October 31, 2016

We Got Trouble?

Credit: Sira Anamwong at FreeDigitalPhotos.net
In the Broadway musical The Music Man, one of the most famous songs is called “Ya Got Trouble?” During the song, a smooth-talking con man named Harold Hill tries to convince River City, Iowa locals that they need to give him money for band uniforms and instruments so that he can put together a marching band for the young people and protect them from the debauchery of a pool hall. I’m no con man, and I’m not asking for money for a marching band, but I’m sad to say my words today sound a little like Professor Harold Hill’s in the sense that I think we might be about to be in for some trouble, right here in the good ‘ole US of A.

You see, for many employees and retirees, open enrollment is about to begin, and for people insured through the Health Insurance Marketplace, open enrollment starts November 1st. And the word on the street is not good. I have read numerous pieces from typically liberal-leaning and typically conservative-leaning outlets and I've listened to multiple industry experts talk about 2017 health insurance coverage, and they all seem to be saying the same basic thing: brace yourself. The number of insurance carriers is going down, the number of plans available is going down, and the quality of coverage seems to be going down while the cost of coverage is going up, considerably. Last week some of this projected trouble came to fruition as the White House announced marketplace plan premiums will go up by an average of 25% in 2017.

If you read my blog, you know I’m not often one to sound the alarm. I’m not sounding the alarm today either, but I am trying to get your attention. When your open enrollment packet comes, you need to treat it like you are a member of the bomb squad. Carefully analyze every detail of your situation and proceed only with extreme caution.

We’ll have to see what happens to your premium. We’ll have to see what happens to mine. For now, here are a few general thoughts:
  • If you get a scary letter that your plan doesn’t exist anymore, don’t panic. You’re just going to have to pick another one.
  • If your plan is discontinued, don’t assume you will roll into a similar plan. Likewise, if your plan is still available, don’t assume you will automatically be reenrolled. In some cases, insurance companies feel they are now better off if they don’t have you as a customer at all, so the days of them trying to keep you with some sort of automatic election or renewal may be over. Be careful. You need coverage.
  • A lot of deductible amounts are supposedly going to be higher. If you are looking at a lower deductible plan option, look closely. It may not be as favorable as it once was.
  • A lot of co-insurance percentages are supposedly going to be less, so read carefully.
  • If you are considering going to a lower coverage plan to try and minimize increased premiums or to actually try to reduce your premium, consider your financial situation if you have a major medical event. You could be setting yourself up to win the financial battle if you’re healthy, but lose the financial war if you get sick.
  • The length of covered physical therapy treatments is supposedly going to be reduced. Read the fine print, particularly if you are planning or expecting a surgery that will require extended physical therapy.
  • Some procedures now require other procedures in order to be covered. For example, you might need a CT scan, but it might only be covered if you first have an X-ray. I can personally attest to that little quirk, so read the fine print now, and if the time to use your coverage comes, ask a lot of questions, work with your doctor, and be proactive with your health insurance provider to make sure you play the game as best as you can to reduce your out-of-pocket expenses.
  • If you are considering changing health insurance providers or plans, make sure your doctors you really like are still going to be willing to see you. A trusted, experienced physician might be worth a little higher premium if you can still see them.
  • If you are a retiree and your old employer has always paid your health insurance premiums, you might want to look into how much longer that is going to be the case. With the premium increases of recent years, the expected premium increases in 2017, and the projected premium increases going forward, many companies are beginning to pass some of the health insurance coverage burden to their retirees.
  • If your deductible or maximum out of pocket figure is greater than your cash on hand and rainy day fund, it may be time to boost those up so you can remain financially solvent even if you get hit with a real medical issue.
I’m truly sorry I can’t offer you something more concrete. I just want to warn you about the common tremors I am hearing from media sources that rarely agree. I hope I’m wrong, I hope there’s no trouble in River City, and I hope I can just go play pool!


October 27, 2016

How Much Insurance Do You Need?

Although I don’t sell any type of insurance, I do frequently offer to examine my client’s life insurance policies, disability insurance policies, homeowner’s policies, auto policies, and umbrella policies. Proper risk mitigation is a huge part of a complete and well-executed financial strategy, so I always want to make sure my clients are adequately protected. Often after my examination and analysis I am able to give my clients additional confidence in how they are insured, but there are times where some work needs to be done. Everyone’s situation is unique and there are tons of different types of insurance policies out there, but I would still like to share a few tips and general thoughts that I hope you will find helpful.

How much life insurance do you need? Tell me when you’re going to die and what kind of lifestyle you want your survivors to have and we can talk, but there are some real deep, personal questions to think through, too. Most people wouldn’t want their surviving spouse to starve or the house to be foreclosed on, but do you want to leave so much that your surviving spouse and the infamous pool boy can fill the pool with cash? I typically advise each working spouse to have enough life insurance to pay off all debt plus a little extra to allow flexibility and comfort while the grieving takes place, emotional and financial. I often times see a non-working spouse with young kids (who is doing plenty of work at home!) with no life insurance coverage at all. If the non-working spouse raising the young kids passes away, the working spouse probably can’t financially afford to swap places, so some sort of insurance on the non-working spouse to cover daycare and nanny expenses is worth factoring in. If you have children, it’s also wise to factor in other future expenses such as college expenses and wedding expenses and adding on enough insurance coverage to make sure those items would be funded and covered as well.

How much disability insurance do you need? Well, in my opinion, Yogi Berra wasn’t that far off in Aflac’s commercial when he said you want disability coverage so that “If you get hurt and miss work, it won’t hurt to miss work.” I’m more along the lines of you want enough coverage so that if you get hurt and miss work, it won’t hurt too much to miss work. In many cases you could tighten the belt and make things work if your disability income was not your normal income, but you need to make sure you have enough disability benefits and for long enough so that you could cover your fixed expenses and still maintain a tolerable lifestyle. One other thing, if you can pay for your disability insurance with after-tax dollars (most employers take money out pre-tax), I would recommend you do so. If you’ve paid for disability insurance with after-tax dollars and you do end up getting hurt, you won’t ever have to pay income tax on your disability income!  If you paid with pre-tax dollars, you will. Double whammy!

How much home insurance do you need? Think how much would it cost to rebuild my home?  This usually goes up over time even if your house’s value stays about the same. If your home value appreciates over time, you really should keep a close eye on your coverage and discuss with your agent from time to time. You should also factor in things like the value of your furniture, clothes, jewelry and how much it might cost you to temporarily live somewhere else while your home is repaired or rebuilt. Flood insurance, earthquake insurance, identity theft insurance, and specific belonging coverage (like for an engagement ring) can be added and should also be considered. If you think you only have home insurance in place below or equal to the value of what makes up your home, you may want to give your agent a call.

How much auto insurance do you need? If you get an umbrella policy (see below), this becomes a lot easier because the excess liability piece of your coverage considerations becomes a little less important. Still, you want a reasonable amount of coverage to cover the cost of medical injuries to multiple people and property damage. You might hit a Leaf with only one passenger or you might hit a BMW with 4 passengers. Also consider things like uninsured motorist coverage and windshield coverage that may or may not be adequately included in a base auto policy. I came across a pretty neat suggested auto insurance coverage calculator the other day put together by. It’s worth your checking out and comparing to what kind of auto policy you currently have in place!

How much umbrella insurance do you need? This excess liability coverage comes in multiples of a million dollars’ worth of extra liability coverage and usually only costs a few hundred dollars per million. Should you hit a school bus and the parents of the children on the bus find out you’ve been moderately successful, you’re going to want this coverage if you want to keep your stuff. And since the purpose of this coverage is to help you keep your stuff, you usually want as much coverage as you have stuff, rounded up to the next million.

It’s always better to have insurance coverage and not need it then to need it and not have it, but it can be expensive to have more coverage than you need. If it’s been a while since you’ve taken a look at the risk mitigation part of your financial plan, go kick the tires!