly rates!

If a profressional (like a medical insurer) is super-friendly and starts asking personal questions, stop and ask yourself, "why?" Is this person actually trying to help up or are they hoping you'll let something slip that can be used against you?

When buying a house most people assume that the real estate agent is on their side. Often they are not. Some get a commission on the price of the house sold so it's in their interest for you to spend as much as you can. Others take a flat fee for their services and will put your interests first. Find out in advance whom the agent is working for - you or the home seller.

I learned this the hard way about Human Resources. I thought they existed to help employees. But they work for the company first. I once reported a concern only to have the HR person laugh at me and then blab about the absurdity of my concern to higher management.

Watch what you say to Insurers

`When I use a word,' Humpty Dumpty said, in rather a scornful tone, `it means just what I choose it to mean -- neither more nor less.'
`The question is,' said Alice, `whether you can make words mean so many different things.'
`The question is,' said Humpty Dumpty, `which is to be master -- that's all.'
- Through the Looking Glass, by Lewis Carroll

MSN MoneyCentral has a great article called 5 things never to tell your insurer. They start the article pointing out that it is a criminal offense, fraud, to lie to your insurer. But the truth can go horribly wrong when the wrong words are used.

For example when your hot water heater breaks you might say your basement is flooded with water. But the word, “flood”, is a red flag for insurers – most policies do not cover flood damage. Fortunately insurers have a very specific definition for “flood” - water overflowing from a nearby lake, stream, river or other body of water. So with a pipe leak you have “water damage”, not “flood”.

Never say "experimental", "investigational" or "clinical trial" when you need a medical treatment that isn't a common practice. Just because it isn't common practice doesn't mean these insurance rejection terms apply to it. Mark O. Hiepler, a California attorney, advises clients to always say, 'It's medically necessary,' when referring to treatment. Also avoid the term “whiplash”. This is another red flag because of the many fake whiplash claims. Wait for a medical diagnoses and use only the terms in the doctor’s report.

Never guess or give an opinion in an accident. Just report the facts, don’t elaborate or estimate details like how fast the other car was moving. Did you measure the distance with tape? Did you look at your speedometer just before impact so you know exactly your speed? Your guess, if wrong, could harm your credibility and your claim. An insurer will ask and ask again for exact details like distance and speed that you cannot know with certainty. They are hoping you’ll give them an excuse to reject the claim. Suppose you say a car 40 feet ahead slammed on its brakes without warning and you hit it. The insurer might claim you had sufficient safe stopped distance so the fault is yours. Or they might decide you were tailgating and again the fault is yours.

Bottom Line

In most car accident aftermaths, all the facts are not immediately known. Don’t assume it’s your fault. Words like “I’m sorry” can be used against you as an assumption of fault. If you're not sure about how something happened, let the authorities and insurance companies figure it out. Ask your insurer about how you should respond to the other party’s insurer if they should call.

Stick to business and don’t get into “friendly” conversations with your insurer or a third party insurer. Your every word is recorded and will be used against you.

Stay or Go?

Should I stay or should I go now?
If I go there will be trouble
An’ if I stay it will be double
So come on and let me know!
- lyrics by The Clash

Whenever I have the opportunity to watch BBC news, I’m always impressed by the extensive coverage of world news. American news networks rarely talk about world events unless there is a presidential visit or bad news in a US overseas war. That may explain how I failed to learn about the huge impact of an earthquake in China one year ago.

According to CNN.com, on May 12, 2008, at 2:28 p.m., Sichuan province was hit by an 8.0 magnitude earthquake. The quake could be felt over 1000 miles from the epicenter. It killed at least 68,712 people, with 17,921 missing, and more than 374,000 injured. More than 15 million people where displaced from their homes. CNN notes that, “One year after the quake struck, China is still counting the toll. “

One scandal following the quake is the Chinese government’s attempt to block any investigation of shoddy construction of school buildings. It took an entire year for the government to be shamed into releasing the student death toll. Only a few days ago did the government acknowledge that , “Thousands of schools collapsed in the earthquake, trapping students under the debris. Among the victims, 5,335 students died or are missing.” – CNN. Protesting parents and investigative reporters have been harassed and accused of prying into "state secrets."

Chinese officials claim that post-quake reconstruction is progressing well and point to 1 million new houses built in rural areas and 33,000 new apartments in cities with hundreds of thousands of more housing units are under construction. The government says it has helped nearly 1.3 million quake victims find new jobs. But if 15 million people were displaced and if each family has exactly one child (Chinese law), then only 1 in 5 of the affected families have new housing. Were 4 million families able to move and buy homes elsewhere? Or are they living in “prefabricated housing camps.”

Bottom Line

The effects of massive disasters like the Sichuan earthquake or Hurricane Katrina persist long after the media and rescue workers have gone. Homes, businesses, schools, and infrastructure must be rebuilt before lives can return to a level of normalcy. This can take years.

Don’t wait for government to “make things right.” Sometimes the best option is to move away and start a new life in a region not impacted by disaster. Of course millions of others may have the same idea but still the competition for jobs and homes should be less the further away you get from the disaster zone. House insurance may help you afford buying a new home elsewhere – BUT check your policy now. Are earthquakes covered? Most policies exclude flood and require an additional flood rider. Insurers are notorious for finding ways to avoid paying you, especially during large scale devastation when the cost to them is quite high.

Inventory Service Provider

“To state the facts frankly is not to despair the future nor indict the past. The prudent heir takes careful inventory of his legacies and gives a faithful accounting to those whom he owes an obligation of trust.”-John F. Kennedy

If your house burned down to the ground, could you remember all the contents? Could you prove to the insurance company that you really had a giant screen TV? Most likely your receipts burned up too.

What we did is photograph our house contents with our digital camera. We keep copies of the pictures on thumb-drives in my wife's purse and our go-kits.

Another idea is to hire someone to take an inventory for you. I saw an ad for Aussie Home Inventories. The web page is well done but, of course, is selling their product.

"Did You Know Most People Find It Impossible To Create An Accurate List Of Property After A Loss?"

"Why Gamble With Your Assets, Your Home? - When the Simple Solution Is To Easily Get Prepared By Documenting Your Property Before The Loss!"

"Speed up the process of any insurance claim, by having 'at hand' accurate records."

Bottom Line
The Australian site points out that a home inventory is useful for many of life's unpleasant circumstances:

• Fire
• Natural disasters
• Theft
• Divorce (need to divide up the property)
• Estate planning

"How Many People Wished They Had An Inventory After An Event? -All Of Them!"