Do you need life insurance? Ever wonder what it’s like to go through the process of researching and selecting a life insurance policy? I highly recommend you get life insurance, but I don’t necessarily wish the buying process upon you. It can be tough to navigate.

That’s why today I’m going to share the steps you need to complete while searching for and buying life insurance. I’ll share my experience with buying my own term policy as well. This includes getting the life insurance quote, selecting the insurance company, taking medical exams, filling out applications, and a lot of waiting. Hopefully this quick guide will give you the confidence to take the steps to protect your family.

Step 1: Research the Type and Amount of Life Insurance to Buy

The last thing you want to do is go into the buying process without doing your own research. You need to understand the particular type of life insurance product to buy. And you’ll need to decide how much coverage to sign up for. I’m not going to go into those decisions here because I’ve explained them in prior posts. But I will tell you that making those decisions is easy once you understand the different options.

And unless you have a particularly rare family situation,  you don’t need an insurance salesman to tell you what type or how much to get. While I’m sure there are some very helpful, honest insurance salesmen, you don’t really need them with the wealth of free information available to you on the subject, and the online services / company portals that can help you find the best price.

This process took me only a few days, but I took some time before requesting quotes. I ended up deciding that I needed a $500k 20-year term life insurance policy. Follow that link to learn more.

Step 2: Request a Life Insurance Quote Online

Once you know what you need to buy, you can begin to shop around. As with any major purchase it’s good to shop around and try and find the best deal you can. Here are some options for where to shop:

• Use a Life Insurance Broker – Insurance brokers are usually paid by the insurance companies to bring you in, so there’s no extra cost applied to you. A broker is going to have access to different insurance companies’ policies and rates. Therefore, they can help you find the best price.
• Straight to the Insurance Company – If you already have auto or home insurance with the likes of an Allstate or State Farm, you should see what they can offer in the way of life insurance and a combined policy discount.
• Consider Your Employer – If you work for a big company, odds are they already have you set up with a life insurance policy with a minimal amount of coverage. They also will usually offer more coverage at reasonable prices. You definitely need to compare these prices to see if it makes sense to just buy more from them.People with current health issues should especially consider this insurance because your company is likely not going to require a health exam or deny you because of previous health issues. Keep in mind that you need to make sure that the policy can be converted to your own term life insurance policy in the event you leave the company.

I requested quotes with Zander insurance (the Dave Ramsey endorsed insurance broker), Allstate (my home’s insurer), and ING (ingforlife.com), who just recently started offering insurance through newly acquired ReliaStar. I also checked out my employer options. The quoting process took only a day.

Step 3: Pick a Highly Rated Life Insurance Company

After you get your quote information, don’t rely on price alone to make the decision. Swing by insure.com and check the rating for the company who will be insuring you. I feel safe saying that you wouldn’t want to go with an insurer with a rating less than A. You might also consider doing some general searching online for any issues / complaints with the particular insurer.

I ended up picking ING (ReliaStar). They had the best price, good service, and a good enough rating. Plus, I already have a comfortable relationship with ING’s online banking product.

Step 4: Get a Life Insurance Health Exam

Once you decide on a company, they’ll want you to complete a health exam. They will cover this expense, but you’ll need to schedule some time with the medical company that they use to complete the exam. The exam usually involves a questionnaire, blood samples, height and weight measurements, and a request for medical records. It’s typically done at a time convenient for you, at your home, and is really quick.

I dreaded the exam portion of this process, but it ended up not being that bad. The examiner was very professional and it was over with quickly. It took about 2 weeks from the quote to get the exam performed.

Step 5: Turn in Your Life Insurance Application

The application is usually given to the exam company, who then passes it, along with exam results, to the insurance company’s underwriter, who decides on your insurance class. You may be given the option to pay for your policy at the exam and lock in your insurance. I opted not to do this and to wait to see the final price.

Step 6: Wait for the Insurance Underwriter

An underwriter is the person working for the insurance company who decides if they can insure you and how much it will cost to do it. They factor in as much information as they can about you. The biggest factors are obviously age and health. There’s usually at least a 2 week wait from the time the exam is complete till the underwriter makes the determination.

Step 7: Pay Your Life Insurance Premium

Finally, when the underwriter is done, you’ll be sent your policy and information to make your payment. Once payment is received, you’re insured.

So that’s what you can expect when trying to get life insurance. It’s not an easy process. But I do feel strongly that it’s worth the hassle. I’m happy with the coverage I now have and I rest a bit easier knowing that my family has a bit of protection in the event something happens to me.

Have you purchased life insurance? Was your process similar? If you haven’t purchases it, what’s holding you back?

Photo by Corey Leopold

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Related posts:

1. Why I Bought a $500k 20-Year Term Life Insurance Policy and You Should Too
2. Do You Need Term Life Insurance?
3. Life Insurance: When and Where to Get It?

Hazy summer days are behind us and now we usher in autumn’s beauty and holiday madness. With Thanksgiving preparations in full swing, here are some tips for saving money for your Thanksgiving celebration without taking away any of the joy.

One of the most important steps is to predetermine a head count for who’s eating, prepare a basic menu, and maybe plan some inexpensive activities for the kids to do while the adults cook, clean up, and chat after the meal. Knowing what you need in advance saves you from a very costly emergency trip to the corner convenience store.

Before you begin writing up a grocery list, take inventory of your cabinets and pantry. With a menu established, you can easily determine what staples you need; flour, corn starch, sugar, salt, pepper, allspice and poultry seasoning in addition to grocery list.

If you’re cooking for a small crowd, consider buying a turkey breast instead of a 20 lb. turkey and a package of turkey legs for the dark meat die-hards.

With large crowds, have guests each bring a dish. Most of your guests will probably be family so, unless they’re arriving from the airport, they shouldn’t mind bringing a side dish. For your guests who arrive after dinner, they can bring a dessert. If you wish to serve two meats, have someone bake & bring one and you bake the other. Having guests bring food items also reduces your grocery bill.

Buy some items in advance when they are on clearance; serving dishes & utensils, some canned items, decorations, kids’ crafts. If you’re considering using paper products for eating, keep in mind that does offer convenience but isn’t much of a money saver. For disposable aluminum baking pans, take advantage of your local dollar store prices. Thanksgiving purchases don’t all have to wait until November.

Items such as stuffing, cranberries, evaporated milk, canned pumpkin and some staples will be on sale weeks in advance so watch your grocer sales advertisements and take advantage of those savings. Save considerably more by using coupons in conjunction with what’s on sale and use that to buy crafts or activities for the kids.

Bake your own pumpkin pie rather than pay for convenience. It’s so easy to buy crusts and canned pumpkin, then follow the recipe which usually makes two deep dish pies; all for the cost of one frozen pie.

Don’t go overboard with your decorations. Use nature or buy decorations on Black Friday a year in advance. Take advantage of nature’s beauty by putting pine cones in a bowl then spritz them with cinnamon oil. Or put small evergreen branches in a vase. Fill a wooden bowl with leaves of fall colors and magnolia. Martha Stewart will be jealous and proud.

Some grocery stores offer a free turkey with purchases over a certain dollar amount. If you’re purchasing your groceries at this store, a free turkey equals considerable savings, especially if it’s a 15-20 lb. bird. Stretch those dollars even further by getting multiple meals out of that free turkey. You can freeze the meat for future meals and casseroles.

Debbie Dragon is a freelance writer providing articles for billeater.com, a site that combines articles about saving money with real tools, like the ability to compare insurance quotes.

Photo by turtlemom4bacon

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3. Love Them or Hate Them, Make the Most of Gift Cards this Holiday Season

I joined Upromise a couple of weeks ago to start saving money for little Miss PT’s college education. I had heard of Upromise before, but didn’t bother signing up…because I’m a dork. I’m going to give you the full review below. But if you want to make better use of your time, just sign up with Upromise and get started. This is really one of those things you and I both should have started a long time ago.

Upromise is a free, set-it-once-and-forget-it type program that will earn you free money towards a college education. The savings aren’t lucrative. But it’s extremely easy to set up and then you’re free to just go about your business.

Who is Upromise?

Upromise was founded by Michael Bronner, Founder and Chairman Emeritus of Digitas, a leading marketing services firm. In August 2006, SLM Corporation, commonly known as Sallie Mae and the nation’s leading paying-for-college company, acquired Upromise, Inc. Upromise has given away over $500M in tuition assistance since 2001.

How Upromise Works

In short, you get a kickback from Upromise just by buying from their partners. They cut you in on the commission.

You simply sign up and enter your credit card, debit card, or store loyalty card information. Upromise handles the rest. They track your spending and provide a % payout to you when you buy from one of their partners. Upromise’s partners include ExxonMobil Corporation, JCPenney.com, LandsEnd.com, Sears.com, and hundreds of others.

What makes this so great is that you don’t even have to be conscious of where you’re spending your money. Upromise is partnered with most of the places you will go anyway. There are some ways to optimize your savings with Upromise (see below), but those things aren’t necessary to get the base level of savings.

When you’re ready to withdraw your funds, just make a request for a check, transfer to a 529 Savings Plans, or use it to pay for your own student loans. To request a withdrawal, use this form. (h/t Bargaineering)

What’s the Catch?

There really is no catch. Upromise is a completely free service. They make their money from the Upromise partners, who pay to participate and for marketing opportunities.

How Much Can You Really Save?

I’m just getting started with Upromise. So I can’t exactly boast about my huge savings from the program. I think I have around 21 cents saved since I started a couple of weeks ago. Ha! But, others have gone before me. And they have some significant dollars to show:

• Paul at Fiscal Geek saved over $700!
• Sun from Sun’s Financial Diary saved over $400 (as of 2007).
• Thrify Florida Mama saved over $500 (as of 2007).
• I’ve also seen blog comments from people who have claimed to have earned in the thousands by fully utilizing what Upromise has to offer.

Those numbers are by no means going to cover your kid for their 4 years at Harvard, but they will provide some assistance. And if you can earn that amount without really doing anything extra then you’ve succeeded. Free money!

How to Optimize Your Upromise Savings

Want to make the most of the Upromise system? You should look into their extra services:

• TurboSaver Internet Browser Toolbar
• Upromise Credit Card
• Invite Family Members to Sign Up
• Shop Online Using Upromise.com

Final Thoughts

As I warn with any savings system like this, don’t let the opportunity to save affect your buying decisions. For instance, don’t just browse the Upromise list of merchants to find something to buy so you can save for college. But if you’re already planning to buy, check out their list of merchants and consider using their link.

Also, be conscious of how Upromise might affect your decisions to use your credit or debit card more than you normally would. Bottom line, as long as you can set this up for yourself and don’t really change your spending, it’s going to be a plus for you. Sign up with Upromise and get started.

© PT Money - Visit PT Money for more articles on saving money, frugality, and debt reduction.

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Related posts:

1. 529 Plan and College Savings: Should We Contribute?
2. The Most Effective College Savings Plan? The 529?
3. Ohio CollegeAdvantage 529 Savings Plan: $100 Plus in Bonuses

The holiday shopping season is upon us. Many consumers will be heading out stores soon to find the best deals on stuff they want or stuff they want to give others. “Stuff” has it’s place in this gift-giving season, but gift cards are actually one of my favorites items to give and to receive for most situations. I like gift cards because they’re a consumable gift and they take some of the hassle out of shopping. Gift cards aren’t without their downside though. Some people aren’t a fan of them, calling them restrictive and impersonal.

Whether you love them and give them out, or hate them but still get a few, here’s a few tips for making the most of your gift cards this holiday season:

Giving Gift Cards

If you’re the type that loves to give out gift cards, check out these tips:

Choosing Between Generic Card or Store Brand Cards

There are two basic categories when it comes to gift cards. Those that are basically like a prepaid credit card (generic), and store-specific cards. What type you get depends on the type of person you’re buying it for. The most hard to shop for group of people, teenagers, are also the one’s who would be most likely to want a generic gift card or even just cash. Any other person and you run the risk of seeming too impersonal. So, if you go generic, make sure it’s for a teenager.

For most everyone else, a store-specific card would be appropriate. Do your best to match the store with what you know about the person. If they’re a reader, give them an Amazon.com or book store gift card. If they like sports, consider a gift card to a sport apparel store, or to a ticketing website, where they can find tickets to all types of sporting events. Gift cards for consumable experiences (movies, restaurants, events) are always best in my opinion. I love gifts that don’t clutter up someone’s house.

However, please be careful what store you purchase your gift card for. Stores that go out of business or go bankrupt might not honor the card after a certain point. So aim for cards from stable companies.

Also, it’s important to note that some generic gift cards often come with fees. Stay away from these types.

Don’t Buy Gift Cards for These People

Unless they ask for it, I wouldn’t suggest getting a gift card for your significant other. This is the one person in the world that you should know exactly what to get and not resort to a card. Additionally, you wouldn’t want to get young kids a gift card either. Kids enjoy unwrapping actual gifts. Lastly, people who don’t go online or out that much wouldn’t have much use for a gift card either.

Use a Gift Card to Inspire

Gift cards can be used to inspire a person into certain actions that you or they desire. For instance, if you know someone who never takes the time to treat themselves, consider giving them a gift card to a spa or ice cream shop. Know someone who talks about learning a musical instrument or being more physically active? You can get gift cards for music lessons or sports/active programs.

Look for Kickbacks

Some gift cards come with an incentive for the person doing the giving. Last year I bought a $25 restaurant gift card, and received my own $10 card for free. It was for a place that I frequent, so I felt like it would be put to good use. You might consider this even if you aren’t giving the card away.

Receiving Gift Cards

If you receive a gift card this year, keep these points in mind:

What to do with Gift Cards You Don’t Want

Let’s say you get a gift card that you didn’t really want. For instance, you’re not a coffee drinker and you get a gift card from Starbucks. What a waste, right? Well consider these options:

• Re-gift the card to someone you know is a coffee drinker.
• Browse the various gifts, music, and food at your nearest Starbucks. There may be something besides coffee that you’ll like.
• Use one of the websites that will allow you to trade for a different card or send you a check for your unused gift cards.

Use Them or Lose Them

Unfortunately, some gift cards come with expiration dates. So make it a point to place all your gift cards in a highly visible spot so that you’re sure not to forget about them and let them expire.

Have any other tips related to gift cards? Share them in the comments below.

Photo by litandmore

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You can have the content automatically delivered to you. There are main 5 ways to get my free content delivered to you. None of these 5 ways will ever cost you a dime. They’re all easy to sign up with. And you can unsubscribe from each one instantly, whenever you like. Okay, here’s a comparison so you can determine which one is best for you:

RSS

• Cost: Free
• How Often: 3 or 4 updates per week. You get my articles within minutes of when I post them.  Typically around 6 am CST on Monday, Wednesday, Friday, and sometimes Sunday.
• What You Get: The full content of my latest article. No clutter from the website or sidebar. Just the text and images from my articles. This is my favorite way to read blog posts. If you don’t really understand RSS, check this helpful video explaining RSS.
• How You Sign Up: Click here for my RSS feed.

RSS by Email

• Cost: Free
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• How to Sign Up: Click here for RSS by email.

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Bonus Content Areas:

These next two connection points will give you updates about what’s on this blog. Plus a lot more content. Still free.

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• How You Sign Up: Use the form below…

Let me know if you have any questions about signing up. Thanks again for reading PT Money.

The QuickHits

Listed below are some great blog posts last week from around the pf blogosphere:

A good analysis of time vs money: Is it Silly to Pay Retail to Protect the Value of Your Time?

More info about the homebuyer tax credit:
Senate Extending Home Buyer Tax Credit
Senators Agree to Extend First Time Homebuyer Tax Credit and Allow $6,500 for Current Homeowners

Good tips for the Holidays: 10 Ways to Save Money this Thanksgiving

Other interesting finds:
Finding Financial Treasure
What’s the Average Credit Card Debt in America?
My Wallet Gets Beer Goggles Too
Are You an Expert on Personal Money Management?
Don’t Lose Any Sleep Over Not Having a Good Credit Score

Also, this past week I had the opportunity to write at the Quicken Online Blog. Check out my blog post: The Proven Strategy for Making Extra Money

carnivals… Money Stories, Money Hackers, Debt Reduction, The Best of Personal Finance

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Related posts:

1. Personal Updates and the QuickHits
2. Prime Time Money is Hosting the 156th Carnival of Personal Finance Next Monday
3. Personal Finance QuickHits

Amount of the Credit and Important Dates

As I write this, President Obama is likely signing the bill, which he’s promised to do. So don’t do anything until the bill becomes law if you’re a current homeowner looking to use the $6,500.

If you’re a first-time homebuyer and you were worried about not making the November deadline, you can breathe easy. You still qualify for up to $8,000 in tax credits. In addition, as was mentioned above, people who have owned their homes at least five years qualify for up to $6,500 in credits. I personally have been in my home for a measly three years. So I’m the guy caught in the middle paying his tax who’s not getting a piece of the action here.

Okay, enough of my sob story, here are the important dates involved with the new credit and the extension. It’s easy. The dates are the same for both. Your purchase must be secured by April 30, 2010 and your closings must be finalized by June 30, 2010.

Income Limits

Hold your horses, Richie Rich. You can’t partake. Here are the income limits that Congress says is fair: If you’re a single taxpayers with an adjusted gross income under $125,000 you are eligible for the credit’s full benefits. Joint filers must earn AGI of under $225,000 to get in on the action. If you have an income of up to $145,000 (single) or $245,000 (joint) may receive partial homebuyer tax credits. That’s what you call “phase outs” there folks.

Other Rules that Apply

There are some other rules you might want to be aware of:

• Only those homes that are $800,000 and under are eligible for the tax credit.
• Members of the military serving outside the United States for more than 90 days will have until June 30, 2011, to qualify for the tax credit.
• The program is expected to cost the federal government $10.8 billion.

I’ll mostly leave it to you to decide whether this is a positive thing or not. But I tend to think that while this is a windfall for some people, it’s just another prop up for our Economy as a whole.

Let me hear your thoughts about this new $6,500 tax credit in the comments below…

© PT Money - Visit PT Money for more articles on saving money, frugality, and debt reduction.

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Related posts:

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3. Home Inspections: For Existing and Even New Construction Homes

In light of recent Health Care discussions on my blog and the fact that it’s soon to be benefit re-enrollment period at your work, I thought I’d address a couple of tax-advantaged health care accounts: the Health Savings Account and the Flexible Spending Account.

I’ve used an Flexible Spending Account for some time and I’m just learning about Health Savings Accounts. Let’s look at what they are and how they can help you.

Health Savings Account (HSA)

The Health Savings Account is like an IRA. You get to fund it with pre-tax dollars and it’s typically administered by a financial institution. But unlike an IRA, you get to use the funds when you need them towards qualifying medical costs.

You also get to decide where the funds are invested. You get a lot of control with this account. Tax savings and growth.

Only certain people qualify. You must be enrolled in an HSA-eligible high-deductible health insurance plan.

You’re annual contributions are limited. 2010 limits are $3,050 for individuals and $6,150 for families.

Flexible Spending Account (FSA)

The Flexible Spending Account is a pre-tax dollars savings account your company administers where you’re allowed to save up a year’s worth of health care costs. Most people use it to pay for deductibles, co-pays, and household health care items. It works like this:

At the beginning of the year (or during your benefit open enrollment) you must elect to open the account and save a specific dollar amount.

This account is funded automatically from your earnings at work. Your company will deduct the funds before taxes are calculated (pre-tax).

Throughout the year you’re allowed to spend the dollars you’ve accumulated in the account. The spending must be for qualifying health care costs.

Important: it’s a use-it-or-lose-it type plan. You must spend all the funds in the account or you lose them. Thus, people are normally very conservative with the amount they elect to fund the account.

The effect of using the account is big tax savings. If you normally spend $1,000 on “above coverage” health care costs in a year, you could save around $250 a year by using one of these accounts.

Things you might not have known were qualifying health care expenses (every plan is different, but these oddities are likely qualifying): Hand sanitizer, cold remedies (and other over the counter meds), sunscreen (like Coppertone®), and band aids.

What We Use

We currently use an FSA, which we heavily funded this year for baby medical costs. But we do not qualify for the HSA because we’re lucky to be on a low-deductible premium plan.

Do you use these accounts? How have they worked out for you?

© PT Money - Visit PT Money for more articles on saving money, frugality, and debt reduction.

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Related posts:

1. How Much Do You Contribute to Your Health Care Flexible Spending Account?
2. Should You Move to a High-Deductible Health Insurance Plan and Use an HSA to Make Up the Difference?
3. Flexible Spending Account: Don’t Forget to Update it When You Have a Baby

Tracking Your Future Cash Flow

Do you remember my Excel-based Monthly Expense Tracker? I used to use it religiously to keep track of my future spending and saving goals. This was great because it allowed me to avoid over-drafting my accounts, and helped me to stay focused on reaching my savings and debt reduction goals. Looking  towards your future spending with your goals in mind is far more valuable than simply looking back at your past spending and beating yourself up over failures.

Well, someone took that concept and designed an online software tool that does exactly the same thing. Only theirs is far more interesting to look at and comes with a few more bells and whistles. It’s called PocketSmith.

More About PocketSmith

PocketSmith is a calendar-based financial planner. It helps you maintain a focus on cash flow forecasts. It’s quick and easy to use. In short,

“it uses a calendar paradigm for a unique view on one’s finances, and bridges the gap for many who are looking for a simple and understandable solution for working with their money.”

PocketSmith also comes with modules for adding actual spending data from your bank account. This is done using manual upload. Automation coming soon. They also have a nice goal setting module which works hand in hand with the calendar to help you reach your savings and debt reduction goals.

How PocketSmith Works

When you create your PocketSmith account you are taken to your calendar. Your first step is to load this calendar up with all your known future income, spending, saving, and debt reduction activities. For instance, if you get paid on the 15th, you go to that date and create an “event” called salary (or paycheck or whatever you want to call it).

You’re then able to add in how much your paycheck will be, and set up any type of recurring options (i.e. every month on the 15th). One thing that I noticed PocketSmith might improve on is the ability to add recurring items on specific dates. For instance, I get paid on the 1st and 15th. I’m not able (as far as I can tell) able to set up my salary event using those parameters.

Adding future expenses and savings transfers is just as easy. Once you have it all setup you’re able to see what the projection for your cash flow is. Going forward you need only tweak the calendar events as your information changes.

Sign up with PocketSmith for free using thier free membership plan.

© PT Money - Visit PT Money for more articles on saving money, frugality, and debt reduction.

Download my free e-book: 52 Ways to Make Extra Money...Revisited!

Related posts:

1. How is Your Spending? – Your Mid-Year Financial Check-Up #1
2. Our Financial Goals: Savings and Debt Reduction
3. Are You Saving Enough? – Your Mid-Year Financial Check-Up #2

Here are the actual results (in no particular order):

• I’d say it was a success! We actually made $3 at the end of the week.
• The Christmas cards were a purchase we already had planned and due to a sale price ending during the week we decided to make the purchase this week rather than next. Excuses, excuses, I know.
• The Craigslist sales and consignment shop money were quick money. As were the returns.
• The dinner on Friday night was a feast at Boston Market. They were running a $1 dinner special.
• We still have about $100 worth of items on Craigslist which hopefully will sell soon.

More thoughts about the week:

• It wasn’t that hard to eat more meals from home, thanks to Mrs. PT creating some excellent meal choice for us throughout the week. This made the meals outside the home more special.
• Earning extra money to spend wasn’t that difficult. While there might not always be things to return on hand, there seems to always be something lying around that we could sell on Craigslist. We have a bunch of clutter.
• The clothes consignment shop was easy money too. Although, the lady at the counter told me my styles (that didn’t sell) were “a bit dated.” I took that as a compliment and quickly dropped those items off at Goodwill.
• It didn’t take much planning to prevent those impulse convenient items.
• This is something we should do at least once a month. We really could use to do this sort of thing more often. Recently, we’d gotten lazy with our spending and we haven’t always made the conscious choice with our end goals in mind. This week helped us to be more aware about our spending and live more within our means.

So what do you think about our experiment results?

© PT Money - Visit PT Money for more articles on saving money, frugality, and debt reduction.

Download my free e-book: 52 Ways to Make Extra Money...Revisited!

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3. A Thanksgiving Stuffed with Savings

General Motors recently announced that they are moving towards higher deductible insurance plans. Such things wouldn’t normally be news worthy. But here we are in the middle of a government controlled health care battle. Every piece of health care news seems to have an impact.

So, should you consider moving to a high-deductible plan, if given the option? Odds are if GM (who traditionally has “Cadillac” insurance plans…pun intended) is moving towards higher deductibles, your company will be too. Therefore, you should likely be ready to make this decision for yourself when the time comes.

Below I’ll present an example of someone who’s making the move. I’ll also provide some things to consider when deciding whether it’s right to make a similar change.

Moving to a High-Deductible Plan: An Example

I have a friend who’s current health insurance plan (covering him and two kids) is costing him $614.63/month with a deductible of $500 and a $20 copay. He’s considering a new policy: $278.08/month with a deductible of $5,600. His tax bracket is 25%.

He calculates that the savings on his monthly premiums will be $336.55/month, which is $4,038.60 in a year. That’s incredible savings on the premiums alone! He’s considering using a Health Savings Account (HSA) to stash the difference in plan costs.

But he knows he can’t stop the analysis there. He factors in estimated usage: best case, he says his medical cost for all three people including dental and prescriptions would be $2,000. He’s a young guy, so I’m sure that’s fair.

Under the new plan, he’d have to pay all of this $2,000 out-of-pocket, or out of his newly opened HSA. So the $4,038.60 in premium savings minus $2,000 actual medical cost plus $500 in tax savings using the HSA equals estimated savings of $2,538.60 per year. Pretty good, right?

He says the worst case scenario would be that he has $5,600+ in medical expenses. He gets 25% tax savings, so of the $5,600 deductible, he would only spend $4,200. His other deductible was $500, so to compare he can subtract $500 from the $4,200 to get $3,700. Which compared to $4,038 (saved above) would give him an actual difference in yearly cost of $338.60 to his advantage. Basically, even if he pays his entire deductible, he comes out ahead.

My friend goes on to say,

“Even in the 15% bracket, my worst case would be that I paid $221.40 more a year than I would have with the other plan, which I believe is worth the risk when the savings are so big. Plus I can roll over from year to year and could get an interest-bearing Health Savings Account.

As long as I keep it funded correctly (paying the difference in premium to the HSA until I have it where needed, it should be a great financial situation for me. Once I get it fully funded, I can take the money that I was spending to fund the HSA and put into savings, a Roth IRA, etc.”

Factors to Consider When Thinking of Moving to a High-Deductible Plan

Okay. Let’s extract from my friend’s example some of the key points he used to help make his decision:

• Will you save on premiums? In the example above, the answer was “yes”, and in a big way.
• What’s your estimated usage? I like the way my friend used an average and then compared it to the maximum estimated spend. It might be prudent to break out last year’s actual costs to provide some more perspective.
• Should you be trusted to setup the HSA and contribute? My friend seems to think that would be a easy thing for him. And I agree. The fact that he’s even taking the time to make this calculation shows he’s got the initiative to make the savings happen. And he’s obviously had the money each month if he’s been making that kind of payment. There are some eligibility rules for HSA you should know about. I may discuss that in a later post. Shop for insurance plans with health savings accounts.

But what are some other things to consider?

• Are You Getting Similar Coverage with the New Plan? My friend didn’t mention a couple of things when discussing his old plan vs the new one. The maximum annual out of pocket allowed and the difference in the actual coverage of the plan. If he didn’t already, he should go back and factor those things in.
• Are you healthy enough? If you’re already maxing out your current plan and you have some serious health issues that require prescription drugs, odds are a high-deductible plan isn’t for you.
• Are you about to try to get pregnant?
  
• Do you have pre-existing conditions? On an employer plan, pre-existing conditions aren’t a problem. Moving to a high-deductible plan will create a re-start in your coverage and the insurer is likely to charge you more for those pre-existing conditions.

What’s your take? How do you feel about the analysis done above in my friend’s example? Have you or are you considering a move to a high-deductible plan? Share your experience below…

Photo by Mozo Man

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