Finance 200 – By Yohance Harrison

So now that you have successfully completed Econ Professor Harris’ Finance 101 through 106, you are ready for Finance 200 courses. You have determined your net worth, created a budget or spending plan for your finances, and have a strategy for managing your debt and increasing your savings. The next step is to protect the the assets you can’t affort to lose.                  

Let’s start with having a bank account. I still to this day meet people everyday that don’t believe in our banking system. I can understand their frustration, with the talks about banks failing, Madoff, and any other scare tactic used against our modernized banking system, I may be scared too! Say you had $10,000 in IndyMac Savings Bank. What did it mean when the bank failed? Well to you, it meant absolutely nothing! Banks have Federal Depositors Insurance and the Federal Government insures your deposits up to $100,000. Recently this amount was temporarily increased to $250,000 ! So as long as you keep less than that amount, then the bank can go out of business, but your money is still safe! I encourage you to look up www.fdic.gov for more information about FDIC Insurance.

On the other hand what if you had the $10,000 in a coffee can in your pantry. What if your house or apartment that had an electrical fire. As rare as it may seem, I have known it to happen! What happens to your $10,000 then?

Research the local banks in your area. A lot of banks have accounts which are free to utilize as long as you follow their deposit and withdrawal rules. Unless you are a hundred-thousandaire, then you shouldn’t have much to worry about. Protect what you can’t afford to lose!

The other thing to consider when protecting and building your net worth insurance. Yes, I said the dirty word, I will say it again – Insurance. Medical, dental, disability, long term care, life, auto, home-owners, umbrella and rental insurance policies all have a place in our lives. They are here for one reason and one reason only, Chris Rock said it best: “it’s not insurance, it’s in-case-shit-happens!”

On a personal note, in 2002 I purchased a new car because my old one literally died. When I purchased the car my auto insurance nearly doubled in cost. So I called my insurance company to discuss my options for lowering the premium. At the time I lived in Texas, a state where Uninsured Motorists coverage is not required. I reduced my auto coverage to the most bear-minimum policy which lacked Uninsured-Motorists coverage. Can you guess what happened? Yes, my car was totalled by an uninsured driver! Who wound up paying for the damage to my vehicle? Me! It cost me nearly $7,000 for a $60 a month reduction in premium. Not a smart move.

Not all insurance is good. People can be just as over-insured as they can be under-insured. But I can tell you which side I would rather be on!

So, pull out all of the policies you have, make a list of the ones you don’t have, and ask yourself some questions. Is it worth taking the risk of losing whatever I am insuring? Can I afford the risk of not protecting my assets? The one that is most grossly under served is disability. Typically most people can restructure their home and auto policies to more closely reflect their risks and save money. I can’t tell you how many people I meet that pay for collision insurance on a car worth less than $2,000. Would you pay a $500 deductible to fix a car that has $1,000 worth of damage if it is only worth $2,000? Maybe you would, but probably not. You may be able to save $300-$700 per year in insurance premiums by not having the collision coverage.

As you analyze your assets and asset protection, remember there are always (and only) three aspects to an insurance policy: Conditions, Benefits and Cost. As a consumer we can control two of these aspects, and the insurance company will control the third. Let’s say you want a $10,000,000 Life Insurance Policy, and you only want to pay $1 for it. In this situation you have chosen the Benefit and the Cost, therefore the Insurance Company determines the conditions. They give you the policy, but will only pay your beneficiary if you die from natural causes, on a Tuesday afternoon in the month of February. Those Conditions don’t seem to favorable do they?

So, it is a wise idea to select your benefit, then the conditions, and let the cost work itself out. If the cost is more than you are willing (or can) pay, then you have to make sacrifices on your benefits and/or conditions. In the end you will have a policy that protects what you want, pays in conditions that satisfy you, and you don’t feel remorse for paying for it.

Do not take this blog as a gospel, or a reason to go out and cancel your medical insurance plan. Use it as a guide to have a constructive conversation about your needs and wants.

 Let’s talk about it.  yohance.harrison@gmail.com