Taking Stock: A crash course on skyrocketing insurance rates

Dear Mr. Berko: We had to give my wonderful folks $420 so they could pay the increase in their homeowner's insurance premium. These insurance companies are greedy pigs. Please tell me how they're allowed to increase my parent's premiums by 32 percent.

A few years ago, my folks (who are in their mid-70s) had a fair retirement, but they had to watch their pennies. Fortunately, they got about $620 a month from their CDs. Today those CDs pay $100 a month, and it's painful to watch my parents make the best of things. Last week, when Dad told me he got a part time job at a hardware store, I cried.

This beautiful man was drafted, spent 23 months in Vietnam and got two purple hearts and a bronze star for his service. When he came home, he was booed. For 35 years, Dad worked himself to the bone, and he and Mom raised three of us to be good citizens. And now his country is booing him again.

Please tell me: Why have insurance rates gone up so high? Why has the government done nothing to help my dad? I've lost faith.

PN, Bethlehem, Pa.

Dear PN: Thanks for your three-page letter, which I've shortened. My answer won't solve the problem, but perhaps your folks should consider a reverse annuity mortgage, which could pay them $500, $600 or more per month. And, perhaps, if they could invade 5 percent of their principle annually to help them cope, assuming zero interest on $156,000, your folks could take $7,500 every year for 20 years before their money is reduced to zero.

Among the Federal Reserve's saddest failures are the Three Qs, or the three rounds of quantitative easing: QE-1, QE-2, and QE-3. Someone calculated that if the collective sum of the Three Qs were represented by 100-dollar bills, the volume of that currency would fill Yankee Stadium to the bleachers. Sadly, the benefits would hardly fill a press box. Many economists suggested that QE-1 would fail, but the politics behind QE-2 and QE-3 prevailed over economic realities.

The Fed's second silly failure was diddling with interest rates, keeping them near zero, to stimulate consumer borrowing. Even my son's two Schnauzers, Sigmund and Freud, know that people must have jobs to qualify for bank loans. Perhaps next the Fed will require banks to issue glow-in-the-dark checkbooks so Americans can spend money at night. Low rates have not helped the real estate market, shortened unemployment lines, stemmed the flow of Chapter 11s or encouraged consumer spending.

Many economists warned the administration that lowering rates would not jumpstart the economy and told us that premiums for home, health, auto and casualty insurance policies would increase dramatically. That was an easy call. Insurers keep hundreds of billions of dollars in short-term securities to help pay projected claims. A few years ago, those multiple billions earned 3 to 6 percent, and that income allowed insurers to meet claims without reducing reserve requirements. Now those earnings earning bupkis, so insurers had to raise premiums to maintain reserves.

Yes, the insurance companies are ''greedy pigs,'' but if reserve requirements fall below legal mandates, they will be forbidden to do business in your state. Your folks are a casualty of low rates, which have also caused a significant decline in consumer spending among retirees. Most retirees depend upon their CD earnings, but that income has vaporized. Some economists believe that reduced retiree spending has lowered our GDP by almost 2 percent.

The most evident consequence of the new hundreds of billions of dollars flooding the economy and low interest rates is the rank speculation and systematic pillage of the stock market. This kind of trading gave the Vampires of Wall Street the tools to drain the blood from the corpus of America's middle class. Stock values collapsed, pension plans became devalued, homes are underwater, incomes declined, jobs disappeared and municipalities struggle to stay solvent.

Please address your financial to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com. COPYRIGHT 2011 CREATORS.COM

Published: Thu, Dec 8, 2011

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