Disaster proofing our homes is an integral part of personal finance planning. The images of the small Jewish boy who was orphansed when his parents were killed in the terror attacks in Mumbai in November last year, is still fresh in my mind. It was like watching a rerun of the 9/11 attacks sans the airplane.

Being a mother myself of a fifteen-month-old, I could well imagine my child in the same situation and cannot but be scared. These are uncertain times and if not a terror attack, an earthquake or a hurricane or even a road accident is sufficient to throw our peaceful lives out of gear and life may never be the same again.

What occured to me then was that I have to make few arrangements to ensure that, even if something happens to me, my child is not left helpless to fend all for himself. So the whole of last week my husband and I took some time off our work to disaster proof our home.

We first made a list of all our bank accounts, stock market investments and term deposits. We made  3 copies of the list, kept one at our house, one in our bank locker and one at my mother’s place, just in case. We then checked the personal details that had provided in our financial/bank accounts and we realised that some of the details like address and contact details that we had provided were old and the nominee detail was missing in few accounts. We completed those details as well, so that in case there is a need for that information in case of an emergency, the updated information is available.

Only few weeks back my hubby was cribbing about the annual insurance premium payment which he thinks is useless and was eating up most of his money. But this time I did not have to persuade him to pay the premium so that the policy does not lapse. He did it by himself.

Thankfully we have the habit of keeping a sum of 3-6 times our monthly income as an emergency fund, untouched. We decided to continue with that habit of ours. We had already shot pictures of our valuables like jewellery, appliances and cars for our home owners insurance policy. We have now made  few copies of those CD’s and stored them in bank lockers and at my parent’s place.  We already have a fire alarm in our place. We still thought it wise to buy a fire extinguisher and keep in a place that is  easily accessible.

My mother thought we were being very pessimistic. My friends called it a knee-jerk reaction. But we never realise the importance of certain things unless they happen to us. And it is better to be safe than to be sorry.

 

Filling long and endless forms when applying for a credit card or an insurance policy can be a very boring task. We may have moved on to online banking and online financial management, but paperwork still remains an important part of investment and financial planning. One careless step or wrong information might lead to a lot of trouble. Let me explain how.

I knew this person Jack Hawley (name changed to protect identity), a senior citizen with over $20,000 in an account with a popular bank. The account was started when Jack was young and he maintained the account for many years. While filling the form at the time of starting the bank account, the relatively young Jack overlooked the ‘Nominee’ column. Years later, after his death, his wife an equally old Stacy approached the bank to withdraw the sum in her husband’s account. But she was not allowed to do so since her name did not appear as the nominee for the account. She did get a reprieve finally and the bank allowed her to retrieve the amount, but only after much running around, paper work and other formalities to prove that she was indeed Jack’s wife and a legitimate recipient of the amount.

Many financial advisors I speak to say that while not revealing details cause trouble, in some cases concealing information may also lead to problems. Like in the case of another acquaintance, Steve who had applied for a medical insurance policy. In his hurry to finish the formalities, Steve left the task of filling the form to his insurance agent, who hastily gathered information from Steve and placed tick marks across the ‘No’ option for the list of all diseases in the form, including diabetes which he suffered from. Months later, when Steve hurt his large toe and a surgery had to be done to amputate the toe; it was revealed that he was suffering from diabetes for a while. The insurance company rejected the claim on the ground that the ailment was concealed.

DIfferences in ones name or signature properly may also cause problems. Nicholas’ grandfather in his will had bequeathed his large mansion to his grandson. What his grandfather did not know was that his grandson Nicholas had shortened his name to Nick and has been using the same for all transactions. It required a lot of effort and running around for Nick to prove that Nicholas and Nick are one and the same.

While insuring gold, diamonds and other valuables for theft, it is important to know the exact weight of the jewels, experts in the insurance business say. Stating just the value of the goods insured does not help much during claim settlement. It is advisable to retain the original invoice of the valuables that will be of great help to settle claims in case of theft or damage by fire.

A little more attention to detail while making a financial transaction will go a long way in making life easy. Let not a small mistake erode a lifetime’s earnings.

 

Like a sort of trilogy to my previous two posts ‘Home owners insurance, explained’ and ‘Are you financially ready to welcome your new baby’ this blog on life insurance deals with the importance of providing financial security to the family in these uncertain times.

During my student days I worked part time as an insurance agent. The experience was an eyeopener for me. Had to undergo a lot of ‘doors-slammed-on-my-face’ and friends and acquaintances trying to avoid my gaze while crossing each other, just for the fear that I might coax them to buy a new policy. Even those customers who lend me an ear to know about the latest life insurance products would retort back with questions like, ‘ Are you trying to say I will die soon?’, or ‘How does it matter on who spends my money after I die?’.

I have only one question to ask those who always view life insurance with a negative perception. Do you get upset that the airbags in your car never came of use, despite you spending so much on it? Or do you worry that the helmet that you use for your weekend country side bike rides, never actually came of use because there was no accident? Life insurance is similar to that. A safety measure. Just that you would not be able to see and enjoy the fruits of it.

Who requires a life insurance policy? – Anybody with dependants like young children or a spouse should ideally have a life insurance policy. People usually buy life insurance policies after marriage or the birth of a child to ensure that in case of the untimely death, their dependents do not suffer financially. Having a policy becomes even more important if the spouse is non-working or if the child is too young and financially dependent on the parents.

Why take a policy when you are young? – We all get older as the years pass by and also get more susceptible to ailments like diabetes and high blood pressure, which in turn may lead to other health complications. By taking a policy when young we get to pay a smaller amount as premium for a longer period of time.

Types of policies – There are two types of policies,

1. Whole Life – This is for the entire life of the policy holder and will be valid as long as the premium is paid. In addition to the death benefit, there is also an ‘account’ that earns interest that however starts accumulating only in the 10th year or so of paying the premium. The premium paid is slightly higher than term policies.

2. Term Insurance – As the name suggests, it is for a specific term, say 3, 5 or 10 years and expires after that. The premium is fixed for a number of years and the older the policy holder is, higher will be the premium. So at the end of the term, if the policy holder wants to extend the tenure the premium to be paid will become higher. It is pure coverage, in the sense that it pays only upon the death of the policy holder. There are no other cash benefits. The premium paid is lower than that for whole life policies.

Types of death that a life insurance policy covers? – Life insurance policies usually cover death by natural causes. One can add an ‘accidental death benefit rider’ to the life insurance policy, to cover death of the policy holder due to an accident. The premium will be higher accordingly. In case of death due to suicide, the premium amount paid till date is returned. Death due to chronic illnesses like cancer and AIDS are also covered by such policies provided the policy holder has paid the premium for a minimum number of years. The number of years varies from one insurer to another. To cover critical illnesses like HIV/AIDS, cancer and paralysis, one can go in for critical illness insurance which fellow blogger HillsPersonalFinance explains.

How much can you insure yourself for? – It all depends on your income levels, the sum that you feel would be adequate to provide your dependents after your demise and how much you can spare on a monthly, quarterly or yearly basis. Insurance4USA provides an insurance calculator that helps you calculate the amount of life insurance that you need.

 

I am very happy today. My best friend Kaitlin just called me up to say that she is expecting. The stork will visit her place in the summer of 2009. When I expected my baby two years ago I was well prepared mentally to welcome my bundle of joy. But experience has taught me that it is equally important to be financially prepared.

So i gave my pearls of wisdom to Kaitlin on how and why it is important to be financially prepared to welcome your new child. Let me share it with you all too.

DELIVERY OF THE CHILD - First things first. The actual birth of the child. Home deliveries are becoming popular. And yes they do work out cheaper. But it requires a lot of preparation in terms of the partner’s willingness to assist in the delivery process. If you or your partner is not sure or if there are medical conditions in the later stages of pregnancy like high BP or gestational diabetes it is strongly adviced that you have the child delivered in hospital with proper medical assistance.

POST CHILD BIRTH EXPENSES – So you just welcomed your new bundle of joy into this world. Apart from giving both partners sleepless nights the baby will also bring in a lot of new expenses . Okay you may hate me for asking you to count and calculate when you should actually be admiring your baby’s little hands and feet and the innocent smile. But trust me, by being prepared financially you will have lesser worries and and have more time to enjoy your baby’s little pranks.

So here I continue. These are the new categories that will find place in your monthly budget with the arrival of a new child.

1. Diapers – You would need these by the dozens everymonth. Ask me about it. You could try alternating between re-usable and use-and-throw diapers.
2. Clothes – This is a recurring expense. Children outgrow their clothes faster than you expect. And then there are winter clothes, summer clothes, booties, body suits and so on.
3. Medical care - There are a lot of vaccinations in the first year of child’s life and a dozen visits to the paediatrician to make sure your baby is growing fine.
4. Food – If you are planning to go for formula feed then you have to factor in those costs. Blogger chieffamilyofficer has some interesting posts here and here on preparing baby food at home that is both healthy and costs much lesser.
5. Toys –The child care product makers in the market have the knack of making us feel guilty of not caring for our child enough. So we end up stacking a lot of pacifiers, baby gym, teethers and rattles. Do not stack up in advance. You will anyways get many such stuff as gifts.

And then there are other utilities for a child like crib/cot, car seat, bath tub and stroller that you have to stack up.

TWO JOBS OR ONE – Financial planning has to be done based on whether both partners will be working after the birth of the child or if the mother will take a maternity break for three/six/twelve months or quit the job. I have been repeating often that traditional wisdom suggests an emergency fund equal to atleast three to six months of ones salary should be maintained by every working individual. If the mother is taking a maternity break she should ensure that the emergency kitty is sufficiently full.

If the mother will resume work in a few months after the baby’s birth then options like leaving the child in a day care centre or hiring a baby sitter would be considered. You can calculate to see if the mother’s pay check is big enough to handle the related expenses and stress arising out of leaving the baby in a day care centre or with a baby sitter. You could try taking help from parents, friends or other family members if they are willing to do so. Works out cheaper and you can also be at peace that the child is in safe hands.

By preparating adequately the first 2-3 years of your child’s growing years will be smooth sailing for you. This blog has more information on financial formalities post baby’s birth. As for preparing for your child’s education, future and stuff, thats a bigger topic. Let me keep it for another day. Ciao.