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Show Notes
Are you trying to figure out a health plan? During open enrollment, it can be difficult to decide what to pick. After all, there can be a lot of choices. You want to make sure you get the right one for you.
Today we’re joined by Jennifer Jackson from ADLT 101. She talks about the first time she tried to find a health plan. We’ll talk about how to make the most of your company options, and what to watch for the next time the government exchanges are open.
It doesn’t get much more adult than buying life insurance. Coming to terms with your own death is a rite of passage as we grow older, and purchasing a life insurance policy is a sign that you care about what happens to your family after you’re gone.
But sometimes, it’s also a waste of money.
Accepting the reality of your own mortality and looking to protect your loved ones after you die is noble, but the funds you would spend paying for a policy can often be put to better use.
Life insurance has a very specific function, financially, and it often just doesn’t make sense to pay for it if you’re not at a certain stage in life. Imagine paying for car insurance when you haven’t even gotten your license – that’s the kind of situation many people put themselves into.
If you’re wondering whether or not it’s financially sound for you to purchase a life insurance policy, read ahead for more information.
When you don’t have kids or a mortgage.
I called my insurance agent the week after my husband and I got married and asked him if we needed to buy life insurance. He only asked me two questions: did we own any property together and did we have any kids? The answer to both questions was no, so he suggested we hold off.
Yes, if either one of us dies, the surviving party would have to change his or her lifestyle to compensate living on one income. Rent would be a bigger struggle, but neither of us would have to think about how to support a child or how to carry a mortgage by ourselves. Some days it seems odd that I don’t have life insurance even though I’m married, but I know it makes more sense to keep it this way.
However, we’re preparing to purchase life insurance next year once we buy a house. Getting out of a mortgage can take a while depending on the housing market, so it’s more necessary for a childless couple with a mortgage to buy life insurance than a couple that’s renting. If your partner dies while renting, it’s pretty easy to get out of the lease and move to a more affordable spot.
When you buy it for your kids.
During a staff meeting at my last job, someone brought up the idea of buying life insurance for your kids. I was confused. “Isn’t the whole point of life insurance to replace someone’s income?” I asked. But they disagreed.
Most of the parents in the room said they had bought life insurance for their children, in case something happened. But buying life insurance for your children, who don’t provide any financial value, is a waste of money.
Think about it: life insurance should prevent a family from having money problems if one of the earners dies. Since children don’t bring in any money (unless your kid is a famous child actor), your income would stay the same in the event of their passing – and your expenses would decrease. It’s also incredibly rare for a child to die before the parent, especially in their youth, so the odds of actually benefiting from a policy are extremely low.
Instead, you’re better off saving any money you’d pay for life insurance in an emergency fund, which will cover any potential funeral expenses. You can also put that money towards a college fund.
When you’re buying whole life insurance.
Most financial experts, including the legendary Dave Ramsey, tell people to buy term life insurance instead of whole. Whole insurance bills itself as a life insurance policy combined with a savings account. They claim that a user can build up cash value in his or her policy that the family can redeem once they pass away.
Because a whole life policy is designed to cover the customer for their entire life, it’s much more expensive than a term life policy. For example, when I input my information into a life insurance form, it tells me I qualify for a $25/month term life policy with a $500,000 payout. A whole life policy with the same benefit would cost $408.45 /month.
If you invest the $383 difference every month in an index fund earning 7% annually, you’ll have $1,011,550.80 in 40 years, or more than double the cash value of the whole life policy. Plus, you’ll have access to those funds any time – no waiting for an insurance company to pay out.
When you’re retired.
A few years ago, a friend of mine lost her father. As we were commiserating about the situation, she mentioned that his insurance policy had lapsed only within the last year. She remarked on what a shame it was that her mother wouldn’t be able to get any life insurance money.
Most retirees don’t need life insurance, especially if they don’t have a mortgage. Remember, the point of insurance is to substitute lost wages or pay for current bills. Since a retiree usually has few expenses, it’s not necessary for them to have a life insurance policy.
Have you purchased life insurance yet? What factors did you consider before taking that step? Let us know in the #Adulting Facebook community.
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Insurance feels like a waste of money. However, the reality is that you probably need it. Without it, your assets — meager as they may be — are at risk.
When you buy the insurance you need, you can cover your assets in many situations. Let’s be real: if you totaled your car, and you still owe money it, could you really afford to buy a new car right now? Plus, you’d still have a loan to deal with.
In this episode, we look at the disturbing reality that insurance is a necessary part of financial planning. In some cases (like health insurance and auto insurance) it’s even the law.
We’ll help you figure out what insurance you need to be effective.
Concepts
How insurance works.
Ways insurance can keep you from ending up in a worse financial situation.
Types of insurance required by law.
Insurance policies everyone should have.
Insurance policies that can be beneficial, depending on your situation, but that aren’t for everyone.
Types of insurance policies you should avoid.
Tips for figuring out what insurance you need.
This week, DO NOWs look at what you need to do in order to get the insurance you need. This includes writing down your needs, and documenting what you have in your home so you’re ready in case of a claim.
This week’s listener question looks at how you can feel better about the whole insurance thing. We look at ways you can get over the idea of “wasting” money on insurance.
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If financial independence is the dream, financial stability is the first adult step along the path towards that vision.
On the final day of the year, fifteen years ago, I returned home from a weekend away to find my belongings on the lawn in front of the house I was renting. (I used the Internet Archive’s Wayback Machine to fact-check myself using my old, anonymous personal blog, my first time reading those entries in over a decade.)
My roommate thought I was moving out at the end of December, and when I wasn’t around, she moved two people into the room I had been occupying for several months. I had been planning to move out at the end of January, and the roommate knew this. But my name wasn’t on the lease, so perhaps she thought she could do whatever she wanted.
A later entry brought back the memory of a related event: I visited that apartment again ten days later to pick up a few remaining items, and the new occupants were moving out because that roommate committed some kind of check fraud. But I digress…
Being forced out of my living space with no notice on New Year’s Eve was the end of a particularly bad year. I lost a job, lost my car, and lost my girlfriend. I had moved to northern New Jersey for a job I no longer had. I was in my mid-twenties, but I wasn’t financially an adult. I survived by spending on credit cards, avoiding student loan bills, and accepting help from parents.
With the necessity of moving in with family as 2001 became 2002, I vowed to turn things around for myself.
I wasn’t necessarily aware of the idea of financial independence, but thankfully, that is how I can describe my situation today. In early 2002, I just wanted financial stability. And I had to figure out how to get there.
How I became financially stable.
After college, I chose a career somewhere between education and nonprofit. The organization I was working for was meant to be a stop-gap while looking for a teaching position, but I did enjoy it, and I didn’t put enough effort into moving forward. It cost me more to work as a nonprofit employee than I was earning — and I wasn’t even spending a significant amount of money.
1. I found a new job.
Instead of looking for my ideal career, my priority was earning money and getting back on my feet, taking control of my situation. Nothing is permanent. I could work on my loftier life goals while at least working somewhere during the day that would allow me the flexibility to plan for the future.
Without a car, I was limited to jobs that were accessible by walking or by traveling on the train. I turned to a technical temp agency. That’s how I earned money over breaks during college, and I knew I had many skills that would serve me well in corporate settings. I found something right away — an executive administrative assistant at a major financial firm.
This had no relation to my degree, but it was a job. And it paid 50 percent more than what I was earning at the nonprofit organization. Theoretically, I could even stay involved with the activity I was passionate about on weekends while working a “regular” job.
2. I designed a budget.
My dad helped me brainstorm a basic budget on the back of an envelope. That’s how I remember the situation. This budget had to take into account paying off a cash advance from my credit card, consumer spending on my credit card, and my student loans. I intended to move out and be less of a burden on family as soon as possible, so I budgeted for rent, as well. And savings for the future.
Partly because I wanted to stick to my budget and partly because I needed some self-reflection time to recover from bad choices, I also saved money in the first few months of my new job by staying in a fortress of solitude.
The budget was essential for setting myself up for financial stability.
3. I tracked every penny.
I used free software to meticulously track my spending, making sure I was staying within my budget and paying my bills on time.
You can only have a clear picture of where you’re going financially if you know where you are. It is incredibly easy today to get a full snapshot of your finances at any time thanks to technology. Apps communicate directly and securely with banks, so you all you need to do is check your phone to see where you stand. The app adds your bank balances and subtracts your debt, and the result is your financial net worth.
And beyond your net worth, you need to know how that changes over time, so you track your income and expenses, too. Today, I use Personal Capital and Quicken.
4. I started saving for the future.
It wasn’t enough to have a bank account whose balance was increasing every month. My new job offered a retirement plan with a matching contribution. Always say yes to a matching contribution. It’s free money.
How do you know when you’re financially stable?
To be considered financially stable — a true sign of adulting — you must meet these criteria.
You must be spending less than you’re earning. It doesn’t matter which side of the equation you try to improve, but it helps to focus on both your expenses and your income. You can only cut your expenses back so far — but income potential is unlimited. When you spend less than you earn, you have a surplus. The surplus allows you to have some control.
Living paycheck-to-paycheck — spending every penny you earn — means you have no surplus and you are not moving towards flexibility or control.
You don’t have to be debt-free, but you must be paying down your debt and not accumulating any more. If you’re able to make your minimum payments on your debt and then some, you’re in good shape.
You’re not relying on loans or gifts from family. This is the cornerstone of stability. You can make it on your own, just with your income and your expenses. It’s true that you may be in financial trouble if your income disappears, especially if you’re only beginning to establish savings, but for now, you are making it on your own.
You are building your future through savings and investment. Your nest egg might not be too big just yet, but it’s growing. You’re putting aside extra money to create an emergency fund and you have a systematic transfer to an investment account, preferably a low-cost index mutual fund.
Your friends support your goals. Don’t waste time around people who give you a hard time for being responsible. Often, when one starts acting more grown-up, the friends still wading through adolescence grow bitter. Or maybe you’re the last one to cross the threshold into actual adulthood.
People reach this point at different times in their lives. I wasn’t financially adulting until I was in my late twenties. Some start when they’re 40. And I’ve seen some sixteen-year-olds who are taking control of their future I never would have considered.
You’re moving forward steadily in your career. How you progress is often up to you, even when are faced with resistance was you’re trying to gain more responsibility, authority, and compensation at your job. You do know that often you have to accept more responsibilities before being granted more authority and increases in compensation. This type of success proceeds at different speeds, but you should always be aware of where you stand, and you make decisions that move you forward.
You have health insurance and you take care of yourself. Your health and well-being affect your ability to have a life of any sort in the future, so you watch your health and have an appropriate health insurance plan. You see a doctor once every one or two years, at least, if you’re otherwise healthy, and you see a dentist and dental hygienist every six months. If you need work, you get it done.
You pay your credit card balance in full every month.Credit cards can be great tools for people who are financially stable. They allow you to time-shift your spending, just like the DVR time-shifts The Walking Dead. They allow you to collect cash back and points that can be used for travel. But only if you avoid interest charges, late payments, and pay your balance in full every month.
This could be considered an “advanced technique,” and many people start messing with credit cards before they are prepared to handle the responsibilities. So watch out.
Financial independence is the next step after financial stability, but it could take a lifetime to achieve. Imagine if you no longer had to rely on your job. Imagine if you could live the life that you wanted to live, go where in the world that you wanted to go, and do anything that you wanted to do — without any concern about what the financial consequences would be.
That is financial independence. And you can’t get there without financial stability first.
Are you financially stable? If so, when did you finally achieve it?
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Choosing health insurance is a huge PITA. You know it. We know it. Everyone knows it.
Unfortunately, it has to be done.
In this episode, we talk about the realities of the health care system, and we discuss what you need to know when navigating your choices. It’s never pretty, but you can make the best of the situation.
Concepts
An overview of the health care and insurance system.
Reasons that choosing health coverage is so difficult.
What you need to know about costs and health care coverage.
The ACA and your health care choices.
Tips for figuring out what coverage you need.
Strategies for evaluating your health insurance options.
Understanding health insurance alphabet soup: HMO, HSA, PPO, EPO.
When a high-deductible plan might make sense (and when to avoid it).
Ideas for reducing health care costs.
Pay attention to our “do nows” so that you can start mapping out your next steps for getting the right health insurance, including understanding how provider networks work. Our listener question deals with your options for affordable health insurance.
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Hosted byHarlan Landes and Miranda Marquit Produced byadulting.tv Edited and mixed bySteve Stewart Music bybensound.com
Like what you’ve heard?
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A single hospital visit can bankrupt you. What happens if you total your car and can’t afford a new ride? Make sure your assets are covered. Read More...
The idea of insurance doesn’t necessarily jive with the mindset of a young person. It took me way too long after college to really get serious about insuring my stuff. What’s life without a little risk, right?
In reality, that mindset doesn’t usually last through the first emergency or disaster that strikes while you’re uninsured. It’s easy to laugh it off when you’ve been lucky, but one bad day teaches you the importance of making sure you cover your assets.
Insurance is like wearing a helmet while you’re biking. You may not need it, but you’ll be glad you put it on when you take a tumble.
“Having quality auto, health, renter or homeowner, and life insurance is vital to protecting yourself and your family — or your future family — from the unexpected,” says blogger Eric Rosenberg of Personal Profitability.
But choosing an insurance company is hard work. First, decide what coverage you need. If you need both renters and car insurance, can you choose the same company and save money with a multi-policy account?
The two most important factors with insurance are the premium (how much you pay each month) and the deductible (how much you pay to file a claim and receive money from your insurance company). Your car insurance premium may cost $100 a month with a $500 deductible.
That means if you get into an accident and do $600 worth of damage to your car, you’ll have to pay the $500 deductible before your insurance covers the rest.
Car insurance.
Most companies offer a multi-car discount for families with more than one automobile. Premium rates vary based on how much coverage you have, so don’t base your judgment solely on how much you’ll pay each month.
For example, coverage for uninsured or underinsured drivers is optional, but often a good idea. When I got hit by an uninsured driver, my car suffered $3,000 worth of damage. My insurance company handled everything because I’d opted for that extra coverage.
This is a common theme in every area of insurance: risk tolerance. You need to toe the line between how much you’re willing to pay monthly, and how comfortable you are with the risk of being caught uninsured. In an ideal world, we could all afford comprehensive coverage in every area, but the real world is a little more restrictive.
Renters insurance.
Lee Huffman, who owns several rental properties, says he always recommends renters insurance to his tenants. Most renters policies cost less than $20 a month, but can reimburse you in case your valuables are stolen or damaged.
“As a rental property investor, we remind our renters that the landlord’s insurance covers the building only,” he says. “It does not cover any of the personal items of the renters, nor does it cover the renter in case someone gets hurt and tries to sue them.”
Take pictures of your most prized possessions and keep receipts for anything valuable. Those will help if they’re lost or damaged and you need to file a claim.
Health insurance.
The Affordable Care Act requires that you have health insurance or pay a fine. This year the fine will be 2.5% of your income or $695 per adult — whichever is greater. For example, if you have an adjusted gross income of $40,000, your fine will be $1,000.
One hospital visit can bankrupt you when you don’t have health insurance. You are your most valuable asset, so make sure that’s covered. Millennials in good health are often fine purchasing a high-deductible plan and paying a smaller premium. You can use a Health Savings Account in conjunction with your high-deductible plan for even better results.
Life insurance.
This type of insurance is vital if there’s someone relying on your income, like a spouse or child. If your spouse dies, can you afford to live without them? Can you pay the mortgage by yourself? Can you raise your child on one income? Single parents should consider purchasing life insurance so their children will have protection in case they pass away.
Rosenberg recommends term, not whole, life insurance for millennials. The younger you are when you purchase a policy, the cheaper it will be.
“You are never as young and healthy as you are today, which is the best time to lock in a 30 year policy,” he says.
Don’t let the unexpected ruin your finances. Cover your assets with the right insurance and you can shore up your finances from disaster.
Like what you’ve read?
Join other #adults who receive free weekly updates.
For a limited time you’ll receive our new book, The Best Bank Accounts for Adults, when you sign up!
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