Feel free to share your experiences in the comments, or reach out to the writers via their contact info.

-Trent
___________________________

Every driver faces two risks when they get behind the wheel of a car: First, the risk of an accident; second, the risk that the accident will result in a difficult or costly claim. Even if you’ve bought every available insurance coverage, you can still lose time, money, and sleep if the claim turns sour. When it comes to money, the riskiest of these scenarios is the total loss claim.

In February, 2011, I bought a used sports car: a 1998 BMW M3 sedan with a 5-speed manual transmission. I’ll spare you the long story, but it had a salvage title from a prior total loss accident, and I subsequently repaired all its damage and gave it a full paint job with the help of my body shop coworkers. The whole job was done with original parts installed and finished by professionals. It was in excellent condition, and I was sure it was worth around $7,000, whereas it would have been worth about $9,000 if it didn’t have an accident history or a salvage title.

Needless to say, my insurer didn’t agree. In March of 2012, I woke to find that someone had backed into the front of my car and driven off, leaving about $3,500 in damage. My insurer took a look at the car, its high mileage, and its title history, and decided to call it a total loss a second time. Keep in mind, “totaling” a car isn’t a one-time deal, it can be done again and again. It’s just a matter of weighing the cost of repairs against the car’s value.

My insurer thought the car was worth about $3,800. They based their value off of a piece of software that told them some numbers to use, a few hypothetical questions posed to used dealers, and a few “comparable” vehicles (which weren’t comparable at all) listed at nearby dealers. Essentially, they followed common industry practices to develop their assessment of my car’s value – and their assessment came out wrong.

If my car fit in the Kelly Blue Book (KBB) mold of a commonplace car among thousands on the road, with nothing to distinguish it from the rest, establishing a value for my car would have been simple. Unfortunately, my car had a specific history, with an appeal to a specific market of BMW enthusiasts who look past a car’s title history and know when a car is in great shape or not, regardless of its history.

But the facts were the facts, and unfortunately my claims adjuster was either unwilling or lacked the authority to look past their one-size-fits-all method for assessing car values. They even hired an “independent” adjuster who used the same methodology to determine a flawed value.

Since the accident, I’ve had the car repaired and subsequently sold it. Now, a year after the accident and with a bill of sale for $5,000 in hand, I’ve let my insurer know what the car was really worth. Consider it a year younger with one less accident on its history and 10,000 fewer miles, and it would have been worth $6,000 to $7,000. Sadly, though, my insurer is sticking to their guns and has invited me to file a lawsuit against them in small claims court.

Enough with the details, here’s what I’ve learned through this whole process:

Tips for Drivers to Come Out Ahead (Or At Least Not Behind) In A Total Loss Claim
While this provides some general tips and suggestions, this article doesn’t go into detail on the nuts and bolts of handling a claim. For a more detailed primer on navigating an insurance claim, refer to TSD’s car insurance guide.

• Plan in advance. If you’ve performed any custom modifications, restorations, upgrades, or added accessories to your car, you need to be sure the value you’ve added to your car will be factored into any total loss scenario. If not, your insurer may only pay for replacement of a “stock” version of your car.
• Check your policy for “accessory coverage” to see how much money will be paid out for aftermarket accessories like stereos, wheels, engine modifications, and other items. Some policies limit your reimbursement to $500 or $1,000, which will barely cover a couple custom rims. Ask your insurer to explain how you can add coverage for more accessories or modifications beyond the vehicle’s “stock” market value.
• Buy an agreed value policy to have your insurer pay out a predetermined amount in the event your car is totaled. While this may increase your premium above your normal rates, the increase may be worth it for both peace of mind and to be sure you won’t lose thousands of dollars in the event of a claim turning sour.
• Get an appraisal from an expert before you get in an accident. Such solid evidence will be invaluable when establishing your car’s value; remember, an appraiser may have a hard time establishing its value if the car is wrapped around a tree.
• Take photos and keep receipts. Document any work you’ve had performed, including major maintenance items, and take photos to show the car’s condition.
• Stay one step ahead. If your car was involved in a serious accident, don’t wait for your insurer to tell you it’s a total loss. There are a few steps you can take to stay ahead of the curve after an accident.
• If your car is OK to drive, bring it to a local body shop for an estimate. If it must be towed, have it towed to a shop you can trust or one with a reputation for consumer advocacy. Because the body shop will be serving as a liaison between you and your insurer for certain aspects of the claim, you want to make sure the shop is on your side. Most often, the insurer will pay for the cost to tow it to a shop for diagnosing the damage, and you’ll get reimbursed if you pay for the tow truck up front. Read more on how to choose a body shop here.
• Ask your shop for their honest opinion on whether or not it will be totaled. If you’re unsure, compare their estimate amount to your car’s value. If the estimate is more than half of the car’s value, your car is probably a total loss. If you need to figure out what your car is worth, check local and online classified ad listings, Kelly Blue Book, or NADA to find comparable vehicles to establish its value.
• Get it detailed. Pretend that you’re cleaning your car up for sale, because that’s essentially how it works. Your insurer will be inspecting it to determine it’s value, and the better its condition, the better the value (damage aside, of course). After the accident, even if the car is partially destroyed, have it washed and vacuumed. Many body shops will do this at no charge, and even something this simple can add a few hundred dollars to your car’s value in the appraisal.
• Get to know your adjuster, and be their friend. Your adjuster is the person who calls the shots on your claim and issues the checks you’ll receive as reimbursement for your car. While adjusters are supposed to impartially analyze a claim based purely on the facts, being on their good side can mean the difference between certain aspects of your car being assessed in “fair” or “poor” condition, and such a distinction can mean a few hundred dollars or more.
• What’s more, many adjusters are encouraged to pay out “more than fair” values for customer’s cars if they think the customer will use the money to go buy a nicer, newer vehicle and continue their insurance policy with complete coverage (and high premiums for years to come). Being a friendly customer will help your adjuster justify a higher payout for your old beater, in the hopes that you’ll buy something nice and thus pay to have it fully insured.
• Know when to fight, know when to walk away.
• If your insurer is covering the loss and you disagree with their assessment, you may be able to resolve it cheaply through mediation or arbitration. These are options for dispute resolution that are built into most insurance policies, and typically cost less than $500 to do.
• If you are going through another driver’s insurance, your only option for dispute resolution would be to file a lawsuit against the at-fault driver. Most states have easily-accessible options for litigating small claims without the requirement (and high cost) of an attorney. But before filing suit in small claims court, a letter to both the other insurer and the at-fault driver will often go a long way towards motivating the insurer to resolve your dispute without dragging their customer to court.
• Depending on the amount in dispute, neither of these may sound appealing, particularly if you’re only arguing over a couple hundred dollars. If that’s the case, make a couple of appeals to your adjuster, but don’t waste your time arguing over something you can’t pursue without losing money.

Most importantly, keep your mind on the future and treat this process as an opportunity to reassess your automobile needs in order to make a better choice for your next vehicle. So long as you prepare in advance, avoid getting caught off guard, and take a few key steps on the back-end of your claim, you can be sure to navigate a total loss claim with ease and get top dollar for your car. And that, my friends, is valuable.

The post A Total (Loss Claim) History Lesson appeared first on The Simple Dollar.

I was the first person in my family to go to college, and I was attending a reasonably prestigious university far enough away from home that it wasn’t feasible to go back with any regularity. I knew no one at all when I moved into my dorm room.

That first year in particular was full of discoveries. I had read quite a lot about the realities of college life before going, but so many things were unexpected and didn’t quite match what I had discovered from my reading.

Perhaps the biggest surprise of all was the hidden costs. It didn’t take me long to seek out a part-time job because of all of the hidden costs that came along. Here were four that really took me by surprise.

Unexpected Class Expenses
Most professors are sympathetic with the poor college student and will therefore use only one textbook for their class. Others, like a few of my own that shall remain nameless, will have a long list of requirements for the class.

I’ve been in classes with more than ten required books. I’ve been in classes where we had to buy a bunch of lab equipment. I was in one class where a $500 piece of software wasn’t “required,” but if you didn’t have it, you had to spend many, many hours in this one computer lab with limited hours of availability on a remote corner of campus.

The textbooks are expected. Some of the additional expenses are not.

Health Insurance
Health insurance is the last thing most college students are thinking about when they head out the door to school. Eventually, though, you will get sick. Dormitories are breeding grounds for germs and with all of the human interaction going on at colleges, illnesses get passed around.

Many students are lucky enough to be covered by their parents’ health insurance. For those who are not so lucky, there are really two options.

One, you can see if your university provides a health plan. If that’s the case, this is usually the lowest-cost option. Most of the time, if you have a health plan through your school, you gain access to some form of on-campus health service, which will help you with most minor ailments without any charge, and they’ll refer you to other health services as needed. The premiums for this are usually quite low and are often paid directly to the university.

If that doesn’t fit, you can get individual health insurance. Provided you’re in good health, this can also be pretty inexpensive and will usually open up access to off-campus doctors and medical resources. If you go this route, shop around. Most schools will provide you with a list of recommended student health insurance providers.

Make sure your health is covered before you go. The last thing you need during your first finals week is a serious illness that makes you dizzy if you climb out of bed. (I speak from experience here.)

Learning Experiences
If you’re involved at college, you’ll eventually join clubs and organizations that match your passions (and possibly improve your resume). Those clubs might have small membership fees, which aren’t a big deal.

What is a big deal is when those groups lead to learning experiences: trips, activities, and other things that have a big additional cost to the participant.

I found myself in a club that took a trip to South America for volunteer work. Most of the club went. I did not. Another club I was in went on a long road trip over spring break to visit some research stations. I couldn’t afford to go.

Involved students will eventually bump up against the cost of extra learning experiences that go far beyond tuition.

Late Night Food
This was a big unexpected expense for me. Like many college students, I was often up very late doing social activities or finishing up homework. On the weekends, it was not uncommon to stay up until three in the morning and then wake up at ten or eleven in the morning.

Since the food service at my school stopped serving at 6:30 PM, that meant that by midnight or one in the morning, I was getting hungry. I was definitely not alone in this. Many pizza places in the town catered to us.

There were many, many weekend pizzas delivered to various groups on campus. I might go in four ways with someone on a pizza, but that meant $5 was immediately gone. Do that once or twice a weekend over a semester and you’re talking well over $100.

I truly believed food service would cover all of my food needs when I went to school, but it just really didn’t work out that way. There were many times when I was quite hungry and ready to eat when the delivery places had closed up shop.

College is subtly expensive in many different ways. Saving for tuition, room, and board is a good start, but having some additional funds on hand will really help maximize that experience.

The post Four Hidden Costs of College appeared first on The Simple Dollar.

Feel free to share your experiences in the comments, or reach out to the writers via their contact info.

-Trent
___________________________

I love my wife, my second wife. Not in the HBO Big Love sense, but through divorce and remarriage. The thing about second marriages is that it means there was a first marriage and with first marriages come exes. Once upon a time, you cared about enough to worry about their well-being if something were to happen to you.

The biggest problem with exes and the past is that they sometimes intrude on the present in unexpected ways. My story is nothing out of the ordinary, just another boy meets girl, boy marries girl, boy divorces girl and meets another girl who he marries. See? All neat and clean, right? Not exactly.

My first marriage produced more than a divorce: it produced two wonderful children. As a result, I purchased and continued to pay for life insurance that my ex was the beneficiary of long after we divorced. Paying it was a habit: the premium was always automatically deducted from my checking account and I never gave it a thought. Long after the divorce, I thought of my insurance as being for the benefit of my children, forgetting that, technically, my ex was the actual beneficiary.

The Day the Earth Stood Still

Cue the dramatic music. My wife was organizing important documents when she came across my old life insurance policy. To her credit, she did not freak out at the sight of wife number one’s name as beneficiary because she assumed she would find a completed change of beneficiary doc and all would be right with the world.

There was no change to be found and, when questioned, I confessed immediately that I had never thought about it. The premium was paid automatically and the coverage was simply intended to benefit my daughters. Not the best answer, what with my daughters both in their twenties. After a few harsh words and some finger wagging, it all worked out.

My embarrassment in sharing this story is not because of the all too common occurrence of having an ex as beneficiary on a life insurance policy – I share it because I didn’t heed my own advice. Advice I’ve given clients countless times over the years: Review everything annually!

What exactly does it mean to annually review? Sound financial practice says you should review all of your financial obligations and investments regularly to make sure everything is in order. It also lets you confirm that you have adequate coverage and that you are receiving the most advantageous rates for that coverage. For our purposes, I’m going to limit the conversation to life insurance.

An annual review of your life insurance policies means taking out all of your policies and assessing the principal points of the contracts, such as:

• Beneficiary
• Benefit Amount
• Term
• Loans and Cash Value

Axe the Ex

An annual review of life insurance policy beneficiaries can turn up a lot more than an ex: it might reveal deceased beneficiaries, children born in the last year who aren’t on the policy, or kids or grandkids who are now old enough to be named as beneficiaries in their own right. The point of life insurance is to provide for the needs of those left behind when you die.

The needs of your loved ones change over time. Your children will become adults, graduate and start families of their own. Marriages end and start. Grandchildren are born. As your family life evolves, the need to evaluate who receives what will be something you need to regularly evaluate.

When it comes to your term policy, the term itself is of particular importance – go figure. Some term policies convertible to permanent insurance on their anniversary and some are convertible at the end of their term. An annual review prevents term policy expirations from creeping up on you; that’s the sort of surprise you don’t want to deal with.

Whole life and universal life policies that build cash value and have the ability to be borrowed against should be reviewed to assure that you understand your current financial position. Outstanding loans against a policy’s cash value may reduce the death benefit, and while they are sometimes necessary, such loans will end up compromising the initial goal of your life policy: to provide for loved ones when you are gone.

Some policies, universal life in particular, allow let you use the cash value to reduce or eliminate premiums. An annual review will indicate whether or not you are in a position that would let you save some money and maintain the same level of coverage. Knowing that you are able to easily access a fast, undocumented loan when you unexpectedly need one can alleviate a lot of potential stress.

Life Changes

The most important part of an annual review of life insurance policies is a review of your total amount of coverage. Your life changes over time – bigger house, children, a business, etc. Your needs grow and change more than you realize until you take time to evaluate it. This is where the rubber meets the road in terms of your annual review because for insurance to truly be effective, you have to have enough.

The bottom line when it comes to annual insurance reviews is consistency. Like changing smoke detectors, consider making it a regular occurrence on a specific date. New Year’s Day, for instance, or perhaps Valentine’s day. After all, isn’t life insurance really an expression of love?

The post Mistakes Happen, The Trick is to Learn From Them appeared first on The Simple Dollar.

Feel free to share your experiences in the comments, or reach out to the writers via their contact info.

-Trent
___________________________

Medicare kicked in for me in February of 2012. Among the exhaustive research I did at that time was to choose a provider for Part D, my prescription drug coverage. Because I have more than one chronic illness, I have a long list of medications; my primary goal in choosing a Part D provider was to find the most exhaustive formulary I could afford.

I understood at the time that the provisions of all Part D plans allowed for a coverage gap, commonly referred to as ‘the donut hole’ for reasons that remain unclear to me. The donut hole isn’t a tasty little tidbit of something sugary and sprinkled – it’s when your prescription coverage drops precipitously once your Part D provider reaches a certain threshold of spending.

The donut hole isn’t a tasty little tidbit of something sugary and sprinkled – it’s when your prescription coverage drops precipitously once your Part D provider reaches a certain threshold of spending.

I understood, back in February, that a day might come when my meds suddenly got more expensive. Chronic illness, however, can be time-consuming, as can wrangling three teenagers who are determined to drive me to the nuthouse. I conveniently forgot about donuts and their holes and carried on about my business.

In December, in the midst of portioning out my fixed income for a pile of small, expensive electronics, designer makeup and clothing my daughters claimed were utter necessities, I dropped by the pharmacy to pick up my monthly ration of pain medication. During a month when I typically forego things like eating in order to buy holiday gifts – a $36 prescription was suddenly ringing up at $454.00. The timing was ugly.

I am a chronic pain patient, and am what’s known as opiod-tolerant. This means that standard pain meds don’t work for me – I require specialty drugs that are not cheap. This also means that my pain level without these drugs leaves me unable to function. Writhing uselessly on the sofa for the duration of the holidays was not an option. I forked over $454.00.

Furiously logging into my insurance account did not, in fact, reveal a way for me to submit a claim for reimbursement. It revealed the fine print that I’d conveniently ignored. All of my prescriptions for the rest of December cost me hundreds more than I normally paid, because I’d reached the coverage gap in my insurance. Had I paid attention to the details, I’d have planned for this expense. Instead, I was sideswiped by massive added expenses at the worst possible time of the year. Ultimately, this mistake cost me $1,362.

The nitty-gritty details: in my case, coinsurance for prescription cost $5 per month for approved generics, $36 for approved brand name drugs and a max of $68 for “select approved drugs,” all of which were clearly listed in the plan formulary. When I reached the plan’s expense ceiling (which looked nothing like a donut) things changed drastically.

Medicare Part D is arranged into three tiers that reset each calendar year.

• Tier 1 is the first part of your coverage, where the plan pays the bulk of your cost and you pay coinsurance. This lasts until your reach a predetermined coverage limit. In my case, the limit was $2,930.
• Tier 2 is the coverage gap. Under current law, this means that your provider can drastically reduce your coverage after you’ve reached their spending ceiling. Depending on the details of your plan, you remain in Tier 2 until a prescribed amount is spent. For me, Tier 2 means that I am responsible for 50% of the cost of all brand name and approved drugs. This ends when the plan and I each spend about $4,000.
• Tier 3 offers very good coverage, which is a relief because thousands of your out-of-pocket dollars must be spent before you can get there. My plan pays almost the entire cost of any medications once I reach Tier 3.

There is good news. Part D tiers reset in January of every year; I can count myself lucky that I didn’t fall into Tier 2 until December. And in even bigger news, the Affordable Care Act is taking aim at the donut hole. Gaps in coverage that leave consumers responsible for the bulk of their prescription costs are being closed a little bit each year; Obamacare plans to completely remove Part D coverage gaps by 2020.

for any Medicare Part D users, or anyone with an insurance plan that places limitations on prescription coverage: know your plan

The moral of the story for any Medicare Part D users, or anyone with an insurance plan that places limitations on prescription coverage: know your plan, particularly if you have ongoing medication needs. Researching Medicare options is mind-boggling, and the temptation to walk away from it all once you’ve selected your options may be strong. To avoid a nasty surprise, you need to educate yourself about the details of your coverage.

The post A Health Insurance Disaster: Falling Down the Medicare Donut Hole appeared first on The Simple Dollar.

Today, I’m excited to share Randy Woods’ experience with home insurance claims and how much of a Catch-22 they can be. Be sure to read Randy’s guide to home insurance and some of the articles he’s written for The Simple Dollar too. Check out his tips on renters insurance, DIY home repairs, and home replacement costs.

Feel free to share your experiences in the comments, or reach out to the writers via their contact info.

-Trent
___________________________

Sometimes people acting with the best of intentions end up causing the greatest damage. Several years ago, some neighbors of mine – I’ll call them the Waterstons – found out the hard way that contacting your insurance about a seemingly innocent home repair question can end up costing you dearly. Remember: Talking to an insurance company is like talking to a police officer: Everything you say can and will be used against you, no matter how noble your intentions.

Talking to an insurance company is like talking to a police officer: Everything you say can and will be used against you, no matter how noble your intentions

3 Questions Before You Call
Often the status of a claim involving home repair comes down to three simple questions:

• What did the homeowner know about the maintenance issue?
• When did the homeowner know it?
• And who did the homeowner share this information with?

The Issue

The Waterstons first noticed a problem when they discovered a small amount of water flowing from under the concrete foundation of their home. Being conscientious folks, they looked at the age of the pipes in their home (about 30 to 40 years old) and noted that many of them had experienced a few pinhole leaks due to corrosion and rust. They determined that the old pipes under the foundation were starting to fail.

They knew that under their homeowners policy, repair of aged plumbing fixtures falls under the Property Not Covered exclusion, which also included repairs to flues and drains in the house. These repairs are considered to be part of the regular maintenance for “wear and tear,” which is not covered by most homeowners policies. Neither is seepage of water that occurs over a period of 14 days or more.

The Waterstons fully understood the reason for these exclusions. Their policy really only covered them for what the insurance industry calls fortuitous events, or losses that occur randomly and by accident, which nobody can accurately predict – for example, when a pipe with an undetected flaw suddenly bursts, causing water damage to the walls and floor.

The Policy Question

However, they did notice some wording under the Additional Coverage clause, stating that the insurer wouldn’t pay for repairs to the old pipes themselves, as well as any resulting loss or damage caused by the old pipes. After getting a few plumbers’ estimates on how much it would cost just to dig up the foundation to get to the pipes, the Waterstons heard a whole range of figures — from $5,000 to $15,000 — which were all well above their $1,000 deductible. They decided to file a claim to recover these costs.

Small Mistake #1

There was one small but significant error with the Waterstons’ thinking: They never experienced an actual property loss due to the leak. The water never entered their dwelling, instead escaping into the soil and down the hillside; this was not considered a loss.

Because of this, the insurer denied their claim. The insurer ruled that if no loss exists, any expenses to repair plumbing fixtures would fall under the exclusions clause. So, in essence, even though the Waterstons were trying to do the right thing and prevent what might be a much more expensive covered loss, they were denied coverage because the loss hadn’t yet occurred. Those familiar with Joseph Heller’s novel “Catch-22” might be slowly nodding your heads right now.

Bigger Mistake #2

But wait, it gets worse. After hearing that their insurer would not pay for the tear-out costs unless they actually experienced a covered loss, the Waterstons decided to leave the pipes as is and waited for a covered loss to occur. Huge mistake!

By admitting in their claim that they had intended to make repairs to their old plumbing fixtures, the Waterstons tipped off their insurance company that the pipes in their house were ready to fail. At that point, the insurer knew that any claims arising from future ruptures in the old pipes would no longer be considered “fortuitous,” and thus plausibly be denied.

Sure enough, several months later, the Waterstons did suffer a sudden rupture in their underground pipes, and this time there was minor flooding in the interior, costing tens of thousands of dollars in damage to wood floors, drywall and other possessions. The insurance company – cruelly, but correctly – denied them coverage again, saying the loss was entirely expected.

Would the insurance company have ruled the same way had the Waterstons never contacted them about repairs? It’s hard to say what they might have concluded without any prior knowledge of the pipe’s condition. Perhaps the insurer would have ruled it fortuitous after all. But the poor Waterstons did not do themselves any favors by tipping their hand with that first phone call and then shot themselves in the foot by not following protocol.

The Gray Area of Home Repair

One partial reason for the confusion over these kinds of claims is the murky relationship between insurers and their policyholders over maintenance disputes. This is especially true when it comes to water claims.

For most policies, property owners have no contractual duty to make any specific home repairs. Most only require that property owners only “take steps to protect their property in the event of a loss to covered property.” But with some policies, the insurer can prove that a policyholder knew about, and ignored, a potential problem. In this case, when something bad actually happened, the insurer considered that peril to be non-fortuitous.

One partial reason for the confusion over these kinds of claims is the murky relationship between insurers and their policyholders over maintenance disputes. This is especially true when it comes to water claims

Lessons Learned

After reading this sad cautionary tale of the Waterstons, you can avoid a similar fate by following these three rules of thumb:

1. Make sure you have suffered a covered loss before you file a claim. If you aren’t sure, re-read your policy language closely or contact your state insurance department for guidance. Otherwise, leave your insurer out of it.
2. Don’t report to your insurer damage or deterioration that isn’t covered. Most phone calls and emails to insurance agents and adjusters are monitored and/or recorded. A slip of the tongue over the phone about the condition of your property could potentially cause a future claim denial or cause your premium to increase upon renewal.
3. If you do mention that your property needs repairs – for goodness sakes, make them! The temptation may be strong to save your money and hope for the best in this troubled economy, but this short-sighted frugality could come back to haunt you. Once word gets out about a home maintenance issue, think of the Waterstons and start bringing those repairs to a speedy conclusion.

The post Avoid the Home Insurance Catch-22: Follow Through on Repairs appeared first on The Simple Dollar.

We’re kicking off the series with a funny and practical piece from The Simple Dollar’s life insurance expert, Karla Lant. Be sure to check out her life insurance guide and some of the articles she’s written for The Simple Dollar: here and here.

Feel free to share your experiences in the comments, or reach out to the writers via their contact info.

-Trent
___________________________

Today I’m going to tell you about the embarrassing and terrifying tale of my very first life policy. I made a major rookie mistake back then; if anything had happened to me, I would have left my daughter a real can of worms.

I had just received a new job complete with a salary and great benefits. I also purchased a life insurance policy using a discount available to me through my new workplace. I felt great! I knew I was making the necessary preparations, bolstering my family against the worst case scenario. I proudly named my one year old baby as the beneficiary of the policy.

At the time of the new job and the purchase of the policy, I was in the midst of a contentious divorce and custody battle for my child. She was about to turn one. I thought I was avoiding trouble by naming her as the beneficiary; I thought I was ensuring that the money would be hers alone.

But I was doing just the opposite.

Pitfalls of Naming Your Minor Child the Beneficiary of Your Life Insurance Policy

I was totally oblivious to the pitfalls of naming your minor child the beneficiary of a life insurance policy. If you want to ensure that your young child benefits from your policy, your work doesn’t end with filling her name into the policy’s blanks. You should also appoint a trusted adult to be the money’s guardian, or you could create a trust as beneficiary. Ignoring these options could lead to troubles you should have anticipated.

If you have a spouse who would be the child’s guardian in the event of your death, that person will have to petition the court to act as guardian to the money unless you appoint them now. This is especially true if you’re separated or in the process of getting a divorce. Always be specific and appoint someone else as guardian to the proceeds.

If I had died with my policy as it was, my one-year-old would have been the beneficiary of the $500,000 policy and her father would be administering it for her — but only once he applied to the court. I was in a contentious divorce with a spouse who had little knowledge of our finances, just as we had little knowledge of his, but he would have been administering my daughter’s money! If I had died before the divorce was handled, that’s what would have happened.

Incidentally, if neither parent is alive, the court will appoint a guardian for the money. Court-appointed guardians are not ideal. Entanglement with the court is expensive, intrusive and time-consuming. It’s also entirely possible that the guardian will make poor financial decisions, such as risky investments with the money. Remember, this person won’t have the same deep, personal stake in your child’s future you do.

And don’t forget, all of that money is going to fall into your child’s hands on their 18th birthday. I don’t know about you, but I think the odds of an eighteen-year-old wisely managing half a million dollars seem slim.

Best Practices for Making Sure Your Life Insurance Benefits Your Small Child

• If your intended beneficiary is a minor, it is a good idea to arrange for the money to go into a trust until that child is about 25 years old. While it is still in the trust, it can only be used for the specific purposes you designated when you set it up. No one else can use the money at all.
• If you have a spouse and they would make a good trustee, specifically designate them the trustee in advance. Remember, your marriage alone will not necessarily make them the trustee! You want to avoid having them petition the court for an appointment.
• Do what you can to avoid appointing more than one trustee. This almost always leads to problems. A better way to ensure the trust is being run according to your wishes is to be very specific when you create it.
• Along those lines, make sure you are specific when you set the terms of the trust. You need to be clear about what a trustee can and cannot do with that insurance money. If you don’t, even if the trustee is your choice, they may not be able to manage it the way you’d have liked.

You don’t have to be an insurance expert to handle your affairs like a pro

If you already have a life policy with your child as the beneficiary, don’t worry. It’s not too late. In most cases, you simply need to call the carrier and request a ‘Change of Beneficiary’ form. Hammer down the details with the trust and trustee. Complete and submit it, and you’re done.

You care enough to plan ahead for the well-being of your child, so make sure you’re really taking care of them in the best way. There’s no need to panic. You don’t have to be an insurance expert to handle your affairs like a pro. All you really need to know is where to look for help, and since you’re here reading this, you’re on your way. I told you my embarrassing story in the hopes that you will never have to tell it yourself!

The post A Rookie Life Insurance Mistake I Made and How You Can Avoid It appeared first on The Simple Dollar.

Rather than just rehashing my own experiences with auto insurance, I wanted to look at it from a different angle. Obviously, my choices helped define what kind of auto insurance I chose, but how does auto insurance actually alter my choices once I already have it?

What do I mean by that? Most auto insurance policies offer reductions in rate for customers who conform to certain behaviors. In other words, if you do certain things, your insurance rate will go down.

For the auto insurance company, this makes sense. Insurance companies profile you. They look for aspects of people that are found in good drivers because good drivers are the ones who make money for the insurance company. If people are very rarely making claims, then the insurance company is going to clean up on you as a customer.

So, what do good drivers do? They don’t get in accidents, obviously, but there are other factors to consider.

Improve your credit score. Most insurance companies use your credit score as a component in figuring out your rate quote. The better your score, the lower the rate they’ll offer you. Why? As a whole, people with good credit tend to get into fewer accidents.

I’ve witnessed this in my own life. After improving my score in 2006 and 2007 (it wasn’t bad to begin with, but it wasn’t great), I started shopping around for insurance rates again (after my first shopping around in 2004). I was stunned as to how much lower the rates on offer were.

Don’t get pulled over. The impact of a traffic ticket can be painful enough. You can get dinged $100 for even the slightest traffic infraction.

That’s just the first cost, though. Often, the real cost comes with the increase in insurance rates that comes with the traffic ticket. The next time your policy is renewed, brace for a rate increase. It won’t always happen, but it often does.

A similar logic applies when it comes to traffic accidents. Get in an accident and you’re likely facing a rate increase.

Buy a low-profile and reliable car. If you choose a car that’s associated with speed and flashiness, your insurance company will take that into account. So will thieves.

Avoid flashy cars. Avoid cars known for speed. Look for cars that are reliable and won’t attract undue attention.

Drive less. One of the things you’ll always be asked when applying for auto insurance is how much you drive. The less you drive, the lower your quote will be.

If you can, use mass transit to get into and out of the city for work instead of driving your car. Stop for groceries and other items off of mass transit as well.

The fewer miles you put on that car, the lower your insurance for that car will be. You’ll also save money on fuel and maintenance.

Have a good credit score. Drive safely and within the speed limit. Buy a reliable car. Drive less by using mass transit and your bicycle more.

These aren’t just good pieces of insurance advice. They’re good pieces of personal finance advice. Each of these tactics will save you money even without considering auto insurance.

These aren’t just good pieces of insurance advice. They’re good pieces of personal finance advice.

If you take steps to improve your auto insurance rate, you’re likely taking steps that will save you in other aspects of your financial life. You’ll get fewer traffic tickets. You’ll see lower interest rates. You’ll have fewer repair bills. You’ll have lower auto maintenance and fuel bills.

These steps become a “double win.”

The post Car Insurance: Value Beyond Merely “Insuring” You appeared first on The Simple Dollar.

When something unexpected happens, insurance is the one precaution that really makes a difference. You can’t be casual about such a responsibility

And while you can understand exactly what you’re protected against, actually managing your premiums can be a whole other story. As anyone in charge of the bills can tell you, juggling multiple premiums every month gets pricy fast. Things will only get worse if you don’t know how to compare plans and deductibles, to identify loopholes, or even how to dispute a claim.

When something unexpected happens, insurance is the one precaution that really makes a difference. You can’t be casual about such a responsibility.

While I would never claim to be an insurance expert, my wife and I insist on regularly reviewing our coverage and monthly premiums. If you don’t know what your policy actually protects you against (and why you want that protection), you need to make a point of getting the facts straight. When you blindly pay for extensive coverage and add-ons the insurer tells you are “necessary” or “highly recommended,” you are wasting money.

In my case, as family circumstances changed over the years, we’ve made sure coverage stays in step with our lifestyle and our property. And looking back on these experiences, I know I have more I’d like to share. You can go back to my September entry on buying term life or my recent list of life insurance lessons to get an idea of what I mean.

When you blindly pay for extensive coverage and add-ons the insurer tells you are “necessary” or “highly recommended,” you are wasting money.

Along with my own take, I’ve recruited insurance insiders to contribute to a new, separate section of the site. They’ve each put together a sort of “Insurance 101” guide for four areas of insurance: home, health, car, and life. Each writer is objective and highly qualified. People who actually have something worthwhile to contribute. Each guide goes into great detail on the basic terms, the right questions to ask when insurance shopping, and tips on how to avoid needless expenses and cons.

Look for a post from me that explores the new pages, including an introduction to the insiders and their guides, as well as my own takeaways on managing the trickier aspects of insurance.

The post The Simple Dollar’s Education in Insurance appeared first on The Simple Dollar.

A Childhood of Ill Health

I don’t know how often I’ve mentioned this on here, but I spent much of my childhood in and out of hospitals. I had a long list of pretty severe surgeries attempting to correct eye problems, ear problems, a hernia, and several other medical issues.

My parents were largely unprepared for this. They had pretty good health insurance, so the medical costs didn’t bury them, but they had previously raised two very healthy sons. Having a relatively unhealthy child was an experience they didn’t know how to handle.

After a recurring medical scare involving a head tumor, my parents began to really worry about the costs if I were to pass away suddenly. I was undergoing a lot of medical procedures, and although you never want to think of a child of your own passing away, I know it was at the forefront of my parents’ mind.

After asking around, they did eventually find someone who would place a universal life policy on me, though it came with a hefty premium. It was an overpriced policy and it was one that was probably far from the ideal choice, but they needed some protection in the event of something unthinkable happening.

As I reflect back on all of this as an adult, two things come to mind:

First, if you have a dependent and you’re unsure how you would be able to afford things if they were to suddenly pass away, you need some form of life insurance. I would be the last person to specifically recommend a policy, but I do know the kind of precarious financial position many people find themselves in (and I know what kind of position my parents were in at the time) and an unexpected passing can be financially devastating. Don’t let it happen to you.

Naturally, if you can afford those expenses out of pocket for a dependent and you’re sure that the future finances of your household would be secure without that person, then life insurance isn’t a requirement.

Second, get your children insured early if you’re going to do it. If you can’t afford the expenses that would be incurred if the unthinkable would happen, each day that passes is a risk. It’s a risk not only of that kind of event happening, but it’s also a risk of a medical condition appearing that could make it difficult to insure them. It nearly happened to me.

an unexpected passing can be financially devastating. Don’t let it happen to you

A Dodgy Salesman

When Sarah and I had children, we began to realize how important it was for us to have life insurance, so we started shopping around for policies. We looked online for various quotes and we also met with agents.

One agent we met with was recommended to us by a friend. At first, he seemed to be paying attention to our concerns. We only wanted term policies for ourselves (we didn’t want an investment policy of any kind, as we prefer to invest independently) and we were pretty confident as to the amounts.

After some nodding, the agent moved in for the hard sell. He pushed us hard to buy a type of policy that we had no interest in. He spent at least half an hour making a strong case for the policy.

Sarah gave the salesman the benefit of the doubt, as the agent was recommended by one of her friends. She listened to his pitch. On the other hand, I was annoyed from the start. It was clear to me he was just trying to sell us whatever package earned him a good commission – a good money-saving rule is to always expect agents to push policies that might not be the best for you.

We walked out of the office and, on our way out, I tossed the agent’s card and the documentation he gave me right in the trash can.

Two things to note here:

If you’re going to shop around for insurance, know what the insurance types are and figure out on your own what’s right for you. Know what you actually need and know what you’re looking for. Start out by defining exactly what problem you want the insurance to solve, then look for policies that solve that problem. Know the terms that might be thrown at you. The best way to do that is to do your research, in my opinion. Go to your library and check out a book on insurance, turn to The Simple Dollar experts, Google what’s going on in the insurance world. Don’t choose a policy without doing your homework; know what everything means and what you need.

If someone ignores what you say your needs are and tries to sell you something else, walk away. It doesn’t matter how good it sounds and how perfect the salesperson tries to make it sound. If you’ve researched the question, you know what it is you’re looking for, and if they’re trying to push you into something else, walk away. There are plenty of other policies in the sea, many of which don’t involve pushy salespeople.

If someone ignores what you say your needs are and tries to sell you something else, walk away

An Unfortunate Death

A person I respect and care for very deeply passed away not all that long ago. This person had a number of descendants, who gathered together to go through the person’s belongings. They knew he had a large life insurance policy, so they called the agent to find out more.

What they discovered was pretty shocking. The beneficiary of the policy was a person that was still living, but was actually estranged from the family. That person showed up, pocketed a pretty sizeable check, and then vanished into the woodwork.

There were other assets in the estate, of course, but the whole experience resulted in a very upsetting period for the whole family and a strong sense that the true final wishes of this person was not actually followed.

(Yes, I’m being vague here, on purpose – I have friends and family that read this site and there’s no reason for a story to be spread around.)

When I heard about all of this, my initial reaction was shock, but then it turned to concern about my own policies and the policies of those I care about.

Two key lessons here:

Stay up to date with your policies. Check them regularly – say, once a year – and make sure the beneficiaries and other options are exactly as you want them. After all, life insurance is something you won’t have a chance to make right when it’s too late.

Be involved with the estate planning of those you love the most. If you have a strong relationship with your parents or grandparents, offer to help them make sure that their estate is as they wish it to be. Make it clear that you don’t care who the beneficiaries are, just that you want to help them make sure that their wishes are taken care of. This can make a world of difference.

A Final Thought

Life insurance is something that no one wants to think about. However, it is something that we need to think about and, if we take care of it, it is actually something pretty life-affirming.

For me, it feels good to know that if something were to unexpectedly happen to me, my children would be well taken care of. Sarah would be able to handle raising them on their own without major financial worry.

Simply knowing that provides a great deal of value and relief to me now. Knowing I’ve studied the issues and have the right kind of insurance for us (in our case, term life insurance) helps, too.

It simply means one more little worry is erased thanks to being responsible and being proactive.

The post Three Life Lessons About Life Insurance appeared first on The Simple Dollar.

On Facebook, Andrea asks “What kind life insurance should you buy?”

The options available for life insurance are diverse and confusing. It’s certainly not helped by the fact that insurance salespeople are out there using sales pitches to convince people to buy their product, altering an important life decision into a carefully-crafted marketing brochure.

Life insurance choices
I’m going to describe several of the most common types of life insurance policies, followed by what I recommend among them.

Term Term life insurance policies offer a specified amount of life insurance protection for a specific fixed price. If you buy a term policy, you’ll typically buy a certain dollar amount of insurance over a certain number of years and for that you’ll pay a small amount each month, quarter, or year, depending on the policy. If the insured person dies in that time frame, you’re paid the insurance amount; otherwise, the contract simply ends at the end of the term.

Whole life Whole life insurance policies typically cost more than a term policy, but last for the entire life of the insured person. They often also build up a cash balance that can be borrowed against, but when you borrow against that balance, you reduce the death benefit by that much unless you pay back what you borrowed.

Universal There are a lot of variations under universal life plans. Universal plans are most similar to whole life plans, but also regularly offer options that enable the insured to add the value of their cash balance to the face value of the insurance. The investment portion of a universal plan is often tied to outside investments, meaning that it doesn’t grow at a steady rate like whole life cash values do.

Accidental death Accidental death policies are much like term policies, but only pay out under much more narrow circumstances. Such policies are often very inexpensive, but their restrictions greatly reduce the likelihood that the beneficiary will receive a payout.

My preferred choice
My preference is almost always a term policy. The only exception to this is if you have had a universal or whole life policy for a very long time so that there’s a large cash value already built up inside of it, which can be a useful asset and is often growing at a nice rate at that point.

Typically, the early returns on non-term policies are low enough that they aren’t a good investment initially. They’re effectively the same as paying significantly more for a term policy. This trend does not begin to reverse itself for a while.

If you’re buying a policy for your child, I’d still recommend a small term policy. There are some advantages to buying a whole life or universal policy for children, such as the guarantee of lifetime coverage no matter what may come and the potential to grow a large cash value over a long period, but this relies on the long term health of the insurance company and the reliability of your children to always pay their premiums. If you have money to spare, a universal or whole life policy is acceptable for children.

For adults, I would stick with a term policy and use the saved money to eliminate debts or save for retirement. This will put your money to work much more effectively.

The post Choosing Life Insurance appeared first on The Simple Dollar.

Update: With the passage of the Affordable Care Act, there are improved options if you have been denied coverage — in addition to my suggestions below, review the post to see how you can obtain health insurance.

On Facebook, Elisabeth asked for information on “appealing health insurance denials of coverage.”

Health insurance companies don’t make money by paying for people’s medical bills (even though that’s why we hire them), so whenever there’s a case where they can see an easy way to deny it, they’ll do so. It makes sense for them as a business, even if it’s frustrating for us as people who need health care.

There’s a simple maxim to always follow when dealing with insurance companies, though: “the squeaky wheel gets the grease.” If it’s clear to them that you’re involved and have some idea of what you’re doing, you’re much more likely to get a resolution that you want.

Step 1: Know Your Situation
The first step is always to get all of your facts straight. You need to know some of the ins and outs of your health insurance plan as well as have thorough documentation of the care you received. Here are some questions to help you along that path.

+ What exactly is covered in your plan? What part of your plan matches up with the care you received?
+ Do you need a referral from your primary care physician for the type of care you received? Did you have that referral?
+ Is it required that the doctor you received care from be a member of the provider network covered by your policy?
+ Does your plan require prior authorization for the type of service you received? Did you get prior authorization from your insurance company (or did your doctor get it)?

Document all of these things with dates and as much information as you can gather. Have your facts straight before you even begin chasing down an appeal.

Step 2: Use Denials as a Clue, Not as a Stop Sign
If you’re denied, look for the reason for which the denial was issued. Your task is to cover that reason as clearly as possible – and you should acquire the needed information before you appeal. Depending on the reason for the denial, here are some steps you might want to take.

+ Ensure that your physician agrees that the procedure you were denied for was medically necessary, and get that in writing if at all possible.
+ If the insurer calls your procedure experimental, gather as much evidence in favor of it as you can.
+ If the insurer says that the procedure wasn’t explicitly covered, find evidence of similar procedures that are covered in your plan and ask your doctor for assistance in demonstrating the need for the procedure you had.

Step 3: Your Doctor Is Your Ally
A big theme you’ll see in the first two steps is that you’ll probably need some help from your doctor in this process, often in the form of documentation. Your doctor is going to be your ally here and you must keep that in mind through this process.

Be patient with your doctor. Don’t get angry with the doctor or the doctor’s staff. Do what you can to make it as easy as possible for them to help you with what you need. Honey works much better than vinegar in cases like this, so don’t give into your frustration and don’t get angry with your number one helper in this process (even if they seem uncooperative at times). The staff of many doctor’s offices are overburdened with requests, and one sure way to get your request overlooked is to act angry and self-righteous.

Step 4: Make an Appeal
Medical insurance companies have a formal appeals process which should be covered in your insurance documentation. Read through the documentation and understand it. It will be dry reading, I know, but the more you know about the process, the more likely it is that you’ll find success.

When you write your appeal, make all of the important details clear. Cover your health problems, particularly your full recent history with the problem in question. Discuss alternatives you’ve tried and exhausted. Mention what your physician recommended, particularly comments that counterbalance the reason your claim was denied. Outline why you were an ideal candidate for this procedure (which will probably take some research into the procedure). Discuss what will happen without the treatment.

You should also have supporting evidence. This is where research and time will come in handy. Quotes from your medical records are valuable. Direct quotes from your doctor are also valuable. Quotes from the insurance plan are incredibly valuable if they clearly support your case.

Provide as much documentation as you can for all of this evidence. Dates. Page numbers. Photocopies. You’re far better providing too much detail than not enough detail.

You should also keep a detailed log of all contact with the insurance company. Note what number you called, when you called it, who you spoke with, and what was discussed. You should also record all documentation you sent and when you sent it, as well as all mail you received from them. This may come in handy at a later time.

Most important, keep a full copy of every single piece of documentation that you send to the insurance company. Keep photocopies of the forms, of the records you sent them, and of every bit of your appeal. You may need these later on in the process. In fact, you should only be sending them copies of records and you should keep the originals for yourself.

Step 5: Get Free Assistance
Many states offer excellent help for people handling medical insurance denials through their state Department of Insurance. To find your state’s Department of Insurance, just use Google and type in “Department of Insurance” followed by your state.

Many states have a hotline you can call for assistance during this appeals process. Depending on the state, the information might be basic (providing simply information about the approximate timeline of the process) or it might be extensive (actually helping you with the appeal). They’re also equipped to handle any specific issues due to the state in which you reside.

In either case, it’s an assistance worth looking into if you find yourself in an appeal situation.

Another useful resource for insurance appeals is the Patient Advocate Foundation, which is another great resource for free assistance with medical appeals. You can simply fill out this form and assistance will contact you.

Step 6: Is a Lawyer Appropriate?
If your appeal is denied but you feel you’ve made a truly strong case, you may want to get legal help involved, particularly if the costs of the denial far outweigh the legal costs. Have a lawyer with experience in medical appeals review all of the documentation you’ve collected and determine if you have a case.

It is important to note that we all see our own situation through rose-colored glasses. A good lawyer will want to defend your rights and help you get the money you deserve, but if your case is weak, a good lawyer will say so. Remember, they’re financially ahead if they take on your case (particularly if they win), so if they’re telling you it’s not a good case, it probably isn’t.

The post Tactics for Appealing Health Insurance Denials appeared first on The Simple Dollar.

Her employer made it possible for her to return to her previous position when her leave period ended, which was very gracious of them. Of course, that left us with a period of eight months without health insurance coverage if we did not pay out of pocket.

During that period, my income and our savings paid for our health insurance out of pocket. My wife was able to enjoy a period of staying at home with the children – and it was quite enjoyable for all of us. Our oldest child attended morning preschool and our three year old attended thrice-a-week morning preschool, but aside from that, the five of us were at home. My wife spent time with the kids and I split my time as best I could between work and spending time with all of them.

At the end of that period, my wife chose to return to work, not because we needed her income or her health insurance coverage, but because she missed the joy that she gets from her work.

During that period, the health insurance was a serious expense. If it were not for our living expenses being as low as reasonably possible and having a very healthy emergency fund, we would have really struggled to make this work. As it turned out, the reality of that period showed us that we could have done it for a few years, but my wife wanted to return to work at that point, making the question moot.

A more detailed explanation of the affect downgrading your job has on your health insurance exists in The Simple Dollar’s Guide to Health Insurance, but I’ll briefly go over the main points here:

1. Plan ahead for your health care needs. Where are you going to get health insurance from if you make a major career change? This needs to be one of the first things you think about, and it becomes more urgent the older you are.

2. A married couple only needs one person with insurance. Self-employment is much more difficult if you’re single because you don’t have a spouse’s insurance to rely on. It’s perhaps not fair (I don’t believe it is, but I don’t have a better idea that doesn’t involve a great deal of government interference), but it’s simply the fact of the situation. If you’re single, self-employment means that you have to come up with your own insurance. If you’re married, you can rely on your partner’s insurance (assuming they have them).

3. Never, ever burn bridges. When you make that leap, you may find that you wish to return to your previous career path if the new path doesn’t work out. Never, ever burn your bridges on the way out the door. Do everything you can to make the transition as smooth as possible and leave with good relationships with everyone. While this won’t mean you’ll get your old job back if things don’t work out, it does mean it’ll be easier for you to return to that career path if you need to. That’s a great hedge if you find out that health insurance isn’t working out.

4. COBRA can really be your friend. COBRA isn’t just G.I. Joe’s nemesis. It’s a federal law that, if you worked for an employer with more than 20 employees, ensures that if you quit your job, you can continue your current health insurance plan for up to eighteen months if you pay the premiums out of pocket. That can be incredibly valuable for a potential entrepreneur.

5. A healthy savings account is absolutely vital. Of course, the key is that you will have to pay premiums out of pocket under COBRA. That can be quite expensive, so the best route to take is to make sure you have enough money saved to cover that insurance for you and your family if you do downgrade your job. Know how much your total premiums actually are and plan for paying for that amount out of pocket. The passage of the Affordable Care Act has opened up other savings accounts: health savings accounts (HSAs).

Obviously, you can shop around for your own insurance and you may be able to find a better package than what you’re able to get through COBRA, but in either case, your savings is vital. It can make the difference between having health care insurance and not having it, and that can make the difference between success and failure.

6. SCHIP and Medicaid are also potentially vital. Both of these plans offer health insurance for low income folks, particularly children. I won’t get into the details of these programs, but if you see a major downward change in your employment coming in the future, you’ll want to know more about these plans.

The key, as always, is to be proactive. Such programs won’t magically appear on your doorstep. You have to be proactive and seek out such solutions. It might take a lot of phone calls, a lot of emails, and a lot of time to find out the details about such programs, but it’s far better to invest that time and effort now and ensure your coverage than to go without.

A final note on the future As I write this, the future of national health insurance in the United States is up in the air. While I am unsure about the specific provisions of the Patient Protection and Affordable Care Act (often termed “Obamacare”), I do think that some form of universal access to health care rather than the piecemeal system we have now would be very beneficial to everyone involved. It would allow entrepreneurs to jump into business plans that they might have otherwise avoided. It would also allow manufacturers to be competitive with overseas manufacturers who do not have to shoulder health care for their employees. While I’m not a politician who has to balance the beliefs and voices of a very wide political spectrum (and I’m glad of that), I do think that everyone – rich and poor – benefits if we work on finding a good solution to the health care problem rather than bickering and fighting and name-calling.

If you want to jump into self-employment or downgrade your job, let your congressperson know that you’re a potential entrepreneur in his/her district that would find starting a small business much easier if there was a palatable solution for health care that makes entrepreneurship easier and more accessible to everyone. There’s money to be made there for everyone involved – the entrepreneur and the health care provider.

The post Health Insurance and Downgrading Your Job appeared first on The Simple Dollar.

I’ve done a lot of research and soul-searching on this topic. What follows are the conclusions I’ve come to on the issue. I hope these thoughts will help other parents make up their own minds on this difficult issue. I’m writing the things below with great care, because such concerns can be very, very emotional for parents (myself included).

The obvious and easy answer to the child life insurance question is no. Life insurance is usually purchased as either a salary replacement (so that a spouse or children aren’t left with an inability to maintain their standard of living) and/or a tool to pay for funeral expenses. In the case of a child, there is no salary to replace – and with the absence of a child, living expenses for the family actually drop, meaning it is possible for a family to cover funeral expenses.

Thus, from a straightforward analysis like this, life insurance for a child isn’t a strong financial choice.

But that’s not all there is to it.

The biggest issue is the possibility of illnesses developing late in childhood or in adulthood could prevent your child from being eligible for life insurance. I look at myself as an example of this. I was born with a highly underactive thyroid. My parents were able to get me a small life insurance policy as a child because they were very concerned with other illnesses springing up – and that policy still exists today.

There is also the smaller concern of the ability to pay for a child’s funeral and end-of-life expenses if that happens. For some families (ours included), there is adequate money in the emergency fund to pay such costs. For other familes, however, such funds aren’t easily available, for various reasons. That usually means debt.

There’s also the very small benefit that some policies function in a way that helps pay for college, but these are usually sub-par compared to a strong 529 college savings account. This is more of an “icing on the cake” type of thing rather than a primary feature.

What’s my conclusion? In the end, it comes down to your family’s financial state. If you’re in a good situation with a strong income, life insurance for your child can be a solid choice. However, it’s more important that your child receive other things first, such as steady nutrition, good health care, shelter, clean clothing, and perhaps other savings options for their future (like a well-funded 529).

In our case, we have small policies for each of our children, mostly for the “potential future illness” concerns stated above. My own concern about this may be somewhat inflated because of my own history, but it’s something Sarah and I both take seriously. It’s something we can easily afford and it’s something we know will have value for them no matter what happens in life. The insurance is not a strong bargain, but the monthly cost is very low.

If we were put into a choice between the insurance policy and other essential tools for caring for our children, the other areas would come first.

If you do decide to go the child insurance route, I strongly encourage you to shop around and take your time with the decision. Not all insurance houses are the same – there are big differences in price and coverage out there. I wouldn’t get a large policy, either – one that covers funeral expenses should be an adequate one. If you’re thinking about college, I’d suggest putting the rest of the money you might have spent on a policy into a 529 college savings account like the one we use at College Savings Iowa. That’s exactly what we’re doing.

The post Should I Buy Life Insurance for My Children? appeared first on The Simple Dollar.

My husband and I are sitting on a thirty year mortgage (with twenty six years left to go). We still owe $330,000 on our home. A week ago, a very similar home to ours two blocks away sold for $220,000, so we’re under water by at least $100,000. We are thinking of just walking away from this mortgage and renting an apartment for a while until our credit clears up. What do you think?

First of all, there’s a strong personal moral element to this type of decision. Is it morally wrong to walk away from a mortgage? You’ll get strong, impassioned answers on both sides of the question. Some will argue that if you make an agreement with another entity, you’re obligated to stick to it to the best of your ability. Others will argue that banks know what they’re getting into with a mortgage and that foreclosure is a risk they accept in the agreement, so you’re just doing something within the bounds of the agreement.

As with most morality questions, I can’t tell you what to think. I personally feel walking away from your agreements when you have the capacity to fulfill them is morally wrong, akin to lying. If I were a lender, I would never lend to someone who walked away from a mortgage because I would simply view them as too big of a risk. But I’m not a mortgage lender.

Aside from that moral concern, though, is it really a good financial choice? I think it can be, but it depends on the other choices that the person makes.

First of all, walking away from a mortgage will drop your credit rating by 150 points and it will take several years to recover. Such a drop has a huge impact if your credit is good, but a much smaller impact if your credit is already bad.

What kind of impact? It will become incredibly difficult to get a car loan or another mortgage with any sort of competitive interest rate. Lenders will look at your credit score and if your score is low, they won’t offer you a prime loan (if they offer you one at all). You have to accept that you’ll either be paying for cars and homes in cash for the next several years or you’re going to be taking out loans with incredibly painful interest rates and down payments.

If you’re going to do this, your best approach is to make sure you have housing and automobiles lined out for the next several years before your credit collapses. If you’re going to get a mortgage on a second home, do it now and get a fixed rate mortgage while your credit is still good. If you’re going to rent, get your rental agreement set up now before you walk away. If you’re going to need a car in the next seven years, you might want to make the move now (unless you’ll have the cash to do it later).

Another impact is that many other services use your credit ratings to determine what to charge you and whether to do business with you. Insurance is one example of this – most insurance companies regularly do a “soft pull” of your credit and use declining credit as a reason to raise your rates. Many upscale renters will do the same thing and not rent to people with poor credit, which may limit the places where you can rent your housing. Potential employers often pull your credit (I’ve had two employers in the past do this) and use that as an element of their hiring decision, often leaning towards people with good credit over people with poor credit. These are all serious additional costs of walking into foreclosure.

In the end, I don’t think Kelli should walk away from her mortgage as a first response. She should try several other avenues first that would preserve her credit and perhaps even allow her and her family to remain in the home.

First, I’d simply talk to the lender. Explain your situation and discuss options available to you. It’s often easier for a lender to just refinance with you (sometimes even removing some of the principal) than it is to put the homes in foreclosure. Many lenders are currently focused on refinancing in this way rather than taking on more foreclosed homes, so it’s certainly an option.

Second, I’d look at the extra financial costs of what will happen if you do foreclose. Run the numbers carefully here. Include all the extra costs – a serious bump in your insurance rates, for example – and make sure you also include some estimate of the cost of the risks mentioned above – the extra cost of a new car or the challenge of finding a rental home or a new job. Those things have serious financial costs if they occur – or they might have no cost at all. A good way to appraise it is to figure out the cost if it does happen, then estimate the odds of it happening. So, if something has a cost of $100,000 and has a 40% chance of happening, it’d be a $40,000 cost.

You might be surprised to find that staying put is the best option, even if you happen to be underwater in your mortgage. If you still find that abandoning is the best option. then it becomes the moral question discussed above – and moral questions are things we all have to decide for ourselves.

The post Why Not Walk Away from My Mortgage? appeared first on The Simple Dollar.

One of the most common tactics that you’ll see in cost-cutting articles is calling up your insurance company and requesting an increase in your deductible – the amount you have to pay before the insurance kicks in.

On the surface, this works well. If you increase your deductible, your premiums (the amount you pay each month/quarter/year) will go down, meaning your monthly bills are lower. You can chip hefty percentages from your insurance bill just by making this move.

One of my long-time readers, Jeanne, has been writing to me about insurance this week. She has considered doing this, but something is convincing her that it’s not the best move:

I understand that raising a deductible will lower your premiums. But why do we have insurance in the first place? Doesn’t raising the deductible through the roof defeat the purpose?

The first thing to note here is that the purpose of insurance is to insure that you’ll survive financially due to an unforeseen event. We don’t have homeowner’s insurance because it’s fun – we have it because it will help us start over with a new home should our house burn to the ground. Without it, most of us would financially sink. The same goes for renter’s insurance – it’d be tough to lose all of your possessions in a fire without any way to recover. Again, with automobile insurance – if you total your car without insurance, you might be sitting holding just a car loan and nothing to show for it.

Obviously, if you have a ton of money, insurance on smaller things is a lot less important. People with huge bankrolls have no need to carry full insurance on their cars – they just cover the parts that might worry them or that they’re legally required to cover.

Saving money by raising a deductible assumes that you have the cash on hand to cover the deductible in such a situation. If you raise your auto deductible from $200 to $1,000, you’ll see a big drop in your bill, but if something goes wrong with your car, you’re going to need that $1,000. If you don’t have that $1,000 in an easy-to-access place, then you’re in real trouble.

The solution is simple: if you have a well-funded emergency fund in a savings account somewhere, you can raise your deductibles some without worry. A well-funded emergency fund means a minimum of a couple months’ worth of living expenses, plus more if you have dependents. If you have that kind of cash that can be accessed with ease, then by all means, raise your deductibles.

Won’t this cost me more in the long run? Many people who consider this ask themselves whether such a move will cost them more in the long run. After all, if they’re having to come up with a lot more money on each claim, are they really saving money overall?

The average homeowner makes an insurance claim once every nine years. If you raise your deductible on your homeowners’ insurance by $1,000, you only need to save about $120 a year in your premiums in order to create a net savings on average – and, likely, you’ll save a lot more than that.

Similar math exists for other types of insurance. The claims made are so infrequent that you only have to save a little bit on each insurance payment to make up for the additional cost on the deductible.

The key, though, is making sure you have the emergency savings to handle that higher deductible. If you don’t have that, make it a priority before you consider making changes to your insurance policies.

The post Raising Deductibles to Save Money on Insurance: Does It Work? appeared first on The Simple Dollar.

Life, other personal insurance – $309

“Other personal insurance” includes long term disability insurance, long term care insurance, and umbrella liability insurance, making this a pretty sensible category overall.

Of course, for most of us, life insurance is the eight hundred pound gorilla in the room. It draws most of the money from this category, as many families rely on the support of others (and of Medicare) to help in the case of long term disability.

As with anything else, a bit of extra care can really trim the dollars from our spending on life insurance without reducing the quality or amount of our insurance one iota. Here are some ways to really tighten the screws on the life insurance ship.

Figure out whether you need it at all. Do you have dependents that will require financial support after your passing? Do you have adequate resources and assets to cover funeral and burial expenses? The answers to these two questions should really point you as to whether or not you need any life insurance at all.

Know the amount you need. Use a thorough life insurance calculator to estimate exactly how much you need. Don’t rely on your own personal guesses or, perhaps even worse, the estimates of a salesman to tell you what you need. The life insurance resources are there for you to access – empower yourself and figure it out before buying.

Buy term. Many – if not most – companies and individuals that will attempt to sell you a life insurance policy will attempt to package some sort of subpar investment product along with it, with some name that usually involves the words “whole” and/or “universal.” Such policies almost always earn quite well – for the salesman that sells it to you, that is. If you are excited by the idea of earning money from your life insurance, buy a term policy and bank the savings in an investment of your own choosing, like a Roth IRA.

Shop around for quotes. Much as with anything else, you don’t have to buy from the first place that you talk to that quotes you a price. Get lots of quotes. Find the best deal before you buy. Note that this isn’t always the least expensive deal – I would consider a policy from “Ma and Pa’s Fly By Night Life Insurance Kump’ny” less reliable than policies from other sources. Stick with reliable, large firms with a long history.

Look for special programs available to you. Many workplaces and social/service organizations (like AAA or AARP, for starters) offer very strong rates on term life insurance. Look into what’s offered through your job and through any organizations you belong to for additional quotes (and they’re often strong quotes).

Evaluate your payment terms. As with many types of payment, you can save substantially if you choose to pay quarterly, semiannually, or annually instead of monthly. The savings often far exceeds what you can possibly earn in your own investing with that money, so there’s no question that you should jump on board to minimize your annual costs.

Improve your personal health. Many policies require a physical before they can give you an exact quote – and the better you do on a physical, the better your rates will be. This is yet another reason to get your weight and personal health under control. Eat better, and get a little exercise.

Ignore the salesmen. Insurance salesmen will almost always come after you with a great pitch about some insurance-related product different than the basic policy you want. Let them ramble, but remember that you’re not hearing about the large cut they take from selling you this policy. Ignore it – or, if you must, take the information and actually research it extensively on your own. Don’t let them sell you something you don’t need.

I want your help! In the comments, please let me know which of the tips you find most useful for trimming these costs. I’ll include the top choices in a comprehensive budget trimming guide at the conclusion of the series.

The post Trimming the Average Budget: Life Insurance appeared first on The Simple Dollar.

First of all, term life insurance is the way to go. Other types of policies tie a subpar investment into the insurance policy. If you want to invest, invest separately with a firm that specializes in investments and will customize an investment to meet your needs.

Term policies are simple to understand. They offer a certain amount of coverage over a certain period of time. If you keep up your premiums (your regular payments), if you die within that time period, your stated beneficiary will receive the value of the insurance. So, if you buy a $500,000 ten year term and you die within that time period, your beneficiary receives $500,000. If you live through the end of the policy, you’re back to square one.

Here’s the thing, though. Not everyone needs life insurance. For starters, people who have been careful savers throughout their lives often have no need for life insurance as they’ve accumulated enough wealth on their own to sustain their family. Similarly, people with no dependents often have little need for life insurance if they have much cash in the bank at all (to cover funeral expenses, for example). Life insurance is only necessary if, in the event of your death, people would be left in a financial bind without some sort of resource.

So, the first question is how long should my term be? For parents, you should get a term long enough that the children you plan to have are independent before the term expires. Otherwise, it’s about your own comfort level. Shorter terms tend to have cheaper monthly premiums, but if you aren’t careful with your money, you may find yourself buying a new, more expensive policy in ten or twenty years.

The next one – and it’s often the big one – is how much? I think there are three key things to consider.

First, what’s the income shortfall for the people left behind? Simply put, how much money each year would your survivors need to maintain their standard of living? This isn’t just straight replacing your salary, since they won’t have your costs any more.

Second, how long will they need that income shortfall? If you have young children, it will be quite a while. If you just have a partner, they may not need it for as long. You should talk this over carefully with your partner so that you both can make a realistic decision. I usually encourage people to calculate for their children’s needs until age twenty or so.

Additional things to consider: your own funeral expenses, the cost of college for your children, any donations you’d like made in your name, and special care needs (for example, if you’re taking care of an elderly relative, who will do it when you’re gone?).

Third, how much do you have now? What’s in your savings? Your investments (like your 401(k))? What other insurance policies do you have? Would your family stay in their current house, or would they downgrade?

The calculation is simple. Figure up the first number, multiply it by the second number, and then subtract the third number. That’s how much life insurance you should have, in a thumbnail sketch.

If you’re unsure about certain numbers – and you probably will be – round up. It’s better to aim too high than to aim too low and let people down.

In the end, though, remember that the real thing you’re buying with life insurance is peace of mind. Going through these calculations and then actually purchasing a policy serves the purpose of letting you sleep better at night.

Good luck!

The post How Much Life Insurance Do You Really Need? appeared first on The Simple Dollar.

Then, very suddenly, her husband died in a car accident, and there wasn’t much life insurance money. Within months, she was back in the workplace at a fairly low paying job, her family had moved into a tiny apartment, and the house was up for sale. Then, just as quickly, she was laid off from that job and the house sold for roughly what was still owed on it. Within a year, she was back living in her parents’ basement, a single mother with three young children and few assets to her name, searching for any job in her field of expertise while working as a gas station attendant.

What surprised her more than anything was the absence of the people she had believed to be her friends. They were there at first when her husband passed away, but when it became clear that her life was going to radically change, those friends stopped returning phone calls and stopped visiting. When she really needed help, most of her friends simply weren’t there for her.

It turned out that the people she could rely on were her close family and just a few of her closest friends. All of the rest of the people that she had come to rely on in her life – confiding in them, helping them, spending countless hours with them – simply weren’t there when push came to shove.

Ellen’s story really resonated with me, mostly because it’s pretty easy for me to see how something like this could happen in my own life. If my wife were to pass away suddenly, I know that I’d need a lot of help over the short term. I’d likely sell the house we live in and move into a much smaller home with my children, likely much closer to my parents (and my wife’s parents, actually). I believe the income from The Simple Dollar would support the three of us, particularly if I were to move to a different home, so that’s not a big worry.

Then I thought of a close friend of ours, whose situation closely mirrors Ellen, and I got a sick feeling in my stomach. She’s also a stay at home mom with a two year old girl and another one almost ready to arrive. Her husband has a solid job, but one that does involve some degree of physical risk. What would happen to her if something happened to her husband? I know my wife and I would offer her some support, as would her parents and, I would imagine, some other friends and family, but her life (and the lives of her children) would change radically.

What can we all do to prepare for such a situation? There are a lot of obvious things that can be done to make such a blow easier to take.

Life insurance This is the obvious option, but it’s only the beginning. If you’re in a situation where your life would be significantly derailed by the sudden passing of a partner, then that person needs to be well insured with you as a beneficiary. If you have children, you need to have a substantial life insurance policy for both partners – several multiples of your annual salary. Read more about how to prepare yourself in this guide.

Strong relationships with family Building up and maintaining very strong relationships with the key people in your life becomes even more important if you’re in such a situation. The birth of your children should be an indication that it’s time to work on your relationship with your parents and with other family members. If there are rifts, you should take the first step (and the second – and the third) to repair that rift and build a healthy relationship. This isn’t only beneficial in such a painful scenario, it’s also generally beneficial to you right now as well as for your partner and your children.

Friendships with real value and meaning It’s fine to have a circle of friends that you hang out with, but those friends shouldn’t be relied upon to help you out in a pinch unless you do the same for them when they need help. That means if you have a close friend that truly needs help, give them everything you can. True friendships are built in times of need, and when you see a friend in need, you have that opportunity. It might be hard or inconvenient or painful, but when you offer your hand when they need it, you’ll build a much stronger friendship, one that has a much higher likelihood of being there for you when you need it.

Active membership in civic and religious organizations I’ve been involved in quite a few organizations in the community over the years, and I’ve found that time and time again, when an involved member needs a hand, the whole organization comes together to help. Churches, community groups, volunteer groups – it’s true for all of them. However, just signing up and not doing anything else isn’t enough – you need to get involved and be involved over a long period of time and step up to the plate regularly for leadership opportunities, service events, and when others need help.

All of these things have some key things in common. All of them require you to be proactive – you have to take the first step to make them work. You have to give of yourself without expecting things in return. All of them also provide some level of personal joy – close friends, close family, and good organizations all provide great social situations and a lot of fun (or provide some peace of mind, in the case of life insurance).

In short, if you don’t truly give of yourself when times are good, it’s unrealistic to expect to receive when times are bad.

Good luck.

The post Where Can You Turn If You Lose It All? appeared first on The Simple Dollar.

As I studied our homeowner’s insurance policy, I was surprised at how high the value of the insurance was for replacing home contents. It was one of those little things that threw up a red flag for me, and it kind of stuck in the back of my mind.

About a week later, I was still thinking about that number, so I took a very careful inventory of our home’s contents, adding up how much these items would cost to replace – and sure enough, the cash value of everything in the home was only about 40% of the amount we were insuring. Reducing that number would surely save us a significant amount on our policy, so I was about to call up and start discussing things with our insurers when my wife popped in.

She was curious as to how much value I was putting down for some of our most valuable personal items, like some of the handmade wooden artwork her grandmother made, a painting done by my great grandmother, and some mementos from our wedding.

I went through the list I’d made and rattled off a few prices, which were estimations of what they’d cost to replace with similar items. My wife shook her head and told me, flat out, that I was drastically shortchanging the items.

But was I? This has been a big question for discussion around here for a while, actually.

My wife’s position initially was that such items have a very, very high value. She propositioned it this way: how much would I accept in payment for that painting by my great grandmother? The price would have to be very high – and I don’t think I’d sell it at any price.

That’s the conclusion that many people come to when they consider insuring the property in their home. They look at those irreplaceable and personally valuable items and think about how much they’d feel was an appropriate price to let go of something so valuable. Quite often, that price is insanely inflated – but for good reason. The item has a great deal of personal value.

But consider this: would you be able to replace that item if it were destroyed? Would you even think about replacing it?

My grandmother’s painting is invaluable to me. I can’t even realistically name a price that I would sell it for. But if it were destroyed in a disaster, I wouldn’t even think of replacing it. I’d have my memories of it, and I’d probably lament that it was missing, but how could I possibly replace it?

In our new home, I would probably put up a print on the wall, or possibly an original painting by another artist, but neither one would come close to the value that I personally ascribe to my grandmother’s painting.

This gets back to the original question: how much should my grandmother’s painting be insured for? Considering that it’s not something I would ever be able to replace – nor would I really attempt to – I’d argue that it shouldn’t be insured for much at all.

Then, if you apply that rule of thumb to items in your house that really only have a deep personal value, you’ll often find that the cash value of the contents of your house is not nearly as high as you might think it is. In that case, you’re likely vastly over-insuring the contents of your home – and paying an extra premium for that privilege.

Now, that’s not to say that there isn’t a good argument for insuring on the high side of what you own. You’re far better off having a little bit of breathing room than cutting your insurance down to the bone.

But when you consider the value of the property in your home, think carefully. Ask yourself whether you’re insuring the value that you personally ascribe to things – or the real value of replacing things that you would actually replace. You might just find that you’re over-insuring your contents just because of your own personal feelings – and that’s a financial leak you can easily plug.

The post Are You Insuring the Irreplaceable? appeared first on The Simple Dollar.

How do you know when the time is right to downgrade your car insurance? First, let’s look at the insurance variables we’re looking at, then let’s move through the thought process of figuring it out.

Types of Auto Insurance and Basic Terminology
… just so we’re all on the same page here.

Most states require that you carry at least liability insurance on your automobile as a minimum, so we’ll assume that in all cases you’ll continue to carry liability coverage. Liability coverage takes care of any costs or damage you may do to other people and property during the course of driving, including both bodily injury to others and property damage. These insurances are usually pretty cheap – the only thing you might want to be concerned about is that your coverage limit is quite high.

What we’re mostly concerned about is comprehensive and collision insurance. Collision insurance covers damage to your car when your car hits or is hit by another object, while comprehensive insurance covers losses resulting from incidents other than collision – floods, damage caused by external forces, and so on.

For more specific details on these definitions, check out The Simple Dollar’s useful car insurance guide.

For each type of insurance, you’ll have a deductible, which is the portion of any bill that you will be responsible for. So, if you have a $1,000 deductible and you’re facing $2,500 in damages, you’ll pay $1,000 and the insurance company will pay $1,500. You also have a premium, which is the amount you have to pay the insurance company to maintain the insurance.

What Do You Need?
Unfortunately, there isn’t a clear and straightforward answer to this question, and it’s because of that lack of clarity that people tend to over-insure – and personal finance writers can get away with simple statements like “eliminate your insurance and raise your deductible to save cash!”

First, should you raise your deductible? From my perspective, your deductible amount should always be directly related to your emergency fund. A single car incident shouldn’t be able to entirely deplete your emergency fund – if it does, you put yourself quickly at risk of something else happening. In fact, I often encourage people to have an emergency fund at least as twice as large as your deductible.

Given that, you can quickly figure out how much deductible you need based on your emergency fund. If you have an enormous emergency fund, for example, you may not even need comprehensive or collision insurance at all, as you have enough cash to just pay for the repairs or the replacement yourself out of pocket.

The way I see it, if you have enough emergency fund that you could pay for an entire replacement car in cash and only reduce your fund by half or less, you don’t need collision or comprehensive insurance. Liability insurance should be all you need. But, of course, most people aren’t in that situation, as it demands a much larger cash emergency fund than most people have access to.

Similarly, at what point should you entirely cut collision coverage and comprehensive insurance on an older car? It’s not an easy question to answer.

I’m currently in this situation with my pickup truck, which is more than a decade old and is approaching the 200,000 mile mark – it has a pretty low Blue Book value at this point. It’s reached a point where my family feels uncomfortable driving it any significant distance at all, so I mostly just use it for local travel within fifty miles of my home (going to the library, getting groceries, and so on). We intend to replace it by early next summer.

Given that, it may in fact make sense for us to drop down to just liability coverage on the vehicle. This would save us several hundred dollars over the winter, and if something severe went wrong with it again, we’d simply go ahead and sell it.

Ask yourself this honest question: if a significant repair needed to be done to your current vehicle, would that be the final push you need to replace it? If that’s the case, do you need collision or comprehensive coverage on that vehicle at all?

Between these two perspectives, you may find that comprehensive and collision insurance aren’t worth it to you. But you may find yourself also feeling unprotected without that insurance. Insurance does have a psychological benefit beyond any directly financial benefits – you can be confident in knowing that even if something bad happens, you’re covered.

If your signs are pointing away from needing collision and comprehensive insurance, but your gut is telling you it’s a bad idea, I recommend just raising your deductible nice and high. That way, you’ve got the security of the insurance while saving money as well. This may be the best option of all for people with used cars and a nice hefty emergency fund, but find that comprehensive and collision insurance makes them feel better about their car.

I look forward to hearing the comments of readers on this topic.

The post When Should You Downgrade Your Car Insurance? appeared first on The Simple Dollar.