I started thinking about these two different types of life insurance policies again when I recently received a letter in the mail from my insurance provider.  The letter was informing me I had the option to convert to a permanent policy from my 20 year term insurance.  Along with stating the benefit was like owning my policy there were some other benefits mentioned: 

Lifetime protection

Builds equity over time

Cash value accumulates tax deferred

Cash values can be accessed for emergencies, opportunities, to pay policy premiums

Supplement retirement income, pay for long-term care, provide for an inheritance or to pay estate taxes

What is the difference between whole life and term insurance?

So, what is the difference between these two types of policies, anyway?  I have David Bach’s Smart Couples Finish Rich: 9 Steps to Creating a Rich Future for You and Your Partner in my personal finance library and remembered it had a pretty good section on insurance and especially with describing the differences between term and cash value life insurance.  Here’s a summary of what it says:

Term Life Insurance

Term insurance is when you pay a company a monthly premium and the insurance company pays your beneficiary a benefit when you pass away.  Term insurance provides you with a set amount of protection at a set price for a set period of time.    The advantage is that it’s cheap, but the disadvantage is it doesn’t build a cash value.  Once you decide you no longer want the coverage you walk away with nothing.

There are a couple types of term insurance.

• Annual Renewable:  Your death benefit is the same, but your premiums get larger each year because there is an increased risk of you passing away.  The benefit is that it’s really cheap when you’re young.
• Level Term:  Both the death benefit and the premium remain the same for the period of time you selected when you purchased the insurance.

Permanent or Cash Value Life Insurance

Permanent life insurance is basically combining a term policy with a forced savings plan to help you build a nest egg or emergency savings you can use if necessary.  Some people use the savings to eventually pay their monthly insurance premiums [as suggested in the letter I received].  The important thing to keep in mind is permanent insurance is a lot more expensive than term life insurance.  According to Bach, permanent insurance can cost as much as 5 or 10 times as much as term insurance.

There are different types of permanent insurance important to mention.  Here is a quick run-down:

• Whole Life:  It’s much more expensive than term and your savings is placed in a money market account that seldom earns no more than 4-5 % per year (according to Bach).
• Universal Life:  Same as above, but the insurance company invests your premium for you typically promising great returns.
• Variable Universal Life:  You control how you invest your savings portion of your premium with different funds that are offered.

Which life insurance is right for you?

Bach says you should consider term insurance if you’re not buying life insurance as an investment and says in most cases this isn’t what you should be doing.  He also gives some good tips on when you should consider a permanent or cash value policy:

• You want to build cash value for retirement
• You have at least 15 years to invest in the policy
• You earn a high income (at least $100,000 per year)
• You are already maxing out contributions to a qualified retirement plan
• You understand the risks associated with mutual funds

Dave Ramsey also has an opinion in his The Money Answer Book on choosing between the two types of life insurance. 

I would buy term insurance  (10 times your income if you have a child).  The savings portion of a whole life policy is a total rip off.  The interest paid on it only amounts to 2-3 percent. 

There are a few other reasons why Dave prefers term life insurance which I found on his new Dave Ramsey Answers iPhone app. 

The big problem is that, when you die, with the savings insurance, they keep your money.  They will give your beneficiary the check for the face value and keep the savings for themselves.  Cash value is the biggest middle-class ripoff with the exception of maybe the car lease and the credit card.  You could put your money in a fruit jar and it would do better than this insurance!

Yes, Dave does have a way with words, doesn’t he?.  Essentially, Dave is recommending people buy the inexpensive term insurance and invest the difference somewhere else to where you have more investment options and can potentially get greater returns.  One of Bach’s recommendations is also important here.  He states you should max out contributions to a qualified retirement plan first.  In other words, don’t let your life insurance fund your retirement.

Will we switch from term to permanent life insurance?

Overall, I don’t think permanent life insurance is a fit for our family primarily for the reasons provided by Dave Ramsey.  Also, I couldn’t imagine my premiums increasing by as much as 5-10 times as Bach states.  There just isn’t any room in my budget for that type of increase.  But, if there was, I would prefer investing in some mutual funds in which my family could fully inherit upon me passing away.

So, what about you?  Would you switch to permanent life insurance?  Do you have permanent life insurance today?  If so, what were the reasons you felt this was the best choice for you?

Essential Insurance for Life after College

Health or Medical Insurance

If you’ve secured full-time employment with a company after graduating college you’ll have some different medical insurance options to choose from your company plan.  Most employers will allow you to choose insurance day one of employment.  Let me just say you would be foolish to not have any health insurance.  While you might not experience any major health issues, everyone has to see a physician from time to time for illnesses.  More than likely, you’re not married so insurance shouldn’t cost much.  I think it’s wise to choose the most expensive health insurance you can afford to reduce risk and make sure you’re well covered.  If you have a serious illness you’ll want to avoid accumulating debt to pay for treatment.

Car Insurance

Car insurance is required by law if you own a car in most states.  You have to at least have liability insurance that will cover expenses if the accident is your fault.  You may not have a lot of money out of school, so choosing insurance with a $500 deductible is fine.  This means you’ll pay $500 before the insurance agency will start paying any claims.  You can get a lower deductible if you can afford it, but a higher deductible and avoiding speeding is a good way to keep this cost down.  Also, if you have a clean driving record (no accidents and speeding tickets), your premiums will be cheaper.

Renter’s Insurance

Looking back, I’m not quite sure why I never took out a renter’s insurance policy.  Although, I wouldn’t have had much to claim for a theft, it still would have been wise to cover my assets.    Make a list of all your possessions and estimate the value of them to determine how much renter’s insurance you need.  Also, make sure you have an inventory of your items handy.  If you experience a theft or loss the insurance company will want to review the inventory (proof of the loss) before paying your claim.  You might also think about shooting a video of your possessions.

Disability Insurance

It’s always a good idea to have some disability insurance.  Many people get disabled and lose their primary source of income when they can’t work.  The expenses don’t go away, but the income does.  That’s why it’s important to lessen this risk with disability insurance.  Many employers will offer short-term and long-term disability, but the long-term isn’t typically enough to replace your income.   People are often surprised when their disability payments don’t equate to their monthly paycheck, so you may choose to buy some additional insurance outside of your employer’s plan.  Just keep in mind, most graduates don’t have a family to support after school, so be mindful when determining how much you need.

Other Insurance Tips

• Shop around.  Get at least 3 quotes for each type of insurance you’re not purchasing through your employer.
• Try to get your insurance with the same company.  Most companies will offer discounts for insuring auto and home (or renter’s insurance) together.
• Don’t hesitate to ask insurance companies what discounts are available.  Also, some employers can get discounts with insurance companies, so check with your HR department to determine what relationships are in place.
• Check with your insurance agent before purchasing a car.  Some makes and models are more expensive to cover.
• As much as you may not like it your credit is important when saving money on insurance.  Make sure you pay your bills on-time.
• Do you need life insurance?  I would skip it for now unless you have a family.  When you get married, look into purchasing a term life insurance policy.  Avoid whole life insurance, but that’s a subject of another post.

What do you think about these life after college insurance tips?

Foundation of financial stability

But why do you call Me ‘Lord, Lord,’ and do not do the things which I say? Whoever comes to Me, and hears My sayings and does them, I will show you whom he is like: 4He is like a man building a house, who dug deep and laid the foundation on the rock. And when the flood arose, the stream beat vehemently against that house, and could not shake it, for it was founded on the rock. Luke 6:46-48

The strongest structure will not stand on a weak foundation.  A structural example of this is the Leaning Tower of Pisa. Although intended to stand vertically, the tower began to lean soon after its construction because it was built on a poorly laid foundation.  Our financial foundation are the principals of biblical stewardship and giving.  Once this foundation is laid, you have the potential to build wide (diversity) and high (wealth, profit and increase).

The pillars promote a balanced and diversified approach to financial stability.  Conventional wisdom dictates you should not put all your eggs in one basket. Using the pillars as an example, it may be tempting to build the savings pillar without any regards to insurance.  A medical problem could wipe out months, even years of savings.  The Bible also supports diversification:

Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth. Ecc 11:2

Let’s take a closer look at some of the building blocks that make up the 3 pillars.  In the diagram, I placed savings in the middle because it is the load bearing beam.  If you are beginning to build, I recommend starting here.

Savings

Sure you could save money like grandma used to by stuffing it under a mattress, but there is absolutely no security in that!  Find a bank or credit union that is backed by the FDIC or NCUA respectively to insure your money.  Build an emergency fund large enough to match your situation and comfort level.  The personal finance experts cannot agree on the amount.  Some advocate 3 months of expenses, and others advocate as much as 9 months.  Consider the following factors and set a goal/amount that works for you.

• Risk tolerance
• Stability of income stream(s)
• Number of income streams
• Number of dependents
• Other assets

Savings should be secure, low/no risk and accessible when needed.  Traditional savings accounts at a brick and mortal bank or an online high yield savings accounts are appropriate for an emergency savings stash.  As your savings accumulates, check to see if you are eligible for a money market account. Money market accounts work like regular bank accounts except they have higher interest, a minimum balance, and a low limit on the number of withdrawals allowed per month.  This is an excellent fit for an emergency fund as interest will accumulate.

Another building block in the savings pillar is the certificate of deposit (CD).  CDs have a fixed term and typically a fixed-rate.  There are withdrawal penalties, so this is something that should not be considered for an emergency fund.  Generally, the larger the principal deposit and term length, the higher the interest rate.  CDs attract conservative savers and investors because of their low risk.  However, the return is low for the amount of time your money is held up.  The CD laddering strategy attempts to alleviate this.  The idea is to start several CDs at the same time at varying lengths (example: 1yr, 2yr, and 3yr).  As the CD matures, it would be reinvested at the 3-yr term (highest interest rate).  Eventually, all the CDs will be invested at the 3-yr term, however one would mature every year.  Giving you a bit of flexibility.

Insurance

Insurance is like bitter pill.  We take it because we know it’s good for us, but no one really wants to.  However, having insurance is the responsible thing to do, and in some cases it is required by law.  There is insurance for everything under the sun!  The key is to make sure you have enough of the right kind of insurance.

Probably one of the most popular insurance decisions will be whole or term life insurance.  Term insurance is the cheaper of the two.  It provides coverage for a predetermined amount of time (eg. 30 years).  Whole, or permanent life insurance is open ended, providing coverage as long as you pay the premiums.   They also accumulate a cash value.  Generally speaking, there are better mechanisms than a permanent policy.  If you are disciplined in your investments, you may not need to rely on a life insurance product to save for you.  To see where you line up, use bank rate’s insurance calculator.

If you are going to operate a motor vehicle, car insurance is a requirement in every state.  The amount of minimum coverage varies from state to state.  A 2006 report from the Insurance Research Council estimates more than 14% of drivers are uninsured.  The penalties are hefty and not worth jeopardizing your financial stability.  Don’t do it!

Selecting the amount and type of insurance is a delicate balance between cost and peace of mind.  Not enough insurance and you may find yourself unsettled and in dire straits should a need arise.  Consequently, if you spend too much on insurance, you may not have enough to save or build the third pillar…

Investments

Unlike savings, where your money is stored in a safe, accessible manner; investments involve risk with greater potential for gain over extended periods of time.  The primary focus of investing is increasing your net worth and achieve long term financial goals.  The amount and types of investments you choose will vary according to your risk tolerance.  The market fluctuates and your portfolio graph may look like the latest thrill roller coaster.  However, over long periods of time (10 years or more), the market traditionally increases between 8-10%.

Popular investments include

• 401 (k) retirement plans – Many employers will match a portion of your contribution
• Individual Retirement Accounts
• 529 College Savings Plan – Each state’s plan is different.  Shop around!  You don’t have to select the plan in your state of residence
• Mutual funds & Exchange Trade Funds

Of course there are plenty of other entities not listed here.  This is not meant to be an all inclusive list.  When you start with a strong foundation and these 3 pillars, you are on your way to building financial stability.

What does your blueprint for building financial stability look like?  Do you use the three pillars listed?  Could you include more pillars?  Less?

Article written by: Lakita Humber Lakita is an IT Systems Administrator by profession with a passion for the things of God, worship arts, and financial stewardship. She started Personal Finance Journey as a way to help and encourage those on the road to financial freedom. She has been blessed with the opportunity to minister throughout the U.S. and Internationally as a workshop speaker and presenter. Connect with Lakita on Twitter & Facebook.

One of the mistakes was a $1000 administrative error and the other mistake was an incorrect coding of a medical procedure resulting in an over charge of approximately $200.

Fortunately, I was able to identify and dispute the issues which led to a positive resolution.  What is concerning to me is the possibility of past issues I’ve readily agreed to pay which could have been errors.  So now I really start paying attention anytime I’m asked to pay any amount of medical expense out of pocket.

It was not easy to get the above errors corrected, so I’m going to share 10 things you can do to stay on top of such issues and see them through to resolution for your benefit.

1. Review coding: Medical administrators are responsible for coding procedures for insurances purposes.  If you’re asked to pay for a medical expense out of pocket, ask for the medical codes being filed to your insurance.  Contact your insurance company and make sure your insurance is covering the procedure appropriately and the correct codes are being used.

2. Plan ahead: For some procedures and health services you are able to plan ahead.  Contact the service provider and ask for the procedure name or code that will be used.   Contact your insurance provider and find out your insurance coverage beforehand to avoid monetary surprises of the bad kind.

3. Be persistent and follow up regularly: If you encounter an issue, put it on your calendar to make a weekly call to all parties involved.  I’ve found for disputes, there are multiple people who have to get involved with both the medical and insurance organizations.  Don’t accept, “We’ll call you back in two weeks.”

4. Own the issue: Don’t expect someone else to solve the problem for you.  You may say, “It’s their mistake, they need to fix it.”  Let me tell you that no one will own the issue like you will.  Of course, once in a while you’ll come across someone who is willing to go the extra mile for you in customer service, but don’t always count on that.  You must own the problem to resolution.

5. Take good notes: One mistake I made in the case of the $1000 over billing was that my notes turned into chicken scratch on a piece of paper.  They were tough to read later.  I’m usually a more organized person, but trying to make calls during work hours made it more difficult to stay on top of matters and document appropriately.

Consider using a spreadsheet to capture the following:  date and time of call, whom spoken with, organization, what was discussed, action items on your side or their side, other parties mentioned, i.e., “I have to follow up with my boss, Bill, to review what we discussed”, and a direct call back number.

6. Connect parties: If you’re direct in saying you can facilitate the discussion between multiple parties, you may have a better chance of getting it resolved quickly versus the follow up call falling to a long list of calls to be made later in the week.  I was lucky as my insurance provider would put me on hold and contact the medical provider’s office immediately.  I thought this was pretty good service.  A better step may have been to include me in the discussion.

7. Stay aware: Watch bills as they come in the mail, especially, after a hospital procedure or delivery of a baby.  I think we received bills for up to 3 months after our son was born last year.  Don’t assume you owe them anything.  Match bills up to insurance statements, make sure they align and then follow tip 1.

8.  Know your insurance: I feel pretty silly about this one, but the overcharge of $100 was because I didn’t know my insurance well enough.  I was told I needed to pay $100 towards my deductible, when I really didn’t have a deductible for that particular service.

After much hassle between the insurance company and provider, I got it resolved.  Once you sign up for medical insurance, understand your coverage!  Having this information handy will allow you to quickly question or contest requests for out of pocket payments while at the place of service.

9.  Remain calm: this should go without saying (I have to remind myself often), but don’t let yourself get heated.  You’ll do nothing but help someone become demotivated to work with you.  Remain calm and if you don’t like the results, see tip 10,

10.  Don’t be afraid to escalate: If you’re not seeing the results you want, ask to speak to a supervisor.  Make sure you have your facts and call record handy.  Tell the supervisor you’re not satisfied with the lack of progress and simply state the facts.  Again, capture the details of the call and next steps.  Don’t hesitate to contact the supervisor directly if you haven’t heard anything after two business days.

Also, as nice as some people might be, they simply don’t have the knowledge or experience to get what you need accomplished.  Don’t be afraid to escalate in these matters as well.  You’re the one stuck with the bill!

To wrap up, here is one more bonus bit of advice:  get your resolution in writing.  If your bill is reduced or dismissed, ask that a new statement be sent immediately stating such.

Do you have any advice you would like to share based on past experience?  What have you done that has led to the quickest resolution and least amount of pain?