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Sometimes good ideas prove to be bad ideas and the mark of any good decision-maker is having the humility to admit the error and do something to put it right. For the purposes of this article we need to go back to 1973. This was a period when morality was still a driving force in politics. Perhaps surprisingly, legislators wanted to be seen doing the “right” thing even if it was less than popular. So this year saw Michigan become the only state in the union to introduce mandatory unlimited medical benefits for those injured in traffic accidents. This was the high-water mark for financial responsibility, taking the view there should always be enough money to treat those injured on our roads.

The only problem with idea is the cost. Many people are seriously injured and require long-term care. Worse, without a cap on the spending, there has been a temptation for hospitals to offer an open-ended and comprehensive treatment program for everyone injured. This helps explain why Michigan has one of the highest premium rates with Detroit being the most expensive city in the US (New Orleans is the second most expensive city where average premium rates are one-third lower). The claims for personal injuries have more than tripled in value over the last twenty years. Today, the average driver pays more than $25,000 per year for cover. Such high rates in a state with long-term structural unemployment has forced many drivers to risk running without insurance. The estimate is that 17% of the drivers on the road are uninsured.

State Senator Virgil Smith who represents Detroit is currently drafting a bill to use the city as a testbed for a new approach to insurance, following models in California and New Jersey. The plan is to allow insurers to offer a basic policy to all drivers who earn less than $30,000 per year, drive a vehicle worth less than $20,000, and have a clean driving record. Although the Senator is still to set limits, the proposal looks to set a cap on medical claims, probably around $50,000. The expectation is that those who would be eligible would see their annual insurance costs fall to as little as $1,000 per year. If this is proved effective in reducing the number of uninsured drivers, the program would be rolled out over the state. Again this follows the example of California which tested its Low Cost Automobile Insurance Program in Los Angeles and San Francisco before extending it to the whole state. (more…)

According to James Truslow Adams, life should be an opportunity for everyone to become successful regardless of social status. It sees our great nation as a meritocracy. If the Constitution starts with the idea that all are created equal, then all should have the opportunity to grow richer and more prosperous. It’s seen as a reward for hard work and a commitment to self-improvement. Although we have somewhat grown out of the simple view that some streets are paved in gold, there have been enough rags-to-riches stories to make the myth of the Dream appear reasonably true.

In the early part of the last century, we tended to follow the European model and the majority of people rented their homes. But as prosperity spread, more people began to include home ownership in the Dream. It was still a challenge for the majority but, as credit grew more easily available, banks and other sources of lending began to see the mortgage market as a good profit center. Barriers to lending began to drop. Instead of asking for large cash deposits, lenders grew more flexible. When the self-employed asked if their lack of stable income was a problem, lenders were prepared to listen.

The result was a revolution as a majority of people found they could finance home ownership. Indeed, once there was a property in your name, you had security for yet more borrowing. As property prices continued to rise, it seemed you could ride the wave of increasing value up the resale housing market until you had the most desirable home imaginable. Well, that’s always the dream, isn’t it? It’s a shame we have to wake up but, when the housing bubble burst in 2008, many realized they were overextended. A flood of foreclosures has followed. Even now, we may not be at the bottom of the housing market with resale values continuing to fall. Why are those values still falling? (more…)

For centuries, those poor people who decided not to emigrate to join us in America relied on the saying, “An Englishman’s home is his castle”. This was actually not a suggestion everyone should dig a moat around their home and fill it up with crocodiles. Rather it suggested the police and all other strangers had no right of entry unless they had a warrant. But, moving across to modern America, we can put a new spin on the saying. Let’s start off with the problems of burglaries and home invasions. No matter what your ZIP code, there will always be discounts if you prove you have fitted more than adequate security.

This starts with simple and cheap steps like fitting deadlocks on the doors and windows, and then moves up by fitting stronger doors and armored glass in the windows. This is why it’s very important to discuss proposed changes with your insurer before you authorize a builder to start work. You need detailed confirmation of what the savings will be so you can balance the cost of the work. If you blindly fit massive security, you may not recover the cost for ten or more years. So is spending this money going to make you feel safer in your own home? Can you put a value on that?

Now let’s move on to the physical structure of your home. Again be very careful about getting the insurance company to confirm this work is cost-effective. If you live in an area which is prone to storms and high winds, you will probably get discounts if you strengthen the roof and make sure it is securely tied into the walls. Spending the money to prevent the roof from blowing away saves a great deal of rebuilding work. If you add a secondary water barrier so that, if the roof does blow off, no rain water will get through to the contents of your home, this will definitely produce a discount. In this, note the local building codes are irrelevant. These are national standards defined by the insurance industry. The more homes that either are built to these standards or retrofit, the lower the premium rates will be. You will find some insurers describe this as home fortification. A final thought should address the windows and doors. (more…)

When it comes to the wondrous but often inconceivable world of insurance, where the sky is red, orange, purple or green, people are often intimidated and down right confused.

Maybe it’s because black and white isn’t part of the insurance aura? Or is it that we are just too lazy to try and understand what insurance is all about? Either way, the lingo itself can be very intimidating. Big words intertwined with long sentences are very scary, especially to the average person.

The funny thing is, that although there are oodles of variance in insurance products, the basic concepts really are quite lucid. If you take a few moments to let your pre-determined thoughts about the complexity of insurance go and learn about it from the start, like Insurance 101, you will realize that it doesn’t have to be so confusing.

That said, renters insurance is in the middle of the mix. Actually it is often forgotten. People don’t really ‘think’ they need renters insurance. Most believe the landlord’s policy will cover them, should an unexpected accident occur. Say like a fire, theft, flood or other natural disaster. (more…)