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What Is Variable Life Insurance?

Published: 03/14/2020 | Updated: 05/25/2020 by Financial Samurai Leave a Comment

Variable life insurance is a type of permanent life insurance with a varying cash value. The long-term savings, aka investment aspect, of variable life insurance provides a tax-free sum to beneficiaries. The amount of the policy’s total death benefit payout goes up or down depending on the performance of underlying securities held in the policy.

The volatility involved with variable life insurance is paired with tax-free benefits. The potential tax savings can be significant as taxes aren’t required on distributions.

Of course, there are higher risks involved with owning a variable life insurance policy versus a universal life insurance policy, which has a minimum guaranteed return each year.

It’s up to you to decide how much risk you are willing to take over the long-run with the cash value portion of your life insurance. During bull markets, policyholders can expect the returns to be higher than when the markets are down. During bear markets, the opposite is true.

Prospective policyholders who are risk-averse are typically better off with a universal life insurance policy, also known as a standard life insurance policy that has a pre-determined total death benefit amount. The fluctuating nature of variable life insurance’s cash value and its more complex structure tend to turn away the average consumer.

However, if you study the stock market performance over the long run, stocks have shown to return 10% on average per year since 1926. Therefore, if you have a long-term time horizon, going the variable life insurance route may perform better.

Think about a variable life insurance policy like investing in stocks and a universal life insurance policy more like investing in bonds. Bonds have returned closer to 5.4% a year since 1926.



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How Does An Umbrella Policy Work And How Much Does It Cost?

Published: 03/13/2020 | Updated: 01/13/2021 by Financial Samurai 89 Comments

We’ve talked about all the different types of auto insurance. I’d like to now talk about whether you should get an umbrella policy given this was the most brought up next step in the comments section. An umbrella policy is also known as a personal liability insurance.

When you’ve spent a lifetime building assets for your retirement, the last thing you want is to get sued for all your’re worth. Accidents happen all the time and the more you are worth, the more the injured person will go after you.

Umbrella Policy In Action

If someone in a $160,000 Porsche 911 Turbo GTS runs you over after running a red light, you’re probably more inclined to hire a lawyer and sue for big bucks than if you were run over by a 1985 Honda Civic!

Auto insurance policies only cover so much. My auto insurance policy has a maximum $500,000 liability per accident. I could get more liability, but the increase in premiums would make my insurance less worthwhile. Because I have assets over $500,000, I elected to get an umbrella policy to cover the rest of my net worth.

The chances of me getting sued for over $500,000 is slim because: 1) I’ve got to be found negligent in the accident, 2) I’ve got to create massive damage in the accident, 3) The victim needs to go through the process of suing, 4) The victim needs to win, 5) Cases are usually settled out of court for less, 6) I drive half the national average, 7) I’m a pretty careful driver with a slow car, and 8) I’m a nice guy!

Unfortunately, even nice guys get unlucky sometimes.

If I do get sued for say $1 million, I’m safe because my auto insurance coverage will kick in to pay the umbrella policy deductible, and then my umbrella policy covers me for the rest. The only out of pocket expense I incur will be my auto insurance deductible of $1,000.

Why Get An Umbrella Policy

1) You drive a fast car and have a net worth of $1 million dollars. You enjoy hitting the bars and clubs every weekend in your $75,000 BMW M3. Your hobbies include snowboarding, rock climbing, sky diving, and poker. Given you go out on the weekends, you also tend to have at least one drink before getting behind a wheel. At the age of 36, you just don’t want to settle down and have amassed a nice nut.

Assessment: You are higher risk than average. Get an umbrella policy with liability coverage of at least $1 million if not $2 million given you’re in the growth phase of your career. Also get comprehensive auto insurance that covers the damage of your car and liability of around $500,000 per accident.

2) You drive a $12,000 SUV, have a 12 year old son, are a homeowner, and worth $3 million dollars. You never go out to party on the weekends anymore. Your idea of a good time is snuggling up with your husband to watch Revenge on DVD. In six years, your son plans to go off to college at a cost of $50,000 a year for 4 years. You also have a homeowners insurance policy with $500,000 in liability coverage and a $5,000 deductible.

Assessment: You are an average risk person. Get an umbrella policy with liability coverage between $2 million to $3 million. Weight the value of peace of mind vs. the increase in monthly premiums for higher coverage.

Make a decision what the likelihood is that you will be sued for your entire net worth. $3 million is a nice figure that lots of people would love to lay their hands on. Your SUV is probably not worth getting comprehensive auto insurance, so just got with liability. If it gets destroyed, it sounds like you can easily buy a new one.

3) You drive a $8,000 Honda Accord, are the only working spouse, have three children, are a homeowner, and worth $800,000. You spend all your time at the office and then at home with the kids. Seldom do you ever go out. You’ve sworn off alcohol ever since you drove your car straight into a tree six years ago. You are working like a mad man to provide for your family and wonder whether tuition costs will continue to spiral out of control. Every time you think of the fact that three people are depending on you, you start to get a panic attack.

Assessment: You are an average risk person who definitely needs an umbrella policy. You do everything a normal person would do as determined by the insurance actuaries, but you’ve got three dependents. If something happens to you, or you cause an accident, a lot of people will be negatively impacted.

Not only get a $1 million umbrella policy get another $1-2 million in term life insurance policy that will go towards your kids if you die. A comprehensive auto policy is probably a waste of money, but it depends on your liquid assets and how safe of a driver you are now.

4) You have two teenagers and a net worth of $600,000. Try as you may, you feel you can no longer control your children. They aren’t very good students, aren’t going to win any athletic scholarships, hang out with the wrong crowd, and have a lot of angst. Because you don’t want to be the uncool mom, you allow your teenagers to drive.

Assessment: Your teenagers put you at huge risk because you are responsible for all their actions before the age of 18. Everyday you pray they come home safe. Absolutely get a $1 million umbrella policy! Your teenagers could bankrupt you in a heartbeat!

5) You are a landlord and/or business owner with a $350,000 net worth. When you have customers, you invariably open yourself up to more risk. I feel sorry for doctors who are trying to save lives but constantly operate under the assumption they will get sued by their patients. As a landlord, no matter how hard you screen your tenants or assess the safety of your unit, something bad may happen. Same thing goes from running any business.

Assessment: You absolutely should get an umbrella policy worth $1 million or greater for potential garnished wages. Landlords should have landlord insurance and business owners have various business insurance options. The world is a very litigious place. Live the American dream but protect yourself.

Example that does not need an umbrella policy: You drive a $27,000 Jeep, earn $65,000 a year, are married with a non-working spouse, have no children, do not own a house, have $8,000 in credit card debt, and are worth a combined total of $60,000.

At the age of 27, your vehicle is a blight on your finances because of the cost. All that money spent paying the monthly payments could go towards a downpayment on a house, or investments in the stock market. You still feel young and invincible with an attitude that you can work forever!

Assessment: You are a risk taker because you’re putting your life in harm’s way with poor financial habits. As a result, you will likely never amass a net worth even close to $1 million. This is great because you therefore don’t need an umbrella policy. Your expensive comprehensive auto insurance policy which acts as a lead balloon on your net worth will do.

Don’t Get To Big Of An Umbrella Policy Either

Umbrella Policy

How much insurance you have can be estimated via public records. If you are deemed at fault in an accident, by the time a lawyer calls you they will make a guesstimate as to how much insurance coverage you have.

If you have a net worth of $1 million, but have an umbrella policy of $5 million, guess what? The lawyer is probably going to be more motivated than if you had a smaller policy. After all, it costs the same to sue someone for $1 million or $5 million. 

The irony is, if you had no umbrella policy and only an auto insurance liability coverage of $300,000, the lawyer may not want to pursue, or will go for a maximum of $300,000, even if you have millions of dollars in net worth. This now becomes a game of how good you are at hiding your assets!

Insurance companies also don’t want you to have more umbrella policy than you need due to their liability reasons obviously. You pay the monthly or yearly premiums, but they pay the full amount. The good thing to note is that the higher your umbrella policy, the more inclined your insurance company will be to fight for your rights!

Umbrella Policy Insurance Amounts Depends On Your Situation

You can certainly go without an umbrella policy, but I wouldn’t recommend it if you have a net worth beyond your auto or homeowners liability coverage. My auto insurance liability covers $500,000 per accident. Sounds like a lot, but what if I cause a 10 car pileup on the freeway? Suddenly, $500,000 doesn’t seem like that much anymore.

You’ve got to check the latest insurance rates and make an informed decision. According to the Insurance Information Institute, a $1 million umbrella policy typically costs between $150 to $300 a year.

Each incremental $1 million dollars of personal liability insurance costs on less and les. Here is what it will cost me for various levels of umbrella policy with my insurance company. Here is what an umbrella policy will cost me after checking with AllState, a trusted insurance provider.

* $182.77 a year for a $1 million umbrella policy.

* $304.62 a year for a $2 million umbrella policy.

* $414.28 a year for a $3 million umbrella policy.

* $577.56 a year for a $5 million umbrella policy.

As you can see, it only costs about $150-$185 a year for $1 million more umbrella policy coverage. If you are worth in the millions of dollars, you won’t even notice a difference in premium costs. Even if you are only worth $500,000, $185 a year is chump change for your peace of mind.

Hence, my recommendation is to cover yourself for the full amount of your net worth up to 50% more to account for growth. In other words, if your net worth is $2 million dollars, get an umbrella policy worth $2-3 million dollars.

When it comes to insurance, I always believe it is better to be safe than sorry. If you are wavering to get an umbrella policy, then you most definitely already need one!

Related Reading: Three Things I Learned From My Estate Planning Attorney Everyone Should Do

Recommendations To Protect And Build Wealth

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PolicyGenius provides free, unbiased advice on more than 25 A-rated top life insurance companies they have thoroughly researched and vetted. Because life insurance prices are regulated, you don’t have to worry about not getting the best deals. PolicyGenius helps you compare the best quotes all in one place.

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Planning for retirement when paying for private grade school
Link up your accounts and see whether you’re on track to retirement in great shape or in poverty

Updated for 2021 and beyond.

PolicyGenius Review: An Easy Way To Get Affordable Life Insurance

Published: 03/12/2020 | Updated: 06/06/2020 by Financial Samurai 14 Comments

PolicyGenius is a leading online life insurance marketplace that helps you get the best term life policy that most appropriately suits your needs.

They have the technology and know how to help you sort through the dozens of different carriers and thousands of different policies so you don’t have to, for free. The alternative is to apply to each carrier one by one and waste a ton of time.

PolicyGenius focuses on term life insurance policies ranging from 5 years to 30 years and have coverage between $25,000 – $10,000,000. Additionally, they provide consumers with access to several other insurance types, including renters insurance, homeowner’s insurance, long-term disability and pet insurance.

They do all the legwork involved with making tough insurance decisions on behalf of their customers, and then help them with the application and purchasing process – explaining policies and the entire process in plain English so you know what you’re getting.

They were founded in 2014 by Francois de Lame and his partner Jennifer Fitzgerald, ex-Mckinsey Consulting professional who went to Harvard Business School.

I’ve met them both in person several times, and they are great. PolicyGenius is based in New York City and have raised over $225 million in funding from leading institutions such as AXA, MassMutual, TransAmerica Ventures, and KKR. Their latest round of funding was in January 2020, so they are very well capitalized and clearly doing well.



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All Life Insurance Options To Protect Your Loved Ones

Published: 03/08/2020 | Updated: 05/23/2020 by Financial Samurai 1 Comment

There are so many life insurance options that the complexity can paralyze you into not making a decision. This is a problem since life insurance is important if you have dependents, are a sole or majority income provider, and have major debt.

Personally, I took out a 10-year, $1 million term life insurance policy when I was 28 when I took out about $1.2 million in mortgage debt. I didn’t want to saddle my girlfriend at the time, the burden of having to may off that mortgage in case I were to die. She lived with me in the house and was the beneficiary of the house. I already knew I wanted to marry her.

Then I decided to take out another 10-year term life insurance policy in my later 30s in anticipation of having children. Three years after I took out the policy, I had my son, who is a miracle. Then we miraculous had a daughter 2.7 years later! It was then that I realized I should have taken out a 20-30-year term life insurance policy instead..

When I went back to try and get more life insurance at age 42, I was met with a surprise that my premium would go up multiple fold because I was over 40 and had gone to the doctor to check out my snoring, for fun! Lesson learned. Never see a doctor for a non-life-threatening health issue before getting the ideal life insurance policy you want.

Not only do I regret not getting a longer term life insurance policy, I kind of regret not getting a permanent life insurance policy that could have taken advantage of the bull market since 2009.

To minimize confusion, let’s have a detailed look at all the various life insurance options so you can make the best choice for you and your family. I’ve spent over 30 hours analyzing all the life insurance options.



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Life Insurance Is A Selfless Act Of Kindness

Published: 03/08/2020 | Updated: 10/13/2020 by Financial Samurai 57 Comments

Have you ever received a selfless act of kindness? Perhaps the car ahead paid your bridge toll. Maybe a stranger helped pick up your groceries when the bag ripped open. Or perhaps you received a life insurance payout when a loved one passed away.

I hate bad luck. And dying prematurely is the worst bad luck there is! Do you have dependents, best friends and extended family that you love dearly? Getting a life insurance policy is a selfless act of kindness you can bestow upon them.

Life Insurance Is A Bad Luck Insurance Policy

I don’t know about you, but I go through strings of bad luck every several years. This makes me question whether I’m sometimes cursed.

For example, my car Rhino wouldn’t start one morning. I had to call roadside assistance to have them jump him so I could then drop him off at the service department. He was in the shop for a couple days and the day after I picked him up, he wouldn’t start again!

I had to cancel my road trip to Lake Tahoe that morning to take him back to the shop and waste another couple hours of time. While I was driving around in a rental car, I was pulled over and given a $160 ticket because I was looking (not touching) at my phone on the center console for directions while stopped in traffic.

If Rhino had never died, I never would have gotten a ticket because my phone would be in the phone mount as usual. Curses!

The reason why I hate bad luck is because it’s outside of our control. We can do everything right, but still not succeed due to unfortunate circumstances. As they say, it’s better to be lucky than good! I see life insurance as a bad luck insurance policy.



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Insurance For Natural Disasters: Floods, Fires, Hurricanes, Earthquakes Oh My

Published: 03/06/2020 | Updated: 01/14/2021 by Financial Samurai 90 Comments

Natural disaster insurance - Floods, Hurricanes, Fires, Earthquakes Oh My

Understanding what natural disaster insurance is and whether it’s worth it is important if you live in a high risk area. Let’s learn how floods, wildfires, hurricanes, and earthquakes are covered under an insurance policy for natural disasters.

I’m a multiple property owner in San Francisco which is a high risk area for earthquakes. Over the years I’ve felt dozens of earthquakes here. Fortunately, none of them were large enough to cause any damage. Since I moved here, I’ve researched natural disaster insurance for earthquakes quite a lot over the years.

A Natural Disaster Can Strike At Anytime

Before I sold my house in the Marina district of San Francisco, I always had a slight worry whether it would survive the next big earthquake. The Marina district is a highly desirable neighborhood in the north end of San Francisco. But, it is mostly underlain by saturated silts and sands that may liquefy if another large earthquake hits.

The last big earthquake in San Francisco was the Loma Prieta earthquake on October 17, 1989. It killed 63 people and collapsed a section of the Bay Bridge. In addition, it caused several buildings to burn down in the Marina due to ruptured gas pipelines.

Natural Disaster Insurance Is Expensive

However, each time I got a mandatory earthquake insurance offer in the mail, I passed. The deductible (10% of value of home) was so high and the premium ($5,000+/year) was too expensive.

I’d ignore the risk I was taking until I’d get the same offer in the mail the next year. I figured worst case, I’d have to spend $650,000 rebuilding a 2,300 sqft structure.

Now that I don’t own a home surrounded by liquefaction, I do feel a sense of relief. It’s as if I “escaped” almost 13 years of ownership without experiencing a natural disaster.

Fear Mongering Abounds

So many people who don’t live in San Francisco constantly reminded me about the risks of earthquakes before I bought. Then after I bought, even more people from SF who didn’t/couldn’t buy a home tried to instill fear in me.

What gives folks? Can’t you just be happy for someone’s largest purchase?

As a result, I worried about earthquakes while I was in the process of selling my home. Selling a home is much more stressful than buying a home.

If you don’t buy a home, there is no loss except for dashed dreams. If your home falls out of contract when selling, vultures will start circling.

Devastations seem to happen around the country every year. Thus, I’ve begun to wonder again if I should get natural disaster insurance to cover my remaining properties.

My homeowner insurance policy already covers fire damage. Yours may or may not.

Related: Does homeowners insurance cover fires?



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Cash Value Life Insurance: Is It Worth It?

Published: 02/25/2020 | Updated: 05/25/2020 by Financial Samurai Leave a Comment

Cash value life insurance is a type of permanent life insurance policy. Unlike term life, which only has a death benefit, a permanent life insurance policy has a death benefit and a cash value.

Cash value life insurance is just another name for permanent life insurance or whole life insurance. The names are often used interchangeably.

It’s strange how the life insurance industry has so many different names for the same product. But now you know.



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What’s In A Home Insurance Policy: Know The Details Before Your House Burns Down

Published: 02/24/2020 | Updated: 05/25/2020 by Financial Samurai 45 Comments

Sam asked me to write this post after we lost our home overnight to the Tubb’s Fire in Northern California. We were living a good doctor’s life. A $1.2 million dollar home with a killer sunset view. Life was good, but with my mortgage and student debt I was still quite stressed. The kind that affected me not only internally, but also externally. Affecting both work and relationship with my wife.

Crazy to think that stress and a mortgage can be that powerful, but it was. In fact, I would walk around my home and think about how we had about 1,000 square foot of home more than we needed. It was 3,300 square foot and I determined that 2,000 to 2,500 square foot were a much better fit for us.

But here we sat, 11 months after buying a big home without many financially reasonable options. Then overnight… POOF! It all went up in a flash. We were lucky.

Someone knocked on our door at 2 am waking us up. We left with our lives and health, although not much more. Others were not as fortunate and I have seen and felt the impact of those losses in our community. So I write this post knowing how lucky we are. And I am thankful for that.

Interesting points from EJ’s guest post:

  1. Why being a homeowner may be better than being a renter when disaster strikes
  2. How home insurance can make you much wealthier
  3. Know exactly what is covered under your home insurance plan
  4. Itemize everything in a spreadsheet and a picture catalog
  5. It may be better to have a complete loss rather than partial damage

Breaking Down A Home Insurance Policy

Our home before the fire

Here’s a home insurance primer on what is important when purchasing a policy. We lost our home, but by being well insured we are covered for not only our possessions and rebuilding, but also for our rental.

After the fires, both home prices (for sale) and rental prices sky rocketed. Classic market supply and demand with a steroid boost of large amounts of insurance money. So not really classic market supply and demand.

That is why Loss of Use Coverage is so important and the first thing we talk about today.

Coverage D: Loss of use and rental

Renters Get Squeezed

In the land of fire and mass chaos, owning is way better than renting (seems counterintuitive, but true). I talked to many people who are renters who have been evicted since the fire. The landlords asked their tenants to leave so that either the landlord or one of their family/friends who lost a home can move in. 

This puts the tenants in a bad position because now they are stuck in a town with a housing shortage and now a high price point. They have no choice, either pay more for a similar rental in town or move further out of town. Plus, unlike those who are insured and lost their home, tenants being evicted have no insurance to help them through this. Lose lose.

Many Owners With Insurance Came Out Fine

For owners it is better, but it is only as good as the home owners insurance purchased. I am well insured. My insurance pays for my rental up to two years because the Tubb’s Fire was a Federally declared disaster. If it was just a run of the mill house fire, I would still be covered for 1 year. There is no monetary limit to my rental. Insurance covers an equivalent rental to my home.

So I was able to get a nice rental and not worry about the monthly rent. I will potentially be living in my rental until October 2019. While insurance is paying a lot for my rental, it still is not as much as one friend who has insurance paying $34K a month…yup, $34,000 a month. On the other end is one of my friends, who has a maximum cap of $14,000 for her rental. That means that her insurance will only pay a total of $14,000 for the entire 2 years. Ouch.

First lesson of insurance – make sure you are well insured for not only dwelling and personal property, but also loss of use. This will make your housing situation much better after the loss of your home. Clarify how much coverage you have.

What Type Of Home Insurance To Get?

We have determined that being a owner versus a renter at the time of a disaster likely puts you in a better financial situation with insurance, but what insurance should home owners (and renters to some extent) obtain?

I personally am insured by a large, reputable insurance company who is always on your side. Thus far they have gone by the books and been quite helpful.

In fact, by the end of this process I will likely own my land out right, have no mortgage, and have increased my net worth by about $600,000. Granted, I have to replace all of my possessions but that can be done deliberately and slowly. Oh, but I don’t own a home anymore.

But still, a massive increase in net worth is quite the silver lining from this tragedy. Plus all the stress from owning a massive house with a massive mortgage is now gone.

Onto The Homeowner’s Insurance Policy

Insurance coverage is broken down into various coverages.

  • Dwelling: Coverage A: Dwelling
  • Other structures: Coverage B
  • Personal property: Coverage C 
  • Loss of use: Coverage D 
  • Personal liability: Coverage E 
  • Medical pay each person: Coverage F

The limits for these items are visible on the insurance policy declaration page.

These are each important, but Coverage A is the most important.

Coverage A: Dwelling

This is the most important part of the insurance coverage. Coverage A dictates how much the insurance company pays for rebuilding a home. By law, if I rebuild they have to give me at least my Dwelling maximum to rebuild.

Extensions

There are also extensions to this coverage. For instance, I had a 125% coverage extension. This means that they will pay an additional 25% of my maximum if I rebuild. This is an additional $200k for me to rebuild. I even realized after the fact that I could have purchased a “guaranteed replacement cost extension”.

If I had purchased a guaranteed replacement cost extension, then there would be no question about rebuilding as insurance would cover it all. There are 3 companies I know of that have guaranteed replacement cost: Chubb’s, Nationwide, and AIG. If insured with one of these insurers, it may be worth switching to guaranteed replacement cost.

The Homeowner’s Insurance Payment

I thought that insurance will pay out all 100% right off the bat, but unfortunately that is not the case. The insurance company will come up with their own build estimate and from that depreciate the cost of things such as paint, roofs, flooring, etc.

It is not as bad as it sounds. For instance, in my case they depreciated about 1.5% of the home. Once I rebuild, they will pay the full amount.

Also remember that this initial payout is a starting/negotiation point. Right now I have received one big check but am coming back to the insurance company with my builders estimates which are higher than what the insurance company estimated. Time to negotiate!

Coverage A (i.e. dwelling) is the most important part of the insurance coverage. This needs to be enough to rebuild an equivalent home and it is up to you to make sure it is adequate. Generally, increasing the limit leads to only a small increase in the overall annual policy premium.

Another important part of Coverage A is to be insured for “Replacement Cost.” Some insurances offer “Actual Cash Value.” Actual cash value only pays the depreciated cost of the home, meaning the insurance company will only pay for a 20 year old roof and not the cost of a new roof. The difference in reconstruction costs will be covered by out of the owner’s pocket. Not so good if you ask me.

With a “replacement cost”policy, the insurance company may depreciate the home for the initial payout, but will pay that actual replacement cost once the item is built or purchased. This can lead to thousands of dollars when rebuilding.

Coverage B: Other Structures

Another reason the price point of Coverage A is important is because all of other Coverage limits are set by the Coverage A limit.

For instance, I am covered for Other Structures via Coverage B. This includes patios, external fireplaces, fences, and the outdoor kitchen. The maximum insurance will pay me for Other Structures is 10% of my Coverage A. So if I have a $1,000,000 Coverage A limit, I get $100,000 for Other Structures. If my Coverage A limit is $500,000, then I only get $50,000 for Coverage B.

Coverage C: Personal Property

Coverage C or Personal Property coverage is the amount given for all of the items lost. T-shirts, speakers, kitchen appliances…all that stuff we accumulate over a life time. Another way to think of it is that if I took my home and turned it upside down, anything that falls out is paid for by Coverage C.

Getting the insurance company to pay Coverage C can be a bit painful. While they paid a portion of the money up front, I. Had to itemize everything in my home to receive full payment. From underwear to Q-tips. Rugs, couches, and stuffed animals. We spent approximately 75 to 100 hours to itemize every single item.

This was probably the most painful part of the process. We had lost  our home and now had to revisit each item again for the insurance company. This was accompanied by a 3 hour recorded interview. Brutal. Please take pictures and itemize all your belongings in a spreadsheet before you need to. 

The insurance company will take the list and depreciate it based on age and condition. They will pay out the depreciated cost. Again make sure you are insured for “Replacement Cost” and not “Actual Cash Value”. If you have “Replacement cost” coverage you can submit receipts as you buy items for the insurance company to pay the difference.

Side note, to be able to claim casualty losses in my 2017 taxes, I had to itemize. For the IRS I can deduct the difference between my depreciated value of items and what insurance paid me for these items. Unfortunately with the 2018 tax overhaul I believe this deduction goes away in the future.

Once again, Coverage A (Dwelling) limit dictates the Coverage C limit. For us it was 60% of our Coverage A limit and I think that is fairly standard.

Other Home Coverages

There are also other coverages that come with good insurance.  We had coverage for Debris Removal (10% of Coverage A), Landscaping (5% of Coverage A), and Building Code Upgrade (20% of Coverage A).

There is also coverage for Personal Liability (Coverage E) and Medical Pay for Each Person (Coverage F), and these limits can be adjusted as needed.

Home insurance add ons
Source: YoungAlfred.com

Deductible Cost

I am actually surprised as to how cheap good insurance is. My insurance cost approximately $1,300 annually with a $1,500 deductible. After this experience I would happily pay $2,000 annually for a higher coverage amount. Nothing is worse then being underinsured after loosing a home. Insurance has by far been the best return on investment I have ever made.

Here are some detailed quote comparisons from YoungAlfred.com that are useful. You can click the chart to learn more.

Sample home insurance quote comparisons
Sample home insurance quote comparisons

Fire coverage?

Finally it is worth noting that I did not have additional insurance. I had my regular old home insurance and it covered all of the loss. This is not like an earthquake or flood that needs an additionally purchased insurance policy.

My policy covered the fire whether it was a natural disaster or a house fire. Some of the additional protections I received were due to this being a Federally declared disaster and living in a consumer protection state like California. But no, I did not need fire insurance.

This is good, because I would never have thought to ask separately for it. In fact, when I went to bed at 1 AM I saw a red glow over the hill and did not even realize it was a fire.

If there is going to be a fire though, in many ways it is best to have a complete loss like we did. Total destruction so that the insurance company can not argue about what is salvageable.

My neighbor was not so lucky. His home is standing between 2 burnt homes. He had a lot of smoke damage and is house is not habitable currently. He is fighting tooth and nail with the insurance company about his coverage. The insurance company is arguing everything should be cleaned. He has two young kids and is arguing that the home needs to be stripped to the studs.

It is brutal to hear his stories of the back and forth discussions he is having. Not a fight I want to have. He did loose everything, but because his home is still standing receives much less support. I am moving forward while he is still arguing with insurance.

house burns down after fire
home after tubbs fire
Our home after the fire

Home Insurance Is A Life Saver

It pays to be well insured. I will not claim I knew much about property insurance when I bought my home. In fact, my insurance broker set this policy up for me and has been working with me throughout the claims process. I never even read the entire policy before this. I was by no means an expert, but now have a lot of first hand experience.

This is what I recommend:

  1. Call the insurance company and ask for a copy of the full policy. This document should be 50 to 70 pages long.
  2. Make sure to have an adequate Coverage A (Dwelling) limit. This is the coverage that will dictate all of the other coverages. It should be high enough to cover rebuilding a equivalent home.
  3. Purchase “Replacement Cost” insurance and not “Actual Cash Value” for both Coverage A (Dwelling) and Coverage C (Personal Property).
  4. Consider an extension for the Coverage A limit. My extension was for 125%, but other’s have 150%, 175%, or even guaranteed replacement cost. It is worth the small increase in annual cost if ever needed.
  5. Jump through the hoops that the insurance company lays out. I am impressed by my insurance company thus far. As long as I am doing what they ask, they have been quick and reasonable with payments.

There you have it. One man’s experience with insurance after a major fire.

Looking for a home insurance policy? Check out PolicyGenius, the one stop marketplace for home insurance and other insurance needs. Instead of apply to individual insurance carriers one-by-one, apply for a home insurance policy on PolicyGenius and get multiple insurance offers. Then choose the best one that’s right for you. I’ve met the founders at PolicyGenius multiple times and I truly believe they have the best insurance platform today.

Updated for 2020

Universal Life Insurance: A Type Of Permanent Life Insurance Policy

Published: 02/20/2020 | Updated: 05/25/2020 by Financial Samurai Leave a Comment

Universal life insurance is a type of permanent life insurance policy. A permanent life insurance policy is a policy that lasts a policyholder’s entire life. There is a death benefit paid out to beneficiaries and a cash value that builds up over time.

Universal Life insurance is one of the most popular types of permanent life insurance. The other popular type of permanent life insurance is whole life.

This article will focus on defining universal life insurance, comparing universal life to whole life, and describe how both works.



Read More…

Get An Umbrella Insurance Policy – Your Teenager Is Going To Bankrupt You

Published: 02/20/2020 | Updated: 09/05/2020 by Financial Samurai 19 Comments

Have a teenager? Get an umbrella insurance policy asap if you don’t want the risk your teenager bankrupting you. Yes, you love them, but they can put your finances at risk due to all the trouble they get into.

Even though my kids are young, I’m not waiting for their teenage years to get insured. In fact, I got an umbrella insurance policy many years ago before they were born. And here’s a story of one of the reasons why.

Accidents Happen Every Day

I was driving downtown to drop my wife off at the museum when a car started drifting dangerously into my lane. Instinctively, I beeped the horn to alert the driver. Then, when I drove by, the teenage kid in the back seat flicked me off! 

I didn’t have a long annoying horn, nor a machine gun type rat-ta-tat-tat beep. All I did was beep once so we wouldn’t collide. The father was reading a map and driving at the same time.

I have to admit that my blood started to boil. Teenagers! I was tempted to blast him a new one when their car stopped next to me in front of the light.  Instead, I buzzed down my window, stared intently, and told the kid, “Don’t embarrass your parents.  I beeped at you guys because you were halfway in my lane and didn’t even know it.”

The dad was still clueless as to why I was talking to his punk kid and he also rolled down his window to ask, “What’s up?”

“You’re kid gave me the finger, that’s what’s up. You’ve got yourself a live one,” I said. The mom in the front passenger seat started questioning her son and then started screaming at him. She apologized on his behalf and said in an exasperated voice, “Teenagers!”

Teenagers Are Liabilities

In my earlier days, I may have got out of the car and lost it. Maybe we’d have a rumble in the middle of the street, I don’t know. 

What I do know is that teenagers create a ton of trouble and are one big fat liability for parents. I should know, because I remember almost burning down my parents’ apartment when I tried to set my bed on fire!

If your teenager gets into a car accident and injures someone, you as parents are the ones liable for all the damages!

Umbrella Insurance Policy (AKA Excess Liability Insurance)

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Source: MSN Money

An umbrella insurance policy is simply an added insurance policy that kicks in after your auto and home-owner’s insurance runs out. 

Some people make the mistake of getting an umbrella policy that matches their assets and no more. 

But what if you have $500,000 in assets, and someone sues you for $1 million for slipping on your front steps? 

It’s better to get an umbrella insurance policy with coverage of at least 50% more than your total assets.

Protect Your Financial Health With An Umbrella Insurance Policy

You spend your entire life building your assets. Thus, you owe it to yourself to protect your financial health with an umbrella policy. We’re in lawsuit happy land, so better safe than sorry, especially if you’ve got a teenager! 

If you entertain a lot, have a home business with clients coming and going, or drive constantly for work, these are other reasons why you should consider an umbrella policy.

In a good way, it’s nice having very little to your name as an adult. If you’re found liable of something bad and lose in court, what are they going to go after, your underwear?

During open enrollment season, study your employee benefits carefully, and do your best to forecast your anticipated healthcare and insurance needs. Are you getting Lasik corrective eye surgery?

Max out your Flex Spending Account (FSA), which is a pre-tax expense. Anticipating visiting the doctor next year to check out a chronic knee injury? Perhaps go from a high deductible medical plan to a low deductible plan since you may need surgery.

Make sure you have long term disability in case you get injured and can’t work for months.

Furthermore, get as much supplemental life insurance as possible if you have dependents. Lack of insurance is one of the leading causes for financial ruin, so make sure you have at least the minimum coverage to protect yourself if disaster strikes!

Be well! Do you know where your teenager is?

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Planning for retirement when paying for private grade school
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Updated for 2020 and beyond.

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