Money Management Q&As

October 20, 2006

Home replacement costs; 401(k) enrollment; wash-sale rule

Is your home fully insured?

My home is now worth more than $700,000, but the renewal statement for my homeowners policy lists a replacement cost of only $375,000. Do I need to boost the coverage?

Maybe, but not based on your home's market value. That reflects uninsurable benefits, including your home's location and the cost of the land. Instead, you need to find out what it would cost to rebuild at current rates. If you don't trust your insurer's replacement-cost calculations, ask a local real estate agent or builders association to estimate local building costs per square foot and multiply that by your home's total square footage. You may also find the calculator at http://www.building-cost.net helpful. It factors in other variables affecting building costs, including the types of materials, design characteristics, and heating and cooling methods.

My mother lives alone but will need to move into an assisted-living facility soon. I was considering a home that's only a few miles from me, but a local service that offers free placement advice recommends a facility 20 miles away. How do I decide which is best?

Don't base your choice on the placement service's advice alone. Chances are the recommended facility rewards the placement service with a fee for each new resident it brings in, so the service's advice may be biased.

You can get objective and detailed guidance from either the Assisted Living Federation of America ( http://www.alfa.org) or the National Center for Assisted Living ( http://www.ncal.org). If you need more help, consider hiring a geriatric care manager in your area. This is an independent consultant-typically a nurse, social worker, counselor, or other healthcare worker-who has experience in various aspects of caring for the elderly. You may pay several hundred dollars for the GCM to evaluate your mother's needs and identify the facility that will best meet them.

Geriatric Care Managers can have varied backgrounds and experience, and few states require them to be licensed, so ask potential candidates plenty of questions. The National Association of Professional Geriatric Care Managers' website ( http://www.caremanager.org) provides tips on how to choose a manager and keeps a searchable online database of member managers.

One danger of forcing employees to save

To increase participation in our practice's 401(k) plan we'd like to automatically direct 3 percent of all employees' compensation into the plan. Besides the cost of additional matching contributions, what are the other potential downsides?

Although federal law permits automatic enrollment not all states do, so consult a knowledgeable attorney before going this route. Keep in mind, too, that since employees who don't enroll themselves probably won't tell you where to invest their money, you'll have fiduciary responsibility and could be held liable if their accounts perform poorly. To avoid running afoul of the rules, you'll also need to notify employees that they can elect not to participate or can alter the amount they contribute.

Getting a break on rental car costs

Recently I rented a car from an unfamiliar independent company near the airport and was pleasantly surprised to get good service, a discount rate, and a well-kept vehicle. The agent said he can offer lower rates because he doesn't pay airport fees. Next time I travel, how can I track down similar agencies?