Whether your home was damaged by Hurricane Katrina or Rita or by other causes—or whether it has been spared—it is important to know what to do and what to expect when you file a claim for losses under your homeowners insurance policy.
Having paid premiums for years to be covered in case of a disaster, you will want to do whatever is necessary to make certain that you will be properly compensated for your loss and help to speed your family’s return to a normal life.
The Insurance Information Institute (III) has established a hurricane insurance information center at www.disasterinformation.org to provide helpful information for:
Your insurance company, in case you don’t know how to contact your agent.
Your state’s insurance department.
The federal government’s National Flood Insurance Program (800-427-4661), in case you have flood insurance through it but don’t know who your insurer is.
The III’s publication, “Settling Insurance Claims after a Disaster,” is also well worth reading.The publication, which can be found at III’s Web site, describes what you will—or would—need to know and do, including:
Filing a claim. Contact your insurance agent or company to report your damages.Confirm that your policy’s terms cover it so that you can file a claim, your claim exceeds your deductible, you need estimates for repairs, and so on.
Get ready for adjuster. Fill out a form that you will receive with descriptions of damaged and destroyed items, dates of purchase, original costs, and replacement costs. When the company sends out an adjuster to assess the damage, be prepared to show him/her all the structural damage in and around the house and to give him/her the description of damages—keeping a copy for yourself—and copies of detailed estimates for repairs from contractors whom you are considering. Also be prepared to show the adjuster damaged items and give him/her sales slips, invoices, or cancelled checks, which you have kept since their purchases, as well as receipts for any necessary temporary repairs, for which you will be reimbursed.
How much you may get. The amount of money you may get from your insurance company depends primarily on the type of policy that you have.
Replacement cost policies provide you with whatever is needed to replace damaged items with similar ones of equal quality.
Actual cash value policies pay what’s left after deducting depreciation from replacement costs, which can leave very little.
If your home is so damaged that it cannot be repaired, a typical replacement cost policy will pay to replace it within specified limits; an inflation-guard clause will help you to keep up with increases in building costs.
Under an extended replacement cost policy, a company will pay 20 percent or more above the specified limits to give you protection against very large cost increases. A guaranteed replacement cost policy pays whatever it costs to rebuild your home—but not to improve on it.
Temporary quarters. If you and your family have to live elsewhere until your home is repaired or replaced, your company probably will pay for your loss of use: reasonable additional living expenses—such as rent, eating out, utility installation costs, added transportation costs—which may be 20 percent or more of the insurance on your house. (Be sure to keep records of your expenses.)
Water damage. Homeowners’ policies don’t cover flood damage but do cover other kinds of water damage, such as rain coming through a hole made in the roof during a hurricane. If you have a flood policy and can substantiate flood damage, you need to get actual repair costs for payment.
Trees and shrubbery. Companies typically pay for removing trees that fell on your house but not for those that fell on your lawn or for replacing damaged trees and shrubbery.
Getting the money. You usually get two insurance checks when both house and contents are damaged. If you have a mortgage, the check for home repairs will be made out to both you and the lending institution. The lender is likely to put the money into an escrow account, pay for the work as it is completed, and inspect it before making the final payment.
If your property was destroyed or damaged due to an “unusual” event such as a hurricane, you may be entitled to an income tax deduction. Read IRS Publication 547, “Casualties, Disasters, and Thefts,” on the IRS Web site, www.irs.gov.
October 2005— This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Bold Financial Planning, LLC, a local member of the FPA.
Starting January 1, 2006 Medicare will offer for the first time in its 40-year history coverage for prescription drugs. The coverage, which is called Medicare Part D and is voluntary, will be available to all people with Medicare, regardless of income level and resources, pre-existing conditions, or current prescription expenses, according to the Centers for Medicare & Medicaid Services (CMS).
Open enrollment for 2006 Part D coverage, which may cost less than $20 per month for some plans, begins in November and runs through May 15, 2006. Companies that were approved by CMS in late September to offer such plans along with consumer advocacy and other institutions began a massive information blitz starting in October.
In essence, the Medicare Part D plan is insurance provided by private companies. According to CMS, eight insurance companies will offer coverage nationwide, while other insurers will offer coverage regionally. Beneficiaries will have at least 11 plans to choose from and those in larger states, such as New York and Texas, will have a choice of about 20 plans. The eight companies offering nationwide coverage are Aetna Life Insurance Company, Connecticut General Life Insurance Company, Memberhealth, Pacificare Life and Health Insurance Company, Silverscript Insurance Company, Unicare, United Health Care Insurance Company and Wellcare Health Plans.
As with any insurance program, the plans offered by CMS-approved companies may differ in terms of costs and coverage so it’s important that you comparison shop. For instance, each Part D drug plan will have a government-approved list of drugs it covers, often called a formulary or a preferred-drug list. But the formulary will vary from plan to plan so you should compare plan formularies to see which one fits your needs best. Another difference might be what pharmacies you can use. If you join a Part D plan and you use the plan’s network of pharmacies, you will likely receive discounted prices on prescription drugs. Medicare prescription drug coverage can help you by covering both brand name and generic prescription drugs at participating pharmacies.
Given the vast choice in plans, consumers are well advised to seek out the help of trusted advisers, including physicians, pharmacists and financial planners. Purchasing Medicare Part D is as much a financial decision as it is a health-care decision. You will be able to change plans once per year.
Medicare beneficiaries should also take note of the fact that the new prescription drug plan is open to all people with Medicare. But Medicare Part D prescription drug coverage will work differently from Medicare Part A and Part B. To get coverage, you’ll choose a plan from a private company approved by CMS. And you will have to pay a monthly premium, over and above any premiums you pay for Medicare Part B coverage or Medigap insurance plans, to participate in the plan.
The Medicare Part D plans come in two basic types: the most simple is the prescription drug benefit or PDP plan, which covers only drugs and can be used with your traditional Medicare and or Medicare supplement plan. The other type combines a prescription drug plan with a Medicare Advantage plan which includes medical coverage for doctor visits. If you already have good drug coverage through a retiree plan or Medicare Advantage Plan, Medicare can provide help for its cost.
If you already have prescription drug coverage, you will likely want to compare the plan you have now with the new plans being offered under Part D. If you don’t have coverage now, it’s important for you to look at Part D plans.
A typical person with Medicare could see his or her total drug expenses drop by about 50 percent, according to CMS. Don’t, however, expect free drugs. For each prescription you’ll pay a portion of the cost. Qualified people with limited income and resources will, however, have almost no drug expenses. And, if you have high out-of-pocket prescription drug costs, Medicare will pay 95 percent of your prescription drug costs, after you pay $3600.
Of note, if you don’t sign up with a plan by May 15, you may have to pay a penalty. The late enrollment fee is about 1 percent of your premium for each month you delay and you’ll pay it for as long as you stay in a Part D program. Your next chance to enroll will be November 15 through December 31 of each year. Even if you do not need a lot of prescription drugs now, it’s still good to consider joining. As people age, they need prescription drugs to stay healthy.
CMS recommends keeping an eye out for community meetings on the subject of Medicare Part D. Also, CMS notes that more detailed information about Medicare Part D is being mailed to beneficiaries.
October 2005— This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Bold Financial Planning, LLC, a local member of the FPA.
The Commerce Department recently announced that the nation’s personal saving rate, calculated as a percentage of disposable (or after-tax) personal income, had fallen to a negative number for the first time since October 2001. The national savings rate fell to a negative 1.1 percent in July 2005, followed by a negative 0.7 percent in August
What’s happening to savings in America? In the short-term (and prior to the impact of Katrina), the Commerce Department says consumers remained in a spending mood: personal consumption expenditures rose 0.7 percent in real (or inflation-adjusted) dollars from June to July, and by another 0.9 percent in July.
But in the long-term, the recent declines serve as a reminder of how long the savings rate has been declining. After peaking in 1944 at 26.1 percent and dropping during the early post-World War years to 4.3 percent in 1947, the annual rate fluctuated within a narrower range until reaching a post-war high of 11.2 percent in 1982. From there it trended down, ending the 1990s at 2.4 percent, dropping to 1.8 percent in 2001 and 2004 and never exceeding 2.4 percent again. In the first half of 2005, the seasonally adjusted annual rate fell below 1 percent.
To understand what these figures mean, it is important to know how the Commerce Department defines personal saving: what’s left of employee compensation after personal taxes, self-employment income, rental income, personal interest and dividend income on assets, plus transfer payments (formerly classified as non-tax payments, these are payments by people to government including donations, fees, and fines), minus current personal taxes after subtracting personal outlays.
It excludes capital gains from sales of assets, which have been substantial in some years. According to the Commerce Department, “Saving from current income may be near zero or negative when outlays are financed by borrowing (including borrowing financed through credit cards or home equity loans), by selling investments or other assets or by using savings from previous periods.”
By contrast, the Federal Reserve measures personal saving as the difference between households’ net acquisitions of assets (excluding cars and other consumer durables) and the net increase in their liabilities. It excludes capital gains, too.
Whatever the differences, the long-term trend in Fed-basis personal saving as a percentage of disposable personal income has been the same: down. From the early postwar low of 7 percent in 1949, it rose to the low double-digits and remained there with few exceptions through 1990’s 11.5 percent. It slipped in ensuing years, falling to a negative 0.7 percent in 2000—when the Commerce-basis rate was a positive 2.3 percent —and has remained in the low single digits since.
Do lower rates of household saving matter in the face of higher household debt, as some suggest? Not to Fed Governor Susan Schmidt Bies, who, in two speeches this year, said that she takes a “considerably more sanguine” view than those who are concerned that households “have become overextended and will need to rein in their spending.”
Fed staff analyses, she explained, “indicate that households in the top income quintile can account for nearly all of the decline in the aggregate saving rate since 1989 (when estimates of saving by income quintiles were first disseminated). “Given that these higher-income households have more financial resources to weather shocks, the significant decline in savings is less troublesome than if it had occurred in the lower part of the income distribution.”
Governor Bies also noted that some analysts consider changes in net worth to be a more relevant measure of saving adequacy than the portion of current income set aside for saving. “In this regard, the picture of household saving looks more favorable than suggested by the saving rate,” she said.
At some point, the Governor said, consumers, who have passively relied on markets to raise the value of their assets, will need to set aside more of their earnings for investment in new assets for their future needs.
Addressing the personal saving rate’s impact on the economy, Fed vice-chairman Roger W. Ferguson, Jr., recently said that a near-term return to the average rates prevailing through the 1980s may not be needed. “In the aggregate, an economy needs to generate savings for two basic purposes—to invest in new plant and equipment with the aim of raising future consumption growth and to expand the residential housing stock,” he said. “As the growth rate of the labor force slows with the retirement of the baby boom generation, less investment will be required to equip each worker with the same amount of capital.”
Other economists point to the imbalances in the global economy as being unsustainable, and are less comfortable relying on asset bubbles and low mortgage rates to drive economic expansion.
October 2005— This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Bold Financial Planning, LLC, a local member of the FPA.
