New baby? No doubt this new arrival has turned every aspect of your life upside down in the best possible way. Now is the time to make sure your financial house is in order. Here’s a 10-step account and financial checklist to lay the groundwork for your little one’s successful future.
New account checklist for new babies
1. Apply for a Social Security number for the baby: An SSI number is the linchpin to open a bank account in your child’s name, purchase savings bonds, obtain medical coverage and access government benefits.
2. Review your life insurance: If you don’t have life insurance, you should get coverage as soon as possible. If you already have a life insurance policy, check to make sure it’s adequate to cover the needs of the new addition to the family.
3. Pick a guardian: Choose a family member or close friend who is willing and financially able to care for your child, should you or the other parent pass away or become incapacitated before your child turns 18.
4. Set up powers of attorney: Put in writing your legal power of attorney, which sets out who will be responsible for your financial and personal affairs should you be unable to make those decisions for yourself. You also should set up a health care power of attorney that makes your wishes known in the event you become seriously ill and are unable to participate in decisions about your care.
5. Write your will: It’s not just wealthy people who need a will. Every parent should create a document spelling out how his or her estate should be handled. The will may also include or reference legal guardianship and powers of attorney.
6. Open a savings account in the baby’s name: Choose a no-fee, no-minimum balance, online savings account. You can link the savings account to your checking for automatic withdrawals.
7. Set up an emergency fund: You should put aside money from each paycheck into a savings account with the goal of having sufficient funds to cover living expenses for six months.
8. Review your work benefits: Confirm how much paid (and unpaid) maternity leave is offered through the birth mom’s employer, and whether paid leave is available for the other parent. Determine how you will obtain health benefits for the baby, either through an employer or government plan. Consult with your human resources office on flexible spending accounts and other benefits that may apply to your situation as a new parent.
9. Check in with Uncle Sam: You can claim a tax credit of $1,000 for your new baby and take an annual tax deduction of $3,950 for each dependent child. You can also receive tax credits if you adopt a child and/or if you pay for child care. You should review your withholding status, which could mean that more take-home money is available to increase your emergency fund every month, for instance. Single parents may be able to claim head-of-household status.
10. Start saving for college: Set up a 529 savings account, which generally is not subject to federal and state taxes if used to pay for college tuition. (If the funds are used for other purposes, earnings may be subject to a 10 percent federal tax penalty.) Details on fees and other aspects of the 529 plans vary by state, so do your research.
A week ago today I was in Phoenix. I had been there for a few days, and I had been planning to spend a month with my girlfriend away from the cold New Jersey weather. It wasn’t a vacation. We each needed to continue working, but figured we might as well do so where the weather was nice.
Early in the morning, I got a frantic call from my apartment complex’s superintendent. “Where are you?”
Groggily, I stated I was out of town and asked what was going on. “We have a major problem.” The sprinkler line in my apartment building froze and burst, dumping cold water, ceiling debris, and insulation into my kitchen. The unit below me was in worse condition, and their basement’s ceiling collapsed.
I ensured the super was aware that I recognized the seriousness, and with some trouble (a different story), I got on a flight back to New Jersey that got me to the apartment later that night. After hanging up with the super, I did two things.
First, I called my insurance company to let them know about the situation. Second, because I knew I probably wouldn’t be able to see the apartment myself until late in the evening, I asked a friend to stop by and assess the damage, taking some photographs. Thankfully, he was available and able to help out.
The insurance company requested that the apartment maintenance staff not remove anything, and I relayed that message to the super, but I didn’t expect them to comply as safety was their primary concern.
By the time I landed and a car dropped me off at my apartment, it was twelve hours after the initial call. The damage in the kitchen was very bad. The carpets throughout my unit were soaked. All in all, however, much of my personal property was fine. The neighbors downstairs were not as lucky.
The landlord determined the best way to deal with the mess would be for me to move all of my belongings out of my apartment so they could begin the repairs immediately. I asked for and received recommendations for moving companies and by the end of the week had a storage facility located, a moving company booked, and the insurance company agreeing to pick up the bills.
The pack-out and move-out lasted several hours yesterday as the temperature plummeted from thirty degrees to zero. But now I’m still waiting for communication with the landlord to determine when the work will start, how long it will take, and how they intend on discounting my rent for the period of time during which my apartment building is uninhabitable.
The damage to my items is generally isolated in the kitchen and the dining room, and my dining room is relatively empty because I converted it to a photography studio.
Liberty Mutual, the insurance company that covers my automobile insurance, renter’s insurance, and umbrella insurance, offered me two options. I could receive a check to cover the depreciated value of my damaged items, with a later reimbursement once I replace those items, or I could use Liberty Mutual’s service for replacing those items, where a company that partners with the insurer seeks out replacements for each of the items and sends it directly to any location I want, thereby avoiding issuing a check to me.
I chose option number one, as my current living situation might not require immediate replacement of everything and I plan spending time away from my apartment.
The insurance company also offered to pay for a hotel, but one of my friends offered up some space in his home. Liberty Mutual will also pay for living expenses, like food, that are above and beyond what I would be spending normally, while I’m out of my apartment.
Communication with Liberty Mutual has been a little difficult, but part of the problem is that the similar problems have occurred in homes across the Northeast region of the United States, and insurance companies are busy dealing with a large number of claims. In my apartment complex alone, a day or two after my incident, there was another burst pipe that flooded a different building. There is obviously insufficient protection during cold weather.
My landlord also hasn’t been very communicative. The super has been nice, but all I know about the repairs is that they expect it to take a week. I think the repairs, including fixing any water damage, replacing the carpets and wood floors, ceilings, walls, and kitchen appliances might need more like a month.
Renter’s insurance is inexpensive, but I’m thankful to have it. I would really love for this incident to be over so I can get back to Phoenix — and get back to life, to work, and to warm weather. After last year’s winter in New Jersey, my plan was to avoid as much of it as possible. And on one of the coldest days, I was brought back, and I’ve been too busy taking care of the emergency to be able to write some articles for Consumerism Commentary.
I can’t complain too much. As I’ve mentioned, with friends, insurance, money available for emergencies, and perhaps some luck, this incident hasn’t been nearly as bad as it could have been. I do feel bad for my neighbors who experienced much more damage and disruption in their lives.
One observation this event has allowed me to make pertains to my accumulation of stuff. Over the past decade, I’ve lived in just two apartments. Prior to that, in the six years after graduating college with a bachelor’s degree, I lived in at least seven different places. While moving around, there was never a big opportunity to settle in and accumulate stuff. That has changed over the past decade.
There’s a lot of items I could get rid of, things I don’t necessarily need in order to live a happy life. But I don’t subscribe completely to the idea of minimalism. Just because all I need to live are a few items, that doesn’t mean that I should limit my life to the bare necessities.
Keep in mind that my living needs are different than many readers. I am an unmarried individual without children. I have no family to support. Thankfully, no one is affected by the flooding in my apartment other than me (and my neighbor downstairs). If my family were displaced by an event like this, the situation would be very different.
With good insurance coverage and a landlord that doesn’t try to weasel out of responsibilities (at least so far), I can be confident that I can return to a great place to live.
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?
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.
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
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.
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.
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?
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 ... Continue reading this article…
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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…
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…
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…
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…
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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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…
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…
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…
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…
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…
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…
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…
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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