When she told me they didn’t have renter’s insurance, my immediate followup question was, “Why in the world not?”

Renter’s insurance is very cheap, and provides quite a bit of protection for your personal property and peace of mind. She said that she didn’t know how affordable it could be, and had never tried to purchase it. She simply assumed that her family would not be able to afford it on their meager budget.

This is just one of several myths that continue to circulate about renter’s insurance. These myths keep far too many people from protecting themselves, their families, and their belongings with this important insurance coverage.

Here are five myths about renter’s insurance that continue to circulate, but are simply not true.

Renter’s insurance is too expensive

When compared to other types of insurance policies, renter’s insurance provides some of the lowest total premium costs for the highest level of protection. For example, depending on your circumstances, you may be able to buy $100k or more in renter’s insurance coverage for as little as $25 or less per month.

Simply put, there is no reason you should risk a huge loss when you could protect yourself for so little.

My landlord’s insurance covers me

Your landlord’s insurance does not cover your personal possessions. His insurance simply covers the building’s structure, and will allow him to rebuild should it be destroyed by fire or natural disaster.

There is no provision in the landlord’s insurance policy for the tenant’s personal property. You need to acquire your own renter’s insurance to ensure that you are adequately protected from perils and catastrophes.

I don’t own enough to need insurance

Many renters don’t own a lot of personal property, and thus feel that they can get away without insurance. The problem is that far too many renters undervalue their personal property. Most people have spent years collecting things such as electronics, furniture, clothing, and other items.

When was the last time you conducted a home inventory of all your personal property? If you were to add all of your possessions up, you might be surprised by how much you could lose. It could quickly add up to more than you’d be able to replace on your own.

I don’t need liability coverage

Renters are not typically covered by their landlord’s liability insurance. Thus, if someone gets hurt inside your apartment, you could be on the hook. You landlord’s policy typically only extends to the common areas that are shared by all tenants such as pools, playgrounds, and other communal areas.

Having renter’s insurance could provide you with at least a small amount of liability coverage should someone get hurt because of your negligence. You can also supplement your renter’s insurance with additional umbrella insurance if you need more liability coverage.

Now that I have it, all my stuff is covered

There are several categories of items that are either not covered by renter’s insurance, or are only covered up to a certain value. Your renter’s insurance most likely has a limit for losses related to artwork, cash, electronics, furs, jewelry, guns, stamps, and other collectibles.

For example, many renters’ insurance policies have a $2,500 limit for jewelry. So, in many cases, a nice engagement ring and wedding band could quickly eclipse that coverage limit. In most cases, however, you can purchase additional coverage in the form of a low cost rider.

What about you?

If you’re a renter, do you have a renter’s insurance policy?

Ultimately, skimping on this sort of coverage could turn out to be one of the biggest money mistakes of your life. But guess what? You wouldn’t be alone.

According to a study by Allstate, nearly two-thirds of all apartment and condo renters lack renter’s insurance. At the same time, data from the Bureau of Justice Statistics shows that renters are 50% more likely to be the victims of theft as compared to homeowners.

The bottom line is that renters need to protect themselves with renter’s insurance just as much as homeowners need a homeowner’s policy.

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I spent yesterday at the hospital. Don’t worry, it sounds a lot worse than it was… Our oldest son had to have his tonsils and adenoids removed, so my wife and I were camped out in the outpatient surgical center for the better part of the day.

In the end, everything went smoothly, and he’s on the road to recovery. But this isn’t a parenting or medical website. This is a financial website. Thus, I thought I’d talk a bit about the financial side of such things.

As you know, we’ve been participating in my employer’s high deductible health plan for the past couple of years. In other words, we’ll be facing a whopping bill once the dust settles. Actually, it will be multiple whopping bills… The hospital, the doctor, and the anesthesiologist all bill separately. And then there will likely be some lab tests, etc.

The good news is that we’re protected on the upside by our $3,000 deductible. The bad news is that, since it’s January, we’ve paid almost nothing toward it thus far, so we’ll be paying that out-of-pocket. In our case, that really just accelerates the inevitable. With four kids in the house, we usually hit our deductible bill mid-year whether or not we have a major medical procedure.

But still, a $3k medical bill to start the year is something that could really set a lot of people back. Fortunately, we have short term cash in the bank, and we also having a well-funded health savings account (HSA) in case we need it.

Truth be told, we’re planning on continuing to use our HSA as a tax-advantaged investment account, so we’ll be paying for this from other sources. But if we weren’t, we could always fall back on that HSA.

As I’ve noted in the past, the lower premiums of our particular health plan more than make up for the higher deductible. But if we hadn’t been planning ahead, a relatively major medical procedure could’ve created a short-term cash crunch. If you’re considering a high deductible health plan, just be sure that you’re aware of, and prepared for the worst case scenario.

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If you’ve booked a vacation for your family lately, or sent your kid off on a school-sponsored field trip, you’ve probably considered trip-cancellation insurance. These offers generally promise to reimburse you for the vacation or field trip if you need to cancel. Are these plans worth the cost? It depends on your own personal risk calculation.

What does it cover?

Trip cancellation insurance comes in several flavors. Basic coverage reimburses you if you can’t make your trip because of certain reasons, such as if you get sick, a hurricane rakes the island you were going to visit, or terrorists attack your hotel. The insurance covers non-refundable expenses, so if the tour operator cancels your tour and they refund your fee, for example, the insurance does not pay.

The basic coverage also generally provides benefits if your trip is delayed or interrupted. It also pays for lost or delayed baggage, some medical benefits if you’re injured during your vacation, and emergency evacuation if something horrible happens during your vacay.

You can add to the basics. For example, for an extra fee you can add “cancel-for-any-reason” coverage, which reimburses you for at least part of the non-refundable portion of your trip if you cancel for any reason not covered by the usual terms. Other common upgrades are rental car insurance and accidental death insurance at higher amounts than the basic package offers.

Needless to say, read the terms carefully before you buy so you fully understand what is covered.

What does it cost?

How much does all of this cost? Prices vary, of course. In a comparison of four leading providers, basic coverage for a family of four on a $4,000, week-long, domestic vacation ranged from $82 for a policy from Travel Insured to $275 for a policy form HTH Worldwide.

Those two plans differed mostly in the amount of coverage. For example, the HTH plan included $500,000 in health coverage, while the Travel Insured plan offered $10,000; and the HTH plan offered $1 million emergency medical evacuation coverage, while the Travel Insured plan provided $100,000 coverage for that service.

In addition to the two firms mentioned above, popular trip cancellation insurance firms include American Express, Travelguard, and Access America. Insuremytrip.com is a site that allows users to compare rates from about 20 providers.

Furthermore, many trip providers, such as school field trip organizers, offer their own policies. As do some credit cards — be sure to see if your card provides this coverage before spending money on a separate policy.

But do you need it?

This all sounds good, but you should evaluate this kind of insurance the same way you would evaluate any kind of insurance. Rather than thinking, “Wow, I’d love to get reimbursed for our vacation if my kid gets the flu the night before,” think, “Hmmm, what are the odds my kid is going to get the flu the night before our vacation?”

Use the $4,000 family vacation above as an example. Let’s say you’re considering a plan that costs $200 and will reimburse you for the full $4,000 if someone in the family gets sick and you have to cancel. Forget about the rest of the coverage — emergency medical evacuation, health insurance, death benefits, etc. — for the moment and focus on the real reason you might get this insurance: to refund your purchase price.

If you buy this policy, you are essentially gambling $200 against a potential pay-out of $4,000. What are the odds that you will “win” this gamble? You’ll win if one of you gets sick or a big storm hits the vacation site or whatever. So what are the odds of that? One way to calculate those odds for your family is to look at history: How many vacations have you had to cancel in the past few years? If you have taken ten vacations over the past five years, and cancelled one of them because of a covered reason, you could assume that the odds of you having to cancel your current, $4,000 vacation are one in ten.

So think about it: If your neighborhood bookie put $4,000 on your kitchen table and said you could have it if you drew the right card out of a stack of ten, would you pay him $200 for that one draw? Probably not, unless you’re really into taking risks.

But here’s another way to think about it: If you bought the insurance every time, you would come out even if you were able to collect on the insurance once for every 20 trips. Now it doesn’t sound that risky, especially if you travel a lot.

Obviously, many factors play into your personal risk calculation — maybe you are not traveling with any accident-prone children or maybe you know the tourist destination you are headed to frequently has hurricanes (hmm, maybe you want to rethink this vacation!). The point is, whatever the circumstances, make a rough guess of your odds of using the insurance before you plunk down the money.

Insurance companies do this with highly trained actuaries using sophisticated algorithms and databases full of historical information, but you can make an educated guess without any of that.

That way, whether you get the insurance or not, you will rest easy knowing that you made an informed decision.

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As a follow up to my recent post about the high cost of elder care, I wanted to spend a bit of time talking about long term care (LTC) insurance. In general terms, LTC coverage applies to individuals who are not actually sick, but are not able to perform the basic “activities of daily living,” which include bathing, using the bathroom, dressing, eating, and transferring yourself in/out of a bed, chair, etc.

In most cases, coverage is also available for those with a cognitive impairment. This could include memory loss (short or long term), loss of orientation as to people (who they or others are), places, or time, and reduced capacity for deductive or abstract reasoning. If the impairment is bad enough that it requires supervision to ensure safety, most LTC policies will kick in.

According to the Department of Health and Human Services, about 60% of those aged 65 or older will require some sort of long term care during their lifetime, with over 40% requiring care in a nursing home. And, for the most part, traditional health insurance and Medicare won’t cover the costs associated with this care. In other words, you’re on your own, so you’d be well advised to plan ahead.

What follows is a list of important considerations when it comes to choosing a long term care policy. This list is by no means exhaustive — it’s mainly based on things that I’ve run across while reading through my parents’ policies — but it at least gives you a good place to start.

When to buy

First and foremost, you’ll need to decide when to buy your policy. In general terms, if you buy too soon, you may wind up paying for coverage that you don’t need (yet). But if you wait too long, the premiums will be sky high. Also, the longer you wait, the more likely you’ll be rejected for coverage. For reference, more than half of all policies are sold to those in the 55-64 age group, though an argument could definitely be made for buying as early as age 45.

Benefit level

Another important consideration is how much coverage you’ll need. Obviously, more is better, but higher benefits come at increased cost. It really seems like this one falls into the “it depends” category, as the costs associated with different types of care vary widely across the country. In other words, one size doesn’t fit all.

Benefit increase option

Related to the above… Costs associated with long term care will increase over time. Do you want your benefit level to increase, as well? In many cases, you can elect a “benefit increase” option to help keep pace with inflation, though this will likewise come at a cost. Still, this is worth at least considering, especially if you buy a policy relatively early.

Elimination (waiting) period

The elimination period is a bit like a deductible, in that you’ll have to pay for the care yourself (out-of-pocket) for a set period of time before your LTC benefits kick in. Elimination periods can vary from 20-120 days, though 90 days seems fairly common. Note that you can typically only count those days on which costs were actually incurred, so you can’t just pay someone to come in once a week for 3 months to satisfy a 90-day elimination period.

Waiver of premium

Once the benefits kick in, do you need to keep paying the premium? In some cases, yes, in other cases, no. In my parents’ case, the waiver of premium appears to only kick in after they’ve spent 60 days in a nursing home. In other words, it doesn’t appear to apply to in-home healthcare (though I’m still trying to track this down). This is a bit of a bummer, but it is what it is.

Maximum lifetime benefit

Finally, depending on the policy that you choose, there may be a maximum lifetime benefit. This limit can be defined either in terms of a total dollar amount, or a set number of years over which the policy will pay out. Choose carefully, as you may live longer than you expect, and these costs really add up over time.

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As I write this, I’m sitting in the living room of my childhood home. My dad has been experiencing some fairly serious age-related health issues, so I took some time off to come home and help out for a few days. Unfortunately, he’s at a point where my mom can’t care for him entirely on her own, so they’ll be needing some help.

The good news is that they’ve been carrying a long-term care insurance policy for quite some time now, so they’ll be able to fall back on that for some financial assistance. But even with that policy in place, I’m learning that elder care ain’t cheap.

The policy that they’re carrying will pay somewhere between $150-$200/day for in-home care — let’s call it $175 for simplicity — and they’ll probably need 8-10 hours per day of help. The rates that we’ve been quoted thus far are around $30/hour, that works out to $240-$300/day. Subtracting off the LTC benefit leaves a difference of $65-$125/day that they’ll have to pay out-of-pocket.

But… The LTC coverage doesn’t kick in for 90 days, which means they’ll have to foot the bill for three months on their own — to the tune of somewhere between $7k-9k/month. Yikes! That’s a huge amount. And even after the LTC policy kicks in, they’ll be facing $2k-$3.8k in monthly expenses related to his care.

Over the course of a year, that works out to $25k-$45k in additional expenses. Ouch. I always new these things were expensive, but I’ve never done the math. And before you ask… Medicare only covers skilled “medically necessary” care, not the so-called “custodial care” that my dad will need.

In retrospect, I shouldn’t be too surprised by all of this. What we’re talking about is essentially a full-time (and then some) position, so it only stands to reason that they’ll have to pay for the privilege.

The good news is that they’ve scrimped and saved for retirement, they have a good pension, and they’ve long since paid off their mortgage, so they should be able to get through this. And if/when he needs to go in for full-time care in a nursing home, the LTC coverage will increase. But this was certainly an eye-opener for me.

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A reader named Marc recently left a comment asking how our high deductible health plan has worked out for us. Given that November is open enrollment season, this is a very timely question, so I thought I’d tackle it with a dedicated post.

In short, we’ve been thrilled with the HDHP (and the associated HSA) offered through my employer – though it’s important to keep in mind that plan details vary widely, as do individual circumstances. In other words, it’s important to check the details for yourself, and to make your own decision.

In our case, we have a $3000 family deductible vs. $900 if we stuck with the old PPO plan. In other words, we’re facing a possible difference of $2100 when it comes to meeting our deductible. The HDHP also has a higher annual “stop loss” ($6k vs. $2k) but, given the structure of the benefits (we pay just 10% of the usual and customary rate [UCR] once our deductible has been met) it would take some pretty extraordinary bills to be hurt by that.

The balance of the plans is very similar, though the PPO does have a $20 per office visit copay, which doesn’t go toward the deductible, and actually works out to at least double our 10% of UCR payment with the HDHP, so that’s a point in favor of the HDHP. And speaking of points in favor of the HDHP… Our plan also gives us access to a health savings account (HSA). Not only that, by my employer has been incentivizing this plan by matching a portion of our contributions.

Now for the big one… The premiums. Obviously, the HDHP has lower premiums due to the lower level of coverage. But what is it enough to make a difference? Yes, by a long shot. When we first signed up, we were saving $370/month by using the HDHP instead of the PPO. That’s $4440/year, which is far more than the difference in deductibles, and would actually cover a nice chunk of the stop loss difference if we were to need it.

This year, the monthly difference is actually closer to $390, so we’re saving close to $4700/year in premium payments — all for taking on an extra $2100 in deductible, better terms (10% UCR instead of $20 office visit copay) once our deductible has been met. Plus, we get to stuff over $6k/year into an HSA (and don’t forget about that employer match!), which is effectively an additional tax advantaged investment account. Oh, and don’t forget about those matching contributions.

In short, in the two years we’ve had the HDHP, we saved thousands (and thousands!) of dollars over the old school PPO plan. And yes, we’ve hit our deductible in both years. In fact, we hit it within the first six months in both cases, but we’re still making out like bandits. Remember, we have four kids, so things add up quickly.

Why? I’m guessing that consumer behavior changes under a pay-as-you-go model, with the high deductible making people less likely to seek medical treatment for minor, everyday maladies that might otherwise send them running to Urgent Care. This translates into lower healthcare costs, which equals cheaper insurance.

Not surprisingly, I once again opted for the HDHP and am looking forward to stuffing another year’s worth of contributions into our HSA.

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While Hurricane Irene wasn’t nearly as bad as many pundits predicted, it still caused a good bit of damage. If you’re one of the many East Coast homeowners that is stuck cleaning up storm damage, you might be wondering if your homeowners insurance will pay for tree removal.

Here’s the scoop:

• If your tree fell on your house, then your insurance will cover the damage and pay for of the tree removal.
• If your tree fell on your neighbor’s house, then their insurance will cover the damage and pay for the tree removal.
• If your neighbor’s tree fell on your house, then your insurance will cover the damage and pay for the tree removal.
• If your (or your neighbor’s) tree fell in your yard without hitting a structure, then you’re on your own.

In other words, if your property gets damaged, your insurance pays regardless of who the tree belonged to. But if the tree doesn’t do any damage, insurance doesn’t get involved. According to the Federal Citizen Information Center, the primary exception to this rule is that if a fallen tree blocks access to your property (e.g., if it falls across your driveway) then removal might be covered.

Note that tree removal, when covered, is often subject to a dollar limit in the neighborhood of $500, so you might still be out some cash (not to mention your deductible) even if the loss is otherwise covered.

Source: CBS Philly via The Consumerist

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About a year and a half ago, we paid off our mortgage. The issue of whether you should pay off your mortgage early or invest has always been a hot topic in financial circles, but I can tell you this much:

We haven’t regretted our decision to pay off our mortgage. Not even once.

Of course, just because we’ve paid off our mortgage doesn’t mean that we’re living for free. We still face a number of expenses, including property taxes, routine maintenance, homeowners insurance, etc. So just how much do these things really cost?

Let’s start with property taxes. Property taxes vary widely based on location, but around here they average about 1% of a home’s assessed value per year. Unfortunately, the only real way to combat this bill – aside from moving to a less expensive home – is to appeal your assessment. The good news is that this can be done. In fact, I’ve successfully appealed our assessment on more than one occasion.

Next up, insurance. Once again, rates vary based on a number of factors. While you could technically drop your homeowners policy once your mortgage is paid off, you’d be a fool to do so. You can, however, save on homeowners insurance by shopping around, increasing your deductible, etc. In our case, homeowners insurance runs roughly 0.2% of the value of our home per year.

Another big issue is maintenance. I’m talking here about things like painting, pest control, replacing your carpet and appliances, etc. The general rule of thumb is that you should budget roughly 1-2% of the value of your home per year for ongoing maintenance. Some years will be less, and others will be more – possibly much more.

In the six years we’ve lived in our house, the biggest maintenance issue we’ve dealt with has been replacing our water heater. Looking ahead, however, I’m expecting to have to replace the roof sometime in the next ten or so years.

There are, of course, other expenses that I haven’t factored in here such as lawn maintenance – either paying someone to cut your grass, or buying and maintaining a mower and associated equipment so you can do it yourself – utilities, HOA fees, etc. These things vary so widely based on your circumstances, however, that it’s hard to come up with a general rule of thumb.

Combining just the property taxes, homeowners insurance, and general home maintenance, we arrive at a rough estimate of 2.2%-3.2% of our home’s value per year. Given that our house is worth somewhere in the neighborhood of $325k, that means we’re facing roughly $7k-$10k in annual housing costs even in the absence of a mortgage payment, and that’s without considering utilities or lawn care.

I mainly bring this up to combat the overly-simplistic view that once you pay off your mortgage, you’ll be essentially living for free. The reality is that even without a mortgage payment, you’re still likely to face significant housing-related expenses.

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This is a guest post from Lisa White.

During a recent wind storm, a friend was awakened during the night by a loud banging sound. Moments later, her neighbor called, saying that he had big pieces of her home’s siding on his front lawn. My friend’s first thought was, “How will this claim affect my home insurance rate?”

After hearing all the horror stories about skyrocketing rates or, even worse, being dropped from insurance altogether, this is a concern that just about every homeowner is bound to have at one time or another.

Do you know what’s in your homeowners policy? If you ever need to file a claim, do you know what is covered and who to call? Once your siding has been blown onto your neighbor’s lawn, it’s too late to do anything about your policy. At that point, you’re stuck with whatever you’ve got. Knowing the coverages and limitations of your policy can prevent costly, or even catastrophic, financial troubles.

Although weather-related incidents are out of our control, there are other factors, or potential red flags, that it pays to become familiar with when selecting or renewing your homeowners insurance policy.

Credit score

Just as your credit score can affect the interest rate you’ll be offered on a credit card or a mortgage, it also can affect the cost of your homeowners insurance.

Since research has shown that those with properly-managed finances are less likely to make insurance claims, credit scores are used by many insurers to set home insurance rates.

Those with a history of high debt and late or missed payments may find themselves with pricier home insurance policies compared with more responsible homeowners with higher credit ratings and less debt.

By maintaining a stellar credit rating, you are a better risk for home insurers, and are more likely to save money by securing a lower rate.

Occupation

Some insurance companies consider homeowners with risky occupations or low-paying jobs to be more likely to neglect their property or ignore necessary home maintenance.

As discriminatory as it sounds, research has found that those with higher paying jobs are less likely to file insurance claims because they are more apt to take the proper steps to avoid or minimize loss.

No matter what your job entails, it’s important to stay on top of home maintenance problems before they get out of hand. Keep in mind that home insurance is for sudden and unexpected damage, not damage that can be easily prevented.

By giving your home a regular checkup, from the roof to the foundation, from the furnace to the outdoor wiring, at least a couple of times a year, you can help prevent unnecessary losses and jacked-up home insurance rates.

Claims history

As you already may be well aware, your past claims history can have a direct impact on your home insurance rate.

In some situations, such as my friend’s with the blown-off siding, filing a claim is inevitable.

However, for smaller claims, it’s best to weigh the cost of repairs versus potential home insurance premium increases. Speak with your agent or insurance company representative for more insight in these cases.

Dangerous dogs

Contemplating a trip to the pound or pet store? You may want to think twice, as your choice of dog can negatively affect your home insurance premium.

As unfair as it may seem, there are breeds that have been blacklisted by insurance companies. Considering that price tag, it should be no surprise. According to MSN Money, dog bites cost insurers about $310 million a year.

If you already own a more dangerous or troublesome breed, or if your dog has bitten someone, you may find it more difficult or even impossible to obtain home insurance.

Because policies and insurers differ, it’s best to shop around for the best dog owner policy before taking a potentially blacklisted breed into your home.

Lifestyle

Pools, spas, and trampolines can be great additions to a home, but also can be pricey for home insurance policies.

In fact, when I notified my insurance agent about our new trampoline, he said, “I’ll pretend I didn’t hear that.” This is because, while pools and spas are considered hazards that can raise premiums, trampolines are more likely to be excluded from policy coverage, or even to cause insurers to drop you cold. The cost of a neighbor child getting seriously hurt is just not worth the risk.

This may be a case where umbrella insurance is needed. Check with your agent or insurance company representative.

Keep your coverage and affordable rates by avoiding these home insurance red flags. The money saved will make it worth your while.

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In honor of Mother’s Day, I wanted to highlight a recent analysis by Insure.com on the value of the work that a mom does throughout the year. According to their Mother’s Day Index, all the stuff that a typical mom takes care of adds up to $61,436/year.

Given the source of this info, it’s perhaps not surprising that they then translate this into life insurance needs. In most cases, it’s a no brainer that the breadwinner(s) need to be insured, but what about stay-at-home parents? While it’s perhaps not as obvious that a stay-at-home parent needs life insurance, you have to think about paying someone to handle their duties if something were to happen to them.

The first step in figuring out how much life insurance you need is to figure out what you want the policy to do for you. If, for example, you need it to cover certain expenses for a set period of time, you’ll need to tally up those expenses, multiply by the timeframe, and adjust for reasonable price increases.

When it comes to the primary breadwinner, a common rule of thumb is 10x annual earnings, though you’ll obviously want to fine tune that for your specific situation. But what about stay at home parents? It’s not unreasonable to value their “earnings” at whatever it would cost to pay someone to fill in for them.

And that brings us back to the Mother’s Day Index, which was based on data from the Bureau of Labor Statistics. If you’re curious, the Index included the following 14 major jobs:

• Cooking
• Driving
• Tutoring
• Childcare
• Nursing
• Cleaning up
• Party planning
• Summer activity planning
• Haircuts
• Shopping
• Managing the family finances
• Yard work
• Home maintenance
• Private investigator (to figure out what the kids are up to)

Obviously, a number of these aren’t the sole responsibility of Mom, but they also broke a number of them down into part-time hours before arriving at their grant total ($61,436/year).

What do you think? Is this a reasonable estimate of the value of the efforts of a typical stay-at-home parent? Too low? Too high? Let us know in the comments.

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This is a guest post from Hank Coleman.

Do you ever feel like you’re just throwing money away on life insurance? You could end up doing just that if you buy specialized coverage that you don’t really need. One way to save money on life insurance is to keep it simple and resist the temptation to load up on life insurance in all its varieties.

Many exotic, specialized life insurance policies simply feed on people’s fears. Dying is a fact of life, and no matter what kind of life insurance you’ve got, it can’t prevent you from dying. What it will do is provide for those you leave behind. Let’s take a look at some commonly marketed, largely unnecessary policies:

Accidental death insurance

There’s really no reason to purchase an additional life insurance policy that pays you more money if you die in an accident. If you want extra coverage, then you should simply increase your life insurance coverage through a traditional life insurance policy that will pay your heirs for almost any reason you die.

With accidental death life insurance, you are basically paying for the same coverage twice. When you die, it doesn’t matter if it was an accident or not. You are still dead, and traditional life insurance will pay either way. There is no need for extra protection due to the manner of death.

Cancer insurance

Nowadays, it seems that anyone you talk to has a family member or knows someone who has been touched by cancer. Cancer is a scary, often incurable, unpredictable disease. Insurance companies and their agents feed off this fear and use it to sell special supplemental cancer insurance that will pay out if you are diagnosed with and die from cancer.

This is akin to trading a stock because of bad headlines. We tend to forget that we are actually more likely to die from other illnesses such as heart disease than from cancer. But have you ever noticed that insurance companies don’t sell heart attack insurance?

Mortgage life insurance

If you have a mortgage, or significant credit card debt, then those debts should be taken into consideration when you purchase your traditional life insurance policy because your estate will be responsible for paying those debts. In most cases, you would save money by simply purchasing an adequate amount of term insurance from the start, rather than adding additional mortgage and/or credit card supplementary life insurance coverage.

Because the amount of coverage is typically so small, the premiums end up being very expensive for the amount of coverage purchased, and worse, the coverage effectively decreases with every payment you make. You are much better off using that money to simply pay off your debts, rather than paying additional insurance premiums.

Flight accident insurance

Another waste of money is flight accident insurance that pays the claim if you are killed in an airplane crash. You have a better chance of winning the lottery than having this type of life insurance policy actually pay out to your heirs. In some airports around the world, you can still buy these policies from a kiosk or vending machine before you board an airplane. That alone should help clue you in as to how ridiculous these policies are.

If you have adequate life insurance in the first place, you do not need to waste your money on insuring your life against an event that has very little chance of actually occurring. Flying is far safer than driving, so save your money for treats for your family and enjoy your trip.

Motivated by profit

There is a reason why insurance companies offer these policies for only a few dollars. They know the likelihood of a payout is slim to none, and the premiums are almost pure profit. If you won’t miss the few dollars a month and it makes you feel better, go for it. But keep in mind where those dollars are going. Even just a few dollars a month, paid over decades, can add up to some serious money.

How much life insurance do you need? One common rule of thumb is that you should have enough life insurance to equal ten times your annual income. But the actual amount should be based not only on your income, but also on the size of your family, the age of your kids, the lifestyle you’d want them to have if you didn’t come home one day, and so forth.

What about you? Have you ever bought a specialty life insurance policy? Do you still think it was a good deal, or did you have second thoughts later?

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The fact that we’re expecting a baby this summer has encouraged us to take another look at our finances. This includes re-examining our life insurance coverage.

Analyze your financial needs carefully

Here are some questions you have to tackle in order to figure out how much life insurance you need.

• How much will your funeral cost?
• How much support will your dependents need?
• How long will they need this level of support?
• Do you have any one-time obligations, such as a mortgage payoff?

These are the same questions that we faced a year and a half ago, but some of the answers have changed. For example, with a child in the equation, we’ll definitely need dependent support.

The rule of thumb we’ve found is to multiply the deceased spouse’s income by 10 to get a ballpark estimate of necessary coverage, which would definitely require an increase in our coverage. As of right now, we really only have enough to pay off our mortgage and student loan debt with our term life insurance policy.

Listing our debts and final expenses

My husband and I both agree that, at a minimum, our life insurance coverage needs to be enough to pay off all of our existing debts and take care of our final expenses. We believe that being debt free will be a huge relief to the surviving members of the family. Right now our two debts are:

• Student loan: $21,000
• Mortgage: $112, 000

That gives us a total of $133,000 of debt that we would like to pay off. For funeral costs, we’re going higher than average and estimating $15,000. That means the absolute minimum that our life insurance policy should cover is $148,000. Our current coverage will address these basics, but there’s noting left over for ongoing support.

Figuring out how much support we’ll need

Once we’ve taken care of our remaining debts, our next topic to discuss was how much support we’d like to leave behind to the survivors. Instead of just factoring 10x the lost income of one of us, we’re looking at enough to cover about three years of lost income. That would give us a financial buffer so the grieving spouse can decide how to handle day-to-day expenses. Once our debts are paid off, that three years of income would go much further, hopefully further reducing the stress.

With one remaining spouse, another item that we need to consider is childcare expenses. While family and friends will no doubt help out as best they can, we can’t expect them to do so forever. We’ll thus need to have a system in place to help with the transition. Looking at childcare expenses in our area, we’ve estimated that we’ll need around $1,000/month. We’re including enough in our insurance to cover three years of childcare. Whatever we don’t use can be redirected to other expenses or possible savings for future use.

Shopping around for life insurance quotes

Once we knew roughly how much insurance we’d need, our next step was to start shopping around for policies. I actually do this on an annual basis – every time we get a payment notice, I take a quick look around to see if we can get a better deal. While you can hit a bunch of individual company websites, it’s far easier to get life insurance quotes from an aggregator, such as Insure.com.

By shopping around with multiple companies, you can get a sense for typical prices and make sure you’re getting the best deal. You should also be sure to check out our tips for saving money on life insurance.

Our decision

After running the numbers, we’ve decided to hold off a bit and continue shopping around before increasing our life insurance coverage. Next week, I’ll be contacting our current insurance agent and seeing if they can offer a competitive quote for the amount of coverage we’re looking for. If they can, even if it’s a few dollars more, we’ll probably stay with our current company. However, if we can find a substantially better deal with another reputable company, we’ll go ahead and make the switch.

We sincerely hope we won’t have to use this life insurance policy in the future, but having it will give us peace of mind that our family will be financially taken care of if anything happens to one of us.

Your thoughts on life insurance coverage

I know that many of you have thought about this long and hard about your life insurance coverage, so I’d love to hear your thoughts on the topic. Do you have a life insurance policy in place? Why or why not? If you do, what kind of policy did you get, and how much coverage did you sign up for? How did you determine the right amount for your family? And have you changed your coverage level over the life of your policy?

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If you are divorced and your settlement includes alimony, child support, and/or mortgage payments, you’ve got to protect yourself. One important way to do that is to make sure that your ex-spouse buys enough life insurance. Even if they’re fair and honest, your ex will admit that they won’t live forever. And if they die, you’ll be the one who ends up with the short end of the stick.

The last thing you want is to assume that everything is solid only to have a catastrophic event turn your apple cart upside down. Just when you thought you had it made, you’ll have to start borrowing money and/or going back to work. Not a pretty picture.

Things to look out for…

If we break this down, there are three important elements:

1. Make sure your ex buys and keeps life insurance.
2. Makes sure you’re the life insurance beneficiary.
3. Makes sure the policy is large enough.

Each of these steps are important because your ex could agree at first to buy the insurance and then cancel it, fail to make the premium payments, or change the beneficiary. The easiest way to make sure the policy stays current is for you to buy it using your ex’s money. That’s the only way to make sure that there’s a policy in force when you need it.

This boils down to one thing: you must be the owner and the beneficiary of the life insurance. You cannot compromise on this point. The lawyers may argue that your ex can buy the insurance and you can simply get yearly confirmation that nothing has changed. Nonsense, that’s a silly solution. It’s much simpler for you to buy it and be the owner. The extra cost should be included in the support payments. This is much safer and smarter for you.

Having said that, if you have small children, you probably also need some insurance of your own. If you die, your ex will be solely responsible for your children. That means that, while they used to have 50% of the financial burden, now they’ll have 100% of it. Given this, you need to consider buying life insurance to ensure that your children will be well cared even if you aren’t around.

What kind of insurance? And how much?

The next question is, what kind of life insurance do you need? And how much?

If you understand what term life insurance is, then you’ll likely agree that it’s well suited for replacing income over a fixed period of time. But if your ex is responsible for support, that support may last your lifetime, or at least until you re-marry. If you don’t re-marry, your ex may be on the hook for life. If that’s the case, you might need to buy a whole life insurance policy.

If your ex balks because whole life is expensive (which is true), at least get the longest term life insurance policy that you can find. This is just one way of several ways to save on life insurance, because even a lengthy term policy will be cheaper than permanent life insurance.

The last question is, how much insurance do you need to have on your ex?

Fortunately, this isn’t tough to calculate. Add up all the payments your ex is required to make over the course of a year and divide the number by 0.04 (or multiply by 25). This is the total amount you would need to replace the payments that you’re supposed to receive. Let’s look at an example.

Say your ex pays you $40,000 over the course of a year. The question is, if you could invest your money at 4%, how much would you need to invest in order to generate $40,000? The answer is $40,000 divided by 0.04 (or $40,000 x 25), which works out to $1,000,000. In other words, you should buy a $1,000,000 term life insurance on your ex in order to insure you’ll have the promised support.

That 4% return might seem a little high right given the market that we’ve experienced over the past few years but, over your lifetime, it’s a reasonable number to use.

Another issue that often comes up is whether or not you should buy the coverage from one life insurance company, or two? Different people have different responses to this question. Personally, I would use one company. It’s much simpler to get done and keep track of. While $1,000,000 is a lot of money to you and me, it’s nothing to a major insurance company. Just be sure to buy your policy from a high quality company.

What’s your take?

If you’re divorced and receiving support payments, is your ex insured? If so, were you able to negotiate owning the life insurance policy yourself? If not, why not?

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This is a guest post from Hank Coleman.

When you write out the check for your 6-month car insurance premium, do you ever get the sinking feeling that once again you’re paying out a chunk of change you’ll never get back?

If you’re a safe driver with a clean record, you may be thinking about raising your auto policy’s liability insurance deductible. Everyone knows the way to save money on car insurance premiums is to set the deductibles as high as humanly possible, right? But is the lower premium really worth the increased risk? Let’s take a look.

Why a higher deductible lowers your premium

The deductible is the amount you’ll pay on an insurance claim before the insurance company starts paying. You might think that a high deductible lowers your insurance premium because the insurance company’s costs are reduced by the amount of the deductible. Actually, having a high deductible on your insurance means that you’ll tend to file fewer claims, which means you’re a lower risk to the insurance company, and can therefore be charged lower rates.

Not having an insurance claim in the first place is far more profitable for insurance companies. Insurance companies survive based on how well they predict consumer behavior, and higher deductibles directly affect that behavior.

When a lower premium costs you more

How can you tell if the money you save by reducing your premium is worth the risk of the higher deductible? For example, let’s say that you reduced your six-month car insurance premium from $600 to $500 by increasing your deductible from $250 to $500. So in this example, you’d save $200 per year in premiums, but you risk paying an additional $250 out of pocket if you file a claim.

If you felt you could go claim-free for the better part of a year, you could partially “self insure” by stashing that $200 in your savings account. If you had to file a claim, you’d lose that $200 plus an extra $50, but you might come out $200 ahead. In the end, this boils down to a cost-benefit analysis.

If you’re risk-averse, you may have your deductible set as low as $250 to limit your out-of-pocket costs in an at-fault accident. I’ve had my deductible at $500 for a while now, but figured it wouldn’t hurt to call my car insurance company to find out just how much I could save if I raised my car insurance deductible even higher.

When I called my insurance company asking about raising my deductible from $500 to $1,000, I was told that the savings I would earn on my premiums would only be $27 every six months. At that rate, I would have to be claim-free for about ten years in order to recoup the increase in risk I took by raising my deductible.

Is that a risk I want to take? Personally I’d rather pay the extra $27 for the piece of mind of not having to fork over another $500 out of my emergency fund in the next 10 years. In this case, the conventional wisdom of raising your car insurance deductible may not be the best course of action for your wallet.

Get lower premiums by reading the fine print

When was the last time you sat down and read your insurance policy? Not many people fully understand what their car insurance policy covers other than the basic limits they agreed to when they bought the policy. If you’re like many busy automobile owners, you may not have looked at the details of your policies for years.

When I was looking in-depth at my car insurance policy, I realized that I was not receiving credit for the GPS tracking system that was installed in my new car. If my car was ever stolen, the tracking system could help the police locate my car. Noticing this missing discount and asking for it ended up saving me $40 per year in premiums without accepting any new risks.

No matter where you set your car insurance deductible, you need to make sure that you have an adequate emergency fund in place. If you decide to raise your deductible, you need to be able to pay that extra money out of your emergency fund should you have an auto accident. Understanding how to conduct a simple cost-benefit analysis can help you to understand how to save on car insurance without dramatically increasing the risks that you take.

How’s your deductible?

What level of car insurance deductible do you favor – higher or lower? What’s your favorite way to save on car insurance?

About the Author: Hank Coleman is a personal finance writer and entrepreneur who has been writing about investing, retirement, and insurance for years. Hank holds a Bachelor’s Degree in Business Administration, a Master’s Degree in Finance, and is currently studying for his Certified Financial Planner (CFP) credentials.

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Do yourself a favor and re-evaluate your life insurance needs every few years, or whenever there have been significant changes in your personal situation. You’ll sleep better at night, and so will your family.

I just updated my financial plan and realized that I need more life insurance. Even though I’m a financial planner, I was surprised because I went through a thorough evaluation of insurance needs just five years ago.

But when I reviewed my current situation, I realized that the “facts on the ground” have changed. Like everyone else, my portfolio didn’t do as well over the last 5 years as I had hoped. As a result, my net worth isn’t where I thought it would be by now. When I started being self-employed, I had to get my own coverage. I bought my first policies based on:

a. How much it costs to support my family.

b. How much my family would have to invest in order to replace that support if I get hit by a bus.

c. How much we have saved so far.

I determined how much life insurance I needed by subtracting “c” from “b”. (Had the cost of supporting my family gone up, I would have factored that into the calculation as well.)

There’s another issue that came into play as well. When I first bought life insurance, I bought cheap term insurance that would expire in 2017. I figured that my net worth would be large enough to “self-insure” by that time.

I may still reach that goal but, the way things look now, it will be much more difficult. And what happens to my family if I don’t reach that goal before my insurance expires? I still have the responsibility to take care of my family in case a piano falls on my head.

In other words, not only did I need more life insurance, but I needed it for a longer period of time. That’s why I bought a new policy.

How do you apply this to your situation?

I strongly encourage you to re-evaluate your life insurance portfolio as soon as you can – especially if you haven’t done so over the last few years, or if your situation has changed quite a bit. Here’s the process:

1. Do you need life insurance?

Life insurance is a tool – not an investment. That’s why I like term insurance. You only need life insurance if others depend on your income. If you are retired and your spouse’s income would not suffer in the unfortunate case of your untimely demise, you don’t need life insurance (unless you have an estate tax problem ).

2. How much life insurance do you need?

There are many fancy calculators on the web that will tell you this, but let’s figure it out for ourselves.

Say you have (evil laugh) $1,000,000 and you want to create income from that money. You figure that, over many years, you could invest that money and earn, on average, 5% on it — or $50,000 a year.

I realize that you can’t get that kind of interest from a savings account, but there plenty of ways to generate income from investments other than by sticking it in the bank. We’re also talking about investing that $1,000,000 over a very long period of time, so earning 5% per year (on average) over many years isn’t unreasonable.

As it happens, you need $50,000 to support your family, so you’re happy with your situation. If your family doesn’t have you to generate the $50,000 that they need, they could your $1M nest egg to generate the income.

See also: “How much life insurance do you need?”

You might be thinking about inflation, and that’s an important issue. To address inflation, you really need to break out a calculator, though you might be able to get away without one. Here’s why:

On the one hand, the cost of living is certainly going to continue to rise. That means you may only need $50,000 to support the family now but it will cost a great deal more down the road. That’s true…

But on the other hand, the as time goes on, your family should need less support. Your kids will be older (meaning your expenses should decline), and your savings will grow. So the reduced expenses coupled with increased savings may cancel out the inflation problem.

Also, depending on the details of your portfolio and the withdrawal rate that you choose, you might be able to build cost-of-living increases into the amount of investment income that you devote to living expenses.

Ultimately, it’s very difficult to know exactly how much insurance you’ll need because the variables that change all the time (inflation rate, investment results, spending levels, and so on). That’s just another reason why you’ll benefit from re-evaluating your life insurance needs every few years.

How long has it been since you re-evaluated your life insurance needs? If you’ve done so recently, what did you learn? Did you have the right amount of coverage? Too much? Too little? If you haven’t double-checked your coverage, what are you waiting for?

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A friend of mine has a very successful side business. In fact, he earns more on his side business than he does from his full-time job. The only problem is that if he were to get hit by a bus, his business (and the income he earns from it) would disappear. That means that the value of his business (currently $500,000) would vanish.

You see, Hans’ business depends entirely on Hans. Even though he has formally created a Professional LLC, his business is vulnerable. He writes music for video games on the side, and if he isn’t jingling, he won’t earn any money. Writing music at this level requires a highly skilled individual. It’s not a skill that’s easy to replace.

Even if you aren’t a music composer, you might be facing a similar problem if you own a small business. Bloggers, financial planners, doctors, accountants, and others all face this issue. It can be boiled down to one simple question: how do you capture the value of your business if you aren’t around to run it?

If you face this dilemma, here are the steps I suggest you take:

1. Buy life insurance

This is a no-brainer, even if you don’t run a small business. But it’s especially important if you do own your own shop. The purpose of the insurance is to replace the income your family would lose if you die prematurely. Make sure you have enough life insurance to replace your side income, as well. By doing so, you’re effectively buying time for your loved ones to deal with their loss.

2. Get friendly

Get out there and make friends with your competition and be on the lookout for a potential buy-out partner. You’re looking for someone who is successful, trustworthy, reliable, and smart. Obviously, the person has to have the skills necessary to run the business, but they also must be extremely concerned about the well-being of their own family.

This latter point is important because, ideally, you’d like someone who wants you to help them as much as you want them help in case of emergency. That puts a different spin on the transaction than if you wind up selling to a complete stranger.

The sooner you do this the better, because it will take time to identify the right partner. Don’t rush in to anything. Meet several times and meet with a number of people. Discuss the issue of continuity and capturing value of your business. Does the issue resonate with this other person? What are her concerns in this matter? Make sure you are both on the same page.

The process of identifying the right candidate could take a year or more so be patient.

3. Let’s make a deal

Once you’ve found the right person, it’s time to seal the deal. Basically, your goal is to arrive at some value of your respective companies. It doesn’t matter what it costs to start a small business like yours.

The value of your business will typically be a multiple of the gross or net income. This way, as the income grows, and as the value of the business grows, your family is protected. You would come to an agreement as to how the business would be paid for and over how many years.

In other words, the buyer might pay your family over five years after your death, or they might pay for the business immediately upon your death. This latter strategy might involve you buying life insurance on each other. I strongly suggest that you seek legal representation when drafting the final agreement.

4. Roll up your sleeves

Just because you’ve found the right person and executed an agreement, don’t think you can rest easy. Now is the time to enmesh yourself in each other’s business. That’s right. The value of your business will be maximized if – and only if – your buyout partner is able to keep the business running.

The only way they’ll be able to do that is if they are well acquainted with the way you run things. This means you’re going to have to pull back the curtains and show your buyout partner the inner workings of your business. That’s why you have to find a person you trust and that’s why this is a long process.

5. Baby’s got back (up)

It’s great to pursue this process with one other person, but realize that you may have second thoughts. Your agreement should allow either party to back out prior to death or being diagnosed with a fatal disease. This is where your extra life insurance comes in. I love cheap term life insurance, and this is a case where it can really come in handy.

In addition, you can train someone else (e.g., your life partner, spouse, or adult child) to keep the business going for some period of time until he or she can sell it. This should never be your number one plan if your spouse or life partner has little or no interest or special skills in your area of business.

The bottom line is that, if you go through this process, you’ll definitely capture more value and put your family in a position to survive (if not thrive) in your absence. If you ignore this issue and (Heaven forbid) you die prematurely, your business will be sold for pennies on the dollar – or go down the drain completely.

Ensuring continuity

Do you have any tips for capturing the value of your business in case of emergency? If you’re a small business owner, have you developed a continuity plan? If not, what are you waiting for?

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This is a guest post from Bailey Harris, who writes for the Home Insurance Blog. If you like what you see here, be sure to stop by and check it out.

Everyone knows that having an adequate insurance policy is a must for homeowners, but what if you rent? Many people overlook the value of a renter’s insurance policy, which can be a costly mistake.

Renter’s insurance works a lot like homeowners insurance. It replaces your stuff if it is damaged or stolen and protects your assets in the event of an accident or catastrophe. If you have been wondering whether or not you need renter’s insurance, the answer is probably yes.

Ask questions

Most renters’ belongings aren’t covered by the property owner’s insurance. You don’t want to be stuck with a lot of damaged property only to find out that your landlord’s insurance doesn’t apply to tenants. Don’t be afraid to ask your landlord if their insurance will cover you, and don’t be surprised when they tell you that you need to buy your own renter’s policy.

It may be required

Some landlords require tenants to carry insurance on their personal property. This is for the benefit of both parties and can save a lot of hassles down the line. If your rental unit is burglarized or burned to the ground, a renter’s policy will allow you to replace your stuff.

Pay now or pay later

Since it’s up to you to protect yourself, it’s in your best interest to buy a policy before disaster strikes. Whether you live in a high rise or a duplex, an accident or a thoughtless, careless neighbor could cost you everything you own. Maybe they’ll put burger on the grill and lose track of it, or maybe they’ll fall asleep with cigarette in their hand.

You have a lot to lose

Take a look around yourself and consider how much stuff you own. A big screen television, all of your furniture, a digital camera and/or camcorder, a DVD player, your clothing, your kitcheware, jewelry, the computer you’re reading this on, your printer and scanner…

The list goes on and on, and if you don’t take precautions you could lose it all and have nothing to show for it.

Adequate protection

Just like any other insurance policy, you have multiple options when it comes to choosing coverage, and the cost varies accordingly. If you’re the victim of a fire or a robbery, you’ll obviously want to make sure your belongings will be replaced.

Beyond the above, special circumstances (e.g., flooding or hurricanes) require additional coverage that should be specified in your policy. If you live in an area where those things could happen, you’ll need to make sure that you’re covered.

You should also consider getting replacement cost coverage rather than just insuring the present value of your belongings. If that brand new 50″ HDTV is stolen or damaged beyond repair, you’ll want your insurance policy to replace it without a lot of out-of-pocket expense.

Talk to your agent

To determine how much coverage you need, you’ll need to inventory your belongings. You might consider taking pictures or using a video camera to document what you own – just be sure to store these things somewhere other than your home.

Once you have an idea of how much much coverage you need, contact your insurance agent to get an idea of the cost. Discuss your options, and don’t be afraid to pin them down to specifics. Find out exactly what coverage you’ll need under any foreseeable circumstance.

Don’t forget liability insurance

Another thing to consider is that, if anything should happen to someone on your rented property, the injured party can come after you. A slip and fall in the kitchen could result in a financial nightmare. Make sure that your renter’s insurance policy offers some form of liability coverage.

It’s cheap

On the bright side, renter’s insurance is usually significantly less expensive than a homeowner’s insurance policy. The reason for this is that you don’t need to insure the structure – the property owner’s policy takes care of that. So go ahead and shop around for the coverage you need. If disaster strikes, you’ll be glad you took the time to buy renter’s insurance.

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Related Articles at fivecentnickel.com:

» Five Myths About Renter’s Insurance
» Lessons Learned From Average Net Worth Values
» New Home, New Expenses
» Rent vs. Own Poll Results
» Buying Term Life Insurance (Again), Update #4
» Buying Term Life Insurance, Part II
» Buying Term Life Insurance, Part V (Epilogue)
» Buying Term Life Insurance, Part IV

Have you ever thought about buying mortgage protection insurance? Do you even know what it is? My husband and I first heard about mortgage protection life insurance from our mortgage company. They’ve been sending out little sales pitches along with our mortgage statements.

I’m usually skeptical about programs and accounts advertised by banks, but on the surface having mortgage protection sounded like a good idea, so I decided to look into it and find out what it’s all about.

What is mortgage protection insurance?

As the name implies, mortgage protection insurance protects your mortgage in case of hardship. A typical policy will cover mortgage payments in the event of job loss or disability, and will pay off the mortgage balance in the event of death.

In short, you agree to pay your carrier predetermined regular payments in exchange for the peace of mind of having your mortgage taken care of for your loved ones. Many of the policies I’ve looked at pay the mortgage lender directly.

Types of mortgage protection policies

The first concern I had was the return on the policy. As you continue making payments on the policy, your mortgage balance is (hopefully)decreasing. What benefit is there for you? Based on general trends, I see this as being very profitable for insurance companies and not a great deal for homeowners who pay off their mortgage.

I found out that you can adjust your insurance policy to make it more worth your while.

Level benefit term policy

This sounds pretty much like a term life insurance policy. You can set it for a specific time period (such as 20-30 years) and pay a locked-in premium. This typically doesn’t give you the flexibility of a regular life insurance policy, though, as any benefits are intended to go specifically toward your mortgage.

Return of premium term policy

If you are still alive when your mortgage is paid off, this type of policy will return all premiums that you’ve paid. You won’t get any of the accrued interest, but that’s still a nice chunk of money to have once your biggest debt is paid off. The other downside is that you can be disqualified if you miss any payments.

Who Benefits the Most?

As with everything in the financial realm, you really have to look at the numbers and your circumstances to determine if mortgage protection insurance is right for you. Every family can come up with something different, so I’ll just share some information for you to look at on your own time.

Some borrowers find mortgage protection to be an easier policy to get than your typical life insurance, as a physical exam may not be required.

Rates, though, can be significantly higher than a term life insurance policy. Andy Albright of the National Agents Alliance estimated the average costs of mortgage protection:

The national average for a mortgage balance is $120,000. For such a mortgage, you would pay roughly $50/month for a bare minimum policy. If you want to add riders (such as “return of premium” or living benefits), you could end up paying as much as $150 a month.

That comes out to $600-$1,800 a year out of the policyholder’s pocket. Not surprisingly, only about 2% of American homeowners have mortgage insurance, Albright says.

For term life insurance a a 40-year-old non-smoker with a $500,000 term policy will pay somewhere between $352-$641 a year. That’s a significant savings for much higher coverage.

I honestly think that you should seriously consider getting term life insurance rather than a mortgage protection policy. It’s cheaper, and you can use the money saved to pay down your mortgage faster if you want.

If you’re concerned about disability, you can back up your standard life insurance policy with a long term disability insurance policy, which may be a good idea to have whether or not you have a mortgage.

Thoughts on mortgage protection insurance

I know many people have strong opinions on getting the right types and amount of insurance to protect their family. I’d like to get your take on it to make sure I’m weighing the pros and cons correctly.

How many of you have mortgage protection insurance? How hard or easy was it for you to obtain? What are the premiums like for you? Do you think it’s a good or a bad deal?

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Related Articles at fivecentnickel.com:

» Mortgage Fees: What’s Legit and What Isn’t
» Learning About Mortgage Escrow Accounts
» Life Without a Mortgage
» Shopping for Homeowner’s Insurance on a Condo
» Calculating Your Mortgage Refinance Payback Period
» Four Types of Life Insurance That Are a Complete Waste of Money
» FHA Loans, Mortgage Insurance Premiums, and My Extra Income
» What is a Mortgage Escrow Account?

While surfing the web this past week, I came across an article on umbrella insurance and why some people should get it. I was curious, so I decided to look into it a bit more.

I don’t personally know of anyone who has an umbrella insurance policy, but then again I don’t go around asking people about their insurance coverage. It does seem like a useful insurance policy that can provide important protection, so I want to share what I learned.

What is umbrella insurance?

Umbrella insurance is basically extra liability coverage. Instead of protecting you from rain, like the name suggests, umbrella insurance is meant to cover any limitations you may have with your existing insurance coverage.

If you’re involved in a lawsuit where the judgement is more than what your auto or homeowners insurance policy covers, the difference would normally have to come out of your pocket. If you have an umbrella policy, though, it will cover the difference and protect your assets.

What does umbrella insurance cover?

Like many insurance policies, the details depend on what you sign up for. The are some surprisingly broad situations that umbrella insurance can cover for you. They include:

• Property damage liability – This covers any loss or damage to someone else’s property due to your vehicle, pet, or yourself.
• Slander/libel – If you make an injurious statement that causes someone a loss, your umbrella policy might provide some protection.
• Bodily injury liability – This covers any medical bills another person suffers due to an accident where you’re at fault.
• Legal fees and defense – This coverage almost makes umbrella insurance worth the cost itself. Attorneys can be expensive, and if you’re getting sued, having your legal costs covered can give you some peace of mind.

Is umbrella insurance expensive?

Apparently there’s a myth that umbrella insurance is only affordable to the rich. As it turns out, you can purchase umbrella insurance starting at one million dollars worth of coverage for as little as a few hundred dollars per year.

How much coverage should you get? Some people get enough to cover their assets, but if someone sues you for more than that amount, then you’re still left with a big bill. You may want to look at insurance coverage that exceeds your assets as a buffer. Don’t go overboard though, because excess insurance does help anyone – except your insurance company!

When looking at umbrella insurance policies, ask if there are personal liability limits that you’re required to have on your auto and home insurance. You’ll have to factor in the price difference if you upgrade your current coverage.

An alternative option to getting umbrella insurance is going back to your current insurance companies and seeing how much it would cost to raise your liability coverage. You may find that to be a cheaper option or at least more affordable for the time being.

Since prices vary by company, region, and customer’s circumstances, only you can crunch the numbers for your family and see if umbrella insurance is the right thing for you.

Finding Umbrella Insurance That Works For You

As with other insurance policies, it pays to do some research before you sign up for anything. You have to be prepared and know when to ignore a salesperson’s presentation and when to listen to useful advice.

Since you probably already have auto and/or home insurance, talk with your current agent to see what they can offer you. Ask them to break down the benefits and costs. Tell them that you need to sleep on it and think about it. Your next step is to shop around.

You can go online or call different companies, here are a few popular companies that sell umbrella insurance:

• Nationwide: 1-877-669-6877
• Geico: 1-800-841-4915
• Progressive: 1-877-777-1783
• Liberty Mutual: 1-800-837-5254
• Allstate: 1-866-621-6900
• Farm Bureau: Check for local listings

While there are many more options, going with a well known company can be a little more reassuring in the event you need to make a claim. Hopefully you’ll find a policy that offers solid coverage at a fair price.

Thoughts on umbrella insurance

I have to talk to my husband about this and see if we should look into it a bit further. I admit that it sounds like a decent option. Since this is a relatively new thing for me, I’d really like to hear your take on it.

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Related Articles at fivecentnickel.com:

» Five Myths About Renter’s Insurance
» How to Save Money on Car Insurance
» Ten Simple Ways to Cover Your Ass(ets)
» Five Home Insurance Red Flags and How to Avoid Them
» Weekly Roundup – 06/15/07
» Make the Most of Your Pay Raise
» How to Save Money on Homeowners Insurance
» Buying Term Life Insurance (Again), Update #4

Consider the premiums

The most obvious benefit of a high deductible health plan is the typically (and often significantly) lower premium. In our case, we save approximately $400/month in insurance premiums by opting for the HDHP over our regular PPO.

Looking at this over the course of a year, we’d save around $4800 in premiums by sticking with the HDHP. Yes, $4800. Crazy, huh? We’re insuring an entire family, but still… That’s a lot of money.

Consider the deductible

Of course, that savings comes at a cost… True to its name, an HDHP comes with a high deductible. For use, that means a $3000 family deductible vs. a $0 deductible if we stuck with the PPO.

Consider the co-pays

While our PPO option wouldn’t have a deductible, it would have a standard schedule of co-pays. The rates are $20 per office visit, $15 or $30 per prescription, and so on.

With the HDHP, on the other hand, we’ll pay 100% of the Usual and Customary Rate (UCR) until we meet our deductible, and then we’ll pay just 10% of the UCR thereafter. In most cases, this 10% works out to less than the standard PPO co-pay.

Consider the annual maximum

Another possible difference between HDHP and “regular” health insurance plans is the out-of-pocket maximum. Be sure to check your plan literature and find out the largest amount that you could conceivably wind up spending on medical expenses.

In general terms, HDHP have higher maximums than traditional plans. In our case, the annual maximum is $6000 for the HDHP, and $3000 for the PPO. In other words, with the HDHP, we could conceivably wind up paying $3000 on top of the $3000 deductible – but only if we had another $30k in medical expenses (recall the 10% co-pay).

Consider the coverage

In many cases, HDHPs offer somewhat limited coverage as compared to traditional health insurance plans, so be sure to look carefully at the coverage. In our case, that’s a non-issue, as the HDHP offers essentially the same coverage as the PPO.

Of course, I’m talking here about the types of treatments that are covered. I’ve already mentioned the differences in the deductible, co-pay, and annual out-of-pocket maximum.

Consider the other perks

One of the biggest perks of an HDHP is that you’ll gain access to a health savings account (HSA). This account can be used to get a tax break on your medical expenses, or… You can follow our lead and use it as a very tax-friendly investment account.

If you stick with a PPO or HMO, you’ll be stuck using a Flexible Spending Account (FSA), complete with it’s annual use-it-or-lose-it provision and generally lower contribution limits as compared to an HSA.

Another perk that many employers are offering their employees is seed money in their HSA to jump on the HDHP bandwagon. Since HDHP are cheaper for both employee and employer, it makes good sense for employers to incentivize the switch. While this may be a one-time thing, it’s still free money that shouldn’t be ignored.

Adding it all together

Since both the HDHP and PPO plans provide us with more or less equivalent medical coverage, our decision really comes down to the financial aspects.

With either plan, our best case scenario is that we never visit the doctor. That’ll never happen, but it’s theoretically possible. In that case, we’d come out $4800 ahead with the HDHP. Not only that, but we’d have had

The worst case scenario is that we have health problems to the point that we hit the annual maximum. That max is $3k with the PPO and $6k with the HDHP. Thus, we’re risking an extra $3k in medical expenses with the HDHP, though that risk is against a backdrop of $4800 in savings.

While this is all a bit of an oversimplification, all signs point toward the HDHP being the best choice for us yet again this year. There were no ugly gotchas during the past year, and the premium savings are more than enough to offset the increased deductible as well as the higher out-of-pocket maximum.

What about you?

Are you considering an HDHP? If so, which way are you leaning? And what have been the deciding factors?

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Related Articles at fivecentnickel.com:

» High-Deductible Health Insurance and Health Savings Account (HSA) Update
» Best HSA Custodian?
» Considering a High Deductible Health Plan
» High Deductible Health Plans and Major Medical Bills
» Sticking With Our High Deductible Health Plan (and HSA)
» Our HSA Investment Options are Horrible
» How to Save Money on Health Insurance
» Pet Insurance Pros and Cons

All of this got me to thinking about going out and finding my own HSA custodian. In this case, I would contribute directly to the HSA instead of having the contributions withheld from my paycheck. It’s a bit more work, but it would be well worth the trouble in terms of better investment choices.

Well… It’s time to make a decision, as open enrollment for 2011 benefits is now in full swing. One thing that I’m pretty certain of is that we’ll stick with the high deductible health plan, as that worked out quite well in 2010.

Income tax implications

But what about the tax implications of doing this? According to the US Treasury (here and here) your contributions are tax deductible either way.

If your contributions are taken out on a pre-tax basis, you won’t have any income taxes withheld on those amounts during the year, and those deductions will be reflect on your W-2 at the end of the year. If, on the other hand, you choose to make the contributions yourself, you can take a tax deduction for this amount at the end of the year.

What about Social Security?

But here’s a wrinkle I hadn’t thought of… By having you contributions withheld by your employer, you’ll avoid paying FICA-OASDI and FICA-HI taxes(Social Security and Medicare, respectively). If, on the other hand, you make the contributions yourself, you’ll still be on the hook for these taxes.

So… While you’ll get a federal income tax break either way, you’ll save an additional 7.65% by having your employer deduct your contributions from your paycheck.

Our contribution solution

Given the above, I think I’ve settled on a workable solution. My current plan is to keep an account with my employer’s HSA custodian and also open one with a more investor-friendly custodian. I’ll continue funding the former account via payroll deduction and will periodically transfer funds out to the latter account.

The only possible gotcha with this strategy would be if there are restrictions on, or fees associated with, transfers to a new custodian. I still don’t have full details on this, but even if I did you should check this out for yourself as different custodians likely have different policies.

Of course, if you’re not planning on using your HSA as an investment vehicle, then this will be a non-issue. But if you are, you should pay close attention to both your investment choices and the tax implications of how you fund your account.

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Related Articles at fivecentnickel.com:

» Best HSA Custodian?
» Our HSA Investment Options are Horrible
» Deciding If You Should Have a High Deductible Health Plan
» “Borrowing” Money from an IRA
» 401(k) Changes to Encourage Saving
» Using Your HSA as a Retirement Investment Vehicle
» Flexible Spending Accounts Under Attack?
» Followup: Multiple Employers and the 415(c) Limit

The idea stunned me when I first read the e-mail. I figured there had to be more to the story, and there probably was. But as I read Melinda’s e-mail, I realized that when her husband canceled that life insurance policy, it was the final straw.

For her husband Jim, it was just a financial decision. He had recently suffered a downturn in his business and cut the insurance as a measure to trim the red ink. But Melinda thought other expenses should have been cut in order to get out of debt.

And Jim’s unilateral move put Melinda in real financial danger. Besides that, it was a breach of trust. When they got married, they agreed that they would make all major financial decisions together. And that’s how they approached their financial life – until Jim put the kabosh on his life insurance policy.

Melinda was counting on that insurance. She realized that the proceeds of that policy were the only safety net she had in case her husband died.

Now that he’s cancelled it, if he does die, Melinda will wind up out in the cold… Literally.

What could Jim and Melinda have done differently to avoid this trouble?

The most obvious thing would have been for Jim to talk with Melinda before he cancelled the policy. He probably just did it because he felt trapped and didn’t discuss it because he was ashamed of not making as much money as he had in the past.

But it doesn’t stop there. I believe that Melinda bears some responsibility.

Could she have seen this coming? Did she suggest ways to save money? Did she look for cheaper life insurance? Was she involved in her husband’s business? Significant business downturns rarely happen over night. Did she ever ask how things were going? Did she pay attention? When she saw things going downhill, did she talk about the idea of 2nd job (for Jim or for herself)? Did she discuss the personal budget situation with him? Since the life insurance was so important, should she have been on top of making sure the premiums were paid?

I’m not trying to blame this on Melinda, and I’m not trying to create a new “Days of Our Lives” soap opera. I’m trying to determine if something can be learned from Jim and Melinda.

When you encounter financial challenges as a couple, it’s easy to point the finger. But it’s rarely helpful. In fact, if you’re really looking for a silver lining in an otherwise dark cloud, find how you contributed to a problem.

Even if your spouse is 99% at fault, consider your 1% – at least at first. By doing so, you accomplish a number of very important things.

First, by examining your own behavior, you have a real chance at doing better next time. I don’t know about you but I have no control over my spouse. I have a lot more control over my own actions.

Second, by admitting your own responsibility, your spouse will be more willing to admit their own failures.

Let’s say your husband comes home and announces he just signed up for a new credit card because they offered 5000 bonus miles. After you review the paperwork, you find that the credit card was a bad deal. Now you want to close the account because the annual fees are ridiculous.

At first, it’s hard to see how you had any part in your husband’s thoughtless behavior.

But upon closer inspection, you understand there are things you could have done differently. You could have gotten yourself involved in the search for a good credit card, for example.

When things go wrong, this exercise is super important. It gives you your best shot at improving your finances and your relationship. It’s also the best way to stay out of divorce court.

I know this is really a tall order – especially when your partner did something colossally dumb. I certainly don’t take advantage of this idea as often as I should.

How about you? When you have found yourself in a similar situation… Have you examined your own part? What was the result?

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Related Articles at fivecentnickel.com:

» Buying Life Insurance: One Company or Two?
» Insurance Needs for a Couple with No Kids
» Buying Term Life Insurance (Again), Update #4
» Preparing For the Unexpected
» Buying Life Insurance (Again), Update #3
» Buying Life Insurance (Again)
» Do You Need Disability Insurance?
» Buying Term Life Insurance

This issue has been brought into sharper focus by recent developments in the ongoing foreclosure crisis. In fact, a number of major lenders have frozen their foreclosure proceedings due to concerns over the validity of their claims.

So… What would happen if a bank foreclosed on a home and ultimately sold it to someone else, only to later have a judge overturn their decision? What if you were the new owner, and the original owner came back to claim their home?

These are the questions that Ron Lieber tackled in his recent NY Times column. The short answer is that you’d be in trouble if you didn’t have title insurance. And such troubles aren’t limited to botched foreclosures.

What if the long-lost heirs of the original owner showed up on your doorstep stating that they never agreed to the sale of the property? Or maybe a contractor field a lien against the original owner, and now wants to make a claim against your house. While title insurance will protect your interest, there are a couple of potential gotchas.

• For starters, you need to be sure that your title insurance policy covers both the lender and you. If you take out a mortgage, you’ll be required to carry a policy to protect the lender, but not necessarily yourself.
• Second, title insurance policies typically only cover the purchase price of the home. Thus, if you buy a home on the cheap and spend a bunch of money fixing it up, you could wind up taking a hefty loss.

Ultimately, title insurance is a necessary evil. And guess what? If you refinance, you’ll need to buy a new policy. The good news is that you should be able to get your new policy for a reduced “re-issue” rate. If the title company doesn’t offer it to you at a reduced rate, ask them to do so.

Foreclosure moratorium?

While I was writing this, a story popped up on the local news talking about the possibility of a national moratorium on foreclosures. This talk is coming on the heels of reports of bank officials signing stacks of foreclosure documents without even reading them.

What do you think? Should lawmakers step in and halt foreclosures until we get things sorted out? Or should they just butt out and let the process run its course?

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Related Articles at fivecentnickel.com:

» All About Title Insurance
» Buying Life Insurance: One Company or Two?
» Does Homeowners Insurance Pay for Removal of Fallen Trees?
» Buying Term Life Insurance (Again), Update #4
» Four Types of Life Insurance That Are a Complete Waste of Money
» Mortgage Fees: What’s Legit and What Isn’t
» Buying Term Life Insurance, Part II
» Buying Term Life Insurance, Part V (Epilogue)

Because we opted for an HDHP, we were also able to open a health savings account (HSA). While we’re free to choose our own custodian, we went with my employer’s preferred custodian in order to take advantage of the “seed” money that they were offering.

After nine months on the HDHP, we couldn’t be happier. We hit our deductible back in May, but are miles ahead of where we would have been if we had stuck with the old PPO. Not only that, but we have a bunch of money socked away in our HSA.

Speaking of the HSA… We’re planning on using it as an alternative investment vehicle. As I’ve mentioned previously, the HSA is an ideal tool for juicing up your retirement savings. Our plan is to leave the money in place and invest it instead of pulling it out as we incur medical expenses. As long as we save the necessary documentation, we can always pull it out later.

Sounds like a great plan, right? Well, we just passed the balance threshold to start investing, so I was finally able to get in and start poking around. Believe it or not, we couldn’t actually view our fund options until our account got over the minimum balance for investing.

Anyway, now that I’ve had a chance to look, I’ve discovered that our investment options stink. The available funds include a handful of Fidelity Advisor Freedom funds as well as a bunch of First American funds. Care to take guess what the fees look like?

Every single fund has a front-end sales load ranging from 3.50% to 5.75%, and the ongoing expense ratios are also quite high, in the 1.25% range. This is totally unacceptable, so we’ll be taking our business elsewhere.

The good news is that we can transfer our money to another custodian. Now that we’ve received all of the seed money, we’re free to go ahead and do so. I’ve previously asked for (and received) recommendations as to the best HSA custodian. It’s now time to dig in and figure out where to move our money.

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» The Three Best 529 Plans
» The Very Best 529 Plans?
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» Vanguard Changes Target Retirement Fund Offerings
» Is Your Investment Allocation Right?
» Money Madness, Round Two

Medical expenses can be a huge burden. With basic ER visits often costing $1500 or more, one mishap or illness can burn a huge hole in your wallet. How can you keep medical expenses manageable? If you have a big medical bill, how can you fit it into your monthly budget?

Cheaper prescription medicine

As you’ve probably read and seen in the news, opting for the generic form of a prescription medication can reduce your bills tremendously. Stores like Walmart and Walgreens offer monthly supplies of certain generics for $4 or $10 for three months. Some even offer free prescriptions on select medicines.

But what happens when there are no generics available for your prescription? How can you keep from going broke?

The first step is to ask the doctor if there are any alternatives or options. Physicians can sometimes give you a free sample, or at least a coupon that you can redeem at your local pharmacy. It might not cover your full course of treatment, but this sort of thing can still save you a ton of money. Just be careful not to opt for a more costly drug simply because you can get a free trial.

You should also check with the drug manufacturer to see if they offer a patient assistance program. You may qualify to get your medication free for anywhere from six months to a year. To get started, try searching the name of the medicine or manufacturer and the phrase “patient assistance.” My brother used this strategy when he was unemployed.

See also our previous article on saving on prescription drugs.

Finding affordable health insurance

When hunting for health insurance you should consider a few things:

• Amount of premiums: This should go without saying, but if you can’t afford the premiums, then it’s pointless to sign up for the plan. You’ll have to stay current on your payments to keep the coverage.
• Size of the deductible: What can you afford to pay out of pocket during the year? Generally, the lower the deductible, the higher the premium. If you’re relatively healthy and you’re looking for a policy for catastrophes, then having a high deductible can be a great way to save money.
• Co-insurance/co-pay: If you visit the doctor regularly, the amount of your co-pay – a flat fee for an office visit – is important to consider. When paid repeatedly, your co-pay can really add up. Co-insurance, on the other hand, is a percentage that you are responsible for. If you anticipate any costly medical procedures in the near future, consider this carefully.

Remember that you can’t judge insurance policies based solely on their sticker price. Different policies have different coverages. Don’t settle for a bad plan because it’s cheap, but you also should’t pay for more coverage than you need.

See also our previous article on saving on health insurance.

Tips on keeping your costs down

Once you’ve settled on a policy, you need to be proactive and keep your expenses to a minimum.

Use the ER properly. Seek an urgent care location or regular office visit whenever possible to minimize your costs. The cost to visit an ER can be significantly higher than an urgent care facility, and the wait is often much longer at the hospital.

Avoid having unnecessary duplicate tests done. If you want a second opinion on a major medical condition, having another test done may be a prudent choice. However, you should be on the lookout for duplicate tests when you seek a second opinion. Have your records transferred to the new doctor instead of paying to have the same battery of tests done a second time.

Needless to say, having a healthy lifestyle can be greatly beneficial. If you can adopt a routine of fitness and good eating habits, you will not only save money, but improve your quality of life.

Handling a huge medical bill

What if you land in the ER due to some unexpected accident? Hopefully you have an emergency fund in place to soften the blow, but what else can you do to minimize the damage?

• Go over the charges with a fine-toothed comb. Be especially careful when viewing a long list of charges. Make sure you’re not being billed for tests and procedures that you didn’t receive. Also be sure you’re not receiving a ‘balance bill.’ These bills will charge you for everything that the insurance company doesn’t pay, even if it’s not an allowable cost. If you don’t receive one, ask for an itemized list of charges so you can review it carefully.
• Call your insurance company. There are times when bills are coded wrong or paperwork is mixed up and you get stuck with a huge bill. As soon as you notice this, please call your insurance company to see if there are any hang-ups.
• Apply for charitable help. You may have to swallow your pride and contact your hospital to see if you qualify for any sort of charitable care programs.
• Offer a lump sum payment to settle your hospital bill. It doesn’t hurt to ask if they are willing to accept a smaller amount. If they accept your offer, make sure you have it in writing. You don’t want a hospital bill coming back years later when it’s incorrectly sent to a collections agency.
• Inquire about a payment plan. If you can’t afford the full amount, ask about breaking it up and paying over time. While this doesn’t really save you any money, it can make the bill more manageable.

There are ways to manage hospital bills, but you can’t just give up and not pay. After all, you can eat an elephant… As long as you take it one bite at a time. Having options can make it a little less stressful.

If I were in that situation, I would review your itemized bill first to determine your best course of action. If you have no insurance coverage, look into settling or getting charity. If you have insurance, be polite and persistent when dealing with the customer service representatives. They may be able to help you with the claim or point you in the right direction.

Your thoughts on dealing with medical expenses

Medical bills can be both time-consuming and stress-inducing. Don’t let them get the best of you, though. If you’re willing to hustle a bit, you may catch a break.

What are your thoughts are on the matter? How have you coped with medical expenses? What success stories do you have? What setbacks have you faced? Any tips to help the rest of us?

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Related Articles at fivecentnickel.com:

» More Tips for Saving Money on Vacation Travel
» Save on Medical Care – Part III
» My Employer’s Wellness Program
» Save on Medical Care – Part I
» Save on Medical Care – Part II
» Save on Medical Care – Part IV
» Erroneous Medical Bill Update
» From the Archives (September 23rd – September 29th)

For those that are unaware, an FSA allows you to use pre-tax dollars to pay for medical expenses. Starting in 2003, over-the-counter (OTC) medications were added to the list of allowable expenses, thereby giving consumers a lot of flexibility in how they could spend their FSA money.

As I’ve outlined in the past, FSAs operate under some fairly Draconian “use-it-or-lose-it” rules. More specifically, if you don’t spend out your balance, you lose whatever money is left over at the end of the year. Given this stipulation, the OTC allowance was very valuable addition.

No more OTC purchases

Now for the bad news… Starting in 2011, OTC medicines will no longer be eligible for reimbursement unless you are expressly directed by your doctor to use them. In other words… It’s going to be a heck of a lot harder to spend down your FSA balance is you set too much aside.

Yes, you’ll still be able to use your FSA to pay for deductibles, co-pays, orthodontia, and eyeglasses, but you’ll no longer be able to claim OTC allergy medications, pain relievers, vitamins, antacids, and so on.

In other words, be very careful when deciding how much to set aside in 2011.

Caution: falling limits

Looking a bit further ahead, another big change will be a federally-mandated $2500 cap on FSA contributions starting in 2013. This new limit is part of the healthcare reform legislation that was passed this past spring.

As things currently stand, FSA limits are determined by employers, and it’s not uncommon to be able to set aside $5k. Depending on your income tax bracket and level of healthcare spending, that can be a huge benefit.

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After the accident, he said that he was messing with his cell phone when he saw a car “pop out of nowhere.” He then swerved into our lane where he rear-ended us.

We’re grateful that it wasn’t worse, but we’re definitely upset by all the work we’ve had to do to get the car fixed (possibly replaced) just because some guy was messing with his cell phone.

What to do when filing a claim

Even if you’re in the right and have been a victim in a car accident, you have to make sure you follow your insurance company’s procedure for filing a claim. If you don’t, you can expect headaches and problems with getting the claim sorted out, and you might not get the money you deserve.

Exchange information

After you’ve established that everyone is okay, go ahead and exchange information with the other driver(s). Besides getting their name, contact information, and license plate number, you should get their VIN and car insurance information (including the policy number).

While this is generally easy, sometimes the other driver will be belligerent, especially if they know they’re at fault. Don’t say anything to provoke them. Instead, just wait for the police to arrive – you did call them, right?

Another point to consider is whether or not you should talk about the accident with the other person. In general, it’s a good idea to avoid speaking about the details of the accident with the other driver. This helps to protect you from a misunderstanding, and from them blaming you when it’s really their fault.

Contact your car insurance company

Another important step is to contact your car insurance company as soon as possible. Some insurance companies have very specific time frames for reporting claims. As soon as the police officer finished up, I called our car insurance company.

If you have serious injuries, of course, you should get them taken care of immediately – the insurance company can wait. Even if you think you’re okay, you might want to stop by an urgent care center to double check for any injuries related to the accident.

While I felt fine for a few minutes after the accident (aside from a killer headache), I noticed that my knee was bleeding. It didn’t look too bad, so we didn’t need an ambulance. Since our car was still functional, we drove ourselves to urgent care. I ended up getting a tetanus shot and a prescription for a pain killer.

While waiting for the nurse, my husband and I called and gave the insurance company all the information they needed. This included:

• Names and contact information of all involved
• Names and contact information of any witnesses
• Vehicle information and VIN of the other car
• Detailed description of the accident
• Information on any injuries and/or medical treatment sought

If you have the presence of mind, you should try to give them this information as soon as you can after the accident, or at least write down the details so you don’t forget anything important.

Take pictures and organize your documents

My husband took numerous pictures of our car, but forgot to get pictures of the other guy’s car. Along with the photos, we’ve been accumulating related documents, receipts, and paperwork in a central spot.

When you’re getting phone calls and scheduling repairs, it’s very helpful to keep all of your information organized. If you don’t, you might lose documents that you don’t even know you’ll need.

Be careful before signing anything

While your car insurance company is processing your claim, take some time to review your policy to make sure you’re getting everything you’ve paid for. If you don’t understand any part of your policy or claim, call your insurance company for a thorough explanation.

Insurance companies often try to give you estimates of losses that are lower than your actual losses. Don’t accept their estimates without getting some estimates of your own. Also be sure to read any paperwork that you’re given to make sure you’re not signing off on anything that you don’t agree with.

Your thoughts

Have you ever been in a car accident? If so, what happened? And how did the claims process go? Did the other driver or their insurance company give you a hard time? What about your own insurance company? Please share your thoughts and experiences in the comments section.

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He’s one of the infamous Teletubbies – those colorful little TV creatures who live in Teletubby Land, of course. You remember his friends Po, Dipsy and Laa-laa, don’t you?

I knew it would all come back to you.

Anyways… Tinky taught me a great deal about money – and I only just recently realized it.

First, a little background.

My youngest grew up loving Tinky Winky, and was constantly fascinated by his (her?) antics.

Being a good dad, I spent time with my little one watching the Teletubbies, and I’ll admit it wasn’t easy.

You see, I have 2 older children. They grew up with Sesame Street and Power Rangers.

They knew about quality.

(I mean, come on… How could Tinky Winky compete with the likes of Big Bird and Elmo?)

It’s laughable, I know…

Poor Tink never had a chance, at least not in my mind.

But as convinced as I was, my kid wasn’t having any of it.

As hard as I tried to get my little one interested in high-quality characters like Elmo and Big Bird, it was of no use. My little girl was hooked on Tinky Winky, and I couldn’t do anything about it.

What made things worse was that, as I grew more intolerant of the little purple dweeb, my little pumpkin enjoyed the show more and more.

How could she have been so misguided?

Eventually, I gave up. When I couldn’t tolerate Tink anymore, I just started reading “Atlas Shrugged” instead. That kept me busy until she was well out of the Teletubby stage and into Miley Cyrus.

So how does this have anything to do with money you ask?

It has everything to do with money. Everything.

Opinion vs. fact

In fact, it’s probably the most important lesson you could master when it comes to finance.

You see, what Tink taught me is that I don’t know everything. I shouldn’t be so sure of myself.

I was so convinced that the Teletubbies were the by-product of a bad acid trip and just worthless. But I was wrong.

I was absolutely sure that Tinky Winky was a lightweight, and not worth anyone’s time.

At the same time, my daughter (and millions of other Teletubby fanatics) came to a different conclusion.

You see, my opinion is just my opinion. The problem starts when I mistake my opinion for fact.

Avoiding financial ruin

I didn’t (and don’t) know everything. I have to check my conclusions from time to time — especially when I’m “sure” that I’m right.

This may seem like an obvious axiom of life but, if you’re like me, you forget. And when you forget, you run the risk of financial ruin.

People who are convinced they are doing the right thing often fail to re-examine their financial decisions. Instead, they plod ahead – even though the results of their actions may scream “STOP!”

It’s like an explorer who is convinced they’re trekking in the right direction. They might eventually realize that they were holding the map upside down, but it’s often too late.

A real life example

I recently had this experience with my budget at home.

I was absolutely sure that I was the best person at home to handle our budget. I’ve been doing it for decades. I own a successful small business, I’m a CFP, and I have a degree in accounting.

I know about budgeting. More than that, I’m proud to say I don’t owe anyone in this world one red cent.

Not bad, huh?

You’d think that I’m a Budgeting Behemoth, right?

Wrong.

My wife recently started handling the books, and we are far better off as a result.

Why?

Because she is the person who is in charge of most of our spending.

Duh.

For 20 years, I handled the money and the books. At the same time, we often disagreed over the best use of our funds.

Why couldn’t she just see things my way?

This has all changed now.

She comes up with ideas to save money I never thought of. And since she does the books, she sees first hand how spending impacts our ability to save and invest.

And yes, she makes very strong arguments for spending money sometimes that I never would have spent in the past. And I often end up agreeing.

We both “get it” now, and it’s a direct result of her taking charge of our bookkeeping. I never would have guessed this change would occur, but it did.

Imagine that… Something happening that I didn’t foresee.

There are plenty of other examples.

I talked to a couple only 2 weeks ago. They’ve owned life insurance on each other for the last 30 years. When they first bought it, they needed it. But now they don’t.

In fact, they haven’t needed life insurance for over seven years. But they never stopped to re-examine their financial decisions. They were “sure” they were doing the right thing. Unfortunately, “being sure” cost them more than $40,000 in wasted life insurance premiums over the last seven years.

Re-evaluate everything

Of course, checking your financial behavior doesn’t stop with budgeting or insurance.

You should examine everything. Your investments, budget, and insurance policies (especially if you are retired), how you are dealing with your debt, and both estate planning and retirement planning.

You don’t have to do this with a financial professional, and you don’t have to spend a red cent. You can find someone who is knowledgeable, and whom you trust, and just have an hour-long conversation.

The most important element is your ability to listen. Whoever you speak with, ask questions. Don’t go into that meeting sure that what you are doing is right. That defeats the entire purpose.

You don’t know how many times I get calls from couples “desperate” for help. Sometimes, rather than being open to doing things differently, at least one of them simply wants to convince me how smart they are. They want me to sign off on their financial life.

In other words, they don’t want to change their behavior, they simply want to change the results of their behavior. Even Tinky Winky can’t work that magic.

Think about your financial behavior. Which aspects are you most sure of?

Now… Go out and get a second opinion.

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Believe it or not, all major credit card issuers provide you with rental car insurance coverage if you pay for the rental with your card. While I always charge my car rentals, I’ve never had to invoke the rental car insurance.

In the one instance where I did damage to a rental car, it was a business trip, and my employer had negotiated a deal where all work-related rentals got full coverage from the rental agency. Thus, I just called in to report the damage and then handed over the keys and walked away at the end of the rental.

Anyway, if you’ve been wondering about the type of coverage offered by the various types of credit cards,

Visa rental car insurance

According to Visa’s policy, you will receive coverage for both collisions and theft as long as you pay for the entire rental with your card. This coverage extends to all authorized drivers on the rental.

This coverage includes “reimbursement for damage due to collision or theft up to the actual cash value of most rental vehicles” in excess of any other insurance coverage that you might have.

As with most insurance policies, there are a ton of exclusions, including theft of personal belongings, personal injury, personal liability, loss due to off-road operation of the vehicle, and loss due to illegal activities.

MasterCard rental car insurance

According to MasterCard’s policy, you will receive coverage for collisions, theft, vandalism, and weather-related damage as long as you pay for the entire rental with your card.

Once again, this coverage extends to all authorized drivers on the rental, and it applies to amounts in excess of those covered by any other insurance that you might have.

As far as exclusions go, things like theft of personal items, personal liability, loss due to illegal activities, etc. are likewise not covered by MasterCard. In addition, the MasterCard coverage extends only to damage that occurs on paved roads.

Discover rental car insurance

According to Discover’s policy, you will receive coverage for collisions only. The coverage is once again secondary to any other insurance that you might have, and it’s limited to $25,000.

Interestingly, this coverage extends only to the person named on the Discover card, and it’s valid only in the United States and Canada. Otherwise, the exclusions are quite similar to those of other card issuers.

American Express rental car insurance

Finally… American Express. Their coverage is similar to that of MasterCard in that it covers collisions, theft, vandalism, and weather-related damage. However, like Discover, the coverage extends only to the individual named on the card.

They also exclude “large SUVs” as well as any damage that occurs off of paved roads. Aside from that, the coverage is quite similar to that offered by other credit card companies.

What about debit cards?

It’s worth noting that debit cards do not typically offer this sort of protection. Thus, if you pay with a debit card, you’ll not only be faced with a relatively large hold placed on your bank balance, but you’ll also be foregoing free insurance coverage.

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Our trip out west went smoothly, and we arrived in LA on time. Our friend’s wife wasn’t so fortunate, as she got caught in Atlanta with multiple delays. Ever since we (finally) met up, though, we’ve been having a blast.

Travel insurance this vacation season

While eating breakfast in the hotel, I ran across an article on travel insurance that caught my attention. With so many people about to head out on the road for their summer vacations, I thought this would be an especially timely topic.

Travel insurance is supposed to protect you against unexpected events. On the surface, this sounds very useful, but the value of travel insurance is a hotly debated topic. Some people are strongly in favor of it, while others hate it.

Flights, cruises, and travel insurance

The point of travel insurance is to reduce your financial obligations should something happen during your travels. It’s usually offered as a bundle with medical, cancellation, and interruption protection.

There is also flight insurance that will cover your surviving family in case of a plane crash, but that’s usually expensive and completely unnecessary.

The first place you should check is with your credit card company to see if you have any travel coverage or benefits. Some do, and others don’t. Just be careful because some issuers have dropped their travel coverage. When in doubt, look online or call the company.

Believe it or not, your health insurance might already cover you for overseas emergencies. Here again, your best bet is to call your insurance provider and ask exactly what they do and do not cover.

Weighing the risks

The decision to buy travel insurance (or not) depends on many factors, and you need to carefully consider your options to see if it makes sense for you. If you’re planning an expensive trip that you really can’t afford to have canceled, for example, you might want to check out your travel insurance options.

You should also look at what kind of vacation you’re taking when considering extra insurance. For example, cruise companies are reportedly very difficult to work with, so insuring your cruise vacation might be a worthwhile idea.

On the other hand, if you’re planning a short trip or staying within the country, you might decide that travel insurance doesn’t really offer enough benefits to justify the cost.

You may decide to be self insured and create a savings buffer for the trip in case anything goes wrong. This approach can work if you have enough time ahead to get your finances squared away.

Car rentals and insurance

When it comes to car rental insurance, be careful not to pay for coverage that you already have. Doing so can be a drain on your wallet. Start by checking with your car insurance company to see if you’re already covered. You should also check with your credit card issuer to see what sort of coverage they’ll provide if you charge your rental.

Ultimately, you need to be prepared for the rapid-fire rundown of your insurance options that you’ll receive when you arrive at the rental desk. You may be rushed through the process, so be prepared, and don’t be afraid to ask questions or turn them down if you’re already covered.

Some common options offered include:

• Collision Damage Waiver (CDW): With few exceptions, this waiver has the car rental company, not you, covering collision damage. This tends to be the most expensive coverage choice, and can add updward of $20/day to your car rental fees.
• Personal Effects Coverage (PEC): This coverage can protect you from theft and damage done to your vehicle. This sort of coverage will typically be provided by your own car insurance policy.
• Personal Accident Insurance (PAI): This sort of policy covers medical expenses for you and your passengers. Many people already have this sort of protection through their health insurance plans, at least for themselves.

If you travel a lot and your current auto insurance policy doesn’t cover rental cars, you might want to ask how much it would be to add it as a rider. You might also want to shop around to find a reasonably priced policy if it costs too much.

Again, it really pays to read the fine print and see if you’re getting something useful or if you’re paying for a service that you already have.

Your thoughts

If you’re a regular traveler, what are your thoughts on travel insurance? Have you ever skipped it and gotten burned? Or paid for it and regretted it? Do you have any tips for deciding whether or not to buy it?

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What is the Medicare donut hole?

According to DHHS, Medicare Part D provides prescription drug benefits to those on Medicare, but there is a $310 deductible. After the $310 deductible has been met, you have to pay 25% of the cost of your prescriptions until the total cost of medicines you have received in a year hits $2830.

Once you cross this limit, you are responsible for the entire cost of your prescription drugs until you hit the catastrophic coverage threshold — currently $6440. The uncovered portion between these limits is known as the Medicare gap, or the donut hole.

Who will get a check?

As part of the recent healthcare reform legislation, seniors who hit the Medicare donut hole will receive a $250 rebate check in 2010. An estimated four million checks will be sent this year.

Beginning in 2011, seniors in the donut hole will receive a 50% discount on prescription drugs, and the Medicare share of costs will continue to increase until the donut hole is entirely closed in 2020.

When will my check arrive?

The Medicare donut hole checks will be sent automatically when you hit the donut hole. They will be mailed from a Medicare contractor’s address in Wisconsin, and you don’t need to do anything to trigger the check. The first round of checks are going out this week, with additional checks being sent as people qualify through the remainder of the year.

Beware of scammers

Reports of scams related to these checks are already starting to surface. As noted above, these checks will be sent automatically. If you’re contacted by someone asking for information to help get your check processed, hang up on them and call 800-MediCare and report the incident to your State Attorney General and/or the FTC.

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At the same time, this plan completely abolished co-pays and dramatically increased our deductible to $3000. Considering the premium savings, it was a no-brainer for us to switch, especially since our coverage (which is quite good) otherwise remained the same.

Of course, that “no-brainer” didn’t feel particularly good on a day-to-day basis, as we were paying a significant amount of money to our doctors and pharmacy. In fact, we’ve spent so much that we’ve already covered our deductible, and we aren’t even halfway through the year.

The good news is that, from here on out, we’ll only be responsible for 10% of the usual and customary amount. In most cases, this will work out to be less than what we used to spend on our old co-pays.

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This much is true, but… It then went on to warn that this amount will be added to your gross income, and that you’ll be required to pay taxes on it. Sounds scary, but guess what? It’s not true. While I typically just skip over such things, a reader subsequently forwarded a similar message to me, so I decided to tackle it head on.

Will you have to pay taxes on your health benefits?

One of the sources cited for this information was a recent article in Kiplinger’s by Joan Pryde. They specifically pointed to #3 in her list of 13 ways that healthcare reform will affect your taxes, which states:

3. A requirement that businesses include the value of the health care benefits they provide to employees on W-2s, beginning with W-2s for 2011. The amount reported is not considered taxable income.

(underlining added)

So yes, this information is being added to your W-2 form, but it’s not going to be added to your gross income. Rather, the reason that it’s being put there is so the IRS can compare it to the so-called “Cadillac” healthcare thresholds.

So… What’s the deal?

I’ve covered this before, but…

Starting in 2016 (five years after the W-2 reporting goes into effect), you’ll be subject to additional tax if your total health insurance premiums are more than $10,200/year for employee-only coverage, or more than $27,500 per year for a family plan.

More specifically, this provision levies a 40% non-deductible excise tax on healthcare benefits in excess of these thresholds, though there are a number of exceptions. Interestingly, in a rare stroke of foresight, Congress actually indexed these thresholds to inflation (at an annual rate of the CPI + 1%).

Oh, and just in case you needed a reminder… You can’t believe everything that happens to show up in your inbox.

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I have a life insurance question. I am looking for life insurance for my husband and me. I understand everything about how to purchase it and ways to choose which is best for you, but I have never heard or read where anyone tells you if everybody in the family should have it all at one company. My husband smokes, so it will cost more for him to have a policy where I have mine. Is it okay to have our policies with different companies if we’ll get a better rate?

The short answer is that it doesn’t really matter. In fact, back when I first wrote about saving money on life insurance, one of the tips that I shared was to shop around. This goes double when you’re looking for two policies. The easiest way to get the lay of the land is to use a life insurance comparison engine.

Assuming that both are financially sound, the only downside to having policies with two companies is that you’ll have to keep track of payments to both of them. Based on personal experience, however, this isn’t a huge deal…

My wife and I actually have term policies from the same company. Even though we initiated the underwriting process at the same time, however, our policies ended up being issued a few weeks apart, and we get separate bills for them — similar to what would happen if we had purchased from different companies.

In our case, the same company offered the lowest life insurance premiums for both of us, so it was a no-brainer to go with them. But if there had been an appreciable price difference, we wouldn’t have thought twice…

It would’ve been two companies for us!

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While looking at the breakdown of our most recent payment, I noticed that about 20% went towards our escrow account. Having never had a mortgage before, I was curious to find our more about escrow accounts and decided to check out the Housing and Urban Development website to get more information.

Our lender had us pre-pay the first year’s premiums for our homeowner’s insurance policy. Going forward, our payment also includes an allocation for our future insurance premiums as well as our property taxes. This money is deposited into an escrow account.

What is an escrow account?

When you purchase a home with a mortgage, lenders typically add certain stipulations to protect their investment. One of the main things that they’ll do is require you to pay into an account that is used to cover the insurance premium and property taxes. That way they can be 100% sure these things get taken care of.

The amount that a lender can require a homeowner to put into the escrow accounts is limited by the Real Estate Settlement Procedures Act (RESPA). More specifically, they can only maintain a cushion of 1/6 of your annual escrow payment. After making annual payments out of the escrow account, any surplus over $50 has to be returned to you within 30 days.

Estimating escrow payments

If you’re a numbers type person, you can get an idea of what your escrow payments should be by following HUD’s formula:

1. List all your annual obligations that will be paid out of your escrow account
2. Don’t forget to include flood insurance (if applicable), which may only be due every 3 years
3. Divide the sum total by 12 to arrive at your monthly obligation
4. Add in two month’s of escrow payments to allow for the RESPA cushion limit

This should give you a good feel for your maximum required escrow total. If you feel that your lender is taking too much for escrow payments, contact them to receive an explanation on the difference.

Advantage of escrow accounts

Aside from providing your lender with a measure of protection, escrow accounts can be a very convenient way of taking care of, and budgeting for, your tax and insurance obligations. Having a large property tax bill show up unannounced can ruin your budget, and having an escrow account relieves you of this possibility.

It’s also worth noting that, even if there is an error with a payment from your escrow account, you have some protection. If your county sends a letter to you because your property tax was paid late, for example, you should forward a copy of that to your lender because they’re responsible for the penalty.

Downside of escrow accounts

While having your property tax and home insurance premiums handled automatically can be convenient, there can be a downside. For the financially savvy, escrow accounts can have a big opportunity cost, as could be stashing away that money yourself in a high interest savings account. In theory, you could tuck away 1/12th of your insurance and tax bills every month and then pay them yourself.

After all, most of use handle our life insurance and car insurance premiums on our own. Why should homeowner’s insurance be any different? In this day and age of online bill pay, escrow accounts can seem redundant from the consumer’s perspective. Not only are you losing money in the form of unearned interest, but you’re also ceding control.

Closing thoughts

In the final analysis, I think that an escrow account is a handy tool — and if you have a mortgage, you probably don’t have a choice in the matter. What do you think? Either way, we can’t wait to pay off our mortgage, and we’re focusing on that goal.

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This is a large and complex bill whose effects will be phased in over the next six years. If you’re interested in reading the entire bill, I encourage you to do so. If not, then you’re in luck…

The following rundown comes comes from an excellent summation by Reuters. Obviously, there’s a lot more to it than this, as the entire bills spans more than 2000 pages. But this is a good start.

Healthcare reform within the first year

• Insurance companies will be barred from dropping people from coverage when they get sick.
• Lifetime coverage limits will be eliminated and annual limits are to be restricted.
• Insurers will be barred from excluding children for coverage because of pre-existing conditions.
• Young adults will be able to stay on their parents’ health plans until the age of 26 instead of being dropped at age 19, or when they finish college.
• Uninsured adults with a pre-existing conditions will be able to obtain health coverage through a new program that will expire once new insurance exchanges begin operating in 2014.
• A temporary reinsurance program will be created to help companies maintain health coverage for early retirees between the ages of 55 and 64. This also expires in 2014.
• Medicare drug beneficiaries who fall into the “doughnut hole” coverage gap will get a $250 rebate.
• A tax credit will become available for some small businesses to help provide coverage for workers.
• A 10% tax on indoor tanning services that use ultraviolet lamps goes into effect on July 1.

Healthcare reform in 2011

• Medicare will provide 10% bonus payments to primary care physicians and general surgeons.
• Medicare beneficiaries will be able to get a free annual wellness visit and personalized prevention plan service.
• New health plans will be required to cover preventive services with little or no cost to patients.
• A new program under the Medicaid plan for the poor goes into effect in October that allows states to offer home and community based care for the disabled that might otherwise require institutional care.
• Payments to insurers offering Medicare Advantage services will be frozen at 2010 levels. These payments are to be gradually reduced to bring them more in line with traditional Medicare.
• Employers will be required to disclose the value of health benefits on employees’ W-2 tax forms.
• An annual fee will be imposed on pharmaceutical companies according to market share. The fee will not apply to companies with sales of $5 million or less.

Healthcare reform in 2012

• Physician payment reforms will be implemented in Medicare to enhance primary care services and encourage doctors to form “accountable care organizations” to improve quality and efficiency of care.
• An incentive program will be established in Medicare for acute care hospitals to improve quality outcomes.
• The Centers for Medicare and Medicaid Services, which oversees the government programs, will begin tracking hospital readmission rates and puts in place financial incentives to reduce preventable readmissions.

Healthcare reform in 2013

• A national pilot program will be established for Medicare on payment bundling to encourage doctors, hospitals and other care providers to better coordinate patient care.
• The threshold for claiming medical expenses on itemized tax returns will be raised to 10% from 7.5% of income. The threshold will remain at 7.5% for the elderly through 2016.
• The Medicare payroll tax will be raised to 2.35% from 1.45% for individuals earning more than $200,000 and married couples with incomes over $250,000. This tax will also be imposed on some investment income for that income group.
• A 2.9% excise tax will be imposed on the sale of medical devices. Anything generally purchased at the retail level by the public is excluded from the tax.

Healthcare reform in 2014

• State health insurance exchanges for small businesses and individuals will open.
• Most people will be required to obtain health insurance coverage or pay a fine if they don’t.
• Healthcare tax credits will become available to certain income groups to purchase coverage on the exchange.
• Health plans will no longer be able to exclude people from coverage due to pre-existing conditions.
• Employers with 50 or more workers who do not offer coverage will face a fine of $2,000 for each employee if any worker receives subsidized insurance on the exchange. The first 30 employees aren’t counted for the fine.
• Health insurance companies will begin paying a fee based on their market share.

Healthcare reform in 2015

• Medicare will create a physician payment program aimed at rewarding quality of care rather than volume of services.

Healthcare reform in 2016

• An excise tax on high cost employer-provided plans will be imposed. The first $27,500 of a family plan and $10,200 for individual coverage will be exempt from the tax. Higher levels will be set for plans covering retirees and people in high risk professions.

What do you think?

As divisive as this issue has been for our country, I’m going out on a limb here and asking you guys to share your thoughts. At the same time, I’m going to have to ask you to keep the discussion civil and respectful. To the extent possible, please try to focus on the details of the legislation. Name-calling and other ugliness will not be tolerated.

If you’re looking for more info on the healthcare reform bill, be sure to check out the Tax Foundation’s summary, as well.

Source: Reuters.com via Bargaineering.com

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He seems determined to get us to use him for all our insurance needs. I told him that would be fine; we’re always trying to get a good deal. I doubted he could offer something comparable to what we have now since it’s already such a good deal.

He called again Friday and told me his quote, and suggested that we review the copy he’d be sending in the mail. That’s good, because I don’t make big decisions like that over the phone; my husband and I like to research the numbers and ask around for opinions on customer service. I also look at companies like NetQuote, Geico, Esurance, and Progressive to make sure I’m getting a fair deal (compare rates and get tips on how to save at our post on how to save money on car insurance).

Examining car insurance coverage

The first we did when comparing rates was to pull out our existing car insurance policy so we could compare apples to apples. Here’s what we’re looking for in car insurance coverage:

Bodily Injury ($100,000/$300,000): We need to coverage to protect us from medical bills and lawsuits from any injuries or death that are our responsibility. North Carolina has a lower requirement for bodily injury ($30,000/$60,000), but we believe medical bills can easily top those amounts so extra coverage is important for us.

Property Damage ($100,000): This coverage will pay for any property we damage (such as to someone else’s car) due to an accident. This amount reflects the maximum paid per accident; we think $100,000 should be enough to cover these expenses. North Carolina only requires $25,000, but we think that is too low. We could save money on our premiums if we went lower, but we’d then be responsible for anything over our coverage limit.

Uninsured Motorist Coverage ($100,000/$300,000/$100,000): If we get into an accident due to the other driver’s fault and they don’t have insurance, then this protects us and our property.

Collision: Collision coverage can help when your car is damaged and is in need of repairs. It also includes repairs if your car is broken into. We currently only have collision for my car (2000 VW Jetta). If you have a car loan, most lien holders will require collision, but it’s optional once you pay the loan off. Since collision typically pays up to the value of the car, having coverage for my husband’s car (a 1994 Acura Integra) didn’t make financial sense.

Coverage-wise the new offer looks about the same, but I noticed that our current policy is has slightly lower premiums.

Discounts for car insurance

While reviewing the new policy, I noticed it was lower than what he had been quoted by the same agent months before, and I wanted to know why. I noticed that we now qualified for more discounts. Besides having a multi-car policy, we were now having a multi-policy discount with this insurance company. After getting some more information on our cars, he included discounts for having car alarm systems installed, and we also qualify for something called NC Tiering Program.

Beyond the above, you can also get a better rate though big things like not having any accidents as well as little things like having a clean credit report. With everything included, our 12 month car insurance premium would be around $775/year or about $65/month. It’s definitely in the ballpark with our current policy so we’re considering it. One thing in favor of the new policy is that it would simplify things a bit, as we’d only have one insurance agent.

Consider your Circumstances

Besides price, we’re also looking at any extra benefits of the policy. The car insurance policy the new agent quoted has lower deductibles ($500 instead of $1,000), but our current policy has towing and roadside assistance included with no additional charge.

The new policy quote doesn’t include towing on it, so I’m going to ask the agent if that’s an additional charge. We’ve already used the roadside assistance with our current policy a few times, so we’re definitely interested in keeping it. While celebrating our anniversary, for example, our car got stuck in the mud. All it took was a quick phone call to get a tow truck dispatched, and there was not out-of-pocket expense.

How do you save on car insurance?

Now that you’ve heard about our situation, I want to hear about your tricks for shopping around for car insurance and getting a better deal. What tips do you have for saving money on car insurance? Please let us know by leaving a comment.

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For those that are unaware, an HSA is similar to a flexible spending account (FSA), but better. While both provide a tax break on qualified medical expenses, the HSA has a higher annual contribution limit ($6150 for families, $3050 for individuals) and it’s also not subject to the “use it or lose it” provision.

Another very important difference is the freedom to invest funds in an HSA in much the same way you can invest the money in your IRA. While your employer might have a “preferred” HSA custodian, you can actually use an custodian you want.

A better use for our HSA?

All of this got me to thinking… Assuming that you can afford to pay for their medical expenses out-of-pocket and make HSA contributions, should you make claims against your HSA? Or should you leave the money in place and let it grow, completely tax free?

When you really think about it, the HSA combines the best attributes of the Traditional and Roth IRAs. That is, it combines the deductible contributions of a Traditional IRA with the tax-free distributions of a Roth IRA. Add to that the high contribution limits and you’re talking about a very powerful investment vehicle.

Getting your money out of your HSA

Obviously, we’ll eventually want to get our money back out of our HSA. How can we do that? Simple. According to IRS Publication 969:

When you pay medical expenses during the year that are not reimbursed by your HDHP, you can ask the trustee of your HSA to send you a distribution from your HSA.

The go on to say that:

You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA… You do not have to make distributions from your HSA each year.

(emphasis added)

But wait… It gets better:

If you are no longer an eligible individual, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses.

One other little safety net is that, once I turn 65, the 10% penalty for non-qualified distributions goes away.

Here’s a quick translation:

• You can take distributions in return for any qualified medical expense that you incur after open your HSA
• You are free to wait as long as your want to take these distributions
• You can even take distributions after you’re no longer eligible to contribute to an HSA
• You can also claim qualified expenses incurred after you lose eligibility
• Once you turn 65, you can take non-qualified distributions by paying taxes (like a Traditional IRA) without paying the 10% penalty

Of course, you’ll have to save your documentation to make this happen. The good news is that you can simply scan and archive the paperwork (just be sure to keep backups!) as the IRS accepts scanned documents.

Your thoughts

So, dear readers, what do you think? If you’re in a position to cover the out-of-pocket expenses associated with your healthcare while contributing to an HSA, should you take distributions from your account? Or should you leave those funds in place to grow tax free such that you take better advantage of them in the future?

As for us, leaving the money in place is a pretty attractive proposition, and we’re currently archiving receipts instead of taking distributions while we consider our options.

N.B. It seems like I’m not the only one that thinks this way.

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We’ve been feeling as if we don’t have enough life insurance given our new financial circumstances. We thought it would be prudent for both us of us to have adequate coverage in case of an unfortunate event.

Estimating our life insurance needs

The first step was deciding how much we actually need. We’re not looking for a huge amount of coverage, but we want to be able to take care of our obligations should one of use die. We basically asked ourselves:

• How much support would each of us need?
• How long will it take to get back on our feet?

Since the main obligation is our new mortgage, we decided to get enough coverage to pay off the balance of the mortgage, cover our final expenses, and create a bit of a buffer. We figure our emergency fund can also help cushion us during the difficult time if necessary.

Term vs. permanent life insurance

Once we decided on an amount, our next decision was whether to buy a term life or permanent life insurance policy. Each has its own pros and cons.

Term life insurance covers you for a specific time (typically 10-30 years) with guaranteed level premiums. If you die during that term, your beneficiary, such as your spouse and children, will get the full value of the policy. Some benefits of term life are:

• Cost: Term life premiums are cheaper than whole life insurance premiums because they don’t include an investment component.
• Ease: It’s a pretty clear policy: if you die within the term of the policy, your beneficiary receives the policy’s full value.

The biggest problem with term life insurance is that once the term is over, you’re no longer covered (unless you get a new policy). Also, while you can always “buy term and invest the rest,” many people lack the discipline to do this.

Permanent life insurance (including whole life, universal life, and variable universal life) doesn’t have a set term. Rather, it covers you as long as you pay the premiums. Some benefits of whole life are:

• Cash value: Because a portion of your premium goes into an investment account, your policy accrues a cash value. In the long run, you can opt to have your premiums paid by this cash value, or to annuitize it as a source of income.
• Credit line: If you’re ever in serious need of cash, you can borrow against the cash value of your policy.

A major problem with permanent life insurance is that it is very expensive, at least at first. What good is a life insurance policy that you can barely? Permanent life policies can also be much more difficult to evaluate because of the complexities associated with the investment component.

After looking at both the numbers and our goals, we chose to go with a 30 year term life insurance policy. We chose 30 years to protect each other and cover the mortgage.

Comparing policies

We used an online insurance comparison tool to get ballpark estimates of life insurance premiums for healthy individuals in their late 20s. We then looked at several life insurance companies to get specific rates. I also asked some friends and online buddies if they had any thoughts, problems, or good experiences with the companies they use.

We also contacted our local insurance company to see if they could offer a competitive rate on term life insurance. After checking around, we went with 30 year term life policy from our local agent with a face value of $150,000. By opting for bi-annual payments, we also got a small discount on our premiums.

We now have a small health exam coming up and, assuming all goes well, we’ll be done (for now) with life insurance.

What do you think?

Do you have life insurance? If so, what type? And how did you decide how much coverage to buy? And how did you find your policy?

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As I noted previously, you’re free to use whoever you want as an HSA custodian. The only downside is that I won’t be able to have the contributions withheld from pre-tax dollars if I don’t use my employer’s preferred HSA custodian. Instead, I’ll have to wait until the end of the year to deduct our contributions.

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Lower premiums

The primary draw of the high deductible health plan are the low premiums. In 2010, the regular PPO plan that we’re accustomed to will cost in the neighborhood of $440/month for our family. In contrast, the high deductible plan will run roughly $70/month.

In other words, if we opt for the high deductible plan, we’ll save $370/month in premiums. That’s a total savings of $4440 per year. Not too shabby. But at what cost?

Higher deductible

It should come as no surprise that a high deductible health plan has a relatively high deductible. In our case, the family deductible would be $3000 ($1500 for individuals). The PPO, on the other hand, has a $900 family deductible ($300 for individuals).

Coverage comparison

Aside from the difference in deductible, the coverage of the two plans is quite comparable. Both plans use the same network, so we’d have access to the same collection of physicians either way.

For “everyday” doctor visits, the PPO has a $20 copay for regular office visits. With the high deductible plan, our insurance would cover 90% of the network rate, subject to our deductible. Beyond that, the coverage is virtually identical, though the high deductible plan has a higher “stop loss” limit ($6000 vs. $2000 for family coverage).

As I noted above, both plans utilize the same network of doctors, and both entitle us to the same reduced rates that have been negotiated by the insurer. Thus, the primary difference really does appear to be

In terms of pharmaceuticals, the coverage would be similar. Instead of calling for a $10 (generic) or $25 (name brand) copay, the high deductible plan would cover 90% of the cost of our prescriptions, again subject to our deductible.

Health savings account (HSA)

If we opt for the high deductible plan, we’ll be eligible for a health savings account (HSA). Like the FSA, the HSA provides provides a tax break on qualified medical expenses.

Not to be confused with a flexible spending account (FSA), however, the HSA has higher limits ($6150 for a family in 2010) and is not subject to the “use it or lost it” provision.

Another key difference is that we’ll be able to invest the funds in the HSA in much the same way we can invest the money in our IRAs. My employer has selected an HSA custodian, but we’re actually free to use anyone we want.

If we choose to go with a different provider our contributions won’t be made with pre-tax dollars, but we’ll still be able to deduct them at the end of the year, and we’ll still be able to make tax-free withdrawals to cover qualified expenses.

One final bit of information is that my employer is offering a one time “seed” contribution to jumpstart our HSA. This amount will count against our annual contribution limit, but it’s free money.

Making a choice

After reading through all of the paperwork, it seems like we’d be fools not to take the high deductible plan. After all, we’d realize an immediate savings of $370/month or $4440/year. Even after paying the deductible, we’ll be $1440 ahead (not counting the HSA seed money).

It’s also worth noting that the physician and pharmaceutical copays are actually a good bit higher than 10% in most cases (e.g., the $20/visit copay is more like 20-25% of the negotiated rate). Thus, once we’ve met our deductible, we’ll actually be catching a bit of a break on these costs.

As of right now, it looks like we’ll be going with the high deductible plan. Assuming we move ahead with this, my intention is to max out the HSA and start building up a stockpile of cash for medical expenses.

Since the HSA isn’t tied to my employer, and we can also carry the money forward and invest it as we see fit, there’s really no downside to overshooting our current needs.

What am I missing?

Okay, here’s where you come in… This high deductible plan almost sounds too good to be true. What am I missing? Do you have a high deductible plan? Why or why not? And if you do have a high deductible plan, have you run into any nasty surprises?

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Well… The Senate Finance Committee has just approved healthcare legislation that would dramatically reduce the value of this perk. More specifically, they’re talking about instituting a $2500 annual cap on FSA contributions that would not be indexed to inflation. As things currently stand, FSA contribution limits are determined by individual employers.

What do you think?

Is this a big deal, or much ado about nothing? My view is that, while standardizing the contribution limits across employers isn’t all that egregious, $2500 is on the low side, and I hate it when Congress fails to index these sorts of things to inflation.

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Focus on your rebuilding costs

While you need to insure your home and its contents against destruction, there’s usually no need to insure the land that it’s built on. Thus, it’s important to think of your actual rebuilding costs (as well as the cost to replace your stuff) when buying a policy. If you don’t, you might end up over-insuring and paying too much.

Increase your deductible

As with other types of insurance, if you’re willing to bear a greater portion of the risk, you can save a significant amount of money. Simply call your agent and ask them to increase your deductible. Just be sure that your emergency fund is large enough to cover your out-of-pocket expenses in the event of a disaster.

Upgrade your security

Things like deadbolt locks, burglar alarms, fire extinguishers, and smoke detectors can earn you a discount. In some cases, these discounts can offset most (if not all) of the additional costs, so it’s well worth checking with your insurer for details.

Bundle multiple policy types together

We get a nice “multi-line” discount for carrying multiple policies with a single company. We actually have two car policies, our homeowners policy, a personal articles policy (for my wife’s engagement and wedding rings) and an umbrella policy all with the same company.

Location, location, location

This one is tough to implement if you already own your home, but… Proximity to fire hydrants, fire stations, etc. can influence your premiums. Not surprisingly, closer is better. No, it doesn’t make sense to move to reduce your premiums, but it might be worth keeping in mind when buying a new home.

Keep your credit report clean

I’ve talked about this one previously… Like it or not, your credit report can influence your insurance rates. Indeed, insurance companies consider clean credit to be an indicator of reduced risk. Thus, it’s important that you check your credit report regularly, and fix any errors that you find.

Ask about other discounts

You can often get a group discount (e.g., alumni association, senior discount, etc.) just for the asking. Give your agent a call today and find out if there are any discounts they can apply to reduce your premiums. If you don’t currently qualify, perhaps there is a group that you can join to get an additional discount.

Shop around

Assuming that you’re doing everything else right, another great way to save money on homeowners insurance is to comparison shop. You can either call around to local agents, or check a homeowners insurance comparison tool. Whatever you do, be sure to buy from a reputable company so you won’t run into any problems if/when you file a claim.

So there you have it… Eight simple tips for saving money on homeowners insurances. If you have any further suggestions, please be sure to share them in the comments.

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Why do you need homeowner’s insurance for a condo?

Homeowner’s insurance provides protection in the event of a loss such as a fire or burglary. You are most likely required to have it if you’re carrying a mortgage, as your lender will want the property protected.

Even if your lender recommends a company, you’re free to shop around as long as you meet their minimum requirements for insurance coverage. In addition to property protection, you’ll also get some level of liability protection that covers claims from people injured while on your property.

Your cost will vary based on the amount of coverage you sign up for and the amount of your deductible. We decided to look at a $500 deductible for now, which means we’re responsible for the first $500 of any claim.

What special about homeowner’s insurance for a condo?

I found out quickly that condo insurance is cheaper than home insurance. This is because your homeowner’s association will pay for the common areas in case of damage. Any additional coverage depends on the home association rules. To be honest, I found it difficult to quickly scan and find the answer in our HOA manual, so I called them instead.

While some associations do pay for the exterior of the structure, ours only pays for the common areas. MSN ran a story about condominium insurance and an insurance agent explaining how structural coverage can vary depending on your HOA’s “master” policy:

• Bare walls in. These policies cover all real property from the exterior framing inward but do not cover fixtures or installations within a condo unit. Features such as counter tops, bathroom and kitchen fixtures, and flooring are not covered. If your condo association has this kind of master policy, you’ll probably have a greater need for individual coverage…
• All in. These policies cover fixtures, installations or additions within the interior surfaces of the perimeter walls, floors and ceilings of individual units. Condo owners under an all-in plan will probably have a more limited need for individual coverage…

Check with your HOA to get an idea of what type of coverage you need.

Contact Information for Insurance Companies

Insure.com offers an online home insurance quote form on its site. While it asks you some questions on discounts and coverage, you might want to call some companies directly to speak with an agent.

When calling or e-mailing for a quote, be prepared to ask for discounts. Some things that may lower your premiums include:

• Smoke detectors
• Alarm system
• Distance to the nearest fire station (closer = better)
• Distance to nearest fire hydrant
• Fire extinguishers (believe it or not, we got one as a gift!)

Also check to see if you can qualify for an alumni discount. Finally, if you have other policies with the same carrier (such as car insurance), check on the availability of a multi-policy discount.

Your take

Who do you have insurance with? Are you happy with your coverage, rates, and/or service? What discounts have you received on your home insurance? Do you have any other tips?

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One of the most frequent responses to my previous post was that we should also be thinking about disability insurance. Nobody likes to think about what life would look like should disability strike. According to the American Council of Life Insurers, however, the reality is that one-third of all Americans between the ages 35 and 65 will experience a disability lasting more than 90 days.

What is disability insurance?

Disability insurance replaces a portion of your income if you become disabled and are unable to work. While employer-backed plans are often more affordable, you tend to have more options buying private coverage. Because every policy is different, it’s important to familiarize yourself with the benefits offered by each.

For example, if you receive bonuses and commissions in addition to salary, double-check to see if your coverage is based on your base salary alone. Also make sure you know when your coverage kicks in, what percentage of your income it pays, and so on.

Short-term vs. long-term disability insurance

As you might imagine, the primary difference between short- and long-term disability insurance lies in the types of disabilities that they cover, and the length of time that they pay benefits.

Short-term disability insurance usually kicks in quickly, but only lasts for a few months. The idea is that this is a temporary condition, so benefits will end after a certain time period disclosed in the policy.

Long-term disability typically has a longer waiting period before going into effect, but also provides longer-term coverage. Thus, long-term disability insurance protects you if you suffer a devastating disability and have to stop working for an extended period of time.

What about Worker’s Compensation?

It should be noted that worker’s compensation is also a form of disability insurance, but it does not cover injuries outside of the workplace. Moreover, it doesn’t cover disabilities caused by illness. Thus, if you’re relying on worker’s compensation to provide your safety net, you’re taking a significant risk.

What about Social Security?

While the Social Security Administration offers disability benefits for you and your family, they don’t kick in for six months, and they’re not particularly generous. For example, if you are currently 30 years old, earning $60,000 per year, and intend to retire at age 65, this calculator estimates that you’d qualify for $1860/month in benefits — that’s just a bit over $22k/year.

How much disability insurance should you get?

For your disability insurance needs, I suggest using a calculator, like this one, which can give you an objective idea of what you need. In essence, you need to figure out how much you need to cover your bills while you’re out of work. If there’s a gap between your coverage and your expenses, you’ll have to make up the difference with your savings.

Gene Meyer from Kitchentablenomics had this to say:

Look for something that covers your ability to work your own occupation (Social Security provides what’s known as “any occupation” coverage) and covers as close to 70% of your income as you can afford. (70% is the max that many carriers insure.) You will owe income taxes on any benefits you get from a policy that your employer buys, but not on anything you buy personally.

Since disability policies don’t typically replace your full salary, and they also don’t kick in right away, it’s still critical to have an emergency fund to supplement your coverage.

In the end, you have to weigh all the factors for your family. How much coverage can you comfortably afford?

Your thoughts?

My husband and I are looking at our disability insurance options, but probably won’t make a decision until the next month or so. How about you? What sort of disability coverage do you have? Employer-provided coverage? Or do you have a private policy?

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Health insurance

Skimping on health insurance can place you in a financially precarious position. My friend’s father gambled by not carrying a health insurance policy, and he’s still paying for it years later. He thought that he could save some money since he was generally healthy, but that decision wound up costing him much more than he would’ve paid in premiums.

He’s been fortunate enough to to retain ownership of both his business and home through this ordeal, but others aren’t so lucky… Did you know that medical bills are the #1 cause of bankruptcy?

Finding affordable health insurance

If you’re currently working, you may already have health insurance through your employer. If not, check with Human Resources to see if you qualify for coverage. In some cases, you have to work for a minimum amount of time (e.g., 90 days) before you’re eligible. Employer coverage is great because the premiums are often lower than what you can get on your own.

If you’re currently temping, you may be able to get health insurance through the temp agency. For example, when we first moved to North Carolina, my husband used the temp agency’s health insurance and I used my job’s insurance to keep us both covered with minimal out-of-pocket expense.

If you don’t qualify or your job doesn’t offer health insurance, you’ll have to look for private health insurance. You can get a good sense for the prevailing prices by looking at sites like Insure.com or HealthQuote 360.

If you can’t afford comprehensive coverage, you should consider looking into catastrophic coverage (sometimes referred to as “major medical” coverage). These policies have lower premiums, but only cover catastrophic illnesses or injuries.

I searched online for a catastrophic insurance policy and found a few in the $65-$80/month range. As with everything, carefully compare health insurance policies before signing up.

See also:
» How to Save Money on Health Insurance

Life insurance

The main purpose of life insurance is to fulfill your financial obligations after you die. Beyond deciding if you whole or term life insurance, you also have to decide how much life insurance you need.

Finding affordable life insurance

My husband currently has a small life insurance policy through his job, but we’ve been looking at increasing our coverage. We ultimately decided that a low-cost term life insurance policy is the best for our needs.

Since everyone’s needs are different, you should give careful thought to how much insurance you need. While there are some handy rules of thumb out there for “sizing” your life insurance policies, nothing beats running the numbers yourself. Here are some key questions to consider when determining your life insurance needs:

• How much money will you need for your funeral?
• How much support will your dependents need?
• How long will they need this level of support?
• Do you have any one-time obligations, such as a mortgage payoff?

Buying a term life insurance policy when young and healthy typically results in low premiums. Being in generally good health and avoiding risky behaviors such as smoking also helps keep your rates down.

Once again, online insurance comparison sites such as Insure.com or CompuQuotes or even here at FiveCentNickel can be a great way to get a handle on the prevailing rates. In our case, we found that a $100k, 30 year term life insurance policy would cost around $251 a year. Of course, this will vary based on age and health.

See also:
» How Much Life Insurance do you Need?
» How to Save Money on Life Insurance
» How to Save Money on Auto Insurance
» How to Save Money on Homeowners Insurance

Your thoughts

What sort of coverage do you have? Group health insurance? Or do you have a private policy? What about life insurance? What sort and how much?

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While some of these tips are hurricane specific, others make good sense in the face of just about any natural disaster.

• Take steps to protect your home against unnecessary damage.
• Talk to your family about the types of hazards you might face.
• Identify a safe room, or at least the safest areas in your home for each hurricane hazard. If there is no suitable location in your home, you might need to rely on a community shelter.
• Determine the best escape routes from your home as well as safe places for you and your family to meet.
• Identify an out-of-state family member or friend to serve as a single point of contact for your family.
• Develop a plan for what to do with your pets if the event of an evacuation.
• Post all applicable emergency numbers near your phone and make sure your kids know how/when to call 911.
• Double-check your insurance coverage to ensure that hurricane damage is covered, and that you also have flood insurance (if necessary).
• Stock up on non-perishable supplies and create a disaster supply kit.
• Get a weather radio and be sure to replace its battery every 6 months (along with your smoke detector batteries) to keep them fresh.
• Take First Aid, CPR, and disaster preparedness classes.

You might also want to check out Matt’s list of tips for preparing for a power outage, as you’re likely to be in the dark for at least awhile after the storm passes. If you have any tips of your own, please share them in the comments.

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These changes have been driven by a combination of higher than expected hurricane-related claims as well as increased costs related to reinsurance (i.e., insurance sold to other insurers to mitigate the risk of losses). Beyond this, the recent economic turmoil has put additional strain on insurance companies, resulting in pressure to increase premiums.

The good news (for us) is that we’re not really in hurricane country. The bad news is that many of you are, and thus might be in need of additional protection.

Do you need hurricane insurance?

In many cases, the damage caused by hurricanes will be covered by your basic homeowner’s insurance policy. That being said, an increasing number of policies actually exclude hurricane-related damage, in which case you’ll need to buy additional coverage. Do yourself a favor and check your policy now instead of waiting until it’s too late.

Note that, even if you do have coverage, you’ll still need to keep a decent amount of cash on hand to protect yourself. The reason for this is that the deductible for hurricane-related damage is typically a percentage of your home’s value, and can be quite high in some cases.

What about flood insurance?

Another extremely important point is that hurricane coverage is generally limited to wind damage, and thus does not cover damage due to a possible storm surge or subsequent flooding. As such, you’ll need to purchase flood insurance if you wish to be fully protected.

Something else to consider here is that, while most flood policies cover the costs associated with repairing/replacing the structure of your home and your possessions, they do not cover alternate living arrangements if you’re forced out of your home during the repairs. If this might be an issue for you, you’ll either need additional coverage, or you’ll need to beef up that emergency fund.

Other considerations

Finally, given the potential for water intrusion during and after a hurricane, you should check to see if you’re covered for mold damage. Mold can be an extremely expensive problem to deal with, and many homeowner’s insurance policies explicitly exclude mold damage, or at least limit the coverage associated with mold claims.

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» How to Save Money on Life Insurance

How much life insurance do you need?

Unfortunately, there are no easy answers. In fact, my wife and I have bought and re-bought new life insurance policies several times in the past 5-10 years as we tried to get it right. The real challenge for us has been that the “right” answer has been a bit of a moving target. As our income has increased and our responsibilities have grown, we’ve outgrown our coverage.

Given our past experiences, I thought I take some time to share what we’ve learned. Note that I’m talking specifically about term life insurance policies here, as I’m a proponent of the view that you should keep your insurance and investment needs separate — in other words, buy term and invest the difference!

Do you even need life insurance?

Depending on where you’re at in life, it’s possible that you don’t need life insurance at all. For example, if you’re single and have no dependents, you might be able to get away without buying a policy (though it might be a good idea to have enough to cover your funeral expenses). But if others depend on you for your income, then you’ll likely want at least enough coverage to replace your earning potential, at least temporarily.

Life insurance rules of thumb

If you poke around online, you’ll find a number of websites that claim that the ‘best’ approach to determining your life insurance needs is to simply buy a policy that corresponds to a certain multiple of you annual salary. The problem here is determining the correct multiple.

Should you buy a policy for 8x your annual salary? 10x? Why not 12-15x? In the end, this really boils down to what you want your life insurance to do for your. If you’d want your life insurance policy to provide support for your family for an extended period, you’ll obviously need more. If you’re comfortable with your insurance policy being a short-term stopgap, you can get away with less.

An alternative approach to buying an arbitrary multiple of your salary would be to use an online life insurance calculator. In this case, you enter data on anticipated one-time expenses, ongoing living expenses, timeframe, etc. and the calculator will spit out an answer.

Don’t forget employer-provided coverage

Another factor to consider when determining how much life insurance to buy is whether or not (and how much) coverage you have from work. In many cases, As valuable as this sort of coverage can be, it’s important to not become too dependent on it. After all, if you lose your job, you’ll likewise lose your life insurance coverage.

What about a non-working spouse?

Another important thing to consider is whether or not you have a non-working spouse. On the one hand, you’ll have to decide whether or not to purchase coverage for them (we did, more below). On the other hand, you also have to worry about your spouse incurring expenses that aren’t directly reflected in you salary.

Perhaps the most troublesome point in this context is health insurance. In our case, we have great health insurance coverage. Unfortunately, it’s tied to my job. Since my wife stays home with the kids, and since we’d want her to continue doing so at least for awhile, we need to plan for private health insurance.

Other factors to consider

Are you relatively early in your career path? Do you plan on expanding your family? Do you anticipate any other major changes in the future? If so, then it’s likely that your life insurance needs will change (perhaps dramatically) in the years ahead.

There are two main ways for dealing with these sorts of things. One is to try and project your needs and size your life insurance policy accordingly. The other is to buy the right policy for today, and then simply replace it at some point in the future.

Both of these approaches have their downsides. Overbuying now means that you’ll spend more than necessary in the short term. However, if you wait to buy more coverage, you run the risk that you’ll fall ill in the interim, and your rates will increase dramatically.

How we approached it

In the end, determining your life insurance needs is a very personal matter, and broad rules of thumb are unlikely to provide you with the right answer. This last time around, my wife and I sat down and outlined exactly what it is that we want from our life insurance policies if something happened to one of us.

In short, we’d both want for our family’s lifestyle to change as little as possible. We have four young kids, and my wife stays home with them during the day. If she were to pass away, we’d need to replace her efforts at home with someone to watch the kids while I’m at work, help around the house, etc. Thus, even though she doesn’t generate any outside income, we need for her to be insured.

Likewise, if I were to die, we wouldn’t want for her to suddenly have to go back to work. Thus, we’d need to completely replace my income for the foreseeable future. We’d also need for the payout to be large enough to cover new expenses like private health insurance since our health insurance is currently tied to my job.

How much life insurance do we have?

In the end, we bought a pair of twenty year term life insurance policies to cover us. We selected twenty years because that roughly corresponds to the time at which our kids will be out of the house and completely on their own. At that point, our day-to-day responsibilities, as well as our need for life insurance coverage, will drop off dramatically.

In terms of amounts, my policy is worth roughly 20x the income from my day job. That might sound like a lot, but I also make a decent amount of self-employment income, so it’s a much smaller multiple of my total annual income. On top of this, I also have a limited amount of coverage — 3x my annual salary — through my day job. The nice thing about the employer coverage is that it rises with my salary, such that our total coverage will grow slightly over time.

In my wife’s case, we bought a smaller policy, corresponding to roughly one-third of my coverage. As noted above, it’s important for us to have coverage for her, as we’d want to maintain a very similar way of life for our family even if one of us were out of the picture. Thus, we’d need to hire someone to help with the kids, help keep the house in order, etc. However, since my wife doesn’t currently generate any outside income, we can get away with less coverage for her.

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Related Articles at fivecentnickel.com:

» Increasing Our Life Insurance Coverage
» Insurance Needs for a Couple with No Kids
» Buying Term Life Insurance (Again), Update #4
» Buying Term Life Insurance, Part V (Epilogue)
» Buying Term Life Insurance, Part II
» Buying Life Insurance (Again), Update #3
» Buying Life Insurance (Again), Update #1
» Buying Term Life Insurance, Part IV

Keep your driving record clean

In other words, don’t get nailed for speeding like I did a few months back. I was fortunate in that it was a first offense, and I was able to keep my record clean by pleading nolo contendre (no contest) and paying the fine, but… Next time I won’t be so lucky, as I’ll wind up with points on my license and higher insurance premiums.

Increase your deductible

If you’re willing to bear a greater portion of the risk, you can save a significant amount of money. Simply call your agent and ask them to increase your deductible. Just be sure that you have enough cash on hand to cover your out-of-pocket expenses in the event of an accident.

Drop unnecessary coverage

If you’re driving an older car, you might want to consider dropping your comprehensive and/or collision coverage entirely. After all, what’s the sense in paying a ton of money to insure against damage to a car that might not be worth repairing? Note that I’m not suggesting that you drop your insurance coverage entirely, just the portion that pays for repairs on your own car.

Bundle multiple policy types together

I can’t speak for all insurance companies, but we get a nice “multi-line” discount for carrying multiple policies with a single company. We actually have two car policies, our homeowner’s policy, a personal articles policy (for my wife’s engagement and wedding rings) and an umbrella policy all with the same company.

Ask about other discounts

You might qualify for discounts for being accident-free, renewing your policy, driving relatively few miles each year, taking a defensive driving course, etc. Be sure to talk to your agent and get what you have coming to you.

Shop around

Assuming that you’re doing everything else right, another great way to save money on car insurance is to comparison shop. You can either call around to local agents, or use the auto insurance comparison tool at FiveCentNickel. Whatever you do, be sure to buy from a reputable company so you won’t run into any problems if/when you file a claim.

So there you have it… Six simple tips for saving money on car insurance. If you have any further suggestions, please be sure share them in the comments.

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