Kicking Financial Ass
Page 10
No-fault states require drivers to pay for their own costs after a car accident, regardless of who is at fault. This insurance is known as medical payments coverage, personal injury protection, or no-fault insurance.
With any insurance, choose higher deductibles to save on premiums, but ensure that you have the cash on hand to cover the deductible if the unfortunate occurs. Consider buying all your insurance from the same provider if they offer a discount.
LIFE INSURANCE
There is some debate about whether to purchase life insurance when you are single or only when you have children. The argument for having life insurance when you are single is to have money to pay for your own funeral costs or if you are financially responsible for another person. Additionally, the younger you are, the cheaper the insurance premiums.
If you have kids or have anyone financially dependent upon you, then life insurance is usually a necessity. Through your work or as an individual, have life insurance equal to about 10 times your income, more than that if you have several young children. You want your income replaced if something happens to you. If something happens to you when your kids are young, then that can be a lot of money. I recommend the following when choosing insurance coverage:
Buy Term Life Insurance
Term life insurance is typically the cheapest life insurance. It offers protection for a set time, usually between 1 and 30 years. You typically pay an annual fee and are covered for another year. Think of it as paying for peace of mind that you are covered in case something happens. I recommend a policy that keeps the same price each year. This is called level term and prevents your annual premium from unexpectedly increasing. I further recommend a 30-year level term insurance policy even if you think you may not need it. You can cancel anytime.
Shop Around and Avoid Universal Life Insurance
Shop around when looking for insurance policies. Each insurance company will have different rates, so search for the best quote. Compare them online.
Also, be careful because insurance salesmen typically lead you away from term insurance and try to sell you whole life insurance, also called universal life insurance or a cash value policy. These policies try to sell you on the idea of paying for coverage and a little extra to be invested in the stock market. The insurance salesman receives higher commissions on selling these policies.
What they do not tell you is the rates of return can change and may not be as attractive later down the road. Why not buy term insurance, which has lower premiums, and invest the difference in ETFs yourself? The investment options are limited and will not be in low-cost index funds. And, if you want to cancel your coverage and take out your cash, you could find yourself on the hook for surrender charges.
LONG-TERM DISABILITY
Your most powerful financial asset is neither your home nor your car. It is your ability to make money! If you have children, you need disability insurance. For many young people, having disability insurance is more important than life insurance. Statistically if you are 32 or older, you are about 12 times more likely to become disabled than to die by the age of 65. Again, check to see if you have this option through work. Otherwise, purchase it on your own. You can usually find coverage that is between 50% and 70% of your income.
HEALTH INSURANCE
You need health insurance. Period. Fortunately, in Canada, we are covered. In the United States, however, the number one cause of bankruptcy today is medical bills. The Affordable Care Act (ACA), otherwise known as Obamacare, allows everyone access to insurance, which helps. Insurance companies can no longer turn you down for a pre-existing condition. Having health insurance should arguably be your number one priority. The last thing you want is to bankrupt yourself and your family because you did not have health insurance.
As with any insurance policies, do your homework. If you do not have access through your work, get health insurance through a state health insurance marketplace or obtain it on your own. Check out HealthCare.gov and eHealth.com for rates. Also, see if you can be covered through a family member. Federal rules say your parents can cover you until the age of 26, and some states allow even longer.
One way to control costs is to have large deductibles to lower your premium. Consider opening a Health Savings Account (HSA), which allows you to save for medical expenses in a taxfree savings account. If you end up not using the money in your HSA when you are working, do not worry. It grows tax-free and can be used to pay for medical expenses in retirement.
Be warned, however, that most policies still require you to pay out-of-pocket expenses, even if you have coverage. The Affordable Care Act only allows you to purchase coverage during specific enrolment periods, so get coverage during that time.
DENTAL INSURANCE
According to the National Associate of Dental Plans, 74 million Americans, about 1 in 4, had no dental coverage in 2016. To put things into perspective: The uninsured dental rate has increased to four times the medically uninsured rate. This is dangerous to a person’s financial well-being, considering how expensive dental work can be and the side effects of not regularly receiving dental care. Statistics show that those without dental benefits report higher incidences of other illness:
•67% are more likely to have heart disease
•50% are more likely to have osteoporosis
•29% are more likely to have diabetes
They also visit the dentist less frequently, missing opportunities for prompt treatment and prevention. Over two million visits to the emergency room are for dental treatment annually.
According to the ADA Health Policy Institute’s 2013 Survey of Dental Fees, which is the latest data available, average costs in the U.S. for common dental procedures:41
•Teeth cleaning adult: $85
•White dental filling (one surface, anterior): $149
•Silver filling: $125
•Porcelain crown fused to noble metal: $1,003
•Complete series of intra-oral X-rays: $124
Dental services are not cheap. Chances are you have a plan at work. If you not, consider a discount network, like DentalPlans. com, where you can receive a 15% to 50% discount on service and treatments from participating dentists for $100 to $200 a year. Or, use a service like Brighter.com to compare dental rates and the reputation of dentists in your area. In Canada, look at discount services like ClubDental.ca. Ensure that the discounts you receive are enough to cover the annual fee. Otherwise, it is not worth it. Also, carefully read the limits and restrictions.
Why not buy individual coverage if you are not covered at work? Unfortunately, most plans have poor coverage.42 Dental insurance premiums can also be more expensive than simply paying out of your pocket for routine checkups and cleanings. The reason is that people are more likely to use their dental benefits, increasing the premiums for everyone. The cost for individual coverage is about $350 a year for a typical individual policy compared to $19 to $32 a month, or $228 to $384 a year, through employee and group policies.
Another disadvantage to individual plans is the waiting period, which typically does not apply to group plans. For example, most individual plans do not cover fillings for the first six months of a policy and may not offer coverage for other procedures for up to 18 months. This prevents people from signing up for an insurance policy, having the work done, and then dropping the insurance coverage right after. If you are not covered at work, the discount network is the way to go.
LONG-TERM CARE INSURANCE
If you are under the age of 60, this insurance is not for you. If you are over 60, buy long-term care insurance to cover in-care or nursing home care. Otherwise, the average nursing home is between $40,000 and $70,000 a year. Something most people do not plan for when saving for retirement.
TRAVEL INSURANCE
Travel insurance sounds like buying an overpriced extended warranty, but you should purchase it every time you travel abroad, even if your credit card already offers coverage. Your credit card often has limitation
s on the amount of coverage and the amount of time you are covered. You can also be denied coverage based on your age and medical history. Moreover, the primary benefit of having travel insurance is for the medical emergency and evacuation coverage, which credit cards can have limitations on.
However, if you decide to stick with your credit card coverage, check to see if you are covered for the duration of your trip. You can often extend coverage for an additional fee. Also, see if you qualify since cards with travel insurance exclude you if you fall outside their policies parameters. The one exception to requiring additional travel insurance is if you have a policy through benefits with your work. In that case, a combined credit card and work coverage should provide enough to be safe.
There are 5 types of coverage to look for when shopping for travel insurance:
1. Medical Emergencies and Evacuation
This is the number one reason for travel insurance. A few years ago when I was visiting Tokyo, I had a case of strep throat. Being in a foreign country with a language barrier, I did not know what to do at first but did not want my sore throat and fever to ruin my vacation. Fortunately, I had travel insurance. I called the number on the policy, and they referred me to a nearby clinic. $350 and 30 minutes later, I was in and out with my antibiotics. The policy only cost me $60, so I was ahead financially. Imagine if I had suffered something more severe because the costs can add up quickly!
For more severe emergencies, hospital costs can approach $50,000 per day in some parts of the world, and medical transport home can exceed $100,000. Read the fine print on the policy for the limits on coverage for emergency evacuation, medical expenses, and emergency dental work. Purchase the coverage you are comfortable with. Some credit cards offer emergency and evacuation coverage, but they have limitations, so read the fine print. For example, my credit card43 offers coverage for trips for up to 15 consecutive days if I am under the age of 65. If I am over the age of 65, I am only covered for 3 consecutive days. Furthermore, it does not cover pre-existing medical conditions. It is always better to have extra coverage, just in case.
2. Trip Cancellation and Interruption
This covers costs if you suddenly cannot go on your trip for reasons such as an illness, accident, or death of a close relative. In the unfortunate event that you must cancel a scheduled trip or cut the trip short, your credit card may not cover all your losses.
Note: Trip cancellation and interruption insurance generally only covers the portion of your trip that you buy before you leave. If you are already on your trip and buy the rest of your tickets when abroad, you are out of luck.
3. Baggage and Personal Belongings
While most people buy travel insurance to protect the loss of their belongings, this is arguably the least important aspect of travel insurance. Your health is the most important and potentially the costliest when traveling abroad without insurance. However, it is nice to have your personal items covered in case of theft. You do not want to have to replace a $1,000 laptop or camera if it is stolen. If your credit card offers coverage, research the limitations. My card’s coverage is limited to burglary in a hotel with visible signs of forceful entry, up to a maximum coverage of $2,500. If pickpocketed, I am out of luck.
There are, however, serious exclusions. Most of the time, insurance only covers losses with a police report, which makes sense. But a police report can be difficult to obtain in some countries. On top of that, most policies will not cover unattended belongings. If you went for a swim with your phone on your towel and it was stolen, then you are not covered.
Pro-tip: If you have homeowner’s or renter’s insurance, then your belongings may be covered on your trip. Usually, there is a limit of around 10% of the total coverage on your policy, and your deductible applies to any claims while traveling.
4. Accidental Death or Dismemberment Insurance
If you or your loved one dies on a trip or suffers a life-impairing accident, like losing a hand, this covers you.
5. Personal Liability
If you are in an accident or accidentally cause damage, then this coverage will be applied to your liability and legal expenses. Do not confuse this with car insurance, and not all travel insurance policies cover this.
Remember to purchase travel insurance before your trip, not during or after, otherwise the coverage is void.
For Canadians: If you are away more than six months, obtain a written extension from your provincial health care plan if you live in a province that allows you to do so. If you are traveling within Canada, each province operates differently regarding how your provincial health care plan works when in another province. Some provinces cover physicians but exclude chiropractors and prescription drugs. Others make you pay out of pocket and then reimburse you. Quebec operates differently and does not direct bill at all and only covers certain services.
Travel Insurance Quote Checklist
When looking for a travel insurance quote, ask these questions:
•What is the amount of liability covered?
•Is trip cancellation or trip interruption insurance included?
•Is there a refund available for the unused amount?
•What is the deductible?
•Do you offer a medical service assistance, meaning can you help me find a doctor or hospital?
•Is the policy valid worldwide, including my home country?
•Can I buy my initial insurance after I leave on my trip?
•Can I add to my insurance after I leave on my trip?
SUMMARY
The goal of insurance is to protect your net worth from unexpected life events. Remember the following:
•The 3 reasons to have insurance:
1.You are forced to have insurance.
2.You cannot afford not to have insurance.
3.You are riskier than the insurance company thinks.
•As a general guideline, have coverage for car insurance with liability as a minimum, homeowner’s / renter’s insurance, health insurance, disability insurance, and long-term care insurance, if you are over the age of 60. Strongly consider travel insurance when traveling abroad.
•Raise deductibles to save on premiums. Negotiate your premiums every year to save money, and shop around for insurance rates using online quotes to find the best prices.
•If you have dependents, get term life insurance.
•If you are not covered for dental benefits by your work, look at discount networks to save.
The most important asset you have is yourself. If you have a fulltime job, focus first on being a superstar there. Work as hard and efficiently as possible. Get more done than anyone else, be noticed, and work toward earning a promotion and raise. An investment in your career is the biggest payoff you can make. Chapter 8: Negotiate Salaries & Raises focuses on how to make more at your 9-to-5 job by negotiating for a higher starting salary and increasing your income through raises.
The second part of the equation to earning more money is starting a side hustle. I believe everyone should have a side hustle to increase your earning potential, but do not neglect your fulltime job to do it.
Studies show that entrepreneurs who start a business while still employed tend to do better than those who do not. Blowing through your savings is not an attractive prospect if you decide to jump full-time into your side hustle too soon. In Chapter 9: Have a Side Hustle, you learn how to come up with side hustle ideas and tips on getting started.
CHAPTER EIGHT
NEGOTIATE SALARIES & RAISES
SALARIES
Negotiating your salary44 when starting a new job and negotiating a raise at your current position are two great ways to increase your income.
I will be the first to admit I did not negotiate my salary for my first job out of university. Graduating in 2010 and coming out of the 2008-2009 Financial Crisis, I told myself I was lucky to even have a position in finance, even if it only paid $40,000 per year. In retrospect, it was a mistake. Fortunately, I learned q
uickly, and for my second job, when the company came back with an offer I was not happy with, I negotiated a $15,000 increase over my previous salary.
Everyone should negotiate their pay when starting a new job. You can easily make $5,000 to $10,000 more per year by negotiating. This increase can add up to over $300,000 over a career. Invested properly into index funds, assuming a 25% tax rate, you are looking at between $639,403 (with a $5,000 increase) and $1,278,806 (with a $10,000 increase) over 30 years. You must negotiate. Every dollar counts.
Do Your Homework
Before you go into the interview, have a minimum salary in mind. Base this on careful research using tools like Salary.com, PayScale.com, and GlassDoor.com. Quiz people you know in the industry on what the position is likely to pay. Research, however, is often not enough. You must sell yourself during the interview. Focus on the value you bring to the company not what comparable salaries are. Negotiate for more than just money. Job titles, bonuses, stock options, and vacation days are all benefits in the total compensation package.
Postpone Salary Negotiations Until the Job Is Offered
It is important that salary negotiations should only occur once you have a job offer. Talking compensation too early, especially if you are initiating the discussion, shows you only care about money, and you will likely be cut from the interview process. If the potential employer is asking you about your salary expectations, avoid giving a number.
Let the Other Side Make the First Offer
If asked what your salary expectations are before the job offer, say that you want to know more about the responsibilities and challenges of the role before discussing pay. You do not want to price yourself out of the job. If you discuss compensation early in the interview process, you have not yet demonstrated enough value to the employer. And, they could put a red flag on your application that you are expecting too much. Salary talks should happen at the end of the offer process after you have had a chance to prove your value, meaning when they do not want to lose you.