Friday, 25 April 2014

Life Insurance and the 831(b) Captive Insurance Company - Wait For The Test Case Before Signing Up

Dyman Associates Insurance Group of Companies

There is an old saying about life insurance: “Life insurance isn’t bought, it is sold.” The public doesn’t exactly clamor to buy life insurance, and if you don’t believe me then just try to find a life insurance store at pretty much any major retail mall. Instead, life insurance agent and financial planners (and increasingly accountants and attorneys) look for suitable prospects and opportunities to sell life insurance to those with a perceived need.

There is no doubt that while the public doesn’t really think much about buying life insurance, they have a need for it. Life insurance serves the purpose of funding the family’s continuation at death, and prevents the financial shock from the loss of the family’s main provider.

Life insurance is also sold as a tax shelter of sorts. Because the investment growth on the cash value of a life insurance policy is not taxed, and in fact may never be taxed, life insurance can sometimes be a very efficient investment. (And sometimes not — eventually, the cost of insurance which increases dramatically with age can significantly eat away at investment returns, and more often than not the investment returns somehow never quite match the pollyannaish predictions of the illustrations shown to prospective buyers — those illustrations with unrealistic financial projections being known in the industry as “liar ledgers”).

The problem with life insurance as a tax shelter is that typically it must be purchased with post-tax dollars. Historical attempts by creative attorneys and financial advisers to manipulate various tax-free strategies to encompass a life insurance policy have nearly all ended in disaster: VEBAs, 412(i) plans, and 419A(f)(6) plans all ended with the taxpayers often paying more tax in the end than if they had done nothing in the first place, and lawsuits against advisers for professional negligence nearly hit the epidemic point.

For somewhat obvious reasons, the IRS has typically gone after arrangements that were pitched to clients that they could purchase a large amount of life insurance with pre-tax dollars like a heat-seeking missile. Yet, advisers persist in trying to wed life insurance to things that it shouldn’t be hitched to, so as to obtain the result of a pre-tax purchase of life insurance — and big commissions to the advisers, who if in good with their insurance company, might make upwards of 40% of the first-year’s premiums paid in on a Universal Life policy, and upwards of 80% on a Whole Life policy (they almost never disclose these commissions to their clients, of course).

The latest attempt to wed life insurance to something that will result in a pre-tax purchase of life insurance is that involving smallish captive insurance companies. These companies make the 831(b) election so that they are not taxed on their premium income, with the result that the underlying company can quite lawfully pay some reasonable amount of premiums to the captive and take a current-year deduction for it, but the captive does not pick up the premiums received as income.

From a tax standpoint, the benefits of an 831(b) captive are not that great — most of the money should be used to pay claims if the actuarial calculations of the premiums are anything like close, and then the balance of the money is subject to capital gains taxes when the company is liquidated. In the meantime, an 831(b) captive is not allowed to deduct all, or even most, of its operating costs.

Plus — and here is where life insurance re-enters the picture — an 831(b) captive is internally taxed annually on its investment income, which further eats into the tax efficiency of the captive. But what if the captive could purchase life insurance — which grows tax-free — and thus avoid the tax on its investment income? Welcome to the life insurance tax shelter du jour.

There are now tax shelter promoters out there (many of them the same ones who sold VEBAs, 412(i), and 419A(f)(6) plans in past years) actively marketing and selling 831(b) companies as a conduit to purchase life insurance with pre-tax dollars. Sometimes they try to disguise the transaction by having the captive do a split-dollar transfer to a trust that buys the life insurance, or having the captive invest in a preferred share of an LLC that buys the life insurance. This is just putting lipstick on the pig. Others just tell their clients to purchase life insurance directly inside the captive.

The truth is that it is probably fine for a mature captive, meaning one that has been around for some years and has large reserves and surplus, to use a small amount of its investable assets to purchase a key-man policy, or maybe invest in life settlements or the like.

But this is not how the 831(b) captives are being sold; instead, clients are being shown illustrations where the life insurance is being purchased soon after the first premiums are paid to the captive (the advisers want their commissions now, not later), and the efficiency of the captive is being measured not in its effectiveness as a risk-management tool (it’s proper purpose) but rather as an investment and estate planning tool (the improper tax shelter purpose).

In reviewing these transactions, the presence of the 831(b) captive is simply a sham. Premiums in these deals are rarely calculated based on anything like real-world risks, but the promoters are making a determination of how big of a deduction the client wants, and then “backing in” the premium amounts with the help of actuaries who will testify that a $500,000 premium for $2 million worth of terrorism insurance for a business in Lenexa, Kansas, is reasonable, and, oh, also that the world is flat, water is dry, hot is cold, and the sun comes up in the West.

This issue came up at the Spring Meeting of the Business Law Section of the American Bar Association, where the Committee on Captive Insurance Companies (of which I am the outgoing Chair), had a panel presentation on Tax & Regulatory Issues With Captive Insurance Companies. [The opinions expressed herein are my own opinions, and are not anything like the opinions of the ABA or the Committee.]

The panel featured Prof. Beckett Cantley of John Marshal Law School in Atlanta, who discussed the fact that the IRS is taking a hard look at 831(b) captives that have purchased life insurance, and seem to be following their exact same avenues of attack that finally took down abusive VEBAs, 412(i), 419A(f)(6), and other abusive plans that offered pre-tax life insurance. Namely, the IRS is now conducting various promoter audits to obtain the client lists of the insurance managers whose 831(b) captives are involved with life insurance, as a possible predicate to making the purchase of life insurance within a captive a “listed transaction”, i.e., a presumed tax shelter that carries onerous reporting requirements and possibly very significant penalties.
Professor Cantley also spoke at some length about the technical issues about why the IRS would be absolutely right in taking down 831(b) companies with significant amounts of life insurance, but instead of me paraphrasing him, it is probably better to just read his excellent article on the subject: Cantley, Beckett G., Repeat as Necessary: Historical IRS Policy Weapons to Combat Conduit Captive Insurance Company Deductible Purchases of Life Insurance (February 2013). U. C. Davis Business Law Journal, Vol. 13, 2013. Available at SSRN:

And Professor Cantley is nothing like the only voice in the wilderness on this issue: Various other prominent captive tax attorneys have indicated that having an 831(b) captive be structured to invest significant assets in a life insurance policy is probably a pretty bad idea, and off-the-record statements from IRS and Treasury officials (not to mention the ongoing promoter audits) show that this is an area of intense interest, if not concern.

As well it should be. By identifying 831(b) companies that have purchased significant amounts of life insurance, whether directly or through split-dollar arrangements, etc., the IRS can more readily identify
 en masse captive arrangements that are technically defective insofar as they cover risk that barely exist and have premium amounts for certain policies that are not even in the time zone as reality. The potential return of unpaid taxes to the IRS would be tremendous, and such would be very cost-effective.

While there are many highly-credentialed and experienced experts in taxation that warn against an 831(b) being used as a conduit to purchase life insurance, there is pretty much nobody outside those selling the strategy who think that it is anything like a good idea. Those who do sell 831(b) captives bundled with life insurance are energetic, if not virulent, in their defense of the strategy, but that nobody else has signed on to the idea is by itself a great big bright waiving red flag.

Maybe time will prove them to be right, and the rest of us to be wrong. But who wants to be the test case and face the potentially massive penalties if this strategy crashes?

This is not to suggest that captives that have made the 831(b) election are inherently bad, or that the IRS is looking at such captives in isolation. There is no evidence of that, and in fact the vast bulk of 831(b) captives, not involved with life insurance, will qualify as valid captive arrangements. Nobody expects anything like a general pogrom against 831(b) captives anytime soon, and the IRS itself has not indicated any interest in that (as stated above, the tax benefits of 831(b) captives aren’t exactly earth-shattering when they are used as they are meant to be used as true risk-management vehicles).

At the very least, one should take a “wait and see” position in regard to this strategy, keeping in mind that not just a few highly experienced tax professionals are waiting to see it crash and burn, just like the VEBAs, 412(i) and 419A(f)(6) plans before it.

Tuesday, 22 April 2014

Discount Motorcycle Insurance Reveals Cost-Saving Tips to Help Riders Get the Best 2014 Insurance Quotes Online

Dyman Associates Insurance Group of Companies

Discount Motorcycle Insurance makes it easy to find low-cost coverage from major companies, but there are many tips riders can use to save even more.

Dallas, TX -- (SBWIRE) -- 04/17/2014 -- Providing access to major insurance companiesDiscount Motorcycle Insurance not only helps riders find lower cost coverage; it provides many tips for saving. Shopping around is one helpful strategy. The website provides a simple way for riders to do this. Also, as safety is one of the top priorities for motorcycle riders, it is also the focus of discounts by many insurance companies. In fact, some offer safe driver discounts for riders with no violations or accidents considered to be their fault.

Riders can also complete safety courses, install safety equipment such as anti-lock brakes or electronic alarms, or simply be more financially responsible. Insurers often look at credit scores and bill paying habits. These have correlated with safety records, so the system is set up such that if one pays their bills on time, their insurance rate may be lower.

Another good idea is to decide on the coverage needed. Premium costs can be reduced by raising the deductible, because the insured is willing to pay more for claims. Adding coverage for extras such as chrome accessories or sidecars can also lead to savings. Other strategies for saving are to exclude a rider with a poor record, leave out guest passenger liability, and to decrease coverage on older bikes. Also ask for discounts the insurer may provide, especially if it’s an older bike or it is not driven that often.

The style of bike is important. High risk models such as sport motorcycles are often charged higher premiums. Riders should therefore factor this in when deciding on the type of motorcycle they want to ride. It’s also smart to check driving records, as erroneous violations sometimes appear; these can actually result in paying a higher rate.

Sometimes being loyal to one particular insurance company will result in renewal discounts and price breaks. This is a benefit of the competitiveness in the insurance industry. There are many factors to consider when shopping around for motorcycle insurance. Also, check rates on 
Discount Motorcycle Insurance which is available 24/7 to help riders save.

About is an online resource based in Viera, Florida that provides low-cost motorcycle insurance quotes. Founded by Rick Murray the site has been in operation for 15 years.

Monday, 21 April 2014

Personal finance tips: When to skimp on insurance, and more

Three top pieces of financial advice — from the consolidation conundrum to counting expenses like calories

Insurance You Don't Need

Sometimes it makes sense to skimp on insurance, said Aaron Crowe at Daily Finance. "You could almost insure every step you take in life," but that doesn't mean you should. Getting life or health insurance is a no-brainer. But in other cases, it might make more sense to start an emergency fund instead. Buying rental car insurance from the rental agency is often redundant — and expensive — since your credit card or auto insurance may cover you anyway. And speaking of cars, if you're all paid up on an old car, skip the collision insurance. "If a car is totaled in an accident, insurers only pay the current value of the vehicle." If your old clunker isn't worth much, "you're better off putting that collision premium in a fund to help you buy a new car when you need one."

The Consolidation Conundrum

Debt consolidation loans can be a catch-22, said Gerri Detweiler at They're a helpful "lifeline" for people with bad credit, but you need good credit to get one. Lenders typically factor in how much of your available credit you use, your debt-to-income ratio, and your payment history before approval. The first step toward improving your odds is to evaluate your credit reports "to see where you stand.” Once in the market, avoid products like payday loans, which carry high interest rates, and home equity loans, which may not be helpful if your equity in the home is low. Personal loans are a good bet, but "just make sure you are dealing with a reputable company." And if all else fails, consider signing on with a credit-counseling agency. "You'll only have to make one payment a month to the counseling agency, which in turn will pay all your participating creditors."

Count Expenses Like Calories

Are you making a basic budgeting blunder? asked Hank Coleman at Daily Finance. Believe it or not, even the most diligent bookkeepers can fail to track all their expenses. And one of the trickiest things to monitor is cash, which "has a way of leaking out of your pocket. You don't remember where it went, and it's easy to toss or misplace receipts." The best way to keep your spending in line is to count expenses like you would calories. That means writing every transaction down in a notebook or on a spreadsheet. Once you've mastered the habit and gathered enough data, "analyzing several months of bank statements will show you where your money is going."

Friday, 18 April 2014

Dyman Associates Insurance Group of Companies: 8 Car Insurance Myths You Should Send to the Junkyard

From the old fiction about red cars costing more to insure, to the one about rates dropping when you turn 25, to the idea that "full coverage" means you get a new car after a crash, myths about car insurance abound. And they're easy enough to take at face value -- until you look at the facts. Not falling for these eight insurance fables could save you some cash.

1. "Full coverage" will get me a new car if I crash. Your auto repair shop may thank you for having collision and comprehensive coverage, because they'll get paid by your insurer for fixing your car. But however you define "full" coverage, it won't equate to you getting a new car after you crash. Insurance is meant to put you back to where you were, not improve upon it, so you won't be getting a better car than you had.

If your car insurance agent tells you that you have "full coverage", ask what that entails. It could include liability, property damage and rental reimbursement, says Shane Fischer, an attorney in Winter Park, Fla. "Unfortunately, most people who claim to have 'full coverage' are people of modest incomes who buy the cheapest policy their state legally allows," he says. "This can leave them without uninsured motorist coverage if they're a victim of a hit and run, without a rental car if theirs is damaged in a crash or personally responsible for thousands in medical bills if they don't have enough liability coverage."

Full coverage isn't an insurance term agents use, says Adam Lyons, CEO of The Zebra, a digital auto insurance agency. Collision insurance covers damage to your vehicle in an accident. Comprehensive covers non-accident damage, such as from theft and fire. If you want medical coverage and other protections, you'll have to spell that out for your agent, Lyons says.

2. My rates will go up if I get a traffic ticket. Not always, says Matthew Neely, owner of Eco Insurance Group in Las Vegas. A client who has six speeding tickets in the past three years hasn't had his rate go up, he notes.

Here's how it works, Neely says: Some companies only ask for a record of an applicant's driving history when he or she first sign up for a policy. Motor Vehicle Reports cost $3 to $28, depending on the state. "These charges can get very expensive for insurance companies, so a lot of the time the carrier will randomly select households and run the MVRs," he says. "If you are lucky enough, the insurance company will not find out about your speeding habit. However, if you let your insurance lapse, get into an accident or change insurance carriers, the carrier will run the MVR."

3. Thieves prefer new or fancy cars. Not true, points out Lyons. Of the 10 most frequently stolen cars, the most stolen in 2012 was the 1996 Honda Accord, according to the National Insurance Crime Bureau. You might have the latest and fanciest car, but a 1996 Accord is preferable for catalytic converters and other parts that are more in demand. To protect your car against theft, get comprehensive insurance.

4. My red car will cost more to insure. False. Insurers don't care what color your car is and they don't ask for that information. Police might spot a speeding red car quicker than a white one, but an insurer factors in other aspects of your car, such as model, make, year and engine size.

5. The longer you are with an insurance company, the lower your rate will be. This is half true, Neely says. Longevity discounts are sometimes offered to policyholders, but it doesn't shelter them from increased costs, he says. "Most of the time, the moment you make a claim, this discount will disappear, and it does not guarantee your rate will not increase," Neely says.

6. My credit score has nothing to do with my car insurance rate. In most cases it's the biggest factor of determine your rate, right after your driving record, Neely says. Studies have shown that individuals with good credit get in fewer accidents, he says, though insurers in California, Hawaii and Massachusetts can's use credit as a rating factor.

7. No fault means I am not at fault. In most states "no fault" simply means that each insurance company involved pays for their respective policyholders injury-related bills, regardless of who is at fault, Neely says. This helps keep the overall cost of car insurance down.

8. Rates drop at age 25. Rating factors vary by state, but in North Carolina, the myth is wrong because age isn't a factor in pricing, says Jonathan Peele, president of Coastline Insurance Associates of North Carolina. Instead, insurers use the years of experience to determine the rate. Once the driver has more than three years of driving experience, the insurer can't surcharge the premium, he says. Less experienced drivers are charged more for car insurance because they have a higher risk.

Thursday, 17 April 2014

Dyman Associates Insurance Group of Companies: The least expensive 2014 cars to insure

If you want to save money on auto insurance, spring for an SUV or minivan.'s annual ranking of the vehicles with the best car insurance rates is dominated by non-sedans.

A few years ago, minivans held a good grip on our "least expensive to insure" rankings. But small and mid-size SUVs have been increasingly grabbing ranking spots. This year, minivans account for just five of the top 20 places.

And Jeep grabs a remarkable seven of the 20 "least expensive to insure" spots.

The advantages that propelled the minivans to the best spots are now being seen with SUVs: Family-friendly vehicles used mainly for safely ferrying kids around to Scout meetings and soccer matches. The parent driving the kids is among the least likely to speed, crash or have a claim.

And good rates always boil down to claims: When drivers of a certain vehicle submit fewer claims and/or less expensive claims, all owners that vehicle benefit with better car insurance rates.

That brings us to the Jeep Wrangler, Patriot, Compass and Grand Cherokee. Their good insurance rates hinge on Jeep owners.

While Jeeps exude an "adventurous spirit," they're usually not used for reckless abandon.

Least expensive 2014 cars to insure

1.         Jeep Wrangler Sport                                     $1,080
2.         Honda Odyssey LX                                        $1,103
3.         Jeep Patriot Sport                                         $1,104
4.         Honda CR-V LX                                              $1,115
5.         Jeep Compass Sport                                      $1,140
6.         Chrysler Town & Country Touring             $1,140
7.         Subaru Outback 2.5i                                     $1,144
8.         Dodge Journey SE                                         $1,149
9.         Honda Odyssey EX                                        $1,149
10.       Dodge Grand Caravan SE                             $1,158

According to Karl Brauer, senior analyst for Irvine, Calif.-based Kelley Blue Book, owners of Jeeps tend to be single or married women under age 45, who display prudent driving behavior.

"While there is an 'adventuresome' image to the Jeep brand, for every Wrangler that does serious off-roading, there are dozens of Wranglers and Grand Cherokees and Compasses -- and CR-Vs, Siennas and Traverses -- that are used to carefully haul kids around suburbia at sub-50-mph speeds most of the time," he says. "This demographic and these driving conditions don't cause a lot of accidents, thankfully."

While advertising may show Jeeps on craggy rocks, it's not unusual for Jeeps to never go off-roading.

Mark Takahashi, auto editor for in Santa Monica, Calif., agrees that most Jeeps are regarded as family vehicles. "If you're driving your family around, you will drive more carefully, and not take chances, because you have a vested interest in being a careful driver," he says.

Jeep Wranglers in particular are very economical to repair, which helps keep insurance rates down. If you get a dent in your door, the body shop can easily remove the door.

"It's usually bolted rather than welded together. Look at the doors of a Jeep Wrangler to this day, and they're removable, just like the old Army Jeeps," says Takahashi.

Riding high

Joe Wiesenfelder, executive editor of Chicago-based, agrees Jeep's victory on the "least expensive to insure" rankings is a reflection of both how safely Jeep owners drive their vehicles and the cost of repair and replacement of Jeeps.

"You'd certainly be able to theorize that the owners of any one on this list are less likely to have collisions, and that the vehicles are less likely to be stolen. If they're low-volume cars, that suggests less of a replacement part market" for stolen parts.

Jeeps and SUVs also likely have an advantage because of their height. "They are higher-riding than the average car," Wiesenfelder says. "So if they are in a collision with an average car, that car will have greater damage than the Jeep."

Methodology commissioned Quadrant Information Services to provide average auto insurance rates for 2014 models. Averages were calculated using data from six large carriers (Allstate, Farmers, GEICO, Nationwide, Progressive and State Farm) in 10 ZIP codes per state. Not all models were available, especially exotic cars. More than 850 models are included in the 2014 study.

Averages are based on full coverage for a single 40-year-old male who commutes 12 miles to work each day, with policy limits of 100/300/50 ($100,000 for injury liability for one person, $300,000 for all injuries and $50,000 for property damage in an accident) and a $500 deductible on collision and comprehensive coverage. This hypothetical driver has a clean record and good credit. The rate includes uninsured motorist coverage. Average rates are for comparative purposes. Your own rate will depend on personal factors.

Wednesday, 16 April 2014

Some auto-insurance basics you should know, Dyman Associates Insurance Group of Companies

Automobile insurance is a gamble and is based on risk. We pay for it, but we rarely experience its benefits firsthand. Sometimes we feel it's a waste of money. But accidents happen and when they do, your auto insurance will protect you and your finances. How much it protects you depends on your combination of options and amount of coverage.

Third-party liability bodily injury: This should be given the greatest of importance. This will help insure you for another party's medical expenses caused by an accident that was your fault. This does not cover your car or other property damaged in the accident.

Property damage liability: This protects you if your car damages someone else's property.

Uninsured motorist coverage: This covers bodily injury to you if you are injured in an accident by someone who is not insured and at fault.

Collision coverage: This pays for the damage sustained by your car when you collide with another car or other object like a tree, fence or a post.

Comprehensive coverage: This covers the damage to your car that is not covered in the collision coverage. This could include vandalism, theft, falling objects, glass breakage, fire, animal damage. Most auto insurers on Guam offer typhoon coverage as an option.

Medical payment coverage: Covers medical bill costs associated with the accident for you and passengers in your vehicle.

Rental reimbursement coverage: Pays for a rental car if your vehicle has to be fixed. This option usually has a rate per day and maximum amount.

Emergency roadside service coverage: Usually this is offered free in an automobile policy. This may also cover lockout, fuel delivery and flat-tire change services.

Towing: The annual cost of towing coverage is minimal and well worth it. Towing coverage applies to mechanical failure ONLY and not in the event of an accident. I recommend using the towing companies listed on the back of the insurance card your insurance company provides you and not the first tow truck that shows up on the scene.

Deductible, premium
When choosing a plan that is right for you, think about the cost. In general, with the exception of classic autos, older cars need less collision or comprehensive coverage than a newer one would.

A deductible is the amount you pay before the insurance company pays.

Deductibles are inversely related to premium.

The lower the deductible the higher the premium and vice versa.

If your deductible is $500 and you get into an accident that costs $1,500 to fix your car, you will pay the $500 and the insurance company will pay the remaining $1,000.

Your premium is how much you pay to have the insurance company to insure you. Most insurance companies offer terms to pay your premium. Some offer monthly or quarterly payment plans.

Deciding how much you are willing and able to pay for your premium will help determine your deductible.

Monday, 14 April 2014

Dyman Associates Insurance Group of Companies: 5 Features That Can Spike Your Home Insurance Costs

When shopping for a new home, some of the same features that lure you in could end up costing you extra in insurance premiums.


If you’re like the many buyers who wait until after going into contract to get insurance quotes on a property, you could be faced with some serious sticker shock. Check out these five seemingly desirable home features that might end up costing you more than you realize in the long run:

1. Swimming pools

Because of both the high rate of drowning and the severity of water-related injuries, insurance companies consider swimming pools one of their biggest liabilities. Consider the possibility of a neighborhood kid accidentally falling into your pool and sustaining an injury. You could be held liable for the high cost of their hospital bills, and if they choose to sue, you could also rack up considerable lawyer fees and other court expenses.

Most standard homeowners insurance policies include a minimum liability coverage limit of $100,000 in order to help protect you financially in the event of such a lawsuit. However, if your home includes a swimming pool, the Insurance Information Institute recommends increasing your limit to at least $300,000 or even investing in an umbrella policy to increase your liability coverage.

Your insurer will also likely require you to build and maintain a self-locking fence around the pool to keep others – especially children – out. Additionally, if the pool itself is expensive, you may need to increase coverage limits on your policy in the event it’s damaged by a storm or other covered peril.

2. Trampolines

Nearly 100,000 trampoline-related incidents are reported every year, according to a survey by the US Consumer Product Safety Commission’s National Electronic Injury Surveillance System. While the kids may love it, a new trampoline almost certainly won’t play well with your insurance company. Depending on your state and your specific carrier, trampoline-related claims may be excluded from your policy. That means if someone is injured on a trampoline on your property and decides to sue, you might be paying the legal costs out of your own pocket.

Even if there are no specific exclusions from your carrier or in your state, it’s still important to notify your agent any time you introduce a “high-risk” item – such as a trampoline, tree house or a swimming pool – to your property to make sure you’ll be properly covered in the event of an accident.

3. Water view

The value of a waterfront property can be substantially higher than comparable inland properties, whether you live by an ocean, lake, river or some other body of water. However, a beautiful water view often comes with a higher risk for flooding and therefore more extensive insurance coverage.

Although most standard homeowners and renters insurance policies include coverage against water damage, they exclude any damage resulting from flood/rising water. For that reason, most residents who live in high-risk flood zones with a water view typically need to invest in separate flood policies in order to protect their properties from the elements. If you have a mortgage on your home, a flood insurance policy will likely be required by your lender. You can check the flood risk of any property by visiting the official site of the National Flood Insurance Program.

4. Vintage charm

Some older homes have maintained original features for decades or even longer, and discovering a well-preserved historical property can be a real estate dream come true. Unfortunately, if key features such as the home’s plumbing system, electrical system or the roof haven’t been updated since poodle skirts were in style, it’s likely an insurance nightmare.

If your electrical system hasn’t been updated in more than 10 years, it’s more likely to malfunction and contribute to a damaging fire than one that’s brand new. Similarly, out-of-date plumbing systems could lead to devastating water damage and an older roof is more susceptible to storm damage and other costly damages. With the combined average cost of claims topping $40,000 for these perils, according to the Insurance Information Institute, it’s not surprising insurance carriers charge more to insure these properties.

5. Square footage

Bigger is not always better. The larger your home, the more it will likely cost to replace if it’s ever damaged or destroyed in a covered peril. That means you’ll require a higher amount of dwelling coverage, which is the coverage provided under your homeowners policy to rebuild the structural elements of your home in the event of a claim.

To get a rough idea of how much dwelling coverage you’d need to completely rebuild your home from the ground up after a total loss, insurance companies multiply the total square footage of the property by local construction costs. Keep in mind, building with more expensive construction materials will impact your coverage needs, so upgrades such as granite countertops also should be reported to your insurance company.

Of course, none of this should dissuade you from buying a waterfront home or installing a swimming pool. Just be sure you enter into the home buying experience with some knowledge about which types of homes carry higher risk — and therefore larger insurance price tags — than others.

Sunday, 13 April 2014

Dyman Associates Insurance Group of Companies: Better Insurance Against Inequality

Paying taxes is rarely pleasant, but as April 15 approaches it’s worth remembering that our tax system is a progressive one and serves a little-noticed but crucial purpose: It mitigates some of the worst consequences of income inequality.

If any of us, as individuals, are unfortunate enough to have income drop significantly, the tax on that income will plummet as well — and a direct payment, or negative tax, might even be received from the government, thanks to the earned-income tax credit. In this way, the tax system can be viewed as a colossal insurance system, guarding against extreme income inequality. There are similar provisions in other countries.

But it’s also clear that while income inequality would be much worse without our current tax system, what we have isn’t nearly enough. It’s time — past time, actually — to tweak the system so that it can respond effectively if income inequality becomes more extreme.

I made this argument in 2003 in my book “The New Financial Order” (Princeton University Press). And now there is substantial evidence that inequality has been rising rapidly. In his monumental new book, “Capital in the 21st Century” (Belknap Press), Thomas Piketty of the Paris School of Economics documents a sharp increase in such inequality over the last 25 years, not only in the United States, but also in Canada, Britain, Australia, New Zealand, China, India, Indonesia and South Africa, with people with the highest incomes far outstripping the rest of society.  The book is impressive in its wealth of information but it is short on solutions.

Professor Piketty talks about instituting a “global tax on capital” but acknowledges that it is a utopian idea and says that “it is hard to imagine the nations of the world agreeing on any such thing anytime soon.” He talks about raising the rate of the top tax brackets and raising inheritance taxes but sees “little reason for optimism” that this will happen. There have been big increases in taxes on the rich in the past, but he points out that these tax increases were put in place only in response to wars — specifically, World War I and World War II.

Let’s try not to have another major war. Instead, there are some positive things we can do now. As I said in my 2003 book, it would be wise to start amending the tax system immediately. I suggested this fundamental reform: Taxes should be indexed to income inequality so that they automatically become more progressive — meaning that the marginal tax rate for the highest-income people will rise — if income inequality becomes much worse. Ian Ayres of Yale and Aaron Edlin of the University of California, Berkeley, made a similar argument in 2011 in The New York Times.

There is a practical reason for starting now. If we wait until income inequality is much more severe, we will have a whole class of new superrich who will probably feel entitled to their wealth and will have the means to defend their interest. That’s already gone far enough. We shouldn’t let it become more extreme.

There is also a theoretical reason. It is what the psychologists Yaacov Trope of New York University and Nira Liberman of Tel Aviv University called temporal construal theory. They showed that people are more idealistic and generous when dealing hypothetically with the distant future than they are about actions they need to take today. That’s why it pays to ask people to decide on measures to uphold egalitarian ideals when they don’t have to cough up the money immediately.

In a draft research paper in 2006, Leonard Burman, director of the Urban-Brookings Tax Policy Center; Jeffrey Rohaly, also of the policy center, and I analyzed a kind of inequality-indexed tax system. (We called it the “Rising-Tide Tax System.”) With the benefit of hindsight, we came up with a system that could have been put in place in 1979 — when inequality was much milder in the United States — and that could have prevented any increase in after-tax inequality through 2006.

Though our proposal worked in theory, we found that putting it into effect would encounter difficulties. For the system to be effective, the top tax bracket would have had to rise to well over 75 percent — a political nonstarter, in our view. We also believed that there would have been negative economic effects, including more tax avoidance. So we concluded that the proposal wasn’t ready for advocacy. We held off from finishing and publishing that paper.

Today, though, there are some possibilities that might alleviate, at least partially, any increasing inequality in future years.

In testimony before the Senate Finance Committee last month, Mr. Burman proposed a version of inequality indexing that might be politically acceptable today. His idea was to integrate inequality indexing with inflation indexing: Instead of just linking tax brackets to inflation as measured by the Consumer Price Index, as we have done for years, he proposed that the adjustments also take account of rising inequality, if it occurred. He proposed a system to offset the loss in tax revenue that inflation indexing would produce, in a way that would get us closer to a target distribution of after-tax income; if inequality worsened, higher tax brackets would bear a bit more of the burden, and people at the bottom would bear less.

A relatively minor change like this should be politically acceptable. It is a reframing of inflation indexing, which is already a sacrosanct principle, and would be revenue-neutral. By 2025, Mr. Burman argued, it could pay for a doubling of the earned-income tax credit, “with more than $100 billion left over to adjust middle-income tax liabilities.”

Such a plan would be a nice first step toward making our tax system manage the risk of future increases in inequality.

Thursday, 10 April 2014

Dyman Associates Group of Companies, First-time buyers should heed these tips

For people with good jobs and strong credit, today’s real estate market is an attractive one – with low mortgage interest rates and continued affordability. However, some buyers, especially first-time ones, are struggling to enter the market and don’t always find the home buying process easy.

According to the National Association of Realtors, first-time buyers accounted for 26 percent of home purchases in January. This is down from 27 percent in December and 30 percent a year ago, making it the lowest level for first-time buyers since October 2008. Normally, this group is closer to 40 percent.

Traditionally, first-time buyers are instrumental in housing recoveries because they help existing homeowners sell and make a trade up to a larger home. Factors, like tight credit, limited inventory, and higher mortgage interest rates, are making it difficult for these buyers to purchase a home in today’s market. An NAR survey showed that of the first-time buyers who said it was difficult to save for a down payment, 54 percent said student loans were the culprit.

When we look at the eastern half of Cuyahoga County, there are some noticeable trends. Though home values on the east side tend to be slightly lower than the county-wide average, we have seen around 3.2 percent growth in estimated home values across the county, though this could vary with a formal appraisal. It is important to note that the highly ranked school systems on the east side are experiencing a tightening of inventory, which is causing over double-digit appreciation in many areas.
It is easy to feel confused and hesitant about buying a home. However, here are a few tips for first-time buyers take into account:

Determine what you can afford. Evaluate your income, savings and credit report. With proper documentation, a lender can evaluate your finances to qualify and approve you for a loan amount. Remember to factor in costs such as taxes, insurance and utilities.

Determine your wish list. Once preapproved for a loan, consider what you need and want in a home. Whether it is a certain number of bedrooms, a large kitchen, or to be close to schools or public transportation, it is good to have an idea of what you are looking for in a home and community.

Work with a Realtor. All real estate is local, making it important to work with a Realtor who is familiar with your desired community. She or he can provide valuable counsel, discuss listings, show you homes in person, negotiate on your behalf, and help you stay focused on the issues that are most important.

With these tips in mind, Realtors are optimistic that first-time homebuyers will be able to achieve homeownership. Lastly, we expect to see the typical spring inventory increase and are hopeful that more sellers, including those that have been on the fence, will decide to sell as home values increase.

Seth Task is president of Akron Cleveland Association of Realtors.