Money Coach Educates Listeners on Disaster Insurance

Last week's wildfires in Southern California are almost contained, leaving those who suffered property damage now faced with the task of filing insurance claims. Financial expert Alvin Hall discusses the ins and outs of fire and flood insurance, and what listeners should know about getting the best coverage.

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MICHEL MARTIN, host:

The wildfires of Southern California, the drought in the Southeast reminded us just how easily natural disaster can change our lives. So we started thinking about disaster insurance. So naturally, we started thinking about our Money Coach, Alvin Hall. He knows about disaster insurance. He's with us from his office in New York to offer some idea of what you might need, whether you're in Southern California, South Dakota, the South Bronx.

Alvin, welcome.

ALVIN HALL: Thank you very much.

MARTIN: So, Alvin, what about disaster insurance? Is disaster insurance different from your regular homeowners insurance?

HALL: It's often a group of the same policy. For example, everybody should have homeowners insurance just in case something goes wrong. In some cases, you can get house content insurance. So you'll be able to replace that. But disaster insurance should provide you with both those types of insurance, as well as a component of maybe income continuation insurance so that if something goes wrong, you also have part of your income replaced during that period of time.

MARTIN: How would you know if you need some sort of enhanced policy? Presumably, if you're in a flood zone, you would know what because there are maps. But what about wildfires?

HALL: Well, I think natural disasters are just hard to plan against, and this insurance is very, very expensive. Therefore, I think people need to look prudently at what policies they already have and decide if that would be enough in the case there is a disaster.

All of them assume that you also have money in the bank. So it's not as if they're going to start paying you immediately when the tragedy happens. There's always, in almost all cases, going to be a waiting period. So look at your -all of your policies and determine if a disaster policy is necessary. It may be one step too far, and the cost maybe too much.

MARTIN: Well, how would you know?

HALL: Sit down and look at what is likely to happen into your area. Go to a qualified insurance person in your area. Look at the policies you have. These wildfires in California are almost seeming to me, as an outsider, a recurrent theme there. If you move to California without that type of coverage, you're crazy.

(Soundbite of laughter)

MARTIN: Okay.

HALL: It's like when - growing up in Florida, we knew that the area in which we lived in would be flooded about every five years. So in that area, you couldn't get flood insurance. So what did everybody do? They built their houses three feet off the ground, so that your house wouldn't flood. There's some experience here. There are some things you can protect against and some things you can't.

MARTIN: How would you know whom to consult for advice on a question like this? You know, with no disrespect to anybody, it would seem to me that if you're an insurance broker, it's in your interest to sell people these products because…

HALL: Well, here's…

MARTIN: …their expenses. How do you know?

HALL: Absolutely you're - that's a very good question. Look at what you're already paying for your homeowner's insurance, for fire protection and all of that. If the group of those policies are costing you, say, oh, $100 a month, that would be high, I think. And then you are looking at the cost of disaster insurance that will double that, maybe you don't need that. Maybe your other coverage is sufficient.

So part of this is, yes, you're going to be sold to, but you have to look at your finances to see if you can afford it. I think it sounds good to think that in a disaster, you'll be protected against everything.

And we do this when we travel. For example, let's say, Michel, you're about to take trip to Thailand. And you might get some repatriation insurance so that if something happens to you, you could be medevacked all the way back to the States. That make sense because you're in a foreign country, and your insurance plans may work.

But here you're looking at, in the U.S., if you already signed up all the basic insurances, maybe disaster insurance is something you really don't need.

MARTIN: What if you're a renter? What if you rent and you're not a homeowner?

HALL: Excellent question. If you rent, always have content insurance on the property, on the stuff that own in your apartment. Always - also, if you're working, you could also get income continuation insurance in case you're out of work. Those are the two critical things that you need to have so if something goes wrong, you can have the value of your contents replaced.

Think about what could go wrong and put some documents and things like that away from your home in a place where you can get them if you need them. Don't keep everything necessarily in your house. Have a safety deposit box.

MARTIN: Okay. Because part of what I think I hear you saying is if the cost is so high, that perhaps you'd be better off investing that money so you'd have a cushion.

HALL: Or saving that money. People have to look at their own risk tolerance. I would say that money that you have set aside for disaster probably should be held in a short-term money market account or rolled over in a CD so it's absolutely saved cash.

As the stock market has shown us recently, investing can be a bit too up and down for some people. So I would say you should probably have that money in a savings account, in an interest-bearing, high-interest savings account.

MARTIN: Okay. And speaking of investing I wanted to ask, if you don't mind, a couple of questions about sort of overall economic trends and the fate of E. Stanley O'Neal. He's the CEO of Merrill Lynch. He was the first African-American to head a Wall Street firm. Do you think that this is a blow for managers of color? Do you think this is justified?

Often, you know, when you see these kinds of people like Carly Fiorina, who was the chair of Hewlett-Packard, who was also forced out after she went after a merger that a lot of the people didn't agree with, lost the confidence of her board people, I wonder whether their unique demographics had something to do with it. I just want to ask, what do you make of the Stanley O'Neal saga?

HALL: The fact that they - that Merrill Lynch said the losses were going to be X amount, and they turned up to be greater. It really encouraged a suspicion that they actually knew that the numbers were going to be greater, but decided to release them in a series of steps, hoping to lessen the impact in the market place. It was the way he released them is what did him in. Had he released those results all at one time, then he would have been safe. Everybody's saying, well, you know, it was a joke. Let's release this number and see how the market reacts. Then we release that number and see how the market reacts. And that just created cynicism toward him.

MARTIN: Interesting.

HALL: And then on top of that, once he did that, the board felt that he - that if this man does this, he'd loss their confidence. How can you say it's going be X, when it's much worse than it's ever been?

MARTIN: Well, that does surprised me, though, because I thought that of all things, people thought of him as a straight shooter.

HALL: Yeah.

MARTIN: People don't think of him as dishonest.

HALL: E. Stanley O'Neal had a reputation of being very smart, very wily, but never being very warm or friendly. It was sort of like he interpreted capitalism at its most visceral. I make money, I'm smart, therefore I'm good. I don't necessarily need the support of people around me to do this. And eventually, when things turned bad, those same people who he didn't support came out and started making calls to the board. And the board lost confidence in him.

MARTIN: And finally, I wanted I ask about this sort of overall economic trends. You know, the Federal Reserve is meeting today, and there are some predictions that there might be an interest rate cut. If that does occur, some people are suggesting that that's a sign that the economy is weakening. I wanted to know if you think that that is true. Do you think that the - we are headed to a recession? And if that's the case, is there anything that the average person can do to prepare for this?

HALL: I don't yet feel we're heading toward a recession, but I do feel with the slowdown in housing sales, you know, you don't see that increase in spending going up to the holidays, people are being more cautious. So I think the Federal Reserve Board are looking at all those factors and saying, well, maybe a rate cut is in the offering.

For the average person, I think they need to sit down with their planning for the upcoming holidays and think carefully about how they're going spend their money. They should try to avoid racking up huge amounts of consumer debts. Clearly, if people are not spending, there are going to be huge markdowns in the retail area. They should sit there like vultures on the power lines in the country and watch for those markdowns and then swoop down and grab them and try to save their money.

MARTIN: And knowing you, Alvin, that is exactly what you're going to do.

(Soundbite of laughter)

HALL: And I've already finished my Christmas shopping.

MARTIN: I know, I know.

HALL: (unintelligible)

MARTIN: The earrings, I know. Earrings and…

HALL: Earrings and jewelry…

MARTIN: And a book.

HALL: (unintelligible)

MARTIN: The odd book or two.

HALL: They are not.

(Soundbite of laughter)

MARTIN: All right. Alvin Hall is our financial expert. He joined us from his home office in New York.

Alvin, thanks so much.

HALL: You're welcome.

MARTIN: Don't forget, you can turn to our blog if you have questions for our Money Coach or on disaster insurance or any other financial concerns. Please go to npr.org/tellmemore.

(Soundbite of music)

MARTIN: And this just in: since our conversation with Alvin, Chief Executive Officer E. Stanly O'Neal announced his retirement from Merrill Lynch, the world's largest brokerage.

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