Thursday, November 21, 2019

Rental Unit Owners Risk It All

For most people, their home is their biggest asset. It is cherished, protected and maintained to the best of their ability.  Obviously, this costs money and when a way to monetize this asset appears so that apart if not all the upkeep costs can be defrayed, it is an opportunity that many homeowners jump at. Even otherwise, the additional source of income is something homeowners don’t want to let go of. This is one of the reasons why Airbnb has seen such phenomenal growth over the last few years. A second or vacation home may be lying empty for a good part of the year. Why not turn it into a rental with Airbnb and earn some money when the owners are not using it? If the owners are empty nesters with more space than they need, why not turn part of the home into a rental and make some extra money? There are many reasons to sign up with Airbnb and the process is a simple one. Only a few people think of the risks involved. After all, the rental space is not being used, the valuables have been removed and if anything should be damaged, there is always insurance to cover the cost of repairs is how people reason. Unfortunately, that is not the case.

The Risk

The people who will live in your home are strangers. Sure, they have come through Airbnb so they have been checked out, at least to some extent. But that is no guarantee that they are really who they appear to be. It could be that they are the sort who simply don’t care about other people and their property and will treat the home they are staying in with contempt, leaving the owner with a mess to clean up after they have gone. Or they could be the nicest of people who have unfortunately had an off day which results in accidental damage to the home and what is in it. In the worst-case scenario, the actions of the short term renters could lead to the home being badly damaged or even destroyed.

The Protection (Or Lack of It)

All homeowners have these thoughts in mind when giving control of their home to strangers. However, they also believe that the one-off possibility of bad things happening is no reason to lose out on the easy additional income as even in the worst case, Airbnb insurance and/or the homeowner’s policy will cover the damage or the loss. However, this is not the case. In a recent incident, Airbnb insurance refused to pay when the renter of a $1 million home burnt it to the ground. The home insurance policy declined to pay because the home was being used for business purposes which is excluded from the coverage.

The Solution

What homeowners do not realize is that they need extra coverage if their properties are being used as Airbnb rentals. There are special vacation rental property policies that offer the owners the protection they need. Few insurance agents are aware of or understand this coverage. If you are renting out on Airbnb, contact an insurance broker who is aware of the protection that is available to you and will help you find the right coverage to keep you and your home protected.

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Thursday, November 7, 2019

Wildfires Are Back

Wildfires – just when you thought they were over, rear up again. The second coming of the wildfire season this year has been worse than the first. Californians accept that the dangers of earthquakes and wildfires are the price they have to pay to live in the Golden State. Earthquakes are still a force of nature that have not been fully understood and when and where they happen is of course beyond human control. Wildfires too are usually, though not always, acts of nature. The difference is that the frequency and intensity of these fires are steadily increasing. So too is the area that is affected, which is constantly expanding.

It’s Been a Bad Year

Strong Santa Ana and Diablo winds, extremely low moisture levels, drought conditions and an abundance of tinder are among the many reasons why the state is so prone to wildfires. Long term changes to the climate and the environment mean that the situation will only get worse in the future. This year, as of the end of October:
  • The Kincade fire has burned over 66,000 acres.
  • 96 structures, including 40 homes have been destroyed.
  • 80,000 people remained threatened.
  • The Getty fire has burned500 acres.
  • A large number of homes in high-value areas like Brentwood have been damaged or destroyed.
  • Millions of homes have been left without power after electricity was cut off for safety reasons.
  • The damage and loss caused by other fires are still being calculated.
As bad as this year has been, expect both the extent of the risk and the areas where wildfires occur to increase in the future.

Are You Properly Protected?

Statistics show that most of the homes in California are underinsured. The desire to save money by limiting coverage is understandable. However, when the perils that homes face are increasing, the desire to cut back on insurance is becoming an unacceptable risk and one that is rapidly increasing. Over the last few years, there have been a huge number of cases where the insurance coverage for homes damaged or destroyed by wildfires has not been enough to cover the full repair or rebuilding cost and the other expenses that arise while the home is uninhabitable. These homeowners have faced immense financial hardships in trying to rebuild their lives.

Insurance companies are watching this year’s developments closely and it is likely that insurance premiums will go up again as they did in 2017 and 2018 when the wildfire damage resulted in huge payouts and a resulting rise in insurance rates. Expect rates to go up in the next few months when the full extent of this year’s losses have been evaluated. Hence, this is the time to contact a trusted insurance professional who will be able to help you balance the increasing risks your home faces, the rising cost of insurance and the need to have the kind of coverage that will give you and your family the protection you need.

Wednesday, October 23, 2019

Don’t Let Your Kids Become Uber Delivery Drivers

It's becoming an increasingly common situation – parents with children who have been driving for a year or two, are good drivers and who have their own cars think that being an Uber driver is a good way for the kids to earn some money. The hours are flexible so the driving can be done around school hours and other busy times. The money looks good too. The simple calculation done is to take the driver’s per mile income and reduce the gas cost. What is left is the profit that will make the children more independent and reduce the financial burden for the parents. Unfortunately, that is not the whole story.

Image Courtesy: Pexels
What It Really Costs the Driver
There are other costs that need to be entered into the equation – depreciation, vehicle wear, service costs, higher insurance rates, etc. An example of how misleading this simple equation of income minus gas equals profit can be was recently reported in the news. A car owner wanted to make some extra money in his spare time. His car was worth about $20,000. He drove for Uber for a couple of months and made $5,000. During that time the value of his car dropped to about $15,000. About 80% of the driving he had done during that time was for Uber, so about $4,000 of the value drop was due to that. Then there were the extra service costs and new tyres, both of which were needed much sooner than normal because of the Uber mileage. 

The insurance rates also went up because of the endorsement required to cover ridesharing. All in all, these totaled up to more than $3,000. The bottom line is that in the months that he drove for Uber, the driver earned $5,000 but the depreciation and service, insurance and parts costs were in excess of $7,000. In other words, driving for Uber was a big loss. The danger here is that in many cases people drive for Uber for months enjoying the extra cash in hand. It is only after quite a few months that the actual costs involved begin to dawn on them and by then, they have incurred significant losses.Some of those who drive for ridesharing apps think that driving more miles will offset some of their losses. The problem here is that Uber only reports mileage done with riders in the vehicle, which is usually far less than the total miles driven.  Uber drivers lose in every way. When it comes to letting kids drive for Uber or delivery, it is the parents who end up footing the bill.

The Risk Factor

The more a person drives, no matter how good a driver he or she is, the greater the possibility of being involved in an accident. Insurance will, in most cases, not accept a claim filed because of an accident while the vehicle is being used for ridesharing. Endorsements may be available, but that coverage is only for when the driver is between rides and stops when a rider enters the vehicle.

If you want to go ahead with the ridesharing, talk to an insurance agent to understand what the risks are and what the additional coverage will cost.

Tesla Launches Auto Insurance in California

Tesla, along with its high-profile CEO, are frequently in the news. The coverage is both positive and negative, as is to be expected when the CEO is worth over $19 billion and the car seems to be where the future of the automobile industry lies. Recently Mr. Musk’s name was a hot topic in the insurance industry because of the launch of a Tesla insurance product. This is being done via a partnership with an established and well-known insurance company. An emerging auto company entering the field of insurance may seem odd, but Mr. Musk feels that it is the high cost of Tesla insurance that is a major factor in limiting the growth of Tesla sales.

Image Courtesy: Pixabay
The High CostofInsuring Tesla Vehicles

On the face of it, the high cost of Tesla insurance may not appear to make sense. No insurance company disagrees with the claim that vehicles with driver assistance systems are among the safest on the road. In other words, the number of insurance claims for these vehicles will be less than those for traditional autos. However, the problem is that the size of the average claim may be significantly higher for a Tesla than for other cars because of the high cost of the autonomous driving technology. When an accident does occur, the cost of repairs or replacement could be very high.

In California, the cost of insurance through the Tesla insurance product may be up to 20% lower and in some cases, as much as 30%. Tesla says it is able to offer these prices because the company knows its vehicles better than anyone else and is able to leverage that knowledge to offer lower insurance costs. The counter-argument is that while Tesla may know its vehicles best, how does that translate into a detailed knowledge of their drivers? Even the safest of vehicles can be dangerous in the hands of the wrong driver. Has the huge auto insurance industry, with so many years of experience behind it, got it wrong when it comes to Tesla insurance pricing? The jury is still out on this but that does not mean that Tesla owners need to blindly accept that their car insurance will be very costly.

The fact that insuring a Tesla is expensive cannot be argued. That does not mean that a Tesla owner, or the owner of any car for that matter, should blindly accept that insuring his vehicle is going to empty his wallet. Auto insurance is a highly competitive business with every insurance company offering a variety of coverage plans and options, all designed to maximize policy sales. Add that to the fact that insurance needs can differ widely from car owner to car owner. Only an insurance broker, a company that represents a number of insurance companies, will have auto insurance policy choices and options to offer its clients that will enable them to choose the policy that is right for their needs. Automobile technology is rapidly evolving and new vehicle offerings will keep appearing. Before making the decision to buy, contact an insurance professional to know what the insurance will cost you.

Monday, September 23, 2019

Who Needs Long-Term Care Insurance?

The short answer to this question is everyone. As the years pass, the probability that you will need help in caring for yourself increases. No matter how fit and active you are right now, injury and sickness are conditions that you can never predict. According to a study done by the U.S. Department of Health & Human Services, about 50% of those over 65 years of age will develop a medical condition that will require some form of long-term care. In many cases, the duration of care will be under 2 years, but in some instances, it could be in excess of 5 years. Whatever be the duration, the cost of the medical care needs to be handled. The high cost of medical care is a concern for everyone and this cost is bound to rise with time.

Image Courtesy: Pexels

Health Insurance Is Not Enough

Regular health insurance policies do not cover long term care costs. Medicare is also of no help as it is only for short term nursing care and for when limited duration home health care is required. Neither will it cover the cost of what is known as “custodial care” which is when a person needs supervision and support for daily activities. This includes Alzheimer’s disease, dementia, progressive physical degeneration and other such chronic conditions. Medicaid, federal and state health insurance will provide some help to those defined as having low income, but this will kick in only after the individual’s financial resources have been exhausted.

What Long Term Care Coverage Provides for

Long term care costs can deplete your savings in a very short time. According to a 2018 study, the average cost of long-term nursing home care in a semi-private room is almost $90,000 per year. This could easily go up, depending on the amount of care, medication, rehabilitation, etc. that may be required. Even in cases where nursing home care is not required, care in the form of a home health aide will, on an average, exceed $50,000 a year.

Besides protecting your savings, the other factor to consider is the quality of care that you will receive. The more coverage you have, the more you can spend on care and this gives you increased choices in where you are cared for, by whom and to what extent and the quality of care as well.  If you have only Medicaid or state or federal assistance to fall back on, you will be limited to facilities that accept payment from government programs.

Thinking of a time when you will need medical care for an extended period is not pleasant, but it is a subject that cannot be ignored. As the study mentioned above predicts, there is a 50% chance that you will need long term care in the future. Planning now for the coverage will enable you to budget the costs more conveniently and will give you the peace of mind that comes from knowing that even if you need long term care, you will not be a financial burden on others. Talk to an insurance broker to learn more about the coverage options, costs, how it works and any tax advantages that may be available so that you can find the coverage that works best for you.