Wednesday Welcome: Four Potential Holes in Your Homeowners Coverage

This week’s guest poster is Glen Craig — you may know him from the popular personal finance blog Free From Broke. The goal of his blog, to make personal finance easy for his readers, aligns perfectly with Jean’s goals here, and so we were thrilled when he agreed to guest blog. Below, he calls attention to some possible shortfalls when it comes to your homeowners insurance.

GlenCraig_Profile_PicYour home is probably the most expensive thing you own.

As a result, it makes sense to protect it as much as you can. This usually means purchasing homeowners insurance.

Homeowners insurance is supposed to reimburse you for costs related to fixing damage to your home. Damage to your home can be financially devastating without insurance coverage.

Homeowners insurance offers peace of mind, and it offers financial protection — as long as you truly are covered.

While you might think you are covered for any circumstance, the truth is that a standard homeowners insurance policy comes with holes. You might not have the coverage you think you have, and that can result in an unpleasant and financially catastrophic surprise.

Here are 4 potential holes you might have in your homeowners coverage:

1. Natural Disasters

There are certain natural disasters that might not be covered by your homeowners insurance policy.  Common exemptions from your policy include:

  • Flood
  • Earthquake
  • Tornado
  • Hurricane
  • Landslide
  • Sinkhole

If you live in an area especially prone to these natural disasters, chances are that your regular homeowners policy won’t cover damage to your home. Instead, you will need to purchase separate coverage in order to make sure that you are adequately covered. Otherwise, the repair/rebuilding costs are borne entirely by you.

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Wednesday Welcome: Making the Most of Company Benefits

This week we welcome Sophia Bera, a certified financial planner who caters to millennials — though this particular post, about how to maximize your company’s benefits, is a good reminder to us all. Whether you’re just starting a job or you’ve been with the same company for years and haven’t re-looked your benefits in a while, the below advice will help you make the most of what your company is offering.

Bera - HeadshotDo you remember what company benefits you signed up for when you were first hired?  Did you make any changes during open enrollment this past year?  When it comes to working for a company, the salary offered isn’t the only aspect of the job to take into consideration. Unfortunately, many people only skim through or completely overlook their company benefits package – and this can be a big financial mistake.  Many of these benefits come out of your paycheck pre-tax which helps you lower your tax bill and save you thousands of dollars in the long run!

You might be leaving a lot on the table if you fail to comb through your benefits and take advantage of what you company is offering its employees. It’s more than just an employer match in a retirement account (although that is a big benefit you need to be sure to grab). Here’s where to start and what to look for:

Request Your Company Benefits Package 

If you work for a company with an HR department, you might want to start there. The department (or whoever is in charge of staffing concerns, if you work for a small business) should be able to provide you with some sort of handbook or paperwork that details what you are entitled to as an employee.

It can be really overwhelming to dive into pages and pages of technical writing on your benefits, but understanding the perks that come with your job is important! By utilizing what you can, you could save thousands of dollars in expenses throughout the year.

Common Company Benefits

Before you start feeling too bogged down in all the paperwork that explains your benefits, take a look through this list so you’ll know what to be on the lookout for:

  • Retirement Benefits. The biggest benefit you need to be taking advantage of is any kind of retirement account your employer offers, such as 401(k)s, 403(b)s, or a SIMPLE IRA. Sign up for the retirement plan your company offers and make sure you contribute enough to meet the match if there is one. This is free money! If your employer offers to match your contributions up to 5%, you need to contribute at least 5% of your salary to get the full benefit.
  • All Kinds of Insurance. It’s widely known that the majority of companies offer some sort of health insurance coverage to their employees. But they also offer other types of insurance that you need to take advantage of to make sure you and your family will be protected in the event of a disaster or emergency. Your company benefits could include life insurance, disability insurance (both short term and long term), a health savings account, and flex spending accounts (one for health care and one for childcare costs).
  • Financial Perks in Addition to Your Normal Salary. In addition to your regular paycheck, your company benefits might include things like stock options in the form of a employee stock purchase plan (or ESPP). This allows you to buy company stock at a discounted price. You might also be entitled to reimbursements on your wardrobe, commuting expenses, or other costs that you incur that are a direct result of working for your employer. This will all depend on the company you work for, so be sure to look into this and ask questions!

Finally, don’t forget about vacation time. On the surface, this might not seem like a financial perk. But remember, when you take vacation days you’re getting paid for hours that you’re not actually working.  Be sure to make the most of your paid time off.

Your company benefits package can be a lot to look through, but it’s crucial you take the time to do so. If you’re want to learn more about benefits, you can take a more in-depth look at my post on my website, Gen Y Planning, on how maximizing your company benefits could save you thousands of dollars!

About Sophia: Sophia Bera, CFP® is the Founder of Gen Y Planning and is a financial planner for Millennials.  She’s passionate about helping people in their 20s and 30s across the country with their money. She is a contributor for AOL’s Daily Finance website and has been quoted on various websites and publications including Forbes, Business Insider, Yahoo, Money Magazine, InvestmentNews, Financial Advisor magazine, and The Huffington Post. She was named one of the “Top Financial Advisors for Millennials” by the website www.MoneyUnder30.com. Follow her on Twitter @sophiabera or sign up for the Gen Y Planning Newsletter to stay up to date on financial articles geared towards Millennials.

Mailbag Monday: Fee-Only Life Insurance Advisors

Picture-1I have a friend that has been taken advantage of by an unethical broker. Because I work in the industry, I am helping her clean up the mess and file a formal complaint. She also needs help with life insurance and I am not knowledgeable enough to help her. Is there any kind of resource, akin to a fee-only planner, that she could use to evaluate her needs and determine the best option? All avenues I am aware of turn to people who have a vested interest in selling a product. Thanks.

– Margaret

Margaret, she’s lucky to have you! There are, in fact, fee-only insurance advisors who – like fee-only financial planners – who will help you figure out the right life insurance policy (with the lowest commission) for you. Unfortunately, there aren’t many of them. I only know of three – and I’m going to point you directly to them. Glenn Daily is in New York, NY. Peter Katt is in Mattawan, MI. And Scott Witt, whom I learned about from this Bankrate.com story, is in New Berlin, WI. I can vouch for Daily and Katt because for many years, they were sources I called whenever I was writing a story on life insurance. Some fee-online financial planners may be able to help you with this as well. You can find ones near you by using the locator tool at NAPFA.org.

Mailbag Monday: Life Insurance in Retirement

Picture-1When does buying life insurance at the age of 74 make sense? We are thinking in terms of protecting our estate, but aren’t sure if we need to do that. We do have a trust.

– Evelyn

Let’s first talk about what life insurance is for: You purchase this insurance product when you have someone who is dependent on your income — a partner, children, perhaps elderly parents — and you want to protect them in case you die prematurely.  That means the vast majority of people do not need life insurance unless they have an income, which means many retirees should pass on this product.

There are, however, a few exceptions: If your spouse is dependent on a pension or annuity that will cease or decrease payments upon your death, or Social Security payments that will be reduced. Or if you want to use it as part of an estate planning strategy, as you indicated – if you plan to pass on a large amount of money, you can use a life insurance policy to pay for estate taxes. You can also set a life insurance policy to pay into that trust you have.

But purchasing life insurance at age 74 will be extremely expensive, even if you are in good health and you’re looking at a term policy. The high premiums may not be worth it – you may be better off investing that money elsewhere. If you’re planning to go this route, I would work with a good fee-based financial advisor who focuses on estate planning to make sure you’re taking the correct approach.

 

Try-It-Out Tuesday: Should You Buy Travel Insurance?

As any travel expert will tell you, August is a peak time to travel — yet it’s also the month that sees its fair share of disastrous weather. Consider: Hurricane Andrew hit the Gulf of Mexico in August 1992, Hurricane Katrina devastated New Orleans in August 2005 and Hurricane Irene slammed the Caribbean and East Coast of the U.S in August 2011. If you have an upcoming trip this month, you might be wondering: should I protect that trip with travel insurance?

In general, the answer depends on your situation: your tolerance for risk, your health, and how long ago you booked your trip. For a trip happening in a week or two, that last consideration might give you an easy yes or no.

iStock_000019714677Small“Travelers want to insure their tip once they make the initial deposit. Seven to 30 days after they book that trip — and no later than that,” said Jim Grace, CEO of InsureMyTrip.com, a site that lets you compare plans from over 20 different travel insurance providers. “You couldn’t buy a cancel-for-any-reason policy now if you paid for your trip back in January.”

Grace says that basic trip insurance will cost four to six percent of the cost of the trip, per traveler, though that cost can rise to eight to 12 percent if you want a comprehensive “cancel-for-any-reason” policy that will let you cancel for, yes, any reason (travel anxiety, sick grandmother, hurricane, anything) as close as 24 hours before the trip. A more basic package will still cover trip cancellation, trip delay, medical treatment and evacuation, though it is possible to buy just a medical policy or just an evacuation policy.

Ultimately, the decision to buy travel insurance — and which policy to buy, if you do decide to buy one — boils down to these three questions:

Do I need health coverage? If you’re traveling domestically, the answer is probably no. If you’re traveling internationally, it’s worth checking to see if your primary insurer includes international coverage; if they don’t and you or a travel companion has a health condition, it might be worth getting a travel medical policy so that you’re covered should you need to see a doctor or visit the emergency room in a foreign country. And if you’re on Medicare, like Bill Golden, a 65-year-old retiree who enjoys going on Caribbean cruises with his wife, it’s also worth looking into a travel medical policy. “Medicare doesn’t cover you when you’re out of the country. The healthcare part is very important to us,” Golden said. On the 11 cruises for which he’s purchased travel insurance, he’s never had to use it — but he’s never regretted buying it. “We’ve never collected, not even for loss of luggage,” Golden said. “But it’s the peace of mind that’s worth it.”

Do I need an escape option? Linda Fallon, senior vice president of travel insurance provider RoamRight, said that if you’re traveling to a third-world country with subpar medical treatment, it’s worth buying a policy that covers evacuation back to the U.S (or a country that can provide good health care). “You’re not going to want to be treated in a third-world country. Something that can get you flown to a quality standard of care is essential. Not only does it protect you financially, it protects you physically,” Fallon said. She also noted that an evacuation policy would cover the cost of quickly leaving a country where there is a security crisis, a terrorist incident or unexpected civil unrest. (Fallon said that insurers can’t geo-rate the pricing, meaning evacuation coverage is the same cost in France as it is in Egypt. The only country RoamRight won’t cover right now is Afghanistan.)

Do I care if I lose this money? InsureMyTrip’s Grace said that the ultimate litmus test to determine whether or not you need travel insurance is to ask yourself whether or not the amount of money you’d lose if a trip is cancelled is an amount you mind losing. “If someone is going to Disneyland for $500, that may be a lot of money and they want to insure it. You have to look at your tolerance for risk,” Grace said. “I’m uncomfortable losing $1000, so I’ll spend $40 to $50 dollars to cover what I need.”

Finally, it’s important to note that if you’re booking last-minute travel now for late August or early September, you can still get trip cancellation coverage to protect your trip from a Hurricane Gustav or Hurricane Floyd. The key, both Grace and Fallon said, is to buy the insurance before the storm is on the National Oceanic and Atmospheric Administration (NOAA) map — and before it’s named. “If it’s named, you can’t buy the insurance for that particular storm. It’s a known event, it’s going to happen somewhere,” Grace explained. To see what storms are heading down the pipeline, you can head to NOAA.gov or weather.gov for predictions and information.

Mailbag Monday: Life Insurance or Mortgage Insurance?

iStock_000016108788SmallI am 63 years old with $250,000 in term life insurance. There are two policies; the first one for $100,000 will expire this month, leaving me with $150,000. I am comfortable with that amount, but I am thinking I might like $50,000 more in coverage. Would mortgage insurance be a better option for that additional coverage?

– Gordy

Hi Gordy, thanks for writing. Generally speaking, you want your insurance to be broad, meaning that it covers as much as possible — a range of things rather than one specific item or need. Mortgage insurance will pay off your mortgage if you pass away, and that’s it.

Term life policies, on the other hand, like the ones you have, are there to pay out for anything your family needs after you die. That’s generally a better deal, overall — mortgage insurance protects the mortgage lender almost as much as it protects you. Your spouse, if you have one, may want to continue paying off the mortgage slowly — especially with today’s low interest rates — and use a life insurance settlement for other day-to-day expenses. With a term life policy, she’ll have the flexibility to do that. It’s difficult to predict how a beneficiary is going to need to use the money, so a broad policy that allows for many options is often the best choice.

I think it’s also worth pointing out here that you’re smart to review your life insurance needs. Based on your age, I’m going to guess that you’re not yet retired, but you may be stepping back from the workforce shortly. Everyone should reevaluate their insurance coverage as they enter retirement, because when you’re no longer earning an income, you may no longer need life insurance. I would re-evaluate your needs with a life insurance calculator like the one at lifehappens.org. And note: This goes beyond life insurance. You may be driving less in retirement, which could lead to a reduction in your auto insurance premiums. Staying home during the day could get you a deal on homeowners insurance. Call around to all of your providers.

 

Mailbag Monday: Life Insurance at 74

photo-money-nestWhen does buying life insurance at the age of 74 make sense? We are thinking in terms of protecting our estate, but aren’t sure if we need to do that. We do have a trust.

– Evelyn

Hi Evelyn, that’s a great question. The vast majority of people do not need life insurance unless they have an income, which means many retirees should pass on this product. Getting rid of life insurance, or letting a term policy expire, is a great way to free up some cash in retirement.

It should be noted, though, that there are a few exceptions: If your spouse is dependent on a pension or annuity that will cease or decrease payments upon your death, you may want life insurance to pick up the slack. The same goes for Social Security payments that will be reduced — life insurance can step in at that point. The other scenario in which life insurance may be necessary is if you want to use it as part of an estate planning strategy, as you indicated. If you plan to pass on a large amount of money, you can use a life insurance policy to pay for estate taxes. You can also set a life insurance policy to pay into a trust as a way of passing on an inheritance.

Here’s the issue, though: Purchasing life insurance at age 74 will be extremely expensive, even if you are in good health and you’re looking at a term policy. The high premiums may not be worth it – you may be better off investing that money elsewhere. If you’re planning to go this route, I would work with a good fee-based financial advisor who focuses on estate planning to make sure you’re taking the correct approach. You can find one at NAPFA.org.

 

AARP: Lower Your Out-of-Pocket Medical Expenses

medicalmoneyEven if you have insurance, medical expenses can add up quickly. In my latest article and video for AARP, I break down three ways you can keep your healthcare spending in check. See all my strategies here!

Mailbag Monday: Insurance premiums by city

mailbagmondayI moved last year and my insurance went up $400 more a year. How can I find out which areas will bring a lower rate when I move again?
- Anita

Anita, there are a couple tricks to this. You can simply call your insurer and ask them to run you a quote for your new neighborhood. Or you could use a tool like the one from carinsurance.com, which gives you average premiums by zip code.

But I want to point out one more thing – once a year, and definitely each time you move, you should shop around for insurance coverage and see if you can get a better deal. Often, another company will be willing to undercut your current premium to bring you on board, or your current company may be offering deals or promotions. I’ve even heard of instances where the underwriting has changed, and you’re entitled to a lower rate, but you have to call and ask for it. That’s why this kind of annual audit is so important.

Ask Jean: Pre-existing Conditions

mailbagmondayAbout two years ago I was diagnosed with cancer. I am currently healthy and am working to avoid treatment as long as possible with lifestyle changes and a rigorous exercise program. My health care costs are currently in line with most people with the exception of additional tests and scans annually. If I were to change jobs, how likely am I to experience serious issues with a preexisting condition? I really want to check out my options because my current job is very stressful and not rewarding and that has a negative effect on my health.

- Brian

Congratulations on your progress in the face of that diagnosis! I hope your health continues to improve. To answer your question, I’m happy to say that you can rest assured that you can’t be declined coverage under an employer-based health insurance plan due to a pre-existing medical condition. This is one of the long-standing distinctions between employer-based coverage and coverage you purchase as an individual on the open market (though, per health care reform, this will change in 2014 when individually-purchased plans can no longer decline coverage to applicants based on pre-existing conditions, either).

That said, you could face a waiting period before medical care kicks in for pre-existing conditions like cancer. Generally, this can last no longer than six months, and not all employers will impose the wait. Essentially, that is your worst case scenario: That you may have to wait up to six months before coverage related to your cancer kicks in. That argues for getting all of your scans and procedures related to that taken care of while you’re on your current plan, just in case.