With hurricane Gustav on it’s merry way toward the still-recovering gulf coast, I got to thinking about my homeowner’s insurance policy. After people were royally screwed by their insurance companies after Katrina, I am very suspicious about the effectiveness of my insurance. It makes me wonder if homeowner’s insurance is really worth the steep premium?

Let’s start with reasons it might NOT be worth it:

1. My premium doubled after Katrina.
2. My area’s premiums were the highest in the nation to start with.
3. I got a laundry list of new exclusions in the mail shortly after Katrina.
4. Katrina ushered in this new form of a deductible called a “Hurricane Deductible.”
   If my home is damaged by a hurricane, my deductible is now a whopping 5% of my home’s value versus the normal 1% for every other claim. On a $300,000 home that is a hurricane deductible of $15,000…the average Katrina claim was $15,399.
5. If you do file a claim, they could cancel your insurance, or you could be uninsurable.
   My condo was broken into a few years ago. Naturally, I called my insurance company- that’s what I pay for, right? Well, after that I was uninsurable…after ONE claim. The only way we got insurance on our new home was by putting the insurance on my husband’s name instead of mine.
6. We have to pay extra surcharges (5%) in our state to pay for all the uninsured people.
7. Flood insurance is prohibitively expensive in my area, so if my roof is blown off and it rains in my house, too bad for me.
8. Did you see how the insurance companies responded to claims from Katrina? Enough said.

Reasons Homeowner’s Insurance is important:

1. If my home was flattened to the ground, could I afford to finish off the mortgage AND buy a new home? Defiantly not

This reason alone makes the steep premium worth it, even though it still leaves me bitter and angry…

To be honest, the state of homeowner’s insurance in the gulf-south is so horrendous I am amazed we allow this to happen. We should have took to the streets and rallied against the insurance companies after Katrina. We should have held politicians to the fire and forced them to take a stand toward these insurance companies. Instead, we were depressed and defeated. This time around, the insurance problem may be, I hate to say it, WORSE. It has been reported that insurance may not cover as much as for Gustav as it did after Katrina. And the poor wittle insurance companies are whining because Gustav might cut into their profits. boo-hoo.

This weekend I met a woman whose house was accidently demolished in New Orleans post-Katrina. Her home was not destroyed by the storm/flood and with new sheet rocking on the bottom floor, it was salvageable. Then one weekend she drove up, and all her neighbor’s homes were still in the same spot, but her home was completely missing. It sounded like something from a dream/nightmare. You drive up and your house is just GONE. The sad part? Insurance doesn’t cover this and you are forbidden by the law from suing for this. She wasn’t the only one. Several people experienced this horror. What would be your financial outlook if suddenly the home you had paid off for your whole life vanished? For many people their home is their most valuable asset. This is certainly a good lesson to diversify, although that may be the only positive from this deeply saddening story.

Sometimes we are willing to spend a little extra for the same product/service because of convenience. While sometimes this can work out in your favor (if the time or cost of gas benefit out-weigh the price difference), sometimes the convenience has a hefty price tag that is not offset.

I hate to pick on my family, but here I go again… I have an aunt that lives on a small income and has prescription drugs she must take for her health. Several time she has complained about the cost of these drugs, and since she doesn’t have health insurance due to the travesty of our health care in the U.S. (don’t get me started)… her medicines take up a large chunk of her monthly budget. I decided that I would try to research if she could get any of her medicines through one of the many drug companies or drug assistant programs. She read me the names off the medicine bottles and I began searching the internet. I didn’t find anything particularly helpful, and then I thought about Wal-mart. She was getting her drugs from a small locally owned pharmacy, so I wondered if by chance any of these medicines were on the $4 list. Lo and behold- they were! Everyone of them! I was so excited, I wanted to jump for joy. I could help someone I love save about $100-200 dollars a month. So I called her up and told her the good news. Only it wasn’t good news from her perspective. She said that she hates going to Wal-mart, and feels unsafe going there. I was dumb-founded, she would rather pay $60+ per Rx for the convenience of going to a small pharmacy that is maybe 4 miles closer.

I am the exact opposite when comes it to convenience. I would drive half-way across the world to save $0.50. I’ll withstand 30 people deep lines, kids yelling in my ear, parking lot from hell…. all to save a buck.

This week I brought my dog to the vet. It’s the cheapest vet in town, and they have good service. I drove my car an extra 20 miles to get to the vet. It took me an hour getting there in hellacious traffic and a half hour getting back. My dog barked the entire hour and half just to let you know. In my ear. And secreted her lovely anal secretions of fear all over my jeans… Thanks minnie. I endured all this to save $20. Was it worth it?

Since I love math, lets do a quick calculation. Say your hourly pay rate is $20/hr. Say it takes you an extra hour in hassle. Say you save $20 total on this vet visit. You’ve just broken even and now you have a headache that won’t go away from the annoyance. On the other hand, if you’re saving $60 instead of $20, the savings is more clear.

The bottom line is that it’s a good idea to really think about what you are saving versus loosing. You could be valuing your convenience at a much too steep price, like my aunt. Or you could be selling your valuable time and convenience for much too cheap a savings, like me. As with all things in life, a nice balance between the two should save your money and your sanity.

The other day I get a frantic phone call from my husband at work stressed out that his loan we paid off last month was still being taken out of our account. After he calmed down I realized he was looking at a payment of the same amount as his old loan payment but applied to the next debt in the snowball line-up. “Oh, that’s the debt snowball” -silence- “What the hell is a debt snowball?”

My general debt pay-of plan has been to pay off my “worst” debt first. So I thought I would pay the off credit card, then the student loan, then the car loan. For some reason, these were in order of “I want to get rid of now” to “I can live with paying for this”. This was also the order of smallest to largest balance, which follows Dave Ramsey’s traditional Debt Snowball.

But why was I following this method? I had been conditioned to thinking I would always pay for a car note like a mortgage. This was stupid. The student loan, although higher in interest than the credit card, I thought should be paid off later because of it’s tax advantages. The credit card debt made me feel like a bad, stupid person, so i wanted it gone first. All these ideas that were forming my decisions didn’t come from concrete facts or numbers, they came from emotions and feelings.

Then I found a site that lets you calculate and track your debt snowballs. While inputing data I noticed you could select either “Interest Order” or “Balance Order”. This choice got me thinking.

The What’s the Cost website says:

“Logic says that you should pay off your debts in interest order: paying the debts with the highest interest first, while paying the minimum on your other debts. However, it’s been pointed out that some people prefer to pay off there smaller debts first, regardless of the interest rate.”

Once I wrote down the numbers, the interest rates, and the tax rates I saw everything in black and white and clear as day. I should be paying the largest interest rate debt first. The credit card had the lowest interest rate even when bearing in mind the tax advantages of the student loan. So, this one should be paid last even though I feel icky for having it. The car loan had the highest interest rate so it should be paid off first and I hope to never have a car note after that. Another error in my emotions- the tax advantages of the student loan seemed inflated in my head before I did the actual calculation. But now that I saw it on paper, I realized these emotions were clogging up my rationale and it would be much more practical and efficient to go from highest to lowest interest rate. Without realizing it, I had stumbled upon a debt reduction method called a Debt Avalanche.

Paying off debt is always good, no matter what method you use. Any method of debt reduction is better than no method! But I would also suggest taking a long-hard stare at the numbers using something like the Debt Snowball Calculator to be sure you are happy with your debt repayment plan.

After selecting Term Life Insurance, I needed to actually apply for and purchase my policy. Here is how the process went for me:

• I decided on the amount.
  I went with $250,000. For our situation, I think this will work. You can find more about how much life insurance you need at All Financial Matters

• I got quotes.
  • My Home/Auto Insurer, State Farm: I contacted my agent and asked for a quote. Simple.
  • Online Insurance Companies: I went to Zander.com, lifeinsure.com and compared quotes.
• I decided on the Insurance Company
  My rates were mostly between the $18-25/month range. I went with State Farm for a number of reasons. For one, I trust them. I know that if I have any questions, I can call someone and get a human right away. Also, their exam and medical digging seemed simpler and easier than the other guys. It’s not that I am sick and trying to hide it, but I have complicated issues that in no way will make me die earlier. I just don’t want some idiot who doesn’t know what the hell a heme group is to make a dumb decision that I’m unhealthy when I’m not.
• I filled out an application with the agent. My agent was nice enough to meet me at the Starbucks just down the street to fill out the application and get everything started.
  This included:
  • The usual paperwork with name, address, and signing.
  • Medical questions: Do you have diabetes, high blood pressure, heart disease, etc. What have you been to the doctor for in the last 5 years… That was a task.
  • Lifestyle questions: Do you jump from airplanes, scuba, jump off bridges for fun?
  • Then I gave him a check for the first month’s estimated payment. He let me pay the best-case-scenario price, but it may be higher depending on how risky they think I am.
• I had a Medical Exam done.
  This included:
  • Blood test for cholesterol and other levels.
  • Urine test. Not sure what for. Maybe a drug test?
  • Weight and Height.
  • Blood pressure.
  • Pulse.
• Now I am just waiting on the results of the exam/underwriting to see what my rate ends up being. However, since I already paid my first month when meeting the agent, my coverage has actually already started.

Or should I say, an end-of-days fund. My husband believes an emergency fund means enough money completely liquid to live on for years after a nuclear bomb wipes out half the world. What he doesn’t realize is that his precious e-fund will merely be fancy wallpaper or firewood at that point. He reminds me of my grandmother who kept her money in a band-aid tin hidden in her headboard. At least she had the excuse that she lived through the great depression and understood the fickleness of the economy.

So what is his excuse? Well, he went through his own little great depression. After graduating college he tried to find a job during a slow job market and it took him years to get a college-level job. During the 2 years after he graduated he was without a job for long periods and experienced first hand the torture called “job search.” This torturous activity scarred him for life and now he is constantly afraid he will loose his job and never find another one, although he is very good at what he does.

While his fear is on the extreme side…It is not unfounded and can be somewhat useful during times like these. Because of his fear we have saved up enough money to pay for 100% of our expenses for 8 months if we both simultaneous and tragically lost our jobs. If only one of us lost our job, we could live for 20 months on the fund worst case scenario. So although I make fun of his dooms-day mentality toward finances, I must admit it makes me feel safe and worry-free to have an end-of-days fund.

Last year I used credit card points to pay for about half of our honeymoon flight. It saved us about $650. Not bad for doing basically nothing. This year, we would like to return to our honeymoon spot for our anniversary. The problem is, with gas prices up and food prices up our flight ticket price is up about $100 per person and our all inclusive hotel rate is up $350 per person, per week. So, we are looking to our credit card points to once again save on this trip.

I mainly use 2 rewards credit cards:

• 

  Citi Professional Card with Thank You Network.
  With this card I get 3 Thank you points per dollar at restaurants, gas stations, and office supply. Everywhere else I get 1 point per dollar. Zero annual fee.




• 

  American Express Business Rewards Gold Card.
  With this card I get 1 point per dollar. But there are other benefits to this card including travel options and higher point to reward conversion. Also, I don’t pay an annual fee on this card.

When it comes to travel rewards, the American Express wins hands down. Why? Well it actually requires slightly more points to buy the same flight through American Express than through Thank you Network. However, it is highly unlikely and close to impossible that we will accumulate the 300,000 some odd points to purchase our flight tickets. So, we will need to partially pay with points. This is where American Express is awesome.

Partially pay with points. American Express lets you use up your points and then pay for the rest with your American Express card. The amount you pay is pretty comparable to what you’ll find on the internet. So we can easily set a goal to pay for 1/2 with points and 1/2 with card that is paid in full at end of month. On the other hand, with Thank You Network, you must purchase Thank You points to fill the difference between what you have and what the flight costs in points. And these points aren’t cheap. So we would be paying much more than the face value of the tickets to purchase additional points required.

But you may be wondering about 3:1 ratio for restaurants, gas stations, and office supply with the Citi card. Since we already have a sizable balance of Thank You points we are going to use this ratio to our advantage. We will use the Citi card for purchases that fall into this category. In the end, we will use these points to partially pay for our hotel. But we will get around the partial point fiasco by using a Statement Credit. We will put the hotel room on this card, and use Thank You points to get a statement credit toward the hotel room. The statement credit is only a .07% reward, but with the 3:1 ratio, it works out in our favor.

By using these 2 cards to our advantage we are hoping to save about $850 on our trip.

If you aren’t interested in travel rewards, The Digerati Life has a great post on Cash Back Credit Cards

You can read the latest carnival of Personal Finance at No Debt Plan. My recent article on Buying Life Insurance is part of the carnival. Here are a few of my favorites from this weeks carnival:

• Squawkfox’s Printable Grocery List can help you save money at the grocery store.
• GenerationX Finance shows you in easy, visual format the benefits of diversification
• Greener Pastures tells you why you should pass on buying an extended warranty.

My husband and I recently purchased a new home with a bigger mortgage (more about that debacle later). With the new mortgage, if I got run over by a bus my husband would be stressed about paying the bills. Yes, I am the breadwinner, and it feels good. But the point is that for the first time, my income would be needed after my untimely death. So I went about researching Life Insurance and this is what I found.

First of all, who knew there was more than one type? In fact, there are all sorts of flavors of life insurance from your plain ole vanilla to your fancy pistachio.

• Temporary
  • Term Life Insurance. This kind is temporary and is the cheapest. You pay a premium, which may or may not fluctuate depending on the policy, and if you keel over before the ‘term’ of the policy, they pay your beneficiary the face value. So you can buy a 1 million policy for 30 years and you pay $X per month. If you die anytime within the 30 years, your beneficiary gets 1 million dollars. If you don’t die within the 30 years, you don’t get anything- but hey, you are alive!
• Permanent
  • Whole Life Insurance. With this kind, you pay a level premium but your money goes into an account that creates an actual cash value for you. This account grows at a rate set by the insurance company, which is sometimes not a competitive savings rate. After years of paying, this cash value can be accessed by means of a loan. At the time of death, whenever that is, the death benefit is paid but this cash value is not paid. Whole life is more expensive at first, but can level out over the years.
  • Universal Life Insurance. This one is similar to Whole Life, but the savings rates can be higher (they follow the market) and the premiums are flexible. Once the cash value reaches a set point, you can stop paying the premiums. However, because this one is more flexible and interest rates follow the market, if interest rates are low, you could end up having to fork over extra money in premiums just to keep the policy.
  • Variable Universal Life Insurance. Similar to Universal but the cash account is held in a separate account that can be invested in mutual funds and is managed by a fund manager.
  • Endowments. This kind is much more expensive. These are paid out rather you live or die after a set number of years or a set age.
• Accidental Death Insurance. These are the cheapest because they very rarely pay out any benefit. As you can guess, you only get paid if you die from an accident or injury (not an illness). You can also get accidental death insurance as a rider to your regular life insurance and it generally doubles the payout if you die from a freak accident (ie. entire cast of final destination).

So which one is best? Well, I recently had a ‘financial advisor,’ that my mom swore was legit, attempt to convince me that a variable universal policy was just perfect for me. Once I researched it, I found that it was actually me buying the policy that was just perfect for HIM. Why? Because they make huge commissions off of these sort of policies. So they will try to sell it regardless of your situation.

Here is why. Your totally unbiased ‘advisor’ is making 75-100% commission off your permanent insurance premium the first year, then about 5% for each additional year you pay. Sounds like a sweet job, right? Well, when they sell you term insurance, they only make about 30% off your first year then about 4% a year for your term. So if we do the math, on a 1 million policy, thats the difference between about $5,000 for permanent and $1,000 for term. They sell these hard because for the same time/work they make about an additional $4,000 per million dollar policy (that’s a 500% gain).

I decided to go with the term policy. From all the research I have found (from people NOT invested in the sale of such policies) it is generally best to keep your insurance and your investments separate.

You see, if you take care of your finances (pay down debt, increase savings) then you really won’t need a life insurance policy in the latter part of your life. By only getting a term policy for the duration of my mortgage at a MUCH cheaper price (mine was 4% the cost of permanent), I am able to save the difference into my retirement and general savings accounts. Here, I make a higher return and I pay less in fees. Once my mortgage is paid for, my term policy will be over and if I die at that point my husband will have nothing to worry about. Our mortgage will be paid off, our debt will be paid off, and he will have a nice savings to cover any expenses, you know- like mummifying and gold-leafing my corpse.

Never upgrade your home beyond the level of your neighborhood. I found this one out the hard way earlier in the year. We used to live in a small condo/townhouse that was in college-dorm shape when we bought it. It was in a great neighborhood and perfect location. However, It had never been upgraded since it was built in the early 1980s. White walls, cheapest fixtures, cheapest floors– basically everything was cheap and plain. So, of course we wanted to renovate and upgrade our home to meet our very discerning standards.

We put down beautifully engineered mahogany wood floors over the cheapest ceramic tile Home Depot offers. We painted every room to a more elegant, white-truffle hue. We replaced the plywood staircase-o-death with a fine new cypress staircase. We put down tall, regal baseboards and crown molding. We changed every light fixture we could get our hands on. And of course the horror of a project my husband will never let me forget– the kitchen. I thought new cabinets and granite countertops would be simple, boy was I wrong. Around the time we discovered the electrical ran through the fur-down of the cabinets, I thought my head would be spiked on a curtain rod outside our condo as a warning to other over-ambitious renovators.

Granted, we did everything DIY and spent a fraction of what you would expect all of this to cost, largely due to my helpful and handy in-laws. We thought we were doing great. In the end, it looked beautiful, we were proud, and it certainly made it easier on the eyes while we lived there. But eventually we outgrew the 795 sqft. and wanted a back yard for the doggie.

The day after I put it up for sale on the internet I had someone come look at it and immediately put in an offer very close to my asking price. Woo-hoo, we are awesome, I thought. I had several other people come look at the condo during escrow or comment from the online ad and all said how beautiful and home-y it looked.

Then, the mean-ole appraiser came into the story. God, how I hated him. He appraised the house at over twenty thousand LESS than the offer price. I cried, I begged, and I pleaded with him. It was not pretty, trust me. The problem was that we were the only people in our complex who upgraded, so our home was well beyond the rest of the “neighborhood” and therefore just couldn’t appraise for what my beautiful baby truly deserved. In the end, we had to bite the bullet and take the cut (it was very complicated and I will spare you the details, for now). It did teach me a valuable lesson, and so far I have only put the $20 it cost me to buy new cabinet knobs into this house. This time I will wait for the neighbors to start their improvements before I start mine.