Why You Need It

Services like a nursing home, an assisted living facility, a continuing care retirement community, or adult day services are a few examples of services not covered by your Medicare, MediGap, or health insurance. These services can cost up to $130,000 per year based on the level of services desired and where you live. Having a long-term care insurance policy will provide you with care options that would otherwise be unavailable or too expensive for your financial situation.

How It Works

Unlike long-term disability insurance that replaces your income based on your ability to work, long-term care insurance is there to pay for the costs of services not covered by the types of insurance mentioned above and is based on your ability to perform various daily functions. When you price a policy there are options for the daily benefit payment amount and the number of years you will receive that payment. An example of the cost and benefit is a 50-year-old person living in Florida would pay $155.88 per month for a policy that would pay $300.00 per day for 5 years. That is $1,870 per year in payments for the ability to receive $109,500 a year in benefits.

When to Buy?

Since the chances of needing long-term care insurance increase with age, the decision of exactly when to purchase is debatable. Generally it is agreed that purchasing coverage before age 50 is not a good financial choice. This is because the earlier you purchase an insurance policy, the more investment returns you will lose out on – however, the longer you wait – the greater the risk you will experience a long-term condition and not be eligible to purchase coverage. For me, based on the statistics I have reviewed, I will be purchasing a policy by the time I turn 60 years old. Additionally since most wives out live their husbands, a long-term care insurance policy will help protect our budget and retirement savings if I end up needing long-term care services.

Other Possible Coverage

Before you go out and purchase long-term care insurance, check to see if you already have access to coverage through one of the following:

• For U.S. Veterans – check with the Department of Veteran Affairs to see if you are eligible for long-term care services.
• Older Americans Act
• Specific State programs for coverage

Have you thought about when you will be purchasing your long-term coverage?

Why You Need It

The chances of experiencing a disability that lasts at least six months, before you reach retirement age, is 3 in 10. While a 3 in 10, or 30%, chance may sound low, consider this:

• 3 in 1,000 (.003%) – The chances that your home & contents will be damaged by fire this year.
• 1 in 4 (25%) – The chances you will be involved in an auto accident in your lifetime.
• 3 in 10 (30%) – The chances you will be disabled for at least 6 months during your working years.
• 7 in 10 (70%) – The number of survey respondents that indicated they could not cover normal living expenses for more than 6 months if they experienced a disability.

How To Get It

A long-term disability insurance policy (long-term income protection) can be purchased as an individual or through your employer, if offered. If you choose to purchase through your employer, make sure that the policy is “portable”. The portable option means that you can take the policy with you an individual if you leave your employer.

How It Works

After you purchase a long-term disability policy and experience a covered illness or injury, you will complete and submit a claim form to your insurance provider. The insurance provider will review the information you provided and approve or deny the claim. Once approved, you will begin the elimination period (a waiting period before payments can begin) of between 90 and 180 days. After the elimination period you will begin receiving payments, as agreed in your policy, for as few as 5 years or as long as until you reach age 65, again based on your policy.

How Much Does It Cost?

This type of insurance can often be purchased for less than $1,000 per year for a policy that would provide you $3,400 per month until age 65 after an elimination period of 180 days.

Other Considerations

When you decide to price and purchase a policy be sure you understand the following terms/options that may be in your policy:

• Non-Cancelable
• Own Occupation
• Guaranteed Renewable
• Future Purchase Option
• Cost-of-Living Adjustment

Last, if you are depending on the US Social Security Administration Disability for your long-term income protection be aware that according to the 2010 data, 35% of the applications were approved. That means that 65% of cases were denied. Further, of those approved, the average payment was $1,110.50 per month. 

Are you part of the 50% who have a financial plan in case of a disability?

Photo by: Senior Living.org

I knew I needed to evaluate my personal financial plan once my wife and I decided we were going to start having children. One part of that plan was to make sure our family would be taken care of, financially, if I died before we built up a college fund for our children, had a paid for house, and had enough savings built up so that my wife could raise our children if I was no longer around to provide an income.

My Reasons For Buying Life Insurance:

1. To financially provide for my family.
2. I do not have sufficient savings to replace my income.

Other Reasons To Buy Life Insurance:

1. Provide money to buy a house or pay off a mortgage
2. Provide money to pay off debt
3. Provide for burial costs
4. Provide a college fund

 Who Needs Life Insurance?

At a minimum, anyone who has someone who financially depends on them needs to have life insurance.

How Much Life Insurance?

While there is no agreed upon standard amount of coverage to buy, a typical rule of thumb is between 2 to 10 times your annual income. I chose 10 times my annual income so that once college funds are established and a house was purchased, my wife and family could live off of the interest earned from the invested life insurance proceeds. I have been able to purchase this amount of Term Life Insurance for about the same as my family’s monthly cell phone bill.

 When To Buy Life Insurance?

The cost of life insurance is based on your risk profile. Some factors the insurance company will consider how long you want the policy to be effective, the amount of coverage, your age, and your health. Typically, the younger and healthier you are , the lower your premium will be. Even if you are not in ideal health, you should be able to get affordable coverage. I waited until I was in my mid-thirties to purchase coverage, after having cancer, and I can still afford the coverage.

How Long Of A Policy To Buy?

I plan to have life insurance in place until the savings in our accounts is enough to provide for my family’s financial needs. Once the goal of self-insuring has been accomplished, I will cancel the policy. I currently have a 30 year level term life insurance policy in place.

Other Considerations:

Be sure you shop around – I used to think the coverage that was provided by my employer was sufficient, that is until they decided to cut it from two times my annual salary to $25,000. So, since I needed to do something, I looked at purchasing additional life insurance through my employer and requested quotes from an independent insurance agent – the independent agent was actually less expensive than what I could get through my employer.

Be prepared to wait – Between the questionnaires, physical, and additional documents needed, it may take 60 days or more to get a new policy in place. If you are currently covered through your employer don’t wait until the last-minute to compare policies, do your shopping well in advance of your open enrollment period so you can choose the best deal for you.

Be aware of other insurance - Some memberships, like banks and credit unions, will provide a small amount of life insurance coverage if you die so be sure those amounts into consideration when you are calculating how much insurance you will need to purchase. Also, for those in the USA, you may want to consider your available Survivor benefits provided through the Social Security Administration.

Additional information: Why Do I Need Life Insurance? 

Be sure to follow the Twitter hashtag #LifeAware for additional blogs on life insurance.

How To Protect You Income

A short-term disability insurance policy will pay you a portion (50%-70%) of your gross pay (generally tax-free) if you are unable to work due to an illness or injury, for a predefined period of time. This type of insurance, if available, is especially helpful for women who are planning to have a family since a pregnancy is usually covered. These policies can be purchased by an individual or through a group policy provided by your employer.

How It Works

After you purchase a short-term disability policy and experience a covered illness or injury, you will complete and submit a claim form to your insurance provider. The insurance provider will review the information you provided and approve or deny the claim. Once approved, you will begin the elimination period (a waiting period before payments can begin) of between 0 and 14 days. After the elimination period you will begin receiving payments, as agreed in your policy, for generally no more than 2 years, again based on your policy.

Why You Need It

Everyone needs a plan to pay your monthly expenses in case you are out of work due to an illness or injury. The chance of experiencing a disability before retirement age is 3 in 10. This may not seem like a high chance but if you and nine of your friends were together in a room, three of them may experience some type of disability before reaching retirement age. Additionally, if having a child is in your future, a short-term disability policy can help reduce the disruption of missing work due to the pregnancy and birth of your child.

Why You May Not Need It

While having a short-term disability policy is one way to plan for lost income due to an injury or illness, there are other options.

• One alternative is to self-insure by building up 3 – 6 months of expenses in your S.A.F.E.
• Another alternative is to use your sick leave offered by your employer. If you choose this alternative you would need to have between 500 to 1,000 hours of leave available in order to take 3 – 6 months off for your recovery.
• The last alternative, and the one I used, is to use your employer’s sick leave pool. This is generally offered by large employers where you join by submitting a certain number of hours and then can use up to a certain amount of time over a specified period of time. In my case I joined by submitting 8 hours of sick leave to the pool, I was then authorized to use up to 480 hours per year for qualifying injuries or illnesses once I depleted all of my other leave balances.

As with any insurance policy, the terms and conditions of each policy vary greatly so be sure to shop around before you buy a policy or choose an alternative to disability insurance.

There are a few ways you can plan for lost wages due to an illness or injury. Are you prepared?

Photo by: Senior Living.org

What is an MRA and How Does It Work?

If an MRA is offered by your employer, you can elect to enroll in the MRA during your new hire eligibility period or during the annual open enrollment period. First you will need to estimate how much you expect to spend in eligible health care expenses for the upcoming year and then elect that amount for your MRA. You can use an MRA for numerous items such as co-pays at the emergency room, urgent care center, dentist, your doctor, etc … There are limitations so be sure to review the information provided by your employer. Once you decide on an annual amount, that amount you elected will them be deducted equally from each paycheck, before taxes, and set in a separate account for use during the year for eligible health care expenses.

Important Note: If you do not use all of the money in your MRA by the end of the IRS grace period, your money will be forfeited.

Why Use a MRA?

A big benefit of an MRA is that the total amount you elect is available on the first day on your health plan year. Many employers operate on a calendar plan year, so that is often January 1. For me, this was really helpful when I began experiencing major tooth pain earlier this year. I needed urgent dental care that wound up costing $1,500! I had elected to put $2,000 in my MRA this year which was about $83 per bi-weekly paycheck. So even though when my tooth ache happened I only had contributed less than $500, I was able to pay the entire $1,500 with my MRA. Essentially this was an interest free loan from myself since I have continued to have the $83 deducted bi-weekly from my paycheck. Of course, spending an unexpected $1,500 on dental work forced my family to cut back on some of the non-essential health care costs we had planned.

One last benefit I want to share with you is that the MRA is deducted from your paycheck  before taxes are calculated. This means you will be able to pay for medical expenses with money that is not taxed, making your dollar go further and reducing your tax bill. This is how my family will save over $400 this year on our health care costs. Your situation will vary based on your income, marital status, and state taxes.

MRA Example*

*Consult your tax adviser for advice specific to your situation.

To make a similar calculation for your exact situation, Aetna has a useful MRA calculator.

Remember, if you are going to spend money on health care expenses – make sure you elect to participate in your employer’s Medical Reimbursement Account. My family will save over $400 this year just by electing this option.

Do you have a question or comment about Medical Reimbursement Accounts?

Photo by Flickr User: Tax Credits

My Ride

To assist with accomplishing my goal, I used the SMART method. SMART stands for Specific, Measurable, Attainable, Relevant, and Time-Bound. I used this method with my 50 mile bike ride. My goal was to ride 50 miles by August 1. Here is how I applied the SMART system to my goal:

Specific – Yep, I want to ride my bike for a few hours.
Measurable – I can measure the distance traveled and the date completed.
Attainable – While it was a challenge, I thought it was attainable.
Relevant – This mattered to me, so yes it was relevant.
Time-Bound – There was a target date.

With a deadline to accomplish my goal, I needed to train. I rode more than I ever had previously, ate better food, and consumed many gallons of water. And yes, I did achieve my goal, two days before my target of August 1.

Whether your goal is fitness, personal, or financial, using the SMART method to define your goals will help you succeed in reaching them. If you are missing any of the SMART components – you are likely setting yourself up to miss your goal. Here are two examples of weak financial goals and how to improve them.

Weak SMART goal:

• I’ll save money when there is money left over at the end of the month.
• I’ll make a budget next month.

Improved SMART goal:

• I’ll move $200 into my savings account on payday.
• I’ll make my budget for next month, the last week of this month.

Is there a financial goal you really want to accomplish?
Have you set a SMART financial goal?
Do you have a financial plan?

I immediately knew another important, but related, money-saving tip: You must have a GOAL! As Zig Ziglar said , “If you aim at nothing, you will hit it every time.”

Each day we are faced with many immediate goals. These come in many forms including hunger, tiredness, money, and health.

• To satisfy the goal of not being hungry, you eat.
• To satisfy the goal of not being tired, you get sleep
• To satisfy the goal of getting paid, you go to work.
• To satisfy the goal of being healthy, you eat healthy and exercise.

Most of these goals are decided for you without you taking any action. However, the further we are removed from survival, the more goals we must develop on our own. 

What vs. Why

When it comes to finances, too often we know what to do, when what is really needed is a motivating reason for why to do it. Knowing what to do is not enough – you need a goal. A goal will be there to remind you why you are choosing to spend less than you earn. Your goal may be to retire, buy a car, buy a home, or to increase your S.A.F.E.  Regardless of what your goal is, you must have a goal so you have a reason not to buy the iWhatever, the cruise “everyone” is going on, or that “trip of a lifetime.”

Your Decision

You will either choose to make a goal or not. If you choose a goal, you will either reach it or not. Life is full of choices that will result in either a desired goal or an undesired goal – either way your choices will determine if you reach your goal. Yes, there will be obstacles in your path, but how you respond to those obstacles will determine whether you reach you goal or not.

Remember, “… we will also be truly effective only when we begin with the end in mind.” ~Stephen R. Covey

What is your decision? What is you financial goal?

Photo by Flickr User: jaycoxfilm

1. $234,900 To Raise A Child?  by Trey (me) at One Solution For Me
   • As the father of a 10 month old daughter & with baby #2 expected to arrive this February, a recent article headline about the cost to raise a child caught my attention.
2. The Single Most Important Money Saving Tip  by PT Money
   • Yet for all the great tips and tricks I discover, there is still a single personal finance strategy that I apply to nearly every decision that I make: …
3. Survival Techniques for the Barely Insured  by Fox Business
   • If you’re anything like me, you’re barely insured. I don’t work for a company that offers benefits and so I’ve had to shop for individual insurance. Setting aside what a headache that was, I’ve ended up with catastrophic insurance.

Is there an article you liked this week that didn’t make the list? Add your favorite below.

Have a great weekend!

The article was a summary of a report by the U.S. Department of Agriculture, Center for Nutrition Policy and Promotion, Expenditures on Children by Families – 2011. The report stated that a middle-income family ($59K – $103K) raising a child through age 17 would spend $234,900!

WHAT? Over a quarter of a million dollars  before college!

Having a child (soon to be children), numerous nieces and nephews, and friends with children – I wanted to know the details behind this amount. Being a details type of person, I went to the actual 30+ page report to see the assumptions.

What I learned reading over the report is that the report was divided into six categories. The categories, percent of total, and dollar amounts are:

• Housing – 30% = $70,560
• Food – 16% = $37,620
• Transportation – 14% = $33,900
• Clothing – 6% = 13,500
• Healthcare – 8% = $18,990
• Childcare & Education – 18% = $41,100
• Miscellaneous – 8% = $19,230

Details

In the details of the report it clarifies that the following costs are specifically excluded from the above amounts: any college costs, any contributions by people outside the household, and any government assistance.  I’m glad they clarified that because I was sure those had to be in there.

My Take

Since I am a new parent, I don’t have any real evidence to disagree with the report – but I still disagree in some areas. I will give you my perspective on the six areas.

Housing – Disagree. When my wife and I were single, we each were renting a three bedroom apartment. When we got married, we moved into a three bedroom house. For us, our housing has not changed and was not influenced by children and it will not be until we have more than four or five children. So for my calculations I will not associate the $70,560 with raising a child.

Food – Undecided. By dividing the total, $37,260 by 18 years and again by 12 months – I get approximately $174 per month as the average cost to feed my daughter. I do know that since my daughter has been almost exclusively breast-fed for her first year that we have saved about $2,100 alone in her first year of food expenses. I don’t expect that we will come close to food costs of $174 per month for her for quite a few years.

Transportation - Disagree. Using the method previously described the report calculated the monthly transportation cost of $157. Since my wife came into the marriage with a paid for car and would have a vehicle regardless of if we had a child or not – there is no cost to associate with raising a child. Additionally I traded-down out of my large SUV into a used vehicle before we were married and did so before a child came along – nothing to add here.

Clothing - Agree. This comes out to an average of $63 per month or $750 per year. I think this is a little high but I can see how this may average out over time, especially as she grows rapidly.

Healthcare - Disagree. This comes out to about $88 a month or $1,055 per year. My healthcare is a family plan regardless of how many dependents I have and since I had my wife on my health insurance plan – there is no additional monthly cost. There are annual check-ups, physicals, etc… but those will likely add up to much less than $1,055 annually.

Childcare & Education - Disagree. This comes out to an average of $190 per month or $2,283 per year. In this case my wife has decided to stay at home so the childcare has been minimal the first year. We also plan to home school – so as time goes by our cost of school curriculum may drive this cost up closer to the average but I still think it will be lower than the reported amount.

Miscellaneous - Agree. This comes out to $89 per month or $1,068 per year. Since this category includes personal care, entertainment, and reading materials this category may actually be too low.

I plan to track as much of this as possible over the next few years and will provide updates periodically on our actual costs to raise a child.

What is your take on the report? Do the numbers accurately reflect your family’s costs?