Investing Curiouscatblog

Tag: insurance

  • How the New Health Care Law May Affect You

    10 Ways the New Healthcare Bill May Affect You by Katie Adams

    Starting this year, if you have an adult child who cannot get health insurance from his or her employer and is to some degree dependent on you financially, your child can stay on your insurance policy until he or she is 26 years old.
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    Starting this fall, your health insurance company will no longer be allowed to “drop” you (cancel your policy) if you get sick.
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    Starting this year your child (or children) cannot be denied coverage simply because they have a pre-existing health condition. Health insurance companies will also be barred from denying adults applying for coverage if they have a pre-existing condition, but not until 2014.
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    If you currently have pre-existing conditions that have prevented you from being able to qualify for health insurance for at least six months you will have coverage options before 2014. Starting this fall, you will be able to purchase insurance through a state-run “high-risk pool”, which will cap your personal out-of-pocket expenses for healthcare. You will not be required to pay more than $5,950 of your own money for medical expenses; families will not have to pay any more than $11,900.
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    Under the new law starting in 2014, you will have to purchase health insurance or risk being fined.
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    Starting in 2018, if your combined family income exceeds $250,000 you are going to be taking less money home each pay period. That’s because you will have more money deducted from your paycheck to go toward increased Medicare payroll taxes. In addition to higher payroll taxes you will also have to pay 3.8% tax on any unearned income, which is currently tax-exempt.

    Related: How the health care bill could affect you – Answers About Health Care Bill – Why the Health Care Bill May Eventually Curb Medical Costs – post on health care – USA Consumers Paying Down Debt – Personal Finance Basics: Long-term Care Insurance

  • What if Your Life Insurance Company Goes Bankrupt?

    Your Life Insurance Policy May Not Be Protected by Ben Levisohn, Business Week

    Sometimes, though, failures are far more substantial. When Executive Life went belly-up in 1991, states couldn’t raise enough to cover its obligations. Annuity and life insurance policyholders in California recovered as little as 70 cents on the dollar or were forced to accept modified terms with alternative providers. “I wouldn’t put a tremendous amount of credence in guaranty funds,” says Adam Sherman, president of advisory firm Firstrust Financial Resources in Philadelphia.
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    Insurance customers need to be more vigilant. Stop focusing only on cost and service and start worrying about solvency. Check such agencies as Standard & Poor’s (MHP), Fitch Ratings, Moody’s, and A.M. Best to find the highest-rated companies, and be alert for downgrades. Then dig deeper. Find out about an insurer’s exposure to real estate and mortgages and make sure its debt holdings are investment-grade. “Everyone’s under the false assumption that it doesn’t matter what company you buy from,” says Thomas Archer, chairman of financial-services firm Archer Financial Group in New York. “It does.”

    AARP: Is My Money Safe?

    The insurance industry is regulated by the states. Most states require insurance companies to participate in a state guarantee fund or association. State guarantee funds step in to pay claims in the event that an insurance company fails. A state may have one or more guarantee associations, with each association responsible for a certain type of insurance. While there may be differences among states, most states set basic coverage guarantee limits of:

    • $300,000 in life insurance death benefits
    • $100,000 in cash surrender or withdrawal value for life insurance
    • $100,000 in withdrawal and cash values for annuities
    • $100,000 in health insurance policy benefits
    • $300,000 in homeowners benefits
    • $300,000 in auto insurance benefits

    One option is to diversify your insurance coverage, just like you diversifying investments. Historically insurance company failures have been rare, and even it is even rarer that state funds don’t cover the insurance. But if you have large amounts of insurance you can be a bit safer by having your life insurance needs covered by multiple insurers.

    Related: Personal Finance Basics: Long-term Care Insurance – Insurers Raise Fees on Variable Annuities – Personal Finance Basics: Health Insurance – How to Protect Your Financial Health
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  • Immediate Annuities

    Life Insurers Profit as Retirees Fear Outliving Cash by Alexis Leondis

    Sales of so-called immediate annuities are climbing as retirees are drawn to lifetime payments guaranteed by U.S. insurance companies. Immediate annuities pay a periodic fixed amount of money for life in exchange for a lump-sum payment.
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    Payouts among insurers vary significantly, said Weatherford of NAVA. Monthly payments range from $629 to $745 for a $100,000 investment by a 65-year-old male, according to a survey of six issuers by Hueler Companies, a Minneapolis-based data research firm and provider of an independent annuity platform.

    An annuity is a comforting in that you cannot outlive your annuity payment. However, there are drawbacks also. Having a portion of retirement financing based on annuity payments does help planning. Social security payments are effectively an annuity (that also increases each year, to counter inflation). While living off social security payments alone is not an enticing prospect, as a portion of a retirement plan those payments can be valuable. If you have a pension that can also serve as an annuity.

    It can make sense to put a portion of retirement assets into an annuity however I would limit the amount, myself. And the annuity payout is partially determined by current interest rates, which are very low, and those now the payout rates are low. If interest rates stay low, then you lose nothing but if interest rates increase substantially in the next several year (which is certainly possible) the payout for annuities would likely increase.

    Choosing to purchase an annuity is something that should be done after careful study and only once you understand the investment options available to you. Also you need to have saved up substantial retirement saving to take advantage of the option to buy enough monthly income to contribute substantially to your retirement (so don’t forget to do that while you are working).

    Related: Many Retirees Face Prospect of Outliving Savings – Spending Guidelines in Retirement – Retirement Tips from TIAA CREF – Social Security Trust Fund

  • Employees Face Soaring Health Insurance Costs

    The costs to employees for health insurance keep increasing, even as employers pay more also. A Premium Sucker Punch:

    Her employer picks up 50 percent of the coverage for her family, up from 33 percent a few years ago. But because insurance costs have soared, she says she’s actually paying $200 a month more in premiums. Her co-pays also have risen to $30 from $20.
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    The Corporate Executive Board found in its survey that a quarter of officials from 350 large corporations said they had increased deductibles an average of 9 percent in 2008. But 30 percent of the employers said they expected to raise deductibles an average of 14 percent in 2009. Mercer, a global benefits consulting firm, surveyed nearly 2,000 large corporations in a representative poll and found that 44 percent planned to increase employee-paid portion of premiums in 2009, compared with 40 percent in 2008.

    The economic slowdown, according to analysts, is making it more difficult for many employers to subsidize health care costs at previous levels. On average, experts say, benefit packages contain the biggest increases for workers since the recession of 2001. Workers’ health costs are rising much faster than wages.
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    Premiums for employer-sponsored plans over a decade on average have risen to $12,680 a year from $5,791, according to the Henry J. Kaiser Family Foundation. The median deductible for the plans was $1,000 in 2008, compared with $500 from 2001 to 2007, according to a survey of 2,900 employers conducted by Mercer.

    The broken health care system in the USA has been a huge drain on the economy and people’s standard of living for decades. The longer we allow the system to decline (increasing costs, declining results) the more damage the economy suffers and the larger the costs to implementing fixes become.

    Related: Personal Finance Basics: Long-term Care Insurance – Medical Debt Increases as Economy Declines – International Health Care System Performance – Many Experts Say Health-Care System Inefficient, Wasteful – posts on improving the health care system

  • Bail us Out, say Madoff Victims

    As I suspected those (who are not earning minimum wage you can be sure) that have lost money on the Madoff case would expect others to bail them out: well paid lawyers (I am sure) are making their case for just such a bailout of their wealthy clients.

    Lawyers representing the victims of Bernard Madoff’s alleged $50bn fraud are calling on the US government to bail them out with billions of taxpayers’ dollars.
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    The SIPC has little more than $1.6bn of funds and has promised $500,000 to each Madoff victim who had an account with his firm in the past 12 months.

    The debate needs to be about what is the proper role for government. Not about this instance. What type of losses do we want secured? How large of payments do we want to insure? That amount has been $500,000 if we are changing the rules after the fact for a few is that really the best course of action)? How should these payments be funded? Do we really want to raise taxes on our grand children (many of which who will earn less than the equivalent of $50,000 today)? I don’t think so. This SIPC fund should be paid for by fees on investments just like the FDIC is paid for based on fees on covered deposits (as the SIPC is now – but no taxpayer funding should occur).

    If we decide we want to pay back people several million each then the fees just need to be raised to fund such a system. Just as with the FDIC if we want the government to backstop the fund by guaranteeing they will loan the fund money if it runs short of cash is fine with me. Then the SIPC fund just pays back the taxpayers with interest.
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  • Insurers Raise Fees on Variable Annuities

    More Insurers Raise Fees on Variable Annuities

    Many insurance companies radically underestimated the cost of hedging their guarantees in a market meltdown. Now that the markets have crashed, some investors will find they’re paying a lot more for the same product.

    As SmartMoney has reported, this is one way that annuities are failing to live up to their big promises. The guarantees attached to the products – minimum returns of 6% per year or better, market upside, no chance of loss and a lifetime income stream – were designed to attract people in retirement or close to it.

    And it worked, attracting $650 billion in assets in the last five years. But the guarantees are only as good as the insurance company’s ability to hedge them, and even when the markets were rising, some insurance company executives admitted their strategies hadn’t been tested by real-life crisis conditions. Now some estimates suggest that hedging costs have doubled in the last year, and insurers are passing those costs along to their customers.
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    For example, an investor might purchase a $100,000 annuity that pays a guaranteed 6% annual return for 10 years, or market returns — whichever is better. The fees for a product like that might look something like this:

    • 1.3% annually on the current balance to cover the underlying investment
    • 1% annually on the current balance for the insurance wrapper (called the mortality and expense charge)
    • 1% of the original purchase price to cover the guarantee

    The fees now rising are all in that last category — charges that cover guarantees. At the Hartford, the fees of three different kinds of guarantees are rising, from the current charge of 0.35% to 0.75%.

    In general I am not inclined to insurance investment products. They are frequently overloaded with fees. Annuities can provide some balance in retirement, so annuitizing a portion of assets at retirement may be reasonable. But I would not use insurance investment products for a significant portion of my retirement assets.

    Related: Personal Finance: Long-term Care Insurance – Many Retirees Face Prospect of Outliving Savings – Investor Protection Needed – Retirement Tips from TIAA CREF

  • Financial Planning Made Easy

    Scott Adams does a great job with Dilbert and he presents a simple, sound financial strategy in Dilbert and the Way of the Weasel, page 172, Everything you need to know about financial planning:

    • Make a will.
    • Pay off your credit cards.
    • Get term life insurance if you have a family to support.
    • Fund your 401(k) to the maximum.
    • Fund your IRA to the maximum.
    • Buy a house if you want to live in a house and you can afford it.
    • Put six months’ expenses in a money market fund. [this was wise, given the currently very low money market rates I would use “high yield” bank savings account now, FDIC insured – John]
    • Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker, and never touch it until retirement.
    • If any of this confuses you or you have something special going on (retirement, college planning, tax issues) hire a fee-based financial planner, not one who charges a percentage of your portfolio.

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  • Personal Finance Basics: Long-term Care Insurance

    Long term care insurance is an important part of a personal financial portfolio. It provides insurance for for expenses beyond medical and nursing care for chronic illnesses (assisted living expenses). So while looking at your personal finance insurance needs (health insurance, disability insurance, automobile insurance, homeowners [or rental] insurance [with personal liability insurance – or separate personal liability insurance] and life insurance don’t forget to consider long term care insurance.

    Can You Afford Long-Term-Care Insurance?

    Long-term care is likely to be most Americans’ greatest expense of all in retirement. A private room in a nursing home costs $76,460 annually on average, or $209 a day, and Medicare typically won’t cover it.
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    AARP estimates that a 65-year-old in good health can expect to pay between $2,000 and $3,000 a year for a policy that covers nursing-home and home care.

    “About 70 percent of individuals over age 65 will require at least some type of long-term care services during their lifetime. Over 40 percent will need care in a nursing home for some period of time.” – National Clearinghouse for Long-Term Care Information

    Advice on buying long term care insurance from AARP, the Department of Health and Human Services and Consumer Reports.
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  • Personal Finance Basics: Health Insurance

    Much of personal finance is not amazingly complex once you take some time to lay out the basics. We have covered some important topics previously: tips on using credit cards, retirement saving, creating an emergency fund… One of the most critical factors is to insure yourself against possible catastrophic events.

    Some personal finance mistakes can set you behind, say falling to save for retirement when you are 28 or cashing in your 401(k) when you switch jobs at 27. Those mistakes however are most often manageable. You just need to save more later. For health insurance the critical need is to protect yourself from huge costs.

    Bankruptcies are a huge problem due to health costs. If you have done everything else right and have saved up say $150,000 in mutual funds (in addition to retirement savings and a house) at age 40 but have no health insurance there is little I can think of more likely to result in your losing that saving than a health crisis when you are without coverage (disability insurance is another critical personal finance need that I will discuss in another post and the another such risk – as is an uninsured home). The costs of health care are just too large for any but the richest to survive a major cost without either ruining an entire lifetime of smart financial moves or coming close.

    There are certain things that cannot be compromised in your personal financial situation. Health coverage for significant costs is one of those. If you can afford a $5,000 (or higher) deductible that is fine. The critical need for health insurance is not the first $2,000 or $20,000 but the 2nd, 3rd, 4th… $100,000 bill. A bill for $2,000 you can’t afford is a challenge but a bill for $100,000 you can’t afford can ruin decades of smart and diligent financial moves.
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