Protect Your Hard Work

It's late one evening and you are cruising home on the freeway after hanging out with your friends at their house. It is raining lightly, not enough to leave your windshield wipers on, but enough that you have to manually activate them every minute or so. This annoys you to no end. The freeway is fairly empty. You're not speeding and every once in a while another car passes you in the fast lane to your left.

Another car zooms past you, but suddenly veers into your lane and slows drastically. You brake hard, but still hit the back end of the car. On the wet pavement, both cars go into a spin and end up crashing into the center divider.

Fast forward a couple of months. Police reports have been filed, medical visits have been made. Sadly, you were sued. Ever more sad, you lost the case. You now owe close to $400,000 to the other driver for medical and property damages. You had auto insurance and thought you were covered. Unfortunately, the maximum coverage your policy provided was $100,000, so you still have to come up with $300,000 somehow. If you don't have it now, the courts can garnish your future income to satisfy the judgement. You'll be paying this debt off for years to come.

That's just one scenario. If you have a pool and some kid sneaks into your backyard and drowns, you could be liable, even if your yard was gated. You might post an online review of some company, complaining about their service and get hit with a libel or defamation suit. In our litigious society, it seems like you could get sued for just about anything these days and a judgement against you could wipe out everything you've worked for years to build up.

Your protection is insurance. Unfortunately, insurance is probably the only product you can't buy when you need it. You have to buy it in advance. Additionally, it's hard to know what type and how much coverage to get. An auto policy will not protect you if someone injuries themselves at your house. Your boat insurance will not protect you in a car accident. The problem is any one of those scenarios could end up wiping out all your assets and it's just not economically feasible to get a huge amount of coverage on each policy you own. So what can you do?

Enter Umbrella Insurance

Umbrella insurance is the answer. Umbrella insurance is a separate policy that will pay amounts over and above what your other policies pay. For example, in the scenario that opened this blog post, your auto insurance policy would pay the first $100,000 of your judgement and an umbrella policy would cover the remaining $300,000.

The good news is umbrella insurance policies are fairly cheap. You can get one million dollars of coverage for around $200 a year or less - that's about 55 cents per day. Now, the company issuing the policy may require you to have a certain minimum amount of coverage of your regular auto and home policies and they may also require you to have those polices with them. This means you may have to pay more for higher coverage on your basic policies in order to get an umbrella policy. Odds are though, any increase in your costs will be fairly minor and the protection you receive in exchange is significant.

You'll find most umbrella policies offer coverage in multiples of one million dollars. Even if your net worth is way less than that, it still pays to have at least one million dollars in coverage. Remember, a judgement can be entered against your future earnings. If you are relatively young, this can be a serious impediment to your financial goals for years, possibly your entire life.

Don't spend years accumulating a large nest egg only to have it wiped out in a moment. Protect your work and your assets with insurance.

We Need More Disruptions!

Maybe it's just me, but it seems like consumers only get new and exciting products when a new company creates something that completely disrupts the existing models. I've written about this before, but lately I've seen some things that reinforce both sides of my position - it is only new companies that are truly innovating and existing companies are fighting those innovations tooth and claw

First, Tesla is introducing battery packs for home energy storage. Paired with the decreasing costs of solar panels, this is truly disruptive to the electric utility industry. Consumers now have the option to use solar-generated energy when the sun isn't shining. They can completely disconnect from the municipal electric grid if they want. On the flip side, electric utility companies are starting to feel threatened by the increase in residential solar installations and are taking steps to try to slow it because it may lead to a decrease in their profits - up to 15% by some reports. Case in point - SRP, the electric company in Phoenix, has implemented a $50 per month tax on customers with solar panels. This has already been met with lawsuits from the solar industry, claiming anti-competitive practices. It will be interesting to see how this pans out. Personally, I hope the $50  month charge is dropped. I would love to get solar installed on my house and this charge effectively negates any economic benefits of going solar - which was the point, I'm sure. (Solar installations have dropped by 96% since the tax was introduced.)

The other disruption I am seeing is in the wireless industry, where Google's introduction of their cell phone plan is likely to have a similarly disruptive effect on the wireless industry. Their new, and so far only, plan lets customers pay only for the data they actually use. You have a 2 GB a month plan, but only used 1.5 GB last month? You'll get a refund for that 0.5 GB you didn't use. This is fantastic for the consumer and no other wireless carrier offers this feature. The reason they don't is that they rake in tons of money from people paying for service they don't use. I hope this will cause other phone companies to offer something similar. This case is a little different than the solar case because customers aren't locked in to a monopolistic utility company and can choose from a variety of wireless providers, so I expect to see changes ripple through the industry quicker here.

It's an exciting time to be a consumer. Newer companies are finally becoming large enough to challenge existing entrenched companies. The result will be greater innovations for all.

Discover To Let Users Freeze Their Card

Discover Card recently announced a new feature of their card where customers can "freeze" their credit card if the card is misplaced, but are not sure if it was stolen. Credit.com reports that Discover card users can use the Discover web site or mobile app to temporarily suspend their card. This will prevent any new transactions from being made in person and will also prevent any cash advances or balance transfers from being made. It will not prevent phone or internet charges, nor will it prevent any automatic payments that have been set up. This feature will only be available on Discover it cards with no annual fee.

I think this is a good idea. If you can't find your card, cancelling it and getting a new one is a pain in the butt and you can't make any new charges until you receive the new card. This feature will let people who think they might have just misplaced the card have some protection. For example, if you are on a trip and can't find your card but think you just left it in your other wallet or purse at home, you can freeze the card and look for it when the trip is over. If it was at home, you saved yourself the hassle of getting a replacement card. If it was, in fact, stolen, you've protected yourself against unauthorized charges.

The credit.com article also points out some other uses for this feature: if your spending is out of control, you can freeze it for a time, or if you need to stop an authorized user from using the card, you can do that. I'm not sure this will be as effective as they think. After all, phone and internet charges are not blocked, so if you have a spending problem, you can still use the card online to buy things.

All in all, I think this is a good feature and hope Discover rolls it out to all of their cards soon. I also hope other credit card issuers will start offering this feature. I'd like to see an option to also freeze phone and internet charges while leaving automatic payments intact, but this is a good first step.

Goal Update: End Of April 2015

At the end of each month, I post an update of my goals, including a brief discussion of any notable events that might have occurred during the month. The latest month's figures can always be found under the Featured menu in the menu bar at the top of the blog.

Last updated: End of April, 2015
Current value: $13,223
Change from last month: -$736
Percent of Goal:  12.16%

Note that the funds in this account are invested in stock, so there will be fluctuations in value that are outside my control. I never withdraw money from this account, so any dips are purely due to stock price changes.

Events Of Note Last Month:
Realty Income stock continues to pull back a bit from the 5 year highs it hit at the beginning of the year, so my overall account value shows a drop this month from March. However, I've actually contributed $323 from my online courses. I also put in $90 from a bonus I received at work and $7 from ebook royalties, in addition to my regularly budgeted weekly contributions. (I decided to re-publish my latest ebook under a pseudonym. I'm contemplating another book and I think it might be better to keep my fiction and non-fiction works separate.)

This month, I unlocked another achievement!

I now own enough shares of Realty Income that the amount I receive in dividends each month is enough to buy an additional share. Gotta like getting one free share a month!

I've also created a new page to track the achievements I've reached and when I met them. You can find it under the Featured menu at the top of the page.