Thursday, July 30, 2009

Building Cost's, Fire Areas and You

A question I get alot is "How did you get that number? I'm paying less for the house!" or from a current client " My homes value has dropped a $100,000 since last year. Why did the carrier raise the coverage?!"


Insurance carriers get numbers from national sources that calculate rebuild costs for all parts of the country. The carrier then looks at the zip code, square footage, age and other factors and applies their own formula's to the replacement cost and arrives at what your dwelling coverage should be.



For example:



Cost to rebuild home based on Sq.ft, age and zip code: $180,000

Example of a carriers formula:

Rebuild Cost: $180,000

Home is 2 stories, add 20% = $36,000

Total insured value = $216,000

This is only a simple illustration, but a homes condition, risks near the home and the contents of the home can add to the coverage.

In addition, the carrier must also account for debris removal, after all we can't just leave the burned out rubble of your home laying around and then build over it. It's got to go. Then your local city and county governments must have their permit and inspection fees, utility company fees, new plans must be drawn up and approved by local authorities. Now, finally, we get to turn the contractor and their team loose nail up the first piece of your house.

Check out the building cost estimator at http://www.building-cost.net/ and click on start calculator. It is free and will give you a good idea about what your insurance carrier has to plan for. They do leave out debris removal which can vary based on governmental costs.

If your property is determined to be in a high fire area, there is more risk than normal and the carrier will charge you more to make up for the fact that there is a higher than normal chance of you having a claim. Many carriers use a scale from 1 ( no fire danger at all) to 10 ( this place could go up in flames any second!) to rate fire risk. This number is called your fire protection class. It looks at how close you are to a fuel source (i.e. brush or hills), the distance to the fire hydrant and how far you are from a fire department and then assigns a number from 1 to 10.

Remember that insurance is about risk and the potential for risk. You are paying a relatively small amount of money, your yearly premium and your deductible, to get hundreds of thousands of dollars in coverage which would otherwise take you years to put aside in a savings account. I have discussed ways you can save money on insurance elseware in this blog, so I won't go into them here. Don't be afraid to talk to your agent about saving money where you can, but don't sacrafice coverage either. Everyone want's to talk about price when you are buying insurance, then when there is a claim, they want to talk about coverage.

Friday, July 3, 2009

Have you thought about those who you will leave behind?

With the recent deaths or Michael Jackson, Farrah Fawcett, Ed McMahon, Billy Mayes and David Carradine, some people’s thoughts naturally turn to their loved ones and what will happen to them when they pass on.

So what about the rest of us? We don’t have huge estates to pass on to our heirs. We don’t have millions to spend on lawyers. How will I provide for my children? What about my surviving spouse or partner? How can I make sure they will be able to support themselves?

The answer to these questions is to plan now. That’s right. We all know that one day we will die. We don’t have the luxury of choosing a date; we can’t schedule this last appointment right after the vacation of a lifetime. So we need to plan now, while we are still alive.

To start, look into life insurance. There are affordable options out there. Usually term life insurance is more affordable to start with than whole life. Term insurance only covers you for a certain number of years. If you are still alive at the end of the term, the policy can be converted to whole life if you have selected that option. You could also renew the policy at the end of the term.

Whole life insurance has the advantage of covering you for your whole life without having to renew. The payments remain the same and you can pay monthly, quarterly, or yearly. Also, a portion of your payment can be used to create cash value, which can be used to pay the policy off sooner.

So how much life insurance do you need? Everyone’s life insurance needs are different. Your agent should have a detailed list of information they will need to help you calculate your specific needs. This list usually includes your monthly expenses by category, your mortgage or rent, car payments, your current income, and any savings or other income or expenses you may have. You can find a great calculator at Smart Money’s website at http://www.smartmoney.com/personal-finance/insurance/how-much-life-insurance-do-you-need-12949/ .

Now some people get pretty nervous or even scared when you start talking about your expenses. Let me just say that all your agent is trying to do is find a life insurance policy at an amount and payment you can afford. They are not here to judge you; they are here to help you decide how much money your survivors will need to make mortgage or rent payments, buy groceries, make car payments, keep the utilities on and live their life after your passing. If you have children or people who depend on you, this calculation is even more important.

The next thing you should do is create a will. Deciding who get’s your mom’s plates or your Giant’s baseball card collection should be done ahead of time to avoid (or maybe start) an argument. More important than that is deciding who will take care of your children in the event both you and your spouse pass away. You may want to name a back up person just in case Aunt Ethel does not make it back from that Mexican cruise next month. Make sure that both of those people are named as alternate beneficiaries on any life insurance policies, so that the money will be there for them to raise your children. You will also want to leave instructions about how your estate is to pay off debts, like your mortgage or credit cards. This will save your heirs some potential legal trouble and could help them keep a roof over their head.

There are many things to consider when making a will. In most cases a lawyer or paralegal may charge only a small fee to set up a will for you. There are also a number of websites and programs that will let you create a will for very little cost. You must then sign the will in front of two witnesses and then have them sign the will also for it to be valid in California. You can check out Nolo.com for will information in your state. Many counties have their own legal aid services that can also help at minimal cost. Keep in mind that you will want to periodically update your will. In one case I know of, all but two of the heirs were deceased and several of the grand children where left out completely. You will want to up date your will and insurance policies immediately due to major changes, like marriage, divorce, births, the sale of property, etc. Otherwise updating your will and insurance policies every 2 or 3 years should be fine.

Once you get your insurance, will and other legal documents together, keep them in a secure place where you can get at them. A fire proof safe at home is a good idea, so is a bank safety deposit box. If you have a lawyer, they may also keep copies of these documents on deposit with them. You can also get fireproof locking boxes at many stores like Target, Wal-Mart and Home Depot. The only draw back to them is that since they are portable, they can be stolen so hide them well.

These are just some suggestions of the types of planning you could do. Depending on your situation, you may need to consult a lawyer that specializes in estate planning or a certified estate planner.

And keep your will and beneficiaries a secret. There is no need in telling your daughter that grandma’s dishes are going to Aunt Betty instead. She can find out later.