Financial Planning

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Insurance and investment tips for musicians
by Jefferson Smith

In my experience as a financial planner for musicians, I’ve found that many people don’t know how their car and homeowners insurance policies work. If you get into a car accident on the way to a gig, and your favorite guitar is ruined, it is NOT covered under your car insurance. Personal items not “permanently installed” are never covered under an auto policy. Your homeowners or renters insurance would cover the loss, depending on the value and other circumstances.

Retirement PlanningLet’s say John and Paul are in a band together, and they drive to their gig at the Cavern Club in their respective vehicles. John gets into a car accident on the way there, and his Epiphone Casino electric guitar is destroyed. John doesn’t have renters or homeowners insurance, so he will have to replace it out of his own pocket.

Paul rear-ends someone the same night, and damages his Hofner bass guitar, but since he’s got renters insurance, his insurance company will send him a check to replace it. Depending on the company and kind of coverage he has, the check will either be for the actual cash value or for the replacement cost. The replacement cost is always the better option, so it’s wise to choose an insurance provider that has this option; not all of them do.

When John gets to the gig, he is understandably in a foul mood, and it only gets worse when Paul accidentally knocks over the stand that holds John’s Rickenbacker 325 electric guitar, breaking off the headstock. Again, this would have been covered if John had the proper insurance.

Consider your auto and home owners or renters insurance coverage

The insurance you would need in this situation depends on the provider and the worth of the damaged item. Most of the time, your homeowners or renters insurance would cover it, but if you claim you are a professional musician on your tax return, I would suggest getting personal floater coverage, which covers high-value personal possessions. It’s a little more expensive, but you get way more coverage, and the chances of your provider denying a claim are next to none.

But beware: Some companies will deny just about every claim, which is why you need to do a lot of research before selecting a provider, or consult with an insurance professional whom you trust.

Research competitive savings account interest rates

After the gig, John and Paul get their cash from club, and go back to their respective homes. The next day, John puts his earnings in his savings account minus a few bucks for food, gas, etc. His savings account pays him 0.2 percent interest, which as far as he knows is pretty decent.

Paul decides to do some research online to find out what to do with his money, as he thinks there has got to be a way to put his money aside and get a decent return on it while still keeping it liquid — having the ability to dip into it at any time without paying a penalty. He finds that Capital One has a savings account that pays 3 percent interest, and as far as he can tell, that’s the highest available right now. (By the way, I am not employed, associated with, or endorsed by Capital One, but to the best of my knowledge, this is the best short-term investment out there.)

Why did John end up making the mistakes he did as far as protecting his assets and his investments? It’s simple. He didn’t know any better. Most people just do what everyone else they know does when it comes to insurance and investments. The best advice I can give you is to ask lots of questions when you choose an insurance provider. The most important question to ask is “What isn’t covered?”

Every policy has some exclusions, and you need to know what they are. Insurance contracts can be difficult to understand, so I strongly suggest finding someone like me or a knowledgeable friend of yours who can help you make an informed decision and explain the language of insurance contracts to you. And don’t forget to consider your options before you make investments, such as in a savings account.

I hope this was helpful, and I’ll see you next month.

Jefferson Smith owns his own brokerage under the Transamerica umbrella and helps people make and save more money. Before Smith got into this field, he was in the music retail industry for 15 years. Now he helps musicians with their financial planning on an almost-daily basis.

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