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YOUR MONEY | Money Talk

Your Job Might Not Seem Risky, but Insurers Have Reason to Think So

November 01, 1998|LIZ PULLIAM

Q I recently called a few insurers to check out homeowners premiums and was outraged to find that one company wouldn't even quote a price because of my profession! It's not like I'm a skydiver or anything--I produce a network sitcom. Is this legal?

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A That depends on which sitcom it is.

Seriously, insurance companies can and occasionally do discriminate based on profession. It's not the physical risk you take that property insurers are interested in--it's the chance of your getting hit by a lawsuit. In addition to insuring you against fire and theft, your homeowners insurance pays for your legal defense in many kinds of liability lawsuits.

Insurers have found that people in certain professions have a higher risk of getting sued. Doctors, for example, are notoriously easy targets for lawsuits--even those that have nothing to do with their work--because people expect them to have deep pockets. Although malpractice insurance might protect physicians at work, it's homeowners insurance they turn to when a neighbor sues over a dog bite or a traveling salesperson slips and falls on the front porch.

The insurer you talked to probably had a run of lawsuits involving entertainment industry types. These suits might even be connected to your profession. Plagiarism lawsuits seem to be more common lately, for example, as are disputes over copyrights. This shouldn't be an issue, since homeowners insurance is not intended to cover business risks. But a handful of companies err on the overly cautious side.

If you are protected at work by some sort of professional coverage, you might want to take another run at this insurer and see if it will reconsider.

Or just keep calling around. Not all insurers have the same claims experience or prejudices, so one company's unacceptably high risk might be another's bread and butter.

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Q I read your Aug. 23 column about the freelancer who thought it was unfair that he couldn't contribute to a 401(k). I have worked for a company for six years and even though they are 50 years old, they do not have a 401(k) program. Bad management these days, but that's the way it is. Do you have any alternatives for me other than a wimpy IRA? I earn in excess of $150,000 and need a retirement program now. I thought of forming a corporation as a consultant and setting up a Keogh. Your thoughts on that?

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A You sound like a prime candidate for forming your own corporation, and you should start exploring this possibility pronto. Every dollar you're not contributing to a retirement plan could be costing you a bundle in lost future income.

As a corporation, you would be able to set up a variety of retirement plans, not just a Keogh or a simplified employee pension plan, which are the usual choices for the self-employed. You could even start an age-weighted pension plan that would allow you to set aside up to 100% of your income if you're closing in on retirement age. That's a heck of a lot better than the $2,000 you can tuck away in an individual retirement plan.

Our freelancing friend who wrote earlier was not a good candidate for forming a corporation because he was thinking about leaving his profession and because, at $100,000, his income was right at the cusp of where the expenses of setting up and maintaining a corporation outweigh the benefits.

And make no mistake, becoming and being a corporation is pricey, if you do it right. Now is not the time to rely on some fly-by-night outfit or a one-size-fits-all "Incorporate Yourself!" kit. Age-weighted retirement plans, especially, require a whole lot of expertise and administration, so you want savvy tax, legal and benefits professionals on your side.

How to find them? Talk to other smart consultants you know. Chances are good there is a certified public accountant or attorney who specializes in your profession and who can give you a realistic idea of the costs and benefits.

Liz Pulliam is a personal finance writer for The Times and a graduate of the certified financial planner training program at UC Irvine. She will answer questions submitted--or inspired--by readers on a variety of financial issues in this column. She regrets that she cannot respond personally to queries. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.

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