A phone call will save me $400 in the next year!

Today I got a call from State Farm who insures my home. They have called me several times in the past wanting me get a quote for auto insurance. Today I finally had time to entertain the idea so I had them do it. I was expecting it to me a lot more than my already low $400 per year through my Dad.

I was surprised to hear that they were $100 less per year and on top of that I would get a multi-line discount with them bringing down the cost of my homeowner's insurance as well. Between the 2 savings I will get my car insurance at no additional cost than my original homeowner's insurance premium. That pays off nicely!

As I learned on this call is still pays to shop around no matter how good of a deal you think you have. There could be a better deal out their to be gotten!

Car Insurance: I cut mine in half!

I had another cost cutting win today. I called up the insurance agent and found out that by dropping down to the legal minimum on my car I can save $448 per year. That is roughly $35 per month!

My car is a 2003 Honda Civic worth roughly $5,000 to private buyer--hardly worth $448 more per year for insurance. I can bank that money myself instead, earn the interest, have flexibility with that money, and save towards a replacement car if the need should arise.

The savings on insurance each year represents 10% of the value of my car. If I did have a crash and it was totaled I wouldn't even get $5,000 as the insurance company gives you the trade-in value. The blue book has that at around $3,000. Between all the above numbers this decision was a no-brainer for me!

Home Insurance Shopping: Lesson Learned!

I recently switch my homeowner's insurance since it would save me nearly $200 per year. Doing so I went online to insweb.com to get quotes. To be fair I did get some quotes and the end result was good. On the down side I am getting endless calls from insurance agents. I will not do this again!

It was good to get multiple quotes so I can be sure that I get a fair price. The problem lies in the agents. They almost all work on commission and are aggressive. I am to the point now where I simply hang up on all of them as they don't seem to understand that I have bought and am completely not interested in anything they have to say.

I know now better for next time. I will look up and contact a few companies directly so some website doesn't fan out my phone number to 20 people. The fact that this burns my cell phone minutes is a minor annoyance to the calls I get all day long while I am at work. I was also annoyed that most of them did not simply email the quote I requested. They wanted to call and try to sell me other insurance. Lesson learned!

Tip: Saving on Insurance Costs - Pay Premiums Annually

For those with good money discipline you can save a bit on insurance by paying your premiums annually. I do this with my homeowners, auto, and life insurance. In all cases it costs me less. I have a "Bills Escrow" savings account in which I transfer money monthly for annual (and other irregular) expenses.

Example: My Life Insurance -- I have the option to pay $12.85 per month or $146.00 per year. $146 works out to be around $12.17 per month. The difference between the two is not large ($8.20 annually) but it costs me 5.62% less over the 1 year span. I have a 20 year term life policy so over 20 years that saves me $164 which essentially means the 20th year is "free" versus the monthly payment.

Also while the money sits in my "Bills Escrow" online savings account I earn interest. This is a double win since not only am I paying less for my insurance but earning interest while the money sits there on top! I simply take my annual premium and divide it by 12. I transfer that amount each month into the savings account. When the bill comes I transfer the amount I need back and pay it. Simple!

I looked into my other insurance premiums and I found that by paying them annually I save roughly 5% of those premiums by paying annually. This adds up fast on more expensive insurance. Everyone can do this with some planning. To start today you simply call up the insurance company and ask them to switch you to annual payment plans. In most cases you have to pay the difference between now and the next bill immediately.

The next step is to open a "Bills Escrow" savings account (I use ING Direct) and start the monthly transfers to the  account. I like to do separate transfers for each insurance policy for budgeting and ease of tracking. The only slightly tricky part is figuring out the initial deposit. You have to deposit the total amount you should have saved by now on a yearly plan.

Example: Your car insurance is $1200 per year if you pay yearly. You are currently on a monthly payment plan. Let's say you originally got your insurance in June. Most insurance companies will make annual payments due on your policy's anniversary. It is now September. If you switch to an annual plan today you will have to pay ~$900 to the insurance company now (to pay off the rest of this year for the insurance). Now you need to calculate your "back payments" to put into the savings account.

June through September is 3 months. That means you should have $300 in your savings account today. This is your initial deposit for your auto insurance. Starting in October you will set up a transfer of $100 per month to the savings account. By next June (9 months from now) you will have the $1200 you need to pay the annual premium again (plus interest!).

Some numbers: Let's say the total of all the insurance premiums on a monthly plan add up to be $3,000 per year. If switching to an annual payment saves you an average of 5% then you have $150 more per year (plus the interest you earn on the savings account!) to work with. The more expensive insurance you carry the more you win! This will take you a couple of hours to calculate and set up. Great return on investment!

Affordable Health Insurance from Aetna

As part of my 101 goals in 1001 days list I vowed to get dental insurance so I can get some much needed dental maintenance. In my search I came across some low cost, high deductible health insurance than includes dental covered. It is a combined plan that cost me (a 27 year old male) $50 per month!

Basics of the Coverage (Medical):

• Annual Deductible: $10,000 (ouch!)
• 5 doctor visits per year (only $40 copay, deductible waived)
• 5 specialist visits per year (only $50 copay, deductible waived)
• Generic Prescription ($20 copay, deductible waived, $5,000 per year max)

Basics of Coverage (Dental):

• Annual Deductible: $25
• Annual Maximum: Unlimited
• Exams, X-rays, cleanings: 100% Covered
• Fluoride and Amalgam Fillings: 100% Covered
• All other items: "Discount"

I am the first to admit this plan is far from ideal. It is good for routine medical and dental items but anything major will still cost you. If I were to go to the hospital I can safely say I am out $10,000. For $50/month I am willing to take that risk for now just so I can get caught up on my preventative health and dental care. I plan to change to a better plan once I get my debts paid down and can afford it.

Health Care Flexible Speding Account Explained

Health Care Flexible Spending Accounts, created by the federal government, are a great tool if used correctly. You can deposit money pretax to cover medical costs that come up during the year. The rules on what exactly you can use it for are a little fuzzy so I will do my best to explain it.

What can the money be used for?

• Co-pays and deductibles for doctor/hospital visits
• Prescriptions
• Over-the-counter medicines (Pain reliever, cold medicine, etc)
• Uncovered dental expenses
• Chiropractic services
• Uncovered eye surgery and eye glasses/contacts
• Hearing aids + batteries
• Infertility treatment
• Expenses deemed medically necessary (with official Letter of Medical Necessity)
  

Special Notes:

• Vitamins and supplements are NOT eligible
• Insurance premiums are NOT eligible
  
• If you don't use all of the money it is forfeited to the government (you lose it all!)
  
• Usually offered as part of a benefit package
• Elect to have amounts deposited to the account pre-tax form payroll
  

The Health Care Flexible Spending Account is a great tool to save some money on health care expenses via tax savings. You do not have to meet the 7.5% income threshold to deduct them. There is a yearly maximum of $5,000 and minimum if $250 to keep in mind. The best bet is to figure out your average yearly spending on health care that is eligible and use that as your target. If you have money left near the end of the year use it up if you can.

The Health Care Flexible Spending Account is a widely underused tool. I think it is in part due to it being slightly complicated and fuzzy rules. I also think that it has not caught on in the mainstream benefits package offering yet. If you have one available to you I suggest getting on board. Why pay tax when you don't have too?

Term life insurance - The best kind!

Life insurance is a hot topic in the financial world. Lots of folks need it and it is widely available in many different forms. You have term life, whole life, annuities, and all sorts of hybrid. I am here to tell you that you only need to concern yourself with one type: term life.

Term life is the simplest form of life insurance. There is a set time period (term) that the insurance covers. 20 years is the most common term for those looking to cover income for children and spouses. It has a set amount ($1 millon dollars, for example) that will be paid upon your death to whatever beneficiary you select. It has a fixed cost throughout the term.

You will have insurance salesmen try to sell you other types. They will try to scare you with horror stories and other gimmicks to get you to "upgrade" to another product. DON'T do it! They only have their interests at heart (commission) and you almost always lose in the long run. If you want to invest money take the monthly cost difference between a whole life policy and term life policy and invest it yourself.

By investing the difference in premium you get to choose how it is invested, keep all of the returns, and have easy access to it should you really need it. You can invest in IRA's, 401(k)'s, taxable accounts, savings accounts, and anything else you desire. Keep your money in your pocket.

Bottom line here is that term life insurance fits the needs (cheaply) for most of us. If you are really interested in the other products I suggested studying them (and their fine print!) carefully and make a well educated decision. Get the coverage you need and get on with life!

Medical Alternatives for those without health insurance

If you are like me and millions of other Americans you know that health insurance is expensive and out of reach (cost wise) for most of us. I personally do not have health insurance and haven't had it for years. My employer currently offers no plan so I just made do without it. At this point I simply cannot afford it on my own.

For those of us without insurance going to a typical doctor's office is not an option most of the time. I personally rarely get sick so this is normally not an issue for me. I have done some research for ways to get healthcare at a reasonable cost without having insurance. Here are a few options:

• Drug store / Grocery Store Clinics: These are usually set up during the fall/winter to give flu shots. What most people don't know is that they are staffed by a nurse practitioner and you pay set rates for getting other treatments. You pay $59 for flu treatment & prescription of any needed drugs, for example. For someone without insurance this is very reasonable!
• Generic Drugs: This is a big way to save on costs. Most prescription drugs have a generic version which is always cheaper. If the pharmacy does not offer it then ask for it!
• County Health Departments: A lot of counties across the US run a county sponsored health clinic. This is a great place to get shots for school or travel, treatment of minor illnesses, and advice on preventative care. They are also very reasonable cost wise since they are supported by taxes.
• Immediate Care Clinics: This is probably your most expensive option but is still cheaper than a hospital in a bind. These are run for non-emergency care and you can negotiate the price a little if you pay cash. They do accept most insurance providers if you have it. The advantage here is that you can walk in without an appointment and usually be seen right away.
  
• Free Clinics: You may have to wait a long time but you cannot complain for free! These are not everywhere but major cities tend to have at least one. You might wait all day and not get seen but if you need the care and cannot afford any of the above options this is your only choice!

Even if you have no health insurance at all we have some reasonable options out there. It is also good to call a doctor's office and tell them what you need and how much you can pay. Some are flexible and like getting cash today instead of waiting for weeks from an insurance company. It never hurts to bargain and the worst thing they can do is say no!

Buying a house? New PMI Rules!

This is another personal experience that I will share for those of you looking to buy a house in the near future. With the recent rash of foreclosures and bad deals the entire industry is buttoning down. It is a LOT harder than it was a couple years ago.

A little background on my scenario:

I am buying a 3 bedroom, 1.5 bath town home here in the Atlanta area. It is a foreclosure that needs work. I can put up to 5% down on the property with my savings. This puts me in the situation that I would need PMI or Private Mortgage Insurance.

I was informed that my credit score was not high enough to be able to obtain PMI. As it turns out the insurers are really getting hit hard now and they raised their minimum credit score to get PMI. I was blind-sided by this and had to change to an FHA loan last minute.

If you are unable to qualify for PMI and you don't have 20% to put down you are left no choice except to get a government sponsored (read: insured) loan. You still pay "mortgage insurance" but instead of private it is provided by the US Government. I am personally using an FHA loan with 3.5% down since I am a first time home buyer. My interest rate ended up being lower too!

This came as a complete surprise to me so I thought I should share my experience here. I will soon be rid of the insurance as once I get the house, do the repairs and upgrade, and get a new appraisal I will have more than 20% equity. This is a temporary headache (I hope!).

Since I am buying the house through a normal FHA loan I have to pass a HUD inspection. This put me in the unique situation where I have to do repairs on a house I do not yet own. The only reason I am doing this is that once the work is done on the home I should have close to $50,000 in equity. Worth the risk in my opinion.

If you are in the market for a home and will need PMI keep this information in mind. It would be heartbreaking to find a place you like to only find out 2 weeks away from closing that you cannot get it and have the whole deal fall through.