Q&A: How to find out if a car has flood damage

Dear Liz: You’ve been writing recently about how to find a good, cheap used car. Can you write about how to research whether a car has been damaged in a flood?

Answer: Carfax, which provides vehicle history reports, offers a free flood check in the “resources” section of the site’s press center.

Flood-damaged cars that have been totaled by insurance companies are typically sent to auto recyclers for dismantling but some wind up back on the market. These cars are supposed to have salvage titles that make clear their dubious histories, but it’s relatively easy for unscrupulous sellers to register the car in a different, more lenient state that obscures its past. This is known as “title washing.”

Carfax’s service can help you spot the damaged cars, as can your own senses. A car that smells like mold or strong cleaning solution (to cover up the mold) is a bad sign. Carpeting or upholstery that’s obviously newer than the car can indicate it’s been replaced after flood damage. Look in the glove box and under the seats for mud or silt. A sagging headliner on a newer car is another red flag.

A good mechanic can help you spot problems if you’re not sure. If the seller won’t let you take the car to your own mechanic for inspection, don’t buy it.

Q&A: The woes of this car-less worker can’t be fixed with junkers or leasing schemes

Dear Liz: My spouse and I are in Chapter 13 repayment bankruptcy and have a few more years to go. We’re obviously on a tight budget.

My spouse has the reliable car, but I’ve already paid $1,500 cash each for two junkers and it’s caused major stress. I know we can petition the court and be allowed to get financing, but we do not want to and can’t afford to on our budget.

I am, however, up for an evaluation and raise soon at the small, private company where I work.

I am thinking of asking that instead of a raise, they lease a vehicle for me. I do travel sometimes for business so it could be legitimized in that sense. If they leased a vehicle for, say, $200 a month, that would be close to the raise I’m expecting.

The real question is how to handle insurance and liability. Is it possible for my company to lease a vehicle but have the insurance liability fall on me, meaning would I be able to insure it under my own policy though the lease would be through the company?

Answer: Probably not.

A personal auto policy might not even cover your own car if it were used primarily for business. Personal policies typically wouldn’t cover a car owned or leased by your employer.

Also, businesses usually need more liability coverage than most individuals carry, since companies can be bigger lawsuit targets. You can ask for a leased car in lieu of a raise, but expect the cost of the insurance to be part of the calculation and be prepared for the company to decline.

It’s unfortunate you bought two junkers in a row, because the amount you ultimately spent could have bought you one decent car.

Car comparison site Edmunds has advice for finding reliable vehicles for $2,500, which it says is a reasonable budget for buying a solid car.

The vehicles are likely to be 10 to 15 years old and may have over 150,000 miles on the odometer, but if they’ve been well-maintained they can be reliable rides for several more years.

You’re likely to get the best deal via a private party sale, and you’ll want a good mechanic to check out any car before you buy. Your mechanic may even have a lead or two on cars that could be good candidates.

Your raise may allow you to revisit the idea of financing a car, albeit at a high interest rate.

As you know, you won’t be able to buy anything extravagant, and the purchase will have to be approved by both your trustee and the court. If the car is a necessity for you to get to work and you’ve been in your repayment plan at least two years, you have a good chance of being allowed to finance it.

If the car is not a necessity, you may have other options.

If you live in a city, a transit pass may get you to most of the places you need to go and you can rent a car or use a ride-sharing service when you need more custom transportation. Many people have discovered that cars are a costly hassle, and they live just fine without them.

Q&A: Getting cash to pay medical bills

Dear Liz: I am 63 and retired from my full-time job last year since I have bad health. I work part time now and have tons of medical bills because of stage one cancer. I need additional cash. Is there some way I can get an advance using my pension check as collateral? In addition, is there any way to get an advance from those insurance people who pay people who may die in less than five years? I can’t say when I’m going to kick the bucket but any suggestions you may have that will allow me to get some immediate financial assistance will be greatly appreciated.

Answer: Let’s reinforce what you just said: You don’t know when you’re going to die. A stage one cancer diagnosis is far from an immediate death sentence. You could live for decades, so the mistakes you make now could haunt you for a long time.

Yes, there are some companies that will give you a lump sum in exchange for the next five to 10 years of your pension payments. You should avoid them like the plague. The effective interest rates they charge can be astronomical and you’ll probably be much worse off. If you’re having a hard time making ends meet now, losing a source of income won’t help.

Even if you were going to die soon, no one would hand you money just because of that fact. Those “insurance people” are actually investors who buy cash-value life insurance policies, often from the terminally ill. If you had such a policy, you might be able to sell it for an amount somewhere between the surrender value (what you’d get from the insurer by cashing it in now) and the face value (the dollar amount for which you’re insured). These transactions are called life insurance settlements. If you did have such a policy, though, you probably would be better off just borrowing the amount you need from its cash value.

Consider consulting an experienced bankruptcy attorney if you have more bills than you can pay. Medical bills, along with credit card balances and other consumer debt, can be erased in a Chapter 7 bankruptcy filing. Once the debt is gone, you can start rebuilding your finances for what may be a longer life than you expect.

Q&A: Claiming an adult child as a dependent

Dear Liz: I am paying rent for my adult son in another state. He gets occasional help from various services, but if I don’t want him to sleep on the street, I have to pay his rent and send some emergency food. I don’t see this changing. Can I claim him as a dependent or would that make me responsible for his health insurance, which I cannot afford?

Answer: Yes, you would be responsible for your son’s health insurance coverage if you claimed him as a dependent, said Carolyn McClanahan, a certified financial planner with Life Planning Partners in Jacksonville, Fla. That would mean either paying for coverage or paying the fine for not having coverage. The fine for 2016 is $695 per adult or 2.5% of your household adjusted gross income, whichever is greater. The penalty is capped at $2,085, which is likely much more than what you’d save with an additional exemption. If you’re in the 25% tax bracket, a $4,050 personal exemption is worth a little over $1,000.

The IRS has many rules about dependents, and standards for claiming adult children are much higher when they’re over 19 (or over 24 for full-time students). To qualify, your son would have to earn less than the amount of the personal exemption ($4,050 in 2016) and you must have provided more than half of his support, among other rules. The IRS has an interactive tool to help people determine dependents’ eligibility at https://www.irs.gov/uac/who-can-i-claim-as-a-dependent.

Q&A: Life insurance for people over 65

Dear Liz: Can you give us some direction on how to get good term life insurance when you’re over 65? We had 25-year term policies and the premiums skyrocketed, so we are looking. Will getting a group plan (such as the one offered by AARP) help me? I’ve had two heart valve surgeries and knee and hip surgeries but don’t drink or smoke. We are concerned that we may not have enough saved. My wife is still working, but I have not been able to find employment since I lost my job due to a downsizing.

Answer: The options available to you are likely to be limited or expensive or both.

The life insurance program offered through AARP provides up to $100,000 in term coverage that ends at age 80 or $50,000 in permanent life insurance that can extend through your life. There’s no medical exam but you do have to provide health information.

Life insurance with higher limits may be available but you’re not going to like the price, said Delia Fernandez, a fee-only Certified Financial Planner in Los Alamitos. Life insurance after 65 is usually expensive in any case, but those heart valve surgeries could make it much more so, depending on how long ago you had them, how successful they were and what medications you’re on.

Fernandez recommends consulting with an independent life insurance agent so you can get a better idea of what’s available and what it will cost. Once you have an idea of the premiums, you’ll have to weigh whether you’d be better off investing that money instead.

As a general rule, you don’t want to be worth more dead than alive — and not just because you don’t want your spouse contemplating ways to collect. More importantly, insurance coverage that exceeds your income-generating capacity signals that you may be spending too much for insurance and need to consider alternatives.

Q&A: How to negotiate the medical bill maze in search of a better deal

Dear Liz: My husband and I have run into some serious medical bills recently. We have insurance, but one provider is out of network with a huge deductible and low payout, while another claim was flat-out denied. We’re looking at around $16,000 in bills, assuming nothing else is denied. What can we do to get these bills lowered?

Answer: Act fast, negotiate hard and don’t pay the “sticker price” for healthcare if you can possibly avoid it.

Start by reviewing your bills for errors such as duplicate charges, fees for services you didn’t receive and charges that seem excessive. A medical billing advocate may spot more subtle overcharges, such as separate, higher fees for procedures that should have been billed together as one bundle. The National Assn. of Healthcare Advocacy Consultants and the Alliance of Claims Assistance Professionals can offer referrals.

You may be able to resolve the errors with a call to your insurer, but you’ll still want to ask how to file a formal appeal so you can challenge the claim denial.

Look for other ways to reduce the bills. Some medical providers have charity programs that may help, and they aren’t just for low-income people: Partial relief may be available for those earning up to 400% of the poverty level for their areas.

Even if you don’t qualify, don’t assume that the numbers on your bills are what you actually have to pay. As you know from previous medical bills, the amounts providers charge bear little resemblance to the amounts they’re willing to accept from insurers. Ask to be charged the same amount that the provider would accept from Medicare, or from the largest insurer in its network.

If you can pay your bill all at once, ask for another discount for paying in cash. If you can’t pay, ask for a no-interest payment plan. Providers may push you to pay the bill with a credit card, but resist doing so unless you get a significant discount and can pay off the bill quickly.

Q&A: Healthcare coverage should be part of retirement planning

Dear Liz: You’ve been writing about how much to save for retirement, including how much of our incomes we should aim to replace with our savings. Two additional reasons to shoot for a higher replacement rate is the possibility that medical needs will be higher the older one becomes (even with Medicare and a supplemental plan) and the possibility that long-term care will take a huge bite out of savings if one self-insures for this. My wife and I took these into account when we saved as much as we could afford during our working years.

Answer: Many people erroneously believe that Medicare will take care of their healthcare costs in retirement. In reality, Medicare generally pays for about 60% of typical healthcare services, according to the Employee Benefit Research Institute. Fidelity Investments estimates the typical couple at age 65 can expect to spend $245,000 on healthcare throughout retirement. That figure doesn’t include the costs of nursing homes or long-term care, which also aren’t typically covered by Medicare. Anticipating and saving for these expenses was a smart move on your part.

Q&A: How much liability insurance do you need?

Dear Liz: In a previous answer to a question about liability insurance, you indicated that people should normally have enough insurance to cover their assets. Which assets should be included, as it is my understanding that some assets are exempt from creditors, such as 401(k)s and IRAs? Also, how are future earnings or future annuity payments for retirees taken into account when trying to determine how much liability insurance to carry? Should one essentially cover the present value of their future income for 10 years? Twenty years? Life?

Answer: As indicated in the previous column, there’s as much art as science in determining appropriate liability coverage. Liability insurance pays the tab when you face a lawsuit or similar claims. Some people sleep better at night with high policy limits, while others would rather deploy their money elsewhere.

Liability insurance is relatively inexpensive, so getting a lot of coverage typically won’t break the bank. But you also need to make sure you’re adequately covered for disability and long-term care, which you’re more likely to need than your liability insurance.

You’re correct that workplace retirement plans such as 401(k)s are protected from creditor claims. So are IRAs, up to $1 million. Each state has different rules about other property, but typically a certain amount of home equity is protected as well. In Texas and Florida, this so-called homestead exemption is virtually unlimited. In other states, the amount protected is relatively small. (In California, it can be as small as $25,575, according to legal self-help site Nolo.) Similarly, states are all over the map in how they treat annuities.

Social Security income, by contrast, is safe from creditors except Uncle Sam. The federal government can take a portion of your Social Security check if you’ve defaulted on federal student loans, for example.

Financial advisors typically focus on net worth, rather than incomes, when recommending appropriate levels of liability coverage. If you’re a high earner with few assets, though, you might want to take your future income stream into account. Exactly how much can be a discussion between you and your advisor or insurance agent.

Q&A: The pros and cons of converting life insurance to an annuity

Dear Liz: I have a life insurance policy that is worth $16,000 if I cash out. Our agent says if we convert this to an annuity, we would eliminate our monthly fee of $25. The policy is worth $35,000 if I should die with it still in effect. We purchased this only for the purpose to have me buried. Is converting this to an annuity a better option?

Answer: Possibly, but you’ll want to shop around to find the best one rather than just accepting whatever rate your current insurer offers. You can compare offers at www.immediateannuities.com.

Converting to an annuity through what’s known as a 1035 exchange means you’re giving up the death benefit offered by your current policy for a stream of payments that typically last the rest of your life. You don’t pay taxes on this conversion, but taxes will be due on a portion of each withdrawal to reflect your gains.

If you cash out, you’ll get money faster — in a lump sum — but will owe taxes on any gains above what you’ve paid in premiums.

The face value of your policy is far beyond the median cost of a funeral and burial, which the National Funeral Directors Assn. said was $7,181. Before you dispose of the policy, though, you should make sure your survivors will have other resources to pay that cost and that they won’t otherwise need the money.