Category Archives: Insurance

Do You Have Your Umbrella?

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I was working with a new client recently and one of my recommendations was to secure an umbrella policy. It’s probably the least thought about coverage for the average person or family, but one that should not be overlooked.

What is Umbrella Insurance?

In simplest terms, it’s a policy that protects you over and above other forms of liability coverages, like your auto and homeowners. These latter policies are your raincoat, the umbrella policy is, well, your umbrella, for when the raincoat just doesn’t get the job done.

Umbrella policies do not stand alone. They offer excess protection only after your underlying liability limits are exhausted and this makes them relatively inexpensive.

What are you trying to protect?

You are protecting all of your hard earned personal assets. You are potentially even protecting your future income stream.

Don’t assume that because you have auto insurance that a claim can’t be brought against you personally above and beyond your limits if you are deemed at fault and injuries are significant. And this would include anyone driving your car – your nanny, teenage child or anyone your teenage child might let borrow the car that you don’t even know about.

Who Should Have an Umbrella Policy?

Personally, I think anyone who owns a home or car should also carry umbrella insurance. I already gave an “anything can happen” car scenario above.

Liability coverage for homeowner’s insurance works a little differently. You don’t actually have to be “at fault” for what happened, but if it happened on your property, you are liable for the damages. So again, at fault? Not necessarily. But responsible for injury that occurred on your property? Yes, absolutely.

Think trampolines, swimming pools, icy walkways or nasty dogs. Think teenagers drinking in your home when you’re not around. Think Amazon driver falling down your front steps while being chased by your dog and subsequently falling into the swimming pool and getting a concussion and no more packages can be delivered to you ever again (which is the real tragedy) – not likely, but thought I’d add a little humor.

Protecting our family or assets is never a fun topic because it makes us think about yucky “what-if’s” that we’d rather not think about.

The chances of you ever needing it are relatively small, but securing this inexpensive coverage could absolutely save you from financial ruin in the event of unforeseen circumstances.

I know which side of that coin I’d want to land on.

Favorite Quote

In a conversation with my 13 year old earlier today, I was trying to explain to him the concept of the self-fulfilling prophecy. I’m a BIG believer, so here is one we’ve all heard but is always a good reminder:
 
“Whether you think you can or think you can’t – you’re right.” -Henry Ford

Sea of Letters

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You are likely in the middle of open enrollment, or will be soon, so I thought this month would be a great time to review some of the crazy acronyms you see as your eyes glaze over the 100+ page benefits guide from your employer.

I can’t say here which benefits are the “best fit” for you. Reviewing benefit options is part of what I do with my clients each year. Lives change. Families change. Benefit packages change. For many, the confusion stays the same. 

The Biggest Offenders

FSA – Flexible Spending Account
HSA – Health Savings Account
HRA –  Health Reimbursement Account

These are NOT the same thing.

I’ll get the HRA out of the way, as it is not as common as the other two. This is an EMPLOYER owned and funded account an employee can use for medical expenses. It generally stays with your employer if you leave, unless they offer a retirement continuation. 

FSAs are offered with a standard HMO or PPO (I’m going to assume you know these two old friends).

I wrote a newsletter on HSAs a few months ago and the triple tax benefit they offer. They are only offered in conjunction with a HDHP. 

HDHP – High Deductible Health Plan

Similarities

  • Both are employee funded, although some employers will make contributions as an added benefit.
  • Both are funded with pre-tax dollars. Always a PLUS.
  • Both are used to pay for qualified medical expenses. 

Differences

  • Pre-tax contribution limits are higher for the HSA than the FSA. The HSA also offers a catch up contribution for those over age 55.
  • The up front, out of pocket medical payments are higher for Team HSA/HDHP.
  • FSA contributions are forfeited if not used in the same calendar year. There is some flexibility for carry over and grace periods, but forfeiture is the general rule. 
  • HSA contributions are yours forever. AND they can be invested. AND they can grow tax deferred. 
  • Your FSA is not portable. If you leave your company, the funds in the account do not go with you. An HSA is yours forever. 

While the HSA offers more flexibility than the FLEXIBLE Spending Account (oh the irony), it does not mean it is the right choice for you, even if both are offered by your employer. Every situation is unique.

Almost done, but a distinction I explain in this next section is REALLY important.

STD  – Short Term Disability
LTD – Long Term Disability

Granted, you probably know these two acronyms, but are you aware of the distinction when it comes to whether this benefit it taxable or not? 

It all comes down to how the premium is paid. I’ve worked with many clients who were not aware of the key difference because most benefit guides don’t do a great job of explaining it. 

It makes a big difference in how much money you actually take home, should you become disabled. 

  • If premiums are paid by you with after-tax dollars, then the disability benefit will not be taxable.
  • If premiums are paid by your employer, then the disability benefit will be taxable. 

Most LTD benefits offer coverage for “60% of salary”. If that 60% is not taxed, you are in OK shape.

If that 60% is taxed, your monthly benefit will be significantly less than your regular pay. 

One final scenario offering a TAX FREE disability benefit: 

  • Your employer pays the premium BUT adds the amount paid on your behalf to your gross earnings. By you paying taxes on the premium, any disability benefit you receive will be tax free. 

If your employer offers a tax free disability benefit option, this is the option you want. Otherwise, you may want to consider a private policy to supplement your employer plan.

Financial Fitness Tip

I often tie in both personal and professional experience to my newsletter and this time is no different. I was in a minor fender bender this morning (thankfully, everyone is OK), so I thought this was a good time to touch on auto insurance. Ironically, I also worked on a client plan this week where I recommended they increase their coverage. 

Most states require a minimum level of insurance, and if you are using a lender, they require proof of this coverage as well. Many folks go with the minimum requirements for Uninsured/Underinsured coverage and Property Damage. I don’t recommend this. Increase your coverage limits where you can. Back in my 20’s, I worked for an auto insurer as a claims adjuster, and believe me, these coverages come into play more often than we would like. 

Things I Love

I could probably do an entire newsletter devoted to binge worthy shows. My current fave is “Heartland” on Netflix. It’s a modern day Little House on the Prairie, which of course was the favorite of my 7 to 11 year old self. As I said in my January newsletter about The Marvelous Mrs. Maisel, it allows me to fall asleep with a happy heart. 

From a Google review:
“This sprawling family saga takes place where an unfortunate tragedy has glued a family together to pull them through life’s thick and thin moments. Follow young Amy Fleming as she slowly discovers she possesses her now-deceased mother’s ability to aid injured horses as well as maintaining good relationships with those who are trying to get by one day at a time.” 

Netflix has all 13 seasons and Heartland has been renewed for its 14th. When I saw that, I knew it must be a hit!