Home Safety, Article 1

Your Home in General:

Your home is probably the single largest investment that you will ever make and it only makes sense to safe guard it against the perils it can face on a daily basis. Let's start with the basics. We talked about this when we discussed Thinking Smart in Personal Safety but it's well worth repeating.

1. Review your insurance coverage.
  • If it has been a while since you've done this there's a good chance inflation has stripped your policy of some of its protection. Your home has increased in value as have your contents and any buildings that are on your property.
  • Unless you have Federal Flood Insurance, your home is probably NOT protected from flood. By the way, did you know sewer backups are generally NOT covered? Special endorsements are usually required for sewers and drains.
  • Other endorsements that might be needed are earthquake or ground subsidence (where underground mining has occurred). Jewelry, antiques, firearms, furs and other valuables also require additional endorsements for coverage. These coverages are generally NOT a part of your homeowners insurance.
Ask your insurance representative to review your coverages with you and make certain you are up to date.
  • Video the contents of your home and place the tape or disc in a safety deposit box or safe (away from your home). Make certain you record every item in every room. And don't forget to drag out that old '62 Fender Stratocaster from the closet or Aunt Hilda's family silver that you inherited. Make certain you record EVERYTHING! That way, there is no argument when it comes time to settle up.
  • Do you have enough life insurance to replace your earning power should something happen to you?
  • Do you have sufficient car insurance? That policy you took out ten years ago may not be adequate to cover today's skyrocketing medical costs.
  • Do you have an umbrella policy? This is a low cost option that extends the coverage on your home and auto. A two million dollar umbrella policy typically runs about $25.00 - $29.00 per month. Smaller increments are, of course, available.
2. Get a CLUE.

A CLUE report that is. CLUE stands for Comprehensive Loss Underwriting Campaign and it is your insurance "score".

The CLUE database is compiled by a company called Choicepoint. All the major insurance companies participate so if you file bankruptcy and suddenly find no one will insure you, it's because the information has been entered into the CLUE database. Yep, that's right. Your finances impact your insurability.

The Fair and Accurate Transaction Act (FACT Act) now requires that you have the right to review your report for free and inaccuracies must be fixed. In February, 2005, data thieves stole information from Choicepoint on more than 145,000 people. The data included names, addresses, social security numbers, etc. If you have not reviewed your free CLUE report, you can do so at: Choicepoint

You are eligible to receive one free report every twelve (12) months.

Incidently, if you are in the market for a new home, it would be a very good idea to get a CLUE report on that home before you buy it. If it has a history of claims, particularly water related, you may not be able to insure it after your purchase!

One last thing. If you have a little water damage from a small appliance leak, don't, I repeat DON'T, contact your insurance agent unless you know you will be making a claim. That information may go into the CLUE database even if you decide not to file a claim and your insurance may be dropped or you may suddenly find it difficult to sell your home because prospective buyers won't be able to get insurance. Mold is a nasty word to the insurance industry and water translates to mold.

3. Home Equity Line of Credit (HELOC):

If you have equity built up in your home, it is a good idea to establish a home equity line of credit based on the value of the equity. This provides you with an emergency supply of money, often at attractive interest rates, that can be used for virtually anything.

Some institutions will offer a line of credit up to 100% of the equity value while others offer a percentage of the equity.

For example, you own a home worth $100,000 and you have $50,000 worth of equity built up. Some institutions will offer you a line of credit based on the entire $50,000 while others might offer you a credit line based on some percentage, say 80%, of the equity amount. In this example, your line of credit would be $40,000.

If you need a large amount of money to make some emergency repair, like a new furnace, you already have credit established to pay for it. If your only alternative is high interest credit cards then an equity line of credit makes excellent sense. Think of it as "good debt" that helps you avoid "bad debt".

The HELOC market is very competitive and you will save money by shopping around for the best deal.

A Home Equity Line of Credit can be good or bad depending on how you use it. Sagetips.com points out 10 things savvy home owners should look for when considering a Home Equity Line Of Credit:
  1. No HELOC application fee or at least the fee should be refunded at closing. If your lender assesses an application fee, make sure it's refundable at closing.
  2. No home loan appraisal or closing costs - there are plenty of no-cost options available that you shouldn't have to pay a HELOC appraisal fee.
  3. No HELOC account maintenance or check-writing fees - Lenders already make money when you write checks (read - borrow) on the home equity credit line. If your lender tries this, dump him!
  4. No "usage" fees - Apparently, HELOC lenders don't approve of the notion that a homeowner may want to have a HELOC as an emergency "reserve" account. Definitely look for a lender that does not charge this type of fee.
  5. Variable APR equal to or near the prime rate (adjusted quarterly) - Interest charged on the balanced borrowed should be the only cost involved with a good home equity credit line!
  6. Periodic cap on interest rate changes (the amount that the rate can be changed at one time) - Look for a Home Equity Line of Credit that adjusts quarterly (rather than monthly) in increments of 0.5% or less.
  7. Lifetime cap on rate increases (the amount that the rate can be adjusted over the loan's life) - You'll want to find a HELOC loan with a lifetime rate cap that you can live with. Ask your loan officer to clearly spell out the "worst case" scenario for HELOC rate increases!
  8. Ability to convert to a fixed rate loan - When rates do rise, people often get skittish about their variable-rate debt. A useful feature to look for in a HELOC loan is the ability to convert the line of credit to a standard fixed-rate, fixed-term home equity loan.
  9. Interest-only payments allowed - Get this option but only use it if you need to! It's always best to pay down the principle, not just interest!
  10. Unrestricted ability to repay principal without penalty - You should be able to pay off the Home Equity Line of Credit at any time without paying extra!
4. Mortgage Loan:

Take another look at your mortgage and make sure your loan is structured right for you. As interest rates rise, so do those adjusted rate mortgage payments.

5. Homestead Exemptions:

A homestead exemption is an exemption on a person's dwelling and land that reduces the amount owed in property taxes. Many states by statute give special privileges to such lands, such as exemptions from creditors. Not all states offer homestead exemptions so check with your county tax assessor to see if you qualify. It can reduce the amount of taxes you pay on your home.

Well, there are a few things in general to think about. Again, most are no cost or low cost to implement and they could save you thousands in time. If you are ready, let's look at the outside of your home and see how we can make it more secure. Click Here.





©2007 Safe Zone LLC - Home