Ask Liz Weston

Get smart with your money

Liz Weston

Wednesday’s need-to-know money news

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taxesToday’s top story: Should you pay your taxes with a credit card? Also in the news: Smart money moves for April, tax myths about IRS audits and why having more money won’t fix your financial problems.

You can pay your taxes with credit card, but should you?
The convenience could become costly.

Smart Money Moves for April
Time to spring forward.

10 Tax Myths About IRS Audits That You Shouldn’t Believe
Myth busting the IRS.

More money won’t fix your financial problems if your habits suck
More money, more problems.

‘Alternative’ Credit: Your Scores Still Matter

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Startup and traditional lenders alike are looking for the new prize: creditworthy people who don’t have good credit scores.

To find them, companies are experimenting with all kinds of alternative data that’s typically not part of credit reports, such as utility bills, social media posts and how often you change your address.

In addition, some online lenders proclaim they don’t use credit scores in their decisions or don’t have a minimum score requirement.

In my latest for NerdWallet, why thinking credit scores no longer matter could be an expensive mistake.

Tuesday’s need-to-know money news

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Student-LoansToday’s top story: How to lodge a student loan complaint. Also in the news: How adult kids living at home can help your tax bill, using direct contributions from your paycheck to save for college, and the best time of year to sign up for a rewards credit card.

How to Lodge a Student Loan Complaint
Getting to know the Consumer Financial Protection Bureau.

Adult kids at home? 4 ways they can help cut your tax bill
Claiming your adult as a dependent.

Saving For College? Don’t Miss Out On Tax-Advantaged 529 Plans From Your Employer
Direct contributions from your paycheck could make saving easier.

The Best Time of Year to Sign Up for a Rewards Credit Card
How to play the game.

Monday’s need-to-know money news

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College SavingsToday’s top story: What to buy and what to skip in April. Also in the news: What all those terms and conditions you ignore really mean, how to save for a home when you have student debt, and steps for helping kids become financially savvy.

What to Buy (and Skip) in April
Spending your cash wisely.

What those terms and conditions really say
You could be giving up many consumer protections.

How To Save For A Home When You Have Student Debt
There are ways to manage both.

9 steps to helping kids and teens become financially savvy
A great way to celebrate National Financial Literacy month!

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

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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.

Q&A: How much liability coverage is enough?

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Dear Liz: We are looking to get umbrella insurance coverage to increase the personal liability limits on our homeowners and auto policies. Is there a rule of thumb on how much umbrella coverage is appropriate? Enough to cover one’s entire net worth? Or a portion thereof? Granted, no amount of coverage would prevent a lawsuit exceeding that coverage. We have never had a liability claim but are looking for an extra degree of safety and peace of mind. The house (no mortgage) is worth about $2.5 million and we have financial assets of an additional $3 million. The maximum our carrier offers in umbrella coverage is $5 million, with a premium under $1,000 a year.

Answer: Walking the line between prudence and paranoia isn’t easy when you’re trying to predict the risk of being sued.

A report by ACE Private Risk Services noted that most auto and homeowners liability coverage maxes out at $500,000, but 13% of personal injury liability awards and settlements are for $1 million or more.

That means the vast majority of lawsuits result in six-figure payouts or less, but a spectacular few can cost more.

Insurance experts say trial attorneys typically settle for a liability policy’s limits. There are exceptions, though, particularly if the person being sued has substantial assets and income but not a lot of coverage.

One rule of thumb is to get liability coverage at least equal to your net worth, with a minimum of $1 million. A $5-million policy in your case would not be overkill, but you should discuss your situation with an experienced insurance agent to get a better assessment of your risk and options.