Transcript FIN 365 Business Finance

FIN 462
Private Wealth Management
Topic 12–Property Insurance
Larry Schrenk, Instructor
9:01 PM
1 of 30
Today’s Outline
• Auto Insurance
• Auto Loans
• Home Owners Insurance
• Home Equity Loans
9:01 PM
2 of 30
Auto Insurance
9:01 PM
3 of 30
Policy
• Who’s Covered
– People
– Vehicle
• Coverage
– Dollar limits
– Dates
• Policy/Binder Number
9:01 PM
4 of 30
Coverage: Liability
• Bodily Injury
– Caused by Insured Parties
– Medical and Lost Wages
– Limits
• Individual (recommended minimum $100,000)
• Total (recommended minimum $400,000)
• You are liable above limits
• Property Damage
– Recommended minimum $50,000
• State Requirements
– DC 25/50/10
9:01 PM
5 of 30
Coverage: Medical Payments
• Bodily Injury
– To Those in Insured Vehicle
– Recommended minimum $10,000
– Distinguish from Regular Health
Insurance
9:01 PM
6 of 30
Coverage: Un-/Underinsured
• Uninsured Driver
– No Insurance
– Bankrupt Insurance Company
• Underinsured Driver
– Insufficient Insurance
• Applies if You are Not at Fault
• Recommended minimum $300,000
9:01 PM
7 of 30
Coverage: Collision and
Comprehensive
• Collision
– Damage to your car when you are at fault
• Comprehensive
– Various damages to you car
• Flood, fire, theft
• Optional
– May be required by lender
• Kelley Blue Book Value Normally Maximum
• Deductable
9:01 PM
8 of 30
Auto Loans
9:01 PM
9 of 30
The Car Loan
• Consumer Loan
• Car as Collateral
• Installment Loan
• Web Resources
– Consumer Reports
– Auto Safety/Crash Tests
9:01 PM
10 of 30
Car Selections: Financial
Considerations
•
•
•
•
•
•
•
•
New or Used
Price:
Blue Book
Yahoo
Condition
Insurance
Maintenance (including gasoline)
Resale Value
Interest Rate Auto Interest Rates
Further Suggestions
9:01 PM
11 of 30
Kelley Blue Book
9:01 PM
12 of 30
Loan Features
• Down Payment
– Trade In
• Interest Rate
• Maturity
• The Monthly Payment
–
–
–
–
Money financed minus down payment, etc.
Prior loan or lease balances transferred
Sales tax
Other items, e.g., service contracts.
9:01 PM
13 of 30
Finding Financing
• Personal Savings/Investments
• Bank/Credit Union/Internet/AAA
– Car Loan
– Home Equity Loan
• Finance Company
– Dealership
• Rebate versus Below-Market Interest Rate
– Calculator (Bankrate.com)
• Pre-Approved Loan
9:01 PM
14 of 30
Lease versus Own
• Own
– Equity Value (Part of Net Worth)
• Lease
–
–
–
–
No Resale Issues, but
No ‘Terminal Value’
Extra Fees
Lower Monthly Payment
9:01 PM
15 of 30
Homeowner’s Insurance
9:01 PM
16 of 30
Coverage Types
• Coverage A–Residence
• Coverage B–Detached Structures
• Coverage C–Personal Property
• Coverage D–Added Living Costs
• Coverage E–Personal Liability
• Coverage F–Medical Payments
9:01 PM
17 of 30
Coverage A–Residence
• Repair/Replacement of Home
• Possible Causes or Loss
– Fire, Tornado, etc.
• Land not included
• Two Suggestions
– Insure for 100% of full replacement cost
– Don’t be underinsured.
9:01 PM
18 of 30
Coverage B–Detached Structures
• Generally 10% of coverage A
• Possible Applications
– Garage
– Barn
– In-Ground
• Excludes structures used for business
9:01 PM
19 of 30
Coverage C–Personal Property
• Payout Values
– ‘Cash Value Policy’–After Depreciation
– ‘Replacement Cost Policy’–Actual Cost to
Replace (in theory)
• Coverage is normally 50-75% of
coverage A.
– Do you need additional coverage?
9:01 PM
20 of 30
Coverage D–Added Living Costs
• Home Unlivable due to Covered Loss
• Additional Living Expenses
– New Costs
• Motels
• Take-Out Meals
– Less Old Costs not Incurred
• Utilities
• Possible Time Limits
– 12 Month
– Unlimited
9:01 PM
21 of 30
Coverage E–Personal Liability
• Personal Liability for injuries and property
damage you cause.
• Two Important Points
– This is general liability insurance
• Not restricted to your property
• Does not cover vehicular incidents
– Covers Lawsuits and your Defense Costs
• Usually $100,000 included.
– Do you need more?
9:01 PM
22 of 30
Coverage F–Medical Payments
• Covers a guest hurt on your property.
• Can duplicate guests own health
insurance.
9:01 PM
23 of 30
Typical ‘Causes-of-Loss’
• Included
– Fire, lightning, explosion, windstorm or hail, smoke,
aircraft or vehicle damage, riot or civil commotion,
vandalism, sprinkler leakage, sinkhole collapse, and
volcanic action
• Excluded
– Earthquake, Flood, Faulty maintenance, Damage
from insects or vermin, Wear and tear, gradual
damage or deterioration
9:01 PM
24 of 30
Other Issues
• Deductible
• Estimating Coverage
• Documentation
– Photos
•House-Interior and Exterior, Special
Features
•Personal Property
9:01 PM
25 of 30
Home Equity Loans
9:01 PM
26 of 30
The Home Equity Loan
• ‘Second Mortgage’
• ‘Home Equity Line of Credit’ (HELOC)
• Revolving Line of Credit
• Financing charges only on balance (not
total one of credit)
• Variable Interest Rate
9:01 PM
27 of 30
Equity Value and Credit Limit
• Equity value is market value minus the
remaining (first) mortgage balance
• No Liquidity
• Collateral for a home equity loan
• Credit limit: Keep both mortgages to less
than 80% of house value
9:01 PM
28 of 30
The Home Equity Loan:
Pros and Cons
• Pros
– Lower Interest Rate
• But higher than original mortgage
• Home Equity Loan Rates
– Tax Advantages
– Flexibility
• Payouts: Electronic, Checks, ATM, etc.
• Payments: Amortized, Interest Only, etc.
• Con
– You risk losing your home!
9:01 PM
29 of 30
The Home Equity Loan: Taxes
•
A home equity loan (like an original
mortgage) is not a ‘consumer loan’.
–
•
Consumer Loan: Student Loan, Credit Card Debt,
Car Loan
The interest can be deducted from federal
and state income taxes, if...
1. Under maximum ($100,000) for ‘home equity
indebtedness’
2. ‘Home equity indebtedness’ is less than fair market
value.
9:01 PM
30 of 30