My True Travel Insurance Story – A Broken Leg & Surgery in the Dominican Republic

Today, I have a great article written by my sister-in-law and editor, Ariel Gardner. She is sharing her travel insurance review story, and goes in-depth on the travel insurance process. I asked her to write about this because I feel like it’s not really discussed, yet there is a lot to learn! You may have seen her here before talking about taking her side hustle full-time, living in a small house, real life frugality, and more.

Earlier this year, I was enjoying myself on a relaxing Caribbean cruise with one of my best friends.

I had breakfast delivered to my room every morning, drank fancy cocktails in the evening, and barely thought about the travel insurance policy I bought just in case.

On the fourth day of our cruise, we docked in Santo Domingo, Dominican Republic and disembarked to explore the city. Our group ended up at Fortaleza Ozama, a Spanish fort built in 1502.

We walked up four or five flights of stairs to get a view from the top, and on the first step back down, I fell and broke my leg.

It wasn’t a major fall.

But I twisted my leg in just the right way to end up with a spiral fracture that broke several bones in my ankle, my tibia, and fibula. 

There was so much chaos as we figured out how to handle everything, from whether or not to have surgery in the Dominican Republic and how to fly my husband down.

On top of everything, this was at the beginning of March 2020, just as the U.S. and many other countries were shutting their borders down because of COVID-19.

The impressive Fortaleza Ozama. 

My travel insurance policy went from an afterthought to a necessity as I racked up more than $10,000 of out-of-pocket medical costs and unexpected travel expenses in just a couple of days.

Eight months after this whole ordeal began, I’ve finally got closure. My travel insurance claims are paid, and I had my last visit with the surgeon who fixed my leg with a metal rod and seven screws.

I learned so much about the travel insurance process over these past few months, and I was excited when Michelle asked me to share my experience. 

My biggest takeaway from it all? I will always buy travel insurance when traveling out of the country, and I’m about to explain why.

Related content:

  • How To Travel On A Budget And Still Have The Time Of Your Life
  • How To Take A 10 Day Trip To Hawaii For $22.40
  • Want To Be A Full-Time Traveler? 13 Ways To Make It Happen

My True Travel Insurance Review Story & Why You Should Consider Travel Insurance

 

The cost and details of my travel insurance plan

You can expect travel insurance to cost 5%-10% of your total trip cost. The cost largely depends on what kind of coverage you want, where you’re traveling, length and cost of trip, and your age. 

I decided to purchase a travel insurance plan through Generali Global Assistance because they had high ratings and offered the kind of plan I wanted. 

For $142.68 my trip would be covered under Generali’s Preferred Plan, which offered the following coverage limits:

  • Trip cancellation: 100% of trip cost
  • Trip interruption: 150% of trip cost
  • Travel delay: $1,000 per person
  • Baggage loss: $1,500 per person
  • Sporting equipment: $1,500 per person
  • Sporting equipment delay: $300 per person
  • Missed connection: $750 per person
  • Medical & dental: $150,000 per person
  • Emergency assistance & transportation: $500,000 per person
  • Accidental death & dismemberment (air flight accident): $75,000 per person/$150,000 per plan
  • Accidental death & dismemberment (travel accident): $25,000 per person/$50,000 per plan

There were a few aspects of this plan that I was really concerned about, including trip cancellation and interruption. I was leaving for a cruise as the COVID-19 pandemic was hitting the U.S., and there was a real possibility something might happen to my travel plans.

Cruising at the start of a global pandemic wasn’t an awesome idea, but luckily no one on our ship showed signs or tested positive for COVID-19 after getting back to the states.

My plan offered “cancel for any reason” coverage for trip cancellation and interruption. This is the most comprehensive kind of coverage – you’re reimbursed for a portion of your costs no matter what your reasons are – but it’s a little more expensive. 

Medical coverage wasn’t a huge priority to me because I assumed the chances of getting hurt were pretty slim. This is laughable now.

Despite feeling like medical coverage wasn’t necessary, the reason I got travel insurance (with higher medical coverage) was because of a story an acquaintance told me a few years earlier.

This woman had gone on a 10-day cruise in the Mediterranean, and her esophagus spontaneously ruptured a few days into the cruise. This is an incredibly serious condition that will result in death if it’s not immediately treated.

When the cruise ship doctor realized what was happening, they ordered a helicopter to medivac her to the closest hospital. I can’t remember which country she ended up in, but between surgery, complications, and recovery, she ended up in the hospital for two months.

She paid $450 for a premium travel insurance plan, and it covered all of the $1,000,000+ expenses she incurred. From health care, medivac, trip interruption costs, and flights back and forth for her husband.

With that story stuck in my head, my worst-case-scenario mindset kicked in and told me to buy travel insurance for my cruise.

 

What my travel insurance actually covered

I’ve broken my ankle before and the treatment is pretty straightforward and easy. Slap a boot on your leg and be on your way. This break was worse, and being in a foreign country complicated things.

First of all, I sustained an open fracture. That means my tibia bone broke through my skin, which puts you at risk of infection. Had it been a closed break, maybe I could have gotten back on the cruise ship, had the onboard doctor set my leg, and cruise back on painkillers until I got home.

Open fractures need to be treated with surgery as soon as possible so the wound can be cleaned out. Surgery meant that I would not be getting back on the cruise ship. 

There was a lot of debate about where to take me – the Dominican Republic has a very different health system. It was decided that the best care would come from a private clinic. 

The clinic required a deposit of 80,000 Dominican Pesos (DOP) before I could be treated. The exchange rate varies day-to-day, but this equals $1,369 at the time of writing.

I was put on an IV drip for antibiotics, given IV painkillers, was x-rayed, had an electrocardiogram, and was prepped for surgery. The surgery to clean out the wound was quick, but it still required anesthesia. 

The surgeon said I also needed an ORIF (open reduction internal fixation) to fix my leg. This is where they fix your break with a rod and screws. It’s not a complicated surgery, but after talking with some people back home, and with a doctor friend who was traveling in our group, we decided it was best to wait until I was back in the U.S. for the ORIF surgery. 

After the surgery to clean out the wound, the surgeon ordered me to stay in the clinic for two days before it was safe for me to fly home. I spent that visit on more IV antibiotics and painkillers. After the deposit was applied to the total, my stay was another 357,000 DOP or $6,110.

Between just having surgery and the fact that my broken leg wasn’t fully fixed, I couldn’t just fly home by myself. The surgeon in the Dominican Republic said I needed a travel companion to help me fly home, so my husband booked a flight and came out the day after my surgery. His flight was $400.

The surgeon ordered two things to fly home safely: an ambulance to transfer me to the hospital and first-class flights home to give me enough room for my bandaged leg. Side note: this was the first time I’ve ever flown first class, and I’d love to do it again when I can appreciate it. At least my husband got to enjoy the complimentary Bloody Marys.

Those tickets weren’t cheap. Not only was it first class, it was a last minute, one-way flight at the start of a global pandemic. We paid $1,275 for each ticket.

The ambulance ride to the airport was 7,600 DOP or $130. We paid the drivers in cash plus a tip. They were amazing, by the way. Neither of them spoke English and we don’t speak Spanish, so we spent the 30 minute drive communicating via Google Translate.

Because I was wheelchair-bound at this point, we would need more time in the airport, and our ambulance ride was going slower than expected. The driver knew we were pressed for time and drove over the grassy median into oncoming traffic to get us to the airport in time. Probably not the safest move, but it worked.

They were so sweet and even wanted to take a picture with us because, as they said, “You’ll want to remember this day!” 

Omg, the compression sock and three-day old outfit is a look. What you can’t see is that I was also traveling with a catheter in because I was completely immobilized. Definitely won’t forget that day!

Between my husband’s flight to the Dominican Republic, our first-class tickets home, and the ambulance ride, that was an additional $3,080.

Here’s what travel insurance covered from those costs:

  • $1,369 deposit for the clinic
  • $6,110 for surgery and hospital stay
  • $2,550 for two flights home to the U.S.

=$10,029 total costs reimbursed

Travel insurance didn’t cover my husband’s $400 flight to the Dominican Republic – they said it wasn’t part of emergency assistance and transportation. Their reasoning was that someone already in the Dominican Republic could have flown home with me.

We also claimed $200 for the flight I would have taken home from Florida after the cruise, and this was denied too because I paid for it with credit card points. Some travel insurance offers reimbursements for points, but Generali’s plan didn’t. We tried to claim it knowing they might deny it.

The other cost travel insurance denied was the $130 ambulance ride from the clinic to the airport. The problem was that the receipt wasn’t dated. 

That’s $730 that I wasn’t reimbursed for.

One thing I haven’t mentioned is the cost of the cruise and getting reimbursed for the part of the trip I wasn’t able to take. Long story short, my friend was part of the cruise’s entertainment and the organizers covered my ticket because I was going as her guest. 

The cruise organizers have their own insurance to deal with that claim. Had I paid for the cruise, then I would have submitted that loss to my travel insurance company. Make sense?

All in all, my $142.68 travel insurance policy saved me more than $10,000 in out-of-pocket costs.

 

Will my health insurance cover medical costs when I travel?

It’s unlikely that your domestic health insurance plan will cover medical care outside of the U.S. If your plan does cover anything, it will only be for very, very emergent situations. 

For example, my broken leg was a serious enough injury that I needed emergency surgery in a foreign country. I had to leave my friends and my belongings on the cruise ship and stay in a hospital for two days.

My health insurance company (Anthem Blue Cross Blue Shield) did not consider this an emergency situation – it was only deemed urgent. 

This is how my insurance company describes emergency care: if the injury is severe enough that it places “the Member’s physical and or mental health in serious jeopardy; serious impairment to bodily functions; or serious dysfunction of any bodily organ or part.”

I recommend calling your health insurance company and asking about their policy on international travel, but realize that it probably won’t offer the kind of coverage you’re looking for.

 

What about the travel protections offered by my credit card?

Not all credit cards come with travel protections, but some of the more popular travel cards (like the Chase Sapphire cards and American Express Platinum card) do offer it. Important point: you will have to book your trip using that card to qualify for coverage.

The other thing about the coverage that comes with your credit card is that it’s fairly limited when you compare it to third-party travel insurance. 

The most common kind of coverage through your credit card is for baggage delays, trip delays, trip interruption, emergency trip cancellation, accidental death and dismemberment, and auto rental collision damage cover.

But you probably won’t get the kind of coverage you need if you, say, break your leg in the Dominican Republic.

I have three credit cards that are considered travel cards, and none of them would have covered what my travel insurance did.

The Points Guy has a really good article that explains more: When to Buy Travel Insurance vs. When to Rely on Credit Card Protections.

 

What about flight insurance?

Most airlines offer a limited form of travel insurance, and limited is key.

I’m sure you’ve seen the pop up when you enter your payment information for your flights. Something like, “Do you want to spend $25 on coverage to protect your flight from cancellation or delays?” 

Seems like a good deal, and I’ve bought it before when I didn’t understand what it covers. The coverage airlines offer does not include medical care, lost luggage, and it’s not “cancel for any reason” coverage. 

 

When should you buy travel insurance?

You now know that you can’t rely on your health insurance in a foreign country, your credit card doesn’t offer comprehensive coverage, and flight insurance is meh

That’s why I highly recommend travel insurance if you’re traveling out of the United States. Experts will offer the same advice for these reasons:

1.You’re concerned about medical expenses

Travel medical insurance is similar to your domestic health insurance, and it’s honestly the main reason experts recommend travel insurance. Without it, a medical emergency in a foreign country could devastate your finances. Most policies have limitations for pre-existing conditions, but you can shop around and find coverage for pre-existing conditions.

2. You want coverage for your baggage and personal belongings

It’s not uncommon to travel with some pretty expensive stuff. It adds up quickly when you think about the combined value of your laptop, tablet, cell phone, camera, jewelry, etc. 

Travel insurance may cover these things if they’re lost or damaged. I say “may” because most policies expect that you’re not being reckless with your belongings. For example, you’re not leaving your laptop unattended in the hotel lobby. 

You should ask about high-value things like your wedding rings because there will be some limitations to the coverage. Better yet, leave your expensive jewelry at home.

Some policies have additional coverage for things like golf clubs, ski equipment, and hunting or fishing gear. They might even offer coverage if you miss days for skiing or golfing, or even pay for rental gear if yours is lost or delayed in transit.

3. You’re an adventurous traveler

There are risks with all kinds of travel – my husband cut off the tip of his finger during a relaxing beach vacation in the Bahamas, and he was only chopping green onions. But there are some kinds of vacations where you’ll encounter more risks.

Hiking through the jungle, ziplining, parasailing, surfing, caving, etc., those are all things that can increase your chances of getting hurt. World Nomads is one of a few travel insurance companies that covers extreme sports.

4. You want to be able to cancel your trip for any reason

Things come up. Maybe you didn’t apply for your passport soon enough, your pet gets sick, you have a financial emergency, you’re traveling during a global pandemic, etc. If you want the option to cancel your trip for any reason, travel insurance can help. 

I’ve said this already, but not all policies are considered “cancel for any reason” or CFAR. Most CFAR policies don’t cover 100% of your prepaid and nonrefundable travel expenses – it’s more like 50% to 75%. 

These policies are more expensive and cover less than people expect, so do your research. Most companies offer CFAR as an add-on, but they’re expensive and cover less than people expect. 

5. You might need to come home early

A friend of mine had to leave his honeymoon early because his new father-in-law landed in the hospital with a life threatening illness. It’s a good thing they came home because the father-in-law passed away a few days after they got back. Travel insurance reimbursed him for the rest of his honeymoon and their last-minute plane tickets.

All in all, travel insurance is peace of mind. You can’t control what happens, but you can reduce a lot of the financial stress associated with emergency scenarios.

 

Traveling with travel insurance

Before you leave for your trip, make sure you have your travel insurance policy printed and stored somewhere you can easily access. It should stay on you when you’re away from your hotel, cruise ship, etc.

Because I didn’t have my policy on me, someone had to go back to the cruise ship, find it, and bring it back. 

It’s also not a bad idea to send a copy of your policy plus your itinerary to someone back home. They can quickly hop on the claims process without needing to get login information or policy numbers from you.

 

What to expect when you file a travel insurance claim

I won’t lie, dealing with the claims process was extremely frustrating. My husband was super stressed waiting for us to be reimbursed for our out-of-pocket expenses. He called and emailed every couple of weeks to make sure things were still moving forward.

We had to re-submit paperwork twice, our entire claim was denied the first time (I will explain why in a minute), and it took a full seven months before our claim was paid.

What I didn’t realize is that what we went through is more common than you would expect. Travel insurance companies are very specific with how they accept paperwork and the process for filing claims. 

Here’s what you need to know about the claims process:

  • File your claim ASAP. This gets the ball rolling, you’ll be fresh on the details, and most companies require you to submit claims within a 90-day window.
  • Everything needs to be submitted electronically. You’ll have to take pictures of your receipts or scan them. Pictures need to be crystal clear (this is why I had to resubmit paperwork). 
  • Medical claims need to go to your health insurance company first. Because your health insurance might cover the expenses, you’ll need to submit it to them first. My travel insurance claim was denied at first because we didn’t have an official denial from my health insurance company.
  • Keep any document related to your travel costs or emergency expenses. Even if it seems redundant or useless, keep it. A handwritten note in broken English is why insurance covered our expensive flights home, and we almost didn’t submit it.
  • Your claim will take longer than you expect to process. It can take a minimum of three months for your claim to be processed, and this feels like forever if you’re waiting to be reimbursed for out-of-pocket costs.

I know it’s hard, but be patient. You can always email your claims agent if you have questions or want to be reassured that they’re working on your claim.

 

Should you buy travel insurance?

Moving forward, I will always be buying travel insurance when I leave the country. It’s an extra expense we’ll have to budget for and build into the total cost of our vacations. 

What I went through is pretty small, but the majority of our cash savings would have been wiped out without travel insurance. 

It was really scary being injured in a foreign country where I didn’t know the language. You can’t put a price on this, but believing that the majority of my expenses would be covered helped me get through those couple of days until I got home. Okay, painkillers really helped too.

But the point is, travel insurance is peace of mind. Buying it is a choice, but I hope you realize what a beneficial choice it can be in the long run.

Do you usually buy travel insurance? Do you have anything that you’d like me to add to this travel insurance review?

The post My True Travel Insurance Story – A Broken Leg & Surgery in the Dominican Republic appeared first on Making Sense Of Cents.

Source: makingsenseofcents.com

Two Years Without Health Insurance (and What I’m Doing Now)

Two years ago, I was unsatisfied with my options for health insurance. The premiums were rising even as the quality dropped in the form of an ever-increasing deductible. I am guessing that you might feel the same way these days – most of us Americans are in the same boat.

I felt like I was being squeezed from both ends and it was starting to piss me off. So I decided to take some action, by doing the math for myself using a spreadsheet. I needed to answer the question, “Is this insurance really as bad a deal as I think it is?”

Sure enough, the risks and rewards of the coverage did not justify the premiums, so I decided to try an experiment and simply drop out of the market and insure myself. In other words, just rolling the dice and going through life with no form of health insurance at all.

Doubling down on the bikes, barbells and salads, I did my best to eliminate any risk factors that are in my control, while accepting that there are still much less likely but more random factors that are not.

Figure 1 – DIY Health Care

Almost two years and $10,000 in premium savings later, I have found the experiment to be a success: I have slept well and not worried about the fact that I could be on the hook for a big bill if I did ever need major care. And as luck would have it, I also enjoyed the same good health as always over this time period – probably the best in my life so far because the extra healthy living has been working its magic.

But.

This situation has not been quite ideal, because my life is not a very useful model for everyone to follow. Most people don’t have the luck of perfect health, many have a larger family than I do, and very few people are in a financial position to self-insure for all possible medical bills.

Also, I found myself wishing I had a doctor that actually knew me, who I could call or visit on short notice if I ever did need help.

Finally, I wanted to switch back to having some form of insurance so that I could learn about it and write about it as time goes on. But was I really willing to be part of that unsatisfying and broken insurance model?

Then something magical happened: I learned about the new and vastly improved world of Direct Primary Care physicians.

What is DPC?

DPC is a fairly new trend in the US, but it is also a return to a very old tradition: a direct relationship between you and your doctor, with no insurance company in the way. 

As a customer, you pay for a monthly subscription (somewhere around $100), and in exchange you get unlimited access to super elite, personalized medicine for the vast majority of your medical needs. Diagnoses, prescriptions, skin conditions, stitches, even fixing a broken bone if you don’t need surgery. All covered, with no co-pay and in an environment that feels to me like Presidential-level health care, in striking contrast to some of my past experiences where I felt like an anonymous numbered ticket in a sloshing sea of bureaucratic institutional medicine.

Oh, and direct email, phone and text message contact with your doctor, prescriptions over phone or video call, and in some cases even house calls depending on the practice and the situation.

Through some sort of magic, the Direct Primary Care model offers much better medical care and much lower prices, at the same time.

How could it be? It’s because of the incentives.

Figure 2: The Insurance Model for Health Care

In our famously broken US healthcare model, an insurance company is wedged in between you and your doctors, and it has different objectives than you do.

You just want the best overall health for yourself, and when the shit does hit the fan and you need medical care, you want it to be quick, effective, and at minimum cost. And you don’t want to be hounded with years of stressful stray bills after an expensive medical procedure.

Your Doctor wants to help as many people as possible and make a good living, without having to wade through a sea of paperwork or stress or lawsuits.

Your Insurance company wants to make as much profit as possible, which means maximizing the amount they collect from you, and minimizing the amount they pay to your doctor. In theory, they benefit from helping you to stay healthy. But they have also developed elaborate contracts (putting in as many loopholes as possible to allow them to drop your coverage or deny claims), become masters of delaying payments, limiting which procedures and tests they will authorize doctors to do, and just generally throwing the biggest monkey wrench into the system that they can.

Over the decades, there has been a complex battle of lawmaking, lobbying, compromise and complexity to try to regulate away some of these problems. Sometimes the new laws help, sometimes they don’t, but the end result will never be optimal simply because there are a lot of people involved, and big crowds of humans make for slow and shitty decision making.

The Direct Primary Care Model

Figure 3: The Direct Primary Care Model

With DPC, it’s just you and your doctor. You both have the same incentives, but now the model works much better because there is no chaotic and expensive force in the middle to mess things up.

And because you operate on a subscription, the doctor gets paid whether you come into the office or not. At the same time, you are free to come in whenever you do need something, at no additional cost. So she has an incentive to keep you healthy, so that you have no need to come into the office in the first place. 

On top of this, you get to decide together what is the best course of healthy prevention and treatment, without the overhead and complexity of constantly fighting with insurance companies. This drastically cuts the costs by eliminating the large staff of paper-pushers and attorneys that you normally need to operate a medical office, and frees up the doctor to spend more time with each patient during each visit.

How could the doctor possibly make a living with such low fees?

As it turns out, a small practice with one or two doctors and a few credentialed medical assistants can handle over 1000 subscribers while still giving each person much more time than they get under the old model. At $100 per month, this is $1.2 million in annual gross subscriber income, which is enough to pay everybody well, and rent a suitable clinic space. And as you scale up the operation, some economies of scale on things like space and equipment make it even better.

Just as importantly, running a practice like this tends to make a dramatic improvement in a doctor’s quality of life. It’s better medicine, with more flexibility and less hassle and stress. No wonder this model is growing rapidly and has become a favorite of physicians who happen to be MMM readers, as I hear from more of them every month.

Direct Primary Care is now a nationwide movement, with many hundreds of practices spanning the country and many more opening each year. Today’s screenshot of https://mapper.dpcfrontier.com/ shows the current state of the market. 

Direct care locations everywhere

In fact, it turns out this whole trend might even be a Mustachian-originated phenomenon, as I joined my own local practice called Cloud Medical, met the founder Dr. David Tusek, and he revealed halfway through our introductory visit that he was both a founder of DPC pioneer Nextera Healthcare in 2009, and a lurking reader of this blog for several years before I discovered him right here in my own town. 

A note for locals: if you are considering joining Cloud, mention that you would like the MMM discount to save a further $12/month! (we have no affiliation, they are just looking to expand the practice and I’ll remove this notice if they fill up)

My experience (so far) with Cloud Medical

Cloud Medical’s Longmont office – definitely a step up over past medical office experiences! (although they do need to add a proper bike rack)

I signed up with Cloud this past summer, about five months ago. Although I have been feeling great, I figured it was time to put myself through an extensive battery of “middle-aged man” tests just to make sure I am not missing any hidden problems. 

With the doctor’s guidance, I did a very thorough blood test, plus an electrocardiogram scan of my heart performance and ultrasound Carotid artery scan which involves a practitioner lubing up your neck and sliding a Star-Trek-style probe around on it while recording images of your body’s most critical plumbing to check for signs of clogging. Plus the usual checks of an annual physical exam. All clear.

I also finally got around to a long-awaited diagnosis and prescription for my Adult Attention Deficit Disorder condition, something which took me seven years to get organized enough to achieve, paradoxically one of the crippling effects of ADD. Although this is a very personal health detail, I mention it here because there are many friends and readers who also suffer from this condition, and I encourage you to learn more about it and seek help if appropriate. It can be life-changing.  I found this process was much easier in a DPC environment, because of the more personal nature of the doctor-patient connection. 

This DPC model addresses perhaps 90% of typical medical needs in-house, and a “menu” of optional specialists knocks out another 5%. 

Cloud and other DPC practices have a “menu” of standardized prices, typically much lower than traditional offices. Full PDF here.

But there is still a chance you will need the more rare (and expensive) services of a hospital or specialist. In this case, your DPC physician can provide referrals and guidance to allow you to get the right help at a discounted, direct-pay price, or even handle your needs with a conventional insurance company.

Part Two: But What About Bigger Expenses?

Health share options, with the one I chose (Sedera) in the center.

At this point, you can add another layer of protection: High deductible conventional insurance, or a health share membership which offers a similar end-result while being careful not to be classified as insurance. 

A Disclaimer before we begin:

I think of health shares as a form of “emergency medical bill reimbursement”, rather than full fledged insurance. They are suitable for mostly-healthy people who want financial protection in the event of a major medical event. But they are not insurance, and often not too useful for someone with an existing, expensive condition.

Update 11/12: This blog post has triggered lots of fine-print-reading and discussion among readers, which led us to follow up with various insurance and health share companies.

The final word on one issue of debate: most conventional insurance and health shares do not cover voluntary abortions, while they do cover medically necessary ones, just under the different name of “Maternal Complications”.

Health shares in particular also don’t offer much ongoing drug reimbursement, which includes a lack of coverage for birth control. While I disagree with this policy, from a practical perspective it just means you need to budget for this expense separately.

For situations where a health share membership falls short, the subsidized and regulated insurance available through employer-based plans or the state exchanges via the Affordable Care Act, are probably a better bet.

But with all that in mind, I still chose one for myself, so let’s get into it!

Health sharing groups started out catering only to members of certain religions. Then a provider called Liberty Health Share opened up the market slightly while still requiring some fairly specific spiritual affirmations.

The latest incarnation is a company called Sedera* , which has addressed some of the shortcomings of earlier companies, has far less religious basis, and now seems to be the place that most of my more analytical friends and their families are ending up. Even my DPC physician Dr. Tusek is now recommending Sedera.

Sedera is worth a whole separate article in itself, and in fact I am starting a dedicated page for questions and answers and discussion on the experience. But for now, we’ll take a shortcut and just say that I was convinced and willing to give it a try, so I signed myself up as a Sedera customer.

A quick comparison of the closest standard insurance plan I could find on the standard Colorado health insurance exchange, versus what I got from Sedera (click for larger version):

For me, Sedera cuts my monthly cost in half, even while delivering better coverage.

Another thing I like about all this is that there is no concept of “in network” and “out of network” doctors or hospitals. You can even use hospitals in other countries while traveling, and get reimbursed in US dollars after you return home. It’s simpler, cheaper and more flexible.

So in the end, by combining DPC with a health share membership, I am hopefully ending up with the best of all worlds:

  • The best personalized, advanced medicine and quick response time, possibly anywhere in the world through my DPC subscription, with unlimited “free” (zero co-pay) doctor visits.
  • Flexible coverage for any additional needs and support for decision-making and billing, even when traveling internationally
  • A financial backstop just in case things get really expensive
  • At a total monthly cost that is still lower than the most basic ho-hum plan on standard insurance
  • A further bonus – Sedera incentivizes you to be a member of a DPC, with a solid discount if you are, because they know their costs to cover you will be lower if you are healthier and have hassle-free access to a doctor.

This all sounds good to me, but it is important to state that this is an experiment. I still don’t have much experience with the US healthcare system – it helped deliver my son in 2006, and then repair that same boy’s broken arm in 2016. Conventional insurance offered some halfhearted support for both of those expenses, but aside from that I don’t have many stories to tell. 

By collecting more information from readers and from my new helpers at Cloud Medical and Sedera, we should be able to make more sense of all this. And hopefully continue to expand and improve this new, better form of health care so it is accessible to more US residents.

If it gets big enough, we might end up solving this whole problem together – better, cheaper health care for everyone.

But What About the Affordable Care Act?

I think that DPC and ACA could work together perfectly – we keep the idea of the personal relationships, the subscription-based model, and the open and competitive pricing from hospitals for all procedures. But we just don’t need conventional insurance companies. If our society wants to help less-wealthy people to afford the best health care (which I think is a great idea), we could just subsidize their DPC memberships and offer a public insurance option at low or zero cost which covers hospitalizations. The reason this is better than the ACA: direct care and no insurance companies.

Conclusion

My past articles and experiences have shown that for many of us, a big hurdle when considering early retirement or self-employment is “what about health insurance”? Hopefully the is DPC + Healthshare method will put that question to rest for many of us. After all, shouldn’t our career and life choices be separate from our healthcare?

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Interested in Learning More?

A long-time friend of mine (and fellow early-retiree, and co-owner of the HQ coworking space) Bill and his family have been Sedera customers and enthusiasts for about two years. So much that he even took it upon himself to meet the company’s management, sign himself up as a representative to streamline some of the inefficiencies he perceived when joining, and then teach me about the whole thing.

Because of that, I am sharing Bill’s Sedera signup link in this article. His is unique among the Sedera affiliates in that he charges zero administrative fee, typical brokers charge $25 per month and up.

https:/sedera.community/thefireguild1

*note: Sedera does pay its affiliates a small referral fee for new customers, which does not affect your monthly bill – in fact, this link offers a lower price than subscribing directly through the company’s website. Thus, we believe this is the lowest cost way on the Internet to get this coverage.

As mentioned above, I’m giving Bill his own page to maintain on this site, where he can share his ongoing research and updates and answer questions: mrmoneymustache.com/sedera

Further Reading:

I was quite moved by this piece that Cloud Medical’s Dr. David Tusek wrote about “the ten heartbreaks” that led him to work since 2009 towards accelerating this better way to do healthcare.

An interesting story from Bill’s hometown, from a doctor who took this path way back in 2013:

South Portland Doctor Stops Accepting Insurance, Posts Prices Online
(from the Bangor Daily News)

Source: mrmoneymustache.com

What Is the Self-Employment Tax?

Working for yourself, either as a part-time side hustle or a full-time endeavor, can be very exciting and financially rewarding. But one downside to self-employment is that you're responsible for following special tax rules. Missing tax deadlines or paying the wrong amount can lead to expensive penalties.

Let's talk about what the self-employment or SE tax is and how it compares to payroll taxes for employees. You’ll learn who must pay the SE tax, how to pay it, and tips to stay compliant when you work for yourself.

What is the self-employment (SE) tax?

In addition to federal and applicable state income taxes, everyone must pay Social Security and Medicare taxes. These two social programs provide you with retirement benefits, disability benefits, survivor benefits, and Medicare health insurance benefits.

Many people don’t realize that when you’re a W-2 employee, your employer must pick up the tab for a portion of your taxes. Thanks to the Federal Insurance Contributions Act (FICA), employers are generally required to withhold Social Security and Medicare taxes from your paycheck and match the tax amounts you owe.

In other words, your employer pays half of your Social Security and Medicare taxes, and you pay the remaining half. Employees pay 100% of federal and state income taxes, which also get withheld from your wages and sent to the government.

When you have your own business, you’re typically responsible for paying the full amount of income taxes, including 100% of your Social Security and Medicare taxes.

But when you have your own business, you’re typically responsible for paying the full amount of income taxes, including 100% of your Social Security and Medicare taxes.

Who must pay the self-employment tax?

All business owners with "pass-through" income must pay the SE tax. That typically includes every business entity except C corporations (or LLCs that elect to get taxed as a corporation).

When you have a C corp or get taxed as a corporation, you work as an employee of your business. You're required to withhold all employment taxes (federal, state, Social Security, and Medicare) from your salary or wages. Other business entities allow income to pass directly to the owner(s), so it gets included in their personal tax returns.

You must pay the SE tax no matter if you call yourself a solopreneur, independent contractor, or freelancer—even if you're already receiving Social Security or Medicare benefits.

You must pay the SE tax no matter if you call yourself a solopreneur, independent contractor, or freelancer—even if you're already receiving Social Security or Medicare benefits.

How much is the self-employment tax?

For 2020, the SE tax rate is 15.3% of earnings from your business. That's a combined Social Security tax rate of 12.4 % and a Medicare tax rate of 2.9%.

For Social Security tax, you pay it on up to a maximum wage base of $137,700. You don't have to pay Social Security tax on any additional income above this threshold. However, this threshold has been increasing and is likely to continue creeping up in future years.

However, for Medicare, there is no wage base. All your income is subject to the 2.9% Medicare tax.

So, if you're self-employed with net income less than $137,700, you'd pay SE tax of 15.3% (12.4% Social Security plus 2.9% Medicare tax), plus ordinary income tax.

Remember that your future Social Security benefits get reduced if you don't claim all of your self-employment income.

What is the additional Medicare tax?

If you have a high income, you must pay an extra tax of 0.9%, known as the additional Medicare tax. This surtax went into effect in 2013 with the passage of the Affordable Care Act (ACA). It applies to wages and self-employment income over these amounts by tax filing status for 2020:

  • Single: $200,000 
  • Married filing jointly: $250,000 
  • Married filing separately: $125,000 
  • Head of household: $200,000 
  • Qualifying widow(er): $200,000

What are estimated taxes?

As I mentioned, when you’re an employee, your employer withholds money for various taxes from your paychecks and sends it to the government on your behalf. This pay-as-you-go system was created to make sure you pay all taxes owed by the end of the year.

You must make quarterly estimated tax payments if you expect to owe at least $1,000 in taxes, including the SE tax.

When you’re self-employed, you also have to keep up with taxes throughout the year. You must make quarterly estimated tax payments if you expect to owe at least $1,000 in taxes, including the SE tax.

Each payment should be one-fourth of the total you expect to owe. Estimated payments are generally due on:

  • April 15 (for the first quarter) 
  • June 15 (for the second quarter) 
  • September 15 (for the third quarter) 
  • January 15 (for the fourth quarter) of the following year

But when the due date falls on a weekend or holiday, it shifts to the next business day. Your state may also require estimated tax payments and may have different deadlines.

How to calculate estimated taxes

Figuring estimated payments can be extremely confusing when you’re self-employed because many entrepreneurs don’t have the faintest idea how much they’ll make from one week to the next, much less how much tax they can expect to pay. Nonetheless, you must make your best guesstimate.

If you earn more than you estimated, you can pay more on any remaining quarterly tax payments. If you earn less, you can reduce them or apply any overpayments to next year’s estimated payments.

If you (or your spouse, if you file taxes jointly) have a W-2 job in addition to self-employment income, you can increase your tax withholding from earnings at your job instead of making estimated payments. To do this, you or your spouse must file an updated Form W-4 with your employer.

The IRS has a Tax Withholding Estimator to help you calculate the right amount to withhold from your pay for your individual or joint taxes.

How to pay estimated taxes

To figure and pay your estimated taxes, use Form 1040-ES, Estimated Tax for Individuals, or Form 1120-W, Estimated Tax for Corporations. These forms contain blank vouchers you can use to mail in your payments, or you can submit funds electronically.

When you have a complicated situation, including having business income, one of your new best friends should be a tax accountant.

For much more information about running a small business successfully, check out my newest book, Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers. Part four, Understanding Business Taxes, covers everything you need to know to comply and stay out of trouble.

From personal experience, I can tell you that when you have a complicated situation, including having business income, one of your new best friends should be a tax accountant. Find one who listens well and seems to understand the kind of work you're doing.

A good accountant will help you calculate your estimated quarterly taxes, claim tax deductions, and save you money by helping you take advantage of every tax benefit that's allowed when you're self-employed. In Money-Smart Solopreneur, I recommend various software, online services, and apps to help you track expenses, deductions, and tax deadlines that will keep your business running smoothly.

Source: quickanddirtytips.com

Should I stay or should I go? Wrestling with the decision to quit a career

J.D.’s note: In the olden days at Get Rich Slowly, I shared reader stories every Sunday. I haven’t done that since I re-purchased the site because nobody sends them to me anymore. But earlier this year, Mike did. I love it. I hope you will too.

Earlier this year, I sent my wife a text message: “On a scale of 1 to 10, how freaked out would you be if I quit my job this afternoon?”

My wife and I had only been married a short while, but she’d known since our second date that I didn’t plan to work in my traditional job until normal retirement age. She also knew that I hadn’t been very happy at work in recent months.

We’re very compatible financially — both savers raised in working-class families that didn’t always have a lot. We make a point of having what we like to call “Fun Family Finance Day” from time to time. On Fun Family Finance Day, we do everything from competitively checking our credit scores to discussing questions that get at the root of our money mindsets to help us create our goals.

But this question wasn’t part of the plan. Not then.

And it was never on any of the lists of questions that we’d discussed with each other. It was like a pop quiz, a pothole in the smoothest relationship road I’d ever traveled…and I was the one putting it there.

Dreams Remain Dreams Without Doing

My wife and I rarely argue, but when we do it’s usually about food. It’s the kitchen and the grocery store that are our battleground. Our finances are fine. Thankfully, when you’re confident in the life you’ve created and the person you chose to build it with, it’s a lot easier to be honest about what’s on your mind.

That still doesn’t always mean you get the answer you want. Or the answer you were expecting. She responded: “Wait what. Kinda. What would you do?”

A completely reasonable and fair question. Not to mention one that I’d probably have to get comfortable answering from a lot more people.

I think my immediate reaction was: We talk about this stuff all the time, where is my, “No worries baby, YOLO!”? (I must have watched too many romcoms back before we cut cable from our lives.)

Being a grownup, it turns out, is actually really hard sometimes. I was about to learn that talking about something, and actually doing it, are a world apart.

Life is full of dreamers and doers. Sometimes those two personalities cross over. But there are plenty of people who go through life talking about so many things they’ll never have the courage to try — or the discipline and determination to follow through with.

Which person was I? The dreamer? The doer? Or that fortunate combination of both?

Standing on the Ledge

There’s a quote perched atop my bucket list of long-term goals:

“At some point, you will need to take a long look in the mirror and ask yourself not just if this is something you wanted to do at one point, but if this is something you will want to have done.”

Words are meaningless without action. It was time for me to take that long look in the mirror. I thought back to one of the questions that my wife and I had previously discussed: What does money mean to you? To me, once I grew out of the “stuff accumulation” phase of my early- to mid-20s, my answer had always been freedom. Money meant freedom. To my wife, the answer was security. Money meant security.

You can probably see how freedom can conflict with security. That was the case here. Not only that, but I was asking to change the perfect plan, one that she was comfortable with and excited about.

That’s not one, but two shots against financial security. If I’d thought more about our financial blueprints and how they differ, I might have seen this coming from a mile away!

As I was standing on that ledge, about to quit my job, thoughts started to race through my mind. What did I actually have to lose if made the leap? Lots.

  • A happy relationship and marriage.
  • A secure job with solid income, not to mention a sixteen year investment in my career.
  • Great benefits, including lots of time off, health insurance, 401(k) — even a pension.
  • The ability to afford anything at any time without any real worry. (Our finances were already on autopilot.)
  • My work friends and work prestige.
  • The general day-to-day purpose of a job.
  • The opportunity to create generational wealth. If we worked until 65, the power of compounding would likely make us ridiculously wealthy.

Today at Get Rich Slowly, let’s perform a little exercise. Come stand in my shoes for a minute, won’t you? Join me on the ledge. Do you see the beautiful view? The endless opportunity? The excitement that’s felt only at the beginning of a grand adventure, an adventure where anything is possible?

Or do you get a queasy feeling in your stomach? Do you feel like you’ve lost your balance, like you’re on the edge of some great catastrophe? Do you see a frightening fall from grace? Does it make you want to back away immediately?

Let’s go back to what it felt like to make this decision…

Sitting on the ledge

My Situation

I’m 38 years old. I’ve worked for the same company since I was 22. Corporate insurance is all I know. I’m well paid. I work from home for a solid company with good benefits, plenty of time off, and I really enjoy most of the people I work for and with.

It’s the definition of stability — a solid guardrail protecting me from what lies over the ledge. So what’s the problem?

A year ago, I took a new position that seemed like a great opportunity. Only it wasn’t. The first misstep of my career. A year in, that spot has killed my enthusiasm and engagement. For the first time at work, I’m struggling to get things done.

As an extrovert that derives meaning from helping others, this feels like a prison. My job isn’t hard because it’s stressful. It’s hard because it’s boring me to death! And what are any of us doing thinking about personal finance and early retirement if we aren’t trying to make better use of our limited time on this planet?

There’s a project looming that would require some weekend work once in a while for the foreseeable future, I’ve avoided it in the past, but my luck is running out. My team — and, more importantly, my position — need to take it on. I understand completely. I just don’t want to do it.

At this point in life, my time is way more important to me than money. The weekends and vacations are what I live for. Adventures in the mountains with my friends, quality time with my wife, our dog, and our families – that’s what makes me feel alive.

Insurance? Meh.

No little kid ever said they wanted to work for an insurance company and play with spreadsheets and Powerpoint presentations when they grow up. I wanted to be a baseball player, a sports writer, even a professional forklift driver. (Because what’s more badass than a forklift when you’re a little kid and your dad works at a marina?)

A Glimpse of the Other Side

My wife and I just got back from a delayed honeymoon to Alaska. To say it was incredible would be an understatement. Denali. Kenai. Majestic train rides. Fjords. Glaciers. Bears. Bald eagles. Whales. Hikes.

Life slowed down.

I somehow managed to read five books while doing so many other amazing things. During our more than two weeks off, I got to see what my mind was capable of when it wasn’t drowning in useless information and mundane tasks that consume my braindwidth.

We talked to people who had ended up in this wild place through a history of taking risks. Parents that had hitchhiked cross-country and ended up there back in the 70s. Can you imagine? Where we live, a fair number of people never leave their town or state!

Before the trip, I had tried to apply for a few positions. For whatever reason, it just didn’t work out. I came home from an amazing glimpse into what life could be to a job that seemed like the polar opposite. (Isn’t that every vacation though?) I’ve felt like a square peg trying to fit in a round hole for a while now. Maybe normal life just isn’t for me anymore. Maybe I need something just a little less ordinary.

Should I Stay or Should I Go?

I’ve been practicing the classic tenets of personal finance since I was in my mid- to late-20s. I found an awesome woman in my mid-30s who just happens to be down with this lifestyle as well. We’re probably two to three years short of where we want to be based on our master plan of a fully-paid house and a really comfortable number in invested assets.

We’d likely fall somewhere between Agency and Security on the stages of financial freedom.

I know good jobs don’t grow on trees, especially where we live. The seasons of the economy are always shifting and there’s a chill in the air. Economic winter can’t be too far off. My wife still has a solid job, and we live a pretty simple life — albeit in an expensive part of the country. Our main splurge is travel, but otherwise we live well below our means.

All of this knowledge and preparation comes with a cost. Having options can be a burden too, because then you’re responsible for making hard decisions. And you’re responsible for the outcomes of those choices.

What other options are there?

  • Be a crappy employee/teammate, and still get paid? Plenty of people have played that game. Get a surgery or two, go out on leave, let performance management run its course for however long that takes, and keep cashing checks the whole time. I don’t think I have it in me to put people I respect through that. It’s just not who I am.
  • I work from home, and I still can’t bring myself to abandon my laptop. What if someone needs me?
  • Am I giving up too soon? The finish line seems just around the corner — somehow so close yet so far away.
  • Should I just suck it up and sell a little more of my soul? Slump my shoulders a little bit more as I trade another piece of myself for money I don’t need to buy things I don’t want?

As I go back and forth, sometimes I briefly wish I’d never found the personal-finance community. Like Neo in The Matrix, why’d I have to take the damn red pill? Being a mindless consumer wasn’t so bad. I would have invested 6-10% in my 401(k) with a traditional pension on top of it.

Forty years on autopilot would have produced a comfortable life of work, nice things — and maybe some time in old age to relax and travel.

Facing Freedom

The whole point of everything I’ve done since I started this journey was to be in control of my own life. To not be owned by things or circumstances. To have options. Freedom of choice. F-U money.

I have the corporate battle scars and survivor’s guilt to understand why that’s important.

I’ve sat on the phone while I heard that my old department was closing down. The sadness and tears in the room. Everyone that had taken me in, given me my chance, taught me the job…basically gone, casualties of a business decision.

I’ve seen people get laid off who are petrified because they don’t know how they’ll pay their bills in a couple of weeks. People will be okay eventually though, right?

What about my friend who was struggling last year and left the company? He committed suicide a few months later. Maybe everyone won’t be okay eventually. Depression runs in my family. Am I really built for this? That thought is haunting.

It’s been said that one of the hardest decisions you’ll ever make in life is whether to walk away or try harder. Every bone in my body tells me it’s time to walk away, to bet on myself.

The End?

About six months after the text exchange that blindsided my wife, with her support, I hit send on the scariest, most exciting and important one-line email of my professional career. It would also signify the unofficial end of it: “I will be resigning from my position effective Wednesday, June 26th.”

To combine a few lines from my favorite movie, The Shawshank Redemption, some birds just weren’t meant to be caged. It’s time to get busy living, or get busy dying.

Source: getrichslowly.org

Will You Ever Be Able to Save Enough for Retirement?

retirement election year

With the stock market still in roller coaster mode and more and more companies reducing or eliminating retirement benefits, many people—from Boomers and Generation Xers to savvy Millennials—are facing the fact that they need to seize control of their retirement financial plan. And they need to do it sooner rather than later.

Boomers in particular are quickly realizing that the landscape for long-term savings has changed dramatically since they signed up for their 401(k)s in the 1970s, 1980s or 1990s.

Planning wasn’t as crucial back then, said David Krasnow, 44, President/CEO of Pension Advisors in Cleveland. ”Between pension plans, 401(k)s, and home equity, it was assumed that the continual growth of investments and home value together with Social Security would provide plenty of money when employees stopped working,” he said. With a formula that basic, professional planners didn’t need deep investment expertise to deliver solid results.

“There were few certifications or fee disclosure requirements,” Krasnow pointed out. “The same person who sold you health insurance might sell you an investment program.”

That laissez-faire approach might have worked for people who worked, uninterrupted, until 65 (not facing protracted periods of unemployment) and not as contractors and/or part-timers or small-business owners.  It worked when the stock market produced steady 8% gains per year, not tumultuous volatility. It worked when companies offered generous 401(k) matches—and stayed out of bankruptcy to actually fund pensions. And it worked when home property values were growing—or at least stable.

But it doesn’t work now, and this is why:

  • We can’t assume continual growth of investments or home equity. Nor can we count on Social Security to be solvent 30-40 years from now.  That’s the new economic normal.
  • We’re anticipating living longer, staying active longer (which influences spending and other financial considerations), and with advancing age, facing the likelihood of considerable medical-related expenses.
  • Our parents are living longer.  Boomers looking to retire may want to help fund their parents’ later years as well as their own. And, of course, there’s the question of children and grandchildren, and whether (and how much) to spend on them when you don’t have a full income.
  • Traditional pensions or other employee-sponsored retirement plans may not be sufficient sources of retirement funds.
  • Investment products are more plentiful and more complex (read: confusing) than ever.
  • Retirees often continue working long past their 60s, which affects traditional assumptions about how much savings is needed when they do stop working.

So what does all of this mean for anyone intent on building a solid retirement financial plan?

1. Recognize the Need for a Professional Adviser

“In a constantly improving market I used to be able to manage my mutual fund investments on my own,” said Peter Doris, 66, a career and nonprofit expert from Philadelphia.  “Now I need a professional’s help. It isn’t just a question of putting money aside.  It’s a question of being really smart and current about each investment, and I simply don’t have the time or the background.”

2. Do Your Homework

“There is a minimum set of skills and knowledge base you must have, even if you use a professional,” said Jim McGrath, an Executive Vice President of Law and Administration, 67, in Orland Park, Ill. “Take seminars, do online research and read up so that you have solid financial literacy,” he suggests.  “You can’t make informed decisions without fully understanding your choices, their projected outcomes and their potential risks.”

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3. Be on the Same Page With Your Significant Other

If you’re married or in a relationship, make sure both spouses/partners are in agreement about life planning, investment objectives, reasonable returns and levels of acceptable risk. “My wife and I built our business together,” said Ted Vlamis, 78, an active CEO in Wichita. “She knows the numbers, so there are no surprises. We know that the chances are good that one partner will outlive the other, and any survivor shouldn’t be blindsided by financial problems they knew nothing about … or have to face, unprepared and grieving, the host of decisions that have to be made about a business or an investment portfolio.”

4. Own It

Dr. Deborah Ewing-Wilson, 58, a neurologist in a large Ohio medical system, advises people to “give the same due diligence to their personal and financial lives that they give to their work and businesses.”  It’s time-consuming and sometimes tedious, she admits, but then again so is taking care of one’s health.  “I’m here to help educate, recommend, and advise, but I can’t take responsibility for anyone else’s behavior or decisions,” she says. “It’s the same with a financial plan.”  In other words, it’s your money, your plan, your life.

5. Start Now

“Find a professional you trust, start saving as soon as you can, and stay on top of your plan, ready to make decisions as markets–and your life—evolve,” says Rich Iafellice, 57, vice president of an engineering services firm near Akron. He suggests working with an adviser who works on a fee basis, not on a percentage of growth of your portfolio.  “That way they’re focused solely on your needs and risk tolerance, not the potential for them to make big profits off of a portfolio that might be too ambitious for your comfort.”

Two last caveats: When shopping for an investment adviser, look for the designations CFP (certified financial planner), PFS (personal financial specialist) and CFA (chartered financial analyst). Anyone with these credentials has to have completed training from an accredited body, and passed rigorous exams demonstrating their competence. Certification is only one indicator of ability, however. The real test is whether an adviser has been successful for an extended period of time and is recommended by people you trust and respect.

More Money-Saving Reads:

  • What’s a Good Credit Score?
  • How to Get Your Free Annual Credit Report
  • What’s a Bad Credit Score?
  • How Credit Impacts Your Day-to-Day Life

Image: RomoloTavani

The post Will You Ever Be Able to Save Enough for Retirement? appeared first on Credit.com.

Source: credit.com

How Does Coronavirus Affect Life Insurance?

Coronavirus hasn’t entirely ended life as we knew it, but it’s certainly caused changes, some of which are likely to be with us for a very long time.

For some the coronavirus is literally a matter of life and death, and it raises an important question: how does coronavirus affect life insurance?

No one likes to think about the possibility of losing their life, or that of a loved one to this virus, but for over 150,000 families here in the US, it has turned out to be a reality.

Let’s examine the impact it may have on your existing policies, and perhaps more importantly, how it may affect applications for new life insurance coverage.

How Does Coronavirus Affect Life Insurance You Already Have?

There’s good news if you already have a life insurance policy in place. Generally speaking, the insurance company will pay a death benefit even if you die from the coronavirus. With few exceptions, life insurance policies will pay for any cause of death once the policy is in force. There are very few exceptions to this rule, such as acts of war or terrorism. Pandemics are not a known exception.

If you’re feeling at all uncomfortable about how the coronavirus might impact your existing life insurance policies, contact the company for clarification. Alternatively, review your life insurance policy paying particular attention to the exclusions. If there’s nothing that looks like death due to a pandemic, you should be good to go.

But once the policy is in place, there are only a few reasons why the insurance company can deny a claim:

  • Non-payment of premiums – if you exceed the grace period for the payment, which is generally 30 or 31 days, your policy will lapse. But even if it does, you may still be able to apply for reinstatement. However, after a lapse, you won’t be covered until payment is made.
  • Providing false information on an application – if you fail to disclose certain health conditions that result in your death, the company can deny payment for insurance fraud. For example, if you’re a smoker, but check non-smoker on the application, payment of the death benefit can be denied if smoking is determined to be a contributing cause of death.
  • Death within the first two years the policy is in force – often referred to as the period of contestability, the insurance company can investigate the specific causes of death for any reason within the first two years. If it’s determined that death was caused by a pre-existing condition, the claim can be denied.

None of these are a serious factor when it comes to the coronavirus, unless you tested positive for the virus prior to application, and didn’t disclose it. But since the coronavirus can strike suddenly, it shouldn’t interfere with your death benefits if it occurs once your policy is already in force.

How Does Coronavirus Affect Life Insurance You’re Applying For?

This is just a guess on my part, but I think people may be giving more thought to buying life insurance now they may have at any time in the past. The coronavirus has turned out to be a real threat to both life and health, which makes it natural to consider the worst.

But whatever you do, don’t let your fear of the unknown keep you from applying for coverage. Though you may be wishing you bought a policy, or taken additional coverage, before the virus hit, now is still the very best time to apply. And that’s not a sales pitch!

No matter what’s going on in the world, the best time to apply for life insurance is always now. That’s because you’re younger and likely healthier right now than you’ll ever be again. Both conditions are major advantages when it comes to buying life insurance. If you delay applying, you’ll pay a higher premium by applying later when you’re a little bit older. But if you develop a serious health condition between now and then, not only will your premium be higher, but you may even be denied for coverage completely.

Don’t let fears of the coronavirus get in your way. If you believe you need life insurance, or more of it, apply now.

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That said, the impact of the coronavirus on new applications for life insurance is more significant than it is for existing policies.

The deaths of more than 100,000 people in the US is naturally having an effect on claims being paid by life insurance companies. While there’s been no significant across-the-board change in how most life insurance companies evaluate new applications, the situation is evolving rapidly. Exactly how that will play out going forward is anyone’s guess at the moment.

What to Expect When Applying for Life Insurance in the Age of the Coronavirus

If you’re under 60 and in good or excellent health, and not currently showing signs of the virus, the likelihood of being approved for life insurance is as good as it’s ever been. You can make an application, and not concern yourself with the virus.

That said, it may be more difficult to get life insurance if you have any conditions determined to put you at risk for the coronavirus, as determined by the Centers for Disease Control (CDC).

These include:

  • Ages 65 and older.
  • Obesity, defined as a body mass index of 40 or greater.
  • Certain health conditions, including asthma, chronic kidney disease and being treated by dialysis, lung disease, diabetes, hemoglobin disorders, immunocompromised, liver disease, and serious heart conditions.
  • People in nursing homes or long-term care facilities.

Now to be fair, each of the above conditions would require special consideration even apart from the coronavirus. But since they’re known coronavirus risk factors, the impact of each has become more important in the life insurance application process.

If any of these conditions apply to you, the best strategy is to work with insurance companies that already specialize in those categories.

There are insurance companies that take a more favorable view of people with any of the following conditions:

  • Over 65
  • Kidney disease
  • Certain lung diseases, including Asthma
  • Liver disease
  • Certain heart conditions

More Specific Application Factors

But even with insurance companies that specialize in providing coverage for people with certain health conditions, some have introduced new restrictions in light of the coronavirus.

For example, if you have a significant health condition and you’re over 65, you may find fewer companies willing to provide coverage.

The insurance company may also check your records for previous coronavirus episodes or exposures. Expect additional testing to determine if you’re currently infected. Most likely, the application process will be delayed until the condition clears, unless it has resulted in long-term complications.

Travel is another factor being closely examined. The CDC maintains an updated list of travel recommendations by country. If you’ve recently traveled to a high-risk country, or you plan to do so in the near future, you may be considered at higher risk for the coronavirus. How each insurance company handles this situation will vary. But your application may be delayed until you’ve completed a recommended quarantine period.

Other Financial Areas to Consider that May be Affected

Since the coronavirus is still very much active in the US and around the world, financial considerations are in a constant state of flux. If you’re concerned at all about the impact of the virus on other insurance types, you should contact your providers for more information.

Other insurance policies that my warrant special consideration are:

  • Employer-sponsored life insurance. There’s not much to worry about here, since these are group plans. Your acceptance is guaranteed upon employment. The policy will almost certainly pay the death benefit, even if your cause of death is related to the virus.
  • Health insurance. There’s been no media coverage of health insurance companies refusing to pay medical claims resulting from the coronavirus. But if you’re concerned, contact your health insurance company for clarification.

Action Steps to Take in the Age of the Coronavirus

Many have been gripped by fear in the face of the coronavirus, which is mostly a fear of the unknown. But the best way to overcome fear is through positive action.

I recommend the following:

1. Be proactive about your health.

Since there is a connection between poor health and the virus, commit to improving your health. Maintain a proper diet, get regular exercise, and follow the CDC coronavirus guidelines on how to protect yourself.

2. If you need life insurance, buy it now.

Don’t wait for a bout with the virus to take this step. It’s important for a number of reasons and the consequences of not having it can be severe. Compare the best life insurance companies to get started.

3. Consider no medical exam life insurance.

If you don’t have the virus, and you want to do a policy as quickly as possible, no medical exam life insurance will be a way to get coverage almost immediately.

4. Look for the lowest cost life insurance providers.

Low cost means you can buy a larger policy. With the uncertainty caused by the coronavirus, having enough life insurance is almost as important as having a policy at all. Look into cheap term life insurance to learn more about what you can afford.

5. Keep a healthy credit score.

Did you know that your credit score is a factor in setting the premium on your life insurance policy? If so, you have one more reason to maintain a healthy credit score. One of the best ways to do it is by regularly monitoring your credit and credit score. There are plenty of services available to help you monitor your credit.

6. Make paying your life insurance premiums a priority

This action step rates a special discussion. When times get tough, and money is in short supply, people often cancel or reduce their insurance coverage. That includes life insurance. But that can be a major mistake in the middle of a pandemic. The coronavirus means that maintaining your current life insurance policies must be a high priority.

The virus and the uncertainty it’s generating in the economy and the job market are making finances less stable than they’ve been in years. You’ll need to be intentional about maintaining financial buffers.

7. Start an emergency fund.

If you don’t already have one place, start building one today. If you already have one up and running, make a plan to increase it regularly.

You should also do what you can to maximize the interest you’re earning on your emergency fund. You should park your fund in a high-interest savings account, some of which are paying interest that’s more than 20 times the national bank average.

8. Get Better Control of Your Debts

In another direction, be purposeful about paying down your debt. Lower debt levels translate into lower monthly payments, and that improves your cash flow.

If you don’t have the funds to pay down your debts, there are ways you can make them more manageable.

For example, if you have high-interest credit card debt, there are balance transfer credit cards that provide a 0% introductory APR for up to 21 months. By eliminating the interest for that length of time, you’ll be able to dedicate more of each payment toward principal reduction.

Still another strategy for lowering your debts is to do a debt consolidation using a low interest personal loan. Personal loans are unsecured loans that have a fixed interest rate and monthly payment, as well as a specific loan term. You can consolidate several loans and credit cards into a single personal loan for up to $40,000, with interest rates starting as low as 5.99%.

Final Thoughts

We’ve covered a lot of ground in this article. But that’s because the coronavirus comes close to being an all-encompassing crisis. It’s been said the coronavirus is both a health crisis and an economic crisis at the same time. It requires strategies on multiple fronts, including protecting your health, your finances, and your family’s finances when you’re no longer around to provide for them.

That’s where life insurance comes into the picture. The basic process hasn’t changed much from the coronavirus, at least not up to this point. But that’s why it’s so important to apply for coverage now, before major changes are put into effect.

The post How Does Coronavirus Affect Life Insurance? appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

What Long-Term Care Insurance Covers

what does long term care insurance cover
While Medicare and Medicaid both help aging adults afford some of their medical expenses, they may not cover the cost of an extended illness or disability. That’s where long-term care insurance comes into play. Long-term care insurance helps policyholders pay for their long-term care needs such as nursing home care. We’ll explain what long-term care insurance covers and whether or not such coverage is something you or your loved ones should consider.

Long-Term Care Insurance Explained

Long-term care insurance helps individuals pay for a variety of services. Most of these services do not include medical care. Coverage may include the cost of staying in a nursing home or assisted living facility, adult day care or in-home care. This includes nursing care, physical, occupational or speech therapy and help with day to day activities.

A long-term care insurance policy pays for the cost of care due to a chronic illness, a disability, or injury. It also provides an individual with the assistance they may require as a result of the general effects of aging. Primarily, though, long-term care insurance is designed to help pay for the costs of custodial and personal care, versus strictly medical care.

When You Should Consider Long-Term Care Insurance

During the financial planning process, it’s important to consider long-term care costs. This is important if you are close to retirement age. Unfortunately, if you wait too long to purchase coverage, it may be too late. Many applicants may not qualify if they already have a chronic illness or disability.

According to the U.S. Department of Health and Human Services, an adult turning 65 has a 70% chance of needing some form of long-term care. While only one-third of retirees may never need long-term care coverage, 20% may need it for five years or longer. With a private nursing home room averaging about $7,698 per month, long-term care could end up being a huge financial burden for you and your family.

Most health insurance policies won’t cover long-term care costs. Additionally, if you’re counting on Medicare to assist you with these extra expenses, you may be out of luck. Medicare doesn’t cover long-term care or custodial care. Most nursing homes classify under the custodial care category. This classification of care includes the supervision of your daily tasks.

So, if you don’t have long-term care insurance, you’re on the hook for these expenses. However, it’s possible to get help through Medicaid for low income families. But keep in mind, you may only receive coverage after you deplete your life savings. Just know that Medicare may cover short-term nursing care or hospice care, but little of the long-term care in between.

What Does Long Term Care Insurance Cover

what does long term care insurance coverSo what does long term care insurance cover, Well, since the majority of long-term care policies are comprehensive policies, they may cover at-home care, adult day care, assisted living facilities (resident care or alternative care), and nursing home care. At home, long-term care may cover the cost of professional nursing care, occupational therapy, or rehabilitation. This may also include assistance with daily tasks, including bathing or brushing teeth.

Additionally, long-term care coverage can cover short-term hospice care for individuals who are terminally ill. The objective of hospice care is to help with pain management and provide emotional and physical support for all parties involved. Most policies allow beneficiaries to obtain care at a hospice facility, nursing home, or in the comfort of their own home. However, most hospice care is not considered long-term care and may receive coverage through Medicare.

Also, long-term care insurance can help cover the costs of respite care or temporary care. These policy extensions provide time off to those who care for an individual on a regular basis. Usually, respite care provides compensation to caregivers for 14 to 21 days a year. This care can take place at a nursing home, adult daytime care facility, or at home

What Long-Term Care Doesn’t Cover

If you have a pre-existing medical condition, you may not be eligible for long-term care during the exclusion period. The exclusion period can last for several months after your initial purchase of the policy. Also, if a family member provides in-home care, your policy may not pay them for their services.

Keep in mind, long-term care coverage won’t cover medical care costs. Many of your medical costs will fall under your coverage plan if you’re eligible for Medicare.

Long-Term Care Insurance Costs

Some of the following factors may affect the cost of your long-term care policy:

  • The age of the policyholder.
  • The maximum amount the policy will pay per year.
  • The maximum number of days the policy will pay.
  • The lifetime maximum amount that the policy will pay
  • Any additional options or benefits you choose.

If you’re in poor health or you’re currently receiving long-term care, you may not qualify for a plan. However, it’s possible to qualify for a limited amount of coverage with a higher premium rate. Some group policies don’t even require underwriting.

According to the American Association for Long-Term Care Insurance (AALTCI), a couple in their mid-50s can purchase a new long-term care policy for around $3,000 a year. The combined benefit of this plan would be roughly $770,000. Keep in mind, some policies limit your payout period. These payout limitations may be two to five years, while other policies may offer a lifetime benefit. This is an important consideration when finding the right policy.

Bottom Line

what does long term care insurance coverWhile it’s highly likely that you may need some form of long-term care, it’s wise to consider how you will pay for this additional cost as you age. While a long-term care policy is a viable option, there are alternatives you can consider.

One viable choice would be to boost your retirement savings to help compensate for long-term care costs. Ultimately, it comes down to what level of risk you’re comfortable with and how well a long-term care policy fits into your bigger financial picture.

Retirement Tips

  • If you’re unsure what long-term care might mean to your retirement plans, consider consulting a financial advisor. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • The looming costs of long-term care may have you thinking about how much money you’ll need for retirement. If you aren’t sure how much your 401(k) or Social Security will factor into the equation, SmartAsset’s retirement guide can help you sort out the details.

Photo credit: ©iStock.com/KatarzynaBialasiewicz, ©iStock.com/scyther5, ©iStock.com/PeopleImages

The post What Long-Term Care Insurance Covers appeared first on SmartAsset Blog.

Source: smartasset.com

What Health Insurance Doesn’t Cover: Your Guide

Insurance of any kind can be confusing, but when it comes to medical insurance, it’s really tricky to tell what’s covered and what isn’t. Whether you’re shopping around for a new plan or recently just got on a new health insurance plan, it’s good to know the ins and outs of your health insurance coverage before you end up with a large stack of medical bills that you can’t afford. In this article, we’ll discuss the things that medical insurance surprisingly doesn’t cover so that you can make better decisions about your medical expenses. 

What health insurance does cover

In accordance with the Affordable Care Act (ACA), the Health Insurance Marketplace must now cover a specific set of services at little or no out-of-pocket expense to you. They are also required to cover at least 10 essential health benefits. These essential health benefits (EHBs) include:

  • Ambulatory patient services
  • Emergency services
  • Hospitalization and surgery
  • Maternity and newborn healthcare
  • Mental health treatment and substance abuse disorders including counseling and psychiatric treatment
  • Pharmaceutical drugs
  • Rehabilitation services that provide care for those suffering from disabilities and injuries. 
  • Laboratory services (blood and urine testing, etc.)
  • Preventative and wellness services
  • Pediatric services

In short, a lot of the basic care that you will get on a regular basis should be covered by your health plan. Most of the time your doctor won’t suggest treatments that are not covered by your insurance. In a lot of cases, they will try to familiarize themselves with your health insurance plan so that they can lead you in the right direction. However, don’t leave the all the responsibility in the hands of your doctor. It’s important that you make time to read through your health insurance policy and look for any holes before getting services. 

What health insurance doesn’t cover

If you have a good insurance plan, most of your basic medical needs will be covered, but you might be surprised to know the services that generally are. Here is a list of services that health insurance does not cover:

  • Nursing home services: Most nursing home services are not covered by standard health insurance or even Medicare. However, nursing home care is covered by Medicaid. Many people are confused about this, because they confuse short-term care from a skilled nursing facility with long-term nursing home care. These two things are very different. For example, if you were to suffer from a fall or some other type of injury that required you to get surgery, you would need short-term care in a rehabilitative facility to help you get back on your feet. That kind of care is covered. Full-fledge nursing home care on the other hand, wouldn’t be covered because most health insurance providers place time limits on how long they will cover nursing home services. That being said, Medicare will only cover skilled nursing if the patient stayed for at least three days before staying in the skilled nursing facility. Additionally, the patient must be admitted to the facility for the purpose of seeking treatment for a short-term illness or injury as opposed to a chronic one. 
  • The shots you get before traveling abroad: At some point, health insurance companies decided that they would only cover services and procedures considered to be medically necessary, and travel vaccines didn’t make the cut. Now, we’re not talking about your standard health vaccines like the tetanus or flu shot; those are covered. But for those of you who like to travel, the cost of your Typhoid or Yellow Fever vaccine is coming out of your own pocket. This rule of thumb goes for the vast majority of health insurance policies, including Medicare.
  • Cosmetic surgery: Once again, health insurance policies will usually only cover what is “medically necessary.” It’s safe to say that Botox and lip injections will not be covered by your health insurance policy. However, there are certain surgeries that dance on the line between medically necessary and cosmetic. For example, if you wanted plastic surgery on your nose because you thought it was too big, that’s considered cosmetic. But if you had to get work done on your nose due to issues with your sinuses, then that’s probably going to be considered medically necessary. 
  • Acupuncture & alternative therapies: The rules surrounding acupuncture and other types of alternative therapies such as chiropractic care aren’t as black and white. Coverage for such services like massage therapy, acupuncture, and chiropractic care aren’t part of the requirements for most individual health care plans. However, depending on what state you live in, your health insurance plan might cover chiropractic costs. Say you are involved in a car accident that caused you to suffer from back injuries as a result. There is a good chance that your health insurance plan will cover these services. However, if you are a regular at the chiropractor just because you enjoy it, then it probably won’t be. While the standard Medicare plan does not cover acupuncture, there are some Medicare Advantage cans that can. Keep in mind that with most plans who do cover these types of services, there is usually a limit on how many visits you get. 
  • Dental, Vision & Hearing: If you are shopping around for health insurance plans with your employer, note that dental, vision and hearing services are not covered under a regular health insurance policy. If you want to get insured for these services, you will have to buy separate insurance plans for each one. Keep in mind that a lot of times, these insurance policies don’t have any limits on how much they can charge you in out-of-pocket expenses, so research different dental offices before receiving services. Some people choose to not include a dental plan at all. If you wear glasses or contacts, however, it’s probably worth looking into your options for vision insurance.
  • Weight loss surgery: If you’re considering having weight loss surgery, you might be in luck if you have Medicare or Medicaid. While there is currently not a requirement at the federal level for health insurance plans to cover bariatric surgery, Medicare and many Medicaid plans do cover it. Aside from those two plans, more than half of the states in the U.S. do require there to be at least partial coverage for bariatric survey as an essential health benefit (EHB). Remember that even if the state you live in mandates coverage for this procedure, you may still be responsible for some of the medical bills related to your weight loss surgery. 
  • Preventative screenings: Before we go any further, there are A LOT of preventative tests that are covered by your health insurance policy, but there are some that aren’t. This is where things get confusing for a lot of people. For example, mammograms, cholesterol screenings, and colonoscopies will be covered. But if you need to get Prostate Specific Antigen (PSA) screening, it most likely will not be covered.

  • Certain medications: Once again, there are a ton of prescription medications that are covered by most health insurance plans, since pharmaceutical services are one of the essential health benefits (EHBs). However, health insurers get to choose what to cover and what not to cover. Most healthcare insurance plans will choose to cover the minimum. This means that they will pick a drug from each class to cover, and not cover the rest. Many times, the generic version of the drug you are prescribed will be covered by your health insurance, while the name brand will not.

What Health Insurance Doesn’t Cover: Your Guide is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

How Much Life Insurance Do I Really Need?

Since it doesn’t have an immediate benefit – like health or auto insurance – life insurance may be the most underestimated insurance type there is. But if you die, life insurance will likely be the single most important policy type you’ve ever purchased.

And that’s why you have to get it right. Not only do you need a policy, but you need the right amount of coverage. Buying a flat amount of coverage and hoping for the best isn’t a strategy. There are specific numbers that go into determining how much life insurance you need. There are even numbers that can reduce the amount you need.

Calculate what that number is, compare it with any life insurance you currently have, and get busy buying a policy to cover the amount you don’t have. I’ll not only show you how much that is, but also where you can get the lowest cost life insurance possible.

How to Calculate How Much Life Insurance You Need

To make it easier for you to find out how much life insurance you need we’re providing the life insurance calculator below. Just input the information requested, and the calculator will do all the number crunching for you. You’ll know exactly how much coverage you’ll need, which will prepare you for the next step in the process – getting quotes from top life insurance companies.

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Now that you have an idea how much life insurance you need, the next step is to get quotes from top life insurance companies for their best life insurance products. And the best way to get the most coverage for the lowest premium is by getting quotes from several companies. Use the quote tool below from our life insurance partner to get those offers:

What to Consider when Purchasing Life Insurance

To answer the question of how much life insurance do I need, you’ll first need to break down the factors that will give you the magic number. You can use a rule of thumb, like the popularly quoted buy 10 times your annual income, but that’s little more than a rough estimate. If you use that as your guide, you may even end up paying for more coverage than you need, or worse – not have enough insurance.

Let’s take a look at the various components that will give you the right number for your policy.

Your Basic Living Expenses

If you’re not using budget software to track this number, a good strategy is to review and summarize your expenses for the past 12 months.

When you come up with that number, the next step is to multiply it by the number of years you want your life insurance policy to cover.

For example, let’s say your youngest child is five years old and you want to be able to provide for your family for at least 20 years. If the cost of your basic living expenses is $40,000 per year, you’ll need $800,000 over 20 years.

Now if your spouse is also employed, and likely to remain so after your death, you can subtract his or her contribution to your annual expenses.

If your spouse contributes $20,000 per year to your basic living expenses, you can cut the life insurance requirement in half, allowing $400,000 to cover basic living expenses.

But in considering whether or not your spouse will continue to work after your death, you’ll need to evaluate if that’s even possible. For example, if you have young, dependent children, your spouse may need to quit work and take care of them.

Alternatively, if you have a non-working spouse, there’ll be no contribution from his or her income toward basic living expenses.

In either case, your need to cover basic living expenses will go back up to $800,000.

Providing for Your Dependents

It may be tempting to assume your dependents will be provided for out of the insurance amount you determine for basic living expenses. But because children go through different life stages, there may be additional expenses.

The most obvious is providing for college education. With the average cost of in-state college tuition currently running at $9,410 per year, you may want to gross that up to $20,000 to allow for books, fees, room and board and other costs. You can estimate a four-year cost of $80,000 per child. If you have two children, you’ll need to provide $160,000 out of life insurance.

Now it may be possible that one or more of your children may qualify for a scholarship or grant, but that should never be assumed. If anything, college costs will be higher by the time your children are enrolled, and any additional funds you budget for will be quickly used up.

Life insurance is an opportunity to make sure that even if you aren’t around to provide for your children’s education, they won’t need to take on crippling student loan debts to make it happen.

But apart from college, you may also need to provide extra life insurance coverage for childcare. If your spouse does work, and is expected to continue even after your death, care for your children will be necessary.

If childcare in your area costs $12,000 per year per child, and you currently have a nine-year-old and a 10-year-old, you’ll need to cover that cost for a total of five years, assuming childcare is no longer necessary by age 12. That will include three years for your nine-year-old and two years for your 10-year-old. It will require increasing your life insurance policy by $60,000 ($12,000 X five years).

Paying Off Debt

This is the easiest number to calculate since you can just pull the balances from your credit report.

The most obvious debt you’ll want paid off is your mortgage. Since it’s probably the biggest single debt you have, getting it paid off upon your death will go a long way toward making your family’s financial life easier after you’re gone.

You may also consider paying off any car loans you or your spouse have. But you’ll only be paying off those loans that exist at the time of your death. It’s likely your spouse will need a new car loan in a few years. Use your best judgment on this one.

But an even more important loan to pay off is any student loan debt. Though federal student loans will be canceled upon your death, that’s not always true with private student loans. Unless you know for certain that your loan(s) will be canceled, it’s best to make an additional allowance to pay them off.

Credit cards are a difficult loan type to include in a life insurance policy. The reason is because of the revolving nature of credit card debt. If your death is preceded by an extended period of incapacitation your family may turn to credit cards to deal with uncovered medical expenses, income shortfalls, and even stress-related issues. An estimate may be the best you can do here.

Still another important category is business debts, if you have any. Most business debts require a personal guarantee on your part, and would be an obligation of your estate upon your death. If you have this kind of debt, you’ll want to provide for it to be paid off in your policy.

Covering Final Expenses

These are the most basic reasons to have life insurance, but in today’s high cost world, it’s probably one of the smallest components of your policy.

When we think of final expenses, funeral costs quickly come to mind. An average funeral can cost anywhere from $5,000 to $10,000, depending on individual preferences.

But funeral costs are hardly the only costs associated with total final expenses.

We’ve already mentioned uncovered medical costs. If you’re not going to include a provision for these elsewhere in your policy considerations, you’ll need to make a general estimate here. At a minimum, you should assume the full amount of the out-of-pocket costs on your health insurance plan.

But that’s just the starting point. There may be thousands of dollars in uncovered costs, due to special care that may be required if your death is preceded by an extended illness.

A ballpark estimate may be the best you can do.

Possible Reductions in the Amount of Life Insurance You Need

What’s that? Reductions in the amount of life insurance I need? It’s not as out-in-orbit as you may think – even though any life insurance agent worth his or her salt will do their best to ignore this entirely. But if you’re purchasing your own life insurance, you can and should take these into consideration. It’s one of the ways you can avoid buying more life insurance than you actually need.

What are some examples of possible reductions?

Current financial assets.

Let’s say you calculate you’ll need a life insurance policy for $1 million. But you currently have $300,000 in financial assets. Since those assets will be available to help provide for your family, you can deduct them from the amount of life insurance you’ll need.

Your spouse’s income.

We’ve already covered this in calculating your basic living expenses. But if you haven’t, you should still factor it into the equation, at least if your spouse is likely to continue working.

If you need a $1 million life insurance policy, but your spouse will contribute $25,000 per year (for 20 years) toward your basic living expenses, you’ll be able to cut your life insurance need in half.

But be careful here! Your spouse may need to either reduce his or her work schedule, or even quit entirely. Either outcome is a possibility for reasons you might not be able to imagine right now.

What About a Work Related Life Insurance Policy?

While it may be tempting to deduct the anticipated proceeds from a job-related life insurance policy from your personal policy, I urge extreme caution here.

The basic problem is employment related life insurance is not permanent life insurance. Between now and the time of your death, you could change jobs to one that offers a much smaller policy. You might even move into a new occupation that doesn’t provide life insurance at all.

There’s also the possibility your coverage may be terminated because of factors leading up to your death. For example, if you contract a terminal illness you may be forced to leave your job months or even years before your death. If so, you may lose your employer policy with your departure.

My advice is to consider a work policy as a bonus. If it’s there at the time of your death, great – your loved ones will have additional financial resources. But if it isn’t, you’ll be fully prepared with a right-sized private policy.

Example: Your Life Insurance Requirements

Let’s bring all these variables together and work an example that incorporates each factor.

Life insurance needs:

  • Basic living expenses – $40,000 per year for 20 years – $800,000
  • College education – $80,000 X 2 children – $160,000
  • Childcare – for two children for 5 years at $12,000 per year – $60,000
  • Payoff debt – mortgage ($250,000), student loans ($40,000), credit cards ($10,000) – $300,000
  • Final expenses – using a ballpark estimate – $30,000
  • Total gross insurance need – $1,350,000

Reductions in anticipated life insurance needs:

  • Current financial assets – $300,000
  • Spouse’s contribution toward living expenses – $20,000 per year for 20 years – $400,000
  • Total life insurance reductions – $700,000

Based on the above totals, by subtracting $700,000 in life insurance reductions from the gross insurance need of $1,350,000, leaves you with $650,000. At that amount, your family should be adequately provided for upon your death, and the amount you should consider for your life insurance policy.

Once again, if you have life insurance at work, think of it as a bonus only.

The Bottom Line

Once you know how much life insurance you need, it’s time to purchase a policy. Now is the best time to do that. Life insurance becomes more expensive as you get older, and if you develop a serious health condition, it may even be impossible to get. That’s why I have to emphasize that you act now.

Crunch the numbers to find out how much life insurance you need, then get quotes using the quote tool above. The sooner you do, the less expensive your policy will be.

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Source: goodfinancialcents.com