2nd Quarter 2021

When was the last time you checked to see if your policy for homeowners, renters or umbrella liability was updated? We tend to buy our insurance, tuck the policy away, pay the premiums annually and not think about it for years.

This can be a major risk should you need to file a claim.

Homeowners Insurance

For many people, their home may be their largest asset. It is important to determine if you have enough coverage. There are two basic types of homeowners – HO-3 and HO-5. HO-5 has the broadest coverage. Given home values in the Bay Area, it makes sense to consider this type of coverage. Each insurance company may call it something different but frequently it is referred to as comprehensive or premier form.

Homeowners insurance usually covers:

• Dwelling
• Other structures (e.g., detached garage)
• Personal property
• Additional living expenses (helps pay for temporary housing)
• Liability
• Medical payments

Each topic has its own limits.

Also, don’t forget to see if you need a rider for valuable collections (art, jewelry, etc.).

Real Estate Rental Property

If you have rental property, an ADU, or rent out a room, you need to speak with your homeowner’s insurance agent. Don’t assume your umbrella liability policy covers your rentals. The byword is CHECK with your agent. You may need to add your rental to the current policies or obtain a separate policy.

Renters Insurance

It may cover:

• Personal property/belongings
• Additional living expenses
• Liability
• Medical payments

Umbrella Liability Insurance

This insurance builds on top of your homeowners, auto or renters insurance. If you were to be sued, and the liability coverage on your homeowners policy isn’t enough, umbrella liability coverage steps in to pick up the additional money needed up to the policy limit.

We suggest, at minimum, your umbrella liability coverage equals all your assets (net worth). Your homeowners, renters or auto has to be at a certain minimum; then the umbrella coverage sits on top of it.

Example: If you are responsible for a debt due to damages from an accident for $750,000, your homeowners, auto or renters would cover the first $500,000. If you have an umbrella liability policy for say $2,000,000, it would pick up the next $250,000.

You should confirm with your insurance agent that all your coverages are in order.

While Financial Connections does not sell insurance, we’re available to discuss your current coverage. If you need us to put you in touch with insurance brokers, we can provide some referrals. This is not an endorsement of any one firm.

On June 7th we sent an email announcing the new and improved client portal. It included a video of how to use it as well as written instructions.

One of the upgrades to the new portal is allowing multiple logins. The old portal only allowed one login – usually the primary email holder. The new one permits your spouse or partner’s email to be added so either of you can view your portal, upload estate documents, etc.

If you would like to add a second person to the new portal, please let John-Paul know or give us a call. Thank you.

In recent weeks, the rise of inflation numbers has many on edge. The fundamental question – is this temporary or long lasting? The consensus is the inflation numbers are a temporary blip and not an indicator of ongoing inflation. Reasons include increased spending now that the economy is opening which in turn is creating shortage of supplies to meet the demand. The shortage is probably temporary and people will taper their buying as life settles down.

This concern then dominoes to interest rates. One of the tools the Federal Reserve (Fed) has at its disposal is to raise interest rates to slow the economy down and reduce inflation.

The Fed signaled at their most recent June meeting that it is possible they will begin to raise interest rates late 2023 – earlier than previously anticipated. The reason – the economy is bouncing back quicker than anticipated. Is the growth sustainable? That’s up for debate.

Even if interest rates rise late in 2023, they would still be at historical lows. Vanguard predicts that by 2030, interest rates will be:

June began with approximately $4.6 trillion in money market funds. Investors are worried that the stock market is high and interest rates are low so why buy bonds?

Let’s think about that for a minute. Cash pays nothing. In May 2021, the annualized rate of inflation was 5%. What is the impact to your cash were this rate to continue as an actual inflation rate for a year? $100 would lose $5 or 5% of its purchasing power to $95. Inflation is the loss of purchasing power.

So, from our perspective, holding cash makes sense if you are saving for such items as buying a house, a vacation, an emergency fund (six to nine months of expenses), etc. Beyond this type of savings, investing the money to keep ahead of inflation and hopefully earn growth over time seems a better option.

We have had questions about investing in this environment. For new clients or those adding cash to be invested, there is a choice of investing all at once, or over time (dollar cost averaging). This is part of a discussion on what to do with money being deposited. Please let us know if you have questions.

There is a lot of mental energy being spent on predicting what changes that occurred during the pandemic will continue post-pandemic. Below are some thoughts.

• Digital payments – there was a 66% increase from 2019 to 2020. They anticipate this trend will continue.
• Online appointments – before the pandemic this method was rarely used. That changed last year. Mayo Clinic reported their video appointments increased 2,000%. Anecdotal observation from Jill’s perspective – most of her appointments are being offered remotely.
• Streaming – many companies are releasing their movies to the movie theaters but simultaneously streaming.
• Working out from home – a lot of money was spent on exercise equipment and workout videos in 2020. It is possible remaining home to workout instead of returning to the gym will continue.
• Working remotely – it may be premature to know but many employers are allowing a hybrid of working remotely and returning to the office.
• Ordering online instead of in-store   shopping – 80% of people bought groceries online in 2020 compared to 40% pre-pandemic. It is anticipated this trend will continue.
• Business conferences – last year they were all remote. Our staff enjoyed attending the remote financial planning conferences. Since we didn’t incur travel expenses, more of us could participate. Some conferences are going back to in-person but others are creating a hybrid model.
• Business Travel – it is questionable whether or not business travelers will fly the skies as much as they did pre-pandemic. The betting is they will not which will be a blow to airline profitability.

It will be interesting to revisit this topic next year to see what stuck from the pandemic and what did not. In the meantime, it is great to be out and about.