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| Conquer the 13 biggest financial fears | |||||||||||||||
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(Continued from page 1) By Kiplinger's Personal Finance Magazine Then, give yourself some financial benefit from avoiding small claims by raising your deductible to at least $1,000, which can lower your premiums significantly (you'll save about 25% if you boost your deductible from $250 to $1,000). Be sure to set aside money in your emergency fund to cover those potential out-of-pocket expenses. Check out your CLUE report to make sure there aren't any errors. This is the database where insurers share information about your claims history, and any errors in this report could make it tougher to find coverage in the future. And if you're buying a new house, be sure to check its CLUE report before closing the deal. A history of frequent claims at that residence (especially ones related to water damage) could scare off potential insurers. You can order the CLUE report for $12.95 at ChoiceTrust.com. If you are dumped, contact a local independent insurance agent who works with many insurers. He's more likely to find one that will cover you. You can find an agent at the Independent Insurance Agents & Brokers of America Web site. No. 8: Totaling your brand-new car It's bad enough when you total your car right after you buy it. But it's even worse when you owe the lender thousands of dollars even after your insurance claim has been paid. That's the case for many car buyers who make low down payments or extend their loans over several years. Say, for example, you bought a 2004 Chrysler Sebring for $18,500 last fall, with $1,000 down and a five-year loan at 4% interest. After six months and 5,000 miles, you get into a big accident and total the car. You still owe the bank $15,903, but the insurance company pays you only $12,000. You'll need to shell out an extra $4,000 from your own pocket (plus the amount of the deductible) just to pay off the loan. That's because most insurers only pay for the car's depreciated value, and most cars depreciate significantly the minute you drive them off the lot. One way to solve this problem is to buy gap insurance, which lenders and insurance companies offer to cover the difference between a car's cash value when it's totaled and the amount you still owe the lender. The price is usually minor -- averaging about $45 per year from Progressive, for example, or up to $500 or $600 for the life of the loan from many lenders and dealers (you may be able to negotiate a lower price from dealers in many states). And some companies, such as MetLife, include some coverage in their standard auto insurance policies at no extra cost. They'll automatically pay the full cost to buy a new car if you total your car within the first year and have driven less than 15,000 miles. Gap insurance is worth the cost only if you face a potential gap of several thousand dollars. You generally don't need it if you make a down payment of 20% or more. To determine your potential risk, go to Kelley Blue Book's Web site and look up how much one-year-old models of the car you're considering are selling for. Then compare that amount to what you'd owe on your loan after one year. No. 9: Getting sued What happens if your dog bites a Trick-or-Treater or a parent breaks a leg falling off your dimly lit porch? A big lawsuit could easily wipe out your savings. It's easy to get insurance to protect you from these costs. It generally costs just a couple of dollars per year to increase the liability coverage on your homeowners-insurance policy from $500,000 to $1 million, the maximum for most policies. If you still need more insurance, an umbrella policy can add a few million more dollars in coverage at a low cost, generally less than $200 per million depending on how many vehicles and residences you own and the age of the drivers, says Rebecca Korach Woan, an independent insurance agent in Chicago. The umbrella pops up to protect you once you use up the liability coverage provided by your home or auto policies. Umbrella policies are important to consider if your net worth -- the value of your home, investments and other assets -- plus future earnings are near the $1 million mark or higher. And the more your lifestyle exposes you to the risk of a lawsuit, the more valuable the coverage becomes -- for example, if you have a swimming pool, a boat or a second home, if you maintain a high public profile or entertain frequently, or even if you're active in your children's school. You can generally get an umbrella policy from the same company that sells your auto and homeowners insurance. If they won't cover you, contact an independent insurance agent who can shop around at several companies. You can find one in your area at the Independent Insurance Agents & Brokers of America Web site. No. 10: Buying a lemon There's no greater nightmare to car shopping than discovering you bought a lemon. To ensure a good purchase, start by honing your used-car buying skills and take Kiplinger's Test-Drive Scorecard (PDF) with you when shopping to make sure you don't overlook anything important. You might also consider buying a certified used car with the manufacturer's stamp of approval. These must pass a rigorous inspection and usually include extended warranties. You can research the reliability history of a used car with Consumer Reports and MSN Autos. Once you've zeroed in on the one you want, get its history for $20 from Carfax. You'll find out if the vehicle has changed hands often, was salvaged, reconstructed or damaged by flood, and if the odometer was rolled back. But even if you do all that, you could still get burned. Fortunately, all 50 states have so-called lemon laws that protect you against a manufacturer's mistake. Generally, if the problem can't be fixed within a few tries, you can take the car to an arbitration board, which can force the manufacturer to take the car back. No. 11: Getting scammed More than one in 10 adults -- 25 million Americans -- are victims of fraud, according to the FTC. Advanced-fee loan scams -- when consumers pay a fee for a loan and receive nothing -- were the most frequently reported type of fraud, according to the FTC's survey of consumer fraud. Credit-card insurance and credit-repair scams also were near the top of the list. If you don't want to be a victim of any scam, follow these tips from the FTC.
No. 12: Disaster cancels your dream vacation You spend months planning the perfect vacation -- and shell out a pretty penny on pre-paid expenses -- and then you fall ill, your tour provider goes under, a hurricane wipes out the resort, you get in an accident en route to the airport or you're called to jury duty. This is when travel insurance can be a good idea. Policies reimburse you for any non-refundable expenses if you've canceled or interrupted your trip because of these and other unforeseen circumstances. Business or other personal reasons that may hold you back aren't covered. You'll pay 5% to 7% of the overall trip cost. But even without insurance, you can recover some of your money if you cancel early enough. Most hotels allow same-day cancellation. Airlines usually allow you to rebook your flight for $100 -- even on non-refundable tickets. Cruises and tours typically offer a sliding scale for refunds. For example, cancel 60 days in advance, and you might get a full refund; 30 days may net you a partial refund; wait until the last week and you may have to pay full fare. Rules will vary from one company to the next. Pay with a credit card to take advantage of any qualified purchase protection in case of an unresolved dispute with your travel agency. Some issuers even offer their own travel coverage: American Express, for example, automatically insures plane tickets bought on your card. And check if your homeowners insurance policy will cover any lost or damaged luggage. No. 13: Looming bankruptcy Many people think bankruptcy is the worst financial thing that can happen to them, says Gerri Detweiler, author of "The Ultimate Credit Handbook." Although Americans are filing for bankruptcy in record numbers, most people do everything they can to avoid it, including using credit to pay off credit cards, wiping out they retirement savings and taking out a second mortgage. As a result, many get deeper into debt and just prolong the inevitable, Detweiler says. More than half the people she counsels should file for bankruptcy but don't want to consider it because of the stigma attached to it, she says. (Find out your own bankruptcy risk and read more about Americas bankruptcy boom here.) Private money coach Steve Rhode agrees that most people over their heads in debt are better off filing for bankruptcy. That's because, he says, "if you're thinking about avoiding bankruptcy, you'll be frightened by the options." It's not realistic for someone facing financial problems to exercise self-help, Rhode says. And getting help from a credit-counseling group might become a thing of the past. The IRS, in an effort to crack down on predatory credit counselors, is in the process of taking away the agencies' nonprofit status. And because a majority of states prohibit for-profit credit counseling, legitimate counseling groups might have to shut down too, Rhode says. If you want to tackle your debt on your own, Detweiler says you need a debt-repayment plan to figure out what you owe and what you can pay back. For $39.95, you can download debt management software from ZilchWorks.com. (Read more on tackling your debt here.) Otherwise, you can take the more drastic measure of debt negotiation, which allows you to stop paying your creditors and make monthly payments instead to a debt-negotiation agency. The agency works to settle your debts at a fraction of the amount owed. However, it does affect you credit score, and finding a good debt-negotiation company can be difficult. Check the American Association of Debt Management Organizations for an agency in your area. | |||||||||||||||
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