Sunday, August 24, 2014

The Four Most Important Reasons to Purchase Travel Insurance

The Four Most Important Reasons to Purchase Travel Insurance
More and more people are choosing to go down the budget route when it comes to traveling right now as almost everyone is feeling the pinch of the recession. One way that some people are choosing to cut back on the cost of their trip however is to take said trip without travel insurance. Can this save you money? It certainly can, but unfortunately, it can also end up costing you hundreds of times what you are saving. I will now outline a number of reasons why travel insurance should be moved to the essential category when you are listing what you can drop and what you cannot, for your next trip.
The Peace of Mind That Comes With Being Covered
Unfortunately, regardless of how care free we would all love to be, most of us are a little neurotic at heart. And there is no way more sure to bring out your neurotic side than to travel without travel insurance. Unfortunately, regardless of what type of trip you are taking, some things can go wrong. And if you don't have insurance, most people find it very difficult not to worry about those things.
The Costof Hospital Bills Abroad
The most important reason to purchase travel insurance is probably the ridiculous cost of medical bills in many countries. Should you be heading to America for example, a serious stay in a hospital could easily lead to bankruptcy if you are not insured. And there is not just the financial aspect of getting injured on holiday. Could you really handle the stress should you have to deal with an injury, a foreign hospital and financial pressures all at the same time?
Protection Against Lost Luggage
One of the most commonly claimed elements of travel insurance policies is lost luggage. Not only can a trip take a pretty serious nosedive in terms of pleasure when you lose your luggage, but it can also be a pretty expensive problem. If your airline loses your luggage at the start of your holiday, you are going to have to purchase everything again should you want to actually enjoy yourself. Travel insurance ensures that you can do so without returning home to massive credit card bills.
Protection Against Having to Cancel Your Trip Unexpectedly
Regardless of how well you plan your holiday, unforeseen events can occur that would lead to you being unable to head off. Travel insurance protects you if you are unable to take your holiday because of one of a number of common reasons. Eventualities that travel insurance protects against include serious illness, a death in the family, jury duty or an important exam needing to be retaken. And should you find that the destination that you are planning on heading to happens to be experiencing weather that would make your trip unwise, you can stay at home safe in the knowledge that your travel insurance also covers cancellation due to extreme weather conditions.

Does It Pay To Refinance?

Refinancing isn't always the best move. Here are some things to consider before you decide to redo your mortgage.

Refinancing a mortgage means paying off an existing loan and replacing it with a new one.

There are many common reasons why homeowners refinance: the opportunity to obtain a lower interest rate; the chance to shorten the term of their mortgage; the desire to convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, or vice versa; the opportunity to tap a home's equity in order to finance a large purchase; and the desire to consolidate debt.

Some of these motivations have both benefits and pitfalls. And because refinancing can cost between 3% and 6% of the loan's principal and--like taking out the original mortgage--requires appraisal, title search and application fees, it's important for a homeowner to determine whether his or her reason for refinancing offers true benefit.

One of the best reasons to refinance is to lower the interest rate on your existing loan. Historically, the rule of thumb was that it was worth the money to refinance if you could reduce your interest rate by at least 2%. Today, many lenders say 1% savings is enough of an incentive to refinance.

Reducing your interest rate not only helps you save money but increases the rate at which you build equity in your home and can decrease the size of your monthly payment. For example, a 30-year fixed-rate mortgage with an interest rate of 9% on a $100,000 home has a principal and interest payment of $804.62. That same loan at 6% reduces your payment to $599.55. (To learn more about the home costs, see "Mortgages: How Much Can You Afford?""Home-Equity Loans: The Costs" and "The Home-Equity Loan: What It Is And How It Works.")

When interest rates fall, homeowners often have the opportunity to refinance an existing loan for another that, without much change in the monthly payment, has a shorter term. For that 30-year fixed-rate mortgage on a $100,000 home, refinancing from 9% to $5.5% cuts the term in half to 15 years, with only a slight change in the monthly payment, from $804.62 to $817.08.

While ARMs start out offering lower rates than fixed-rate mortgages, periodic adjustments often result in rate increases that are higher than the rate available through a fixed-rate mortgage. When this occurs, converting to a fixed-rate mortgage results in a lower interest rate and eliminates concern over future interest rate hikes.

Conversely, converting from a fixed-rate loan to an ARM can also be a sound financial strategy, particularly in a falling interest rate environment. If rates continue to fall, the periodic rate adjustments on an ARM result in decreasing rates and smaller monthly mortgage payments, eliminating the need to refinance every time rates drop. Converting to an ARM may be a good idea, especially for homeowners who don't plan to stay in their home for more than a few years. If interest rates are falling, these homeowners can reduce their loan's interest rate and monthly payment, but won't have to worry about interest rates eventually rising in the future.

While the previously mentioned reasons to refinance are all financially sound, mortgage refinancing can be a slippery slope to never-ending debt. It's important to keep this in mind when considering refinancing for the purpose of tapping into home equity or consolidating debt.

Homeowners often access the equity in their homes to cover big expenses, such as the costs of home remodeling or a child's college education. These homeowners may justify such refinancing by pointing out that remodeling adds value to the home or that the interest rate on the mortgage loan is less than the rate on money borrowed from another source. Another justification is that the interest on mortgages is tax deductible. While these arguments may be true, increasing the number of years that you owe on your mortgage is rarely a smart financial decision, nor is spending a dollar on interest to get a $0.30 tax deduction.

Many homeowners refinance in order to consolidate their debt. At face value, replacing high-interest debt with a low-interest mortgage is a good idea. Unfortunately, refinancing does not bring with it an automatic dose of financial prudence.

In reality, a large percentage of people who once generated high-interest debt on credit cards, cars and other purchases will simply do it again after the mortgage refinancing gives them the available credit to do so. This creates an instant quadruple loss composed of wasted fees on the refinancing, lost equity in the house, additional years of increased interest payments on the new mortgage and the return of high-interest debt once the credit cards are maxed out again. The possible result is an endless perpetuation of the cycle of debt.

Refinancing can be a great financial move if it reduces your mortgage payment, shortens the term of your loan or helps you build equity more quickly. When used carefully, it can also be a valuable tool in getting your debt under control. Before you refinance, take a careful look at your financial situation and ask yourself, "How long do I plan to continue living in the house?" and "How much money will I save by refinancing?" (For more information, see "The True Economics Of Refinancing A Mortgage.")

Again, keep in mind that refinancing generally costs between 3% and 6% of the loan's principal. It takes years to recoup that cost with the savings generated by a lower interest rate or shorter term. So, if you are not planning to stay in the home for more than a few years, the cost of refinancing may negate any of the potential savings.

It also pays to remember that a savvy homeowner is always looking for ways to reduce debt, build equity, save money and eliminate that mortgage payment. Taking cash out of your equity when you refinance doesn't help you achieve any of those goals.

For a one-stop shop on subprime mortgages and the subprime meltdown, check out the "Subprime Mortgages Feature."

This article is from Investopedia.com, the Web's largest site dedicated to financial education. Click here for more educational articles from Investopedia.