COA 4131 1st Edition Lecture 21 Outline of Last Lecture I. Finding a Financially Secure Insurer II. Investment Defined III. Preparations for Investing IV. Four Steps in Investing Outline of Current Lecture II. Reviewa. Test is 50 questions, multiple choice b. Cost of housing and cars c. Insurance Current LectureA. Reviewa. Test is 50 questions, multiple choice b. Cost of housing and carsi. Know what a mortgage is1. Monthly payment on house or condominium2. They are low around 3.5 or 4.5 percent, used to be 18 percent3. When you rent, you sign a contract and have to usually pay first months lease up front and apparently they will give it back to you when you move outii. If living there less than 4 years, better off renting versus buying iii. People want houses1. 40% of housing is first time home buyers iv. Condos versus co-ops versus single family home v. Need a lot of info when buying a house1. How much you can afforda. 2 and a half times rule vi. Closing1. Previous owner and new owner get together and exchange keys2. About 1 to 2 hour meeting3. Realtor and other people are there too vii. Down payment1. Typically 20%a. Used to be 10%viii. Tax benefits to owning a home 1. Not very good benefits to owning a second home ix. Make an offer1. Contingency fee 2. Holding a check 3. Bindera. Give a check as a hold on a house, but have to be sure on itx. Mortgage1. Fixed rate a. 3 and half percentb. Most people pick fixed, conventional 30 year loan2. Adjustable rate3. Monthly paymentsa. PITIi. Principle interest taxes insuranceii. Know how much this is going to cost to see if you can afford it 4. Budget utilities a. Electric, water, and so on b. Can get records from previous owner 5. Buying a cara. Lease i. 3 yearsii. 12,000 milesiii. Not an asset, can’t resell it iv. Temporary placeb. Prices of cari. Can go on the internet now 1. Nationally and internationallyii. Depreciation 1. Brand new car depreciates the fastest and then levels off 6. Most home owners try to sell themselves and then get help form realtora. Realtor usually takes 6%, but can be negotiated c. Insurancei. Cost of housing and cars1. Most expensive thing in budget is housing 2. Next is transportationa. 18% of budget 3. Children is drive for people to buy house4. Insurance is under transportation a. Age of the driver, records, sex of driver ii. Care1. Wedding a. Around $30,000 in USb. Prenupsi. Signed before the wedding ii. Good idea if children, high incomes, or business is involved c. Postnupsi. After the wedding d. Receptioni. Most expensive part of the wedding e. Destination i. Instead of having it in home town or college town they go somewhere exotic ii. Expensive but it’s a trend2. Divorcea. Everything the couple brought to the marriage is divided b. Things are fought over usually i. Car, pets, kids, house, ectc. People think short range and not long rangei. Want a good lawyer, especially for womend. Meni. Ages 30-34 is highest divorce ratee. Women i. Ages 25-29 is highest divorce rate3. Medicarea. For elderly peopleb. 65 years and older c. From the government4. Medicaida. Low income peopleb. From the government5. Childrena. $300,000 for one child, middle classb. Girls are more expensive than boysc. Suburban is more expensive than rural d. Age of Majorityi. Financial independenceii. 18 or 21 years, depending on the state e. Biggest cost is housingi. Most people expand where they livef. Child birth is expensivei. Hospital stay is usually 24 hours after birth g. If child is making a lot of money then they can be on their own taxes h. Child is dependent (in school), they can be on parents income tax a long timei. 24 or 26 years old and rising iii. Insurance1. Policy a. Contract or agreement with company 2. Exclusions a. Things they won’t reimburse for3. Property insurancea. Replacement costi. If house is blown away from hurricane, how much will they replace?1. 80% usually b. Auto insurance i. Collision 1. Won’t buy if your car is an old clunker that will be replaced anyways2. Most expensive on auto 4. Health insurance a. Different types of insurance and different typesb. HMOi. Health maintenance organizationii. Most people are a part of thisiii. Group plan to give people lower ratesc. PPOi. Preferred provider org1. Smaller list of doctors you can see d. POS i. Not as popular 1. Even smaller list e. Long term coveragei. For older people most likely f. Some people have no insurancei. Most adults do have life insurance g. The least expensive and probably the best is to get insurance through employer 5. Life Insurancea. Termi. Short period of timeb. Whole lifei. For your entire life, more expensiveii. Has savings featurec. Universal lifed. Variable lifee. Employer can give this out for free f. Can offer annuities i. Give them a set amount of money and they pay youa set amount for the rest of your life ii. Variable annuities1. Go up and down with stock market2. Get a different amount each month 3. Most people do this when older g. About 25% goes uncollected 6. Home insurancea. Things in house you want to insurei. Collection, jewelry, etc. b. House is illiquid i. Hard to sell real fast and get money for it 7. Review policies regularly to make sure right people are on it and what you want to do iv. Art Insurance 1. In Florida we have a lot of art museums and art collections2. Every 3 to 5 years is when insurance should be updated on
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