Insurance policies can be lengthy, difficult to understand, and tedious reading. While insurance is a necessary and effective tool for managing risk, few of us take the time to read every page of a homeowners policy to ensure that we do have balanced coverage.
Taking just a few minutes to be aware of your Lloyds of London renewal, for example, could reduce premiums by eliminating excess coverage. More importantly, this could avert financial ruin and heartache when you suffer a loss that you thought you were covered against.
Becoming familiar of the following eight elements found in your insurance policy will better help you determine whether you’re adequately insured.
- Perils - What causes of loss are you covered against? Fire, wind, rain, hail are common covered perils. What if a tree or neighboring dwelling falls and damages your dwelling? It’s not always clear. Depending on your homeowners policy form, all perils may be covered except those specifically listed as exclusions. Other policies must specifically list the covered perils, with exclusions not being covered. Flood insurance is a common point of confusion - your homeowners policy almost certainly does not cover damage from flooding. An additional flood policy may be required, or at least made available to you, depending on the risk of your location. Be aware, and ensure you are covered to the extent you want to be.
- Losses - Your policy will specify to what extent your real property is covered against loss. Also be aware of personal property loss – how much would it cost to replace your entire house contents in the case of a total loss? In the event of a catastrophic loss of your home, you will incur temporary residence expenses and possibly loss of income, while your home is being rebuilt.
- Personal Property - Your policy may list personal property, or contents may be covered under a general blanket arrangement. Itemized lists must be kept up to date as you acquire and liquidate assets. Also be aware of claim limits on special household items like cash.
- People – The named insured or homeowner(s) are usually covered under homeowners policies. Plus, family members, employees, guests and visitors, will normally be covered. Tenants probably won’t be covered under your standard homeowners policy. If fact, you will probably be over-paying for insurance if you utilize a standard policy while leasing your house to renters. Renters can obtain their own policy to cover their property, but be sure to research whether you have sufficient liability coverage to protect you and your tenants.
- Location – This may seem obvious for a single-family residence. However, be sure that separate structures such as storage sheds or detached garages are covered. In an apartment complex you should be aware whether theft from a shared garage is covered, for example.
- Time Period – Your policy will specify the beginning date and time of coverage, and when this concludes. Lapses could be devastating to your personal finances.
- Loss Control – What are your responsibilities for limiting losses? Are you required to lock the doors, or ensure smoke detectors are functioning, for example?
- Amount – How much will your policy compensate you for in the event of a loss? Generally, homeowners are required to maintain a coverage amount of at least 80% of the replacement value of the dwelling. The claim formula for policies with less than adequate coverage is brutal, and will leave you well short of being able to replace your home to its former value.
Being aware of the inclusions, exclusions, limits, and requirement of your homeowners policy are crucial to maintaining control of your personal finances. After a quick review you may identify excess coverage that could be eliminated by simply contacting your insurer, and that will save you money.
Diversify, diversify, diversify - we hear this all the time from the so-called personal finance experts. However, achieving all your investment goals is not as simple as buying the market in a low-cost index fund, owning foreign currency, or considering to add gold to your portfolio. More importantly, each of your investments must target a specific goal and be appropriately diversified to maximize the probability of successful outcomes.
The notion of “the portfolio” is bogus. Because we each save and invest for a range of goals, it is madness to simply think of a single portfolio as a means of achieving all financial goals.
The main differentiating factor for our goals is time. A long-term goal like retirement should be diversified very differently to short-term goals, like a real estate deposit. To lump all your resources into a single investment, no matter how diversified, wouldn’t efficiently achieve all your objectives.
Short-Term Targeted Diversification
For financial goals within the 12-month time-frame, you should consider low-volatility and liquid investment vehicles. If you aim to purchase a car, take a vacation, or make a deposit on your dream home, then you simply must have those resources available to you when you need them.
High-yield deposit accounts, CD’s, and money-market accounts are examples of liquid stores of cash where you have very little chance of losing your capital to any sort of volatility. With interest rates currently at record lows there’s a good chance that your yield will be close to zero, and this carries a risk of you losing some purchasing power to inflation. However, you can be confident of having the money you need, when you need it.
Medium-Term Targeted Diversification
Goals in the 2-15 year range lie somewhere between short and long-term objectives. Saving for a child’s college education is a good example. In this range we can accept more volatility with our investments as market gyrations won’t impact our ability to meet this objective in the short-term. In fact, greater volatility will increase the chance of capital growth over the mid-term, helping us achieve our targeted goal.
However, as we approach the target date it is critical to transition to less-volatile investments and lock-in our gains. For example, within 5 years of your goal it may be prudent to move from stocks to bonds, and from bonds to cash equivalents.
Long-Term Targeted Diversification
With an extended investment time-frame we can accept volatility, knowing that this movement will help our invested capital grow towards achieving our goals. We can confidently invest in the stock market, and international stock markets to chase the growth necessary to build a nest-egg that will be with us throughout life.
Again, it is critical to reduce volatility as we approach the time that we need to access these funds. However, balancing immediate retirement needs and not outliving our money may require accepting some volatility well into retirement. Discuss this with you financial advisor, but it really is not necessary to convert your entire retirement portfolio into income producing assets.
Multiple Portfolios Within Our Total Portfolio
To successfully achieve each financial goal, we need to think of our portfolio as a group of targeted investments. Each pool of money needs to be invested and diversified according to the goal. Specifically, diversification should be tuned to match the time-frame of your goal to ensure the funds you need will be there when you need them.
Home ownership is arguably the central pillar of the American dream. To own your house with a clear title, free of any encumbrances, claims, or liens is an ideal that many of us strive for. However, contributing additional household resources to accelerate your progress towards this goal can have negative impacts on other critical financial goals.
The question of whether to pay down the principal of your mortgage at a faster rate than laid out in your repayment schedule is well covered in the financial media. Generally, discussion begins with identifying how much interest can be can be saved, and how much sooner you can clear that horrendous mortgage obligation from your balance sheet. Most mortgage borrowers can realistically save tens or hundreds of thousands of dollars in interest alone, and the psychological appeal of nixing this massive loan can not be understated.
The pundits make it sound so straight forward. Simply arrange a bi-weekly payment schedule; contributing 13 payments annually instead of 12. Even paying an additional $100 or $200 per month will result in significant interest and time savings over a typical 30-year mortgage term. It seems easy enough, but family budgets can’t always afford this incremental expense.
Most balanced debates on this subject also include a comprehensive analysis of sticking to the planned repayment schedule; not accelerating your mortgage payments. Presumably this means you would have $100 or $200 or that 13th payment to do something else with.
What Would A Financial Planner Do?
A Financial Planner would tell you exactly how to maximize your economic utility with this additional cash. You’d likely be shown that your tax-effective mortgage interest rate is lower than you think due to the deductability of this expense. Plus, in this low-interest rate environment you can earn a much greater return by investing your money than paying down debt, and this too can be very tax efficient in various retirement vehicles like the Roth IRA.
Home buyers that compare home loans, in much the same way they compare homes, ensure that they find the very best mortgage available to them at the time. Knowing the cost of housing is a fixed monthly expense for the household allows for consistent financial planning, even if that mortgage takes 30 years to amortize.
Families must be aware that the mortgage is just one piece of the sustainable financial plan. Additional mortgage payment must be secondary to realistic cash reserves. Nobody is immune to a faltering economy so it’s common sense to plan like your job could disappear for six (6) months. There are currently thousands of Federal Government employees suffering a 20% pay cut due to sequestration furloughs. These cut-backs can impact what we thought were the safest of occupations and industries.
The appeal of paying less interest to purchase your home is unmistakable. One major downside however, is the loss of flexibility. Financial resources committed to paying down mortgage debt can’t easily be withdrawn. Refinancing or opening a line of credit can be expensive or impossible if you are unemployed. However, if you saved your additional cash-flow you would have the ability to weather the financial storm without being foreclosed upon.
An Alternative Perspective For Families
If your household budget does have the capacity to make additional mortgage payments while simultaneously maxing out your retirement savings, 529 contributions, buying the car of your dreams, and meeting orthodontist expenses, then go ahead and accelerate your mortgage.
However, something your financial planner won’t tell you about is how to enrich the quality of your life and your children. It almost seems unfair that parents are saddled with so many competing financial obligations at precisely the time they are tasked with preparing their children to embrace the world. The child raising window is extraordinarily brief, much shorter than your 30 year mortgage note. Unlike your home loan, it’s not possible to refinance your child’s developmental years.
In my humble view, it’s better to spend your additional cash flow on fun family activities that can open your children’s eyes to all the possibilities that life has to offer, rather than squirreling away every last penny on mortgage acceleration.
Whether you’ve recently moved home or you’re looking into a couple of home improvements, having a look at the state of your boiler is one of the key investments you could consider making. While there are several options available, it’s not too difficult a choice once you know the difference between the various types. Whichever boiler you decide on, make sure you consider British Gas boiler maintenance options too – after all, what’s the point in investing in a shiny new boiler if you don’t look after it? Boiler care doesn’t have to cost a fortune and will ensure that your new boiler system will have a long and happy life.
Conventional boilers use a storage tank to supply hot water. If you’ve moved into a new home, you’ll know if you have a conventional boiler because you can’t really miss it. There’ll be a lagged hot water cylinder in a storage or airing cupboard somewhere as well as a cold water tank tucked away in the attic.
While newer models are being produced that are efficient and tailor-made for an individual home’s requirements, older types are typically less efficient. One of the major downfalls is that once the hot water is gone, it’s gone until the next batch heats up again, meaning it’s not very handy if you have a house full of people!
On the other hand, combination boilers supply water straight from the mains so hot water is unlimited. Modern homes are likely to have combination boilers fitted because they’re convenient and efficient. Some newer models include innovative condensing technology and ECO modes, too.
While these are predominantly the main considerations you need to make, there are alternative options available. Greener energy is definitely a thing of the future; if you want to be part of this, take a look at the Baxi Ecogen alternative that, apart from supplying the all-important hot water, also generates low-carbon electricity.
Summer is a perfect time to upgrade your boiler system. Take a look at the options and have a new boiler installed ready for the forthcoming winter months.
Home ownership is an ideal that most of us are striving to attain. While other investments most definitely have their place in your diversified total portfolio, there is a powerful sense of permanence that bricks and mortar offers which volatile stocks and bonds struggle to compete against. Today, home loan comparison is made easy with high quality online shopping tools.
Shopping online is arguably the most profound innovation that the internet has brought to consumers. The rapid sharing of information has firmly improved the footing from which we negotiate for so many goods and services. Now, it’s common for us to shop for insurance, automobiles, job listings, the cheapest fuel, and even prescription drugs, all through high-quality trusted comparison web sites.
The home loan market is perhaps the most competitive industry vying for your business. A home purchase and mortgage commitment is still the largest financial agreement that we engage in. This has helped to push the financial sector to be the largest in our consumer driven society. The bottom line is that banking is big business, and with thousands of financial institutions competing for your home loan the very best way to shop around is by using safe online tools.
It sounds laughable today, but the thought of driving down to your local bank to apply for a mortgage is simply not an efficient way to seek the very best deal available to you. Looking beyond the bank or credit union where you hold your transactional account is the first step.
The very best online home loan comparison tools allow you to input the financial details relevant to your mortgage needs. Without the need to share your personal information, you can very quickly and safely learn what the market can offer you. In less than a second you can learn which mortgage lender wants your business, their best interest rate, your monthly payment, the total interest over the term of the loan, and any fees for closing.
This is a very quick and easy process that prospective home buyers should complete as they shop around for their home loan. Your mortgage shopping should be almost complete before you actually apply for credit. Arm yourself with the information that will give you the upper-hand as you engage with lenders. It really does pay to shop around, and when it’s free and convenient, you really have no reason not to compare home loans online.
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