Property Insurance Coverage
Home Insurance Calculating Actual Cash Value, Part 19: Pennsylvania
Calculating Actual Cash Value, Part 19: Pennsylvania
It was an exciting down to the wire finish on Monday night for the NCAA basketball championship. Congratulation to Villanova! This week my blog in the series on calculating actual cash value will focus on Pennsylvania.
In Pennsylvania, actual cash value has consistently been interpreted to mean repair or replacement costs less depreciation. 1
In Gilderman v. State Farm Insurance Company . 2 the Superior Court held that where an insurance policy provides that the insurer will pay repair and replacement costs and that it will pay actual cash value in advance of actual repair or replacement of a covered loss, the insurer may not automatically withhold both depreciation and a flat 20% representing contractor overhead and profit from its advance payment.
Another issue that comes up when discussing ACV is whether labor can be depreciated. In Pennsylvania, for partial losses, the answer is no:
[I]n partial loss situations, in the absence of clear language to the contrary, an insurer may not deduct depreciation from the replacement cost of a policy and that the phrase ‘actual cash value’ may not be interpreted as including a depreciation deduction, where such deduction would thwart the insured s expectation to be made whole. 3
We are nearing the halfway point in the number of states covered in this series. Feel free to send me an email or leave a comment below with a request for the next state I will address in this blog series.
1 Gilderman v. State Farm Ins. Co.. 649 A.2d.941, 945 (Pa. Super Ct. 1994) .
3 Kane v. State Farm Fire Cas. Co.. 2003 PA Super 502, ¶ 19, 841 A.2d 1038, 1047 (Pa. Super. 2003) .
This is an issue that is very important to me. I am in charge of all policy wording for the Property Practice. I would really like to read the 18 previous issues on this subject. How do I obtain them?
Steven Enter into Google s word search box Calculating Actual Cash Value, Part 1 . And continue the search by adding Part 2, Part 3, and ect. accordingly.
Correct me if I am wrong, but I read this as; I will continue to pay the highly inflated premiums, with little or no guarantees that my insurance will actually cover the loss. So if I live in a 40 year home that is destroyed by fire, or natural disaster. I pay a premium based on a value of $250,000,but I will have everything depreciated and end up only getting monies to what STATE FARM determines to be it s value or useful life. Will that mean my house would only be useful for another 20 years, therefore it was 60% used up and they will only pay me 40% of the insured value? What can be done about this? This is absurd, besides it should be illegal. They don t offer to reduce premiums at a depreciated rate.
This change could potentially reduce or eliminate coverage depending on how it is interpreted, and in that regard should viewed as an actual or potential reduction in or elimination of coverage.
Same state; same insurer. Will they offer a Kelly Blue Book to rate our property with a depreciated value Before we renew our policies?
Seriously, I m am requesting the next state you address is Illinois. The quote is directly from my policy renewal.
Thank you for your time and any help you provide.
Thank you for your comment. I previously addressed Illinois. Here is a link to the blog post:
I just got my renewal from State Farm with FE 3650
I live in Missouri.
It also stated if you wish to secure coverages from another insurance carrier, contact your insurance producer immediately..
I think they are trying to drop all homeowners insurance like they did in California after the earth Quake, they dropped earthquake insurance.
Established in 1985, Merlin Law Group is a leading insurance litigation law firm committed to assisting policyholders receive fair and just outcomes from their insurance companies. Property insurance law is a highly complex and specialized area of law and our firm represents policyholders when claims are denied, delayed or underpaid. To learn more about Merlin Law Group visit: www.merlinlawgroup.com .
Present Value of a Growing Annuity
The present value of a growing annuity formula calculates the present day value of a series of future periodic payments that grow at a proportionate rate. A growing annuity may sometimes be referred to as an increasing annuity. A simple example of a growing annuity would be an individual who receives $100 the first year and successive payments increase by 10% per year for a total of three years. This would be a receipt of $100, $110, and $121, respectively.
The present value of a growing annuity formula relies on the concept of time value of money. The premise to this concept is that a specific quantity of money is worth more today than at a future time.
Like all financial formulas that involve a rate, it is important to correlate the rate per period to the number of periods in the present value of a growing annuity formula. If the payments are monthly, then the rate would need to be the monthly rate.
How is the Present Value of a Growing Annuity Derived?
The present value of a growing annuity is the sum of future cash flows. For a growing annuity, each cash flow increases at a certain rate. The formula for the present value of a growing annuity can be written as
This formula is the general formula for summing the discounted future cash flows along with using 1 + g to factor in that each future cash flow will increase at a specific rate.
This present value of a growing annuity formula can then be rewritten as
This would be considered a geometric series where (1+g)/(1+r) is the common ratio. By using the geometric series formula, the present value of a growing annuity will be shown as
This formula can be simplified by multiplying it by (1+r)/(1+r) . which is to multiply it by 1. This cancels out many of these throughout the formula, which leaves
In the denominator, (1+r) – (1+g) will return r-g . At this point, P and r-g can be factored out, which will lead to the present value of a growing annuity formula shown at the top of the page.
6 Ways To Capture The Cash Value In Life Insurance #universal #life #insurance #cash
6 Ways To Capture The Cash Value In Life Insurance
If you’ve heard it once, you’ve heard it a million times: Life insurance is a must-have, especially when you have a family that depends on your income. If you die unexpectedly, a life insurance plan will ensure all of your family’s financial needs will be covered – from the monthly mortgage to grocery bills to your child’s college education.
While income replacement is the primary purpose of life insurance, many policyholders tap into cash-value life insurance for other reasons, such as building up a nest egg for retirement. Also known as permanent life insurance. cash-value life insurance policies provide both a death benefit and a cash-value accumulation during the policyholder’s lifetime. See How Cash Value Builds In A Life Insurance Policy to read more about how this works.
With cash-value policies, policyholders can use the cash value in a variety of ways, including as:
- A tax-sheltered investment;
- A means to pay policy premiums later in life; and
- A benefit they can pass on to their heirs .
Don’t Throw Away Your Cash Value
Far too many policyholders make the costly mistake of leaving behind a wad of cash value in their permanent life policies. When the policyholder dies, his or her beneficiaries receive the death benefit, and any remaining cash value goes back to the insurance company. In other words, they’re essentially throwing away that accumulated cash value.
Fortunately, you can take steps to ensure you don’t trash your cash value. Here are six popular strategies to help you make the most of the cash value in your permanent life insurance:
Strategy 1: Boost the Death Benefit
If you have accumulated a sizable cash value over the life of your permanent life insurance policy and do not intend to use these funds yourself, you may choose to leave a larger death benefit to your beneficiaries. How can you pull that off? It’s usually very simple. Just call your life insurance company and say that you’re interested in making a trade: You’d like to increase the death benefit in exchange for the cash value on your policy. Because the life insurance company doesn’t want to lose your business, it will more than likely accept your request.
During the trade, your objective should be to completely drain the cash value and transfer the full amount over to the death benefit or the face value. For example, if you have a universal life insurance policy with a $200,000 death benefit and $100,000 in cash value, your goal is to completely empty the cash value and boost the death benefit to $300,000. That’s $100,000 more that will fall into your heirs’ hands instead of going to the life insurance company.
Strategy 2: Pay for Life Insurance Premiums
Once you have accumulated enough cash value, you can tap into it to cover premium payments. This is known as being “paid up.” The vast majority of life insurance companies are willing to honor this request – all you have to do is ask. Using this tactic, you could save $2,000 or more in premiums each year.
Strategy 3: Take Out a Loan
If you’ve built up a sizable cash value, you may also choose to take out a loan against your policy. Life insurance companies often offer these cash-value loans at interest rates lower than a traditional bank loan. Of course, you’re not obligated to pay back the loan since you’re essentially borrowing your own money. However, it’s important to note that any money you borrow, plus interest, will be deducted from the death benefit when you die.
Strategy 4: Make a Withdrawal
If you’re low on funds or simply want to make a large purchase, you have the option to withdraw some or all of your cash value. Depending on your policy and the size of your cash value, such a withdrawal could chip away at your death benefit or even wipe it out altogether. While some policies are reduced on a dollar-for-dollar basis with each withdrawal, others (such as some traditional whole life policies) actually reduce the death benefit by an amount greater than what you withdraw. Be sure to discuss this tactic with your insurance agent before you make any sudden moves.
In recent years, cash-value life insurance policies have become extremely popular with investors looking to supplement their retirement income. If you have accumulated a healthy cash value, you can use these funds in a variety of ways as an asset in your retirement portfolio. Often, these funds are guaranteed to grow tax-deferred for many years, which could really beef up your nest egg.
Most advisers say policyholders should give their policy at least 10 to 15 years to grow before tapping into cash value for retirement income. Talk to your life insurance agent or financial adviser to discuss whether this tactic is right for your unique situation.
Strategy 6: Full Surrender
Of course, you always have the option to surrender your policy and receive the accrued cash value. Before taking this route, it’s important to consider many factors. First and foremost, you’re relinquishing the death benefit when you surrender a life insurance policy – which means your heirs will receive nothing from the policy when you die. In most cases, you’ll also be charged surrender fees. which could greatly reduce your cash value.
Additionally, the cash you receive through the surrender is subject to income tax. If you have an outstanding loan balance against the policy, you could incur even more taxes. Before taking the leap, consult your insurance adviser about the potential consequences and read Cashing In Your Life Insurance Policy .
Don’t let the cash value you have in a permanent life insurance policy accumulate without deciding how you will use it. And make sure the cash value is drained and redeployed later in life.
An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for.
An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories.
A form of short-term borrowing for dealers in government securities.
An aggressively managed portfolio of investments that uses leveraged, long, short and derivative positions with the goal.
Records that outline the financial activities of a business, an individual or any other entity. Financial statements are.
Present Value of an Annuity #present #value #of #an #annuity, #pva, #present #worth #of
Present Value of Annuities
An annuity is a series of equal payments or receipts that occur at evenly spaced intervals. Leases and rental payments are examples. The payments or receipts occur at the end of each period for an ordinary annuity while they occur at the beginning of each period.for an annuity due .
Present Value of an Ordinary Annuity
The Present Value of an Ordinary Annuity (PVoa) is the value of a stream of expected or promised future payments that have been discounted to a single equivalent value today. It is extremely useful for comparing two separate cash flows that differ in some way.
PV-oa can also be thought of as the amount you must invest today at a specific interest rate so that when you withdraw an equal amount each period, the original principal and all accumulated interest will be completely exhausted at the end of the annuity.
The Present Value of an Ordinary Annuity could be solved by calculating the present value of each payment in the series using the present value formula and then summing the results. A more direct formula is:
Where: PVoa = Present Value of an Ordinary Annuity PMT = Amount of each payment i = Discount Rate Per Period n = Number of Periods
Example 1: What amount must you invest today at 6% compounded annually so that you can withdraw $5,000 at the end of each year for the next 5 years?
PVoa = 5,000 [(1 – (1/(1 + .06) 5 )) / .06] = 5,000 (4.212364) = 21,061.82
Example 2: In practical problems, you may need to calculate both the present value of an annuity (a stream of future periodic payments) and the present value of a single future amount :
For example, a computer dealer offers to lease a system to you for $50 per month for two years. At the end of two years, you have the option to buy the system for $500. You will pay at the end of each month. He will sell the same system to you for $1,200 cash. If the going interest rate is 12%, which is the better offer?
You can treat this as the sum of two separate calculations:
- the present value of an ordinary annuity of 24 payments at $50 per monthly period Plus
- the present value of $500 paid as a single amount in two years.
PMT = 50 per period
i = .12 /12 = .01 Interest per period (12% annual rate / 12 payments per year)
n = 24 number of periods
PVoa = 50 [ (1 – ( 1/(1.01) 24 )) / .01] = 50 [(1- ( 1 / 1.26973)) /.01] = 1,062.17
FV = 500 Future value (the lease buy out)
i = .01 Interest per period
n = 24 Number of periods
The present value (cost) of the lease is $1,455.95 (1,062.17 + 393.78). So if taxes are not considered, you would be $255.95 better off paying cash right now if you have it.
Present Value of an Annuity Due (PVad)
The Present Value of an Annuity Due is identical to an ordinary annuity except that each payment occurs at the beginning of a period rather than at the end. Since each payment occurs one period earlier, we can calculate the present value of an ordinary annuity and then multiply the result by (1 + i).
Where: PV-ad = Present Value of an Annuity Due PV-oa = Present Value of an Ordinary Annuity i = Discount Rate Per Period
Example: What amount must you invest today a 6% interest rate compounded annually so that you can withdraw $5,000 at the beginning of each year for the next 5 years?
i = .12 /12 = .01 Interest per period (12% annual rate / 12 payments per year)
n = 24 number of periods
i = .01 Interest per period
n = 24 Number of periods
Cash Value of Life Insurance Policy
If you are considering permanent life insurance – such as whole life, universal life, or variable life insurance – you probably know that these types of policies provide both death benefits and cash value accumulation. You can use the cash value for many different needs, including your living expenses in retirement.
Ways to Use Life Insurance Cash Value
- Pay your policy premium
- Borrow from the cash value to pay large expenses, at a lower rate than banks offer
- Structure an investment portfolio that maintains and accumulates wealth
- Use the cash value for expenses in retirement
Cash Value Life Insurance Definition
Cash value life insurance is a type of permanent insurance policy consisting of a “death benefit,” which is a standard part of all life insurance policies, as well as a cash value accumulation feature. Whole life, universal life, and variable life insurance are the three primary types of cash value life insurance.
When you pay your premium, a portion of that payment is allocated towards the cash value. The life insurance company invests the money into a conservative-yield form of investment. The cash value grows over time as you continue to pay your premium and through the interest you earn.
The life insurance cash value is the amount of money you have built up through your premium and investment interest for the length of time you have owned the policy.
How Does Cash Value Life Insurance Work?
When you pay your insurance premium for a permanent life insurance policy, the money is generally allocated in three portions:
- Payment for the face value of the insurance policy or death benefits, which your beneficiary or beneficiaries will receive after you pass away
- Payment for the insurer’s cost for administering the policy
- Payment toward the cash value, which is subsequently invested by the life insurance company
The cash value builds from a combination of each premium payment you make and the interest earned from the investments made by the life insurance company.
The cash value generally grows slowly in the first few years of the policy then experiences more significant growth later. The cash value accumulation then slows again as the policy holder ages and more of the premium is applied to the death benefits.
Life Insurance Cash Value Growth
The life insurance cash value growth is dependent on both the premium and how well the life insurance company’s investments perform. Some forms of permanent life insurance policies offer a guaranteed minimum rate of return. You’ll benefit when the investments perform well; you earn a higher return on the investments, and can be protected if the policy has a guaranteed rate of interest when economic times are slower. Additionally, some insurance companies will also pay a dividend if fewer life insurance policies are paid out in a given year.
The rate of return on the investments made by any life insurance company varies for a variety of reasons:
- Some investment portfolios perform better than others
- The strength of the investment market fluctuates
- The account managers handling the investment portfolios have varying rates of success
The overall return rate of investment on a policy that has been in place long term can be 4.97% or higher on an annual average for the life of the policy. When you are comparing life insurance companies and policies, be sure to work with a knowledgeable independent agent who can assess how well various permanent life insurance companies have performed.
Life Insurance Cash Value Tax
You might be wondering if and when you have to pay income tax on the cash value portion of your policy. This is how the tax situation works.
- Whole life non-participating policy and universal life insurance policy: As long as cash value continues to grow in an active policy, the cash value is not taxable until one of the following occurs:
- You cancel or “surrender” the policy
- You transfer the life insurance policy, such as when you assign or sell the policy
- The policy is no longer considered a life insurance contract by the IRS
- Participating whole life policy: The same applies to these policies with above described conditions, but there is a slight difference when it comes to the payment of the dividends on a “participating” whole life insurance policy. In a participating whole life policy, dividends are paid out to the policy holder and are considered to be a “return of premium.” The policy holder has four choices to choose from in how to use the dividends:
- Buy more coverage
- Use the dividends to reduce the future amount of your premiums
- Reinvest the dividends
- Receive the dividends in cash
These dividends are not taxable until or unless the dividends you receive exceed the total amount of premiums paid on your particular policy. Any dividends you receive that exceed the total amount of premiums paid on your policy are considered taxable. The excess dividends will be taxed regardless of how you use them.
Cash Value vs. Surrender Value
The cash value and the cash surrender value are inherently the same. The difference between the cash and the surrender value is that if you surrender your policy (for example, if you choose to cancel and cash out the life insurance policy), you will receive the cash value that has accumulated less any applicable surrender charges; these charges are pre-determined by the life insurance company, and are stipulated in your policy contract.
Note that there is a “surrender period,” which is the period of time that a policyholder must wait before it is possible to receive the cash value of the policy upon canceling. If the policyholder cancels the policy before the end of the surrender period, it is not likely the policyholder will receive any amount of the cash value because these costs are incurred by the insurance company to set up the policy.
Borrowing Against Your Life Insurance Cash Value
After the surrender period ends, you can typically take out a loan against a portion of the available cash value. Note that you should only do so for an express purpose, and that there are several things to consider:
- This loan can be taken out without having to pay taxes on it
- You are not required to repay this loan back to the insurance company
- The insurance company will charge the interest rate on the outstanding loan
- Both the interest the company is charging for the loan and the amount of cash value you borrowed will be deducted off the death benefits if you die while the policy is still in force, unless you have repaid the loan
A life insurance cash value policy can help you build up a substantial savings over time and can be especially advantageous if you aren’t very investment savvy or have difficulty saving money for your retirement.
There are many different versions of these types of policies and they vary in how they are structured. You are best advised to contact a local independent agent in the Trusted Choice network who can provide unbiased information about cash value life insurance policies versus term life insurance policies. One of these agents, right in your area, can help to evaluate your financial needs and goals and answer your questions about various life insurance options.
Find an agent today to learn more about permanent life insurance cash value policies and get the coverage you need.
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#business valuation calculator
10 Business Valuation Calculators To Gauge Value of A Business for Sale
Believe it or not, there’s no right or wrong way to work out how much a business is worth. Experts use loads of different valuation methods and the number those calculations come up with will vary greatly depending upon the criteria set forth.
That being said, if you know exactly what it is you value in a business, it’s not hard to work out a ballpark figure. After all, nobody in their right mind would pay for an existing business without knowing what it’s worth.
To help you get started, here are some of the Web’s top free business valuation calculators.
10 Business Valuation Calculators
CalcXML has been providing a wide range of financial tools to small businesses for a while now. And the company’s valuation calculator is a tried-and-tested model.
It’s a simple tool designed to give potential buyers a quick snapshot. It takes all of the basics into consideration, including: annual earnings, excess compensation and level of business risk. Best of all, it only takes a few minutes.
EquityNet is one of the globe’s leading pioneers in crowdfunding. Established in 2005, the platform works to connect thousands of entrepreneurs with investors of all shapes and size and has already helped start-ups across the globe raise hundreds of millions in equity, debt and royalty-based capital.
As part of that mission, EquityNet provides a valuation calculator backed by real market data gathered from over 3,000 business across North America. That enables you to weigh the value of a business against potential competitors which is a factor some analysts often overlook.
EquitNet also provides free calculators to work out a company s profit margin, cash flow and startup risk.
ExitAdviser is an online support service that enables business owners to connect with potential buyers. In line with that service, ExitAdviser plays home to an extremely quick business valuation calculator designed to give potential buyers quick quotes.
To get an estimate, buyers simply need to enter net profit from a company’s most recent financial year and forecast its sales growth. That said, there are plenty of more advanced input options to help generate more accurate valuations.
Like most free valuation calculators, BizEx hosts a platform based upon the ‘Multiple of Earnings’ method. But their calculator is far more advanced than most of the free models you’ll find kicking about on other sites.
By including an in-depth breakdown of a company’s discretionary and multiple earnings, you’re able to create instant valuation ranges depending upon a range of variables. Afterwards, you’re given the option to talk these numbers over with a broker if you’re so inclined.
5. Bridge Ventures
The Bridge Ventures calculator is designed to create an estimated market value for a company based upon a diverse set of attributes. Technically speaking, this calculator is only meant to be used for small businesses with revenues of under $2 million.
It’s worth noting this calculator is most compatible with Google Chrome, as there are a few unwanted kinks when opened on Internet Explorer. That said, it’s a simple calculator that renders quality results.
6. Hadley Capital
Hadley Capital ’s business valuation calculator is slightly different, in that it applies a multiple of EBITDA to determine the Enterprise Value of your business. In general, a small business will usually trade for around three or four times its normalized EBITDA. That said, the multiple will slide dramatically based upon a variety of characteristics specific to your business.
This calculator understandably places particular emphasis on your annual EBITDA, annual capital expenditures and how much of your revenue comes from top customers.
7. John Hancock Life Insurance
John Hancock has been around for a long time. As such, you’d expect the company to have worked out a pretty reliable way in which to tally up the value of a business.
First-time buyers may be inclined to check out this calculator, as it includes an incredibly useful glossary of terms designed to cut through all of the meaningless financial jargon associated with business valuations. It also clearly explains all methodologies involved in calculating your valuation.
8. MassMutual Financial Group
MassMutual is an all-encompassing insurance provider that represents over 13 million clients across the globe. Consequently, the company values user experience far more than some of the industry’s smaller websites. Its business value calculator is no exception.
This user-friendly calculator very clearly and concisely walks you through every step of the valuation process in order to work out a decent estimate in as little as two minutes.
HelpSME is a great resource for small businesses in need of tutorials and advice. That’s why the site offers an easy-to-use valuation calculator using the Net Present Value (NPV) method. This approach uses a company’s future cash flows to try and work out how much it’s worth in the here and now.
HelpSME’s calculator also includes useful guides designed to help you wrap your head around the value provided.
10. National Life
National Life is an all-encompassing collective of financial services companies, and its online valuation calculator draws upon that power in order to generate fairly well-informed market estimates.
Similar to HelpSME, National Life’s calculator finds the worth of a company by looking at the present value of its expected future earnings. It places particular consideration on a company’s lack of marketability and excess compensation.
In the same way that no two valuations are alike, it s crucial to bear in mind that this list is by no means exhaustive. There are loads of brilliant valuation calculators online that you can use in order to generate a snapshot of how much a business may be worth.
Just remember: these free business valuation calculators aren t always accurate. At the end of the day, it s up to you to do your homework in order to ensure you ve put in (or accepted) the best possible offer for an existing company.
Nash Riggins is a Staff Writer for Small Business Trends and an American journalist based in central Scotland. Nash covers industry studies, emerging trends and general business developments. His writing background includes The Huffington Post, World Finance and GuruFocus. His website is NashRiggins.com.
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