Save Dollars and Heartaches with a Home Inspection

There’s nothing quite as much fun as spending money to furnish your new home.

Unless it’s that feeling of satisfaction that comes with a careful inspection by an accredited home inspector certifying your dream home is in great condition. It makes good insurance sense as well.

Your home inspection can be a money saver all around, so here are some suggestions to make the most of it.

A home inspection gives you insight into the history of your potential purchase, providing a record of previous repairs and identifying problems. Consider asking for extra tests of electrical, plumbing and HVAC systems; they may cost more, but it’s usually worth it.

While every home has problems that can be easily fixed, your inspection may identify serious problems: leaks, bad DIY repairs, electrical problems and fire hazards. In these cases, you’ll be glad you found out.

Fixing these could add thousands of dollars to your costs, but by not identifying potential problems you could be in even more difficulty.

You can avoid higher insurance premiums or more stringent mortgage terms by identifying – and dealing with – all the potential problems up front.

Effectively, a home inspection may wind up paying for itself in costs you can avoid. And by identifying problems before you sign on the dotted line, you’ll have a stronger negotiating stance with sellers – they will either have to fix the problems or reduce the price.

Even better: You may now have the extra cash to furnish your dream home.

The 80% Factor: Why Homeowners Insurers Require It

Consumers are often frustrated by the amount of insurance their mortgage company requires them to carry on their home.

Sometimes that amount is greater than the home’s market value; often it’s more than the amount remaining on the mortgage.

But many insurers still insist your home be insured for at least 80% of its replacement cost. Not its market value.

Here is the reasoning behind this and how it can help you.

First, the homeowners’ policy will replace – not just repair – damaged property. That means hardwood floors will be replaced with hardwood, not laminate, as it might be without this replacement clause.

Second, 96% percent of all homeowners’ losses are partial; only 4% of homes suffer a total loss.

Next, think of insurance as a big pool of money.

All insurance buyers put their premiums into this pool, and the insurance company invests the money and uses it to pay claims and expenses.

Insurers know if they collect premiums on limits of insurance equal to 80% of replacement cost, they will have enough money in the pool to pay full replacement cost for partial losses.

So if you don’t carry an amount of insurance that equals 80% of your home’s replacement cost, you will be penalized in the event of a partial loss.

Here is the formula used to calculate a partial payment:
(Amount of Insurance Carried / Amount of Insurance Required) x Amount of Loss

For example; your home has a replacement cost of $500,000. However, you must carry at least $400,000 in coverage (80% of replacement cost).

You owe only $300,000 on the mortgage, so that’s all you decide to carry. However, this is only 75% of the $400,000 you require.

If a fire causes $50,000 in damage you will receive only a 75% ($37,500) payment for this partial loss because you are carrying only 75% of the required amount.

Whole Life May Not be the Answer: Read on

If you’re in the market for life insurance, you may be attracted to whole life policies. These have a cash value that builds tax-deferred each year. But are they worth it?

Here’s a refresher course on some things you should know about life insurance.

Whole life policies – Pros

Essentially, when you purchase whole life insurance, you’re buying a policy that pays a fixed amount upon your death.

However, part of your premium is put into investments by the life insurance company, and that is used to build cash value. That cash value builds tax-deferred for each year you have the policy, meaning you can borrow against it without being taxed.

Because whole life policies offer tax deferral and the ability to borrow funds, some people will argue that these policies are superior to term life policies, which pay a fixed amount upon your death. But that may not be the case.

Whole life policies – Cons

For example, whole life policies may have higher fees than do term life policies. Moreover, the tax-free accumulation of cash isn’t as appealing today as it was when whole life policies first came into existence.

That’s because other tax-deferred investment vehicles – such as individual retirement accounts and 401(k) plans – are readily available. And they may come with lower costs and the benefits of portability.

Simple may work best

Indeed, you may find term life insurance more appealing.

As noted, it has no investment component; you simply pay a premium to buy coverage that lasts for a set period of time or until your death.

It sounds simple, and it is – sometimes simple just works best.

If you’re considering life insurance and you aren’t sure which type of policy to choose, it’s a good idea to consult your advisor, who can walk you through the options and make a recommendation based on your individual circumstances and goals.

Boomers: Consider Long-Term Care Costs Now

The cost of an extended stay in an assisted living facility or skilled care nursing home can be devastating. And it’s time for baby boomers – individuals born between 1946 and 1964 – to consider this.

According to statistics, a stay in a skilled nursing facility can cost in excess of $90,000 per year for a private room. That’s enough to overwhelm most pensions and devastate many nest eggs. Furthermore, the chance of experiencing a long-term care event at some point is one in seven, according to the Public Policy Institute at Georgetown University.

Medicare does not pay significant long-term care benefits. Medicaid does help with limited nursing home care, but only after you spend yourself down to the poverty level. Specific rules vary by state.

What is long-term care insurance?

Long-term care insurance generally pays the cost of needed services for anything from home health care to advanced skilled nursing and hospice care plus everything in between, depending on the specifics in the policy.

Benefits become payable when the insured loses the ability to perform two or three activities of daily living, such as eating, dressing and other basics.

Generally, long-term care policies cover up to a certain daily amount. For example, you can buy a policy that pays up to $200 or $250 per day in benefits for up to five years.

Why you need it

Long-term care insurance can help protect a spouse from financial problems caused by long-term care events and eliminate the possibility of having to sell the family home or risk foreclosure in order to pay the costs of long-term care. Benefits may also enable family members to stay in the workforce rather than provide day-to-day care for a family member in need.

So, long-term care insurance helps protect family members’ incomes as well as the insured’s income and assets.

Take Control and Reduce the Cost of Prescription Drugs

Americans are spending billions on prescription drugs, but there are ways for individuals to exercise some control over the high cost of taking a pill.

According to a recent article in Fox Business, Americans spent $269.2 billion on prescription drugs in 2011. And as baby boomers age, this is only likely to grow.

There is help: Seniors in the “donut hole”, who are now responsible for paying for their drugs, qualify for discounts-50 percent on brand-name drugs and 14 percent on generic drugs covered by Medicare Part D. As well, the government has implemented a one-time $250 rebate check, but this is a drop in the bucket for many seniors.

Prescription-drug coverage is surprisingly affordable, but it’s important to find a plan appropriate to your circumstances. Plans vary widely, and you need to do your homework. Your insurance professional can suggest a plan that works for your needs.

That said, you too have a role to play in keeping down prescription costs. Here are two suggestions:

Switch to generic drugs: Even though you may get a larger discount on brand-name drugs, the cost of generic drugs is generally lower. In most plans, copayments are also lower for generic drugs, and the result is overall savings.

Shop around for pharmacies: The cost of the same drug varies from pharmacy to pharmacy; let your fingers do the walking. Even easier, mobile phone users can get free apps that compare prices between pharmacies. Free discount cards are also widely available from many sources, including insurers and pharmacies.

Don’t Trade Peace of Mind for Lower Premiums

One guiding principle in risk management is “Don’t risk a lot for a little.” But how that motto impacts your particular insurance choices isn’t always clear. There is one thing you do need to realize, and that is that juries are often outraged at organizational negligence, especially when those organizations are perceived to have deep pockets.

Assuming your organization won’t ever face a negligence claim isn’t advisable. Instead, consider the factors below and select sufficient coverage to adequately protect your organization.

Your business type

If, for example, you sell hardware to consumers, your risks of being sued are somewhat limited. On the other hand, if you manufacture handguns, your risk factor is considerable. That said, every business, no matter how small, should be aware of today’s million-dollar verdicts; damages awarded can easily range from $1 million to $20 million or more.

Your organizational appetite for risk

Every management team should determine its individual “risk tolerance.” Some companies embrace risk, while others are extremely risk-averse. Either approach is fine; however, if you assume more risk, you should be prepared with sufficient cash or credit reserves to cover any underinsured loss.

Where you operate

Certain legal venues make defending cases highly problematic. Each year, the American Tort Reform Association (ATRA) outlines the worst U.S. venues for civil litigation. However, you don’t have to live in an ATRA “hellhole” to be impacted.

If your organization sells products or operates in those areas, you may still feel the pinch. In ATRA hellholes, you will very likely face an unsympathetic court system if, for example, a product you’ve developed malfunctions and injures someone.

The liability limits of comparable businesses

The insurance industry can assist you in identifying what is happening in your industry, but you need to ask these kinds of questions of your trade associations. You also should keep up to speed yourself by regularly reading trade journals online and following recent verdicts.

For example, the National Law Journal annually lists some 60 of the largest verdicts from the previous year. Some samples: a $64 million award for an age discrimination claim and a $32 million verdict for the death of a sheet metal worker struck by an improperly welded beam.

Insurance premiums fluctuate from year to year depending on many factors, including interest rates on investment income and previous years’ losses in your company and industry.

Resist the temptation to decrease limits when the market “hardens” (that is, when rates increase). Sophisticated insurance buyers who have enough liquidity to pay higher losses may choose to respond to a hard market by retaining more risk, but they will avoid lowering limits just to save money.

In the final analysis, the best advice is this: “Don’t risk a lot for a little.” In other words, saving a few hundred or even thousands of dollars in premium will not seem like such a great idea in retrospect if you suffer a loss or losses that exhaust your coverage limits. Your insurance professional can help you select the right coverage.

Vacant Properties May be Putting Your Coverage at Risk

While U.S. office vacancy rates dropped dramatically last year to the lowest level since 2009, many businesses still have an inventory of empty buildings. And having a vacant property can have a significant impact on your commercial property coverage.

In the insurance industry, buildings under construction or being renovated are not considered vacant. However, if commercial buildings have not rented at least 31% of their total square footage to a lessee or sublessee for “customary operations” or if the building must be used by the property owner to conduct customary operations, the building is considered vacant and coverage can be limited.

Many policyholders are unaware that their coverage may be reduced by vacancy. In fact, if your property is vacant for 60 days or longer prior to a loss, the following coverages may be limited or may not apply:

  • Vandalism
  • Glass breakage
  • Water damage, including sprinkler leakage, unless the building owner has protected the property against freezing
  • Theft or attempted theft

In addition, other covered losses would be reduced by 15% in the event of a loss on a vacant building. Not all carriers include a vacancy clause in their policy, although some offer a buyback of the vacancy clause through an endorsement.

If you lose an anchor tenant or your property is in danger of becoming vacant, it’s important to contact your insurance professional immediately so he or she can help you protect your property.