We’ve all been caught out in the rain, and as an avid golfer, I can honestly say I have played golf in weather bad enough to make passersby shoot me strange looks from inside their dry cars. While an all-weather suit is a plus, a good umbrella is a must to stay dry. Just as an umbrella is a necessity in any die-hard golfer’s bag, a financial umbrella policy is a wonderful tool to protect your family.
An excess liability coverage policy (A.K.A. umbrella policy) covers additional liabilities beyond the coverages of the underlying policies. An umbrella policy is a broad form of coverage that covers both automotive and general liabilities when purchased in addition to basic liability plans (home and auto). When the limits of the underlying policies max out, the umbrella policy kicks in.
Let’s go back to golf. If while playing golf in the rain a golf club slips out of my hands and injures a person, the underlying coverages of my homeowner’s policy will kick in first. If the damages were severe and beyond the limits of my homeowner’s policy, my umbrella policy will jump in and cover the excess up to the limit of the umbrella, which range from $1M to $5M plus.
The good news is the costs of umbrella policies are inexpensive: usually roughly $200for a $1,000,000 policy…..if you don’t have teenage drivers. Purchasing an umbrella policy will most often require an increase in underlying limits. This is most often seen in auto policies. While each state has its own minimum liability requirements for auto policies, most umbrella insurers require limits much higher than the minimum state limits. For example, the state of TN requires drivers to carry at least $25,000/$50,000/$10,000 in coverage. To learn more what these numbers mean check out my article about the importance of limits: http://bit.ly/dTMey3 . To obtain an umbrella policy the insurance company mayrequire the insured to carry limits somewhere in the $250,000/$500,000/$100,000 range. While this is a ten-fold increase in liability limits, it doesn’t mean the cost will increase by ten. The increase will be fairly small. Remember, we don’t want to risk a lot for a little! The purpose of insurance is for protection.
We also must understand the distinction between personal liabilities and commercial liabilities. A personal umbrella policy will not cover a liability created by a business liability. Commercial ventures require a separate business umbrella policy. Also, it’s important to make sure the underlying policies and limits are in place. For example, if a parent decides to reduce the limits on a teenage driver to the state minimums in an effort to save money, the underlying requirements of the umbrella policy will not be met. Therefore, if the teenage driver is involved in an at-fault accident, the umbrella policy will not pay out. The parents would be ripe for a law suit.
So just as I won’t risk playing a round of golf in the rain without an umbrella, it’s important to have proper liability protections in place to protect your financial assets. While not everyone requires an umbrella policy, most people do. Umbrella policies are an inexpensive way to give yourself peace of mind and help you sleep a little better at night. While my liability protection concerns are not something that will keep me awake at night, the weather forecast for my next round of golf might.
Tuesday, January 11, 2011
Thursday, January 6, 2011
A Financial Resolution!
With the start of the New Year, many people set out their New Year’s resolutions. Financial planning resolutions should not be forgotten.
Financial planning is a broad process of decisions that collectively lead to forward financial progress. Or at least that’s the way it should be. Often I find that the forest is missed because of the trees. The small details get over-looked, and it’s the small details that matter.
One of the details that seem to get left behind is the designation of beneficiaries. Beneficiary designations are extremely important in the big picture. Assets that pass via beneficiary designation pass by operation of law. What does this mean, and why is it important? After the death of the owner of an asset, the asset will pass in one of two forms: via the will of the estate owner or via beneficiary designation (operation of law). If the asset has a beneficiary, the asset will pass to the beneficiary regardless of what the will of the decedent states because operation of law supersedes the language and wishes outlined in the will. It’s imperative that beneficiaries are up-to-date and reflect the wishes of the owner of the asset.
Life events should always be an impetuous to review designations. Marriage, divorce, death, and births, are all examples of life events that would trigger a review. The key is to have the asset pass as the owner wishes. For example, if an ex-spouse is still listed as the primary beneficiary, the asset will probably not pass as the owner wishes.
There is another reason to utilize beneficiary designations: cost! Assets that pass via the will of the owner must go through a legal process called probate. The probate process carries administrative cost, such as court costs and legal (attorney) fees. These costs reduce the overall value of the asset. For this reason, naming the estate of the owner as the beneficiary is usually not a wise choice because the asset will then have to flow through the probate process.
The most common example of accounts that pass per operation of law by the designation of a beneficiary is retirement accounts, such as 410k, 403b, and IRAs. Since these accounts typically hold a large portion of the average investor’s assets, it’s important to have the beneficiary designation appropriately assigned to avoid unnecessary probate. It’s also important to include a contingency beneficiary or secondary beneficiary, as well. Most accounts have this capability available for the account owners.
While the physical act of updating a beneficiary designation is not a difficult chore, it is something that often gets overlooked. It’s important to take the time to keep the designation of beneficiaries up to date and reflecting your wishes. If this process seems confusing or overwhelming, it would be wise to discuss the topic with a fee-only financial advisor. If you are searching for a financial advisor, www.acaadvisors.org is a great place to start.
Financial planning is a broad process of decisions that collectively lead to forward financial progress. Or at least that’s the way it should be. Often I find that the forest is missed because of the trees. The small details get over-looked, and it’s the small details that matter.
One of the details that seem to get left behind is the designation of beneficiaries. Beneficiary designations are extremely important in the big picture. Assets that pass via beneficiary designation pass by operation of law. What does this mean, and why is it important? After the death of the owner of an asset, the asset will pass in one of two forms: via the will of the estate owner or via beneficiary designation (operation of law). If the asset has a beneficiary, the asset will pass to the beneficiary regardless of what the will of the decedent states because operation of law supersedes the language and wishes outlined in the will. It’s imperative that beneficiaries are up-to-date and reflect the wishes of the owner of the asset.
Life events should always be an impetuous to review designations. Marriage, divorce, death, and births, are all examples of life events that would trigger a review. The key is to have the asset pass as the owner wishes. For example, if an ex-spouse is still listed as the primary beneficiary, the asset will probably not pass as the owner wishes.
There is another reason to utilize beneficiary designations: cost! Assets that pass via the will of the owner must go through a legal process called probate. The probate process carries administrative cost, such as court costs and legal (attorney) fees. These costs reduce the overall value of the asset. For this reason, naming the estate of the owner as the beneficiary is usually not a wise choice because the asset will then have to flow through the probate process.
The most common example of accounts that pass per operation of law by the designation of a beneficiary is retirement accounts, such as 410k, 403b, and IRAs. Since these accounts typically hold a large portion of the average investor’s assets, it’s important to have the beneficiary designation appropriately assigned to avoid unnecessary probate. It’s also important to include a contingency beneficiary or secondary beneficiary, as well. Most accounts have this capability available for the account owners.
While the physical act of updating a beneficiary designation is not a difficult chore, it is something that often gets overlooked. It’s important to take the time to keep the designation of beneficiaries up to date and reflecting your wishes. If this process seems confusing or overwhelming, it would be wise to discuss the topic with a fee-only financial advisor. If you are searching for a financial advisor, www.acaadvisors.org is a great place to start.
Tuesday, January 4, 2011
Hello 2011!
As we say goodbye to 2010, we look ahead to 2011. We hope for global economic stabilization and an improving job market, but we need to pause and give thanks. We should be thankful for a wonderful couple of years in the stock market. Yes, that’s right….I said we should be thankful for the last two years. Did you know that the total combined return of the S&P 500 for the last two years is almost 42%....26.47% in 2009 and 15.46% in 2010. Those are impressive returns.
The most impressive fact about these numbers is that most people have no idea how strong the market has been. Where are the trumpets announcing the close of another successful year? Where are the media leaders shouting the good news? Unfortunately, you won’t find it. Good news doesn’t sell like bad news. Remember the close of 2008? The S&P 500 closed down 37%. Ouch, it was painful for all of us, and we certainly knew because everywhere we turned we heard, quite loudly, the bad news.
We can’t control what is touted to the general public, but we can control what we filter and what we ingest from an informational standpoint. This is good news! We should stick it in our back pockets and hold onto it. How long did we walk around with our chins down living in fear that the sky was falling during late 2008? Well now’s the time to shine. Pick your heads up and be thankful for participating in the stock market.
There is a point to my commentary, and the point is the markets work. The stock market is a great tool when used correctly. Some folks feel they are smarter than the market and try to time buys and sells. These folks usually get whipsawed and end up on the bad side of market returns. Those who chose to follow sage advice and stay committed to the market were rewarded for their patience. Those who took things even further and made the decision to continue to dollar cost average (buy consistent amounts at regular intervals) where rewarded even further.
With two great years behind us, how does this position the markets for 2011? Unfortunately (or fortunately if you are wise) ,you won’t find a prognostication here. I have no idea which way the market will travel through this New Year. I am certain of this: investors should stay committed to prudent investment philosophies, such as diversification, rebalancing, dollar cost averaging, and tax efficient investing. These strategies win in the long run. Simple math proves this to be true. The returns of the S&P 500 over the last 16 years (1995-2010) produced an average return of 10.66% a year. Pull out any one year individually and you will find a high to low range from 37.58% (1995) to -37.00% (2008), but it’s not about the outliers. It’s not a sprint: It’s a marathon. It’s the commitment to the long term approach that wins in the end.
We have said our goodbyes to 2010. We sang, “Should old acquaintance be forgot and never brought to mind.” But I say we don’t forget. I say we learn from the past and be thankful for financial wisdom that served us well.
The most impressive fact about these numbers is that most people have no idea how strong the market has been. Where are the trumpets announcing the close of another successful year? Where are the media leaders shouting the good news? Unfortunately, you won’t find it. Good news doesn’t sell like bad news. Remember the close of 2008? The S&P 500 closed down 37%. Ouch, it was painful for all of us, and we certainly knew because everywhere we turned we heard, quite loudly, the bad news.
We can’t control what is touted to the general public, but we can control what we filter and what we ingest from an informational standpoint. This is good news! We should stick it in our back pockets and hold onto it. How long did we walk around with our chins down living in fear that the sky was falling during late 2008? Well now’s the time to shine. Pick your heads up and be thankful for participating in the stock market.
There is a point to my commentary, and the point is the markets work. The stock market is a great tool when used correctly. Some folks feel they are smarter than the market and try to time buys and sells. These folks usually get whipsawed and end up on the bad side of market returns. Those who chose to follow sage advice and stay committed to the market were rewarded for their patience. Those who took things even further and made the decision to continue to dollar cost average (buy consistent amounts at regular intervals) where rewarded even further.
With two great years behind us, how does this position the markets for 2011? Unfortunately (or fortunately if you are wise) ,you won’t find a prognostication here. I have no idea which way the market will travel through this New Year. I am certain of this: investors should stay committed to prudent investment philosophies, such as diversification, rebalancing, dollar cost averaging, and tax efficient investing. These strategies win in the long run. Simple math proves this to be true. The returns of the S&P 500 over the last 16 years (1995-2010) produced an average return of 10.66% a year. Pull out any one year individually and you will find a high to low range from 37.58% (1995) to -37.00% (2008), but it’s not about the outliers. It’s not a sprint: It’s a marathon. It’s the commitment to the long term approach that wins in the end.
We have said our goodbyes to 2010. We sang, “Should old acquaintance be forgot and never brought to mind.” But I say we don’t forget. I say we learn from the past and be thankful for financial wisdom that served us well.
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