Archive for Friday, September 18, 2009

Small insurance claims can create big issues

September 18, 2009


A summer storm arrived and water leaked in our bedroom, causing about $1,100 in damage to a few of the ceiling’s tiles and a small portion of one of the walls. Can we file a claim with our insurer?

Yes, but it probably wouldn’t be worth it. For starters, the $1,100 damage is a relatively small amount. If you have a standard $500 deductible, the most you could hope to recover would be $600. That’s really not worth the risk of seeing your future premiums rise, perhaps by hundreds of dollars a year, because you would have a fresh claim on your record.

There’s a chance that filing a claim might well result in the insurer canceling your policy altogether. Insurers figure that if you have made more than a claim or two in the recent past, no matter how small, you’re more likely to file again in the future.

Most insurers are particularly wary of customers who file claims for water-related damage. They’ll often pay for the repairs but cancel the policy to reduce the chance of getting hit with an even costlier mold-related claim later.

Homeowners should consider raising their deductibles to trim their annual insurance costs. Insurance experts say that owners who have a typical $500 deductible but raise it to $1,000 or $2,500 easily can slash more than 30 percent off their bill, which can save them hundreds of dollars a year while still providing adequate coverage if they later suffer a major loss.

I would like to refinance my mortgage, so I have contacted several lenders and mortgage brokers to find the best deal. One lender would charge me a $300 “document preparation” fee; others wouldn’t charge such a fee at all. What is this fee for?

A document-preparation fee is a one-time charge that some banks levy to ostensibly cover the cost of preparing the mortgage contract and other paperwork needed to complete a loan transaction. But the mortgage business has become so automated that the vast majority of documents can be prepared and then printed on the bank’s computer system with the stroke of a few keys.

Some banks don’t even try to collect so-called doc-prep fees anymore. Even those that do often will waive the charge if the borrower is savvy enough to ask.

I inherited a small home several hundred miles away from my current residence. I don’t want to move into the home and don’t want to hassle with renting it to tenants, so I intend to sell immediately. Would I owe any federal taxes on the sale?

Probably not. When a property changes hands through inheritance, the Internal Revenue Service allows its value to be “stepped up” to reflect its current market value. This means that no federal taxes will be owed if the home is sold immediately.

Say the person who left you the home paid $100,000 for it several years ago but that it was worth $175,000 on the day he died. No taxes would be owed on the profit if you sold it for $175,000 or less right away. Conversely, if you rented the property to tenants for a few more years and then sold it for $210,000, you would be liable for taxes on $35,000 of the profit — the difference between the resale price and its $175,000 value on the day you inherited it.

Inheritance rules are tricky, so it’s important to consult a tax professional before you sell.


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