HOME INSURANCE


Storm Insurance

Are damages from summer storms covered under my homeowners insurance policy? Are there some things I can do in advance to protect my home from high winds and water? -- C.E., Richmond

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Summer storms and hurricanes increase the chances of home damage from rain, flooding, sewer backups and fallen trees, and the damage is often not automatically covered by insurance.

Homeowners insurance covers damage from wind-driven rain -- generally, rain that comes into your house from the roof, windows, doors or holes in the walls -- but not damage from flooding, or water that comes into your home from the ground up. One good move is to buy a rider for your homeowners policy to cover sewer backup. Heavy rains can overburden the storm water system, causing water or sewage to back up into your house -- an unpleasant, expensive mess. Most homeowners insurance policies exclude coverage for sewer backup, but you can add $10,000 to $20,000 in coverage for as little as $50 per year; the coverage kicks in if a sewer line backs up or your sump pump stops working. Contact your homeowners insurance company to check on your current coverage and to ask about a rider. Also consider a battery-powered backup sump pump, which adds protection if your main sump pump takes in more water than it can handle.

You can buy flood insurance through the National Flood Insurance Program. For the maximum $250,000 of coverage, you’ll pay $365 per year in a low-risk area ($405 if you have a basement) and $2,500 or more per year in a high-risk area. To get quotes and an assessment of flood risk for your address, see the NFIP’s FloodSmart.gov.

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Most homeowners insurance companies offer discounts on coverage if you take measures to protect your home from storm damage. Chubb Insurance, for instance, gives a discount of up to 35% if you add stormproof shutters. You can also get a discount if you have an automatic back-up generator, which can help power a sump pump if your electricity goes out. A lightning rod with surge protection may also qualify your home for a discount.

Retirement money for a down payment

I would like to take money from my retirement savings to make a down payment on a house. Which is better to tap for a down payment -- a 401(k), a Roth IRA or a traditional IRA? -- C.T., Washington, D.C.

Your best bet is to tap your 401(k). You can usually borrow up to half of your balance, to a maximum of $50,000, from the account at any age and for any reason without tax or penalty. The interest you pay on the loan (typically the prime rate plus one or two percentage points) goes back into your account.

Loans from 401(k)s usually must be paid back within five years, but your employer may give you up to 15 years to repay a 401(k) loan if you are borrowing the money to buy a home. If you lose or leave your job, however, you generally have just 60 to 90 days to pay back the loan or it will be considered a distribution -- subject to taxes plus a 10% early-withdrawal penalty if you’re under age 55 at the end of the year you leave your job.

Kids and taxes

We claim our daughter as a dependent on our taxes. She’s going to be working this summer. Does she have to file a tax return? -- Keri Anderson, Pittsburg, Okla.

Kids who are claimed as dependents on their parents’ tax returns must file an income tax return if they earn more than $5,950 from a job in 2012. If your daughter earns less than that, she may still be required to file a return if she earns more than $300 for the year from any investments in her name.

But even if she isn’t required to file a tax return, she should still file if taxes are withheld from her paychecks so that she can get a refund. (She won’t get back money that is withheld for Social Security taxes, but her work will give her credit toward eligibility for Social Security benefits.) For more information, see IRS Publication 929, Tax Rules for Children and Dependents.

Keep the HSA?

I am about to turn 65, but I am still working. I have a high-deductible health insurance policy and a health savings account through work, but my employer requires me to sign up for Medicare at 65. Can I keep my HSA if I am on Medicare? -- S.L., Aurora, Colo.

You can continue to use the money already in the health savings account tax-free for uninsured medical expenses. But you can no longer make new contributions to your account after you sign up for Medicare.

Many out-of-pocket expenses qualify for tax-free HSA withdrawals even after you’re on Medicare. For instance, you can use the money to pay premiums for Medicare Part B, Part D prescription-drug coverage or all-in-one private Medicare Advantage plans (but not for medigap premiums). You can also use the money for co-payments, deductibles and other out-of-pocket costs. For a full list of eligible expenses, see IRS Publication 502, Medical and Dental Expenses, at www.irs.gov.

Roths and financial aid

Our two daughters both have part-time jobs and are eligible to make Roth IRA contributions. We’d like to match what they contribute. Will owning the Roth in their names affect their eligibility for college financial aid? -- Hannah and Baba Salia, Seattle

Retirement account balances -- such as in Roth and traditional IRAs, and 401(k) and 403(b) plans -- aren’t reported as assets on the free application for federal student aid (FAFSA), regardless of whether they’re owned by the student or the parent. The CSS Profile, an aid form that many private colleges use, also ignores retirement assets in the need analysis.

But distributions from retirement accounts are reported as income on both applications and could affect your daughters’ financial aid in the year after they take the distribution. The key to avoiding a problem, says Deborah Fox, founder of Fox College Funding, in San Diego, is to not withdraw the money until you are no longer applying for financial aid.

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