The Wall Street Journal - 21.10.2019

R12| Monday, October 21, 2019 THE WALL STREET JOURNAL.

JOURNAL REPORTS | WEALTH MANAGEMENT

ABOVE: HECTOR AMEZCUA/ZUMA PRESS

The oldest man in the first company

I worked for in 1975 took me aside

and said, “Take $50 out of every pay-

check, put it into savings or an in-

vestment, and pretend you never

earned it.” If I were to update it for

2019, I’d probably say to replace the

$50 with 10% or 15%.

—Martin McCue

Treat bonus compensation as just

that—a bonus. Meaning some-

thing over and above your “regu-

lar” income. And immediately put

the entire bonus into a 401(k) or

some investment device. You’ve

managed to live on your regular

income, so continue to do so. Sec-

ondly, you won’t miss the bonus

money you “never had.” Someday,

as all that accumulates, it will re-

ward you with a “windfall” that

you earned over all those years.

—Jerry Weinstein

1. Don’t buy that bigger house, just
because you think you can afford
it— save and invest the money.
2. Read and apply the advice in Jer-
emy Siegel’s “Stocks for the Long
Run.”
3. Don’t invest with friends and
family. You want to remain friends
with your friends and family.

O

ne of a homeowner’s worst night-

mares is learning that major ex-

penses resulting from a natural

disaster aren’t covered by their

insurance policy.

As hurricanes, wildfires and

other natural disasters have in-

creased in recent years, so has

marketing of insurance products designed to

offer policyholders more coverage than typical

homeowners policies give.

With some policies, there is no deductible

and policyholders can spend the money on any

disaster-related expense, say, for finding emer-

gency accommodations. Payouts for such poli-

cies tend to be small and linked to the severity

of the disaster itself, not actual damages,

which is partly why they are not seen as a sub-

stitute for a standard homeowners policy.

Other insurers selling more standard home-

owners policies, meanwhile, are making efforts

to bridge gaps in coverage that result from

high hurricane deductibles and from outdated

estimates of what it costs to rebuild.

“It’s great that the market is experiment-

ing,” says Benjamin Collier, an assistant profes-

sor at Temple University’s Fox School of Busi-

ness. “Insurance typically covers property, but

BYLISAWARD

homeowners policies feature very high deduct-

ibles that pertain specifically to disasters like

hurricanes.

Assured Risk Cover is a five-year-old com-

pany that sells a parametric-hurricane-insur-

ance policy in Florida. Founder and CEO Alok

Jha says his company can help pay for damage

to a home, but also out-of-pocket costs, evacua-

tion costs, food spoilage and generator rentals.

The policy, marketed under the name “Storm

Peace,” has no deductible. It provides coverage

up to $60,000 and bases payouts on a hurri-

cane’s strength and the home’s distance from

the storm.

The company sends a text

message to customers within

24 hours of the storm and

makes payment within a day

of receiving their response,

provided that it already has

the customer’s payment infor-

mation.

While his product is often

used along with traditional

home or renters insurance, Mr.

Jha says, it can be a stand-

alone product, say, for resi-

dents of mobile homes who

may have a hard time finding

hurricane insurance elsewhere.

The policy costs about 7% of

the total coverage, he says.

Industry experts say there

are some drawbacks to these

types of policies. The amount of a payout, for

example, is determined by the policy, not the

specific amount of destruction. “The payment

could be lower or higher than the actual dam-

ages,” says Carolyn Kousky, executive director

at the University of Pennsylvania’s Wharton

Risk Management and Decision Processes Cen-

ter, a research institute focusing on risk.

Also, a tropical storm with a lot of rain and

flooding but not enough wind speed to count

as a name hurricane could fail to trigger a pay-

out if the insurer used a gauge like wind speed

to determine reimbursements, Ms. Kousky says.

Another parametric product is Jumpstart,

which provides coverage for earthquakes in Cal-

ifornia and is underwritten by Lloyd’s of Lon-

don. The company, founded in 2015, provides

coverage up to $10,000 for each

adult in a household. If the earth-

quake reaches a certain threshold

measured by the U.S. Geological Sur-

vey, funds will be distributed, usu-

ally via direct deposit, within one to

three days and can be used for any

expenses the policyholder chooses.

The cost of Jumpstart policies

varies by ZIP Code, but the popula-

tion-weighted average cost is about

$20 a month or $240 a year, says

CEO Kate Stillwell. Only about 10%

of California residents have earth-

quake insurance, according to the

California Earthquake Authority.

In some cases, homeowners

might be better off making sure

that the value of their current insur-

ance policy reflects the true value of

their home, especially if they have

updated or upgraded, or if property

values in the area have appreciated.

CoreLogic, a research firm in Ir-

vine, Calif., estimates that roughly

60% of homeowners in the U.S. have

less coverage than it would cost to

completely rebuild their homes if de-

stroyed in a natural disaster. If poli-

cyholders lack savings to fill this

coverage gap, they may be in a par-

ticularly perilous position because it

can also be difficult to borrow

money after a natural disaster.

The California Department of In-

surance found that owners of many

homes damaged by fires in recent

years were underinsured. It wasn’t

“because people were trying to

lower their premium or pay less for coverage,”

spokeswoman Nancy Goldberg says; it was be-

cause they had underestimated the value of

their belongings and the cost to rebuild their

home. Some, she says, had not checked on their

homeowners coverage for a decade or more to

add more coverage to reflect increased value

from improvements and renovations.

Meanwhile, some insurers are working on

reducing deductibles. In Florida, typical hurri-

cane deductibles tend to range from 2%, 5% or

10% of the home’s insured value or replacement

cost. And many homeowners don’t realize their

hurricane deductible is separate from and

much higher than the deduct-

ible for other kinds of damage.

During hurricanes Irma and

Michael, a lot of customers did

not understand that their hur-

ricane deductible was far larger

than their standard deductible,

says Barry Gilway, president

and chief executive of Citizens

Property Insurance Corp.

To bridge that gap, some in-

surers now offer lower hurri-

cane deductibles or separate

hurricane-deductible insurance,

which helps cover amounts not

covered by another policy due

to a hurricane deductible, Mr.

Gilway says.

Zurich American Insurance

Co.’s Cat4Home policy offers

Florida homeowners coverage for hurricane de-

ductibles up to $100,000. Any damage caused

by incidents that are covered under the pri-

mary policy would be covered, which typically

excludes flooding. The cost of such coverage

generally depends on the home’s overall value

and location, the company says.

Will Kastroll, founder of the Naples, Fla.-

based insurance agency Harbour Insurance, sug-

gests to customers shopping for home insurance

another way to reduce hurricane deductibles: a

policy with a step-down deductible credit. If the

deductible goes untouched, Mr. Kastroll says, it

shrinks over time, usually several years.

Ms. Ward is a writer living in Mendham,

N.J. Email her at [email protected].

“A tropical storm

with a lot of rain,

flooding, but not

enough wind

speed to count

as a name

hurricane, could

fail to trigger a

payout if the

insurer used a

gauge like wind

speed.”

households have a variety of additional chal-

lenges following a disaster.”

One type of policy consumers are seeing

more of is catastrophic parametric insurance.

Unlike traditional indemnity insurance, para-

metric policies pay a predetermined amount of

money when a trigger is met—such as a named

storm, certain wind speeds, geological read-

ings, waterlines, flood depths or burned acre-

age. No claim needs to be filed to receive the

payout. And while such payouts tend to be

small, they can be helpful when disaster-re-

lated deductibles, like those for hurricanes and

earthquakes, leave home-

owners responsible for

tens of thousands of dol-

lars before any payout

begins.

The parametric model

is not new. Low-income

farmers in developing

countries have also used

parametric policies for

catastrophic coverage.

Companies and munici-

palities have used them

to recoup loses, like drops in sales or tax reve-

nues, after natural disasters.

One reason parametric insurance may be of

growing interest to homeowners in areas par-

ticularly vulnerable to hurricanes, earthquakes

and floods is that there are frequently large

gaps in their catastrophic insurance coverage;

supplemental insurance for flood or earth-

quake policies tends to be expensive, or their

As natural disasters increase,

homeowners are looking for

ways to cover more expenses

Insurers Aim to

Fill In the

Disaster Gap

1in20

Insured homes

that have a

homeowners

insurance claim

each year

Source: Insurance

Information Institute

A neighborhood

destroyed by the Camp

Fire in Paradise, Calif.,

November 2018.

In a recent article, we asked people in the business of doling out

financial advice what advice has resonated most with them. What

advice did they receive that has changed their lives for the better?

Their answers involved strategies for investing, cautions about

spending, ways to avoid psychological traps, and much more.

After the article ran, Wall Street Journal readers chimed in with

their own stories, detailing the best advice they had ever received.

Here is an edited sampling:

4. Save and invest annual bonuses.
—Peter Scanlon

If you don’t understand it,

don’t buy it.

—Patricia Walsh

Do the analysis and write it down.

Then invest and hold for the long

term. If the stock drops, look up

your analysis and remind yourself

why you invested.

—Jalaji Venkatesan

Get completely out of debt before

you retire and the paychecks stop.

And, never, ever co-sign a loan for

anyone—not your parents, kids,

best friend.

—William Rowland

“What’s something worth?” Ex-

actly what someone else will pay

for it. No more. No less.

May not sound like a grand in-

sight, but think about it. Stocks?

Bonds? Businesses? Homes? Cars?

This can be profound because it

captures the psychology of buying

and selling, which our entire mar-

ket-driven economy is based on.

—Pete Salinger

Years ago, a stock I liked—and had

thought about buying—had risen

sharply since its IPO. Frustrated at

my failure to pull the trigger when I

first saw it, I said to my uncle, “Now

100 shares will cost me $2,000. I’m

going to wait.” That’s when he said,

“Don’t concentrate on the higher

cost of a certain number of shares

of a stock and become paralyzed.

Just take an amount you can afford

and buy the stock.”

—Larry Cousins

My advice to mutual-fund inves-

tors—which I learned the hard

way—is that below-average-per-

forming funds tend to remain that

way, and that the years a fund can

outperform an index fund are few.

Rating services, such as Morning-

star, don’t exist by offering mis-

leading evidence.

—Robert Stassen

Your best investment is usually

whatever increases your hourly

“wage.” Rather than work for

someone, invest in whatever it

takes to be self-employed. After

that put every nickel back into

upgrading your business. Buying

a machine that increases your

hourly earnings by a few dollars

is the best return you can get on

your money.

—Steve Wray

Live like a graduate student. Be

very careful about small daily ex-

penditures and invest in the long-

term goods and benefits.

—Liz Giovane

The Best Financial Advice I Ever Got: The Readers Weigh In With Their Own Stories

‘Take $50 out of every

paycheck, put it into

savings or an

investment, and

pretend you never

earned it.’