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Archive for the ‘Personal Finance’ Category

Shortcut: Income Estimator

March 21st, 2010 No comments

If you know the hourly rate, it is easy to calculate the annual earnings. For each 10 dollars per hour, multiply by 20,000 to get the annual earnings estimate.

For example, if you earn $35 per hour:

Annual earnings equals: 3 * 20,000 + .5 * 20,000 = 70,000 per year.

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Get Dividends from your Insurance

February 15th, 2010 No comments

Earn a dividend while holding your insurance policy. If you have ever compared policy rates quotes for auto insurance, home insurance you should take into account the opportunity to earn dividends on your policy. Not all insurance companies pay dividends, and even ones that do may not pay a dividend each year.

I have been earning dividends on my own auto insurance policy for 15 years. It has averaged about 5% per year. 

No Free Lunch

Dividends come out of the premiums that the company collects each year. If the financial performance of the company is good (claims are low, earnings on investment are good), there may be cash leftover at the end of the policy year. One of the ways to use the cash is to pay the policy holders. You should be eligible for a dividend regardless of your claim history.

Another option the company has is to lower premiums by adjusting their underwriting guidelines. 

Companies that Pay Dividends

Some of the companies that pay dividends. Contact the insurance company or broker to find out if dividends are paid.

  • USAA
  • Progressive
  • State Farm Mutual Automobile Insurance Company
  • Texas Mutual Insurance Company
  • New Jersey Manufacturers Insurance Company
  • Amica

Do You Need Rental Car Insurance

February 11th, 2010 No comments

If you have ever rented a car, you will be faced with a dilemma: do you buy the car insurance offered by the rental car agency? After investigating this issue myself, I can understand why the uncertainty may create doubt, which may lead you to buy extra coverage unnecessarily.

Typical Case

For cases where you are renting in the U.S and you have a full coverage insurance policy with a carrier (liability and collision/comprehensive), your liability for damage to the car and others will be the same as if you were driving your own car. When a claim needs to be made, you will need to file it with your insurance carrier and also cover any deductibles that are built into your policy.

Recap: Liability insurance covers damages you cause (or are determined to be responsible for) to other people or property. Collision/Comprehensive insurance covers damages only to the vehicle (the loss limit is the value of the vehicle).

No Collision Coverage

On my own personal car policy, I dropped the collision/comprehensive coverage and self insured. Therefore, there isn’t any coverage to use in the case where there are damages to the vehicle that are not covered by a third party policy. I would be on the hook. However, if you use a Visa/Mastercard to pay for the rental (be sure to use it to pay for the entire bill), you may get a collision/comprehensive policy coverage.

The following cards include the coverage:

  • All Visa Cards.
  • MasterCard Gold and above, the standard card is not included.
  • All AMEX Cards.

The coverage offered by the policy will typically include the following: damages up to the vehicles value, towing costs, and loss of use costs charged by the rental company.

Credit Card Bonus

Even if you use your own personal insurance to pay a claim, you can use the policy offered by your credit card to pay for deductibles. You will need to charge the rental bill on the credit card and file a separate claim.

Buying the LDW

Rental car companies offer their own set of coverages, they would need to at least for people who are licensed but don’t have any insurance. These policies are much more expensive than the equivalent daily rate for your own personal policies.

In the case of the collision/comprehensive policy, the best policy they offer is the Loss Damage Waiver (LDW). This is not insurance because there is no claim to file, when damage occurs you walk away and the coverage takes care of the damage. It is understandable why you might want to buy this coverage since it relieves you of the trouble of filing claims.

Some companies (Hertz, e.g.) offer small policies that only cover the deductible of a damage claim or small damages, up to a typical limit of $500 or $1000. These waivers have the same trait of the LDW, you walk away with no claims to file. Of course, any damage in excess of this amount would require a claim against your other coverage.

International Coverage

If you have a personal insurance policy in the U.S., it very likely isn’t going to be of any benefit when renting abroad. These policies only cover the U.S, including Puerto Rico/Virgin Islands and probably Canada.

If you are travelling abroad and want to rent a car, plan accordingly. Using a major credit card will still get you collision/comprehensive policy as above, subject to some country exclusions. Liability coverage won’t be included. Here are some links that talk about things to look out for: here and here.

Final Tips:

  • When you are on vacation, it doesn’t hurt to buy extra coverage if it gives you some piece of mind. After all, you are there to enjoy your vacation not worry about unforeseen costs.
  • Credit cards policies may limit vehicle value to $50,000 or less. Don’t rent a fancy car. Also, there are limits on the number of rental days: for MC it’s 31 days, for Visa it’s 15 days U.S/30 days international.
  • Credit card coverage will be available if you charge all the rental costs to the same card. Make sure the renter (the person signing the rental contract) and CC owner are the same person.
  • It doesn’t hurt to call your credit card issuer first to verify coverage.
  • Inspect your vehicle before you drive off! You don’t want to be surprised with any damages that you did not know about. The rental company should provide a sheet for you to document any existing damage.

More Information.

Take Your Credit Seriously

January 29th, 2010 No comments

When the credit markets were functioning, I can’t tell you how many new offers for credit in the mail (0% transfers!!) I received. The odd thing is I am still getting them when you would think banks would have stopped it. One day last week, I got two offers from the same company on the same day. How’s that for coordination?

I don’t necessary want the offers to stop, I like to look at the pitches they come up with. Yes, junk mail is interesting to me. For a time, AMEX was offering me credit and in each mailing, they included a refrigerator magnet. I have about 10 of those. One time in the past, I got an offer that offended me. It wasn’t “0% transfers with no annual fee”, but “5.9% transfers with a $39 annual fee”. Maybe they didn’t like my credit score?

When it comes to credit, I haven’t voluntarily opened a credit card in about 15 years. The same credit card that I have been using for 15 years has the same credit limit when I opened it: $5000. I say voluntarily because when I took out a home mortgage, the broker also signed me up for a credit card (I must have missed that part of the conversation). Watch out for these slips.

The credit offers that are hard to pass up are those store credit cards that you open up when making a purchase. They make it easy and enticing by giving you a 10% break on your first purchase. I was in Lord & Taylor during the holiday season with a checkout bill of over $500. Then, the offer came. Save $50 on your order right now by opening up a credit account with L&T. I politely said, No Thank You.

If you take the offer it’s not saved money, there is a cost here. The cost comes to your credit score since the more credit you take out it can lower your score. If you accumulate too many accounts (even with no balance) this is another nick against your score.  Also, as we have read in the news in the past year, one creditor can change their terms at will based upon the actions you take with other creditors. Be selective in who you chose to open credit with, treat it as though you are building a relationship with the institution.

Also, there can be “payment risk”, because when you open a new account you need to learn the terms of a new account: when to pay it, what the interest rate is, when fees are accessed, as well as going to the trouble of setting up bill payment. I am lazy when it comes to paying bills, I like simplification. The one credit card I use was issued at the same Credit Union where I have savings and checking. It’s a no brainer to pay the bill as I discussed in this post about payments




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Integrating Paypal into Your Finances

January 25th, 2010 No comments

Go back in time to 1999. Internet startups were flush, and banking online was a new idea with few implementations. Enter, one of the first virtual only banks. It was cool. Instead of using paper statements and interacting using a phone, you could see your account and manage it using an internet browser.

Security took a back seat, as the company admitted there were flaws. It was possible to link to anyones checking account since all that was required was the routing/account information found on any check. While was floundering, they merged with another service, Paypal had more mature software and was growing fast. 

The service had two new features, among others: bank account verification which was more secure than, and a secure payment service. One of the innovations of the payment service was that it allowed you to buy products online using a credit card, without giving your credit card information to the vendor. Eventually, was changed into and the original plans to become a full service bank were dropped. Ebay later bought

After years of having a Paypal account, I have settled into using it for a few things. 

  • Using it as a savings account to plan for holiday/gift online purchases.
  • Using it to pay for products I buy on Ebay auctions.
  • Using it to send money to relatives or friends.

A few tips about using Paypal:

  • The money you leave in Paypal is invested in money market funds, so it pays a relatively good interest rate compared to a bank savings account. So, you can get quick access to buy goods online without giving up interest.
  • For personal accounts, you will have to pay a fee to accept money from other people if they used a credit card. Cash transfers between personal accounts are not charged fees.
  • Transferring money from a bank account to Paypal takes a few days. Keep this in mind if you plan to make purchases. 



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