Health Insurance Premiums: Average Annual Cost $19,000 Family, $6,000 Individual

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healthThe Wall Street Journal recently published (paywall?) a chart showing how the average cost of employer-provided health coverage for a family has changed from 1999-2017. The total average annual cost was $18,764 for a family and $6,690 for an individual in 2017. The data source is an annual poll of employers performed by the nonprofit Kaiser Family Foundation along with the Health Research & Educational Trust, a nonprofit affiliated with the American Hospital Association.

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In very rough terms: a single adult is ~$500 per month ($6,000 per year), and a family is about $20,000 a year. These numbers agree overall with the preliminary health insurance quotes that I have gotten for my own family.

In addition to the rising premiums, the average annual deductible is now over $1,200 for a single worker.

The implications for an prospective early retirees are obvious. How are you going to cover this huge expense? Here’s a quick brainstorm of options. Spoiler alert: There is no easy fix.

  1. Use an Affordable Care Act (ACA) plan and get a subsidy if your income is low enough to qualify. Do a lot of reading, then hope it doesn’t change?
  2. Plan ahead with a job that offers health insurance benefits in early retirement (don’t have to be a certain age). You’ll probably have to hunker down with the same employer for a number of years.
  3. Save enough money (or create enough income) to pay for health insurance premiums. Try a managed-care system like Kaiser for a low-cost HMO plan.
  4. Find a part-time job that you both enjoy and offers health benefits.
  5. Run a part-time side business that earns enough profit to cover health insurance costs. Look for potential group discounts or tax breaks that are available as a business instead of a consumer.
  6. Now and later, look for a high-deductible health plan (HDHP) and fund a Health Savings Account (HSA) due to the tax advantages.
  7. Join a direct primary care arrangement or health care sharing ministry that is exempt from ACA.
  8. Extend your current employer coverage for up to 18 months through COBRA (check cost).
  9. Move to a foreign country with reasonable and transparent cash pricing.

Am I missing anything? Right now, we have #4. My family’s future plan is a mix of #1, 3, and 5. However, #5 could push us over the income limits for #1.

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Best HSA Plan Provider For Long-Term “Healthcare IRA” Investing – Morningstar

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piggy_hsaNearly 30% of covered workers are now enrolled in a high-deductible health plan (HDHP). This means a lot more people are also eligible to contribute to a Health Savings Account (HSA). HSAs have the unique feature of triple-tax-free savings when used as designed:

  • HSA contributions are tax-deductible,
  • HSA investments can grow tax-deferred, and
  • HSA withdrawals are also exempt from taxes if spent on qualified medical expenses.

(Penalties: Funds withdrawn for non-healthcare expenses are taxable. If withdrawn before age 65, there is an additional 20% penalty.)

HDHPs have lower premiums in exchange for higher deductibles and higher out-of-pocket maximums. As of 2017, in order to qualify for an HSA, an HDHP must have a deductible of at least $1,300 for individual coverage or $2,600 for family coverage. Many people will use their HSA balance to cover current health expenses. However, if you can manage to pay for your current expenses out-of-pocket while also contributing to the HSA, you have the opportunity to maximize the tax advantages by investing the funds into long-term vehicles like stocks. Here are the annual contribution limits:

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You can then use the future balance to pay for Medicare premiums or other eligible healthcare costs in retirement.

We personally don’t have an HDHP/HSA option from our employers, so I don’t have much first-hand experience. However, Morningstar just released an HSA research whitepaper by Leo Acheson that examined 10 of the largest HSA plan providers:

  • Alliant Credit Union
  • Bank of America
  • BenefitWallet
  • HealthSavings Administrators
  • HealthEquity
  • HSA Bank
  • Optum Bank
  • SelectAccount
  • The HSA Authority
  • UMB Bank

In terms of using an HSA simply as a way to grab the upfront tax break on contributions, you really just want to find an HSA provider that offers a checking account without monthly maintenance fees. Earning 0.50% APY on a $2,000 balance will earn you $10 a year, but a $4 monthly fee will cost you $48 a year. The top plans listed by Morningstar for this short-term purpose were Alliant Credit Union, SelectAccount, and The HSA Authority.

In terms of using an HSA as a portable, long-term investment vehicle (think “Healthcare IRA”), the top plans listed by Morningstar were Bank of America, HealthEquity, Optum, and The HSA Authority. However, as a firm believer in the “Costs Matter Hypothesis”, I would personally narrow it down based on the lowest overall expense ratios (underlying fund + manager fee). Here’s a chart comparing costs for a $15,000 balance (click to enlarge):

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The same cost chart but for a $50,000 balance:

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The two cheapest plans recommended by Morningstar are HSA Authority and HealthEquity. You can see that overall HSA costs are still higher than what you can get in a IRA or better 401(k) plan. At least the selection is pretty good. See HSA Authority investment options and HealthyEquity investment options [pdf]. Below is a sampling from the HealthEquity menu.

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Keep in mind, this is not my list but what Morningstar recommends. One option not listed here is Saturna, which may make sense if you only plan on making a single lump-sum max contribution each year and buy an all-in-one Vanguard mutual fund with one transaction per year.

Please feel free to share your own experiences in the comments below.

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How is Lemonade Different Than Mutual Insurance?

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lemon_logoAfter my initial post about Lemonade insurance, there was a discussion in the comments about how Lemonade’s business model compares with existing mutual insurance companies. Lemonade reached out to me and wanted to clarify some things, and I suggested that they write a guest post about the topic. Lemonade agreed and below is their response:

A Deeper Dive Into the Lemonade Business Model

Not all insurance companies work the same way. Beyond the technology and AI, behind its slick app and website, Lemonade’s different because its business model is different.

As opposed to traditional insurers, Lemonade takes a fixed 20% fee out of your monthly payments, pays reinsurance and other unavoidable expenses, and uses the rest for paying claims. If there’s money leftover, Lemonade returns it in the annual Giveback. Giveback is a unique feature of Lemonade, where each year leftover money is donated to causes our policyholders care about. Policyholders who care about the same causes are virtual groups of ‘peers.’ Lemonade uses the premiums collected from each peer group to pay the group’s claims, giving back any leftover money to their common cause. And, if the group’s claims exceed what’s left in the pool, reinsurance covers it! (Reinsurance = insurance for insurance companies!)

That changes everything.

Insurers typically make money by investing your premiums (“float”) and by paying out less in claims and expenses than they took in premiums (“underwriting profit”).

Lemonade relies on neither. We collect premiums monthly, so the money earns interest in your bank account, not ours, and we return unclaimed money to the causes customers care about at year’s end.

So what does Lemonade do with the remaining 80%?

In a nutshell: pays claims.

Lemonade spends approximately 20% buying ‘reinsurance’ from folks such as Lloyd’s of London, to ensure there will be enough money for claims even in ‘bad’ years. This kind of reinsurance buys peace of mind, but it is costly.

So our data scientists have modeled an optimal mix of internal and external ‘reinsurance’, and set aside another ~20% as the ‘Lemonade Reinsurance’. Think of it as a ‘rainy day fund.’ The costs of reinsurance fluctuate over time, and there are other smaller expenses (transactional fees, premium taxes and others) that are also paid out from this combined 40%.

The final 40% goes towards the Giveback to the cause selected each year, if none of the people who selected that cause make a claim.

Most years, there will be some claims, so the amount available for Giveback will average less than 40%. But our number crunchers tell us there should be a nice amount left for most causes most years.

What about the ‘bad’ years? Fear not. That’s what the reinsurance is for, and Lemonade Reinsurance as well as the reinsurance partners have set aside funds for exactly such a situation.

In short, job #1 is to make sure your claim is paid, job #2 is to Giveback what’s left.

Wait, so how is that different from mutual insurance, you may ask?

Lemonade is the oldest new idea in insurance. And whether you view its tech and user experience as being radically new, or its business model as centuries-old infrastructure, Lemonade is using technology to reconstitute a business model which was once prevalent.

Look at Uber or AirBnB: Neither have created spanking new markets. It’s their technology packaged with a sharing economy-esque business model that is novel. Similarly, there’s nothing new about renters and homeowners insurance, but the technology, together with the behavioral economics and unique business model, differentiate Lemonade from the rest. Lemonade writes policies on your phone in seconds, pays claims in minutes, gives back money to nonprofits, all using AI and other tech that incumbents have not used.

The mutual companies started with the notion that pooling people into meaningful communities, instead of meaningless masses, is better for consumers. But the mutuals of today have wandered off into a different direction from that sense of community that started hundreds of years ago.

What made mutuals stray this way? Well, if you take any community and you enlarge it with millions of anonymous people, the social bonds between the people break down. Insurance companies have tried to cope with the challenge of pursuing growth, but it came at the expense of group affinity.

Yet with technology, you don’t have to trade off affinity for growth. Specifically, affinity in Lemonade has spurred growth, and has not been an obstacle of growth. Think of Lemonade as having thousands of mutuals under one company, rather than being one giant mutual.

Lemonade is a Public Benefit Corporation, a certified B-Corp and our team genuinely wants to do the right thing. Lemonade takes a flat 20% fee so as to never be in conflict with our customers, and never make money by denying claims. By placing ‘unclaimed money’ beyond reach, we removed temptation, and changed the game.

That’s a first for insurance.

Get a free online quote from Lemonade and compare with what you have now if you live in California, New York, and Illinois.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

John Oliver on Why The Credit Report Industry is Awful

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John Oliver of HBO’s Last Week Tonight did a humorous monologue on why credit reporting bureaus are awful. Appropriately, it was last week and I finally got around to watching the 18-minute video tonight. Here is the full video link, embedded below:

Here’s the condensed version:

  • Your credit report can affect your ability to borrow (and thus buy a home), your ability to rent, the price you pay for all kinds of stuff, and even your ability to get a job. Sheesh, what else is there left?
  • 1 in 20 credit reports have errors that are significant enough to hurt your chances at the rather important things I just listed above. That’s 10 million Americans.
  • In an effort to show Equifax, Experian, and TransUnion how such errors can hurt both reputations and business, they created the three websites Equifacks.com, Experianne.com, and TramsOnion.com. (Warning: I left some of these unlinked because they may be considered NSFW.)

In general, I do not micromanage my credit score, but it is scary than an error outside your control could have such harmful effects on your day-to-day life. Perhaps this information will also motivate you to check your credit and consumer reports if you haven’t done so recently. There are also an increasing number of free and/or ad-supported sources of credit reports, credit monitoring, and credit scores. The bad news is that the error dispute process is still slow and complicated, and after you try patience and perseverance, you may need to lawyer up in order to get their attention.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

WreckCheck App – Auto Accident Checklist

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While doing the research for my auto premium comparison post, I noticed that several of the state websites promoted an app called WreckCheck. Created by the National Association of Insurance Commissioners (NAIC), this free mobile app for iPhone and Android is one of those things you should download onto your phone now to hide away in some folder and hopefully never use.

More than simply a checklist, the app will guide you through the steps you should take following an accident. Ideally, it will keep you calm and collected in a time of stress. The app tells you what to do, and also what not to do. As a backup, you can also print out the checklist in PDF form.

Things you should do:

  • Keep your vehicle information handy ahead of time (glovebox or in-app) including VIN, license plate number, insurance company, agent name, and policy number.
  • Document the time and location of accident (uses your GPS).
  • Take pictures of the accident, including damage to all vehicles involved (uses your camera).
  • Document what happened, including vehicles and people involved (uses your audio recorder).
  • Call the police (tap to call 911). If they are not dispatched, file an incident report.
  • Share only your insurance card information, including name and insurance phone number. You are not even required to share your personal phone number.

Things you should NOT do:

  • Share your home address or drivers license number.
  • Allow someone to take or photocopy your ID.
  • Admit fault.

The app can email a completed accident report directly to you and/or your insurance agent. Finally, the app provides tips on how to file and follow up on a claim. Here are some app screenshots and a explanatory video:

wreckapp1

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Big List of Auto Insurance Premium Comparisons for All 50 States

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50states

The standard advice for saving money on auto insurance is to shop and compare prices. You could use a comparison website, but they may not include every insurance carrier listed in your state. A lesser-known fact is that auto insurance is regulated on the state level, where each company must submit their rates for approval. Many states in turn share this information with consumers. Some states also provide complaint data, so you can also view which insurers have the most complaints relative to their market share. Here is an example report for the state of California:

autoins_cal

For the hypothetical scenario above, the difference between the cheapest option (Wawanesa) and the 17th cheapest option (AllState) is over $1,100 a year.

Using this information, a consumer can more efficiently choose to get quotes from the insurance companies which will likely offer them the lowest rates. Individual companies often choose to focus on certain areas of the market – drivers with clean records, drivers with tickets/accidents, teen drivers, and so on. Credit scores are another newer area of focus. Try to find the comparison example that fits your situation the closest.

These premium comparison reports can often be hard to locate, so I manually searched for all 50 states and the District of Columbia and shared my results below. (I used the same template as my free state income tax e-filing post.) Some states share very specific data down to zip code, some share only a few broad example rates, and others share essentially nothing. In alphabetical order (just click on the state):

State Notes
Alabama Click on “Compare Premiums” for the scenario that best fits your own.
Alaska Personal Auto Insurance Premiums Comparison Guide > Premiums Comparison Guide.pdf
Arizona 2015 WEB_AutoPremiumComparison_Publication.pdf
Arkansas Insurance Cost Comparison > Private Passenger Auto
California 2016 Automobile Insurance
Colorado Private Passenger Automobile Premium Comparison Report.
Connecticut None found.
Delaware Automobile Insurance Rate Comparison
Florida Auto Rate Comparison Tool
Georgia Automobile Insurance Rate Comparisons
Hawaii Motor Vehicle Insurance Premium Comparison
Idaho None found.
Illinois No premium info, but some guidance provided including complaint ratios.
Indiana None found.
Iowa Auto Insurance Pricing Guides
Kansas Auto Insurance Shopper’s Guide.
Kentucky Auto and Home Insurance Guide with Disaster Guide and Premium Comparison. [PDF available]
Louisiana Automobile Rate Comparison Guide.
Maine Auto Insurance, Comparison of top 10 policies.
Maryland Auto Insurance – A Comparison Guide to Rates.
Massachusetts Auto Insurance Premium Comparisons.
Michigan Comprehensive Guide to Auto Insurance.
Minnesota None found.
Mississippi Personal Auto Rate Comparison.
Missouri Auto Policies – See policies of insurance companies ranked by market share.
Montana Auto Insurance Price Comparison (pdf).
Nebraska Auto Rate Guide (direct link to PDF).
Nevada Consumer’s Guide to Auto Insurance Rates.
New Hampshire New Hampshire Auto Cost Premium Rate Comparison.
New Jersey Auto Insurance Premium Comparison.
New Mexico None found.
New York No premium comparison, but there are complaint rankings and discount list (pdf).
North Carolina No premium comparison, but there is a Consumer Guide to Automobile Insurance and complaint ratio list for insurers.
North Dakota Cost Comparison Survey
Ohio Shopper’s Guide to Auto Insurance, with example premiums and complaint data.
Oklahoma Rate Comparison Chart.
Oregon No premium comparison found, but the Oregon Consumer Guide to Auto Insurance has helpful info
Pennsylvania A rate comparison guide for Automobile Insurance in Pennsylvania.
Rhode Island Could not find rate comparison, but see Consumers Guide to Auto Insurance for helpful info.
South Carolina Quick Links – Automobile Price Comparison Guide.
South Dakota None found.
Tennessee Limited market share and other info at Personal Auto Policies Rate Changes.
Texas Automobile Insurance Price Comparison
Utah Auto & Homeowner Annual Comparison Tables with Complaint & Loss Ratio Info.
Vermont No premium information found, limited info in Consumer’s Guide To Auto Insurance.
Virginia Auto Insurance Sample Premium Table.
Washington None found.
Washington DC None found.
West Virginia 2011 Annual Survey (see bottom right).
Wisconsin No premium information found, limited info in Consumer’s Guide To Auto Insurance.
Wyoming No premium information found, limited info in Wyoming Personal Automobile Insurance Guide (last updated in 2000, ack!)

 

I have tried my best to locate the information for each state, but it is quite possible I’ve overlooked something or the websites have since changed. Please let me know if you find any errors or broken links.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Exceeding $500,000 SIPC Insurance Limit at Vanguard (or any Brokerage)

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sipcThis post is for the fortunate folks who may possibly exceed the often-quoted $500,000 limits for SIPC insurance ($250,000 for cash). The way this insurance works wasn’t necessarily obvious to me, and although it is often compared to the FDIC insurance of banks, there are many important differences.

The Securities Investor Protection Corporation (SIPC) is a federally-mandated and member-funded organization that provides insurance to customers against the insolvency of broker-dealers. If needed, the SIPC can borrow from the US Treasury to meet its obligations. All broker-dealers are required to be members, including Vanguard (brokerage accounts, not mutual fund-only accounts), Fidelity, Schwab, TD Ameritrade, E-Trade, TradeKing, Robinhood, Betterment, Wealthfront, and so on.

Your assets, for examples shares of Apple stock or an S&P 500 mutual fund, are required by federal law to be held separately from the broker’s assets at all times. Broker-dealers are subject internal and external audits, surprise regulatory examinations, and weekly and monthly reporting requirements. Thus, in the vast majority of cases, there are no missing securities and the primary role of the SIPC is to oversee the transition of assets from the failed brokerage firm to another solvent firm. If there are missing assets, then the SIPC will cover of up $500,000 of missing assets ($250,000 maximum for missing cash), per legal entity.

What is a separate legal entity? Per Wealthfront:

The following would qualify as separate legal entities, each subject to the $500,000 limit: your individual account, your trust, your IRA, your spouse’s individual account, trust and IRA, your joint account, as well as a custodial account for a child. Two IRA accounts held by the same client would be considered one legal entity and thus are combined for purposes of insurance coverage. The same combination occurs when a single client holds two individual taxable accounts.

Another way is to simply hold your assets at two different broker-dealers. If you had an individual taxable account at TD Ameritrade and another at Fidelity, that would be two accounts with $500,000 at each.

How often has SIPC insurance actually been exceeded? Only in less than 0.1% of claims. Here are some stats from a Betterment article based on the SIPC 2014 annual report [pdf]:

Since the inception of SIPC in 1971, fewer than 1% of all SIPC member broker-dealers have been subject to a SIPC insolvency proceeding. During those proceedings, 99% of total assets distributed to investors came directly from the insolvent broker-dealer’s assets, and not from SIPC. Of all the claims ever filed (625,200), less than one-tenth of a percent (352) exceeded the limit of coverage.

Example of meeting and/or exceeding SIPC limits. So for example, you could have $2 million of non-cash assets at a failed firm in a single taxable account. If 75% of assets are recovered from the failed firm, you get $1.5 million back from the firm and $500,000 from the SIPC. If only 50% of the assets are recovered, that’s $1 million back from the firm, $500,000 from SIPC, and you’d be out $500,000 unless there are additional recoveries in the future.

Again, a recovery rate as low as 50% is highly unlikely based on historical failures. Per the SIPC annual report, the average recovery rate for insolvencies is 99%. Most examples that I’ve seen use a 90% recovery rate as a conservative example.

However, if you altered the scenario above to have your $2 million separated in to $500,000 in your individual taxable account, $500,000 in your spouse’s individual taxable account, and $1,000,000 in a joint taxable account, then even in that unlikely 50% recovery rate you’d be made whole.

Situations covered by SIPC insurance

  • Brokerage firm insolvency or bankruptcy.
  • Unauthorized trading. SIPC covers securities may have been “lost, improperly hypothecated, misappropriated, never purchased, or even stolen” by the broker-dealer.

Situations NOT covered by SIPC insurance

  • Market price drops. Fluctuations in the market value of your investments are not covered. In the event of a claim, you will receive the value of the securities held by the broker-dealer as of the time that a SIPC trustee is appointed.
  • Claims in excess of insurance limits. See above.
  • Certain investment types are not covered. As summarized by FINRA:

    Not all investments are protected by SIPC. In general, SIPC covers notes, stocks, bonds, mutual fund and other investment company shares, and other registered securities. It does not cover instruments such as unregistered investment contracts, unregistered limited partnerships, fixed annuity contracts, currency, and interests in gold, silver, or other commodity futures contracts or commodity options.

  • Certain other types of fraud. For example, if a scam artist tricked you into buying a penny stock which is now worthless, that is not connected to an insolvency by the broker-dealer, and is thus not covered by SIPC insurance.

Excess of SIPC Insurance. Many brokerage firms pay for optional, additional insurance on the private market for their clients called “excess of SIPC” insurance in the unlikely situation where a client may exceed SIPC insurance limits. You should contact your brokerage firm or look through their boring annual notices.

For example, I have the majority of my assets held in a new “merged” account at Vanguard Brokerage Services. Looking through their VBS semi-annual notice, you can find the following:

VMC [Vanguard Marketing Corporation] has secured additional coverage for your account, which applies in excess of SIPC, through certain insurers at Lloyd’s of London and London Company Insurer(s) for eligible customers with an aggregate limit of $250 million, incorporating a customer limit of $49.5 million for securities and $1.75 million for cash.

Note the total aggregate limit of $250 million, though. Last time I checked Vanguard mutual funds had over $3 trillion in assets under management. $250 million divided by $3 trillion is only 0.01%. Of course, most of those assets are not held in Vanguard Brokerage Services (but in institutional funds and other mutual fund accounts outside of VBS). Still, $250 million across all of their accounts doesn’t seem like very much. A few big fish with $50 million accounts and most of that would already be used up.

Additional ways to reduce your risk. The basic idea here is that the only way you’ll lose a big amount of money is a spectacular failure. In the past, the brokerage firms that have had spectacular failures have shared a few common traits – bad behavior. Don’t do anything that would foster such bad behavior.

  • Don’t hold your money at a firm that does proprietary trading. If a broker-dealer trades with their own money, there is a greater chance a bad trade will bankrupt them. Also, there may be a greater temptation to “borrow” some client funds to cover any unexpected cashflow needs.
  • Don’t use margin accounts, stick with cash accounts. In a margin account, technically your broker is often allowed to “borrow” your securities for their own purposes (usually loaning it to other broker-dealers). In a cash account, there is no such permission given. This is a bit extreme in my opinion, but perhaps something to consider.
  • Don’t invest in exotic, non-transparent strategies. If your brokerage firm only sells plain vanilla investments, it is much harder to hide any shady business. Mutual funds and ETFs are highly regulated by the SEC. Hedge funds are not nearly as closely-regulated.
  • Keep good records. You should keep copies of trade confirmations. You should keep copies of your latest monthly or quarterly statement of account from your brokerage firm. A trustee may ask you to supply copies of these documents in the case of erroneous statements or trades.

My two cents. Purely my opinion, but this is how I see it:

  • Keeping your accounts to each stay under the $500,000 limit (and not hold cash in excess of $250,000) is the only way to know that you’ll be 100% covered in the cases listed above. Just because something hasn’t happened in the past, doesn’t mean it won’t happen. Unlikely is not impossible.
  • If your account has between $500,000 and $5,000,000 in it, and you’re holding traditional mutual fund or ETFs inside, you’d need a bankrupt firm with less than a 90% recovery rate to lose any money (possibly much less). That is admittedly quite rare. You will have to weigh the risk against the added hassle of splitting your accounts by either institution or legal entity.
  • If you have more than $5,000,000 at a single account type at one broker-dealer, I think it starts to definitely become worth the extra effort to split your assets by either institution or legal entity. The risk may be small, but the potential losses are big. If you have this much, why mess around?
  • I wouldn’t put too much faith into excess SIPC insurance. They usually come with an aggregate limit and you have no idea how close the firm’s current assets are to exceeding that value. The amount of protection you’d receive is not under your control.
My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

CoPatient: Helping You Answer “Is This a Reasonable Medical Bill?”

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copatient0High-deductible health plans are still growing in popularity. While these can be a great way to save on your monthly premiums, it also means that when you do have to visit the emergency room, you get to tackle nearly the entire bill instead of a small co-pay. The problem is that most medical bills cannot be understood by mere mortals. Likely, the doctors and nurses themselves have no clue how that $6,344 bill for a broken arm got generated.

Right now there are honest people that just got their bill, but they are frantically doing internet research because they have no idea if their huge bill is correct or what is “reasonable”. It would be nice for this problem not to exist, but until then I wanted to point out a service called CoPatient. They are made of health insurance company veterans and hire their own medical billers and coders.

You send them your unpaid medical bills, and they review it for free to determine if there are any errors or overcharges. They will send you a free estimate of what they think they can do for you. If you allow them to negotiate on your behalf, they work on a contingency basis and keep 35% of the actual savings. If they don’t save you money, you pay nothing.

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Here’s an example patient flowchart (click to enlarge):

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The legwork that the consumer needs to do is request a detailed, itemized bill from the hospital providers. Some tips from ABC News:

Ask what services are covered under your room and facility charges
Ask what treatments were provided
Identify the date and time of when you were admitted
Clarify medical terminology that is confusing
Specifically look for erroneous double charges, for mischarges, and for situations where a charge defies common sense (e.g., a $22 Q tip).

Here are some quick stats, taken from their website and marketing materials:

More than 80 percent of the medical bills that CoPatient analyzes provide opportunities for meaningful savings. On average, CoPatient saves its customers 40 percent on their medical bills. Since its launch in 2014, CoPatient has saved consumers more than $1 million.

According their iPhone app page, CoPatient finds errors on 80% of all bills it reviews and saves folks an average of $3,000. Their FAQ states that it usually takes ~5 days for the review (more for complicated cases), and 3-6 weeks for the appeals and negotiation process. There is no minimum bill size, they will investigate that $500 unpaid bill.

I’ve never used CoPatient myself, but I would definitely consider it if I was faced with a $5,000+ bill that I didn’t understand. I mean, what would I have to lose?

On a related note, this is yet another consumer service that offers to save money on a contingency basis. That is, they only make money if they save you money. A few others:

  • AutoSlash: Helps you track price drops on rental cards. They make money when you rebook at a lower price with them.
  • Paribus: Helps you automatically request price adjustments on all your online retail purchases. They take a cut of the price drop savings.
  • AirHelp, Refund.Me, AirTaxBack: Get fees refunded for certain cancelled or missed flights to/from Europe. They take a cut of the refund.
My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Consumer Reports on Auto Insurance: Watch Your Credit Score, Shopping Behavior

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. Thank you for your support.

cr_auto0Consumer Reports (CR) has released a multi-part Special Report on Auto Insurance, included in their September 2015 print issue but also available online without a subscription (at least for now). They analyzed over 2 billion quotes from over 700 companies across 33,419 zip codes. Here are some highlights of what they found.

First, here’s a big picture view of which major car insurers are more expensive on average.

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The biggest individual factor in your premium may be your credit score. Clicking on your state on this 50-state interactive map will give you an idea of the effect of having a “poor” or merely “good” credit score as opposed to an “excellent” one. California, Hawaii, and Massachusetts are the only states that prohibit insurers from using credit scores to set prices.

Often, having a poor credit score with clean driving record is more expensive than having an excellent credit with a DUI/DWI! Here’s a screenshot for Florida:

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Another important factor is your loyalty and tendency to comparison shop other items like cable TV. You often think “Loyalty Discount”, but often there is a “Loyalty Penalty”. If you don’t shop your auto insurance, some companies don’t see something to be rewarded; they see a sucker. In my limited experience, the companies with the lowest quotes to entice you from another company are also the ones to hike up the rates every year afterward. Here’s what CR found:

Geico Casualty gave us whiplash with its $3,267 loyalty penalty in New Jersey and its $888 discount just across the state line in New York for longtime customers. State Farm Mutual consistently provided discounts of a couple of dollars up to a few hundred dollars; Allstate Fire and Casualty and Allstate Property & Casualty tended to prefer penalties.

As noted in a previous post, Big Data knows if you’re comparison shopping or not. Such “price optimization” occurs when they find out you could have saved money somewhere else like broadband internet, but didn’t. Not a price-sensitive shopper? You may get the higher rates. Even states that officially ban the practice don’t really have any foolproof way to know if it’s happening. Here’s what CR found:

Amica Mutual and State Farm told us they don’t use price optimization. Representatives from Allstate, Geico, Progressive, and USAA declined to discuss price optimization.

Here’s the general conclusion:

What we found is that behind the rate quotes is a pricing process that judges you less on driving habits and increasingly on socioeconomic factors. These include your credit history, whether you use department-store or bank credit cards, and even your TV provider. Those measures are then used in confidential and often confounding scoring algorithms.

What can a consumer do about all this? Consumer Reports wants you to write to your state’s insurance commissioner, and they have a petition template ready for you. David Merkel of The Aleph Blog says you should simply fight back the market-based way: comparison shop your personal insurance lines every 3 years.

Bid it out. Bid it out. Bid it out. What do you have to lose? If loyalty means something to the insurer, they will likely win the bid. If it doesn’t, they will likely lose. Either way you will win. If you have an agent, they will note that you are price-sensitive. The agent will become more of an ally, even if it doesn’t seem that way.

[…] You don’t need transparency, or more regulation. You don’t get transparency in the pricing of many items. You do need to bid out your business every now and then. You are your own best defender in matters like this. Take your opportunity and bid out your policies.

I tend to agree with Mr. Merkel. However, I am still a long-time customer with State Farm. I’m happy to see that State Farm was found to consistently providing loyalty discounts and claims not to engage in price optimization. I shopped around for auto quotes in 2013 and GEICO was cheaper by about $372 a year. However, I had to balance that with the knowledge that GEICO will probably hike my premiums every year and also I’ve had excellent claim service from State Farm. Perhaps it is time for another comparison shop.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

PolicyGenius Review: Long-Term Disability Insurance Quotes for Bloggers and Freelancers

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policygenuis_logoI would say that the insurance with the highest ratio of most-needed to least-bought would be long-term disability insurance. According to the Social Security Administration, just over 1 in 4 of today’s 20-year-olds will be become disabled at some point before reaching 67. According to a Harvard study, lost income due to illness was a contributor in 40.3% of all personal bankruptcies in the US. Here is a chart that shows the average duration of disability claims lasting more than 90 days, measured from the start of disability to (at most) age 65.

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Sometimes your employer offers group LTD coverage, but what happens when you switch to another job that doesn’t have it, or you get disabled while unemployed? Not all group plans are convertible to individual policies. Finally, what if you are self-employed? Many people are freelance graphic designers, writers, and other hard-to-define jobs.

PolicyGenius is one of many sites that offer online insurance quotes, but their specialty is straightforward information and non-pushy quotes for “young, self-directed people”. They sell:

  • Term life insurance
  • Long-term disability insurance
  • Renter’s insurance
  • Pet health insurance

I have to admit, the fact that they actually listed “blogger” as a legitimate job was the spark that made me want to get a quote from them. I also liked that they only sell term life insurance, and not whole life, permanent life, or indexed-confusing-whatevernot.

Another plus is that they have quotes from all seven major LTD insurers, and the quotes you get should be identical to everyone else’s for the exact same policy from the exact same insurer. That is, there are no various levels of markup depending on where you buy it from, like there is for Tide detergent or a Toyota Camry. The commission to the seller is already baked into the premiums.

I applied for a long-term disability insurance quote, which they call “insurance for your paycheck”. PolicyGenius has a modern, comfortable user interface. First, they’ll ask for basic information like gender, birthdate, and state of residence. Click on any screenshot to enlarge.

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Income. Usually a policy won’t pay more than about 50% to 60% of your current income. I’m guessing they don’t want to make it too appealing an option!

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Health info. Pre-existing conditions are usually excluded. The worse your health, the more likely you’ll become disabled.

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Monthly benefit. Obviously the higher that is, the higher your premium.

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Waiting period. The longer you are willing to wait before claiming a disability, the lower your premium.

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Benefit period. How long do you want to be able to claim benefits?

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Additional riders. There are coverage options which you can add or remove.

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I made a quote with my own personal details, but also an additional quote for the following theoretical situation. The quotes still require additional underwriting, meaning you’ll probably have to submit supporting financial documents and complete a physical examination (blood, urine, body measurements). Here’s a rough outline:

  • Female, non-smoker, California resident, age 33.
  • Current income $5,000 a month. Policy benefit $3,400 a month.
  • Self-employed blogger for 5 years (classified as Reporters and Correspondents).
  • 90 day waiting period, claim until age 65.
  • Own occupation, residual disability, and non-cancelable.

After 3 business days, I was e-mailed a quote of $265 a month from Principal Financial Group for this situation. This was significantly higher than the $130 to $175 a month estimate that was given initially, and much higher than the $98 a month quote I got for myself. My guess is that my monthly benefit was relatively high at 68% of current salary? I have also read that women are quoted higher premium when statistically likely to have a baby since pregnancy causes a lot of disabilities. I wrote back to them asking what things I could tweak (like a lower monthly benefit and/or a 180-day waiting period) in order to get the premium down to around $100 a month.

If you do get a LTD quote yourself, be sure to read all the tips during the quote process and also wade through the entire detailed proposal package for what is excluded. My thoughts are to treat this as true insurance (as opposed to a payment plan), which means you are trying to just cover catastrophic events and hope to never make a claim. That means I tried to make the benefit just big enough, the waiting period as long as I could bear, but I kept the claim period to age 65 in case I become permanently disabled.

I’m sure there are other quote comparison websites out there and also good (human) independent insurance brokers. I chose to run a quote at PolicyGenius because it was easy, convenient, and less intimidating than other places that I’ve tried. If you’ve gotten individual long-term disability insurance, please share your own experiences in the comments.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Big Data Knows If You’re Comparison Shopping… Or Not

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cheapscore0One of the few benefits of getting older is that my car insurance premiums are much lower today than in my 20s. But is that low rate caused by insurance companies knowing that I recently switched high-speed internet and refinanced my mortgage twice? Via drawpoker of Bogleheads, here’s an NPR article called Being A Loyal Auto Insurance Customer Can Cost You about the practice of “price optimization”.

“Well, it’s really profit maximization,” says Bob Hunter, with the Consumer Federation of America. He says insurance companies can buy software that compiles an astonishing amount of data on everyone who buys almost anything, anywhere.

“They have all the information on what you buy at your grocery store. How many apples, how many beers, how many steaks,” he says. “They have all the information on your house. They have incredible amounts of information on are you staying with DirecTV when Verizon is cheaper.”

A sophisticated algorithm crunches that data and spits out an index showing how sensitive a customer is to price increases. Only the insurance company knows the index.

From a USA Today article on the same topic:

Many insurance companies now use a sophisticated data-mining technique called “price optimization” to set rates just high enough that inertia keeps customers from shopping around. Research found that the longer customers had been with their insurers on average, the greater their savings when they switched, due to all the rate increases they experienced during their loyal years. […]

A 2013 Earnix survey found that 45% of large insurance companies and 26% of all insurance companies in North America currently optimize prices, with an additional 36% of all companies reporting they plan to adopt this technique in the future. What this means is that given two customers with identical risk profiles, the one who’s judged less likely to switch carriers if his rate increases will pay more.

In other words, forget just FICO scores affecting your insurance rates. Your grocery club card, your mortgage quote requests, your switching from cable to DSL, your social media activity, it all could be funneling into some sort of “Frugal Cheapskate” Score. If you don’t shop around elsewhere, you probably won’t shop around for your insurance so they can hike it up without worrying about you jumping ship.

If you want some hints as to where you should start your comparison shopping, you may want to check with your state insurance department. For example, California provides some numbers for your rough situation without needing any personally-identifying information. Here are some numbers for a married couple living in Alameda Country, driving 9k to 16k a year, with no accidents or violations. The lowest average premiums are coming from USAA, Wawanesa, and Anchor General.

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My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Your Homeowner’s Insurance Deductible Should Be Catastrophically High

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housemoneyThe NYT Times Haggler just helped a reader who made two small claims on his homeowner’s insurance for (1) a fallen ceiling fan and (2) a stolen bike. Not only did State Farm deny both claims, but they subsequently refused to renew his insurance the next year! This is a unique circumstance, and I’ve heard of co-workers with similar problems. But of course the power of daylight again helped this lucky reader:

After the Haggler’s interactions with State Farm, Mr. Joseph sent an email to the Haggler with the subject line “It worked!” A representative at the company had contacted him and, in conversation, was much more forthcoming than Ms. Risinger. Mr. Joseph learned that in New York City, the average for homeowners is one claim every 38 years.

“Two in two years,” Mr. Joseph recalled this rep telling him, “that makes us concerned.” But after digging deeper into Mr. Joseph’s claims, the company decided that it wanted to keep him as a customer.

You should never make a claim for such small things like a stolen bike or broken appliance (especially if apparently it’s not even covered). Every claim you make will be recorded in an insurance database forever. As a result, if you’re not going to make a $500 or $1,000 claim, then why would you set your deductible to $250 or $500? Set it to $2,500 or higher if you can swing it. I’ve been inching ours up over the years, and I believe it is now $10,000 and even higher for natural disaster insurance. Enjoy the lower premiums, but remember to stock up your emergency fund in return. I used to have a special rider for my wife’s engagement ring, but cancelled that as soon as the value become “non-catastrophic” for our finances.

And we’ve all learned a valuable lesson: Homeowner’s insurance is for disasters. Which means that if you’re lucky, you’ll spend money on it for years and years and never get a dime back.

Exactly. Insurance is not an investment, a maintenance plan, or a replacement for properly securing your property. Insurance is there to protect you from something truly catastrophic happening, like your entire house burning down and them putting you up in a residential hotel for months while they rebuild it (which happened to our friends).

Bottom line: If you have homeowner’s insurance, you should set your deductible as high as you can tolerate. It should be a painful number. Take your premium savings and put it towards your cash reserves.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.