To celebrate the birth of our nation and the freedoms that we are afforded, I am writing three posts this week with a twist. Each post is based on an influential document which has given us rights.

So far this week, I have posted the Financial Declaration of Independence and Financial Bill of Rights. Today’s post, adapted from President Lincoln’s declaration which challenged slavery head-on, is the Financial Emancipation Proclamation. Without further ado:

Financial Emancipation Proclamation

On this second day of July, in the year of our Lord two thousand and ten, all persons held as slaves within any State of Debt or living without the benefit of a Budget shall now be in rebellion against Credit Cards, Living Paycheck to Paycheck, and Overspending, and shall be now and henceforward, and forever frugal; and the people of the Unites States, banded together, will recognize and maintain our own freedom, and will do no act or acts to enslave ourselves, regardless of marketing schemes and any efforts creditors and stores may make to entice us to empty our wallets and bank accounts.

That the people will, on this second day of July, by proclamation, designate the debts, if any, in which we the people shall use the Debt Snowball Method to speedily eliminate said debts; and heeding the call by Dave Ramsey, and other financial experts, shall on this day cut, melt, or in other words destroy by any means the credit cards by which we have amassed the greatest consumer debt on record; in the absence of credit cards, we will institute budgets based on our available cash, after fair taxes, charitable donations, and savings contributions, that will allow us to control overspending and live without fear of eminent bankruptcy.

Now, therefore we, the People of the United States, by virtue of the power vested in us as citizens of a free nation and granted by Nature’s God, do, on this second day of July, in the year of our Lord two thousand and ten, and in accordance with our money saving purposes do publicly proclaim, from this day forward, to commit to solemnly live by, resulting in peace of mind and financial independence, the following, to wit:

Refined Budgets, Sound Cash Management, Adequate Life Insurance, Sufficient Auto and Home Insurance, Debt Avoidance, Frugality, Bargain Hunting, Retirement Account Funding, College Savings, Stock Speculation Avoidance, Affordable Home Owning, Index Mutual Funds, Estate Planning, and Tax Planning.

Signed this 30th day of June, 2010,

Adam Williams and the Rabbit Funds team

Sign the Financial Emancipation Proclamation by leaving a comment in the comments section below and follow Rabbit Funds on Facebook for more great financial planning info.

Insurance Series – Over the next several weeks, I will cover four of the major types of insurance, as well as surrounding issues, that you should have or re-evaluate if you already have. This is post #2 – C.L.U.E. Report.

I wrote last week about some of the issues surrounding home owner’s and renter’s insurance. I briefly mentioned C.L.U.E. Reports, what they are, and how to order one. However, I don’t think that I really did the topic justice. A C.L.U.E. Report is the equivalent of a credit report for your insurance history. I am a firm believer in actively managing your credit and monitoring your credit report. The same principle applies to your “insurance report” as it can negatively impact your financial situation.

What is a C.L.U.E. Report and how do insurance companies use it?

ChoiceTrust, which is owned by LexisNexis, is the “credit” bureau of insurance. Your free C.L.U.E. Report is much like a credit report in that it maintains a seven year record of your (1) personal property loss history and (2) inquiry history. They also calculate a score based on your loss history. Insurance companies use actuarial tables to determine the risk of a given consumer. Therefore, insurance companies pull your report to see how frequently you make insurance claims and the severity. Both of those factors, frequency and severity, are then used to determine how risky you are and what your insurance premiums should be.

C.L.U.E. Reports are available for both your personal property (i.e. home owner’s insurance) and automobiles.

How can you use the report as a consumer?

Offering your C.L.U.E. Report to prospective home buyers is a great way to let them know that you have taken good care of the home (whether that be few losses or always taking care of problems as they arose).

How do you obtain one?

Unfortunately, you are supposed to order your report by mail. Follow this link to download and print the order form. After printing it, just follow the instructions on the form. If you “do not have Internet access” (then you probably aren’t reading this post), but you can call 1-866-527-2600 to order it by phone. Which means, even if you do have the Internet, you can still call and order it.

You will be required to send photocopies of sensitive documents such as your driver’s license or social security card. So please use security envelopes.

How often should you check your C.L.U.E. Report?

Just as with credit reports, your C.L.U.E. Report may contain false or inaccurate information. Meaning, an annual review is probably sufficient. Or, if you plan to change insurance providers in the near future, you should probably order one with enough time to fix any mistakes. If you do happen to find any errors and wish to dispute them, you can do so through ChoiceTrust.

So, get off your duff and order one!

(This post was featured in the 82 St Edition of Money Hackers)

Insurance Series – Over the next several weeks, I will cover four of the major types of insurance, as well as surrounding issues, that you should have or re-evaluate if you already have. This is post #1 – Home Owner’s and Renter’s Insurance.

No one expects the worst to happen, but it does. Whether it’s a break-in, a pipe breaking, a fire, or you lose your wedding ring (ask my wife about that one), chances are that you will need to use Home Owner’s or Renter’s insurance at some point. The purpose of this post is to outline various issues surrounding renter’s and home owner’s insurance and what level is appropriate. Also, a lot of renter’s should have renter’s issurance so I’ll briefly plead that case.

Renter’s Insurance

Long before we ever owned a home, my wife and I lived in an apartment (berber carpet, no padding, oh those were the days). Shortly after moving in, we called one of my friends that works for an insurance agent and began asking questions about renter’s insurance. They were already insuring our car at the time. Come to find out, the cost to add a renter’s insurance policy was essentially $0 in our case. Here’s why. Insurance companies give discounts for coupling various types of insurance or insuring multiple assets. The discount on our auto insurance was equal to the cost of renter’s insurance. Later, when we switched our car insurance to Geico, the annual rate for renter’s insurance jumped up to only $72. Meaning, renter’s insurance is generally pretty cheap and well worth the expense.

In the case of renter’s insurance, the building owner has the liability if the structure is damaged in a natural disaster. You are responsible for all of your assets. Meaning, your clothes, dishes, furniture, TV, etc. What many people don’t realize is that renter’s and home owner’s insurance cover items in your car as well. So does that include your car stereo being jacked? No. Here’s a simple way to determine what in your car is covered though. Imagine for a moment that you are Hulk but without the bulging green veins. If you picked your car up and shook it with the trunk open, anything that falls out is covered by your renter’s or home owner’s insurance. So your CDs or iPod are covered. So when trying to determine how much coverage to buy, estimate the cost to replace all of your personal items and not the cost to repair the structure.

One last note, if you are a renter and sublet your apartment with your furniture or other belongings still in it, then renter’s insurance should be a no brainer.

Home Owner’s Insurance

With the purchase of a home, home owner’s insurance can become a bit more complicated. For example, if you belong to a Home Owner’s Association (HOA) then the HOA may cover some of the insurance.

Non-HOA

If no one else is insuring any part of your home, then you bare the full responsibility to insure against structural damage and loss of personal belongings. To help choose an insurance company and how much coverage is appropriate, I’ve compiled a short list of things you should consider.

1. Know yourself and your goals
2. Know your budget and how much you can afford monthly
3. Understand in detail the costs and benefits of each insurance product (ask lots of questions)
4. Insure against high-cost, high-severity losses only (see Deductible and Coverage below)
5. Work only with high-quality individuals and institutions
6. Review your insurance needs annually

HOA

We belong to an HOA that insures from the walls out on our townehouse. Meaning, we are responsible for our personal belongings as well as everything inside of the walls. For example, flooring, carpet, and cabinetry. If you move into an area that has an HOA, find out what, if anything, they are covering and then insure accordingly.

C.L.U.E. Report

When determining your insurance premiums and whether or not to insure you, insurance companies use actuarial tables to estimate what you will cost them in the future in claims. This estimate is based on past behavior – how many claims have you had (frequency) and how much did they cost (severity). All of this information is available to you as well via a C.L.U.E. Report. This service is offered by ChoiceTrust. The report contains a seven year record of your “personal property loss history, inquire history, and instructions on how to dispute the claims on your report.” The same report is available for your auto insurance as well.

Deductible and Coverage

Determining your deductible can be tricky. Probably the simplest way to determine your deductible is to evaluate how much you have in savings and could therefore cover out of pocket versus the impact on your budget of the higher monthly cost of a lower deductible. The purpose of insurance is to hedge against the risk that something happens by investing money now. An insurance company is a way to pool money from many people to cover the cost when something does happen. However, there is always some element of self-insurance. Let me explain. By having a deductible above $0, you have decided that you have the resources to self-insure against some fixed dollar amount, which is equal to your deductible. Therefore, when you set your deductible, think of that as self-insurance and what you can afford later versus on a monthly basis. At a minimum, insure against high-cost, high-severity events and evaluate your financial ability to self-insure against events with a small economic impact (small is relative to your financial situation).

Action Plan

In brief, having renter’s or home owner’s insurance is part of your total financial plan. First, check your C.L.U.E. Report for any discrepancies as they may unfairly increase your premiums. Second, shop your insurance around with several reputable companies or acquaintances. Third, try to bundle all your insurance with one company for the best rates (this does not always work). Fourth, insure against high-cost, high-severity events and save or self-insure for your deductible and other smaller life events. Last, re-evaluate your premiums and coverage on an annual basis.

Have any good horror stories when you were glad you had insurance?

(This post is featured in the Carnival of Personal Finance #221 – Labour Day Edition hosted by Financial Highway)