There are some good reasons to check your homeowners insurance heading into spring

March 16, 2020

Daniel Trumbower was working from home in Monrovia, Maryland, in early February when his wife called: A tornado warning had been issued for their town.

Initially dubious — a tornado in Monrovia? Yeah, right — he looked outside to check the sky and saw a large, heavy-duty garbage can soaring through the air. He ran to his basement, where he remained while the house above him trembled and a roaring wind engulfed it.

When he emerged several minutes later, he looked in disbelief at the destruction outside.

“It looked like a war zone,” said Trumbower, a certified financial planner and senior wealth advisor with Halpern Financial in Ashburn, Virginia. “I had a tree fall in my neighbor’s driveway, our siding was punctured, shingles were all over the place. Debris was everywhere.”

Trumbower was grateful that his home suffered only external damage from the tornado — a nearby barn was leveled. He discovered, however, that his homeowners insurance didn’t go as far as he thought.

While his policy covers the cost of fully replacing his roof, that’s not the case for the siding: It will only cover the cost of replacing the specific damaged spots, a type of approach that often results in a patchwork of mismatched siding.

The experience showed Trumbower that just because you have homeowners insurance, it doesn’t mean your policy covers what you’d assume it does when your property suffers weather-related damage.

“I was caught totally by surprise,” Trumbower said, who is still in the claims process. The estimate he received to replace all the siding? $27,000.

With weather events wreaking havoc on communities around the country — often in places unaccustomed to them — experts recommend that you review your own homeowners insurance in case Mother Nature’s fury visits your neighborhood.

“You should be meeting with your agent once a year to review your coverage and make sure there are no gaps,” said Mark Friedlander, spokesman for the Insurance Information Institute.

In early March, parts of Nashville and central Tennessee were hit by a tornado-spawning storm that killed 25 individuals, and damaged or destroyed hundreds of homes and commercial structures. As impacted communities continue the long process of recovering and rebuilding, the cost of destruction is estimated at more than $1 billion, according to property-data provider CoreLogic.

And, tornado season is only getting started. States along the Gulf Coast — including Alabama, Mississippi and Florida — tend to have more activity earlier in the spring, while for states in the middle of the country, like Texas, Oklahoma and Kansas, it’s a bit later, according to NOAA. However, tornadoes can break out just about anywhere if conditions are conducive to their formation.

And then there’s water. A warmer and wetter spring is expected in the eastern half of the country, according to NOAA. After that is the Atlantic hurricane season, which starts June 1 and runs through the end of November. At the same time, though, the Southwest is expected to have a drier-than-normal spring, which increases the risk of wildfires.

Last year was the fifth consecutive year in which the U.S. experienced 10 or more billion-dollar weather and climate disasters, according to NOAA.

Depending on where you live and the weather that’s typical for that area, your homeowners policy may provide coverage for some of the more location-specific events, and state law often dictates what’s required of policies offered in their jurisdiction. Be aware that earthquakes — which also can strike anywhere with no warning — are not covered by standard homeowners policies, even in quake-prone California (you’d have to purchase separate insurance). Nor, typically, are other types of earth movement (i.e., landslides, sinkholes).

Of course, insurance is often a balancing act with other expenses and financial obligations. Although your specific coverage should depend on your circumstances, here are some things to think about as you review your policy.

Different damage, different deductibles

While many perils are covered under the standard part of your policy, some weather-related events fall under a different part that comes with a different deductible.

If you live in a state along the East Coast or Gulf of Mexico, there’s a good chance your homeowners insurance policy has a hurricane deductible. Likewise, in states more prone to wind-related events — i.e., tornadoes — you’re likely to have a wind/hail deductible.

Either way, those amounts typically range from about 1% to 5% (with a minimum $500) depending on the specifics of your insurance contract. Some homeowners might opt for an even higher deductible if it’s available. Generally speaking, the higher the deductible, the lower the premiums, and vice versa.

It’s important to note that for those percentage-based deductibles, the amount is based on your insured value, not the damage caused.

So if your home is insured for $200,000 and you have a 2% hurricane deductible, you’d be responsible for covering the first $4,000, regardless of the total cost of the damage.

This means it’s wise to have a plan to cover your share in the aftermath of a disaster.

Trumbower, the financial advisor, said his experience demonstrated the importance of emergency savings.

Even though his family could remain in the house because the damage was to its exterior, they had no power. With outside temperatures in the 20s, Trumbower headed to Costco for a generator ($700.) Additionally, the cost for emergency tree removal was $3,500, yet his insurance covered just $1,000 of it.

“It shows how important it is to have that emergency money available,” Trumbower said.

Flooding risk

Homeowners policies generally exclude flooding from coverage. Yet just one inch of water in your home can cause up to $25,000 worth of damage, according to the Federal Emergency Management Agency. And, 1 in 4 flood insurance claims come from outside a high-risk zone.

For coverage, you’d need separate flood insurance through either the federal National Flood Insurance Program or a private insurer. Be aware, however, that there are coverage exclusions and limitations. And, flood policies take 30 days to become effective. The average yearly cost is $700, although that can vary widely.

While flooding is a common aspect of natural disasters, fewer than 15% of homeowners have flood insurance, said Friedlander, of the Insurance Information Institute.

“Many homeowners have the misconception that flooding will be covered under their standard policy,” he said.

When a homeowner faces storm-related damage that is uncovered but in a federally declared disaster zone, there might be government programs that can provide financial assistance, including FEMA grants and Small Business Administration loans. However, that help is not guaranteed, and it likely wouldn’t get you quickly back on your feet.

For instance, after 2017′s Hurricane Harvey, which dumped as much as 60 inches of rain in some spots in Texas, the average FEMA grant for individuals was $7,000, while the average claim through the National Flood Insurance Program was more than $100,000.

Also that year, according to CoreLogic, serious delinquencies on home mortgages tripled in the metro areas of Houston, and Cape Coral, Florida, and quadrupled in San Juan, Puerto Rico — all of which were hard-hit by hurricanes.

The next year, in 2018, the average flood claim was about $43,000, Friedlander said.
“If you don’t have flood coverage, ask yourself how you’d pay for that,” he said.

If you’re a renter

Even if you don’t own your home, your finances are still at risk if a storm damages the house or building you live in. While the owner’s insurance would cover the structure itself, you’d be responsible for your own property.

Renter’s insurance is an option for covering your belongings. It also can cover the cost of living somewhere else if you can’t remain in your home after a storm or any other insured event.

The national average for a policy with $40,000 coverage for personal property, a $1,000 deductible and $100,000 of liability protection is $197 a year (about $17 a month), according to an Insurance.com rate analysis.

Other odds and ends

It’s also worth making sure that your coverage amount for rebuilding reflects the current cost of replacement. Construction costs may be higher than when your home was built, and local building codes may be stricter.

The bottom line is that even if you think you think the risk of extreme weather reaching you is low, it’s worthwhile knowing how you’d financially handle one.

“I never thought a tornado would come through Monrovia,” Trumbower said. “But it did.”

Source: Sarah O’Brien at CNBC

Retiree FAQ: Is Social Security Keeping Up With Rising Costs?

March 9, 2020

One of the most asked about topics for any retirement planning professional is Social Security. It is one of the most important pieces of income for most retirees, and is often the least understood. As major overhauls to the program are kicked down the road, there have been several yearly updates that attempt to keep the program’s benefits up to date with inflation and rising wages.

Let’s start with the four main updates to the Social Security program for 2020:

  • Current Social Security recipients will receive a 1.6% payout increase to their monthly benefit. This increase represents a cost-of-living adjustment (COLA) based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) which is the programs inflationary peg.
  • The Social Security program will also increase the taxable earnings base from $132,900 to $137,700 in 2020. This amount is the maximum taxable earnings cap, which beyond that point people will no longer have Social Security payroll taxes deducted from their paychecks. The yearly amount is increased based upon the National Average Wage Index.
  • While high income earners will now be paying more Social Security payroll tax, their maximum monthly payout at their full retirement age (FRA) will also be climbing by $150 to $3,011 in 2020. This equates to a yearly benefit increase of up to $1,800.
  • Also updated in 2020, will be the amount early filers (before FRA) will be able to earn without having their benefits withheld. This year the retirement earnings test allows the Social Security Administration (SSA) to withhold $1 in benefits for every $2 earned above $18,240. The earning limit for the year in which you reach your FRA has also increased to $48,600, which will reduce your benefit $1 for every $3 above this threshold. After reaching your FRA there is no penalty for working and collecting benefits.

All of these yearly updates attempt to keep the program in line with the spending increases for its recipients, however a deeper dive into these adjustments can show how they often lag behind the actual cost increases most seniors face. Social Security’s inflation adjustments for benefits are tied to the CPI-W, which is not the best inflation index to represent the overall cost increases most retirees face because that CPI-W does not include households that do not have anyone in the labor force, such as retirees.

Recently there has been major support to replace the CPI-W with the Consumer Price Index for the Elderly (CPI-E) which focuses on households with individuals who are ages 62 and up. The CPI-E more accurately reflects the amount of seniors’ income that goes towards healthcare, housing, and other consumer goods.

Recent data from the Bureau of Labor Statistics has shown that bus fares, health insurance, home repairs, and men’s outerwear are the areas of senior spending most affected by inflation. However, this was offset in part by some senior consumer prices that have experienced negative growth over the past year such as smart phones, TVs, Women’s dresses, and computers.

While all of this does not sound ideal for seniors and retirees, keep in mind that the Social Security program was never intended to replace workers’ pre-retirement income and fully fund their retirement. Social Security was enacted in 1935 following the Great Depression to act as a safety net for the elderly, unemployed, and disadvantaged Americans. A 1.6% COLA adjustment may not sound like much, but it is still above the average increase over the last decade and much better than in 2010, 2011, and 2016 when there was no COLA following deflationary years. There are also ways for seniors who are on Medicare to pay for the Part B premiums directly from their Social Security benefits, which not only eliminates the hassle of paying their premiums, but allows them to take advantage of Medicare’s hold-harmless provision that essentially states any increase in the Part B premium cannot reduce the net amount of your monthly Social Security check.

While the Social Security program is not without its shortcomings, it is still a valuable resource to provide retirees, disabled, and young children with a modest floor of progressive income.

Source: David Kudla of Forbes

Should You Focus on Cutting Expenses or Growing Your Income?

February 19, 2020

If your expenses and your income don’t match up, you have two options: cut back on your spending, or figure out a way to earn more money.

While some people will want to try both options simultaneously, you’re still going to have to figure out which one to prioritize. Do you put a new interview outfit on the credit card while you look for a better-paying job, or stop going to lunch with your coworkers so you can put every extra penny towards your debt?

The Financial Diet recently collected multiple expert opinions on complicated money-related topics such as “paying off debt vs. building your emergency fund.” One of the topics was, of course, whether people whose ends aren’t quite meeting their means should focus on reducing expenses or earning more.

Well, I loved the way they framed it:

If you’re happy with your current job and the way you currently spend your time, get your budget back on track by cutting back on the rest of your spending.

If you’re unhappy with your current job, underpaid relative to the market, or have enough time and energy to pick up a side hustle, ask yourself whether it’s time to increase your income.

If you can’t or don’t want to cut back on your spending, you’ll have to figure out how to increase your income regardless of whether you like your job and your life the way it is.

Remember, personal finance isn’t about earning the most money possible. It’s about using the money you do earn appropriately. If you can live the life you love on a budget that works for you, while saving enough for the future to prepare for any unexpected life changes, great. You don’t always have to hustle for the better job or the bigger vacation or the newer outfit.

And if you do decide to focus on the “earn more income” path, even at the expense of your free time or your day-to-day happiness, think of it as working towards something—a new home, a debt-free life—and remind yourself that you can always decide to work towards something else once you achieve your goal.

Source: Nicole Dieker of Lifehacker

Fake calls about your SSN

February 11, 2020

The FTC is getting reports about people pretending to be from the Social Security Administration (SSA) who are trying to get your Social Security number and even your money. In one version of the scam, the caller says your Social Security number has been linked to a crime (often, he says it happened in Texas) involving drugs or sending money out of the country illegally. He then says your Social is blocked – but he might ask you for a fee to reactivate it, or to get a new number. And he will ask you to confirm your Social Security number.

In other variations, he says that somebody used your Social Security number to apply for credit cards, and you could lose your benefits. Or he might warn you that your bank account is about to be seized, that you need to withdraw your money, and that he’ll tell you how to keep it safe.

But all of these are scams. Here’s what you need to know:

  • The SSA will never (ever) call and ask for your Social Security number. It won’t ask you to pay anything. And it won’t call to threaten your benefits.
  • Your caller ID might show the SSA’s real phone number (1-800-772-1213), but that’s not the real SSA calling. Computers make it easy to show any number on caller ID. You can’t trust what you see there.
  • Never give your Social Security number to anyone who contacts you. Don’t confirm the last 4 digits. And don’t give a bank account or credit card number – ever – to anybody who contacts you asking for it.
  • Remember that anyone who tells you to wire money, pay with a gift card, or send cash is a scammer. Always. No matter who they say they are.

If you’re worried about a call from someone who claims to be from the Social Security Administration, get off the phone. Then call the real SSA at 1-800-772-1213 (TTY 1-800-325-0778). If you’ve spotted a scam, then tell the FTC at ftc.gov/complaint.

Source: Jennifer Leach of the Federal Trade Commission

Here Are The 5 Worst Ways To Pay Off Credit Card Debt

February 3, 2020

Want to know the absolute worst ways to pay off credit card debt?

Here’s what you need to know – and what to do about it.

1. Skip a payment here, skip a payment there

“Maybe your credit card debt will just go away if you forget about it?” Nice try. Whatever you do, don’t skip your monthly payments. It’s one of the fastest ways to destroy your credit score. You’ll owe more interest and late fees. Even if you’re facing financial hardship, contact your credit card company in advance and discuss potential options. That may sound uncomfortable, but it’s much better than simply missing a payment.

Do This Instead: Sign up for automatic payments so you at least show consistent payments each month.

2. Pay only the minimum payment

“Well at least my monthly payment is not that bad.” News flash: your minimum payment doesn’t have to be your monthly payment. Yes, they can be different. So long as you pay the minimum balance each month, it’s your choice how much extra you want to pay. Remember: interest is always accruing on your principal balance. So paying any amount more than the monthly minimum can lower the cost of your credit card debt.

Do This Instead: You can always pay more than the minimum amount and pay off credit card debt faster.

3. Never make an extra credit card payment

“Extra payment? I barely have enough for my regular payment.” Making an extra credit card payment can be one of the best ways to pay off credit card debt faster. Here’s how it works: in addition to making 12 monthly payments per year, consider an extra payment once every three months for a total of 16 payments per year.

Do This Instead: Be sure to inform your credit card company in writing to apply any extra payment to your principal balance only (not to next month’s monthly payment) to limit the amount of interest that accrues.

4. Never make a lump-sum credit card payment

“Lump sum payment? I’m going skiing in Aspen next week.” Should you use your bonus to pay off credit card debt? Think of it this way. The interest rate you pay on your credit card debt could be higher than the interest on your mortgage, student loans and auto loans – combined. Each day you don’t make a payment means more interest accrues on your debt balance. A lump-sum payment can be any amount — $10, $100, $1,000 or more — and make lump-sum payments as often as you’re able to.

Do This Instead: Whenever you get a pay raise, bonus, tax refund or gift from grandma, make a lump-sum to pay off credit card debt. Make every dollar count.

5. Don’t consolidate credit card debt

Credit card consolidation with a personal loan is often the best strategy to pay off credit card debt faster. A personal loan is an unsecured, fixed-rate loan from $1,000 to $100,000 that is repaid within two to seven years. When you consolidate credit card debt, you swap your credit card debt for a personal loan with a lower interest rate. For example, if you have $10,000 of credit card debt at 15% interest and can obtain a credit card loan at 6% interest, you could potentially cut your interest payments by more than 50%. The lower interest rate saves you money and helps you get out of debt faster.

Of course, you should only consolidate credit card debt if you can qualify for a lower interest rate than you currently have on your credit card debt. You should apply to multiple lenders and consider a qualified co-signer to increase your chances of approval.

Do This Instead: Apply to consolidate credit card debt. You can apply online and funding to your bank account can be within days.

Source: Zack Friedman of Forbes.com