Monday, July 24, 2017

4 Wrong Reasons not to have Earthquake Insurance

According to the latest reports, only about 17% of homes in California are covered by earthquake insurance. So what about the remaining 83%? Are they in denial or have they weighed to risk factors and made a rational choice?

It Won’t Happen To Me

To not dwell on the possibility of tragedy striking is human nature. We see images of people whose lives have been destroyed by natural disasters and feel sympathy for them – a sympathy that is tinged with relief that it happened to the other guy. We live in the hope that such things will not happen to us. That is what so many in Northridge thought before the 1994 quake. To know the extent of the risk all that is required is the read the U.S. Geological Survey’s reports on the likelihood of a major temblor hitting California. Optimism, unsupported by fact, is no reason to not have earthquake insurance.

Rational Decisions – The Common Mistakes


  • My home survived the last quake just fine. Every earthquake is different and the next one could be much worse. Also, new fault lines are being discovered and the next one to be found could be under where you live. What happened last time will have no effect on what could happen the next time.
  • My home is bolted to the foundation. This will reduce the risk of damage, not eliminate it. Even bolting cannot offer complete protection. In addition, studies show that bolting is most effective in single storied wood framed structures. Homes that have 2 or more stories or have large picture windows are likely to suffer damage, even if they are bolted to the foundation.  And if the ground gives way below the foundation, bolting will be of no help.
  • State and federal assistance will get me back on my feet. This assistance is meant only to help survivors cope with the aftermath of an earthquake. It is not going to cover the cost of rebuilding a home and the lives of those who lived in it. The low-interest FEMA loans that may be available are just that – loans that have to be paid back and while they are outstanding, they become liabilities on your personal net worth.
  • I’ll just give the keys to the bank and move on. The problem with this course of action is that allowing the bank to foreclose on an earthquake damaged home will mean a complete loss of equity. In addition, your credit rating will be negatively impacted, making it difficult, perhaps even impossible, to arrange financing for a new home.

It Could Happen At Any Time

Thinking about the possibility of losing a home is not scaremongering. It is being realistic. Of all the material possessions, the home is the most difficult to replace. If you do not have earthquake insurance, the right thing to do is to contact an insurance professional to understand in detail the risks, the potential loss, how earthquake insurance can protect you and how much it will cost. To put it simply, your home protects your family and insurance protects your home.

Friday, July 14, 2017

Too Young for Life Insurance?

The young rarely, if ever, think about their mortality. There is too much happening in their lives and so much that lies ahead contemplating the end of life is something that can easily be ignored. A young man or woman entering college has so many demands on their limited income that spending money on life insurance seems a waste when the risk of death seems remote. Insurance is something that can be thought about in the future, when obligations and responsibilities increase.

Delaying Is Expensive

What is often not realized is that while life insurance becomes an important issue as their lives and careers take shape, the longer they wait the more expensive it becomes. One of the most significant factors that affect the cost of life insurance is the age at which a policy is taken. The premium is set at the time a policy is purchased and the lower the age, the lower the premium. The premium will remain the same for the duration of the policy. A delay of a few years in purchasing a policy may not seem to be a major issue, but the typical increase in premium is between 8% and 10% for each additional year of age. In other words, each year of delay could mean increased recurring costs for every year of the policy. For example, a 45 year old who is in good health could purchase a 20 year $1,000,000 term life insurance policy for about $250 less per year than one who is in the same health but is 2 years older. This may not seem to be much (it works out to about $20 a month) but over the term of the policy, that translates into an additional cost of $5,000.

The increase may seem to be unreasonable, but there is a reason behind it. A human being has a finite lifespan and with each passing year the end of life comes closer. And in a time when life can be uncertain and filled with unexpected risk, death could come to anyone at any time.

Health Is another Factor

The cost of life insurance is based on the statistical probability of how likely it is that a policy holder will die and the insurance company will have to pay the claim. With increasing age, there is an increasing chance of having health problems that could affect the likelihood of a policyholder dying. The premium will rise to balance out the increased risk. That is why the older a person is, the greater the number of medical tests that have to be done before a premium is calculated and a policy issued.

The Younger the Better

With no obligations and few if any liabilities, purchasing life insurance may seem to be a needless expense for the millennial. What needs to be taken into account is the fact that life insurance is not for today; it is for the years that lie ahead and the savings of taking a policy when young can mean a substantial saving in later years when the need for insurance has grown manifold. To fully understand the benefits of taking out a policy at a young age, consult an insurance broker who will be able to lay out the benefits and savings as they affect different individuals.