When is the last time you compared rates on your home and auto insurance policies? Unfortunately, a stellar safety record doesn’t always translate into lower insurance rates. Even if you think you have a good rate, shopping around periodically is smart.
After receiving my April newsletter and attempting to follow my advice of maintaining an umbrella insurance policy, one of my readers contacted his insurer to add coverage. This reader was shocked when his insurer informed him that he didn’t qualify for an umbrella policy because he didn’t carry sufficient liability insurance on his auto policy. (Minimum auto liability insurance – frequently $500,000 – is required in order to purchase umbrella coverage.) Although this individual had owned his policy for eight years, he was unaware that the policy only provided $50,000 of liability coverage. This amount was clearly insufficient for an individual approaching retirement.
In addition to realizing that he was severely under-insured, this individual discovered he was also paying excessive premiums. For only $50,000 of auto liability coverage, this person was paying $914 per year. Moreover, the individual realized he was paying $351 per year for the $350,000 of liability coverage the individual had on his condo. Consequently, in total, this person was paying $1,265 per year for $50,000 of auto liability and $350,000 of home liability coverage.
This individual then spoke with an independent insurance agent to increase auto liability coverage to an amount that enabled him to obtain an umbrella policy. This was critical, as it dramatically decreased the individual’s liability exposure, a risk an individual with accumulated assets clearly shouldn’t have. Even better, the individual was able to obtain dramatically improved rates on his policies. For a total of $1,207 (less than he was previously paying!), the individual was able to secure $1,000,000 of auto liability coverage, $350,000 of home liability, and an additional $1,000,000 umbrella policy.
Clearly, it can be beneficial to occasionally review and compare rates on your insurance policies. People tend to believe that policies that have been owned for extended periods of time are efficiently priced, but it may be the opposite. If you haven’t verified that you are adequately insured and conducted a cost comparison recently, speak to an independent insurance agent and minimize your exposure with cost-effective policies.
How Volatile (Dangerous) Is Today’s Stock Market?
Based on conversations with clients, I’d suggest that most investors view the market of the new millennium as more volatile and fragile than it’s been in the past. New concerns that could affect a portfolio are seemingly always coming to light – think of the near-financial collapse of the U.S. economy during the last recession, the U.S. debt downgrade, the potential bailout crises in Europe and the possible devaluation of the euro, domestic unemployment concerns, and the perennial concern about the inflation/deflation of the dollar. Add to this the idea that the world has become a more unstable place and the reality that supercomputers make thousands of trades every second.
To determine the validity of these perceptions, Allan Roth analyzed the performance of the Wilshire 5000 (an index of the market value of all stocks actively traded in the United States) since 1980 in the May edition of Financial Planning Magazine. Surprisingly, Mr. Roth found that market swings of more than 30% weren’t much more common during the past 10 years than they were from 1980-2002. In fact, on a monthly basis, market swings of more than 10% actually occur less these days than in the past.
On a daily basis, the mean standard deviation of returns (a measure of volatility) over the entire 32-year period was 1.01%. In other words, during 68% of trading days, the index increased or decreased by less than 1.01%. Further, on 95% of trading days the index went up or down by no more than 2.02% (or two standard deviations). While daily standard deviation hit a record in 2008 of more than 2.5%, last year actually had lower volatility than the overall average. Consequently, while volatility hit a high in 2008, it has been at a very normal level since.
So why do investors perceive more uncertainty in today’s environment? Mr. Roth mentions a few hypotheses: