I spoke to my father yesterday and curiously asked him about his thoughts on assisted living facilities.  “Absolutely depressing!“, he said.  I couldn’t agree more that assisted living programs are depressing given it reminds us everyday about our mortality.

Who wouldn’t want to stay put in a home they’ve lived in for years instead?  I know I would.  Home is a special place that makes us feel comfortable and warm.  Ideally, you own your home outright in retirement and no longer have payments.  However, this is a topic for another post.

We can only hope that we remain healthy for the rest of our lives, but we’ll eventually need some help thanks to injuries or illnesses.  Some of us will have the financial strength to comfortably pay for our healthcare in retirement.  Others might have wealthy children to rely on.  But what if you do not want to burden anybody, and don’t have that much money to last?

Buying long-term care could be an ideal solution for your retirement years.

THE IMPORTANCE OF LONG-TERM CARE

Long-term care insurance generally covers home care, assisted living, adult daycare, respite care, hospice care, nursing home and Alzheimer’s facilities. If home care coverage is purchased, long-term care insurance can pay for home care coverage, such as the cost of a live-in caregiver, housekeeper, or therapist for up to 7 days a week, 24 hours a day.

Clearly, one can imagine this type of care is not cheap, often ranging from $50,000 to $75,000 a year.  You might think long-term care (LTC) is only reserved for people ages 65 and up.  However, that’s wrong as LTC insurance can be purchased and used for everyone of all ages.  In fact, according to Wikipedia, 40% of those receiving LTC are between the ages of 18-65.

According to a survey done by New York Life Insurance Company, the 2009 national average per night at a nursing home costs $220 a day, or some $90,000 a year on average.  Given the average stay at a nursing home, or need for long-term care is about 3 years, one would need over $200,000 to pay for long-term care if one doesn’t have LTC insurance.

Why Would You Want Long-term Care?

* You don’t have the financial capacity to take care of yourself.

* You don’t have any children.

* You have children who don’t want to help, or don’t have the financial ability to help.

* You don’t want to feel like a burden on your children, friends, or relatives.

What Determines Long-Term Care Insurance Premium Rates?

Long-term care insurance rates are determined by six main factors: the person’s age, the daily (or monthly) benefit, how long the benefits pay, the elimination period, inflation protection, and the health rating (preferred, standard, sub-standard).

According to “America’s Health Insurance Plans” The average age of purchasers has dropped from 68 years in 1990 to 61 years in 2005, and the number of purchasers who are under age 65 has increased significantly.

Most companies offer multiple premium payment modes: annual, semi-annual, quarterly, and monthly. Companies may add a percentage for more frequent payment than annual. Options such as spousal survivorship, non-forfeiture, restoration of benefits and return of premium are available with most plans.

According to the website Allaboutlongtermcare.com, the following chart below shows a rough estimate of a $219,000 ($150 a day), 4-year benefit LTC plan.  As we’ve already discussed above, it costs $200,000+ already for only a 3 year plan, therefore the annual premiums here are likely 30% too light.  Please note you can take various different amounts of LTC insurance coverage e.g. 2 year coverage, 5 year coverage, lifetime coverage and benefit amounts of course.

As you can see, the older you are, the more expensive LTC insurance will be.  That’s not a surprise.  Nobody really knows how much long-term care they need, because nobody knows exactly when they will start needing help, and when they will die.  However, statistics show that the median life expectancy is 80, and the majority of us will require 2-5 years of long-term care before we die.

The policy premiums of long-term care insurance are created to account for the majority of people.  Of course, if you are more conservative and believe you will live a long time, then you should consider getting more coverage.  However, life expectancy and quality of life are two separate issues.  You could live until 100 and just need care from ages 98-100.  Or, you might be unfortunate to contract something at 75, but live on in an unideal state for 25 years, requiring $2,125,000 (25 X $80,000) to pay for LTC.

CONCLUSION

If you do not have $200,000-$300,000 in liquid cash saved up, are not very healthy, and have no children to rely on to pay for long-term care, you should consider taking out LTC insurance.  Remember, LTC insurance is not necessarily an age issue, as 40% of those receiving long-term care are between the age of 18-65.  Every single major insurance company provides long-term care so shop around for the most competitive rates.

Long-term care is insurance that pays off after a pre-determined period, which is usually after both short-term and long-term disability runs out after 12-36 months if you are working.  You can tell from the charts that the cost of LTC is getting incredibly expensive, way outstripping the rate of inflation.  As a result, you’ve seen the average LTC policy holder’s age decline to age 61 from 69 according to America’s Health Insurance Plans.

Feeling like a burden is a terrible, terrible thing.  I can’t stand relying on people given my pride and guilt.  However, getting long-term care is a personal decision only you can decide to make.  Hope this information helps!

Readers, have you or your parents ever taken out a long-term care insurance plan?  Have you ever received long-term care before?  If so, how much did the care cost?

Photo: Old Man Resting In Santorini, Sam.

Regards,

Sam

If you haven’t done so already, calculate your net worth to assess how you did this past year.  Hopefully, you’ve grown your net worth, despite the stagnant stock markets through aggressive savings, retirement company matches, a diversified investment portfolio, rental property cash-flow, and an increase in your start-up’s value.

Wait, all you have is your savings?  Then you better start diversifying your income stream so you’re always moving forward, no matter how rough the economy.  Once you’ve calculated your net worth, make sure your life insurance levels equals this amount, especially if you have dependents, or a spouse who makes much less than you.  If you die, and want your loved ones to maintain a similar standard of living, consider matching your life insurance amount with your family’s net worth amount.

Some might not agree with this life insurance guideline and wonder whether it would be better to have insurance that equals a family’s debt level only.  Having enough life insurance to pay off all of your family’s debt is better than no life insurance at all.

If you’re single and have no dependents, do you really need life insurance?  Probably not.  If you die with a million bucks in debt, you’re living large!

Consider the Robinson family in San Francisco with two children ages 8 & 7:

* Wife (35) Income: $200,000

* Husband (34) Income: $60,000

* Savings Rate After Tax: 30%

* House Value: $900,000

* 401K/IRA: $500,000

* Cash: $100,000

* Personal Stock Portfolio: $100,000

Total Assets: $1,600,000 + $45,000 a year in savings each year they work.

* Recurring Private Education Cost: $25,000

* Mortgage: $500,000

* Consumer Debt: $20,000.

Total Liabilities: $420,000

Net Worth: $1,090,000 – $30,000 a year for the next 15 years as their two kids finish high school and go to college.

Take a moment to consider the Robinson’s family situation.  How much life insurance should Mr. Robinson take out, and how much should Mrs. Robinson take out?

Mrs. Robinson’s Situation

Mrs. Robinson is clearly the breadwinner of the family.  If her income disappears, it’s up to Mr. Robinson to take on the $420,000 debt level, which is 7X his annual income.  Furthermore, after taxes, Mr. Robinson will only have about $42,000 left over, barely enough to cover the $30,000 a year in tuition!  In this scenario, is a $420,000 life insurance policy enough?  Probably not, since even after all debt is paid, Mr. Robinson would have to spend the majority of his salary on his kids tuition, buffered by the $100,000 in cash savings he can use penalty free.

With a $1,100,000 life insurance policy, Mr. Robinson can breathe much easier as he can use $420,000 to pay off all debt and have $670,000 left to pay for his kids education for 20 years and maintain his living situation without further disrupting his family.

$1.1 million happens to be 18X Mr. Robinson’s income as he is living larger than his income could allow on his own.

Mr. Robinson’s Situation

If Mr. Robinson dies, the financial hit is not as great given his $60,000 gross income.  Mrs. Robinson’s $200,000 gross income can pay the $30,000 a year in tuition, an estimated $30,000 a year in mortgage costs at a 4% interest rate level, $10,000 a year in property tax, and $30,000 a year in food, clothing, and travel with $20,000 left over.

$20,000 left over for savings is still good, but will there really be $20,000 left over if Mr. Robinson is no longer around?  Unlikely, given Mr. Robinson had very flexible hours and was able to care for the kids while she worked late and sometimes on the weekends.  Mrs. Robinson needs help as a single mother, and the $20,000 goes towards paying for help.

Given Mrs. Robinson makes $200,000, she should have no problem paying the extra $50-$100/month for a $1.1 million life insurance policy vs. a $420,000 life insurance policy.  $1.1 million equals 5.5X Mrs. Robinson’s income.

CONCLUSION

When you lose a spouse, the last thing you want to do is have more disruption due to your finances.  Are you really going to pull your kids out of school and away from their friends after their mother or father just died?  No.  The surviving spouse will be in mourning, and needs that life insurance policy as insurance that he or she can have as much time possible to figure things out.

If necessary absolutely necessary, the surviving Robinson parent can sell all assets to cover all liabilities and net roughly $1 million in cash after fees.  However, the family still needs a place to stay and go to school.

It’s foolish to be underinsured to save a nominal amount of money every month.  $420,000 worth of life insurance is better than zero in the Robinson’s case.  However, it’s best to simply match the life insurance amount for each spouse to the estimated net worth of the entire family.

To Review:
* At a minimum, take out enough life insurance to cover all liabilities.
* Consider taking out enough life insurance to match your family’s estimated net worth.
* If you’re estimated net worth is small, consider the cost of getting life insurance equal to 5X-10X the highest income earner.
* Check your company policy. Many employers will offer anywhere from a 1-5X base salary life insurance multiple. If you want more, you just have to elect and pay.
* Protect your assets by taking out an umbrella policy, which covers liability beyond your car and house insurance policies.

Readers, how do you calculate how much life insurance to take?  Do you have life insurance?  If not, why?  How much life insurance do you have?

Regards,

Sam

Photo: Empty inner-tube, Kahala. SD.

It’s been two weeks since I found out I was being scammed by my insurance company. I sent in my 8 month old house appraisal to Tricky Dick, who is trying to raise my home insurance premium by 45% since their inspection 7 months ago.  Their shady inspector made my house 50% larger than it really is, so they could raise my premiums by a similar magnitude.  It’s so easy to prove what my house’s square footage is, it’s not even funny.  It’s like saying Lebron James is 10 feet 5 inches instead of just 6 feet 8 inches tall.  Utterly ludicrous.

The recent appraisal I sent in contains perfectly drawn outlines of my house’s layout and square footage.  It matches up to within 50 square feet of what the SF County Assessor’s has on record.  I’ve had two other appraisals in the past 7 years, and both are also within 50 square feet of the real size.  Clearly, this case is as slam dunk as convicting Elliot Spitzer for messing around!  Not so!

If you’re curious, here’s the e-mail exchange I had with them with names, figures, and dollar amounts changed that mimic the same percentages.  All of this takes precious time.  In this post, you will learn what the tricky “Home Protector Insurance” product is.  You’ll also learn whether the rebuild cost premium you pay trumps the square footage size they have in their documents, and what you get to rebuild if your house blows up.

FIGHTING IT OUT WITH TRICKY DICK INSURANCE CO

Dear Sam,

If you can provide the breakdown of the square footage of your home from your appraisal when you recently refinanced your home, that would be great.  On the Tricky Dick inspection, it currently shows 3,000 total square feet (which is 50% greater than reality):  first floor: 1380; 2nd floor: 1500; 3rd floor: 120.

You may fax over the information if you prefer to:  1-800-XXX-XXXX

Thank you,

Tricky Dick Representative

MY RESPONSE:

Hi Tricky Dick Rep,

My house is officially 2,000 square feet of warranted living space based on the SF county records and a recent home appraisal.  Please rectify this major over assessment in the system. It makes me feel that there is fraud with Tricky Dick pushing the home inspector to overvalue my house so that Tricky Dick can charge a higher premium. The reason why I’ve been a customer for so long is because of Tricky Dick’s excellent reputation and service. I hope this is just one big oversight.

Please see the appraisal report which outlines on page 5/29 of the PDF the livable square footage of only 2,000sqft. On page 6/29, you can see them do the cost approach analysis of 2,000 X $375 build cost/sqft = $750,000 + $48,500 for the garage area = $798,500 TOTAL. $798,500 is basically inline with what I previously had with Tricky Dick.

The attached report is dated 7/2010 and therefore very recent. I have done nothing since 7/2010, which includes when the inspector came in 4Q2010.

I request that Tricky Dick not only credit me the months that I have been overcharged by the egregious 3,000sqft assessment, I also request that Tricky Dick  does something to compensate me for the 3+ hours I’ve spent digging up this detail, talking on the phone, following up, and writing this e-mail. Seriously Tricky Dick rep, I am very disturbed I could get a sudden 45% increase in my home premium after such an inspection. I have ~$XXX,000 in CDs with Tricky Dick and do my auto, valuable personal property, and rental  insurance with Tricky Dick.

Please make this right. Please also respond to this e-mail so that I know that you have received it.

Regards,

Sam

TRICKY DICK RESPONSE

Dear Sam,

Thank you for your email.  I will look into this information you provided me and I will get back with you next week.  Please know Tricky Dick  is a very reputable company since 1922 and we are not looking to purposely increase premiums.  It’s about insuring your home accurately so we can restore your home back to it’s original condition, should there be a loss.  We do not want to over insure your home, nor do we want to under-insure it either.  I will review this information with my manager and will be in touch with you.

We value your business and the opportunity to serve all your financial needs.

Thank you,

Tricky Dick Rep

TRICKY DICK RESPONSE ONE WEEK LATER

We value your business and the opportunity to serve all your financial needs.

Thank you,

Tricky Dick Rep

MY RESPONSE

Dear Tricky Dick Rep,

Please clarify what my previous rebuild cost and annual premium is currently after the reassessment in February 2011, as well as the rebuild cost and annual premium was in 2010.

What does the rebuild cost encompass?

Regards,

Sam

TRICKY DICK RESPONSE

Dear Sam,

Your premium from 2/2010 thru 2/2011 was: $1400 and your dwelling rebuild cost was $730,000.  At renewal 2-28-11, your current rebuild cost is (from inspection): $1,120,000, and premium is currently $2,350.  Rebuild cost includes: current labor and building costs in your area, architect fees, debris removal, building permits, contractor fees, etc.

We value your business and the opportunity to serve all your financial needs.

Thank you,

Tricky Dick Rep

MY RESPONSE:

Thanks Tricky Dick Rep.

And to clarify, which trumps which? The rebuilding cost budget I have or the square footage? In other words, am I only allowed to rebuild up to 2,000 of livable square footage even if I only spent say $600,000 of the $950,000? Or, can I keep building until my $950,000 is used?

I’m assuming that I have the right to use up my entire rebuilding cost and build whatever size I want within reason since you guys have been charging me for it?  Does the rebuild cost consist of all the fixtures?

Also, just eyeballing these figures below, don’t you think it’s kind of ridiculous that my rebuild cost could ROCKET from $730,000 to $1,120,000. I do NOT have gold floors or diamond door knobs and my house has remained the same size.

Will Tricky Dick be crediting me the overcharge from Feb, March, April, and May? I hope so.

The square footage is what’s in dispute, but how much you are charging me is not. Hence, I should hope that I have the RIGHT to rebuild up to the coverage I am paying for (per my last e-mail, which hasn’t been responded to you), and not up to some seemingly arbitrary home square footage amount.

Please let me know.

Thanks,

Sam

INPUT COSTS ARE INCREDIBLE IMPORTANT TO UNDERSTAND

The Tricky Dick representative has been excellent at responding to all my questions and following up.  They have changed the square footage to the real size (33% correction), yet the rebuild cost only went down 15% instead of by 33%.  In other words, they still plan to charge me 13% more than what I’ve been paying for the past 6 years sans the “Home Protector Coverage” (this insurance for insurance is ridiculous) for my home insurance premiums.  If I were to add the Home Protector Coverage, my cost jumps 28%.

A 13% increase after 6 years is reasonable to me, given input costs have certainly increased by that amount in this time period.  A 28% increase seems on the egregious side.  However, if you just do the math and calculate a 5% inflation rate per year for 6 years, equals a 34% increase.  Since my rebuild coverage is going from $720,000 to $950,000 (32% increase), paying 13% more is a “good deal.” So all in all, I am fine with this rebuild cost increase because they’ve made an effort to adjust, and I clearly see where they are coming from now.

The main point of dispute has been my house’s square footage size and rebuild cost which relates to the size.  You should know that if your house ever gets destroyed, you have a right to rebuild your house to the maximum rebuild coverage you’ve been paying for, and not the disputed square footage size. In other words, you could build a house twice as large if the costs fit.

One thing to note regarding rebuilding costs is the implication for home prices.  With rebuilding costs forever rising with inflation, home prices will inevitably continue to rise, otherwise homebuilders will stop building because they won’t be able to make a margin.

Readers, don’t ever give up and accept what insurance companies, credit card companies and the like tell you to pay.  Always put up a fight, because there will always be ways to get a better deal.  Anybody have any similar victories they’d like to share?

Best,

Sam

I’m somewhat obsessed with physical fitness right now.  It’s surprising, because the new year’s health push usually dissipates by February!  Just yesterday I thought, “What’s the point of being thin if I don’t have four pack abs?“  And then I started thinking what kind of person thinks about these types of questions?  Pretty unproductive and pointless if you ask me.

I’ve come to the conclusion that those with the highest self-esteem are the least fit and most indebted people on Earth.  Meanwhile, those who constantly think about their looks, and who are always at the gym exercising and pumping iron have the lowest self-esteem.  They are constantly checking themselves in the mirror to admire their physiques, even though they already know they look fine.

Think about the extreme case of anorexia.  Despite being thinner than the average person, the person who is inflicted with this disease doesn’t have the self-esteem to recognize their own beauty and stop punishing themselves.  Now think about the morbidly obese person.  Is this also a disease as well?  The person doesn’t really care what you think of him or her.

YOU ARE WHO YOU WANT TO BE

Everything is pretty logical.  Nobody gains weight unless they want to.  The pleasure of eating really tasty food and not having to work out outweighs any annoyance that gaining weight produces.  If you were truly bothered by your weight gain, you’d logically start eating less, think about the starvation of others, and start working out.

When you have high self-esteem, you don’t give a damn what other people think about you.  You live your life with pride and purpose and don’t care if you’re tipping the scales because you’re comfortable with who you are.  The same thing with getting in debt too.  You don’t listen to pundits and people who like to shame folks into spending responsibility.  You utilize debt with freedom, enjoying a great life you cannot technically afford because you don’t care.

Look at multi-millionaire Dr. Phil.  He’s overweight, yet he wrote a weight loss book!  That takes great self-esteem and great courage to be able to produce a book teaching others how to lose weight if you yourself are out of shape.   He doesn’t care and makes millions because of it.  Look at Oprah.  She’s not in great shape, but she is a billionaire because she has great confidence in her message.  She helps others and makes people happy.

FIT PEOPLE ARE WEAK

If you go to the gym, you’ll see some enormously buff guys and extremely toned women working their tails off.  They are already at their peak level of fitness.  Running another 1 mile isn’t going to get them anywhere!  You will notice the guy checking out his abs and biceps in the mirror.  Sneaking a peak at himself.  The woman will check out her butt, in her $100 Lululemon outfit and admire herself.  She’ll prance around the gym, making sure other guys notice her.

Fit people are weak and insecure!  You can see it everywhere.  The vertically challenged guy gets huge.  The insecure woman eats so little so she can get into a size zero and feel better about herself.  I’ve got some insecurities because I’ve had thoughts about my fitness and weight since I was 8 years old.  I remember sucking in my gut when I was 9 during swim class because I didn’t want the girl I liked to think I was fat!  9 years old!  Jee whiz.

The next time you see a really out of shape person who is snowed under a mountain of debt, congratulate them for their courage!  Sit down with them and try and figure out how they developed such great self-esteem.  Chances are, they will simply tell you that they’ve stopped caring about what other people think.  Our own confidence is one of our greatest tools for achieving success.  Make sure you have some, and don’t ever let it go!

Readers, do you think fit people have lower or higher self-esteem?  If you are already so fit already, isn’t it kind of pointless to go on a diet and exercise constantly?  How about the less fit?

Best,

Sam

I’ve always trusted my insurance company, which I’ll call TRICKY DICK in this article, to do the right thing. After all, I’ve been a client of theirs for almost 20 years. They’ve benefited from my growth in assets and I now have auto insurance, homeowner’s insurance, valuable personal property insurance and an umbrella policy with them.  Furthermore, I’ve got a relatively large chunk of change in CDs deposited with them as well.

I had a unwelcomed change in my credit card the other day and had to call Tricky Dick to cancel my existing card on file and add a new one. Imagine my surprise when looking over my previous statement that they were billing me 45% more a month in premiums!  What the hell, I thought to myself.  Clearly there must be a mistake.  Oh how wrong I was.

HOW I GOT SCAMMED

Tricky Dick sent out a mandatory home inspector to my house last December to make sure my re-building costs were still the same.  I don’t know what the rule is, but supposedly after so many years, a home inspection is mandated by law, or so a letter from Tricky Dick said.  Uh huh.  The inspector noted the amenities in my house and calculated the square footage. Apparently, the home inspector and Tricky Dick now believe I live in a mini-mansion with a livable square footage estimate 50% higher!  WTF guys!

Based on Tricky Dick’s new square footage estimate, it now costs me $400/sqft to rebuild my house based on the new 50% larger size, and  $600/sqft on my house’s real square footage!  Somehow, the home inspector and Tricky Dick think that instead of hard wood floors, I have gold floors.  All the door knobs have suddenly turned from crystal to diamonds.  Meanwhile, my roof is not just any old roof, it’s clearly a landing pad for one of my Airwolf Helicopters.  Come on guys.  $400-600/square foot in building cost is ridiculous!

When I asked the Tricky Dick insurance woman how much the building costs are for her area in Colordao, she said $100-$200/sqft. Exactly, so why the F does Tricky Dick think it costs 4-6x more to build a house in San Francisco?  It’s not like California has special wonder board, windows, nails, tiles, roofing, and wood.  Building costs are roughly the same, and only the labor might be higher.

She sheepishly agreed and said she’d look into it.

GUILTY UNTIL PROVEN INNOCENT

This is what really pisses me off. Despite telling Tricky Dick to look up my house on the SF county records to see the real square footage, she said it is up to me to prove the real size of my house!  Her company prevents her from logging on to the SF county records, Zillow, and all these other online real estate companies because of “security” reason.  It is absolutely ludicrous that I have to fight the crooked home inspector’s assessment.  Good thing I have an appraisal report from last year when I refinanced, detailing the floor plans, square footage and all the details within my house.  If I didn’t, I’d have to go spend $700 to get an appraisal and then send it in.  What a waste of time and money!

When companies waste my time, that’s when everything goes to hell.  I did some investigating by talking to my friends in the real estate industry and what I found was disturbing.

They basically said home appraisers/inspectors are henchmen used to enrich the banks and insurance companies. With the banks, home appraisers manipulate the value higher so that a seller can sell to the buyer, even if the value is lower than reality. If a home does not appraise for what the buyer wants to pay, no transaction happens and nobody gets paid.

For insurance companies, home inspectors are asked to increase the value of the home by increasing the square footage and embellish the value of the amenities.  Instead of laminate floors, they’ll put in Brazilian Cherry hardwood floors, or in my case gold floors.  Instead of simple lights, they’ll enter crystal chandeliers to use to juice their estimates.  This way, the insurance companies can charge a higher premium for coverage.  In my case, Tricky Dick plans to charge me a full $1,200 more a year.

I am so disappointed that after all the money I have parked with Tricky Dick and after 20 years of being a client, they’d want to screw me like this.  What the hell happened to more customer protection after the financial downturn?  Apparently nothing much has changed.

GAME PLAN TO FIGHT BACK

My first instinct as a blogger was to contact Tricky Dick on Twitter and ask them for help. But just like the other five tweets I’ve sent over the past 12 months, nobody has ever responded.  Why have a Twitter account if you don’t ever respond to your customers?  Their social media effort is a D-.

I then called a nice representative who said she would investigate. She did and told me to send in proof of my home floor area, which is still a pain in the ass despite having the appraisal on file somewhere.  I will send the document in and tell them to credit my account back for the two months  overcharge. I will then ask them to reimburse three hours of my time and stress dealing with this bullshit valued at $500/hour, or $1,500 total.

If they do not give me something close to $1,500 credit, I will withdraw hundreds of thousands in cash deposits and shut all my insurance product accounts.  If they keep me as a happy customer, they will probably get hundreds of thousands in deposits over the next 10 years.  If not, I walk.  I will vote with my money.

TOO BAD, SO SAD

What makes this situation worse is that Tricky Dick is a great company 99% of the time.  Their customer service is excellent and their rates for CDs and insurance products are competitive.  Every time I talk to someone there, they are very helpful.  It’s too bad a black sheep in the home insurance department at Tricky Dick convinced the home inspector to over appraise my home by 50% to make more money.  To over appraise by 10-20% is reasonable, but by 50% is absolute hogwash.

Tricky Dick, I know you will never get back to me online.  Just know that it’s not good to scam your customers, especially ones that have been loyal customers for two decades and who have a blog.  Re-instill the faith I’ve had in you guys for all these years and make it right.  After sending in my recent home appraisal, telling me it will take two weeks to have your corrupt home inspection department look into it is now wasting your company’s time and money.  Just do the right thing and stop dicking around!

Home insurance summary: You don’t want to be under-insured or over-insured. If you are under-insured, then you lose in case of a disaster, but you save on premiums.  If you are over-insured, the insurance company rapes you with higher premiums, but then you have the right to build a Sultan’s Palace.  If you are over or under insured by ~10%, that’s fine and its not worth worrying about.  Just make sure you call and review your coverage once a year.

Readers, have you ever been scammed by a bank or insurance company?  Share with us how you plan to fight for your rights!

Regards,

Sam

I can’t help it.  I just have to wake up by 6:15am every morning because life just feels too darn exciting!  In fact, I woke up this morning at 4:30am, but that was thanks to my thumping pet rabbit.  Do you remember the feeling during Christmas eve as a kid, when you were so excited you couldn’t sleep?  As a result, you’d sneak down and wait in the middle of the night to see if Santa is coming?  You even tried getting a sneak peak by pealing back a corner of the present to see what you’ve got!  That was me growing up, the constant rascal.

Somewhere in the middle of adolescence and adult hood, I lost that excitement.  Perhaps it was the constant pressure of trying to get good grades so I could get a real job and not have to go back to McDonald’s.  I recall dreading my 8am multi-variable Calculus class during college.  Surprise, surprise, I dropped the class and signed up for Golf III (advanced level baby) instead!  That was when I began to rekindle my excitement as a kid again.  I was learning something I just loved, and couldn’t get enough.

FINDING THAT DESIRE

As soon as I wake up, I can’t wait to check my e-mails and see what’s going on in the world.  Part of the reason why I’m looking to meet more people internationally is because they are up when the East Coast is sleeping.  As a result, I’ll get to interact more with people in the evenings, which is my free time.

There’s very little that makes me happier than building relationships.  In fact, dare I say nothing makes me happier than the relationships we have with our family and friends?  Money is nice, but money is even better when we can spend it on others to help make them happy.

Just the other day, I spent hours painting, caulking, and cleaning our rental apartment.  I went out and bought a new shower head, fixed some fixtures, and even got the carpets professionally cleaned.  All was worth it when my tenant came in and said, “Wow!”  She was smiling from ear to ear, and commented on how sparkly everything looked.  Now that’s gratifying!  We got to talking about her life and her aspirations.   Relationships with clients can be wonderful.

MORE TIME CAN HELP YOU SUCCEED

One of my stretch goals is to try and wake up the same time everybody wakes up on the East Coast (8am EST assumption = 5am PST), and go to bed three hours after them (assumption 12pm PST/3am EST).  In essence, I’m trying to build in 3 more hours of time into my day.  All else being equal, if you have three more hours a day than your competitors, you will undoubtedly win and run circles around them frankly.

Three hours more a day is 90 hours more a month to work on your projects, be them personal projects or work projects.  Let’s say you can only stay awake for one more hour a day.  Don’t you think you can still do amazing things with 30 extra hours a month?  You bet your buns of steel you can!

There’s a large group of people out there who just love to sleep in, myself included!  There’s something so special about hearing the alarm clock, and knowing it’s Saturday and you don’t have to get up.  What I’m saying is that if you find something you just absolutely love to do everyday, you won’t need that alarm clock and will bounce right out of bed every single morning.

LOOK FOR THAT SOMETHING THAT HAPPENS WHILE YOU SLEEP

Practice waking up earlier for one hour a day, everyday for the next month.  You might feel a little groggy in the beginning, but that will start to fade as you focus that extra hour on doing whatever it is you love.  When you start seeing progress in your activity, you’ll discover that waking up early gets easier and easier until you just automatically get up!  Trust me on this folks, you can move mountains with just one hour extra a day for the rest of your life.

Have a fantastic Christmas and Happy Holidays!

Regards,

Sam

It’s open enrollment time again for insurance and benefits for the following year.  With all this talk about health insurance costs going up and benefits going down, I’m surprised to see my total insurance and benefits costs hover the same at around $150 a month for an individual.  I looked carefully at each line item and compared it to the previous year, and the costs are only about $5 dollars a month higher.

Your company benefits have real value that is calculated as part of your total compensation, so pay attention and maximize these benefits to your full advantage.  The deadline to enroll is usually by mid-December, otherwise what you have now *might* get carried forward to the next year except for some discretionary flex spending decisions, which reset to zero.  You don’t want to die an expensive death for your loved ones just because you forgot to enroll and didn’t understand what the term “excess liability insurance” means!  Get thinking and get cracking!

THE INSURANCE AND BENEFITS CHECK LIST

* Medical: Go with either a PPO (Preferred Provider Organization) or a HMO (Health Maintenance Organization) provider.  The main difference between the two is that the PPO does not require you to choose a Primary Care Physician (PCP) to coordinate and refer other Specialists in your network.  As a PPO client, you do not need a referral to see other doctors in your preferred network, which generally provides you more choices than a HMO network.  In other words, a PPO is more flexible and provides a better selection of doctors and therefore costs more.

Another interesting thing I see is the difference between co-pay and co-insurance.  Co-pay is where you always have a fixed payment every time you see the doctor, no matter how much your medical services cost.  Co-insurance is when you share a certain percentage of the medical cost.  In general, co-pay results in more expensive monthly premiums than co-insurance.  If you had a $1,000 knee operation for example, your co-pay may be just $50 bucks, but with co-insurance, you may have to pay 20% of the entire cost, or $200.

If you feel you may have higher medical expenses in the coming year, the easiest rule is to go with higher premiums because that generally means higher coverage and less out of pocket expense.  Of course, don’t forget to ask your provider for clarification.  I go with a PPO and co-pay rather than an HMO with co-insurance which costs less if you don’t get injured or sick.   Cost: $40-$80 a month pre-tax.

* Health Care Flexible Spending Account: If you anticipate something major, like knee surgery or corrective vision surgery, you can elect up to $10,000 to use for a FSA (government plans to reduce to $2,500 limit beginning in $2,500 so get sick now!)  All contribution is pre-tax, which saves you your highest marginal tax rate amount.  I’ve averaged around $500 a year for stuff, but am wondering if saving $150-$200 a year in taxes is a waste of time given I’ve got to fill out paperwork with each receipt to get a reimbursement.  Each person’s threshold is different, so weigh the costs of spending time filling forms, faxing, and waiting vs. the tax money saved.  Don’t overbudget the annual amount either, otherwise whatever you don’t spend, you lose.

* Dental: Pretty straightforward and a necessity.  Many different plans with different benefits and deductibles.  Mine provides two cleanings a year, and 70% coverage on dental work with a $100 deductible a year for $8 bucks.  Nothing is ever really “free”, so watch those deductible costs!

* Vision: Provides discounts for eye examination, eye-wear, and contacts.  Those with perfect vision should still opt-in as it costs around $3-$5/month.  I like to get my eyes checked out once a year since I’m on the computer so much.  I don’t want no detached retina or glaucoma to sneek up on me.  No eye-sight, no driving, no work, no blog.

* Basic Life: A token amount of term life insurance that is generally free.  My firm provides $50,000.

* Supplemental Life: More term life insurance that is usually a multiple of your base salary (1X – 10X is common).  $1,000,000 a year costs less than $20/month and goes up in pretty correlated increments from there.  The amount of supplemental life you need is determined by the amount your dependent needs to pay both your bills without having to worry.  The amount is subjective, but I would shoot for at least 5 years of total expenses i.e. add up all expenses such as rent, food, mortgage, travel for the year, and multiply it by 5.  This is why you need at least a rough budget!

* Personal Accident Insurance: Generally also provided for free by your company if you are in an accident that’s non-travel related and die on the job.  I’ve seen ranges of $100,000 to $1,000,000, so best to find out what yours is.

* Excess Liability Insurance: Also called an umbrella policy which is very important if you have lots of assets which are exposed if you get sued.  Simply calculate your net worth and get a umbrella policy that’s 50% over your net worth amount to be safe.  Cost is usually around $100 per $1,000,000 of coverage a year.  Click the link to read more about how an umbrella policy works.  This is very important, especially for those with teenagers!

* Short Term Disability: If you are a construction worker and injure your back and can’t work beyond the amount of your sick leave, short term disability kicks in.  STD (!) provides you with 60% of wages for usually six months, but varies from company to company.  Price is generally free to a very minimal amount ($5-10/month) if there is cost at all.  Generally there should not be.

* Long Term Disability: Kicks in after you exhaust short term disability and is there to protect you from catastrophic injury or illness.  LTD also provides 60% of monthly eligible earnings after short-term disability runs out.  You generally always want a policy that lasts until you are 65, because some may only last 5 to 10 years.  Call your health insurance provider and ask.  Costs generally run from $10-$60/month after-tax depending on how much you make.  60% of $50,000 a year costs much less than 60% of a $500,000 a year salary for example, hence will cost more.  But that’s OK, since you’re making more.

* IRA: An incredibly petty savings tool of $5,000 a year in after-tax contribution that is only available for people with adjusted gross incomes of less than $66,000 as a single and $110,00 if filed jointly.  For ROTH IRAs where you pay tax up front, the income limits get a little better to $122,000 AGI for a single and $179,000 for joint filing.  The government needs to raise the income limits for contribution and raise the contribution amount.

* 401k: Understand what your company matches for free and by golly contribute at least that amount every year!  Let’s get real.  Even $16,500 a year for the next 30 years is likely not enough money for you to be able to retire on, so at the very least, contribute the max.  I recommend spreading the $16,500 contribution amount out over 12 months which equates to a $1,375 pre-tax deduction every month as it is less painful and easier to adjust your lifestyle accordingly.  Furthermore, who knows exactly where your investments will be throughout the year, so you might as well leg-in slowly and consistently.

ADDING IT ALL UP

Completing your open enrollment should give you further appreciation of your firm as well as remind you of how fortunate you are to have a job.  Literally millions of people don’t have insurance not out of choice, which means any unfortunate mishap could send them to poverty.

The value of your health care insurance and other benefits per year can simply be calculated by how much it would cost if you had to pay for everything on your own.  The numbers are not pretty.  Make sure you don’t take for granted all the benefits your company provides, and fill out the form before the deadline.  The most important thing you can do is educate yourself and your family about all your company’s benefits and pick up the phone and ask your Benefits personnel questions if you are unclear about anything.

Readers, how are your company’s benefits? Have your benefits costs gone up? If you do not work for a company, what are your strategies for getting good health care?

Regards,

Sam

Yesterday was one of those perfect gastronomic days.  For breakfast, there was all you can eat fruit and pastries.  For lunch, some deliciously “low calorie” Greek baked spaghetti with garlic bread you see to the left.  To top off the evening, a bone-in filet mignon, with baked potato with the works, blue cheese wedge salad, and a couple glasses of pinot noir from Napa Valley.

All told, I probably consumed some 5,500 calories worth of food!  I didn’t feel incredibly sick to my stomach (OK, maybe a little bit!) because I made sure I played an hour and a half of tennis before dinner.  It was actually a wonderful experience since I normally eat half as much.  When I was in the cab ride home, I had an epiphany.

Perhaps the reason why there are so many large folks in America is because people purposefully gorge themselves in order to lose weight!  Eating great food is such a wonderful pleasure that it’s irrational not to.  It trumps any negative feels about packing on weight otherwise we wouldn’t let ourselves go.  Furthermore, the reason why there are so many people in debt is because it’s just so rocking fun to spend money you don’t have!  Finally, it feels great once you pay back that debt!  Double pleasure going both ways is why there is such a correlation.

GAINING WEIGHT IS THE PERFECT SOLUTION

Let’s say you are mildly obese at 5 feet 11 inches and 230 lbs.  You enter into a weight loss competition with your fellow 5 foot 11 inch pal who is also slightly overweight, but weighs in at 180 lbs instead.  Back in college, both of you were lean 160 pound fighting machines.

The goal is to lose 10% of your body weights in 3 months i.e. 23lbs for contestant #1 and 18lbs for contestant #2.  Going from 230lbs to 207lbs is clearly MUCH easier than going from 180lbs to 161lbs.  Yet, 10% is 10% and contestant #1 is calling contestant #2 a chicken for trying to bend the rules.

Hence, if I were a betting man, I’d bet on the contestant #1 (230 lbs) all day long!  The mildly obese person not only will have an easier time losing weight, he’ll get to brag to his opponent and all his friends that he lost a whopping 23 pounds!  He’ll gain a renewed sense of self esteem even though at 207 pounds, he’s still a little hefty.

Meanwhile, the 2nd contestant, despite getting down to the 160-170 level is a loser even though he looks fitter than contestant #1 at 200-210.  The next time there is a weight loss competition, you bet your big buns that contestant #2 is going to gain a massive amount of weight so he can win!

THE BIG DOWNER

Here’s the real kick in the nuts for the contestant #2.  Not only does he lose the weight loss challenge, he also misses out on all those years he could have gorged himself on tasty food!  Eating is such a wonderful experience as I was kindly reminded of last week.  To be able to eat to your heart’s content is a luxury unlike no other.

Contestant #1 was able to overindulge for years after college and gain 70 pounds.  He enjoyed all of his meals, never felt guilty enough to do anything, and seldom ever had to work out.  Now, contestant #1 can also capture the glory of losing weight, because it’s so much easier to do so when you are so much heavier.

IT ALL COMES TOGETHER WITH DEBT REDUCTION

You may be wondering what this weight loss shenanigan has to do with personal finance and I’ll tell you.  The parallels to gaining weight to lose weight is the exact same reason why people go into debt to get out of debt! Think about it for a bit.

How awesome is it to spend all this money which isn’t yours to go on vacations, drive fancy cars, and have fine things?  You’ll spend years enjoying the good life with other people’s money until your natural instincts kick in that you perhaps need to stop.  It’s exactly why most people don’t keep gaining weight forever.

The day you decide that living the high life is over, you challenge yourself to get out of debt.  You start a journal, a blog, a budget.  Whatever it is, you start something that will get you out of debt.  The more in debt you are, the greater the feeling once you finally do get out of debt. You are rewarded both ways for irresponsible financial habits and as a result, you may very well gain some weight and get into debt again!

Readers, do you think people gain weight to lose weight?  Do you think people go in debt to get out of debt?

It’s a wonderful experience going both ways.  People wouldn’t do it otherwise! Pizza.  Yum!

Note: Please read, “A Weight Loss Tip To Die For“.  If you are able to digest this message, you will probably never over eat and let yourself go again.

Regards,

Sam