Archive for December, 2011

Review, Retool & Renew

Wednesday, December 28th, 2011

 

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way- in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only. –Charles Dickens

 

Was 2011 the best of times or the worst of times? The answer to that depends upon whether your glass was half full or half empty.

 

Review

 

Don’t let frustration cloud the path of renewal. There’s nothing worse than basking in what you didn’t accomplish – look to what worked first.

 

Take out a sheet of paper and draw a big “T” across and down the page. Write WORKING on the left side  and list the things you have in place you’re happy with. Consider whether you want to build further on any of these and make a note to do so.

 

Retool

 

Now write NEEDS WORK on the right side of the paper and list any financial concerns/objectives you’d like to address/reach in the coming year. What simple steps can be taken to start working on these?

 

Savings and cash flow are priority objectives for most people. Here are some easy things to do to rev up for the New Year:

 

Kitty Jar – Throw $5 bucks into a jar each week. A year from now you’ll have an extra $250 to pay bills, invest, or splurge with.

 

Automated Savings Account – Consider opening an automated savings account. Most banks have programs where you can designate a certain amount of money to be automatically transferred from your checking account each month into a savings account.

 

“Keep the Change” accounts are also an easy way to save automatically through your debit card transactions. Every time you buy something, the change is rounded up to the next dollar with the difference automatically deposited into the separate account. An additional amount of money may be required for auto transfer each month too, usually a $25 minimum. If you use your debit card in lieu of cash or check, an account like this can easily add up to far more than you might think over the course of a year.

 

Invested Savings – Mutual fund accounts can be opened for as little as $25 per month and set up on an automated basis. Naturally, this type of account carries no guarantee for positive results but if investing is a goal you have yet to reach, small accounts like these may be the best thing to do to get started.

 

Boost Cash Flow – There are numerous things you can do to increase cash flow: pay down/off revolving debt with the highest billed interest rates first, shop wiser, bag your lunch, etc. Now is also definitely the time to revisit the U.S. tax code. Taking advantage of every exemption, credit and deduction available to you can save hundreds to thousands in taxes. Ear mark your refund (ahead of time) for something on your list this year.

 

Embrace Economic Trends – Economies void of high interest rates of return provide affordable opportunities. Make low interest rates work for you! If you haven’t refinanced you home, do so. Financed items are cheaper now.

 

Renew

 

Work both sides of your “T” sheet and take simple steps to welcome in the New Year, clarity and resilience are on your side.

 

What was and what wasn’t becomes what can and what will in one quick tick tock. It’s really magical when you think about it.

 

We wish you a very Healthy & Prosperous New Year!

 

Kurt Rusch  CLU, ChFC

 

 

Truth in (Insurance) Advertising

Monday, December 19th, 2011

 

A client, who has their auto, homeowners and umbrella policies through my agency, asked if I still her had her auto insurance because of something she’d received in the mail. I couldn’t imagine what could possibly make her think her coverage had magically migrated to another company and quickly assured her I was still the “agent of record” on her account. Then she produced some paperwork which appeared to be quite contradictory of the fact.

 

If It Looks Real It Must Be Real

 

It became apparent upon examination that she had received a randomly generated quote prepared with a mixture of true and false personal data. The quote was unique in format because it was presented like an actual “dec” sheet – similar to the declaration page(s) you get when you receive auto insurance policies. At first glance, the documentation looked official, which explains why my client thought twice about it and why it raised a big red flag with me.

 

My client’s mailing address, marital status and the first 4 characters of her driver’s license were also included and listed correctly. Her birth date was made up, she was listed as retired, which isn’t true, and there were only zeroes listed for her social security number – definitely a relief there! However, the make/model/year of her car and the VIN number matched up exactly.

 

I asked if she had been shopping the market online or had talked to anyone about lower rates. She assured me “absolutely not” because she never does things like that and she “closes those little boxes that always pop up”. Though I was glad to hear she wasn’t displeased with my service, I became more concerned about the methods used by the solicitous company.

 

Deceptive Advertising

 

Discounts were applied for low mileage, anti-theft, defensive driver, good driver, multi-policy, miles one way to work and senior citizen (not applicable in this particular case, as previously noted). Naturally, the semi-annual premium listed was in the low-ball range.

 

Line items such as “new acct” and “new app” in the billing section of the piece made it clear this was neither binding nor legit documentation to the trained eye. But presented in the fashion it was, it appeared like coverage was already in place. This also spurns the likelihood for people to send in payment under the assumption changes had been made to their existing contract – or at the very least to call the company that sent the quote.

 

Marketing is a necessity for any business, but this type of approach violates the parameters for “truth in advertising” as described by the U.S. Small Business Administration. Further investigation with the Illinois Department of Insurance confirmed my suspicions: the use of unauthorized personal information (such as the VIN#) is a privacy violation.

 

Lesson Learned

 

The haphazard nature in which facts were presented (and misrepresented) for this quoted premium illustrates there is very little chance that actual rates would come out anywhere near those mailed. Combined with the fact that unauthorized use of personal information was used to generate the mailing, it is alarming.

 

Those that sell lists for marketing purposes such as these glean information in ways we have yet to  imagine nor can keep absolute track of in the digital world. This situation serves as a valid reminder how crucial it is to keep a very close eye on the things we receive by postal and digital mail.

 

If you receive a similar type of questionable coverage letter for any type of insurance, complaints can be filed online through the IDOI. No one wants to do business with those that harvest personal information to obtain business underhandedly.

 

Kurt Rusch  CLU, ChFC

 

 

Get a Competitve Edge on Auto Insurance

Wednesday, December 7th, 2011


I recently shared an article I read on “12 Tips to Saving Money on Auto Insurance” with my wife; her first response was, “How much can you save if you make these changes?” Half of any insurance equation is always cost; unfortunately, the answer is more convoluted.

 

Since there are so many factors affecting the pricing of each and every type of insurance, the cumulative effect on changing one or more of the rating factors will vary accordingly. Overall, there is no set formula or even “rule of thumb” that insurance companies have for setting rates based on different risk factors. Every company will assign rates based on actuarial analysis of their current policy holders.

 

There are numerous possible discounts credited by most if not all companies today. Because urban drivers typically pay higher premiums than rural drivers, cost savings will be easier to accumulate for an urban driver. Here are the top things to consider and/or modify when seeking lower premiums:

 

 

Vehicle Choice

 

A major factor in determining rates for auto insurance is the type of vehicle being insured.

 

Obviously, a high performance car will typically be more prohibitive to insure than a family sedan. You may also be surprised to know that some relatively inexpensive autos are much more costly to insure than one may think because their repair costs are relatively high.  If you are looking to buy a car and insurance premiums are a major concern, contact a broker to determine which vehicles will have a lower premium to insure.

 

Clean Record 

 

One of the most important insurance rating factors is your driving record including tickets, accidents and any other claims filed. In general, the less activity, the better the rates.

 

Miles & Usage

 

There are separate rating categories for usage and annual miles driven; if you use your vehicle for  business the premium will be more substantial than if it is being used to run errands on the weekend. The same holds true for the annual mileage driven. The more you drive, the higher the premium.

 

Raise the Roof

 

Consider raising your deductible (the amount you would pay before the insurance pays the balance of a claim). Doing this can be a huge money saving plan, however, review the savings potential before blindly implementing a change – often times raising a deductible by an additional $500 will result in a minute change in premium. Determine whether the cost savings warrants the increased exposure.

 

Good Credit

 

Your credit rating can affect your premium; this is a rating factor that is not typically known to insureds. Most companies are now using credit ratings as one of the determining factors in rating contracts.

 

Location, Location, Location

 

Are you geographically undesirable when it comes to auto insurance? Location plays a huge part when determining premiums for insurance. Actuarially, companies have found that the congestion in urban areas lead to a statistically higher probability of having a claim.

 

Drop the Baggage

 

Get rid of unnecessary coverage. A good example of this would be to drop coverage on an older vehicle. As your vehicle declines in value, the amount that an insurance company will give you in the event of a total loss will also decrease accordingly. At a certain point in time, it becomes illogical to retain comprehensive and collision coverage on the vehicle.  

 

Crime Busting

 

Install anti-theft devices; in some instances the savings in premium will validate the initial outlay of cash to install such a device. Even if this takes a couple of years, it may be a wise move financially.

 

Combine & Conquer

 

Insurance companies typically will reward you for loyalty. They will give discounts for insuring all of your vehicles on one policy. They will also offer discounts if you have other insurance with their company such as homeowners, umbrella, and/or life insurance coverage.

 

Other Considerations

 

There are many company-specific discounts that may also be available. Examples of these would be discounts for college-degreed individuals, good students, military, employees of specific companies, and specific occupations.

 

For Illinois Seniors, there is a defensive driving program called 55 and Alive which teaches aging drivers how to adjust their driving to compensate for slowing reaction times etc.  Many senior centers offer these programs and taking these courses can help senior rated drivers.

 

Wrap Up

 

There is no one size fits all in the auto insurance market. Due to the number of companies doing business in this market, it is a must to shop around. If nothing else, it gives you a chance to review whether your existing limits remain adequate or whether they should be adjusted to better protect you and your family.

 

Shopping around will also help you determine whether or not your current insurer is still providing a good value for you. Are you truly receiving great value for the premium dollars that are being expended?

 

Kurt Rusch  CLU, ChFC

 

Top 3 FAQs on 401(k)s

Thursday, December 1st, 2011

 

The top three questions I am asked most often these days with regard to 401(k) accounts are:

 

Should I leave my 401(k) in a prior employer plan while out of work?

Is it best to roll my account into a new employer plan every time I change jobs?

Can I cash my 401(k) in if I need the money now?


Leave It

The main benefit of leaving 401(k) accounts at your former employer is that you don’t have to do anything. While this method is very convenient, it is not void of drawbacks. 401(k)’s typically come with a limited number of investment choices available to their participants. Leaving your accounts at former employers, may not serve you best, and can get confusing if you leave several or more accounts at various different companies.

 

Bring It

When you do get a new job, one option would be to roll your 401(k) over into the new employer’s retirement plan, if that is an available option. Obviously, this would make keeping track of your assets easier.

 

Some people find this an attractive option when their employer offers employee loan provisions for 401(k) accounts.  (These types of provisions allow employees to borrow against plan assets and pay the loan back via payroll deduction for return of principal and interest.) It is important to note that assets which have been lent out will be deprived of any growth on the loaned portion of the portfolio they would have received has they not taken out a loan.

 

Move It

Whether you leave your accounts at various employers, or bring them all to a new employer, investment options can be limited through workplace plans. Alternatively, there are numerous choices available if you opt to transfer your account into a Rollover IRA. This option gives investors the most flexibility if executed properly.

 

The first step in properly executing this exchange would be to assure that the account is a custodian to custodian transfer. By doing so, you eliminate the possible tax ramifications of not having the moneys properly transferred within a 60 day period as required by the IRS.

 

It is important to make certain that you do not comingle these funds with separately funded IRA’s you may have if you want to roll them into a new employer plan at some point in time. Comingling will render the account incapable of subsequently rolling back into a 401(k) plan; keeping the funds in a separate IRA Rollover Account will allow redeposit into a current 401(k).

 

Cash It In

If, and that’s a really a big ‘IF’, you really need the money before retiring, you can cash in all or part of your retirement plan. BUT, the IRS will make you pay dearly for early access. The IRS levies a 10 % penalty on anyone under age 59 ½ who cashes in all or part of their retirement plan. On top of that, you will also have to pay Federal Income Taxes on the amount withdrawn.

 

What most people don’t realize is how costly early withdrawal can be. For example, if a 40 year old in the 28% income tax bracket cashes in their $10,000 401(k), the after tax net proceeds would only be $6200. This is because they would owe $1000 in penalty for taking an early distribution plus $2800 in Federal Income Taxes. In reality, the liquidation of this retirement account yields a 62% pay out and a 38% tax and penalty on the total account value.

 

One other thought regarding early withdrawal – there are some situations where the IRS will waive the 10% penalty on early withdrawal. An example of this would be for dire and non-reimbursed medical expenses which do not exceed 7.5% of your adjusted gross income.

 

It is extremely important to tread carefully when manipulating any type of “qualified” account. Check additional rules and exemptions for early distribution on the IRS tax topics page.

 

Kurt Rusch, CLU, ChFC