Insurance Review Adds Value to Coverage

Rosa and I have heard that it’s a good idea to periodically review our insurance coverage with our agent to confirm that we have the right coverage for our current life situation; things change in our lives and our insurance coverage should reflect those changes. However, we have always been leery of a review of our insurance policies, because we thought it was just an excuse for the agent to pitch more coverage. Rosa and I recently lost the insurance agent who handled our homeowner’s and auto policies to retirement. Our new agent recommended a review of our homeowner’s and auto insurance coverage. Our experience with this new agent convinced us of the value that could be derived from a periodic review of our insurance coverage.

Computer software makes reviews quick and informational

We met with the agent who engaged us in conversation in an attempt to get to know us, our current life situation, and our plans for the future. The agent reviewed both the homeowner’s and auto policies with us. He was able to bring up the policy details on the computer. The monitor was turned at an angle so we could see the information and follow along. The agent experimented with different combinations of coverage and deductibles and updated the premiums as we watched.

Changes in coverage and deductibles results in better value

The homeowner’s policy came under review first. The current coverage exceeded the replacement value of the house by $13,000. The agent suggested we reduce the coverage to match the replacement value of the house and that we also reduce the deductible from 1% to 1/2% of the replacement value of the house. We balked at the reduction in the deductible, because we new it would add to the cost of the policy. The agent ran the numbers, and although there was a slight increase in the premium, it wasn’t enough to keep us from making the adjustments to the deductible that the agent suggested. He pointed out that if we had just one claim within the next 15 years we would come out ahead: we would realize more in savings due to the reduced deductible than we would pay in extra premiums. The odds are good that we will have a claim within the next 15 years; we’ve had three claims for hail damage to our roof in the 30 years we have owned the house. That’s an average of one claim every 10 years.

The agent then suggested we triple our liability coverage. We balked again, but he said it would only make a difference of a few dollars a year to triple the liability coverage. He ran the numbers, and he was correct.  The additional liability coverage added less than five dollars to the annual premium. If we had known how little it would have cost to increase our liability coverage for the house, we would have done it years earlier.

We made no changes to our auto policy as a result of the review.

Additional discount lowers overall cost

Once we had settled on the changes to the policies, which added about $26.00 to the annual premium of the homeowner’s policy but did not affect the auto policy, the agent reviewed our discounts. As a result, he discovered a discount for which we were eligible that had not been applied to the homeowner’s and auto policy premiums. The additional discount more than offset the increase in the premium for the homeowner’s policy, and we ended up with a net total reduction of a couple of bucks for the combined annual premiums of the two policies.

Your mileage may vary

Some caveats about reviews of insurance coverage:

  1. Our agent suggested changes but did not pressure us to make those changes. Be aware that some agents may try to take advantage of a review to pressure you into purchasing coverage you do not need.
  2. You can always rescind the changes that were made during a review if you don’t feel comfortable with them later on. Your premium will be affected only for the time during which the changes were in effect.
  3. A review of your insurance coverage may not yield any changes or extra value.

The review of our homeowner’s and automobile insurance policies resulted in better coverage for less cost. That translates into increased value for the money we spend on homeowner’s and automobile insurance. Maximizing value is our goal any time we spend money, so we will continue to request a periodic review of our insurance coverage.

K. C. Knouse is the author of True Prosperity: Your Guide to a Cash-Based LifestyleDouble-Dome Publications, 224 pages

Time Warner Cable Internet vs AT&T DSL Direct: Round Two–Service

In an earlier post, I explained why I changed my internet service provider from AT&T DSL Direct to Time Warner high speed cable internet.  Now, after several months of uninterrupted service from Time Warner, I have had an opportunity to experience Time Warner’s customer service and compare it to my experience with AT&T customer service.

My experience with Time Warner customer service

A service interruption of over 30 minutes last week prompted me to call Time Warner’s customer service line.  This is only the second service interruption that I am aware of in the several months that I have been with Time Warner.  The previous interruption lasted only a couple of minutes, the time it takes for the modem to reboot.  After going through the automated phone tree, which took two or three minutes, I was advised by the computer that there was an outage of service in my area and that technicians had been dispatched to fix it.  Sure enough, a few minutes later my service resumed.  End of story.

My experience with AT&T customer service

Service interruptions with AT&T were frequent, especially when it rained.  Most lasted a few minutes, but there would be the occasional outage that lasted an hour or more.  At those times, I would call AT&T customer service.  The automated phone tree provided no help, so I would elect to talk to technical support.  After waiting for many minutes, I would be connected to a technician.  In response to my inquiry about a problem with their network, the technician would put me on hold while he or she ran a check on the data line.  The technician would always come back and say there was no problem with the network.  I would then be put through a series of diagnostic tests which I had already performed prior to phoning customer service: power cycle my modem, power cycle the router, reboot the computer, check my network cable connections.  After 20 to 30 minutes of diagnostics, the technician would invariably conclude that I needed a new modem and offer to sell me one for $75.  I always declined and hung up the phone.  Eventually, my internet service would return.  This scenario played out exactly this way every time I had an extended service interruption and called customer service.  In the end, the problem was always with AT&T’s network—always, never with my modem, router, or cable connections.  If I had followed the technician’s advice, I would have purchased numerous modems that I didn’t need.

I expect to receive honest, factual information from customer service delivered in a timely manner.  Time Warner gave me that kind of response this time; AT&T never did.

K. C. Knouse is the author of True Prosperity: Your Guide to a Cash-Based LifestyleDouble-Dome Publications, 224 pages

The Road to Wealth: Cut Spending or Increase Income

What is the best approach to building wealth:  cutting costs to free up money for saving and investment or increasing income to create an excess of money that is saved or invested?  Let’s examine the pro’s and con’s of each approach and see if we can come to a conclusion.

The advantages of cutting spending:

  • Available to everyone. Unless a person has implemented every cost cutting measure in existence and exploited them fully, there is an opportunity to reduce spending and free up money for saving. It is simply a matter of making saving a priority. Once that is done, the money for saving can be found.
  • Immediate results. Cost cutting can begin literally from one minute to the next:  adjust the thermostat by a degree or two, up in the summer and down in the winter, and/or unplug all electric appliances not in use that have an LED on when turned off or that have an “instant on” feature. Both of these actions will reduce the cost of energy immediately.
  • Clearly defined spending priorities. Cutting costs forces a person to prioritize spending to discover what can be cut and by how much.  Prioritizing spending helps a person get the most value out of the money that is spent.  Increased value leads to increased satisfaction.
  • Control over spending. Clearly defined spending priorities make it possible to create an effective budget that produces money for saving without making a person feel deprived, because money is still being spent on the most important things in that person’s life. The use of a budget gives a person control over spending.
  • Efficient: No taxes and no cost. Cutting spending produces after-tax money for saving:  one hundred percent of the money freed up by reducing costs is available for saving. Cutting spending does not incur any monetary costs; it takes time, not money.

The disadvantages of cutting spending:

  • Limited effect. Only so much can be achieved through a reduction in spending. Cost cutting is limited by the amount available for spending.  If a person has $3,000 a month available for spending, the most that can be achieved through a reduction of spending is to free up $3,000 for saving and only if 100% of spending is eliminated. A reduction in spending of 30% to 50% is more realistic and would result in $900 to $1500 to add to savings per our example.  If the person in this example needs to accumulate more than that amount per month to achieve a financial goal, cutting spending will not produce enough savings.
  • Deprivation. For some people, any reduction in spending is perceived as a sacrifice and leads to a feeling of deprivation that can undermine the will to cut costs.  Establishing clearly defined spending priorities can mitigate or even eliminate the feeling of deprivation for many people.  However, some will feel deprived it they have to give up anything.
  • Exclusion from mainstream culture.  Mainstream culture is all about consumption and conformity. Reducing spending makes a person different and excludes him or her from the mainstream culture. If subscriptions to cable television, Netflix, and other similar services are canceled to achieve a reduction in spending, a person will be essentially ostracized from discussions of mainstream entertainment.  If cellular plans are downsized to reduce spending, a person may not be able to participate in the 24/7 connectivity that has come to dominate mainstream culture. Eating out less frequently, avoiding coffee shops, bars, the golf course, the gym, and the nail salon can also leave a person feeling left out of the mainstream culture. Being different can make a person feel uncomfortable.

The advantages of increasing income:

  • Potentially unlimited effect. There is no limit to the amount of additional income a person can earn if the right knowledge and skills are developed and then marketed effectively.
  • Enhanced status and power. Increased income avoids feelings of deprivation or alienation from the mainstream culture and thus preserves the status that a person has already accrued. Even if it is saved, increased income also adds to a person’s status: in our culture, more income equals more status. If the increase in income is attributable to advancement, then additional power is also accrued as a result of increased responsibilities.
  • Accelerated achievement of financial goals. With its unlimited potential, increasing income can reduce the time it takes to realize financial goals. It may also cause a person to expand those goals as the possibility of achieving more becomes evident.

The disadvantages of increasing income:

  • Doesn’t address control over spending. If spending isn’t controlled, an increase in income will probably result in an increase in spending, as well. If that increased income is leveraged to maximize an increase in spending, then debt will be accumulated instead of wealth.
  • Takes time to realize results. Whatever approach a person takes to increase income, it takes time before any additional income is realized: the development of new skills, a promotion, finding a better paying position, changing employers, starting a business, finding a second job all take time.  In some instances, such as the completion of a degree or certification or starting a business, it may take years before significant increases in income are realized.
  • Not available to everyone. Not everyone is capable of increasing their income substantially. Some may not have the aptitude to handle additional responsibilities. Others may have physical or mental impairments that keep them from taking a second job or seeking additional training while holding down a job. Still others may be unable to cope with the risks involved in starting a business.
  • Requires investment of time and/or money. Increasing income often involves an investment of time and money: time to acquire additional skills, job hunt, complete a degree or certification, work a second job; money to pay for training, schooling, transportation, childcare, tools, working capital for a business, relocation expenses. Time and money are costs that negatively affect the net amount of additional income that is available for saving.
  • Taxes. Increases in income are subject to taxes which reduce the net amount of additional income.  Depending on a person’s tax situation and other circumstances, it may take $1.30 to $1.50 of increased income to net $1.00 for saving.

Now that I’ve itemized the pro’s and con’s of each approach to building wealth, what do you think? Which one is the best approach? If you prefer certainty, you might choose to cut spending; you are sure to free up money that can be saved by using that approach. If you are one who takes risks and thinks big, you might choose to increase income; you like the idea of unlimited potential.

Fortunately, you don’t have to choose between them; cutting spending and increasing income are not mutually exclusive. In fact, they complement each other. You should do both to enjoy the benefits of each approach while minimizing their downsides.

Cutting spending is the easiest thing to do, and it produces immediate results. You can be adding to savings by the end of the month. The big advantage to cutting spending is the control over spending that is acquired. You must have control over spending if you are to benefit from an increase in income. Otherwise, any additional income will just be spent. Isn’t that what has happened in the past? If you spend everything you make, you will be broke at the end of the month whether you make $1,500 per month or $15,000 per month. You must gain control over spending.

Once you have a budget and control over your spending, you are ready to pursue additional income. Save any increases in income along with the money you are already freeing up as a result of cost cutting and you have the best approach for accomplishing your financial goals.

K. C. Knouse is the author of True Prosperity: Your Guide to a Cash-Based LifestyleDouble-Dome Publications, 224 pages