Tag Archives: Insurance

Insurance – “The Basics” on when and how to cover contingencies

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The purpose of insurance is to cover a specific contingency—risks to life, health, income, property—that insurance companies can pool and provide under an affordable monthly premium. Insurance is a contract and it must be read and understood completely. Properly understood and applied insurance is an invaluable part of your financial life and to building wealth. The wrong insurance, on the other hand, can drain your finances, not cover the contingencies you need. In effect it can derail your wealth building plan. Below are some basics to think about when considering your insurance needs but there are many more than can be discussed here. All insurance tools need to be reviewed from two perspectives: 1) identifying the tools you need throughout life’s ups and downs and 2) the level of coverage that you need (this can change from year to year).

Life Insurance – this tool is essential for anyone who has a dependent. It should always be purchased to cover the future needs of those who are dependent on the insurer’s income. Once you have a target amount you need to focus on obtaining a contract from a reputable company for the least cost over the period you’ll need it. If your cash flow is limited, there are no dependents and your assets are under $5M, then there is no need for life insurance. Similarly, if your cash flow is limited but you have many dependents then only consider term life insurance. This type of insurance is best purchased outside of employer plans and additional amounts can be supplemented from employer benefit plans (if needed for a short period of time).

Disability Insurance – this tool is intended to cover a percentage of your income for you and dependents if you’re disabled (mentally or physically). We highly recommend anyone under 65 consider purchasing long term disability insurance. It is least expensive if purchased within an employer plan but if you’re healthy may be reasonable as private insurance. Self employed or small business owners should purchase personal long term disability insurance while they have sufficient earnings and are healthy.

Long Term Care (LTC) Insurance – this tool covers the cost of care if you’re unable to perform the basic acts of living (dressing, washing, etc). Although you may need it before retirement most individuals purchase this insurance to cover LTC in retirement. The rates do increase with age and may not be available after you’ve developed health issues.

Liability Insurance – this tool protects your wealth from legal actions. Some liability insurance is part of your auto and house insurance but additional liability insurance is purchased as “Umbrella coverage”. This is a relatively inexpensive coverage and the amount changes as your wealth grows.

P&C Insurance (Property & Casualty) – these tools protect your property (auto and house). Your insurance broker/agent can review the latest options, the benefits, and premium available to you. We encourage you to be aware of your policy and get as much insurance as you’ll be willing to claim and as fits with your financial plan.

Of course there are other insurance tools and new ones being created every year. If you wish to discuss a specific insurance tool we’ll help you better understand it and determine if it is a tool that would be appropriate for you.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Insurance Claim tips

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*** We do NOT sell insurance or receive commissions from any products discussed in this forum ***

As you prepare your emergency document box that will allow you to return to life as usual following a disaster -we’d like for you to include the following:

  1. Notify your agent and carrier promptly. Let them know that you have sustained damage and are filing a claim. Even if you did not buy an earthquake, or flood policy or the damages do not exceed the deductible. Always contact your insurance in writing that you have sustained a loss for a disaster and are filing a claim. Most policies have reporting requirements that are time sensitive and you may not be aware of covered items for EQ in an non-EQ policy.
  2. Be ready with your own expert opinion. Have your own experienced contractor or licensed structural engineer once the insurance adjuster has completed their evaluation.
  3. Review your policy again and remind yourself what limits you have per category and also notice the declaration limits since these can change your expected coverage. If you read the policy carefully when you purchased it you should not be surprised regarding your coverage. Note that earthquake policies provided by CEA are standardized (easy to use) but also quite limited. Contact your insurance company and review your expectations and if not satisfied then contact 1-800-927-HELP and report your complaint.
  4. Do NOT agree to a quick settlement with your adjuster or insurance company until you’ve verified and understand your rights and coverage.
  5. Keep track of everyone you speak to with regards to your claim – this is your responsibility as a claimant.
  6. Keep all receipts for expenses if planning to claim additional expenses or loss of use. Remember that most CEA policies do not provide much for this coverage.
  7. You should have carefully analyzed the wording so that during your claim you will be able to receive true replacement of your property – like kind quality.
  8. Estimates by your own contractor should be similar to those given by the insurance contractor otherwise you may agree to less than it will cost you to get your home rebuilt. Care should be taken with inexperienced or out of state contractors who do not know what needs to be part of an EQ estimate. Assisting them by connecting them with a local experienced EQ contractor may provide you with the quickest and most complete estimate.

*** Above all do NOT sign releases or waivers without legal advice — read carefully and have your legal representative do the same — particularly careful if it contains the words “final” or “release” language. ***

All AIKAPA clients are encouraged to contact us so that we can review your policy prior to needing a claim.

*** We do NOT sell insurance or receive commissions from any products discussed in this forum ***

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Earth Quake Planning Basics

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 *** We do NOT sell insurance or receive commissions from any products discussed in this forum ***

 We strongly encourage you to insure against catastrophic risks. Katrina was a recent example of a catastrophic risk as would be a category 7.0 earthquake. The best way to prepare is to plan for both your physical and financial safety.

We address earthquake planning with our AIKAPA Managed clients and AIKAPA Guided clients usually consult with us as they need. If you’d like us to provide more specific and personal discussion feel free to call us. You may also find value in the links provided in the AIKAPA resource page (www.aikapa.com/links.htm).
Here are answers to your most frequent questions on earthquake risk planning:

  1. Can I be denied earthquake insurance? It is mandatory, inCalifornia, that home insurance providers make available earthquake endorsement to all home policies sold in this state. The CEA (California Earthquake Authority) was created after the last major earthquake to assist home insurance companies so that they would be able to offer home insurance inCalifornia. I encourage you to call California Board of Insurance directly if your agent states that you can’t get earthquake insurance but you have your home insurance with them (1-800-927-HELP). The laws to protect you are under the California Insurance Code at section 790.03(h) of the California Code of Regulations at Title 10, Chapter 5, and in judicial decisions.
  2. What is likely to be my premium? This year we’ve found that premiums are more expensive – some as much as 75% more. The actual policy premiums, in the Bay Area, can vary dramatically depending on your home’s location, cost of recovery, and deductible. Insurance rates are calculated based on your zip code and the current cost of rebuilding your home. If you login to the CEA website (link provided via www.aikapa.com/links.htm) you can use their premium calculator to estimate your likely policy premium. Most of our clients have policies in the range of $1,200 to $4,500 per year. These policies do give you credit for retrofitting which you’ll likely want to implement to increase your physical safety.
  3. How much of a deductible should I get? This type of insurance only comes with a fairly large deductible. It is usually in the range of 10-20%. A home that costs $600K to rebuild could have a premium around $1,500 and a deductible around $60 to $120K. This means that you need to self insure the first $60 to $120K in earthquake damage. These funds need to be inflation protected but accessible as part of your ability to self-fund earthquake damage below this level.
  4. What is the risk of earthquake damage? No one can yet predict this with any certainty how your home will fare during the next earthquake. You can review your county and city disaster recovery (earthquake) planning to have a local view of how to plan for your safety and also visit the ABAG and USGS website to find out more about your home and business location with regards to the fault lines and shake areas (see our resource page at www.aikapa.com/links.htm). It is your closeness to the actual fault line and the type of soil (how much shaking and aftershock you experience) that determine the damage you experience.
  5. What is the likelihood of a quake? The probabilities quoted appear to rise each year. The 2008 USGS survey states that there is a 62% chance of a 6.7 quake in the next 30 years. It is also believed that the next quake will strike further north of the Loma Pietra (1989) 6.7 quake. Those who use frequency analysis to make quake predictions rather favor the prediction that we have entered a higher quake activity period resembling that seen around 1911. You can read more about Geologist’s view at the USGS website. (See the AIKAPA resource webpage www.aikapa.com/links.htm)
  6. Should I buy this insurance from my current home insurance provider? You should do a thorough review of many providers. This is a pretty expensive premium that you need to feel sure will be available when and if you need it. First, get quotes from large insurance providers including CEA-backed providers (these are easy to find). Second, get a contractor or structural engineer to review your home’s structural condition in case of an earthquake and secure your home (see www.aikapa.com/links.htm for several useful links). You’ll next need to carefully review each policy – this is not as straight forward as choosing the least expensive policy. You will need to compare the limits and be aware of exclusions. Make sure that when comparing costs you are comparing the same type of coverage, from companies that are either backed by the CEA or are able to withstand the cost of the next big quake.
  7. When does it make sense to self insure? When you are covering risks that are not catastrophic it is our belief that you should consider self funding. You should also consider self funding a large deductible thus allowing you to have enough cash flow to pay for needed catastrophic insurance and also provide for other cash flow needs. Using your current financial statement, cash flow and home equity you can quantitate your risk and life style exposures.

*** We do NOT sell insurance or receive commissions from any products discussed in this forum ***

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com