Money, Health, and Other Things

Educational Blog in the Area of Family and Consumer Sciences for the Middle Peninsula

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[Replay] Risk Management and Insurance Basics, Part XIII

Over the next few weeks, we’ll revisit our multi-part series on risk management and the basics of different insurance plans! This week, we’ll wrap up our discussion on disability insurance.

Should everyone have disability insurance? That depends. For one, it depends on your preference as it relates to risk management – do you want to insure against this risk, protecting your household from a potential loss of income, or retain those risks and avoid paying premiums? It also depends on your current financial situation. Do you have enough in non-retirement savings to cover the loss in income? Do you have assets that you’d be willing to sell to make ends meet? Is there another employed spouse in the household that earns enough to comfortably live with just their income?

If you do decide to get disability insurance, here are a few things to consider.

For long-term disability insurance, the longer the elimination period, the lower the premium. With that said, be sure you have adequate non-retirement savings to cover your household expenses during that elimination period.

If you are going through a divorce and the ex-spouse is expected to pay child support and/or alimony, consider requesting in the divorce decree that they buy disability insurance to protect those support payments.

There are a number of features you can add to your policy, but remember, virtually all of them will make that policy more expensive. Selecting a non-cancellable policy means the insurer cannot cancel the policy, raise the premium, or decrease the benefits. Generally, long-term disability insurance covers 50-70% of net income. Some insurance companies will provide options to increase the benefit amount if you don’t think that’ll be enough to support your household. If the policy has residual benefits, that means they’ll provide you partial benefits if you’re still at your job but unable to work at full capacity. For instance, if a disability results in you working 20 hours instead of 40, a disability insurance policy with residual benefits may provide you 50% of the policy benefit amount. A cost-of-living-adjustment rider, or COLA, allows for your benefits to increase with inflation. A waiver of premium rider means the insurance company will not charge you for premiums if you become disabled, though how that’s implemented and for how long differs from policy to policy. Lastly, a recurrent disability clause means the policy will waive your elimination period if you become disabled soon after a previous disability period, if it’s from the same injury or cause. Generally, policies will have a limit on time between these two disability claims, often six months, for the policyholder to be eligible for the recurrent disability.

That concludes our discussion on disability insurance, we’ll return next month to discuss umbrella insurance.

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[Replay] Risk Management and Insurance Basics, Part XII

Over the next few weeks, we’ll revisit our multi-part series on risk management and the basics of different insurance plans! Over the next two weeks, we’ll return and discuss disability insurance.

Statistics on disabilities can be more sobering than many of us realize. According to the Social Security Administration, more than one in four 20-year-olds are expected to become disabled before reaching retirement age, and roughly one in five Americans, at over 50 million, are currently living with a disability.

One option to address this concern is through disability insurance. Disability insurance is generally either short-term or long-term. Short-term disability coverage generally lasts between three to six months, with very short elimination periods (the period you have to wait until receiving benefits), typically only a couple days to a couple weeks. Long-term disability coverage lasts considerably longer, anywhere from 2, 5, 10 years or up until retirement. However, long-term disability also tends to have a much longer elimination period, generally around 3-6 months or longer, which is why some policy holders and employers combine short-term and long-term policies.

Another consideration is “own occupation” vs “any occupation.” Any-occupation coverage will cover you if you’re unable to work in a job that is reasonably suitable for you given your education, experience, and age. The key with these policies is whether or not the disability prevents the policyholder from performing a job which they are reasonably qualified for. For instance, if a surgeon were to badly injure their hand, but continued to work in the medical field in a non-surgical position, they may not qualify for any-occupation disability benefits. However, if the injury was severe enough to prevent them from functioning professionally in the medical field at all, they would likely qualify. Own occupation does not have these specific requirements – instead, if the insurance holder is unable to perform the duties of their specific occupation, they will generally qualify for disability benefits. Going back to the earlier example, if a surgeon injures their hand and is no longer able to perform surgery, instead taking a lower paying non-surgical medical position, they would likely qualify for benefits from an own occupation disability policy. With that said, disability insurance policies will often limit the benefits if you are employed at another job, even for some own occupation policies. They may, for instance, limit the benefit so that your combined disability benefits and current income are not more than your previous income.

What’s the trade-off? For the added flexibility and coverage, you will typically pay more for an own occupation disability policy than an any occupation policy with the same benefit amounts and length of benefits. Which of these option makes more sense for you will depend on how specialized your job is, the income level for your current job vs. other jobs you would be qualified for and potentially be able to do with a disability, what you’re willing or able to afford in a disability policy, and your personal preferences for risk management. Next week, we’ll wrap up our discussion on disability insurance.

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[Replay] Risk Management and Insurance Basics, Part XI

Over the next few weeks, we’ll revisit our multi-part series on risk management and the basics of different insurance plans! This week, we’ll return and conclude our discussion on life insurance.

How do you determine how much insurance you need? While there are common simplistic formulas, like 10-times your salary, you may want to look at your individual financial situation to get a better idea.

Here are some questions to consider:

How much is your family dependent on your income? How much would they need annually to cover necessary expenses?

How long would it take them to adjust expenses? Some situations may allow for quick and significant reductions in household expenses, however, if you have multiple young children in a home where you’re paying off a mortgage, it may take a number of years before expenses can be significantly reduced.

What will your “final expenses” be? Funeral costs, as well as the accompanying food and lodging costs, can be expensive and should be included in your life insurance calculation.  

Which debts would you need your plan to pay off if you were to pass prematurely?

If you plan to have your children attend college as adults, how much would be needed for college expenses if you were to pass away?

Also, consider any other specific needs for your household – for instance, do you expect estate or inheritance taxes? Do you have a special needs dependent that may require medical and/or custodial care as an adult?

Once you’ve addressed some of these specific questions, you should have a better idea of how much you would need for life insurance.

In addition to avoiding simplistic formulas, here are some additional life insurance tips. Try not to cancel existing policies until you have a new one in hand. Be sure to periodically review beneficially designations – this should be done annually for all insurance policies and assets with beneficially designations; be sure the right people are supported if you were to pass away! Lastly, in the event of a divorce where the other person is the higher earner, consider making it a requirement for an ex-spouse to have life insurance to protect any alimony or child support.

Next week we’ll return and discuss disability insurance.

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[Replay] Risk Management and Insurance Basics, Part X

Over the next few weeks, we’ll revisit our multi-part series on risk management and the basics of different insurance plans! Over the next two weeks, we’ll discuss life insurance.

Life insurance involves a contract where the insurer promises to pay a beneficiary a sum of money in exchange for a premium, upon the death of an insured person. But who should have life insurance? While answering that involves some degree of personal preference and personal approach to risk management, there are certain people that life insurance tends to make more sense for. First are wage earners with dependents; if you have children or dependents and they would be significantly impacted financially if you were to pass, you should probably consider life insurance. This is especially true long-term if you have a dependent with special needs, as that financial support may be necessary beyond the age of 18. Also, people with significant debt, that would otherwise be left to a spouse or family member in the event of passing, may want to consider life insurance as a way to address the financial burdens that would be left with their estate. Unfortunately, your debts do not disappear when you’re gone!

Broadly, there are two common forms of life insurance. First is Term Life insurance. Term Life provides coverage for a specific defined period, like 10, 20, or 30 years. Term Life rarely includes a cash-value account, investment options, or a way to create “cash surrender value” – an amount of money that an insurance company would pay out if the contract were terminated before the insurer passes away.

The other common form is Permanent Life. Permanent Life insurance will cover you indefinitely until you die, and typically provides you options to create a cash-value account and create cash surrender value, possibly through investments. The major downside of Permanent Life, compared to Term Life, is that Permanent Life is typically more expensive for the same payout.

Which option makes more sense for you will depend on personal preference and your current situation – if you only want coverage until your children are adults, and prefer lower premiums over building cash value with the policy, Term Life probably makes more sense for you. If you like the idea of a cash value account, and would like coverage indefinitely until you die because of dependents with special needs or wanting to avoid leaving a large debt with your estate, Permanent Life may be the better choice.

Next week, we’ll return and conclude our discussion on life insurance!

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[Replay] Risk Management and Insurance Basics, Part IX

Over the next few weeks, we’ll revisit our multi-part series on risk management and the basics of different insurance plans! This week, we’ll return and continue our discussion on homeowner’s insurance.

Last week we discussed the first four forms of coverage from your homeowner’s insurance policy. If you haven’t had a chance to view that post, you may want to go back and check that out before proceeding, with the link here!

Fifth is personal liability coverage. This will provide coverage when you or someone living with you are liable for bodily injury or property damage to others on your property.

Sixth, and closely related to the previous coverage, is medical payment coverage for any medical bills incurred by people invited to your dwelling who are injured on your property as a result of your personal activities.

For those with renter’s insurance, your policy will generally include those last four coverages – personal property, loss of use, bodily injury liability, and medical payment coverage.

Now that we’ve discussed the different coverages of a homeowner’s insurance policy, what exactly are you covered against? For protection to your dwelling and any other structures on your property, this depends on which type of policy you have. While we won’t spend the time to cover all of the specific differences of HO-1, HO-2, all the way through HO-8, it’s important to understand that not all homeowner’s policies are the same. Some only cover a small number of named risks (HO-1), some cover additional named risks (HO-2), some cover a broader range of risks and only exclude specific perils (HO-3, H0-5), and some are specialized for specific dwellings like insurance for renters (HO-4), condos (HO-6), mobile homes (HO-7), and older homes (HO-8).

Regardless of which policy you have, two risks that are rarely covered in a standard homeowner’s insurance policy, that can be prevalent depending on where you live, are earthquakes and floods. Additionally, maintenance issues for things such pest damage, rust, rot, and most, are generally not covered by homeowner’s insurance.

Lastly, here are some additional homeowner’s insurance tips. Paying your premium annually will often reduce the cost, but be sure you have no issues paying for that large cost each year, particularly if your insurance policy is not being paid directly from a mortgage escrow account. Check for any discounts for safety devices such as alarm systems and smoke detectors. Select a deductible that isn’t too high for you to save for, but not so low it results in an unnecessarily high premium. If your home is in a flood zone, consider purchasing separate flood insurance. If you’re not sure if you’re located in a flood zone, check out FEMA’s Flood Map Service Center, linked here. Lastly, for any insurance claims, be sure to document any and all damages!

That concludes our discussion on homeowner’s insurance, we’ll return next week to discuss life insurance!

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[Replay] Risk Management and Insurance Basics, Part VIII

Over the next few weeks, we’ll revisit our multi-part series on risk management and the basics of different insurance plans! Over the next two weeks we’ll discuss homeowner’s insurance. 

While most of us know what homeowner’s insurance is, not everyone knows what it entails. Most homeowner’s insurance policies include six different coverages.

First is coverage for damage to your home or dwelling itself as well as any attached structures such as an attached garage. To be considered fully covered, you generally need to insure for at least 80% of the house’s total replacement value, otherwise you run the risk of only getting partial payments for losses. As an example, let’s say you have a home with a replacement cost of $200,000. To be fully covered, you would need to purchase coverage of at least $160,000. However, let’s say your insurance policy will only cover up to $120,000 of damages or replacements. Now let’s say you have a fire that causes $60,000 in damages. At first glance, you would think you’re fully covered for this. However, with the typical 80% rule, what would generally happen is you would only be covered for the proportion of the 80% coverage you had – so in this example, you are covered up to $120,000 of the $160,000 needed to be fully covered, so your insurance would only pay 75% of the damages. In the case of this $60,000 fire, you would be responsible for $15,000 yourself for being underinsured!

Second is coverage to any structures other than your home that’s located on your property. This can include things like detached garages and sheds.

Third is personal property coverage. Personal property covers the contents of your home such as furniture, appliances, clothing, and possibly jewelry and collectables. However, to be sure there’s no issues with potential claims for your personal property, be sure to annually take an inventory of anything you would like to be covered, including their value or cost. This includes personal property not only in your house, but items in your garage, shed, and yard. Be sure to get appraisals for the value of jewelry, antiques, and any collectables. Also, you will often have the option of guaranteed replacement cost or cash value. While replacement cost will generally be more expensive, it will pay for the cost to replace any furniture or appliances instead of just paying for the current cash value. For instance, if a ten-year-old refrigerator is damaged during a fire, a guaranteed replacement policy would pay for a new fridge, while a cash value policy would only cover the market value of your old refrigerator.

The fourth coverage is for any loss of use of your dwelling from a covered event. For instance, if your home is unsafe to live during repairs from fire damage, your homeowner’s insurance policy will often cover the cost for you to stay in a hotel during the interim.

Next week, well return and discuss the last two coverages of a homeowner’s insurance policy, and what events and sources of damage your insurance policy will typically cover.

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[Replay] Risk Management and Insurance Basics, Part VII

Over the next few weeks, we’ll revisit our multi-part series on risk management and the basics of different insurance plans! This week, we’ll return and conclude our discussion on health insurance.

This week, we’ll return and conclude our discussion on health insurance.

Are you looking to enroll in a new insurance plan, but don’t know where to start?  Have you lost your job and access to an affordable health insurance plan? Are you at a reduced income? Here are just a few things to know if you’re in the market for a new health insurance plan!

Typically, if you want to enroll in a new plan, you’ll have to do it during a specific window each year, known as the open enrollment period. There are exceptions, however – if you have a qualifying life event, such as getting married, having a baby, getting a divorce, or losing your job and/or health insurance plan, there is generally more flexibility with enrollment.

What if your employer does not provide access to an affordable health insurance plan? In 2010, the Affordable Care Act introduced the Health Insurance Marketplace, which provides subsidies in the form of tax credits to those below 400% of the federal poverty level. For reference, 400% of the federal poverty level for a family of four would equal a household income of about $105,000.

If you make less than 138% of the federal poverty level, which is roughly equal to a household income of about $36,000 for a family of four, you may qualify for the federal Medicaid health insurance program. However, this income limit depends on whether or not your state opted in to the Medicaid expansion, another facet of the Affordable Care Act. For states that opted out, the income limit may be below 138% of the federal poverty level. Fortunately, in 2018, Virginia opted in to the Medicaid expansion. Depending on your state, your Medicaid coverage may have no premiums, no deductibles, but may require you to spend a certain amount of your countable resources before Medicaid will begin paying for medical costs.

If you’re below 300% of the federal poverty level (which is roughly equal to a household income of about $78,000 for a family of four), while you may not qualify for Medicaid yourself, your children may, in which case you can get in touch with your local Department of Social Services about enrollment.

Next week, we’ll return and discuss homeowner’s insurance.

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[Replay] Risk Management and Insurance Basics, Part VI

Over the next few weeks, we’ll revisit our multi-part series on risk management and the basics of different insurance plans! Over the next two weeks we’ll discuss health insurance.

In earlier portions of this series, we’ve discussed a number of terms that are important to health insurance, including deductibles, copayments, coinsurance, and max out-of-pocket – if you haven’t had a chance to check those out, I would encourage you to go back and watch or read those posts before proceeding, with the links provided here (Part IIPart III).

If you’re in the process of selecting a health insurance plan, you may hear terms like HMO or PPO thrown around and may not think it’s important to know the difference. However, there are some critical differences that are important to you as the potential insurance holder. Before we discuss the difference, let’s talk about the similarities between a Health Maintenance Organization, or HMO, and Preferred Provider Organization, or PPO.

Both HMOs and PPOs are managed health care plans that provide access to a network of doctors and providers. Both plans typically have premiums in order to be enrolled in the plan, copayments to see doctors or specialist, along with co-insurance, max out-of-pocket costs, and often have annual deductibles. Both plans prioritize preventative care, and as such, typically allow policy holders to have annual check-ups without having to pay a copayment.

Now for the differences – HMOs often require the policy holder to select a primary care physician, or PCP. This is important since many HMOs also require you to get a referral from your PCP if you need to see a specialist, like a dermatologist. HMOs are also generally less flexible when it comes to seeing doctors or providers out-of-network, with policy holders often having to pay for the entire cost of medical services out-of-pocket. PPOs, on the other hand, typically do not require a PCP, nor do they generally require referrals to see specialist. PPOs also allow for more flexibility to see doctors or specialist out-of-network, typically covering at least some of the medical costs incurred from providers not in the network.

With all of these benefits, why would anyone select an HMO? The biggest reason is cost. In general, HMOs will have lower premium and lower (sometimes no) deductibles compared to an equivalent PPO. Whatever you decide for health insurance, be sure to select something that meets your needs in terms of cost, flexibility, network availability, and coverage.

Next week, we’ll return and conclude our discussion on health insurance.

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[Replay] Risk Management and Insurance Basics, Part V

Over the next few weeks, we’ll revisit our multi-part series on risk management and the basics of different insurance plans! This week, we’ll wrap up our discussion on auto insurance.

Last week we discussed liability insurance, but what happens if your vehicle is damaged and the accident was your fault? What if the collision didn’t even involve another car? What if you hit a tree? What if the car damage wasn’t even caused by a collision?

This is where collision insurance and comprehensive automobile insurance come in. Collision insurance will reimburse you for losses resulting from a collision with another car or object, or even from a rollover. The policy will pay for the cost of repairing or replacing your car regardless of who’s at fault; however, if another driver is at fault, your insurance has the right to obtain reimbursement from that driver’s auto liability insurance.

Comprehensive auto insurance will provide protection against property damage caused by risks other than collision or rollover – such as fire, theft, vandalism, hail, and wind, among others. Both collision and comprehensive auto insurance typically include a deductible. As we’ve mentioned in previous posts, the higher the deductible, the lower the premium; however, you’ll then be responsible for covering more of the cost of repairs or replacement. For both collision and comprehensive, if the estimate for repairs exceeds the book value of the vehicle, the car is considered “totaled,” and the insurance company will pay the book value of the vehicle minus the deductible. For this reason, many drivers will drop their collision and/or comprehensive insurance for older car that no longer have much book value. While states do not require collision or collateral by law, if you have a car loan on the vehicle, your lender likely will.

The final two portions of auto insurance we’ll discuss are medical payment insurance and gap insurance. Automobile medical payment insurance covers bodily injuries suffered by the insured driver and their passengers regardless of who’s at fault. Medical payment coverage is generally a single policy limit, which is applied per person, per accident – for example, covering up to $5,000 of medical payments for each individual covered.

Gap insurance is an optional insurance that covers the difference between the balance of your loan and the book value of the car, if the balance is higher. For example, if you total your car and the vehicle is valued at $10,000, but you owe your lender $12,000 on your loan, gap insurance will cover the $2,000 difference.

That concludes our discussion on car insurance, next week we’ll return and discuss health insurance.

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[Replay] Risk Management and Insurance Basics, Part IV

Over the next few weeks, we’ll revisit our multi-part series on risk management and the basics of different insurance plans! Over the next two weeks, we’ll discuss auto insurance.

While we’ve all probably heard of car insurance, do we all know what it entails? Is it required by law? Does our policy cover the damage to our car in an accident? What if we crash into tree? Does it cover us for things like theft and vandalism? What about damage from wind or hail?

To begin answering some of these questions, let’s start by discussing automobile liability insurance. Liability insurance covers you for accidents you’re responsible for – it pays for the bodily injury and property damage to others caused by accidents that you’re at fault for, and is currently required by law in the majority of states. It is important to note that automobile liability insurance will not pay for bodily injuries suffered by yourself or property damage to your vehicle. If you want to cover your own car, you’ll need additional insurance, which we’ll discuss next week.

Liability insurance is often quoted as three number separated by slashes. The first number is the per-person bodily injury limit – the limit, in thousands of dollars, of how much your insurance will pay for a single person injured. The second numbered is the per-accident bodily injury limit. This is the limit of how much your insurance will pay in total for all persons who are injured in that accident. The last number is the maximum amount your insurance will pay for any property damage your accident causes.

Each state has its own requirement for minimum liability coverage. In Virginia, the minimum liability coverage for policy holders is 25/50/20. Virginia is also one of the few states where a driver can legally drive uninsured, if they pay an Uninsured Motor Vehicle Fee with the DMV. With that said, while having state minimum or even no insurance may be cheaper, it leaves the driver at a significant risk. Accidents can easily result in personal injuries above $25,000, or $50,000 for the entire accident, and a couple newer cars involved in the collision can easily double or triple the $20,000 property damage liability. Any injuries or damages above the liability limit becomes the responsibility of the driver at fault. For this reason, many experts recommended liability coverage of at least 100/300/100.

There also exists the risk that you’re in an accident caused by another person and they are either uninsured or underinsured. To cover yourself, you can also have uninsured or underinsured motorist insurance which can cover you, your passengers, and property damage loss that occurs as a result of another driver with insufficient insurance coverage. In fact, in the state of Virginia, policyholders are required to have a minimum of 25/50/20 uninsured and underinsured motorist coverage, and it’s often recommended to carry uninsured and underinsured motorist insurance at the same limits as your liability insurance.

Next week, we’ll return and wrap up our discussion on auto insurance.