Insurance is Worthless, Until You Need it

You can insure pretty much anything these days. Did you know people are now buying health insurance for their pets?

Just because it’s out there doesn’t mean you need it. The idea of insurance is to protect your wallet against things you can’t afford to lose.

Here are 5 types of insurance that make sense for most people:

1. Health insurance. There’s a lot of noise right now about the new healthcare law (a.k.a. Obamacare) and how it will affect everyday Americans. It seems like everyone has misconceptions about the law. If you already have health insurance through your employer that you like, you’ll be allowed to keep it. Without getting political here, I think it’s a good idea for everyone to have some level of health insurance. The government shouldn’t force people to do so. But the fact is, we all get sick. Those without insurance force society to pick up the tab. At the very minimum, get a high-deducible health savings account to protect yourself against catastrophic injuries and illnesses.

2. Disability insurance. Somewhat related to health insurance, disability insurance provides a percentage of your income if you’re unable to work because of sickness or injury. There are two types: short term and long term.

According to some estimates, 3 in 10 Americans will become disabled at some point during their careers. After sick leave has been exhausted, short term disability (STD) insurance kicks in and provides typically 60% of your salary for up to 6 months. Common causes of STD claims are heart attack, back pain and arthritis.

Long term disability (LTD) insurance picks up where STD insurance ends. You generally receive 50-60% of your salary for up to 10 years, but a policy that covers you until age 65 is best. LTD insurance covers you for things like connective tissue disorders, cancer, or catastrophic injuries that leave you permanently unable to work.

3. Life insurance. Your career is your greatest asset. What would your family do if you weren’t around anymore to provide an income? I’ve written about this before, but you want your family to be financially stable in the event of your death. If you have a spouse, kids under 18 or other dependents, you need life insurance. A simple level term policy is best. And please, do not buy life insurance on your kids.

4. Auto insurance. In almost every state, auto insurance is mandatory for drivers. Not only that, it’s the responsible thing to do. Driving without the means to make others whole in the event of an accident puts others at financial risk, and is just plain dumb. At minimum you need liability coverage, which includes coverage for bodily injury and property damage you cause to others. If your car has significant value, you also need collision and comprehensive coverage, which pays to repair your car after an accident or other event. Prices vary widely, so shop around to find the best deal.

5. Homeowners insurance (renters insurance). Most people who own a home have insurance, but those who rent rarely do. If your apartment burned down, how would you replace your stuff? Your landlord’s policy only protects the dwelling. You need your own policy to protect your things. Replacement value coverage is best because it covers the cost to replace an item, rather than the actual depreciated value. See my previous post about how to buy renters insurance. A typical policy runs $150-200 a year.

Next week we’ll talk about some insurance policies you can skip.

Take Control of Your Finances: Don’t Let Inertia Rule the Day

We tend to think that history repeats itself. I believe that’s because we have no idea how to predict the future. Or maybe we’re lazy. Whatever the reason, we think that because things have happened one way in the past they will continue that way in the future. Psychologists call this inertia bias.

This assumption of continuity might be convenient, but I’ll show you why it’s poison for your wallet.

Financial success relies on knowing when to change and when to stay the course. For example, how do you know whether to stay with your auto insurance company or switch to a new one? How do you know your cable company isn’t ripping you off? Do you still use that land line or is it there out of habit?

Just because you found a great deal today doesn’t mean it’ll still be a deal a year or 5 years from now. Your goal is to save and be more efficient, so you have to put in some effort. You can’t afford to assume things will always stay the same.

Auto Insurance

I’ll admit – it’s a pain to shop around and get several quotes. The internet hasn’t provided an easy way to compare prices between companies, so we’re forced to call each one separately. Calling to get three quotes could easily take an hour. This is well worth your time though, because yearly premiums can vary by $1,000 or more.

Insurance companies differ in how they assess risk and how much of that risk they’re willing to take on. To one company you might be a moderate-risk driver, but to another you could represent a low risk. In addition, companies often raise and lower their premiums based on which area of the country they’re targeting. If they’re trying to rid themselves of customers from your zip code, you may find your premiums increasing quite a bit.

Those who remain with their auto insurance provider year after year are probably paying more than they should for coverage. The same goes with home and renters insurance, so shop around at least every two years.

Cell Phone Providers

I’ve covered how to save on your cell phone bill several times in the past. Most people remain with the same old provider they’ve always used – most likely one of the Big Four (Verizon, AT&T, Sprint and T-mobile). If you’ve been reading the news recently you know that these behemoths are passing through large price increases whenever they think they can get away with it. They’re doing away with unlimited data, which is ironic because that’s where we’re headed with cell phone usage in America.

What does this mean for your wallet? You’re probably paying 50% more for cell phone service than when you signed up a decade ago. You’re also stuck in one of those nasty two-year contracts, where they lock you in and provide inferior customer service. Instead, switch to one of the low-cost, no-contract providers like Straight Talk, Virgin Mobile or Metro PCS. With Straight Talk for example, you’ll get unlimited across the board for $45 a month, no contract.

Here, remaining in an overpriced contract with one of the Big Four will cost you about $500 a year, or more if you have additional lines. Just because it may have made sense before doesn’t mean it does now. There are better options out there.

Buying a Home

Since the start of the crisis people have moved out of houses based on economic necessity and have moved in with parents or other family members. Some have become renters. Housing prices have tumbled the past five years as a result.

Now it looks like housing prices have finally hit bottom, and interest rates hover around 3.5% for a 30-year loan. That’s the lowest rate on record. If buying a home makes sense in your life, this is the time to act. Prices don’t have anywhere to go but up.

If you’re looking at the gloom of the past five years you might assume prices will continue to drop indefinitely. You may be sitting on the sidelines, waiting for the economy to pick up again. When it does you will have missed your chance.

So Much “Normal”

With inertia bias such a large part of our lives, is it any wonder we have so many words in the English language to describe how things are always done? Typically. Usually. Normally. Generally. Ordinarily. Regularly. Characteristically. Did I miss any?

Like bad habits, inertia is tough to break. But your financial health depends on your ability to know when to change and when to stay the course. Shatter those molds and watch the savings add up!

Can you think of a time when inertia caused you to spend more than you should have?

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How to Find Honest Home Repair

As warmer temperatures return to much of the country, many homeowners are firing up the air conditioners for the first time in months. After setting the thermostat to a comfortable temperature, you notice the air coming from the vents isn’t as cool as you remember it being last year. Come to think of it, it’s been a couple years since you last had the AC serviced. Who should you call?

There are so many repair companies out there that it’s easy to become overwhelmed when trying to choose. But many of these companies aren’t on the up-and-up. The Arizona Republic reports that a Tennessee-based heating and air conditioning company was recently charged with ripping off senior citizens and using deceptive sales tactics. They are accused of selling equipment the elderly didn’t need or couldn’t afford and using false safety notices to scare people into buying services they didn’t need.

Last year I saw a series by Dateline NBC on home repair scams. Each episode focused on one area of the home: pools, garage doors, plumbing, and air conditioning. During the garage door repair episode, the Dateline crew installed hidden cameras in one homeowner’s garage and called several local companies to report a malfunctioning garage door opener. During some of the service calls, the repair workers actually just stood around in the garage talking on their cell phones. They didn’t even look at the garage door opener. They then reported to the homeowner that they needed to replace the entire unit at a cost of several hundred dollars. A variation of these events happened with each of the other episodes. In some cases, when work was done, shortcuts were taken and low-quality materials were used to make the repair.

Unfortunately, many so-called repair companies are in business to rip you off. So how do you avoid these people and increase the chances that your repair will be done correctly? Below are some tips to protect yourself when hiring a contractor.

1. What is the company’s reputation? Ask them for references and look around online to see what others are saying about them. Check the Better Business Bureau to see if they have any complaints against them. In addition, your friends, neighbors and coworkers are great sources to find honest repair work.

2. Does their company vehicle have the company name, address and phone number painted on it? Ask to see their business license and write down the number.

3. Ask to see the worn or broken parts before they are replaced. Make sure they’re using new parts for the repair – some try to use old parts to save money. And make sure they aren’t fixing what’s not broken.

4. Anyone who pressures you to sign today is trying to rip you off. Same goes for those who try to do work without any written agreements. Be very wary of unsolicited offers and pushy door-to-door salespeople.

5. Never pay a large amount of money up front. Agree to pay in installments as the work is done. The scamsters love to collect money up front and vanish overnight.

6. For more expensive repairs, get at least two estimates in writing.

Do you have any other tips for finding honest home repair?

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A Low-Cost Option for Home Security

For you homeowners out there, how many of you protect your home with a monitoring system? Do you sign a contract for it? If so, you’re getting ripped off in a big way.

Alarm monitoring companies (along with cell phone providers, gyms and many others) love to handcuff you to a two or three-year contract so they don’t have to work to earn your business month after month. They often charge high fees — as much as $45 a month plus installation — for providing something that costs them about $3 a month. It’s their way of ensuring their bottom line for years to come.

How would you like a cheaper alternative that not only offers lower costs, but also easy installation, wireless protection, and a 60-day money back guarantee?

The company is called SimpliSafe. For $15 a month, they provide wireless cellular monitoring, which means you don’t need a land line telephone. The original equipment costs as low as $200, depending on the extra sensors and remotes you order. Installation is easy even for those who aren’t handy — the unit talks to you and walks you through the steps for setup. It comes pre-programmed and as their website says, “No tools required – just peel and stick.”

The best part about SimpliSafe is that they don’t require a contract. Through great customer service and the quality of their monitoring service, they’ve built a solid reputation with their customers who remain with them month after month.

One drawback of SimpliSafe is that they don’t offer integrated smoke and fire monitoring with their systems. For this type of protection you’d have to go with a more robust, professionally installed system.

When looking for an alarm monitoring company, the first question you should ask is whether they require a contract. If so, hang up and try the next company. You want to pay about $15 a month, but never more than $20. And make sure the company uses a standard called “U.L. Certified monitoring.”

Beware any offers like “$99 installation.” While upfront costs might be a little lower with these offers, they’ll eat up your wallet every month with higher ongoing fees.

This might also be a great time to finally ditch that old land line you never use!

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First-Time Home Buyer? 10 Mistakes to Avoid

US News lists 10 mistakes first-time home buyers should avoid:

1. Not checking your credit report and score

2. Not getting pre-approved

3. Not creating a long-term budget

4. Forgetting about the hidden costs

5. Not using professional help

6. Picking your real estate agent and lender blindly

7. Thinking you’ll get everything on your wish list

8. Not keeping your feelings in check before hiring a home inspector

9. Not researching your neighborhood

10. Not considering the resale value of your home

While I’m currently a renter, I do plan to buy a home in the next few years. A home is the biggest purchase most of us will make in our lifetime. For that reason, it’s a good idea to spend some time thinking about these details.

The process of buying a home is often very emotional for first-time buyers. It’s easy to become attached to a particular home or feature, such as granite counter tops or walk-in closets. Before you even look at properties though, it’s important to get a copy of your credit reports from each of the 3 credit bureaus. You can do this for free once a year at You should do this about 6 months before you plan to purchase a home. It’s also a good idea to pay $20 to get your FICO credit score, which is the one lenders look at to assess your creditworthiness. These steps ensure that you will be offered a good interest rate on your loan.

When looking at your credit reports, make sure all information is accurate. This includes addresses, credit card accounts and loan balances. If you see an account you don’t recognize, or one that’s older than 7 years, submit a dispute to the credit bureau and also contact the creditor who put the account on your report. Let them know that the debt is not valid. You also want to have at least six months of on-time payments for all of your accounts. When you’re satisfied with your credit reports and score, you’re ready to sit down with lenders to get pre-qualified for a loan.

Just because you’re approved for a $230,000 home doesn’t mean you should buy one for that price. Look at your budget and determine a monthly payment you can comfortably afford. Remember that there are many extra costs involved with a house that you don’t have as a renter. These include: property taxes, regular maintenance, failed appliances, homeowners association dues, and homeowners insurance.

When you find a home you like, it’s important to hire an inspector to vet out any potential problems. He or she will look for issues with construction or mechanical systems and give you a repair estimate. If you decide you still like the house, you’ll need to factor this into the offer you make to the seller. Drive through the neighborhood at different times, day and night, to get a feel for the place you’ll be living. Is the location convenient to your workplace, grocery stores, schools, parks, etc.? Do you feel safe there?

Considering these details will save you from the most common hassles faced by first-time home buyers. By eliminating major issues before moving in, you can ensure a smoother path to your dream home.

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Renters Need Insurance, Too

For all you renters out there, do you own a renter’s insurance policy? Renter’s insurance protects you if your belongings are destroyed by fire, natural disaster, or theft. A common misconception is that your landlord’s insurance will cover your belongings if they’re destroyed. Their policy only covers the structure and anything inside that they own, so having your own insurance is a must for renters.

Renter’s insurance is very inexpensive. The average policy is about $15 a month and getting a few quotes online is easy, so there’s no excuse not to have one. For about $180 a year, you can ensure that your possessions are replaced if they’re stolen or destroyed. Some policies also pay for relocation assistance which covers the cost of rent or hotel stays if you’re unable to live at the premises.

One important aspect of renter’s insurance policies to pay attention to is replacement value versus actual value coverage. Replacement value coverage is far superior because it pays you the cost to replace your items, up to your policy limit. But it’s also more expensive than actual value coverage, which factors in depreciation of your items. So with actual value, you’re only getting market value (which may be far less than you originally paid) for your items at the time they were stolen or destroyed. To me, it’s worth the extra cost of 15% or so for replacement coverage.

To buy renter’s insurance, you’ll have to come up with your best estimate of the total dollar value of your possessions. When doing this, you have to distinguish between items with monetary value and those with sentimental value. Items with sentimental value (old love letters, family photos, etc.) can be difficult or impossible to replace, and might not have any cash value. Thus, when calculating the value of your items you should strictly consider monetary value. Based on your estimate, you’ll choose your coverage amount.

One thing I recommend is to walk around your home once a year with a camcorder, smartphone, or digital camera and record all of your possessions. As you go through each room, say aloud what you paid for each item. Store the recording on a CD or USB device at another location. Then, if your insurance company gives you a hard time when you submit a claim you’ll have proof of what you owned.

Some landlords require their tenants to have renter’s insurance. But most do not, so it’s up to you to protect yourself. Don’t let a disaster in your home destroy your finances.

Negotiate your rent

According to, average monthly rents in the United States have risen from $650 to $700 in the last decade, adjusted for inflation. While this equates to an average annual increase of below 1%, rents are expected to rise up to 10% in the next few years according to the article.

Among the factors pushing rents higher, the article cites the following:

  • Decreased rental vacancy rates
  • Increased demand for rental housing
  • Families losing their homes to foreclosure suddenly looking for a rental
  • People of all ages choosing to rent rather than buy a home

With prices likely headed higher, it’s more important than ever to lock in a good deal. Many people don’t realize that almost everything in the lease is negotiable, from the security deposit to the monthly rent itself.

When my wife and I first got married, we moved into an apartment that had a very favorable rent relative to other apartments in our area. After our original lease was over, we got a letter in the mail saying they were raising our rent almost $100 a month!

The key to successful negotiating is to do your homework. Know the prices for similar-sized units in your area. Find out what others are paying. Show your willingness to walk away if you don’t get a fair deal. Landlords don’t like empty apartments, and their cost to find your replacement can be substantial.

Be firm, but more importantly polite. Present the facts to your landlord (or lady) and let him earn your business.