Get Financially Fit!
by Eric Heckman
Personal Liability Umbrella Policies – Part 2
Nov 4th
The following is part 2 of a newsletter I received from Eric Heckman, CFP, ChFC.
What’s Covered?
A typical personal liability umbrella policy provides the following protection, up to the coverage limits specified in the policy:
- Protection for claims of bodily injuries or property damage caused by you, members of your household, or hazards on your property, for which you are found legally liable
- Personal liability coverage for incidents that occur on or off your property
- Additional protection above your basic auto policy for auto-related liabilities
- Protection against non-business-related personal injury claims, such as slander, libel, wrongful eviction, and false arrest
- Legal defense costs for a covered loss, including lawyers’ fees and associated court costs
What’s Not Covered?
Personal liability umbrella insurance typically provides extremely broad coverage. Furthermore, if something is not expressly excluded from coverage, it is covered. The following exclusions are common:
- Intentional damage caused by you or a member of your family or household
- Damages arising out of business or professional pursuits
- Liability that you accept under the terms of a contract or agreement
- Liability related to the ownership, maintenance, and use of aircraft, non-traditional watercraft (e.g., jet skis, air boats), and most recreational vehicles
- Damage to property owned, used, or maintained by you (the insured)
- Damage covered under a workers’ compensation policy
- Liability arising as a result of war or insurrection
How Big of an Umbrella?
Determining how much liability coverage you need is not an exact science. You might think that you need only enough liability insurance to protect your assets, but a large judgment against you could easily wipe out your assets and put your future earnings in jeopardy.
Coverage limits vary, but a typical policy will provide liability coverage worth $1 – $10 million. Of course, as your coverage limit increases, the premium will also increase. Your licensed property and casualty insurance agent can help you determine how much coverage you need.
Where Can I Buy?
Almost any insurer who writes auto and home insurance policies will also offer liability umbrella policies. You many even be eligible for a multi-policy discount if you purchase a PLUP from your current property and casualty insurer.
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Personal Liability Umbrella Policies – Part 1
Nov 2nd
I received the following newsletter from Eric Heckman, CFP, ChFC.
When your local weather forecaster tells you that it’s going to rain, you reach for your umbrella. So why not purchase an umbrella that can protect you in stormy financial weather? Personal liability umbrella policies (PLUPs) can do just that. By providing liability protection above and beyond the basic coverage that homeowners/renters and auto insurance policies offer, a PLUP can protect you against the catastrophic losses that can occur if you are sued.
Although a PLUP can be purchased as a separate policy, your insurer requires that you have basic liability coverage (i.e., homeowners/renters insurance, auto insurance, or both) before you can purchase a liability umbrella policy. It is often referred to as excess coverage. If you are found to be legally responsible for injuring someone or damaging someone’s property, the umbrella policy will either pay for the part of the claim in excess of the limits of your basic liability policy or pay for certain losses that are not covered.
Why now? It’s not even raining
These days, it’s not unusual to hear of $2 million, $10 million, and even larger court judgments against individuals. If someone is injured in your home, or if you cause a serious auto accident, you could have to pay such a judgment. If you don’t have a PLUP at the time of the accident, anything above the limits of your homeowners/renters or auto insurance policy will have to come out of your pocket.
Here’s an example of how a PLUP works to protect you. Say you have an auto insurance policy with a liability limit of $100,000 per accident. You also have a $1 million umbrella liability policy. You’re later found responsible for a serious automobile accident, and the court finds you liable for $700K in damages. In this case, your auto insurance would pay the first $100K of the judgment, which would satisfy the deductible under your umbrella policy. Your umbrella policy would then cover the portion of the judgment not covered by your auto insurance ($600K).
Certain types of liability claims (e.g., libel and slander) are not covered under basic homeowners, auto, or other types of insurance policies. An endorsement can be added to these policies to provide some protection, or you can purchase a PLUP which does cover these claims.
Assessing Your Risk Factor
Aug 28th
by Eric Heckman
If you are like most Americans, you plan to retire sometime in the future. You may have a retirement account established through your employer, or be placing a portion of your savings into investment vehicles, hoping they will grow in value.
Wherever you have placed your money, the smart investor should always be aware of his or her own particular “risk factor.”
In the personal investment world, ‘risk’ is defined as any possibility of loss, usually due to market volatility.
Age is certainly a major consideration. People in their 20s and early 30s tend to be aggressive because they have plenty of time to recover from a severe loss. I call this the “Reckless Cowboy” stage. People in their late 30s and early 40s are in the “Mature Cowboy” stage and tend to strike a better balance between aggressive and conservative choices. Folks in their late 40s and 50s feel that they still want to ride the rodeo, but with a little more caution. Lastly, there are the people in their 60s and beyond. These people have reached the “I’ll still attend the rodeo, but sitting in the bleachers is looking better every day” stage.
In working with clients, I employ six typical profiles that help most people determine their risk factor and retirement goals.
1. Aggressive Profile: Fits long-term savers who want high growth and do not need current income. With 5 percent in cash and the other 95 percent in stocks, these individuals find the substantial volatility as acceptable in exchange for long-term upside potential.
2. Moderately Aggressive: With 5 percent in cash, 15 percent in bonds and 80 percent in stocks, this profile fits long-term investors who want good growth potential, don’t need immediate income and are comfortable with some risk.
3. Moderate: This profile fits long-term investors who don’t need current income, but want reasonable growth potential. With 30 percent in bonds, 10 percent in cash and 60 percent in stock, it tolerates some market fluctuations, but is less risky than just the stock market.
4. Moderately Conservative: This fits those who do need current income, but also want stability and potential growth with 45 percent in bonds, 15 percent in cash and 40 percent in stocks.
5. Conservative: Investors who want income and long-term stability in place of increasing value. It calls for 55 percent in bonds, 25 percent in cash and 20 percent in stocks.
6. Short Term: These individuals typically need current income and a high degree of stability. It suggests 40 percent in short-term instruments and 60 percent in cash. Investors with very short time horizons (one to two years), and where preservation of capital and liquidity are the primary goals, should consider 100 percent money market accounts or a combination of both money market accounts and short-term certificates of deposit.
Note that these are general descriptions. A qualified financial professional can help you determine your individual profile and find the solutions that fit your particular situation.
Planning for Retirement
Aug 12th
by Eric Heckman
It’s no secret now: 77 million Baby Boomers are heading into their 50s and 60s and planning for the next phase of life – retirement. Just as the Boomers have transformed every other life stage, they are now revolutionizing and re-visioning retirement as well.
According to Dr. Ken Dychtwald, the nation’s foremost expert on aging and retirement, two-thirds of people that have lived past the age of 65 in the history of the world are alive right now. Humans have long searched for that fountain of youth, but there was no breakthrough until the twentieth century. Healthcare advanced and before we knew it, we were inundated with “old” people. We have fully embarked on the longevity revolution.
We’re an aging society. The only difference now is we’re not growing old. Our parents did in the past and didn’t have to worry about what to do after retirement because they weren’t going to experience 20 or 30 years of it.
Have you ever realized that in one generation, 65 has gone from being “old” to being middle-aged? Here’s a quick history lesson for you: Otto Von Bismarck developed Europe’s first pension plan in the 1880s. He picked 65 as the age when people were “too old” to work – this age has remained a marker today to begin receiving benefits, such as Social Security. The only problem? During this time, life expectancy was only 45 years old and the average retirement was only 1.2 years.
Many wonder now, “What if I outlive my money, purpose, etc?” What to do after retirement is a question Boomers are beginning to toy with. The linear life plan many used to go by (education, work, leisure) is being replaced with something much more cyclic – education, work, leisure, work, leisure, education, etc. But there is an entire generation who might not be able to retire unless they start thinking about and planning financially for it now.
It’s up to you to determine what kind of retiree you already are or who you plan to be. The following “faces” of retirement were compiled by Dychtwald, Harris Interactive and AIG SunAmerica and appeared in Time Magazine.
1) The Ageless Explorers (27 percent) – youthful, empowered, optimistic, very happy, loves retirement freedom, high net worth, wants work to be part of lives, seeks personal growth.
2) The Comfortably Contents (19 percent) – wants to be free of obligation, living their “golden years,” wants to relax, enjoy the fruits of their labor, high net worth.
3) Live for Todays (22 percent) – adventurous, pursue active life and personal growth, financially unprepared, anxious about retirement, modest net worth, not very happy because they HAVE to work.
4) Sick and Tireds (32 percent) – inactive, unfulfilled, worried about everything, the least happy, low net worth, given up/little interest in anything, living a retirement nightmare.
As you can see, most fall in the Sick and Tireds (perhaps considered the “old” way to retire), but more are beginning to move into the Ageless Explorers face.
Preparing for retirement is taking on a whole new face so it’s never too early, or too late, to start with a strategy. It’s important for you to make sure your financial professional is planning your finances thoroughly. As you can see, you could be getting short changed if the plan lasts for only 15-20 years.
Five Mistakes that Shrink Assets
Aug 5th
by Eric Heckman
Ah, the good old days! Remember when workers could depend on their employers’ pension plan to provide sufficient retirement income? What about when retirees could rely on a dependable Social Security system to make up for any shortfall?
The “golden days” of retirement plans occurred not too long ago. But today, a large portion of the burden for retirement savings has been placed on the individual. Instead of pensions, a majority of tomorrow’s retirees will rely on income from a combination of Individual Retirement Accounts (IRAs) and employer-sponsored plans such as a 401(k).
In my years as a financial professional, I have seen the changes and with that, I have come up with the five common mistakes that may shrink your retirement assets, as well as ways to avoid them.
Mistake no. 1: Taking Rollover Distributions Directly: When changing jobs, workers are sometimes tempted to cash in some or all of their retirement plan assets. This mistake can be costly for many reasons, but mainly because you may pay income taxes on your pre-tax contributions. You may avoid this common pitfall by transferring the assets into a traditional IRA or another eligible retirement plan.
Mistake no. 2: Not Contributing Enough: A number of companies match employee contributions of up to 6 percent of the employee’s annual salary. As a result, many employees only contribute that amount to their employer-sponsored retirement plan. Contributing the maximum can be an excellent way to help ensure your retirement future.
Mistake no. 3: Failing to Capitalize on Catch-Up Provisions: Those age 50 or beyond, can take advantage of so-called “catch-up” provisions. If you’re nearing retirement, these provisions may provide a smart way to boost your asset base.
Mistake no. 4: Taking Too Much in IRA Distributions: At age 70, the IRS requires you to begin taking distributions from your IRA. But, the IRS considers taking distributions too slowly just as big a mistake as taking them too early. The penalty for withdrawing too little can be severe, with penalties and income taxes adding up to as much as 75 percent on the amount that is not distributed as required.
Mistake no. 5: Disorganization: According to the U.S. Department of Labor, it is estimated that the average person will change jobs 10 times before retirement. If workers open a retirement account with each employer, they acquire a lot of paperwork to manage. Over time, some people lose track of their paperwork. If that employer loses track of your address, you may never see that money again.
I recommend making a checklist for your retirement planning. It should include what you plan to do with your 401(k), your IRA and your consolidation of existing accounts.