Monthly Archives: September 2014

Auto Safety Update

Just last week the Insurance Institute for Highway released its report on crash tests of small SUV’s to a lot of news coverage because only two of the thirteen vehicles tested performed well.  As it turns out, this was sort of a “the glass is half empty” story because the shortcomings referred specifically to a new test called the “small overlap” crash test.  Small overlap crashes are the type you might encounter when a driver in an oncoming car drifts across the centerline and hits your car on one-quarter or less of the front. These are dangerous crashes that account for many of today’s auto crash deaths.  Not counting this single test, the small SUV class appears to be doing pretty well and there are 13 Top Safety picks in the class as a whole.   

If you are interested in how your car fares in the IIHS safety picks, you can follow this link to their website and find out. 

The story really highlights more than the SUV story; it helps illustrate how far we have come in auto safety over the century or so we have had the automobile.  For example, prior to 1912 when Cadillac introduced the electric starter, just starting a car was fraught with danger.  Hand cranking a car with uncertain timing could result in a backfire with a kick to the hand crank significant enough to break the wrist or forearm.  The condition was common enough to have earned the label “Chauffeur’s Fracture or “Backfire Fracture”.  General Motors began crash testing cars in the early 1930’s and over the years successive car makers have introduced technologies that have made auto travel safer.   

From 1950 to today, auto fatalities and injuries, measured as fatalities or injuries per hundred million miles traveled, have declined steadily.   By 2009 motor-vehicle-related fatalities had fallen to an all-time low of only 1.13 deaths per 100 million vehicle miles traveled nationally; Washington State had already bettered that number by 2006.  

Major advances have included safety belts, crumple zones, electronic stability control and other structural advances to protect passengers, but many incremental advances have changed the safety landscape of autos and equally importantly have had an impact that goes beyond the car and its passengers to protect those on the road around it.  These include advances like ABS braking systems, backup cameras and improved lighting systems.  What lies in front of us includes the design advances that are virtually certain to come as a result of testing like that done by the IIHS and the advances being built in by auto makers as they compete to add safety related features to new cars.  For long time drivers, some of these foreseeable advances seem almost like Star Wars.  

Consumer Reports recently published an article that focused on planned, expected or in some cases available safety improvements.  Among these are systems that warn the driver of impending collisions.  Some are just proximity warning systems that can alert drivers about an impending crash; others can charge the brakes and air bags, close windows and activate safety-belt pretensioners.  One advanced system can detect pedestrians and animals on the road as well as other vehicles. Another is a Lane-departure warning system that detects when a driver leaves their lane and blind spot and 360 degree vision systems that help alert drivers to those around them.  There are also important vehicle handling advances on the way as well.  Traction control systems help two-wheel-drive vehicles in slippery conditions in a manner analogous to 4 wheel drive traction control technology; roll sensors help stability control systems and determine if the vehicle is tipping up on two wheels. If the system detects an impending rollover, it can apply braking to suppress the roll motion and deploy air bags to protect occupants from impact or prevent their being ejected from the vehicle.    

We have come a long way in auto safety in a relatively short time and with so many systems now aimed at prevention of accident and injury we are getting much better at managing the risks associated with auto vehicles. 

Your Lifetime Auto Insurance Bill

Recently we looked at the annual costs of owning a motor vehicle.  A big chunk of those costs was the annual depreciation in value over time, but there were other significant costs such as fuel, maintenance, registration and insurance.     Today, we will look at lifetime costs as another concept that helps us to understand how we spend our money.  Lifetime costs are the total of costs relating to an object or service over its expected lifetime.  It includes the amount paid to purchase it and any ongoing costs to maintain or replace it.  For example, if you buy a hot water heater, its lifetime costs include the purchase price, the energy costs to operate it and the costs to dispose of it. It is not uncommon for the ongoing costs of service, maintenance or operation to be greater than the purchase price.  Ask anyone with a Smartphone.  

On average, a US resident will spend about $94,000 over a lifetime of driving according to carinsurance.com.  They figured this out by analyzing nearly 200,000 car insurance quotes for drivers of differing ages, with a mix of driving, claims and credit histories.  They calculated the driving “lifetime” to be 62 years – from 16 to 78 – making the annual bill an average $1516.  When you consider that a college graduate can expect to earn about $2.1 million in a lifetime, your auto insurance bill is a pretty big chunk of change – in fact, a bit over 4%.  

These numbers square pretty well with what we know about average auto insurance costs which insure.com estimates at $1510 for a national average and should cause those of us fortunate to have Washington auto insurance to smile a bit since our state ranks 43rd in the nation with an average around $1226.  That is about 80% of the national average and puts a Washington driver at a lifetime cost nearer $75,200.   

Don’t feel too bad about your insurance costs, however, there are likely to be a lot of other things in your life that add up to more.  For example a study in Great Britain looked at lifetime communication costs and reckoned that the total for calls, texts, telephone and broadband service as well as buying and replacing handsets, insurance and accessories added up to a US equivalent of $122/month or a lifetime cost of $99,070.  Since many of us can remember the days of a $15 monthly telephone bill, this is a pretty scary number. 

There are a lot of areas in your life where the analysis of lifetime costs can both bring you up short and suggest ways to save money.  Smoking, for example could cost you up to $116,000 over 60 years if you smoke a pack of cigarettes a day.  That leaves out ancillary costs such as potential doctor’s visits.  Even your morning Latte at $4 a drink adds up to $88,000 over 60 years.  

This lifetime costs analysis is beneficial in that it highlights not just how costs you may not have thought about add up over time, but they also help underscore the benefits of cost reductions.  As noted, simply living in Washington State results in an average rate reduction compared to other states.  When you work toward cost saving strategies such as bundling your insurance, maintaining a solid credit history and considering the insurance implication of your auto purchases, it adds up.  It might not be enough to support a $4 a day latte habit, but you could get close to the estimated $350 a year that soft drinks cost the average American.  

Reflecting on Grandparents Today

Here in the US, we have Mothers Day, Fathers Day, Childrens Day and Grandparents Day to mention only a few of the days our Congress has seen fit to honor.  Our proclivities for naming days in honor of our relatives has not yet extended to “Second Cousin Twice Removed Day,” but just give us a little time.

Earlier in September, we had National Grandparents Day which has been with us on the first Sunday after Labor Day since 1978 when President Jimmy Carter signed the proclamation designating it.  Reportedly, September was nominated for this holiday to reflect the “autumn years” of life.  While that might have been an appropriate metaphor back in the 1970’s, today we tend to think of grandparenthood as occurring in the mid to late summer of life – more like late July or early August..  We are living active lives a lot longer now; witness the number of men and women 50 and over who turn out for the Rhody Run or any of the other open athletic events here on Washington State’s Olympic Peninsula.

Out here on the Peninsula, we have a lot of active grandparents.  Jefferson County has the state’s oldest population, with a median age of 53.9 – the 10th-oldest median population in the U.S; Sequim is more than a tad older with a median age of 57.9.   Since the national average age at which we become grandparents is 48, it is easy to see our Peninsula is likely a community of grandparents – it’s a wonder we don’t hold a parade.

Things have been progressing in the grandparent department – or, as the saying goes, these are not your father’s grandparents.  Over 40% of grandparents today exercise or play sports and almost 30% are regular volunteers – we are staying active and engaged.  Twenty percent of us dance and 70 percent of us enjoy reading.  Sixty percent of grandparents have a full time or part time job and nearly 40% are enjoying sex twice a week, so we haven’t exactly folded up our tents and gone home.

So far as being hip is concerned, 10% of grandparents have tattoos and 7% have used recreational drugs.  That percentage may be likely to increase in Washington State with the recent liberalization of marijuana laws.

Grandparents – or at least older adults – are increasingly likely to be internet and cell phone users.  The Pew Research Center had seniors 65 and older going over the 50% mark for users in April of 2012; Statisticbrain.com puts the grandparental number at 75%.  A majority of grandparents also shop online and use internet technologies such as photo sharing sites and search engines.  We also still read a lot and particularly read a lot of news.

Grandparent types have been a bit behind in the use of social media, but we are catching up.  The Pew Research folks note that seniors (65 and over) have more than tripled their social media usage since 2009.  There has been a similar spike in usage among the 50-64 age cohort so while we may be lagging our grandchildren in the percentage of social media users, we are moving up fast!  The reasons older people give for engaging with social media is that they are interested in maintaining ties with family members.  Not surprising these days as more and more children move away from the area they grew up in to follow employment opportunities and more and more seniors seek desirable retirement areas.  The majorities of senior social media users are on Facebook and seem most interested in following the activities of their children and grandchildren and in connecting with old friends and people who share similar hobbies.

As a society, our grandparents are looking younger every day.  Here on the Peninisula, we are, as usual running ahead of pretty much everyone else.

Viaticals – Life Insurance In the News

“In this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin, letter to Jean-Baptiste Leroy, 1789

So far as we know, the best anyone has been able to do about taxes is try to avoid them; death is another matter; if no one has found a way to avoid it, some people have found a way to profit from it.  A recent article in the Huffington Post looks at some of the potential consequences of a new law in Texas and suggests that it may have serious consequences for the life insurance industry.  

The Texas law in question allows a special consideration of Medicaid eligibility.  Usually, eligibility for Medicaid is reserved for people who are virtually without income or assets. The new law allows individuals with a life insurance policy as an asset to enter the Medicaid program if they get a life insurance settlement and use the proceeds specifically for long-term care.

A life insurance settlement of the type allowed under Texas law is called a “viatical” settlement and involves the sale of a life insurance policy to a third party in for a percentage of the face amount. Typically, the purchaser then pays the ongoing premium.  It is easy to appreciate the value of purchasing an interest in the life insurance of a person who is 80 years old and has paid premiums for 40 years.

Viaticals have been around for a long time, but Texas is upping the ante on these transactions by state support for their use in paying for long-term care expenses. The Texas law is serving as a model for other states and similar legislation is being considered in California, Kentucky, Florida, Louisiana, Montana, North Carolina and New Jersey.  

There are important implications of this state support for third party insurance purchases for the life insurance industry.  Life insurance is a risk management tool that many policyholders will use differently over their lifetime.  Many policyholders will allow life insurance to lapse as their needs change.   Converting a large number of policies into instruments that may require a payout at face value will change how underwriters look at policies and premiums.  In the main, it is likely to cause premiums to increase over time.

Washington State has generally taken a rather cautious approach to viaticals.  The State’s advisory information on viaticals does not come the Insurance Commissioner as an advisory on Washington Life insurance, but as investment advice from the Department of Financial Institutions.   That department offers many cautions about investing in viaticals at all.   

You may think the whole business of viaticals seems a bit creepy and particularly so if encouraged by the state.  You might have a lot of company in that thought.  Viaticals are very sophisticated investment devices that can make money for investors but are hardly a win-win situation.  For many seniors there may be better options for realizing value from their life insurance policies than offering them up for sale.  

In this complicated financial area it is best to know all of your available options before you make a decision to sell an interest in a life insurance policy.  You can always talk to an insurance professional  at Homer Smith Insurance to explore the options available.

A Short History of Labor Day

Many of our federal holidays are declared in recognition of some historical event – the Fourth of July, Christmas and Columbus Day are good examples.  Labor Day and Memorial Day are two patriotic holidays that have grown out of the activities of the America people.  Earlier this year we blogged about the history of Memorial Day; today we look at Labor Day. The Labor Day holiday evolved out of the activities of the developing labor movement at the end of the 19th century.  Labor supporters had developed a tradition of holding parades, picnics and other events to rally strikers or to show support for specific labor issues.  In New York, the Central Labor Union was a group made up of members from many labor unions.  Early in 1882, the Central Labor Union decided to hold a parade and picnic as festival in support of labor sometime in September.  By August, a union committee had selected the park and the date – Tuesday, September 5 1882 –for the celebration and the union passed a resolution “that the 5th of September be proclaimed a general holiday for the workingmen in this city.”  The celebration was a huge success and it was resolved to continue the celebration annually. By 1884, the union had selected the first Monday in September as the official holiday and were urging unions in other cities to celebrate a “workingmen’s holiday” on that date. The idea spread quickly by 1885 Labor Day was being celebrated in many industrial centers of the country.

laboray.JPG Port Townsend Morning Leader September 6, 1910 The celebrations continued as a workingmen’s holiday without government recognition for a decade until the American Railway Union strike against the Pullman Sleeping Car Company in the early 1890’s.  That strike affected the country so deeply that it resulted in congressional action to honor the labor movement and in 1894; President Grover Cleveland signed the law marking the first Monday in September as Labor Day. The holiday was observed nationwide, including here on the Olympic Peninsula where in the early part of the twentieth century Irondale was an important iron producer and employer of over 400 people.   Articles in the Port Townsend Morning Leader near the turn of the century occasionally mentioned labor issues such as the desire of retail clerks for Sunday closure.  While we know the event that precipitated Labor Day, the parade and picnic in New York in 1882, there is some debate about the founder.  There are two candidates for the honor – Peter J. McGuire, cofounder of the American Federation of Labor, and Matthew Maguire, a secretary of the Central Labor Union.  We may never know who first proposed the first Labor Day parade, but credit for the holiday itself may best be ascribed to Eugene V. Debs the leader of the strike that convinced the federal government that a holiday in honor of the America workingman was important.