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This is a guest article by Sara Stanich, a Certified Financial Planner (CFP®) practitioner and Certified Divorce Financial Analyst (CDFA™) based in New York City. Sara is one of four financial experts participating in Consumerism Commentary’s Naked With Cash series. She blogs about financial planning topics at Cultivating Wealth.

In this article, Sara addresses high deductible health plans (HDHPs). I have always had HMO or PPO health insurance, so this article covers new territory for me.

Do you have a new health insurance plan this year? Is it a high deductible plan with a health savings account?

If so, you are not alone. The HDHP market has been growing. According to the National Center for Health Statistics, 30.3% of group health care plan participants were enrolled in a high-deductible plan during the first quarter of 2013, up from 17.1% in 2008.

But not everyone understands how these plans work. So, let’s review the basics.

A high deductible health plan is a health insurance plan with lower premiums and a higher deductible than traditional plans. This means that while your monthly cost for the insurance (the premium) may be lower than with a traditional plan, you will probably spend more out of pocket (your deductible) before your insurance starts to partially cover the cost. Preventive care such as physicals and immunizations may be 100% covered.

At some point (the out of pocket limit), your insurance will cover 100% of your cost. You must check your own policy for the exact amounts that apply for your or your family.

A Health Savings Account (HSA) is a tax-advantaged account that’s paired with a high-deductible health plan (HDHP). This allows you to set aside money for healthcare expenses that are not covered by your plan. This is good news, because contributions are made with pre-tax dollars, so spending on health care may be done with pre-tax dollars, and contributions reduce your taxable income, which may in turn reduce your taxes. (The contribution limit for 2014 is $3,300 for individual and $6,550 for family coverage).

What I think is more interesting than the basic rules, is how this structure may be affecting our decisions surrounding healthcare. The high deductible puts more financial responsibility on the consumer. What is the result?

My story

Recently, I had some pretty bad neck pain. This happens to me from time to time and is probably related to stress or lifting something heavy (like a squirmy kid). After trying ice, a heating pad, and lots of ibuprofen, I decided to break down and call a chiropractor. Actually, I called two.

So I called a chiropractor I had been to before to make an appointment. I know I have a High Deductible Health Plan, and I was pretty sure I would need to pay 100% of the cost out of pocket.

So I asked, “How much will it cost?”

They said I should give them my insurance information, and that they would call the insurance company and let me know. Well, OK.

She called back. I was right; the insurance company will not pay any of the cost.

  • My quote for a consultation and a chiropractic adjustment: $848.00.
  • As a former patient, they could offer me a 50% courtesy discount, so $424.00.

Although I actually have the money in my HSA, this number gave me pause. Maybe my neck wasn’t so bad after all?

I thanked her for looking into it, but said I would try something else. On the way home, I got a 15 minute massage from one of those storefront places for $20, and my neck did feel better.

Fast forward one week. Between long car rides over the holidays and crouching over a laptop on the couch, my neck is worse and the pain is radiating to my shoulder.

I decided to call another chiropractor from my “past.”

They said, “Come on over!”

I said, “Can you tell me roughly what this will cost? I know my insurance has a high deductible and I will be paying out of pocket.”

The answer was evasive as always. “We have a sliding scale. Just come in and we’ll figure it out with the insurance company.”

I didn’t like that answer, but frankly I was so sick of this pain I was ready to just hand over my wallet. So I went, and my back made lots of loud popping noises from many angles. Aaahhhhh… much better.

The price? $75.

I was certainly happy with that number, but what the heck? I had been quoted over ten times as much for essentially the same service. In the same city. On the same street!

I also wondered if they gave me a bargain price because “poor me” had cheapo health insurance. (I can pay; I just don’t want to overpay.) I wasn’t about to argue, and I feel $75 is probably a pretty fair price for 20 minutes of someone’s time.

Lessons learned. Use these tips if you have a new health plan!

  • Understand how your health insurance works. If I hadn’t known and the first chiropractor hadn’t provided an estimate, I could have been presented with a surprise bill of $824.00.
  • Ask questions. Judging by the surprised reaction to my questions, not many of us ask how much it will cost. That makes sense; if I had a $20 copay for everything, would I have even asked about the cost?
  • Shop around. Prices may vary considerably. If you can (and it isn’t a medical emergency), check with two or three options. I went from $848 to $75 for similar service. You may be surprised at what you find.

I am curious about how the expansion of these plans will change the industry. Will pricing become more transparent and competitive? In the meantime, it pays to shop around!

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Sara Stanich and not necessarily those of RJFS or Raymond James. You should discuss any tax matters with the appropriate professional.

Photo: Flickr/planetc1

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In just a few days, one of the major provisions of the Affordable Care Act will go into effect. The health insurance marketplace will open. The public discussion about this marketplace and about Obamacare overall is full of partisan politics, so it’s difficult to see beyond the rhetoric and get an idea of what this new marketplace really means.

The health insurance marketplace is a way for American citizens, who may not be able to get or afford health insurance through the traditional channels, to select a plan for health coverage. Those traditional channels include insurance through an employer, which is usually subsidized by that employer, or directly from an insurance company, such as through individual health insurance.

The law calls for states to set up their own insurance marketplaces, but the federal government is providing a marketplace for residents in states whose governments choose not to organize their own marketplace. The state in which I live, New Jersey, is one of these states in which citizens will use the federal marketplace.

If you have health insurance through your work, the marketplaces (or exchanges) won’t affect you, but other portions of the Affordable Care Act might as I’ll explain. Getting subsidized health insurance through an employer is still going to be the best option for the majority of middle-class or above, full-time employees.

I don’t have health insurance from an employer. I have coverage through COBRA, and I would qualify for continuing that coverage through January 2014, but I may not want to, now that I have more options. With COBRA, I have the same plan I had while I was an employee, but my premiums are no longer subsidized by my employer. In fact, I’m sure my premium includes a fee that gives the third-party COBRA administration company a reason to exist when this layer may not provide any additional benefit to anyone.

Until October 1, my only option than COBRA would be to buy individual insurance directly from an insurance company. After October 1, I can begin shopping on the federal health insurance marketplace, to choose a plan with the coverage that I want, and the monthly premium may be a better deal. The prices and plan details won’t be publicly available until October 1. If there’s a more affordable option than COBRA that meets my coverage needs, I’ll take it.

Why employees may have to select a new plan

Aside from the new marketplaces, the Affordable Care Act requires that all health insurance plans comply with new rules for coverage. The way some insurance companies seem to be handling the requirement is by informing policyholders they must choose a new health care plan for next year. You may have received a letter from your insurance company informing of the need to select a new plan, particularly if you have health insurance through your employer. If you haven’t received this notification, chances are good you know someone who has.

The new plans offered for next year will include at the least the baseline provisions called for by the Affordable Care Act. Policyholders with plans who do not meet that standard will need to select or confirm new coverage for 2014. Some of those baseline provisions include:

  • Outpatient and emergency services
  • Hospitalization
  • Maternity and newborn care
  • Mental health disorders
  • Preventative care without co-payment
  • Screenings and immunizations for children

Qualifying for discounts

Many people in the United States will qualify for a discount if they choose a health insurance plan through the marketplace. With household income below a certain level, some Americans will qualify for lower monthly premiums, lower copayments, lower coinsurance, and lower deductibles. This income limit for discounted premiums starts at $28,725 for an individual and increases to $99,075 for a family of eight.

Plan categories: bronze, silver, gold, and platinum

The new plans will be categorized as bronze, silver, gold, and platinum. Each level indicates a different balance between premium costs — the monthly fee for coverage — and out-of-pocket costs. In general, if you expect to visit the doctor less, you can choose a plan with lower premiums and higher out-of-pocket costs, but your future medical needs can be difficult to predict sometimes. The marketplace also includes “catastrophic” plans, which have very low premiums. These are often the same decisions employees have made for years when choosing health insurance plans; these new categories can help organize and compare the options.

Medicaid and CHIP

Medicaid is still an available option for health insurance, as is the Children’s Health Insurance Program (CHIP). If you can’t afford coverage from the health insurance marketplace, you or your family may qualify for Medicaid, or your children might qualify for CHIP. If you can afford health insurance but choose not to be covered, a new line on income tax forms will calculate a fee that starts at 1 percent of income, and that fee will be added to the tax you owe, but those who cannot afford health insurance will not be charged this fee, up to $695. That’s less than the cost of health insurance, but opting for health insurance if you can afford it is always a better choice.

In many states, Medicaid is expanding, so more people will be covered under this provision, and for those who do, it will cost less money than buying an insurance plan from the exchanges.

Estimated costs

The Kaiser Family Foundation offers a calculator that helps you determine how much you might pay for a Silver health insurance plan from the exchange in your state (or the federal exchange). According to the calculator here, my premium will be $3,668, or $306 a month. That’s less than half of what I pay for COBRA for good coverage, and about half of what I used to pay for a bare-boned health insurance plan I selected directly from an insurance company as individual insurance.

If you don’t have a health insurance plan through your employer and believe you might be interested in buying health insurance from the exchange, take a look at the calculator and estimate your monthly premium. If you do have health insurance through your employer, you probably won’t need to look at health insurance through the exchange.

Signing up for new health insurance

If you are an employee, you might have some new choices during your open enrollment period this year as insurance companies reformulate their plans to comply with the new law. But for those without with employer-subsidized health insurance options, the marketplaces will open online on October 1. (Owners of small businesses who are shopping for health insurance for their companies can start shopping offline on October 1 but the online shopping won’t be enabled until November 1.) This will give shoppers almost three months to select a plan before they go into effect on January 1, 2014, though open enrollment will continue for three months into 2014.

States have not been very forthcoming with information for their citizens about how to enroll in these health insurance plans. In some cases, it seems like government agencies at the state level are deliberately confusing residents in an effort to make this process more difficult. The process is really easy, though, particularly for those with access to the Internet.

  • Visit HealthCare.gov, the federal government’s health care website.
  • Answer a few questions about your residence and status.
  • The website will tell you where to browse to next to see your health insurance options. For example, since New Jersey doesn’t have a state marketplace, I shop right on HealthCare.gov.

The chance of Obamacare failing

The Republicans in Congress are looking to block the provisions of the Affordable Care Act, and seem to be willing to shut down the government in order to make their case. These tactics historically don’t work. Obamacare will go into effect. This is the plan that insurance companies wanted. Unlike a single-payer health care system, the system created by the Affordable Care Act keeps the insurance companies in business and not only keeps industry jobs in place but presents an opportunity for more jobs in insurance as well as health care.

One threat to Obamacare is defunding. The political tactic involved comes from the desire to see ideas put forth by the other party fail, and one way to do that is to put a system into effect while removing the government funding that is necessary for the system to succeed. The result is that one side gets to say, “I told you so,” even if the failure is due to defunding and not due to a systemic problem.

Regardless, with a group as powerful as health insurance companies behind Obamacare, defunding probably isn’t a major concern in the long run, and the health insurance marketplaces will likely live on in some form in perpetuity. Defunding will have an effect on lower-income families that qualify for and rely on the discounted insurance plans.

What are your expectations for the new health insurance marketplaces?

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When people find out I’ve been writing a blog about personal finance for ten years — yes, it seems crazy, but the tenth anniversary of Consumerism Commentary is Tuesday — they recognize it is an opportunity to share their financial troubles and triumphs. I’m a good listener. For the most part, I am happy to hear what others have to say but will only reluctantly share my opinion about the choices they’ve made. I usually don’t.

And there was one common thread through the recession. People bought annuities. The sales pitch from their brokers probably went like this. “Listen. We’ve lost money, like the rest of the market. But if we move a portion of your assets into variable annuities, you’ll have protection. With this type of investment, you will earn a minimum of 6 percent on your money each year, and when the stock market performs better, you can earn more. And you’ll have a steady stream of income, a good idea with a volatile market.”

It’s hard not to hide the happiness that comes from earning a very good return on your investments when the media continues to talk about trouble in the stock market. The recession continued, and those who bought into variable annuities may have received statements showing a 6 to 8 percent annual return. Not bad at all, and those seeking my approval should be happy to know that I’m all in favor of good returns.

Annuity purchasers are starting to see exactly what it took to provide returns better than the overall market. Although this was always a risk, the broker might have swept it under the rug: the insurance companies offering variable annuities are now taking advantage of the fine print that allows them to change the rules.

Prudential made the news last year when they controlled benefit payouts for their annuities by refusing new contributions. If the annuity was purchased under the assumption that the investor could continue to contribute over time and benefit from increased payouts based on the balance, the annuitant would be dismayed to discover the insurance company could refuse their contributions.

Now, according to the New York Times, insurance companies are trying to convince their customers to get out of annuity products with guaranteed returns. Customers are receiving letters warning annuitants that their benefits will be greatly reduced if they take no action. They might have options, such as moving into an insurance product with a lower benefit or accepting a lump-sum payment reflecting the annuity’s remaining cash value. Both are options that help the insurance company get out of a contract they couldn’t live up to.

None of this should come as a surprise. It was part of the insurance companies’ plans all along: offer products with benefits too good to be true over the long-term with the knowledge that the fine print allows the company to change the rules when the company no longer needs or can no longer afford to sell annuities to a frightened public.

Here is how one insurer is handling its unaffordable policies, although the New York Times still seems to think this situation was unexpected by the insurer:

The Hartford, which is getting out of the annuity business, has gone further: it has sent letters to clients and advisers saying that they have until October to change the asset allocation in certain variable annuities. The goal is to lower the client’s balance and therefore the amount the company will have to pay out. If they do not do this, they will lose the rider that guaranteed a payment regardless of the cash value of the annuity. Instead of getting a 5 percent guaranteed payout for life, the owner would get a lower payout based on a lower account value.

This is representative of a larger reality in life. Very few contracts you sign are ever equitable. One party almost always has more power than the other. In this case, the insurance companies can make changes to the deal, and the annuitants have no choice but to accept the changes. In fact, many annuity plans prevent customers from cashing out their plans without hefty fees, even if the insurance company forces these changes on the customers.

Guaranteed income can be an important strategy for financial planning. Unfortunately, with annuities, the word “guaranteed” does not always mean what people think outside of the financial industry.

Did you buy an annuity before or at the beginning of the recession? Are you facing any restrictions on contributions or changes to the plan? Would you consider purchasing an annuity with a guaranteed return?

Photo: Flickr
New York Times

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There is nothing that can derail your financial success or path to independence as fast as being held liable for some kind of catastrophic loss without the appropriate level of insurance coverage. Automobile and homeowners insurance (or renter’s insurance) cover only up to a certain amount of your liability if you or your property is involved in an accident. If your wealth exceeds those limits, you could be at risk.

That’s the case for umbrella insurance. It picks up where automobile and property insurance leave off. Shopping for umbrella insurance, until recently, was yet another task that I put off. A confluence of events reminded me to get this done: my initial meeting with an estate planner had me thinking about protecting my assets, and I received the renewal documentation for my renter’s insurance with Liberty Mutual, the same company that holds my auto insurance.

I called Liberty Mutual to review my current coverage and to ask for a quote for their umbrella insurance coverage. Nothing is as simple as one telephone call, so while I was able to adjust my renter’s insurance to protect more of my belongings, to find more information about the umbrella insurance, I was directed to a local agent.

We discussed my needs based on the total of my assets, and I was looking for a $5 million policy. That’s the upper limit of what this company offers. In order to qualify for any umbrella insurance, however, auto insurance and home or renter’s insurance must include coverage at specific levels of liability. My renter’s insurance already qualified, with $300,000 in personal liability coverage, but I needed to make a chance to my car insurance. The laws in other states may differ, but at least in New Jersey, to qualify for an umbrella insurance policy, according to the agent, one needs at least liability coverage of 250/500, or $250,000 per person and $500,000 per accident.

The agent needed some time to pull my information together for a quote. She called back, offering me the $5 million coverage for over $750 a year. The cost seemed high to me, so I didn’t make any commitments. I mentioned I would call her back. I turned to the internet for research, and saw that this type of cost was not uncommon for a high level of coverage. Basic coverage is $1 million, and that’s what most customers have. Thus, this lower level of coverage is relatively inexpensive. Once you begin looking for coverage at $2 million and above, the cost of the premiums tends to increase substantially, because the pool of customers at those levels is smaller.

I made a failed attempt to get a competing quote. I called GEICO directly to try to compare prices directly, but GEICO could not offer me coverage unless I had been invited to apply for their auto insurance. Otherwise, GEICO does not do business in New Jersey.

To move forward, I called the Liberty Mutual agent back and asked some more questions about coverage. Just about every question required her to check with her manager, and ultimately she came back and said that coverage at the $5 million level would require state approval. She suggested going with $4 million in umbrella insurance coverage while increasing my renter’s insurance liability to $1 million. Either way, my assets should be well covered — assuming any potential problem I face in the future is covered by insurance at all. This shift saves some money compared with leaving my renter’s insurance as is and going with the $5 million umbrella insurance coverage.

In total, the additional annual cost is about $650. That’s a small price to pay for additional asset protection. Of course, like any other kind of insurance, the mathematical perspective is only part of the story. If you never need to use your insurance, you’ve spent a lot of money over the course of your lifetime for a service the company never provides. And insurance companies do often make it difficult to qualify for legitimate claims.

But the alternative — being held liable without the proper insurance coverage — will quickly destroy any wealth you’ve been able to build, require you to liquidate investments or real estate, and possibly cut into your future earnings. I’m knocking on wood that I’ll never need to go through the process of filing a claim against this policy.

After I completed this quest, I sent my business insurance agent a quick email. Umbrella insurance and home insurance generally don’t cover anything that a self-employed individual or a business owner might be concerned about from a legal perspective, and I want to make sure my business liability insurance fills in the gaps left by my other policies.

Do you have an umbrella insurance policy?

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Credit Life Insurance: You Don’t Need It

by Luke Landes
Money

Occasionally, Consumerism Commentary readers send in questions or stories they’d like to share with a wide audience. These questions and stories come to me through email, via Facebook, and through this website. Recently, a new reader who discovered Consumerism Commentary due to my multi-year coverage of Bank of America (primarily the articles pertaining to the ... Continue reading this article…

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Aftermath of Sandy: Check Your Insurance Coverage Before the Storm

by Luke Landes
Hurricane Sandy

I hope all Consumerism Commentary readers affected by Hurricane slash Extra-Tropical Storm slash Low-Pressure System Sandy are alive and safe and have avoided damage. I lost power for sixteen to eighteen hours, and although I live near a canal, flood waters didn’t reach me. Many of my local friends are still without power, and my ... Continue reading this article…

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Life Insurance: Who Needs It?

by Luke Landes
Life saver

Vote today for Consumerism Commentary or your favorite blog in the People’s Choice Plutus Award! Simply type www.consumerismcommentary.com into the ballot or click the button next to your favorite. Having worked for an insurance company in the past, I may be more critical of the industry than most. Don’t get me wrong. It’s very important ... Continue reading this article…

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Mutual Vs. Public Insurance Companies

by Luke Landes
Nationwide Mutual

A former boss of mine, high up the corporate ladder in an insurance company, often complained about his own industry. “Insurance companies make money by not providing a service to their customers.” That is, insurance companies make money by collecting premiums and paying out the least amount of benefits possible. Of course, there’s a tough ... Continue reading this article…

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Universal Life Insurance

by Luke Landes

Every once in a while, I receive financial questions from readers. I am not a financial adviser, so I usually suggest those needing significant assistance with their financial decisions to seek the advice of a professional. However, I don’t mind answering general questions that might be helpful for a wider audience. If you have any ... Continue reading this article…

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Life After Salary: COBRA vs. Individual Health Insurance

by Luke Landes
Cobra

One month ago, I notified my boss at the corporation where I worked that I would be leaving. I was headed for the new frontier. Leaving my salary and benefits behind, I looked to the horizon and contemplated what I needed to do in order to keep my life secure. My biggest concerns besides maintaining ... Continue reading this article…

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Life After Salary: Individual Health Insurance

by Luke Landes

Now that I’ll be leaving my corporate job and leaving behind the benefits a salaried position afforded me, I need to begin looking at alternative options for those benefits. One of the first concerns on my list is health insurance. Inside the company, our annual benefits enrollment period was completed only a few weeks ago, ... Continue reading this article…

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Do I Need Long-Term Care Insurance?

by Luke Landes

As I mentioned a few days ago, Consumerism Commentary is matching your charitable contributions. Please take this opportunity to give to your favorite charity. Here’s how to make your charity count twice. I work for a financial services company (a situation soon to be rephrased in the past tense), and every once in a while, ... Continue reading this article…

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Children Covered by Parents’ Health Insurance Plans

by Luke Landes

A Consumerism Commentary reader wrote in with the following question: I called our health insurance company about adding our sons back on our policy and they said they still had to be in school for 12 credit hours. Is this true? They said the new law did not effect them yet. Any answers for this ... Continue reading this article…

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New Pre-Existing Condition Insurance Plan

by Smithee

Historically, it’s been difficult, if not impossible, for Americans with medical problems to acquire affordable health insurance. That changed yesterday with the rollout of another piece of this year’s Affordable Care Act, the Pre-Existing Condition Insurance Plan (PCIP). As of July 1, 2010, adult citizens or legal residents who have been without insurance for six ... Continue reading this article…

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How to Pay More Than You Should: Stop Paying Attention

by Luke Landes

In March, I wrote about reducing the amount of automation in handling personal finances. Leaving your payments on auto-pilot is asking for trouble. Leaving your brain out of the decision-making process is a sure way to rack up overdraft fees when you don’t have enough funding to pay an automatic bill. Also in March, I ... Continue reading this article…

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Insurance Companies Work for Shareholders, Not Customers

by Luke Landes

The entire concept of insurance, particularly public insurance companies with shareholders, is backward. If a company is to survive year after year, it has to make money for its owners. In the case of public companies, executives answer to the board of directors and the shareholders. The goal is, of course, to make money for ... Continue reading this article…

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Car Insurance Coverage

by Luke Landes

The first time I shopped for car insurance I didn’t know much about what I would be buying. I should have taken the time to learn more about the various types of coverage before shopping. As a result of my lack of preparation, I did a poor job comparing rates. I was slightly better armed ... Continue reading this article…

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After Ten Years of Renting, I Finally Have Insurance

by Luke Landes

I don’t know what I was thinking. I am getting older. I finished my undergraduate education with a graduation ceremony about years ago. Since graduating, I’ve moved from apartment to apartment, first with a $400 per month one-bedroom place near my college, then back to New Jersey, sharing rent with a variety of roommates. I’ve ... Continue reading this article…

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Generation X Will Depend on Family and Government for Long-Term Care

by Luke Landes

According to a recent survey of 1,004 individuals born between 1960 and 1980, roughly Generation X, many expect their family or the government to provide care or funding for care as they age. Here are some of the more interesting statistics from the study, released by America’s Health Insurance Plans (AHIP), an association of health ... Continue reading this article…

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State Farm to Pay Dividend to NJ Policyholders

by Sasha

In my mail recently, I received a colorful postcard from State Farm, the agency which insures my car, house, and several rental properties. I was “sorting” it directly into the trash when I noticed the word “dividend” peeking up at me. Dividend. That’s right, my insurance company has declared a dividend for its New Jersey ... Continue reading this article…

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