Day 25 / 31 Audit your Insurance

Day 25: Check your Insurance
Day 25: Check your Insurance
Day 25: Check your Insurance

Risk management and insurance is an important part of financial planning, although surprisingly often overlooked. Many feel insurance is boring, complicated or not needed and years of careful financial planning amounts to nothing if a small oversight on your side leads to a financial disaster for you or your family.

Choosing which types of insurance you need, which ones you do not and making sure that the ones you have are still up-to-date and applicable to your current situation can be a bit of challenge though, which is exactly why it is our challenge for today! 

An insurance is essentially a financial protection you contract against the risks of a possible loss. Below are the 5 most common types of insurance you might need: Continue reading

Step 88: Annuities

Step 88 of the 100 steps mission to financial independence: Annuities
Step 88: Annuities

Let’s look at one more pension option before we round off the pension series: Annuities. Sounds like something complex (and they certainly can be when they want to be!) but this step will break down their characteristics and benefits, as well as some of their disadvantages.

What are annuities?

Annuities are a financial product somewhere between an insurance and an investment option. Like any insurance, you buy annuities – in this case it insures you against living too long. Yes, you read that right. Whereas a life insurance insures against dying too early, an annuity insures you against living too long. An annuity provides a set monthly income that you get for the rest of your life after a certain age. If you are fearful that you might outlive your pension, i.e. that you might withdraw too much from your investment and / or pension fund and end up without any money at some point in your retirement, an annuity is a good solution as it gives you a guaranteed monthly income.

How do annuities work?

There are many different types of annuities with many different characteristics. First of you normally buy an annuity from an insurance company, pension provider or broker who then reinvests your money. It very much works like a mutual fund and the company you buy the annuity from will add in a profit margin of course so your money won’t grow very much over time due to the fees you pay. You can buy an annuity with all of your pension savings just before you retire or you can buy several smaller annuities over time. Annuities differ in the way that they are set up and some of the key variables include: Continue reading

Step 87: Play the What If.. game

Step 87 of the 100 steps mission to financial independence: Play the What If... Game
Step 87: Play the What If… Game

Being prepared for adverse financial situations is an important step to take on your way to financial freedom. Without wanting to sound demotivating (or even morbid), the “what if..” game forces you to think of unwanted but possible situations that might happen and that would set you back on your journey to financial freedom and in some cases would have far bigger consequences than just the financial effects.

We’ve already established the importance of an emergency fund for those times you have a big unexpected one-off expense you need to pay and you should also be well on your way to getting together a 3-6 month living fund in case you (or your partner) lose your main source of income and need to make ends meet until you find another job or income.

Whereas the emergency and living funds prepare you to financially deal with the consequences of a financial setback quickly and efficiently, the “what if…” game prepares you psychologically for any behavioural changes you might need to make to adjust to smaller or bigger changes in your life that might require you to adapt on a longer term.

So let’s get playing… Continue reading

Step 62: Warranties and Service Contracts

Step 62 of the 100 steps to financial independence: Warranties and Service Contracts
Step 62: Warranties and Service Contracts

When you make a big purchase such as a new car or appliance for your house, the selling company often provides a warranty on the product. The warranty is a guarantee for a set period of time during which the manufacturer promises a correct functioning of the product and to replace or repair the product if the product is faulty.

Warranties are very important to understand and keep as they can save you a lot of money and worries if you ever need them. This step will look at warranties and extra warranties in detail, so you can assess any current warranties you have and to allow you to compare and evaluate warranties on any future purchases.

What a warranty typically includes

Normally a warranty will specify and /or include the following:

  • How long it is valid for. For some products this might be no more than 6 months, other products might be covered for several years.
  • What circumstances might void the warranty. The manufacturer often includes reasons why a warranty might cease to be valid, such as not having done regular maintenance check ups and servicing or using the product incorrectly.
  • Services included: what happens if the product is faulty? Will it be replaced, repaired or will your money be refunded?
  • Services excluded: this might not actually be stated in the warranty, but make sure you find out what is not included if your product fails. Think of costs to do with transporting the product to the shop or factory, labor charges etc.
  • Does it include costs you might have as a consequence of the product being faulty? For example if your washing machine floods your house, will the damage to other objects and furniture be covered, or if the fridge-freezer breaks will you be reimbursed for any of the contents gone off?

Continue reading

Step 61: Disability Insurance

Step 61 of the 100 Steps to Financial Independence: Disability Insurance
Step 61 of the 100 Steps: Disability Insurance

A disability insurance provides you with financial compensation in the event of a disability that stops you from going back to work. It covers your future wage by paying a certain percentage of your wage, often around 60-70%,  either until you are able to go back to work again or for as long as the policy contracted states that you are entitled to the compensation.

There could be several reasons for somebody being unable to work, including illness, medical conditions or after an accident. The difference with a medical insurance is that the latter only covers your medical bills, not the fact that you no longer have an income to support you financially. In some cases and countries social security might offer a disability coverage, but conditions vary greatly and it might not kick in until after a certain time, sometimes not even til after a year.

Do you need disability insurance?

The chances of becoming disabled before retirement age can be 2 – 3 times higher than the odds of dying before retirement age so there is a relatively big chance you might become disabled at some point. Due to this high chance, disability insurance tends to be fairly expensive. There are several situations in which you might not need disability insurance, including: Continue reading

Step 60: Car Insurance

Step 60 of the 100 steps mission to financial independence: Car Insurance
Step 60: Car Insurance

Car insurance, also known as motor or auto insurance, is often obligatory to have in order to use a public road. Most countries distinguish between insuring a driver and insuring a vehicle, and in some you insure a car regardless of its drivers (as long as the driver has the car owner’s permission to drive it), whereas in other countries you might insure the driver regardless of which car they drive.

Characteristics of car insurance:

A car insurance generally has different parts to it and whilst the terms used for these coverages can vary from one country to the next, most insurances use a similar classification system. Continue reading

Step 59: Home & Renter’s Insurance

Step 59 of the 100 steps to financial independence: Home & Renter's Insurance
Step 59: Home & Renter’s Insurance
If you own a home, you really can’t do without having a home insurance or homeowner insurance. Apart from the financial protection of probably your greatest asset, it is often also a requirement for getting a mortgage. If you don’t own a home but rent, getting a renter’s insurance is often worth considering as it includes the liability as well as the belongings protection in the same way as a home insurance does. In that case the insurance of the property would be the responsibility of the home owner however, not the renter.

Why Home Insurance

Home Insurance covers you against such things as theft or damage, so that if anything happened, you get financial compensation in order to replace or repair what is needed.

What is included?

What is and isn’t included in your home insurance obviously depends on the company and your specific policy, but usually three main things are generally included in a homeowners insurance:

  • Damage to your house, such as the structure of your house as well as the functioning of or damage to parts of your house or equipment.
  • Theft of your belongings, both inside the house as well as outside of the house such as when you are on holiday or if something was taken from your car. Bear in mind that for off-site loss of or damage to your belongings the payment might be substantially lower however.
  • Liability – many policies include liability insurance which is any damage you or other family members might inflict on others or on their property or house.

What isn’t included

In general the following items or situations are often not included, although many can be added to your insurance as an extra against a higher premium:

  • Damage to your house or belongings due to poor or deferred home maintenance, i.e. issues you have neglected.
  • Certain natural disasters such as earthquakes and land flooding are often not included, though many policies do include hurricanes and storms.
  • Normally the liability insurance includes all members of your household, and this means that even your pets might be insured. Not all dog breeds are insured however when it comes to dog bites as some are considered to be very aggressive and are therefore excluded from the standard policy.
  • Some of your valuables such as jewelry, silverware and electronics might have a limit in terms of what is covered, meaning that the insurance will only pay out up to a fixed amount if any of it gets stolen or damaged.

Types of cover

You can often chose from the following types of cover:

  • Cash value coverage – this is the cheapest option and stipulates that you will be covered for the current value of your property or your belongings, instead of what you originally paid. This takes into consideration that your belongings experience a certain degree of depreciation, i.e. value loss with time.
  • Replacement cost coverage – more expensive than the cash value coverage option, this coverage pays the original price you paid for your belongings or property without deducting depreciation. It covers you up to the original price you paid as long as that is within the policy limits so you can replace it completely for the same price as you paid.
  • Guaranteed or extended replacement cost coverage – the most expensive option of them all, this coverage gives you even more protection so you can replace your belongings or rebuilt your home even if it goes above the policy limit, although this will be capped at a certain percentage, usually at around 25% above the limit. This means that you are protected against inflation as well an any increases in your property value for example.

Step 59 – Home Insurance – in detail

  • Pull out your insurance policy with its details and payments.
  • If you are a renter and haven’t got a renter’s insurance request policies from various insurance companies to compare.
  • If you are a home owner and have a home insurance, or if you haven’t got one anymore because you have paid off your mortgage, you are also going to request policies to compare them and see if a change in insurance or insurance provider is worth considering.
  • Compare the quotes you receive on the following:
    • Annual premium
    • Inclusion of cover of belongings, both in your house and outside of the premises (e.g. on holiday).
    • Whether there is a deductible (i.e. amount you need to pay first before your insurance comes in) and how high this is. Note this might be different for different belongings.
    • How much the limit of coverage is for belongings (check the various categories) as well as for your house.
    • What circumstances are excluded from your insurance (earthquakes, sewage problems etc).
    • Whether you dog is covered.
    • Check how much extra you would need to pay in order to get extra coverage for items or situations you deem essential.
    • Customer satisfaction with the insurance company and / or specific policy.
  • Once you’ve decided on the insurance to take out or change to, do so as soon as possible.
  • Make an inventory of your possessions, keep receipts of valuable possessions and consider taking photos or a video with your camera or phone of your different rooms, so you have an overview of your possessions. This will be required for a claim, so doing this at the same time as contracting, changing or simply checking your insurance makes sense!

As with any insurance, one hopes never to need to use their home insurance as damage can not only be expensive, it is also a hassle to deal with. Yet not having a home insurance for your house, your belongings, as well as the liability coverage might mean that your financial planning turns completely useless and irrelevant if you can’t pay to replace or rebuilt your home or belongings or if you are faced with a bill for damage you have inflicted on others. So be sensible and sort out your home or renter’s insurance now!

Read more about my 100 steps mission to financial independence or simply decide to take control today and join us on our step-by-step quest on how to make your finances work for you, starting with step 1.