Capital One Says It Can Show Up at Cardholders’ Homes, Workplaces
“What’s in your wallet? No, really. Show us what’s in your wallet.”
6 Reasons Your Tax Return Might Get Audited
Should You Self Insure Against Long-Term Care Risk Or Buy Insurance?
Hedging your bets.
5 Tips for Renting a Home With Bad Credit
Bad credit doesn’t have to leave you out in the cold.
Track How Happy You Are with Your Purchases in Your Ledger
Analyzing your purchase satisfaction can save you money.
Dear Liz: Recently I’ve paid off almost $20,000 in credit card debt and am determined not to go down that path again. Because I haven’t used these cards in a while, though, I’m starting to get notifications from the credit card companies that they’re closing my accounts because of inactivity. I know having long-standing accounts on your credit report is a good thing, but I don’t want to be tempted to use these cards just to keep the account open. Is it a bad thing if almost all of my credit card accounts get closed?
Answer: Your good histories with these cards should remain on your credit reports for years. But if you stop using credit entirely, eventually your credit reports won’t generate credit scores. That could cause you problems if you later want to borrow money (say, to buy a home) and could even affect your insurance premiums, since insurers use credit information as well.
It’s not too hard to keep accounts active without slipping into debt again. Simply set up a bill to be charged automatically to each account, then set up automatic payments with the credit card issuer so the full balance is taken out of your checking account each month.
Today’s top story: Three dumb things you’re doing with your credit cards. Also in the news: Learning about the most common tax credits, details on the newest way to save towards retirement, and tips on how to spend your tax refund.
3 Stupid Things You Do With Your Credit Card
Stop doing that, would you?
Tax credits for all
A primer on the most common tax credits.
What’s All the Fuss About myRA Accounts?
A look at the newest way to save towards retirement.
Smart Tips for Your Tax Refund
How to get the most from your refund.
When to Tell Your Sweetheart About Your Money Problems
The best time to have The Talk.
So I was pretty psyched to hear a Certified Financial Planner talk about less common ways that advisors can save their clients money. CFP Mark Maurer is president and CEO of Low Load Insurance Services, which caters to fee-only planners. Maurer recently conducted a webinar that covered ways to save money on the big-ticket policies: life, disability and long-term care insurance.
What I learned:
Beware of riders. Two commonly-pushed riders are “waiver of premium” and “return of premium.” Maurer calls these the “undercoating” of the insurance business; in other words, they’re pricey add-ons that may not have the value you’re told.
Premium waivers allow you to stop paying your premiums if you’re disabled, but you typically have to be totally disabled to qualify (unable to work in any occupation, vs. your own occupation, for example). Some policies have the same definition of disability as Social Security, which is notoriously tough to qualify for.
If you’re really concerned about not being able to pay your premiums, then the solution may be disability insurance, Maurer said. Each dollar you’d spend on a DI policy would likely buy you far more insurance than what you’d get from a waiver of premium rider.
Return of premium also sounds good—the idea being that if you don’t use your long-term care policy, your heirs will get back the money you’ve paid in. These riders come with restrictions, too. Typically you have to own your policy at least 10 years and not have made a claim within those 10 years. Any claims thereafter would be deducted from your heir’s payout.
Again, Maurer suggests asking, “What are you really after?” In this case, it’s money for heirs. Buying a permanent life insurance policy likely will offer a better and more certain payout compared to an ROP rider, he said.
Apply the 80/20 rule to long term care insurance. If you’ve ever had a loved one in a nursing home, you know how shockingly expensive custodial care can be. Those who buy long term care insurance often opt for the daily payout amount that will cover either a private or a semi-private room in their area.
Maurer points out, though, that nursing home costs include expenses the patients would be incurring whether or not they were there—expenses like meals and laundry, for example, that typically account for 20% of the total.
So, one way to reduce premiums is to insure for 80% of the costs. Instead of the $255 a day that the average Florida nursing home costs, he suggests, shoot for something like $200 a day…which typically lowers your premium by, guess what, 20%.
Lifetime benefits on disability insurance aren’t a slam dunk. If you have to be disabled, wouldn’t you rather get checks for life rather than having them stop at age 65, when most DI policies cut off?
Well, of course! But like the riders mentioned above, adding lifetime benefits may not give you all the coverage you think you’re getting.
A typical policy will continue 100% of your benefit only if you’re disabled by age 45 and continue to be disabled until age 65, Maurer said. Those disabled after 45 get a smaller benefit, based on a sliding scale that gives you less the older you are when you become disabled. Someone who’s disabled at 58, for example, might get only 35% of his monthly benefit after age 65.
Is that worth premiums that might be 33% higher? Only you can answer that question, but Maurer, who has two disability policies, has decided against adding lifetime benefits to either.
“I didn’t think it was worth the additional premium,” he said.
Today’s top story: Getting the biggest tax write-offs for your home office. Also in the news: What you should ask a potential financial advisor, the cold realities of identity theft, and smarter ways to give to charity.
Get The Biggest Tax Write-Off For Your Home Office
There are new tax rules this year for those who work at home.
10 Questions to Ask a Financial Advisor
What you need to know about your potential advisor.
Can You Do Anything to Prevent Identity Theft?
You can’t stop identity theft. You can only hope to contain it.
Smarter Ways to Give to Charity
Creating a charitable giving plan can help you avoid the end-of-the-year rush.
How To File Your Child’s First Income Tax Return
A financial rite of passage.
The earnings gap between young people with and without college degrees is the widest in half a century. Recent college graduates are more likely to be employed full time and far less likely to be unemployed than high school grads.
And all that debt college grads had to incur? The vast majority of college grads aged 25 to 32–72 percent–say their education has already paid off. Another 17 percent believe it will in the future.
Those are just a few of the fascinating statistics from the latest Pew Research survey, aptly titled “The Rising Cost of Not Going to College.” Read, learn, and use the statistics to combat those who say a college education isn’t a good value.
One of the big complaints about private student loans is how hard it’s been to consolidate or refinance these often high-rate, variable loans. Many big lenders fled this market and those that still offered the loans weren’t much interested in reducing rates for borrowers.
That’s starting to change as smaller lenders see the opportunities to cherry pick the most credit-worthy borrowers and offer them better rates. A new entrant into the market, RBS Citizens, is even offering fixed-rate refinancing. (RBS operates as Citizens Bank in the northeast and Charter One elsewhere.) For more, read “Student loan borrowers get relief from small lenders.”
Meanwhile, the financial aid season is in full swing as families submit their FAFSA forms and hope for the best. My column “How asking for aid could hurt your college chances” warns that most schools aren’t truly need blind, which is why you need a strategy for getting admitted.
Since most families need some help in cutting college costs, going without financial aid isn’t a smart option. In “Seven ways to help your child get more money for college,” I review the best ways to lower your expected family contribution. “Four financial aid strategies that can backfire” covers the strategies that won’t work.
In addition to those four, here are two other approaches doomed to fail:
Making kids “independent.” A father with a hefty income said that he didn’t plan to help any of his kids pay for college. He rationalized that without his support they could be considered “independent” for financial aid purposes and get help based on their own meager income and assets.
Sorry, Dad, but colleges closed that loophole decades ago. The Higher Education Amendments of 1992 tightened the definition of who qualified as independent for federal financial aid purposes to people who are:
- 24 years of age or older
- orphans or wards of the court and those who were wards of the court until age 18
- veterans of the U.S. armed forces
- graduate or professional students
- parents or who have legal dependents other than a spouse
- students for whom a financial aid administrator makes a documented determination of independence by reason of other unusual circumstances.
A parent who simply refuses to help isn’t typically considered one of those “unusual circumstances.” Financial aid will be based on his resources, which can effectively cut off grants, scholarships and loans for the children he won’t help.
Faking in-state residency. College consultant Lynn O’Shaughnessy of San Diego heard from a family who thought they would only have to pay out-of-state tuition rates for their daughter for the first year, believing that after spending her freshman year at the school she would qualify for in-state tuition.
States vary considerably in defining residency but typically require that at least one parent be a state resident for a full year before the student starts college. If the parents are divorced, residency is based on where the custodial parent lives. FinAid.org has a list of state residency requirements on its site.