Economic Survival in a Natural Disaster

January 19, 2006 – There is a lot of talk in the media aboutnatural disasters. In the past year the United States has faced hurricanes, flooding, tornados and fires. The first thing on the mind of anyone who goes through a disaster is physical survival. But what very few people consider is economic survival. Just because you lose all of your physical possessions doesn’t mean that you have to lose everything that you have worked for all of your life. But in order to survive economically, you need to do some pre-planning.

 

Natural disasters can take many forms and they are not allcreated equally. Some are highly localized, such as a tornado, while otherswill disrupt large geographic areas. These types of disasters includehurricanes and earthquakes.

 

One natural disaster that both the federal government andstate governments are preparing for is a flu pandemic caused by the spread ofbird flu. Scientists at the World Health Organization (WHO), the Centers forDisease Control (CDC), and the Department of Health and Human Services (HHS)are all in agreement on one point. It is not a matter of “if” this will happen,but a matter of “when”.

 

Within the past week, at a conference of concerned nationsbeing held in China ,$1.9 billion of money has been pledged to stop the spread of bird flu. If thisdisease gets out of control within the next two years, HHS estimates that asmany as 2 million Americans could die. It would be an unparalleled disasterboth in terms of death and the economy.

 

So what can you do to insure your economic survival? We’regoing to take a look at what I would call “normal” disasters and then we’lllook separately at the bird flu.

 

Your Everyday NaturalDisaster

 

Surviving the FirstFew Days!

 

If you have just lost your house to a disaster, you maythink that the area that the disaster impacts is irrelevant. It is not. Thewider the area of coverage, the more likely it is that you will see significantdisruptions in services, such as phone and electricity.

 

Disasters that cover wide areas also place considerably morestrain on government services. Hospitals may fill up or have to be evacuated.Police, fire and ambulatory services may be stretched to the point of notfunctioning at all.

 

One thing that very few people ever think about until it istoo late is that ATM’s in the disaster area will probably not work.

 

The downside of living in an electronic economy is that wehave become slaves to it. When the power goes out, or when phone services don’twork, the disruption is enormous. To prepare for a disaster, you really need tofigure that you will be on your own for up to a week.

 

This means that you will need to stockpile food and firstaid supplies. But it also means that you need to keep some cash on hand. Notonly will you find that ATM’s don’t work, but it is unlikely that credit cardswill work either. Most merchants are completely reliant on electronicprocessing for credit cards and debit cards. The only way that you will be ableto make a purchase in a disaster zone is with cash.

 

So how much do you keep on hand? Only you can answer thatquestion but you definitely don’t want to have too little. Figure out how muchmoney your family uses in a normal week and then double or triple that amount. Youcan figure that you will need to make some unforeseen purchases, and you mayalso face price gouging. Just remember when you are going through this exercisethat you are “planning” for a disaster.

 

The benefit of this is that you don’t have to put all ofyour money aside all at once. Furthermore, you don’t need to buy all of yoursupplies all at once. But you do need to start doing both, and give yourself atimeframe to complete the entire process. Then stick to your timeframe. Afteryou have your money on hand, don’t use it for any purpose other than adisaster. And make sure that you put it in a place that will survive, even ifyour house doesn’t.

 

Surviving the LongTerm!

 

In order for you to survive economically over the long term,you also need to be prepared.

 

There are a few things that are extremely important. Yourinsurance policies are at the top of this list. You should keep copies of allof your insurance policies in a safe place that you can easily grab if you haveto leave your home. You may also want to make copies of the policies and sendthem to a relative or friend that lives in another area of the country.

 

You should take pictures of the things that you own, andkeep them with your insurance policies. Pictures are one thing that insurancecompanies have trouble arguing with. If you have a digital camera, there areanumber of free websites that will allow you to upload your pictures and storethem for free. The more pictures you have, the better.

 

When you are putting all of this together, make sure thatyou have enough insurance, as well as the right kind of insurance.

 

Right now, it costs about $200 per square foot to rebuild ahome in a major metropolitan area. That doesn’t include the furnishings.

 

And a standard homeowner’s policy will not cover everydisaster. For instance, earthquakes require an earthquake policy rider.Likewise for hurricanes. Flood insurance is a completely separate policy and isonly available from the federal government. If you don’t have the rightinsurance, you’re in trouble.

 

One thing that you should look to see is if your policy hasan Additional Living Expense (ALE) rider. If you can get this, then you shouldconsider it. ALE can pay for the rent of a comparable home while you go throughthe rebuilding process. It can also pay for the rental of furniture.

 

Another thing to look at is a Code Upgrades Rider. A regularinsurance policy will only pay to rebuild your house on an “as is” basis. Ifyour home was constructed in 1950, it’s a safe bet that the building codes inyour area have changed. These changes normally increase the cost of rebuilding.If you want your insurance to cover these upgrades then you need this rider.

 

You should also look at getting Replacement Cost Coveragefor the contents of your home. Insurance typically pays out on a depreciatedbasis. This means that if you have a stereo that cost $300 when you purchasedit five years ago, but you can buy the same system on eBay for $50 today, then$50 is what you will get. Replacement cost coverage addresses this issue. Onlya few companies will offer this type of coverage and it is not cheap, but itcan be well worth the price if you ever do lose your home.

 

When a disaster hits, don’t blindly pick up the phone andreport it to your insurance company without first having some understanding ofthe amount of damage you have suffered. Then compare this to the appropriatepolicy. If you your damage don’t exceed your deductible, then you don’t want toinvolve the insurance company at all.

 

The reason for this is very simple. Insurance companies usea database called CLUE to track homes that have been damaged. Once your houseshows up in CLUE, it may hurt your resale price or, in the case of waterdamage, make your home uninsurable. This may not seem fair but it is a fact. Sodo your homework prior to reporting.

 

Once you do make a report to your insurance, you don’t haveto take what they offer you. Your insurance company will try to keep theircosts down. They may do this by steering you to certain contractors, or usingcheaper building materials. If you think that you are not being handled fairly,then it may be time to hire a public adjuster.

 

Public Adjusters become your advocate with the insurancecompany. They fight long and hard to get you the best deal. They typicallycharge a percentage of the amount that they collect but, because of theirexpertise, you will almost certainly come out better by using a public adjusterwhen you suffer a major loss. Just make sure that you check their referencesprior to hiring them. Scam artists are a dime a dozen after any major calamity.

 

Protecting Your Creditin a Disaster!

 

After you have made it through the first few days of adisaster, may become a real lifesaver. But you will need to take action in orderto protect it.

 

No credit grantor wants to be reported as being a “bad guy”when a disaster strikes. Virtually all credit grantors will be willing to workwith you to protect your credit, but action will be required on your part.

 

Call your creditors and explain your circumstances. If youmailed a bill just prior to a disaster, call and make sure that they receivedpayment. If you have bills due shortly after a disaster, let them know if yourbank is closed, or the post office isn’t open, or you have no access to checksbecause you lost your home. They will work with you. Normally they will agreeto postpone payments, waive late fees, and not report late payments or doanything else that will hurt your credit. But you do need to make the call.

 

So, What about theBird Flu

 

Bird flu may seem like an odd topic for ACCESS to cover, butthe economic ramifications of an outbreak of bird flu in the United States are just too high forus to ignore.

 

Here is a little history on the state of the disease, whatcan be expected, and what you can do to protect yourself economically.

 

First of all, the term bird-flu may be a bit off. That’sbecause flu actually originated in birds. The term really refers to strains offlu that are new and can only be passed from one bird to another. At somepoint, these flu strains mutate; first gaining the ability to be passed from abird to a human, and eventually being able to be passed from one human toanother. When this happens, these strains can be extremely lethal to people.This how pandemics begin.

 

Flu pandemics have happened before. In 1957 and 1968, therewere relatively small pandemics. But in 1918, the Spanish Flu became the mostdeadly disease in history. It killed between 30 and 40 million peopleworldwide. In the United States there were 675,000 deaths; 200,000 of these happening in a single month.

 

Starting in 1997, a new strain of flu known as H5N1 was seenin birds in Hong Kong. This strain had somedisturbing characteristics. First, it was 100% fatal to the birds that contractedit. Second, it had the ability to be passed from birds to humans. And finally,more than 50% of the people who have contracted the disease have died from it.

 

Authorities in Hong Kongwere able to contain the disease in 1997, but it reappeared in 2003 andcontainment may no longer be an option. Between 2003 and late 2005, the diseaseinfected more than 140 people in China, Thailand, Vietnam and Indonesia , killing more than 70 ofthem. But in October of last year, H5N1 migrated out of Southeast Asia andarrived in Turkey .And the Turkish version of H5N1 has mutated in a way that makes it much moreinfectious to humans.

 

Starting about three weeks ago, Turkish children begangetting the disease. In that time, it has killed five of them. And about twoweeks ago, wild birds in the Ukraine were also found to have the disease. This is extremely disturbing because the Ukraine isconsidered to be a European country.

 

The EconomicConsequences

 

Turkeyis the first country to experience severe economic consequences as a result ofbird flu. The country has a $2.5 billion poultry industry. Since October, salesof poultry products in Turkeyare off by 65%, and they continue to fall. The Turkish outbreak has already causedthe European Union to ban the importation of Turkish poultry products. And itis also leading to unemployment among those who work in the poultry industry inTurkey.

 

Now, compare that with a $35 billion poultry industry in the United States and you begin to get the picture.

 

But the poultry industry is only a small fraction of whatcan be expected if H5N1 begins to infect the general populations of Europe and North America. Virtually all segments of the economy areexpected to suffer. The World Bank estimates that the total cost of such apandemic will exceed $800 billion worldwide.

 

Protecting YourselfEconomically

 

Unfortunately, the things that you can do to protectyourself in the event of a pandemic are limited. But that doesn’t mean thatthere is nothing that you can do.

 

Both the federal government and the various stategovernments are working on plans to deal with a pandemic. All of these planshave some things in common. They include quarantining those infected,restrictions on travel, school closures and advising people to work from home.

 

The US Government is advising consumers through its pandemicflu website to prepare to be on theirown for up to 13 weeks. This means that you need not only food but othersupplies including any prescription or over the counter drugs that you take.And consumers should be prepared to face shortages of certain goods.

 

Once again, in a bird flu outbreak, cash will probably beking. While the government does not anticipate long term outages of things likephone service and power, short term disruptions may occur.  As with other disasters you will want to haveenough cash on hand to make emergency purchases.

 

The truth is that there is very little that the governmentwill be able to do if the bird flu arrives in the United States within the nextcouple of years. 

 

One thing that you can do to protect your family is updatingyour life insurance policy if you have one, and updating or establishing aWill.

 

It is unknown weather H5N1 will ever be able to be transmittedfrom one person to another, or if it will be the next great pandemic. But thegovernment is concerned enough about it to have committed $342 million in thepast week alone to fight the spread of the disease. The states are spendingmillions more. We would probably all be wise to keep these things in mind andplan accordingly.

 

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Can Going to the Library Hurt Your Credit?

If you have overdue books at the local library, you may want to return them now. That’s because a number of cash strapped libraries have started using collection agencies to collect fines and fees that are owed to them for overdue books. And once your name is turned over, there is a pretty good chance that you will find your library fines showing up as unpaid bills on your credit report.

 

But it is not just libraries that are getting into this act. Municipalities across the country are now choosing to use collection agencies to collect fees that they are owed, rather than attempting to take consumers to court. Unpaid parking tickets, fees for the city dump, and just about any other kind of fee that governments are charging are making their way to the desks of private collectors.

 

It is up to the municipality to determine if they will report you to the credit repositories for unpaid bills. Some of them don’t, but many of them will report you after several collection attempts.

 

When these line items finally do show up on a credit report, their impact is no different that unpaid credit card bills. Credit scores go down and interest rates for credit go up. Consumers with credit cards issued by banks that use the practice of universal default may find that the interest rates on their existing credit card balances are increased to 30% or more as soon their bad debt is reported to one of the three credit repositories.

 

Of the three repositories, only Equifax currently tries to screen out municipal fines on credit reports. Their reasoning is simple. Not all municipalities report these kinds of unpaid bills. Therefore, Equifax is trying to level the playing field for consumers. Likewise Fair Isaac, the company that created the widely used FICO credit score now attempts to filter out municipal fines of $100 or less.

 

Even so, unpaid library fines that are recent – within the last eleven months – can cut your credit score by anywhere from 30 to 90 points when reported. This is a significant drop. For anyone who is seeking new credit, this kind of drop will almost assuredly lead to a higher interest rate for loans, and could prevent you from getting a loan at all. Another impact could be increased insurance rates.

 

So if you have overdue books or unpaid tickets, you should probably consider paying them soon. While you may find paying these bills painful, it will certainly be a lot more painful if you don’t qualify for that loan to need to buy than shiny new car that you have been eyeing.

 

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Are Insurance Companies Sharing Data On Homeowners Claims? Get at CLUE!

If you own a home, you may want to think twice before filing a homeowner’s claim with your insurance company. That is because 90% of the insurance companies in the country now share claim information through two databases. One which is run by ChoicePoint, called CLUE. The other run by Insurance Services Office, called A-Plus. Typically, reports issued by either database are referred to as CLUE reports.

If your home is listed in one of these databases, it could be uninsureable through private companies. This in turn could have a real impact on the value and salability of your home.

Unfortunately, most consumers are unaware of CLUE until they are impacted by it. This usually follows the filing of an insurance claim.

It is not uncommon for insurance companies to pay claims and then send notice of policy cancellation. Since Hurricane Andrew hit Florida in the early 1990’s, followed shortly thereafter with the Northridge Earthquake in California, insurance companies have made it more and more difficult for consumers to keep their policies active after filing a claim. Insurance company losses in these two disasters were staggering.

Many insurers were also heavily invested in the stock market when it started to drop in 2001. While you may think this issue should fall into the category of “Not my problem”, stock market losses, combined with disaster payouts have left the insurance industry scrambling to find ways to minimize risk. In other words, they have made it your problem.

Insurers are especially sensitive to any water damage. They are concerned about the liability they may incur for claims of mold, which some believe have health consequences that could make a home uninhabitable.

If you file a claim for water damage, even if it is minor, you could find that your house is written up in CLUE, you policy is cancelled and your property difficult or very expensive to insure. It could also hit you right in the wallet by making your property less desirable to potential buyers.

Because CLUE is relatively new, only roughly 30% of homes actually have CLUE reports. With the average homeowner filing one claim every ten years, it will be some time before the majority of homes are covered.

Consumers who find that their home is included in CLUE do have certain rights, similar to those associated with credit reports. If you are turned down for insurance or if there is some other adverse action taken by an insurance company based on a CLUE report, you have a right to a free copy of the report. You also have a right to submit corrections in the event you find errors on the report.

If you just want to see a copy of your report, you can purchase it for anywhere from $9 to $13, depending upon which report you buy. At present, only property owners and insurance companies have access to CLUE. If you are purchasing a property, you have no right to the report, but there are some things you can do to protect yourself in the event the home you are buying has adverse information in CLUE.

First of all, you may want to have your realtor write into your purchase agreement that if the house is turned down for insurance based on information contained in CLUE, you have a right to back out of the sale.

Secondly, you should apply for insurance as soon as your offer is accepted. This will insure that you find out if there are any problems quickly.

As with credit reports, CLUE reports contain enough information for an ID thief to steel your identity. If you pull such a report on a property you own, keep the report in a safe place. If you dispose of it, don’t throw it out. Shred it.

There is a concern among privacy activists familiar with CLUE that access to the database within the insurance industry may be too wide spread. That people without a need to know may have access to your private information. Unfortunately, unlike with credit reports, you don’t have a right to know when an insurance company pulls your CLUE report. Furthermore, there is no way for you to freeze your information in CLUE. The best protection that you may have is to be aware of what, if any data on your property is contained in CLUE.

You may also want to think twice before you file an insurance claim on your home. Although it may not seem fair, current laws do not prohibit insurance companies from sharing data with each other. If you file a claim, it could cause your property value to drop. It could also be giving people who work within insurance companies the ability to steal your identity by providing access to information that you want kept private.

New Bankruptcy Law Not Having Intended Effect

January 17, 2006 – Three months ago today, the United States new bankruptcy law went into effect. The law was hailed by Congress and the banking industry as a way to crack down on “abuses” by dead-beats who ran up their bills with the intent of never paying them. But if the past three months are any indication, those so called dead-beats are few and far between.

One of the primary provisions of the new law was a clause requiring those who are seeking bankruptcy protection to first go through credit counseling. The thought behind this was that many of those who file for bankruptcy would instead decide to join debt repayment plans, allowing them to pay off their debts over a number of years without declaring bankruptcy. But early indications are that the vast majority of those seeking counseling are so deep in debt that they don’t qualify for these repayment plans.

The nation’s largest credit counseling organization, Money Management International (MMI) counseled 14,907 debtors in the first thirteen weeks after the new law went into effect. Of these, only 669 qualified for a repayment plan, and only 42 of those debtors have actually enrolled in a plan.

MMI’s experience is not anomalous. Suzanne Boas, President of the Consumer Credit Counseling Service of Atlanta told a Washington Post reporter that of the 12,539 counseling sessions that the company has had since the new law went into effect, “virtually none of these people are really qualified” for anything other than bankruptcy.

Most companies conducting counseling charge fees that range from $20 to $75. But many of the companies providing counseling services are finding that their clients can’t even afford the fees. MMI has waived the fees in 60% of the cases it has seen.

It is still too early to tell what the overall effects of the law may be. Bankruptcies, where were being filed at a fairly steady rate of 30,000 a week under the old law soared to more than 300,000 per week in the two weeks prior to the new law going into effect. Since then, the overall number of filings has dropped to 5,000 per week but that number is rapidly growing. And just as ACCESS and other consumer advocacy groups had predicted, the reasons for bankruptcy filings remain the same. Most bankruptcies are still being caused but uninsured medical bills and job losses; two things which Congress completely failed to address in the new law.

Senator Jeff Sessions (R-AL), who was responsible for including the credit counseling clause in the law has said he is disappointed at the results so far but hopeful that the clause will help in the long run. His sentiment is echoed by the American Bankers Association.

But Senator Sessions hope may take some time to become reality as credit counseling services are becoming more difficult to get into. This is because the IRS announced last week that it is revoking the tax exempt status of 30 of the countries largest credit counseling services. This revocation will force many of these companies out of business, and will make the companies off-limits to consumers in the eight states that require credit counselors to be tax exempt. The IRS announcement will likely slow the process of filing for bankruptcy and, at the same time, increase the overall costs of filing.

IRS to Outsource Some Tax Collection - Raises Privacy Concerns

IRS to Outsource Some Tax Collection – Raises Privacy Concerns

January 16, 2006 - In 2004, Congress passed the American Jobs Creation Act. As innocuous as the title sounds, it contained a provision allowing the IRS to outsource collection efforts to private contractors. But both the National Treasury Employees Union (NTEU) and the Government Accountability Office (GAO) are questioning the wisdom of this; saying that the move may jeopardize personal privacy and lead to cases of fraud and identity theft.

It is not surprising that NTEU opposes the IRS using private contractors to collect back taxes. After all, such a move means that non-union companies will be doing jobs that have been held by union members up until now. But the reason for GAO opposition is disturbing. The GAO is Congress’ investigative arm. The GAO is saying that it has doubts about the ability of the IRS to protect the data that it will be furnishing to private contractors.

The IRS is requesting proposals from companies who are interested in handling collections for them. They plan to select three companies to start work in March. Each of the companies will be awarded a one year contract, with an option to renew for an additional year.

The initial contracts are considered to be “test agreements”. Provided that everything goes well over the two year test period, new agreements would be negotiated and the program would be fully rolled out sometime in 2008.

The IRS would only use private contractors for a small portion of its collection activities. Only when the there was no dispute over the fact that taxes are owed by a specific tax payer, and only when the IRS had been unable to collect the taxes on its own. The IRS believes that it will be able to collect an additional $1.4 Billion over the next ten years using this new resource. Contractors would be awarded 25% of actual collection amounts.

But in order to private contractors to be effective, they need to be given access to IRS data. This is what the GAO is concerned about. And if past behavior is any indication, GAO concerns may be well founded.

In an audit of IRS security procedures, the GAO found a variety of circumstances in which private contractors working for the IRS had been granted systems access without first having to go through a background check. In one case, a private contractor had access to highly sensitive taxpayer data for four years prior to being screened for security.

In all, the GAO issued a highly critical letter to the IRS, with thirty recommendations for change to protect tax payer data from private contractors. In response, the IRS has said that it has implemented rules and procedures to shore up data security.

But the government track record on the protection of highly personal financial data is not good. All levels of government routinely sell consumers data, including data containing Social Security Numbers and bank account numbers, under the guise of it being public record information.

At least one member of the House of Representatives has concerns as well. Rep. Rob Simmons (R-Conn) has introduced a bill to revoke the IRS ability to use private contractors. Private businesses have not done well at protecting consumer data either. Two weeks ago, Peoples bank had to announce that it lost a data tape containing the personal financial data of 90,000 of its customers. Rep. Simmons concerns appear to be well founded.