Jill Kerby

THE GOOD, THE BETTER AND THE UGLY…INSURANCE POLICIES

How much do you spend – and is it worth it – for all the insurance contracts you own? 

After a few hours going through all of our policies recently  – an exercise I haven’t done for a few years – the amount was pretty substantial, about €500 a month for protection, health, home, motor, travel and even the pet insurance. 

The best value over the years, has been the life insurance and other protection policies like income and serious illness cover we have bought: all fixed terms and benefits, but properly staggered to mature at different stages as our child became less care-dependent and our incomes, savings and pension funds increased in value. The cost has been pretty reasonable for the peace of mind we’ve had. Now that he is 19, the need for high value term life insurance is gone…and we mostly have income protection cover now.

Insurance can add up to thousands, especially for families who want to keep their health insurance costs, so where can you make savings and is there such a thing as ‘bad’ insurance, policies that are nothing but a drain on your finances?

Lets start with the ‘good’ policies first:

Home/Motor Insurance isn’t just essential cover, but a legal requirement if you own a car or a mortgage (if don’t qualify for an age exemption).

One of the best ways to reduce your costs is to increase the excess you agree to pay on every claim, and, in the case of motor insurance, to always consider spending a modest extra amount to protect your no-claims bonus. 

The recent EU gender directive has pushed up motor premiums for women and reduced them slightly for young men, but one way for young women drivers to  mitigate this is to consider a new offer from www.NoNonsense.ie , FBD Insurance’s on-line company, to install ‘SmartDriver’, an in-car telematics device to measure driver behaviour. If it proves you are a safe driver, NoNonsense.ie will refund up to 30% of the cash premium. Other motor/home price websites include the likes of chill.ie, the National Consumer Agency, nca.ie and the AAIreland.ie website.

Nearly all buildings policies, meanwhile, come with a proportion of contents cover, but you need to ensure that you don’t underestimating the value of your contents as this can, and often does lead to refused or reduced claims. Always make sure you ensure the building based on its replacement cost, not its market value.

Rescue policies: Car and now home ‘rescue’ policies may not be ‘essential’ insurance contracts, but they are in our household where neither drivers know anything about cars other than how to drive them and we’re nearly as useless in dealing with house-related emergencies.  I’ve used AA Ireland too often (in some tight fixes) to ever be without their cover and the new AA Home Rescue service offers the same emergency help for your home, 24/7, 365 days of the year. 

A burst pipe will be repaired on the spot; a broken window secured until the glazier arrives. If you’ve lost your house keys in the middle of the night, they’ll get you back inside (without breaking the locks or a window) This €6.99 a month premium is not particularly expensive, but it does more than double if you include dodgy boiler events.

Private Health Insurance:  Two million people still believe that private health insurance is an ‘essential’ purchase, and for good reason: it ensures that you can jump huge public service queues for diagnostic medical consultants and treatment.

The price of health insurance (HI) keeps rising – my family’s bill has doubled since 2008 and the addition of the now-€285 (€95 per child) annual health levy certainly hasn’t helped.  This payment is subsidy for the government-owned VHI, which has a legacy of older, more expensive members and it will go up from March €350 per adult and €120 per child.

The only way to cut HI costs is to shift to a better value provider, though there are only four to choose from - Laya, Aviva, GloHealth plus the state owned VHI – or to a lower cost plan. Everyone should review their HI cover with an experienced health insurance adviser or by using the regulator’s improved website, www.hia.ie . Put aside lots of time for the latter and accept that it is nearly impossible to find a cheaper (near) equivalent corporate health plan on the site, unless you know the actual name of that plan.

Health insurance cover can now be tailor-made for each family member’s needs, reminds Dermot Goode of www.healthinsurancesavings.ie . Children, teens, mums and dads can all go onto different policies. The family breadwinner should be prioritised, but I know parents who can no longer afford private cover for themselves, still wanting their children to be covered. Insuring children independently of an adult is no longer permitted but there is nothing stopping another adult with cover to include your child; you then pay them the child’s premium.

If private health insurance is too expensive, why not at least consider a health cash plan in which one premium (from €9.50 to €55 per month) covers the entire family and pays tax-free cash benefits for treatment and hospital visits. See www.hsf.ie .

Some insurance contracts are positively bad for your wealth and health. Avoid at all costs ‘whole of life’ policies with investment values: they bomb out after a number of years and become a huge loss.  Stand-alone death by accident policies are also hugely expensive compared to a straightforward term life contract and don’t ever sign up for expensive theft and loss insurance policies at the phone shop for your new mobile or tablet device before you check your home content policy.

Finally, Payment Protection Insurance, which only covers up to 12 months of mortgage, personal loan, credit card payments is expensive, opaque, oversold and missold – the PPI scandal in Britain is expected to cost banks and insurers a whopping £13 billion in compensation.

The six month long investigation by our Central Bank into the misselling of these policies to unsuitable buyers continues but my meeting with the junior finance minister Brian Hayes regarding whether a ministerial order could change the six year statute of limitations rule for PPI complaints, has come to nothing.

Hayes never replied to me, but I am still compiling a dossier of reader’s experience as part of a wider campaign to get the six year limit from date of purchase replaced with the UK version – a three year complaints time limit that kicks in only after you discover that you may have been missold.  Please keep sending me your stories.

INFLATION RISK RISING? THEN YOU NEED AN INFLATION PLAN

Official inflation in Ireland is about 2%, allegedly. In the UK it is 2.7% and is reported to be even lower across the eurozone.

The note of scepticism is because I don’t know a single person outside the rarified environment of government who believes that the cost of living is only raising by 2% per annum, and are clearly unaware that disposable incomes are actually going down – money deflation, directly and via more taxation.

Since price inflation is always caused by too much new money chasing too few goods – there has been an expectation by many critics of the central banks who have pumped up the global money supply since 2008 (for bank and sovereign bail-outs) that there could be not just a big, but a hyper-rise of retail prices this or next year.

Retail price inflation hasn’t happened yet, but commodity prices have certainly soared – oil, agri/food, precious metals, plus government services like health, transport and education.  US and UK stock markets are sharply too (the recipients of quantitative easing(QE) and the wealth of the super rich (the 1%) has also soared since 2008.

Inflation is bad for savers and fixed incomes, but it’s a very good thing for debtors, say the policymakers, both for private individuals carrying lots of mortgage debt, for example, and especially for hugely indebted governments who are keen to repay lenders with brand new, devalued dollars/pounds/yen/euro.

Japan is the latest country to announce that its currency is too strong and needs to be debased to give a boost to their exporters and cut their massive debts. (This, of course is a subsidy that the Japanese people will pay – the stealth tax effect of inflation.)

America, Britain and most of the EU also claim that higher prices caused by inflating the money supply will ‘stimulate’ more spending and less saving. (Why hold onto money if everything just keeps getting more expensive, say the inflationistas.)

Last week I wrote that there is a body of opinion that is deeply concerned that if the inflation alchemists are let loose this time, specifically to reduce debt levels (and not just bail out the bankrupt financial industry or Greece) they could lose control. They warn that if that happens – after hundreds of billions more of new money is added to the trillions created since 2008 - the escaped inflation genie would devastate living standards and actually destroy, not create jobs.

So what should you do?

Mark Tenwick of IFG Pensions says that the primary purpose of quantitative easing is to buy time for consumers, business owners and banks to deleverage their balance sheets and work through their problems”. But that also needs a return of bank lending – a pick up in the velocity of money.  “If money velocity accelerates as quickly as it did in the late 1970s, then we are likely to see similar levels of inflation during 2013 and 2014.”

“Stocks are a good hedge against inflation,” and his company favours “emerging market and pacific basin equities [that] offer a better inflation hedge as they are closely correlated with commodities. Commodities, emerging market and pacific basin equities have rallied by several hundred percent [over the past 12 years]…and the bull market in commodities is still intact.”

Tenwick also recommends buying gold and silver, “the only currencies in the world that cannot be printed and debased. Over the next two years, we believe investors should avoid the US dollar, safe haven government bonds (US, German, UK) and the Japanese yen as these are deflationary assets and therefore ill-suited for an inflationary environment.”

In his Q1 2013 ‘Outlook’ for clients, financial advisor Eddie Hobbs wrote that he too expects more quantitative easing “on a herculean scale. The expansion of the balance sheets of the ECB, FED, BOE and BOJ is without measure anywhere in economic history and it’s pretty much fiscal expansion now or bust.”

 Hobbs says high inflationary forces haven’t been triggered so far “but that’s only because of huge output gaps depressing inflation. We expect historically low bond yields to continue but, ultimately, the fixed income bond market will sour as interest rates follow inflation, albeit delayed by central bank nervousness over strangling recoveries. That’s why we continue to emphasise global inflation-linked Government bonds protected with a Euro hedge” specifically, gold and silver that will protect “fiat currencies from too much QE and to counteract inflation.”

 Hobbs also recommends European shares for investors who want longer term growth, as well as US and Asia (ex Japan) growth funds and global natural resources funds, especially those that include precious metal, oil, gas and coal miners.

Jeff Clark is the editor of the US investment newsletters, Advanced Income and Casey’s Gold and Resources Report. He has been tracking price inflation the US since 2008, especially the cost of goods and services as priced against gold.

 Rampant inflation, says Clark, means that “nobody’s current standard of living can be maintained without an extremely effective plan for keeping up with inflation.”

 Clark warns that high inflation can happen quite suddenly and recommends that precious metals be purchased on the price dips. “This is the time to accumulate, while gold and silver prices are below their peaks. Buy a little every month and store it in a safe place. And for even better bargains, look to the undervalued stocks, which I would argue offer better protection against inflation than most other equity investments since their cash flow will climb commensurate with gold and silver prices.”

Consensus?  It would seem so: unloved shares (like Europe’s), short-term inflation-linked government bonds and precious metals.  It looks like a classic, ‘do no harm’ strategy that aims to preserve wealth, but be sure to get your own second or third opinion, ideally from a fee-based advisor. 

INFLATION IN 2013 – FRIEND OR FOE?

Once upon a time, not that long ago, the worst thing from any country’s financial perspective was too much price inflation: the higher the cost of goods and services, the more pressure workers and unions put on employers for higher wages.

Out of control price inflation in the 1970s and ‘80s (caused by too much money printing, overspending and the oil crisis) resulted eventually in the British and American governments confronting and breaking the strangling power of the unions; nationalising state industries; deregulating financial markets; lowering some taxes (and then raising them) and pushing interest rates up and up to force inefficient, bankrupt companies and industries to go bankrupt and efficient ones to take their places. 

It helped a great deal that the ending of this great period of inflation also coincided with the coming on stream of great new Alaskan and North Sea oil finds.

The impact of high price inflation eventually forces companies to keep raising their prices to meet the cost of parts and supplies and the endless rounds of wage increase demands from workers and their unions in order that their standard of living don’t collapse.

Some companies meet those demands by cost controls, then by cutting margins, then letting some workers go and eventually by closing down. This is what happened in the late 1970s and 80s here (accelerated by the huge surge in energy costs) and the state also running out of money to maintain its services.

Inflation lost its power by the late 1980s here but earlier in the US and UK and lay nearly dormant for over 20 years – mainly due to technology advances and of course, the surge of cheap new goods from countries no longer held behind their respective iron curtains. (Even India, the world’s largest democracy abandoned its mad socialist, isolationist policies and opened up trade to the world.)

When it was raging, price inflation had a terrible impact. The same amount of money in your pocket was unable to pay for the same amount of goods and services because prices kept rising.  People living on fixed incomes and their savings saw their standard of living erode very quickly, though it must be said that anyone with debt, which stayed at the same level, also saw it erode as their incomes rose. People who had fixed interest debts and kept their jobs benefited the most from those mad inflationary years.

And that’s what massively indebted governments and the central banks hope to achieve again if they can manipulate up price inflation a cheaper, quicker way to pay off their debts to hapless lenders. 

The great economic crash of 2008 exposed the historic levels of debt carried by countries, corporations and citizens. Trillions have been printed to avoid the dramatic, painful correction that would have come from widespread bankruptcy, debt writedowns and write offs.

The inflated money supply has mainly stayed with the financial sector and bankrupt sovereign countries, though the cost is now being transferred directly to taxpayers who have been hit by the collape of their wealth and the devaluation of their currencies.

Some of the money has been used by privileged insiders (like great corporations and moneybrokers) to pump up world stocks markets that the US government considers a barometer of wealth and stability, but also ‘real’ assets and commodities like oil, gas, foodstuffs, agri-land and precious metals - real money).   

What hasn’t happened sufficiently is the disappearance of debt, even though the best commentators call price inflation a hidden tax and a destroyer of savings and capital.

This year, the central bankers seem to be singing off the same hymn sheet: slowing economies and recessions usually keep prices down, but in order to reduce debt (and stimulate growth) they need to cause price inflation in the region of at least 5%. At this level, they say it will reduce the cost to debtors (and themselves) of repaying huge loans, give much needed profit boosts to producers and retailers (at least in the early stage) and incentivise companies to hire more workers. Rising prices, the theory goes, also discourage savings and encourage us to buy stuff before prices go up again.

Of course this new, virtuous circle only lasts until the price of raw materials that feed into everything start going up and workers start demanding higher wages because they can afford to buy groceries or pay the rent. It is just before this tipping point that the central banks hope a genuine recovery momentum will be in place, after which they say they will ease up on the inflation creation.

Serious economists - the people who believe that economic growth only happens when surplus earnings are saved and invested (as capital) in genuine, productive and profitable activities - don’t think ‘moderate’ inflation intentionally created by central bankers and politicians can be controlled. Instead, given these past five years of massive money creation at levels never seen before, with very poor results, they think there is a greater chance of out-of-control inflation. (They note that the US and UK, for example, are now carrying greater levels of debt than they did after the devastating cost of World War II!)

Is there anything we can do to anticipate and mitigate higher than expected inflation?

Are there things we can do to protect our savings, income or assets?  Are there ways to invest and benefit from higher price inflation?

Next week, I’ll pass on the practical inflation suggestions from experts like Jeff Clark of Casey Research,  Mark Tenwick of IFG Corporate Pensons, Bill Bonner of The Daily Reckoning, Irish commentators Mark O’Bryne of Goldcore and  Eddie Hobbs of FDM.

Better safe than sorry. 

SELLING STRATEGY NEEDED FOR BEST HOME PRICE IN 2013

A neighbour has put up his house up for sale – again.

The last time didn’t work out too well: it was 2006 when the market was at its peak, but so was his price. He waited too long to drop his price …and then ran out of buyers.

Timing any market isn’t easy, especially one in which prices are still falling (by -15% nationally and by -12% in Dublin) and bank lending is tight.

However, where we live, within Dublin’s canals has very good public transport  and amenities including a good primary school and one of the biggest employers, St James’ Hospital.

With demand for three and four bedroom family houses also strongs, (though suburban southside houses are more desirable), my neighbour might just have better luck this time selling his house.

In this still uneasy market, how do you make your home stand out and become even more desirable than any others? How do you achieve that extra financial return?

Estate agents still insist that location is the key, except during a manic property boom phase when people buy in completely unsuitable locations because they fear they will continue to be out-priced.

Assuming your house is in a ‘good’ location – in or near areas of employment, schools, public transport, shops and other local amenities and green space – the next, obvious step is to make your house more enticing, say the experts.

During the Celtic Tiger days, ‘enticing’, took on a whole different definition than the dictionary definition, with owners undertaking renovations and redecorating that included entire new bathroom suites (or the installation of ‘ensuite’ showers and loos), installation of wood floors and redesigned gardens and ‘dressed’ rooms full of rented furniture.

Today, back in the land of tight budgets and lower expectations, estate agents suggest that you return to basics and use elbow grease, imagination and a modest budget to enhance the appearance and desirability of your home. Start with the obvious:

• Repair that which is broken: missing roof tiles, windows, light fixtures, floorboards and banisters, taps, showers and toilets.
• Refurbish, that is, smarten up the front railing or gate if it’s starting to hang off the hinge. Keep the grass cut and the flower-beds …in flower. Give the front door a fresh coat of paint.  Ditto for the back garden and especially the garden shed.
• Renovate, with an eye on your budget, the kitchen and bathroom(s), the two rooms that estate agents say are key selling points in most modern home. Aside from ensuring that they are spanking clean, you should replacing old, tired cabinet doors, broken or cracked tiles, de-clutter the countertops and give the walls a fresh lick of paint. (One agent told me “If your kitchen/bathroom is very outdated – but clean and with potential - you can use that as a selling point by knocking down the price of the house – before they do.”  Leave a few kitchen/bathroom brochures around to give the new buyer some inspiration.) If rooms need repainting, do so, in neutral colours.
•  Remove and Recycle: declutter, usually excess furniture, broken or unused electronic goods, garden equipment and furniture, bric-a-brac, gadgets, toys, books, etc. Clean, open spaces enlarge any room and let potential buyers imagine their own things in that space.  If you can’t be parted with great Aunt Moira’s oversized 1930s armoire, or the four old computers sitting under the hall stairs, see if you can board them out with a friend or relative. (See www.recyclemore.ie)

Is it worth improving the energy rating of your house before you put the property up for sale now that every home has to come with its own official rating certificate? (See www.berenergyrating.ie )

“It depends,” said a local agent I spoke to after they left a note – the third - telling me how in-demand are houses in my neighbourhood.

“Victorian terraced houses like yours, without double or treble glazed windows, high ceilings, open fireplaces in every room, no concrete foundations and huge attics will cost a great deal of money to achieve a top energy rating. It can be done, but you have to decide whether it makes more sense to spend the money in the hope of achieving a top selling price in a very tight market, or to lower your price expectations and achieve a quicker sale with a buyer who is either willing to make these changes themselves…or live with higher heating bills.”

Luckily, the cost of improving the energy rating of a modern, suburban house (with existing decent windows) is considerably less, so ensuring that insulation levels are correct, water tanks and boilers are working efficiently shouldn’t cost you a fortune.

Perhaps the most important selling point (after location) for any property in this market… is its selling price.  Get that right (check out the National Price Register via www.myhome.ie/priceregister ) and all sorts of faults and shortcomings can be overlooked or re-sold as ‘opportunities’ - as a way for the new owner to put their own distinctive mark on the property when they redecorate or renovate, or as a way to negotiation a price discount.)

Everyone on our road wishes our neighbour good luck in selling his home…but he might want to relocate the for-sale sign. Or the tree that’s hiding it!

THE 12 RESOLUTIONS OF 2013 – A SURVIVOR’S GUIDE

Now that the 12 Days of Christmas are just about over (if you agree that the last day of the holiday is January 6) perhaps it’s time for the 12 Resolutions of 2013, something you can aspire towards every month of the New Year to put your personal finances into order.

This isn’t the definitive list by any means – anyone renewing health insurance should make comparing plans and providers their absolute first priority (see www.healthinsurnacesavings.ie or contact a good specialist broker).

While it would be wonderful to adopt all these good money habits and aspirations in January, spacing them out and tackling them one at a time is more doable.

January, Resolution 1: There are two resolutions: the first is to start Christmas shopping now when the best sales discounts are available. (Or put away a few euro a week for next December). The second, longer reaching resolution is to take back control of your spending: cut up or cancel, expensive, out of control credit cards or switch to zero interest ones (for 6/12 months) to reduce your balance. Arrange a direct debit to pay off the card balance every month or at least to pay a set amount. Set a weekly cash spending budget.

February, Resolution 2:  This is the month of love, so love yourself – and pay yourself – first. You can never get out of a financial hole without capital or savings. No matter how small the amount, save it: start with a jar for spare coins. Then start adding small notes. Then open a proper savings account in the credit union (from which low cost capital can be borrowed some day) or an equally safe deposit account. Eventually, you may have enough savings to start investing and ideally (and with some luck) beat the low returns/high tax/inflation hit of deposit accounts.

March, Resolution 3: Set up a local property tax (LPT) savings account. If your house is worth €200,000 your annual tax is €360, but you need to save €45 for four months to meet the half-year payment in July. From August onwards you only need to put away €30 or about €1 a day into your LPT account every month.

April, Resolution 4: April is a good time to spring clean your finances. Review your utility bills and mobile bills with the likes of www.bonkers.ie. Have you compared the different broadband/satellite TV packages? Also, Take out all your accounts, contracts and policies, including under-used gym, club and hobby memberships or subscriptions. Check out charges and costs at www.nca.ie. Do you have too much or too little life insurance? The new gender directive means that the cost of life cover for men should decrease slightly (and increase slightly for women.) A good broker can review these policies for you.

May, Resolution 5: Make sure you are properly registered for the Local Property Tax, the first payment of which falls due next month. The Revenue Commissioners, who will collect the tax, have produced a Q&A site: http://www.revenue.ie/en/tax/lpt/lpt-faqs.pdf  Details of the new Insolvency process should be available.

June, Resolution 6:  The children are finally out of school so no better time than to encourage them to become more financially independent. Take time to teach them good money habits and to find part-time jobs. You will do them a big favour by imposing a ‘family tax’ of 20% on their earnings. It’s also never too soon for teens to learn about investing, see ‘Seeds of Wealth’ by Justin Ford.

July, Resolution 7:  Take a break. Enjoy some financial off-time.

August. Resolution 8:  Back to school means big expenses. Check out big savings at second hand book offers and sites (www.schooldays.ie). The back to School Clothing and Footwear Allowance has been reduced by €50 in Budget 2013 , details at www.citizensinformation.ie. Third level students need to get applications for grants in as early as possible. Details will be posted on www.studentgrants.ie. Grandparents who want to help out financially can avoid higher capital acquisition tax can gift up to €3,000 tax-free a year.

September, Resolution 9:  Pension changes announced in the Budget (to reduce total funding) apply from January 1, 2014 but for this year, at least, top rate tax relief on contributions is available. Get your pension reviewed by a good, fee-based advisor. Students are looking for accommodation. Why not join Rent-a-Room scheme and earn up to €10,000 tax free?

October, Resolution 10:  Interested in making money from investments? Educate yourself. Check out www.GillenMarkets.ie for a one day investment course and read his book, ‘3 Steps to Investment Success. Also, Ben Graham’s ‘The Intelligent Investor’, ‘The Gone Fishin’ Portfolio’, by Alexander Green. They all advise low-cost value investing and patience.

November, Resolution 11: If you’ve spent the last month taking an investment course and read up on investing methods, techniques and pitfalls, you may be ready to set up a ‘virtual’ dealing account – see www.tddirectinvesting.ie /gettingstarted 

December, Resolution 12: Budget 2014 is scheduled to take another €2.5 billion out of the Irish economy in taxes and spending cuts. If you’ve enacted these resolutions, you should be ready for anything.