Health Care Options in Retirement

Americans over 65 have two basic health care options: Medicare and managed care. This article looks at the choices available with each, their costs and coverage.

Topics

1. Health Care Options in Retirement
2. Medicare
3. Managed Care
4. Medicaid

1

Health Care Options in Retirement

Ask a group of seniors what their top financial concern in retirement is, and chances are they'll answer "health care." With health care costs skyrocketing and limited coverage by programs such as Medicare, many retirees face stiff monthly health insurance premiums, or worse yet, no coverage at all.

Health care for seniors can be a labyrinth of programs, eligibility restrictions, coverage limitations, and overlaps, with terms varying widely from program to program and plan to plan. In addition to federal programs such as Medicare and Medicaid, some agencies such as the Veteran's Administration offer benefits for specific constituents and many states have different programs of their own with varied eligibility requirements. Additionally, unions and trade organizations may also offer retirement health care benefits. Which of these you may qualify for will depend on your individual circumstances. In general, however, most retirees have two main health care options: Medicare and managed care.
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Medicare

Medicare is the nation's largest health insurance program, covering 40 million Americans. As long as you've contributed enough to the program (through FICA taxes), you'll be eligible for Medicare when you turn 65, regardless of whether you're retired or not. The best time to apply for Medicare is at the first opportunity to do so: the seven-month period that starts three months before your 65th birthday. The program is divided into two components: Part A and Part B.

Part A is called hospital insurance and covers most of the costs of a stay in the hospital, as well as some follow-up costs after time in the hospital. Part A pays some other outpatient medical services, including medically necessary equipment and supplies, home health care, and physical therapy. Under most circumstances, you do not have to pay a premium for Part A.

Part B is medical insurance. This optional coverage is intended to help pay doctor's bills for treatment in or out of the hospital. It also covers many other medical expenses you incur when you are not in the hospital, such as the costs of necessary medical equipment and tests. If you elect Part B, the monthly premium is automatically deducted from your Social Security check. But there are some out-of-pocket expenses that Medicare will not pay for, including prescription drugs, although a Bush Administration proposal to incorporate a prescription drug benefit into the program is under consideration in Congress.

You now have three options for Medicare Part B coverage: the Original Medicare Plan, a Medicare Managed Care Plan (like an HMO), and the Medicare Private Fee-for-Service Plan. Each of these programs has pros and cons. And some may not be available in certain geographical areas. With the Original Medicare Plan, you pay your Part B monthly premium and then pay for additional services as you use them. Medicare Managed Care and Private Fee-for-Service plans are offered by private insurance companies. These programs were initiated to give Medicare recipients more choice in their coverage. With these plans, you must continue to pay your Part B premiums, and you may also have to pay an additional premium to the insurance company as well as any related deductible or co-insurance payments. However, the services you receive may be more comprehensive than those offered through the Original Medicare Plan.

If you opt for the Original Medicare Plan, you might also be interested in securing Medicare Supplement Insurance, or "Medigap" insurance. The term Medigap comes from the notion that these insurance policies will cover the gaps in Medicare payments. Medigap doesn't fill in all the gaps -- but it helps. Before you buy a Medigap insurance policy, consider not only the services covered but also the amount of benefits and the monthly cost of the policy. Also pay attention to how much premiums may rise in years to come. You might also want to compare Medigap with the Medicare Managed Care and private fee-for-service programs, if they are offered in your area.
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Managed Care

"Managed care" refers to the large variety of health care plans offered through employers, unions, insurance companies, state governments, and private institutions. Managed care plans generally fall into two main varieties: health maintenance organizations (HMOs) and preferred provider organizations (PPOs). HMOs are generally less expensive than PPOs, but usually more restrictive in their services and choice of doctors.

For retirees, the decision of which managed care plan to choose often boils down to two factors: local availability and cost. Depending on where you live, your choices may be limited to a handful of organizations or plans. Both HMOs and PPOs have restrictions as to coverage and doctor participation, so it pays to find out what's available in your area. Plan costs also vary widely. Generally speaking, annual costs for Medicare enrollees may vary from under $100 per month to over $500 per month for an individual, depending upon coverage, utilization, and location.

Some companies and unions will provide health insurance as a retirement benefit to their employees and members, or will offer the option of extending their health care coverage to retired employees at group rates. But this benefit is offered by fewer and fewer companies. For example, a survey by the Kaiser Family Foundation and Hewitt Associates found that 43% of companies with 1,000 to 4,999 workers currently offer retiree health benefits. However, between 2004 and 2005, 12% of employers eliminated all subsidized health benefits for future retirees.

However you plan to provide for your health care in retirement, here are some points you'll want to consider:

• Be aware that most retirees need some form of supplemental coverage to pay for health care costs not covered by Medicare.
• Look into coverage and availability well before you retire.
• Check with your employer to see if it offers a retirement health care benefit -- and evaluate its ability to continue providing this benefit throughout your retirement.
• Be prepared for heath problems in retirement. Health issues are part of aging. Don't wait until they happen to cover the costs.

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Medicaid

Medicaid is a program that pays for medical assistance for those with low incomes or disabilities. Eligibility criteria vary from state to state, but in general, you must have a very low income and few financial resources to qualify. In New York State, for example, the monthly income limit for a one-person household in 2006 was just $692, and financial resources could not exceed $4,150.

Source: New York State Department of Health.
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Summary

• As long as you've contributed enough to the program, you'll be eligible for Medicare when you turn 65, regardless of whether you're retired or not.
• Medicare is divided into two components: Part A is called hospital insurance and covers most of the costs of a stay in the hospital; Part B is medical insurance and provides for certain out-of-hospital treatments.
• Medicare Supplement Insurance, or "Medigap," covers some of the gaps in Medicare payments.
• Managed care refers to the large variety of health care plans offered through employers, unions, insurance companies, and state governments, as well as private institutions.
• The decision of which managed care plan to choose often boils down to two factors: local availability and cost. Depending upon where you live, your choices may be limited to a handful of organizations or plans.

Why Disability Income Insurance?

This article discusses the importance of disability income insurance for employees, small-business owners, and the self-employed.

Topics

1. Why Disability Income Insurance?
2. The Most Important Insurance Policy of All?
3. Putting Policies in Perspective
4. Who Needs Disability Income Insurance?
5. How Much Disability Income Insurance Do You Need?
6. Disability Defined

1

Why Disability Income Insurance?

If you were unable to work for an extended period of time due to an injury or illness, how long would you be able to pay your bills and meet your day-to-day expenses? Do you know how much income you would receive from outside sources -- and for how long?

A long-term illness or injury could wreak havoc on even the soundest financial plan and can occur at any time. With that in mind, your best defense against such a financial catastrophe may be the purchase of a disability income insurance policy with enough coverage to compensate for your lost wages.

Disability income insurance replaces part of your income if you become unable to work due to an injury or illness. It provides you with cash that you can use for paying your mortgage or rent, buying groceries, and meeting your daily living expenses. Even if you don't have an immediate need for disability income insurance, it also gives you some peace of mind that comes from knowing that you have a financial plan already in place.
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The Most Important Insurance Policy of All?

In fact, some may argue that disability income insurance is the most important type of insurance policy you can purchase -- more important than homeowner's, health, auto, or even (in certain cases) life insurance. That's because disability income insurance protects one of your most important and valuable assets: your ability to earn income. After all, it is your ability to earn income that allows you to have a car, a home, and a particular lifestyle, as well as to purchase the various insurance policies that safeguard your net worth and the financial well-being of your loved ones.
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Putting Policies in Perspective

For most people, there are two main forms of disability income insurance to consider: employer-sponsored policies and private insurance policies. Employer-sponsored policies (called "group" policies) are relatively inexpensive to purchase and generally remain in effect for as long as the individual continues to work for the company. However, there are often significant limits on the benefits provided by group policies, so it's important to determine whether the coverage is enough to address your potential spending needs. (Government-sponsored disability income insurance programs and policies also exist, but they generally have strict eligibility requirements and therefore don't apply to many people.)

Private insurance policies are paid for by individuals and provide coverage when group policies don't apply or don't provide enough income. On the surface, a private policy is usually more expensive to purchase than a group policy. However, a private policy's potential to provide much greater benefits over time may make it a more prudent long-term choice. And considering that group policies often end up providing inadequate benefits, even those workers with group coverage should consider purchasing a private policy in order to fill the income gaps frequently associated with group-only coverage.

Keep in mind that some people may be eligible for disability benefits through other sources -- such as worker's compensation programs, Veterans Administration pension programs, state vocational rehabilitation programs, and Social Security, among others -- but coverage and availability vary significantly.
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Who Needs Disability Income Insurance?

For all practical purposes, if you need the income you earn at work, you probably also need disability income insurance. Consider this: Almost one third of Americans between the ages of 35 and 65 sill experience a disability of at least 90 days at some point during their working lives. Among those most likely to benefit from disability income insurance are:

Small-business owners and the self-employed. People in this group may be most at risk of financial hardship arising from a disability, since most don't have group coverage and time out of work generally means that income stops flowing. Small-business owners may want to consider purchasing group coverage for themselves and their employees. Offering group disability income insurance coverage does more than simply enhance the financial security of current employees -- the benefit can also help to attract new employees.

High-income professionals. These individuals typically would not receive enough income from a group policy to cover their usual spending needs and to maintain their preferred lifestyle.

Primary "breadwinners." Regardless of whether an individual already has some group coverage, it's important not to be lulled into a false sense of security. Quite often, group coverage just doesn't provide enough money -- even for those with relatively modest spending needs.
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How Much Disability Income Insurance Do You Need?

The key to determining your disability income insurance needs is to assess exactly how much money you would be required to spend during each week or each month that you would be unable to earn your normal pay. For example, if you would need 80% of your pretax earnings, but your group policy would only pay an amount equal to 60%, then you would in all likelihood need additional disability income insurance coverage.

Finally, keep in mind that disability income insurance coverage varies in availability based on your occupation. Some higher-risk jobs may not be covered. Others may offer only limited coverage. That's why it's important to seek the assistance of a qualified insurance professional. He or she can help you assess your disability income insurance needs and find a policy that's most appropriate for you.
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6

Disability Defined

The way in which a disability income insurance policy defines disability can determine your eligibility to receive insurance benefits should you become disabled. Generally speaking, you want a policy with the most favorable definition of disability. Here's a quick overview of the three basic definitions of disability:

Own-occupation. The most comprehensive definition of disability. It essentially states that you're unable to perform the material and substantial duties of your own occupation. Generally speaking, the insurer will consider your occupation as the job you were performing at the time of your disability.

Income replacement. Similar but less comprehensive than the "own-occupation" definition. Policies with income replacement coverage define disability as sickness or injury that doesn't allow you to perform the material and substantial duties of your own occupation and typically stipulate that you're not currently engaged in any other occupation.

Gainful occupation. The least desirable definition. These policies define disability as your inability to perform the material and substantial duties of your occupation or any other occupation that you are considered to be reasonably qualified for by way of your education, skills, or training.
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Summary

• Disability income insurance provides replacement income to individuals who are unable to earn income from work as a result of an extended illness or injury.
• There are two main types of disability income insurance: employer-sponsored (or "group") policies and private policies. Group policies are typically less expensive, but they may also have more restrictions and limitations than private policies.
• Many people with group policies may have a false sense of security due to the mistaken belief that the group policy would provide enough money to meet spending needs. In reality, it may also be necessary to supplement group coverage with private coverage.
• Among those most likely to need disability income insurance coverage are small-business owners, the self-employed, high-income professionals, and anyone who is the primary earner in his or her household.
• Disability income insurance coverage varies based on your occupation.

Long-Term Care Insurance: Understand Your Options

Although America as a nation is aging rapidly, many people avoid thinking about the day when they or a loved one will need long-term care services and, therefore, fail to plan. Others wrongly assume that Medicare or standard health insurance policies will cover the costs of long-term care services. This article provides an overview of long-term care insurance, covering issues such as when to purchase coverage and what to look for in a policy.

Topics

1. Long-Term Care Insurance
2. What Long-Term Care Insurance Is -- And Is Not
3. Shopping for Long-Term Care Insurance: Consumer Guidelines

1

Long-Term Care Insurance

The aging of America is one of the biggest factors contributing to the growing interest in long-term care (LTC) insurance. According to U.S. Census Bureau data, the median age in America has been rising and the last of the 76 million Baby Boomers will reach age 65 by 2030 -- doubling the elderly population in America.

The U.S. Department of Health and Human Services estimates that about 40% of people aged 65 or older have at least a 50% lifetime risk of entering a nursing home. For its part, the Health Insurance Association of America estimates that by 2020, 12 million people may require long-term care.

At a time when the average cost of a private room at a nursing home tops $74,000 a year, long-term care insurance can be a solid investment for individuals who have assets they want to protect or who want to avoid becoming a financial burden to their family. But unlike other types of insurance, in which policies are standardized or fairly straightforward, long-term care policies are complex and vary widely. Virtually every company's policy differs on such matters as who qualifies for coverage, when the policyholder can begin receiving benefits, the amount of coverage, the term of the policy, and premium costs.

Before you begin comparing policies on a feature-by-feature basis, it is important to understand some of the basics.
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What Long-Term Care Insurance Is -- And Is Not

Long-term care insurance is not life insurance, disability insurance, or health insurance. Instead, LTC includes a range of nursing, social, and rehabilitative services for people who need ongoing assistance due to a chronic illness or disability. LTC insurance can be used by anyone at any age who suffers an accident or debilitating illness, but it's most frequently used by older adults who need assistance with essential physical needs, such as bathing, dressing, or eating.

For the most part, those who need long-term care are left to foot the bill on their own. Neither Medicare, nor Medicare supplemental coverage, also known as Medigap insurance, nor standard health insurance policies fully cover long-term care. That leaves most of us with two options when faced with such expenses: pay out-of-pocket or rely on private long-term care insurance.

Most LTC policies are "expense-incurred" or indemnity policies, which pay a fixed-dollar amount toward the cost of daily care. Policies tend to cover a variety of care settings, including nursing homes, home health care, assisted living facilities, and adult day care. Since premium costs increase depending on your age at the time of enrollment, the younger you are when you purchase a policy, the lower the premium you'll pay during the life of the plan.

Once you purchase a policy, premiums generally remain the same each year, so experts recommend that individuals start thinking about long-term care long before they need it. Because long term care insurance premiums are based on age at the time of purchase, the younger you are when you purchase a policy, the less expensive it typically will be.
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Shopping for Long-Term Care Insurance: Consumer Guidelines

When shopping for long-term care insurance make sure you take your time and compare the features of several policies. State insurance regulators and the American Council of Life Insurance, and the Amermican Health Care Association recommend that you pay special attention to the following features.

Company Reputation and Legitimacy. Make sure the insurance companies under consideration are licensed in your state and that they carry favorable financial ratings from well-known ratings agencies such as A.M. Best Company, Duff amp; Phelps, Inc., Standard & Poor's Insurance Rating Services, and Moody's Investor Services, Inc.

Coverage Parameters. Policies will differ in the types of services they support. Some cover nursing home care, others cover custodial or personal care in a variety of settings such as assisted living, adult day care, and home health care. Some include a combination of services. Be sure to choose a policy that best meets your particular needs.

Benefits Payout. How much does the policy pay per day for care in a particular setting (e.g., nursing home, assisted living)? How does the policy pay out services (e.g., a fixed daily amount, as reimbursement for the cost of care up to a daily maximum)? Does the policy have a maximum lifetime limit? If so, what is it for nursing home care? Home health care?

Waiting Period. How long must the insured wait before he or she can begin receiving benefits? Most policies range from zero to 180 days. Typically the longer the period, the lower the cost of the policy.

Eligibility. Does the policy use certain benefit triggers to determine when you will be eligible to receive benefits? Such triggers could include activities of daily living that the insured needs help with, such as bathing, eating, and dressing; cognitive impairment, such as Alzheimer's disease; or a prerequisite hospital stay for nursing home benefits.

Benefits Protection. The policy should include an inflation adjustment feature to ensure that benefits stay in line with rising care costs. Determine what the rate of increase is, how often it is applied, and for how long. Additional protections include a "guaranteed renewable" clause, which states that the policy cannot be canceled when you get older or if you suffer physical or mental deterioration, and a nonforfeiture benefit, which ensures that some portion of your benefits are still available to you if you cancel your policy or unintentionally let it lapse.

Tax Implications. Most long-term care policies sold today are federally tax-qualified, which means premiums paid, as well as out-of-pocket expenses for long-term care, can be applied toward the 7.5% medical expense deductions contained in the federal tax code. Additionally, long-term care benefits received are not taxed as income up to certain limits. Consult with a tax advisor to learn more about the tax implications of long-term care insurance.

Because of the many variables involved in determining whether long-term care coverage is right for you, it is important to do your research. Luckily there is a wealth of information available to consumers on long-term care and related health care issues. A good starting point is the American Health Care Association at www.ahca.org.
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Summary

• The aging of America, and the increasing health care expenses that will follow, are the biggest factors contributing to the growing interest in long-term care insurance.
• Demographers predict that a third of all people who reach age 65 will need to enter a nursing home at some point in time.
• Today the average cost of private nursing home care in America tops $74,000 a year, making private long-term care insurance a potentially smart investment for individuals who want to protect assets and avoid burdening their family.
• In general, long-term care insurance covers a range of nursing home and community-based personal care services for individuals who need ongoing assistance due to illness or disability.
• Neither Medicare, Medicare supplemental coverage, nor standard health insurance cover long-term care expenses.
• Premium costs increase as you age, so the younger you are when you purchase a policy, the lower the premiums you'll pay during the life of the policy.

Buying Life Insurance: What Kind and How Much?

Finding the middle ground between being "insurance poor" and unprotected requires assessing real needs and choosing products that are affordable. This article introduces different types of insurance products and the role that they can play in a personal financial plan.

Topics

1. Buying Life Insurance: What Kind and How Much?
2. Types of Insurance
3. How Much Insurance Do I Need?
4. Other Types of Life Insurance
5. Conclusion

1

Buying Life Insurance

Conventional wisdom says that life insurance is sold, not purchased. In other words, some people are reluctant to discuss the importance of owning life insurance, and others are simply unaware of the need to have life insurance. Although many large companies provide life insurance as part of their benefits package, this coverage may be insufficient.

Who needs life insurance? If there are individuals who depend on you for financial support, or if you work at home providing your family with such services as child care, cooking, and cleaning, you need life insurance. Older couples also may need life insurance to protect a surviving spouse against the possibility of the couple's retirement savings being depleted by unexpected medical expenses. And individuals with substantial assets may need life insurance to help reduce the effects of estate taxes or to transfer wealth to future generations.
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Types of Insurance

Term insurance is the most basic, and generally least expensive, form of life insurance for people under age 50. A term policy is written for a specific period of time, typically 1 to 10 years, and may be renewable at the end of each term. Also, the premiums increase at the end of each term and can become prohibitively expensive for older individuals. A level term policy locks in the annual premium for periods of up to 30 years.

Declining Balance Term insurance, a variation on this theme, is often used as mortgage insurance since it can be written to match the amortization of your mortgage principal. While the premium stays constant over the term, the face value steadily declines. Once the mortgage is paid off, the insurance is no longer needed and the policy expires. Unlike many other policies, term insurance has no cash value. In this sense, it is "pure" insurance without any investment options. Benefits are paid only if you die during the policy's term. After the term ends, your coverage expires unless you choose to renew the policy. When buying term insurance, you might look for a policy that is renewable up to age 70 and convertible to permanent insurance without a medical exam.

Whole Life combines permanent protection with a savings component. As long as you continue to pay the premiums, you are able to lock in coverage at a level premium rate. Part of that premium accrues as cash value. As the policy gains value, you may be able to borrow up to 90% of your policy's cash value tax-free.

Universal Life is similar to whole life with the added benefit of potentially higher earnings on the savings component. Universal life policies are also highly flexible in regard to premiums and face value. Premiums can be increased, decreased or deferred, and cash values can be withdrawn. You may also have the option to change face values. Universal life policies typically offer a guaranteed return on cash value, usually at least 4%. You'll receive an annual statement that details cash value, total protection, earnings, and fees.

Drawbacks to this type of insurance include higher fees and interest rate sensitivity. Universal policies include up-front fees as well as ongoing administrative fees totaling as high as 5% to 7% of your premiums. You may also find your premiums increasing when interest rates decline.

Variable Life generally offers fixed premiums and control over your policy's cash value. Your cash value is invested in your choice of stock, bond, or money market funding options. Cash values and death benefits can rise and fall based on the performance of your investment choices. Although death benefits usually have a floor, there is no guarantee on cash values. Fees for these policies may be higher than for universal life, and investment options can be volatile. On the plus side, capital gains and other investment earnings accrue tax deferred as long as the funds remain invested in the insurance contract.

Universal Variable Life insurance is the most aggressive type of policy. Like variable life, you control your investment in mutual funds. However, there are no guarantees on universal variable policies beyond the original face value death benefit. These policies are probably best suited to affluent buyers who can afford the risks involved.

Key Terms and Definitions

• Face Value -- The original death benefit amount.
• Convertibility -- Option to convert from one type of policy (term) to another (whole life), usually without a physical examination.
• Cash Value -- The savings portion of a policy that can be borrowed against or cashed in.
• Premiums -- Monthly, quarterly, or yearly payments required to maintain coverage.
• Beneficiary -- The individual(s) or entity (e.g., trust) that is designated as benefit recipient.
• Paid Up -- A policy requiring no further premium payments due to prepayment or earnings.

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How Much Insurance Do I Need?

A popular approach to buying insurance is based on income replacement. In this approach, a formula of between five and ten times your annual salary is often used to calculate how much coverage you need. Another approach is to purchase insurance based on your individual needs and preferences. The first step is to determine your unique income replacement needs.

Currently, a large portion of your income goes to taxes (insurance benefits are generally income tax free) and to support your own lifestyle. Start off by determining your net earnings after taxes. Then add up all your personal expenses such as food, clothing, magazine subscriptions, club memberships, transportation expenses, etc. The remainder represents annual income that your insurance will need to replace. You'll want a death benefit amount which, when invested, will provide income annually to cover this amount. Then, you should add to that the amounts needed to fund one-time expenses such as college tuition for your children or paying down mortgage or debt.

Income replacement for nonworking spouses is an important and often overlooked insurance need. Coverage should provide for your costs for day care, housekeeping, or nursing care. Add to this any net earnings from part-time employment.

Finally, estimate your own "final expenses" such as estate taxes, uninsured medical costs, and funeral costs.
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Other Types of Life Insurance

Survivorship life insurance (also referred to as last-to-die or second-to-die) is a unique type of contract that insures the lives of two people. It pays a death benefit upon the death of the second insured. Therefore, it is typically less expensive than two individual policies. Survivorship life is often used for estate planning, where it may be possible to potentially leverage today's dollars -- via insurance premiums -- into a potentially significant death benefit that can be used to fund estate taxes, create wealth for future generations, or benefit a charity. These policies may be available if one insured is medically "uninsurable."

First-to-die life insurance insures the life of at least two people and pays a benefit upon the death of the first insured. This policy is useful for covering a mortgage or other large debt obligation where there is more than one debtor. In addition, it can be an ideal tool for funding a buy-sell agreement within a closely held business.
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Conclusion

Life insurance is an important component of a sound financial plan. Buying insurance involves asking a variety of personal lifestyle and financial questions. If you are not already working with an insurance professional, you may want to consider the advice of a fee-for-service financial planner who can offer you an objective review of your insurance options. When you decide on what you want, there are many solid insurance companies to choose from. Consult your library or an independent insurance professional for companies with the highest ratings from the four ratings agencies: AM Best, Duff Phelps, Standard & Poor's, and Moody's.
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Summary

• Term insurance is basic, inexpensive coverage with premiums that increase over time and have no cash value.
• Consider a term policy that is renewable and convertible to whole life should your needs change.
• Whole life provides level coverage with level premiums. A portion of those premiums goes into tax-deferred savings.
• Check rates on whole life policies and compare them to other investment opportunities.
• Variable life offers control over your investments.
• Premiums on variable policies are fixed, but face value and the value of your investments can fluctuate.
• Universal life offers more investment options, but is highly sensitive to interest rate changes. Universal variable life is highly flexible, but offers no guarantees beyond the original face value.
• Insurance needs are based on income replacement and personal preferences.

The Role of Insurance in Your Financial Plan

Your financial planning isn't complete until you assess and address your insurance needs. This article describes different types of insurance and suggests ways to make sure you are adequately covered.

Topics

1. The Role of Insurance in Your Financial Plan
2. What Are Your Insurance Needs?
3. Auto Insurance
4. Homeowner's Insurance
5. Liability Insurance
6. Life Insurance
7. Disability Income Insurance
8. Health Insurance
9. Long-Term Care Insurance

1

The Role of Insurance in Your Financial Plan

Insurance is an important element of any sound financial plan. Different types of insurance protect you and your loved ones in different ways against the cost of accidents, illness, disability, and death.
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What Are Your Insurance Needs?

The insurance decisions you make should be based on your family, age, and economic situation. There are many forms of insurance and, unfortunately, no one-size-fits-all policy. Life insurance, for example, is a virtual necessity if you have a spouse and children, but perhaps is less important for a single person. Disability insurance, which provides an income stream if you are unable to work, is important for everyone.

Following is a list of the forms of insurance most people require.
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Auto Insurance

Auto insurance protects you from damage to the often considerable investment in a car and/or from liability for damage or injury caused by you or someone driving your vehicle. It can also help cover expenses you or anyone in your car may incur as a result of an accident with an uninsured motorist.

Auto liability coverage is necessary for anyone who owns a car. Many states require you to have liability insurance before a vehicle can be registered. However, state-required minimum coverage often does not provide adequate protection. Suggested minimums are $100,000 for medical expenses per injured person, $300,000 for the total per accident, and $50,000 for property damage. Collision, fire, and theft coverage is also advisable for a vehicle having more than minimal value. You can cut costs, however, by choosing a higher deductible -- the amount of loss that must be exceeded before you are compensated.

The cost of auto insurance varies greatly, depending on the company and agent offering it, your choice of coverage and deductible, where you live, the kind of vehicle, and the ages of drivers in the family. Substantial discounts are often available for safe drivers, nonsmokers, and those who commute to work via public transportation.

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Homeowner's Insurance

Homeowner's insurance should allow you to rebuild and refurnish your home after a catastrophe and insulate you from lawsuits if someone is injured on your property. Coverage of at least 80% of your home's replacement value, minus the value of land and foundation, is necessary for you to be covered for the cost of repairs. There are several grades of policies, ranging from HO-1 to HO-8, with increasingly comprehensive coverage and cost. Unless you increase coverage, most homeowner's policies cover the contents of the house for 50% to 75% of the amount for which the house is insured. The liability coverage in many homeowner's policies is $300,000.
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Liability Insurance

Often called umbrella liability coverage, this takes effect when the personal liability and lawsuit coverage in other policies is exhausted. The cost for $1 million worth of protection -- especially necessary for high-income individuals and those with considerable assets -- may be only a few hundred dollars a year.
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Life Insurance

Life insurance, payable when you die, can provide a surviving spouse, children, and other dependents with the funds necessary to maintain their standards of living, can help repay debt, and can fund education tuition costs. The amount you need depends on your situation. If you make $100,000 a year, have a sizable mortgage, and have two kids headed to an expensive college, you could need $1 million in coverage.

Value-accumulating, but commission-heavy, whole life or universal insurance is often sold as a conservative savings vehicle.

Talk with an insurance agent who offers policies from companies whose financial strength is ranked high by rating agencies. And remember that you can shop around.

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Disability Income Insurance

A long-term disability policy is activated, replacing a portion of your lost income, when you are unable to work for an extended period. Some, but certainly not all, employers cover their employees with some form of company-paid disability income insurance. Typically, such coverage is only partial and/or short-term in nature. Thus, many people seek to purchase an individual disability income insurance policy. If you're buying, try to get a noncancelable policy with benefits for life, or at least to age 65, and as much salary coverage as you can afford. However, keep in mind that the duration of coverage may be limited because of your occupation.

Insurers will usually cover up to 65% of your salary. Generally, you should have total coverage equal to two thirds of your current pretax income.

If your company provides disability insurance, check to see whether it's enough for your needs. Group disability insurance policies may be capped at six months and provide benefits that won't cover your expenses.
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Health Insurance

Most people enjoy medical insurance as an employee benefit, often with their employers paying whole or part of the premiums. Many employers offer a choice between HMOs (health maintenance organizations) and traditional fee-for-service care. Rates for HMOs are usually cheaper but have more constraints. Privately purchased health insurance is much more expensive -- often by several hundred dollars a month -- depending on such things as deductibles, coverage choices, and location.
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Long-Term Care Insurance

With an aging population and uncertainty about the future of Social Security, insurance to cover the high cost of nursing home or at-home health care is becoming more widespread. Medicare pays very little of the cost of long-term care in the United States. Medicaid will pay for the care, but only for patients whose assets are almost completely depleted.

With Congress always debating the future funding of these programs, financial planning for long-term care is more crucial than ever.

Medigap insurance can help pay medical expenses of the elderly not covered by Medicare. However, it doesn't cover custodial nursing home costs. In fact, about half of all nursing home residents pay for the care with personal savings.

Contact a qualified insurance professional or AARP for more information on long-term care insurance.
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Summary

• Your insurance needs will vary based on your family, age, and economic situation.
• Anyone who owns a car should have auto liability insurance. Collision, fire, and theft coverage can protect your investment in a valuable car.
• Homeowner's insurance should provide coverage up to 80% of the cost of replacing your home, minus land and foundation. Homeowners should also have liability coverage, and those with considerable assets may want to purchase liability up to $1 million.
• Life insurance is important for those who have families to cover living and other expenses in the event of death.
• Long-term care insurance can be expensive and complex, but may be a necessity for older people as the long-term coverage of Medicare is often inadequate.

Do I Need to Pay for Insurance When I Rent a Car?

If you have an automobile policy that includes third-party liability, collision, and comprehensive coverages, you can probably decline all coverage offered by a rental car company. Check your policy to be sure, however, especially if you rent frequently.

Your own comprehensive and collision coverage should pay for damages to the rental car. You'll still be responsible for your deductibles. If you aren't carrying collision and comprehensive insurance, however, you should probably purchase the loss or collision damage waiver offered by the rental car company. Without it, you could end up buying them a new car.

Similarly, your automobile insurance should cover you for third-party damages resulting from your rental. If you have no liability coverage (usually this means that you have no automobile insurance), you should consider the liability coverage offered by the rental car company. Where else will the big money required to pay off legal judgments come from?

All other forms of rental car coverage are usually a rip-off. Personal accident insurance is usually just a special-purpose life insurance product, hardly ever a good idea. To cover loss of life, buy life insurance. If your possessions are stolen from the rental car, your homeowner's or renter's insurance should cover the loss.

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Get More Miles for Your Money

Yesterday, I filled up my car's tank and spent $68.75! I just about keeled over. I'm dating myself here, but I remember when you could fill up for five bucks -- and you got a free Hot Wheels car for a full tank.

Not anymore, and certainly not this summer. As I write this, the American Automobile Association's (AAA) Daily Fuel Gauge Report shows the nationwide cost of a gallon of gas at $3.09. Some parts of the country will see the cost of a gallon of gas increase to $4 in the coming months, with a combination of lower inventories and increasingly higher demands to blame.

Wisdom at the Pump

Luckily, there are plenty of smart choices we can make to use gas wisely. We can't directly control the cost of gas at the pump, but with the right mindset we can control how we conserve.

Conservation is all about doing the right thing -- not only for your finances, but for the environment as well, and planning before you pump can make a huge difference. The following nine easy tips show you ways to increase your fuel efficiency and save money this summer.

Here are the tips:

1. Find a bargain.

If you're taking a summer road trip, plan out your route before you go. Identify gas stations along the way that have the lowest prices.

When I stopped in a beach town last week to fill up my car I didn't plan like I should have (I almost ran out of gas), and it cost me the most I'd ever paid for gas -- $3.85 a gallon. Next time I'll go to GasBuddy.com, a site that lets consumers share gas price information easily, and find a better deal before I head for the beach.

2. Keep your tires fully inflated.

The U.S. Department of Energy reports that the average driver can improve mileage by 3.3 percent simply by inflating their vehicle's tires regularly.

In fact, according to the AAA, under-inflated tires are the No. 1 way we waste gas. One out of every four cars and one out of every three pickups, vans, and SUVs have at least one extremely low tire. So pick up a tire gauge at your local auto parts store and check your tire pressure whenever you pull into a service station for gas. Your car's owner's manual will tell you the recommended PSI -- pounds per square inch -- rating.

3. Get a tune-up.

A vehicle in need of servicing is wasting gas in more ways than one. According to the Department of Energy, replacing a clogged air filter can improve your gas mileage by 10 percent, while fixing a faulty oxygen sensor can improve gas mileage by an unbelievable 40 percent.

So kick off your summer by getting that tune-up you've been putting off. Check your owner's manual, or download a free service and maintenance schedule at CarCare.org.

4. Fill 'er up with regular unleaded if possible.

If premium gas isn't absolutely required by your car's manufacturer, then opt for regular unleaded. According to AAA, one out of five gallons of gas pumped in the U.S. is premium -- yet only 10 percent of vehicles require this higher octane fuel.

The truth is that you may not even notice the difference when you drive your car with regular gas instead of premium, and the cost difference can be as much as 40 cents per gallon. If your car doesn't require premium unleaded, you're wasting your money -- premium doesn't improve performance.

5. Adjust your driving habits.

Speeding, excessive accelerating, and sudden braking all waste gas. A more relaxed driving style not only improves safety, it also improves gas mileage by 33 percent for highway driving.

Idling your engine for long periods can also waste up to a gallon of gas per hour. Also, think twice before blasting the air conditioning. According to the Department of Energy, operating your car's air conditioner on its maximum setting can reduce your miles per gallon by 5 to 25 percent compared to not using it at all.

6. Clean out your trunk.

Unnecessary cargo weighs your car down. A hundred extra pounds can reduce your miles per gallon by 2 percent.

Going on vacation? Try to avoid storing luggage on your roof. The increased wind resistance will reduce your mileage as well.

7. Carpool.

You'll literally save thousands of dollars a year in fuel costs if you share a ride to work. Here's an example: If you commute to work 40 miles per day round trip, work full-time, drive a vehicle that gets 24 mpg, and pay the national average for gas, your estimated yearly cost to commute is $5,124.

But if you carpool with one other person, you'll save an estimated $2,562 a year. Carpool with three other people and you'll save an estimated $3,843 a year.

Plug your own commuting numbers into the CommuteSmart cost calculator to see what you can save by carpooling. Then find a rideshare buddy in your area by visiting eRideShare.com.

8. If you're buying a new car, make fuel efficiency a priority.

There's so much to consider when purchasing a new car that fuel efficiency can get lost in the shuffle. By law, however, the Environmental Protection Agency's (EPA) fuel efficiency rating for new cars is posted in large black numbers on a sticker in the window.

Due to the way vehicles (including hybrids) are tested, those EPA ratings didn't used to reflect real-life conditions. But according to a recent Consumer Reports article, the EPA is using a more accurate method for determining fuel efficiency for all 2008 vehicles. So whether you're shopping at a dealer or comparing EPA estimates online, some quick calculations will help you find a fuel efficient car that's right for you.

9. Buy a hybrid, get a tax break.

Driving a hybrid, which runs on a combination of gas and electric power, will significantly increase your miles per gallon. Hybrid cars are becoming more affordable, too.

According to a recent Wall Street Journal article, in the past it took up to 15 years for the cost savings on gas to offset hybrids' higher sticker prices. But now buyers are seeing a significantly shorter length of time to recoup their investment -- for some models, the break-even period is less than a year.

The government is even offering tax incentives when you purchase certain hybrid vehicles. To find out the details, visit the IRS web site. To read more about hybrid cars, visit Yahoo! Autos.

The Right Mindset

Four dollars a gallon sounds scary to Americans. But the fact that demand continues to increase along with price says it all: We complain about high gas costs, but in reality they don't deter our driving.

Fuel prices won't really go down until our dependency on gasoline does. I tend to agree with the experts who say that we could possibly see gas prices reach double-digits before anything truly changes.

Adopting a gas-conserving mindset is a step in the right direction. So think before you pump, and enjoy your summer. Most important, drive safely!

How to Save Big on Your Mortgage

Like some of my fellow Yahoo! Finance columnists, I'm often asked if it makes more sense to prepay a mortgage or invest the money in stocks and bonds. Rather than ponder which asset will get you a higher return, I think the better question is which investment decision will free you financially and allow you to retire earlier.

In my 9 years of experience as a financial advisor for Morgan Stanley, the clients who paid their debts off early -- specifically their mortgages -- retired 5 to 10 years before those who didn't.

If your goal is to retire sooner than your friends, sleep well at night, and save a lot of money over time, here's the best approach I know of prepaying your mortgage.

Going Biweekly

When you set up a biweekly mortgage payment plan, instead of making your monthly mortgage payment the way you normally do you split it down the middle and pay half every two weeks.

The result is that you end up making one extra full payment every year. (Twenty-six half payments is the equivalent of 13 full payments.) The best part is that the extra payment is made gradually over the course of the year, so you don't feel the pinch. And since most people are paid every two weeks, a biweekly payment plan turns out to be a phenomenal budgeting tool.

Anyone can do this. You don't need a special mortgage, and you can set it up anytime.

Pay More, Save More

Say your mortgage payment is $2,000 a month. With a biweekly plan, instead of sending a $2,000 check to your mortgage lender each month, you would send them $1,000 every two weeks.

By doing this, the miracle of compound interest reduces your debt. You actually end up paying off your mortgage early -- somewhere between 5 and 10 years early, depending on the duration of your loan and your interest rate.

On average, a U.S. homeowner with a $300,000 mortgage can save upwards of $100,000 over the life of his or her mortgage just by following this simple program. And if that's not enough incentive, think about being debt-free and potentially ready to retire years sooner than you'd planned.

Let's compare the difference between a monthly and a biweekly payment plan for a $300,000, 30-year mortgage with an interest rate of 7 percent. The monthly payoff schedule winds up incurring a total of $418,026.69 with interest charges over the life of the loan.

The biweekly schedule, on the other hand, runs up just $311,876.19 with interest. So switching to the biweekly plan will save you more than $106,000. Your mortgage may be smaller or larger, so run the numbers for your mortgage to see how much you can save.

Automate It, Of Course

The great thing about switching to a biweekly payment plan is that it allows you to save money over the long run without refinancing or otherwise changing your mortgage. All it takes is one call.

Most mortgage lenders offer programs designed to totally automate your biweekly mortgage plan. At Wells Fargo, for example, it's called the Accelerated Ownership Plan. Citibank calls it the BiWeekly Advantage Plan. To enroll, all you need to do is phone your lender or go online. Many banks even offer this service for free to customers who do their banking with them.

Banks that don't offer this service will usually refer you to an outside company that runs the program for them. These companies generally charge a setup fee between $200 and $400. In addition, there's a transfer charge of $2.50 to $6.95 each time your money is moved from your checking account to your mortgage account.

To be sure you're dealing with a reputable firm, I recommend using one that's referred to you by your mortgage company. One of the biggest such firms is a company called Paymap Inc. It currently provides this service through its Equity Accelerator program, which is powered by Western Union. To find out more, visit their web site or call (800) 209-9700.

(By the way, I'm not affiliated with Paymap or Western Union in any way, and I don't make money by recommending them. Whenever I mention a specific service or product in my column, it's simply to offer a resource for readers -- not to get a commission.)

What to Ask Before Signing Up

When dealing with a service company, be sure to ask the following critical questions:

• When exactly do they fund the extra payments toward your mortgage?

The answer should be "immediately." You're making extra payments to pay down your mortgage faster. That won't happen if the service company is holding onto your payments for any reason.

• What happens if you refinance?

Determine whether the service is transferable to a new mortgage company, or if you'll have to go through the setup process again -- including paying another fee.

• How much will it cost to use the program?

Get a clear understanding of how the costs involved compare to the savings you'll realize, so you can make an informed decision (see the next section).

Cost vs. Savings

Let's do the math. If you're paying $2.50 per transfer every two weeks, that comes to roughly $65 a year. Over 22 years, it totals just over $1,430, not including the setup fee. Figure that the transfer fee will probably go up a little over time, and there's no question that a biweekly mortgage system will cost you a few thousand dollars.

So why do it? The answer is that the few thousand dollars you're spending will save you tens of thousands of dollars, if not more.

In the example above, you would've saved more than $106,000 over the life of the mortgage. Assuming that you signed up with the most expensive program out there to handle your biweekly payments, and spent $5,000 over 22 years, you're still ahead over $100,000.

Going It Alone

Are there other, no-cost mortgage prepayment options? Sure. You could pay an additional 10 percent of your mortgage each month and have it applied directly toward the principal. Or you could make one extra payment at the end of the year and again have it go toward your principal.

But note that word "could" -- some things are much easier said than done. Just as most people won't save if they don't make it automatic, most of us won't make extra mortgage payments unless it's automated.

If you decide to do it yourself, my suggestion is that you pay an extra 10 percent a month and send it as a separate payment -- automatically, of course. Make a point of telling your lender to apply any extra payments toward your principal, and then check your monthly statements to make sure they've applied it correctly.

Adjusting to Higher Mortgage Payments

Back in April, I wrote "Six Steps to Avoiding Foreclosure" as a practical guide for homeowners who are having trouble meeting their mortgage payments.

The most important nugget of advice I gave in that column -- and something that not enough homeowners do -- is to take the initiative to call your lender as soon as you realize you have a problem.

The same advice holds true if you have an adjustable rate mortgage that's going to reset to a higher interest rate -- which in turn will raise your monthly mortgage payment.

Get Ready Now

More than a trillion dollars in adjustable rate mortgages are scheduled to reset this year. As a result, experts predict that foreclosures could double in 2007, and reach an even higher level in 2008.

With all this negative news, you have to wonder if you'll be affected. What are you doing right now to protect yourself? Are you simply waiting for something to happen? I hope not, because you need to be proactive if you have an adjustable rate mortgage.

For instance, have you called your lender to determine what your new monthly payment will be and when it will take effect? Do you have a mortgage that's currently 4.75 percent and headed to 7.5 percent when it adjusts? Do you have a clue as to when that adjustment will occur?

Contact Your Lender

As standard procedure, your bank or lender will probably send you a letter shortly before the new payment amount goes into effect. The problem is that by then your higher rate and payment will be ready to kick in.

You can't afford to wait for that letter -- you need to proactively contact your lender 120 to 180 days in advance and discuss what your options are. Can you refinance? If not, what solutions can your lender offer to allow you to handle the rate increase?

Many of you will see your home mortgage payment increase by as much as 50 percent in the next 18 months. If you can't handle this increase -- and many of you can't -- you need a plan now.

No Advance Notice

In my travels, I'm often asked, "Why don't lenders reach out earlier to borrowers -- especially the ones who'll see huge increases once their loans reset?"

The New York Times just ran an article revealing that some lenders are now being more proactive in reaching out to their borrowers than ever before.

That's great news, but the article also points out that not all servicers in the industry have the freedom to change the terms of a loan. What that means is they can't call you in advance to discuss your rate adjustment. In those cases, the borrower (that's you) needs to reach out to the lender.

Many Hands in the Pie

Many homeowners assume that their mortgage is a straightforward legal agreement held directly between themselves and their lender. In reality, it's more complex than that.

A mortgage contains terms that are influenced by a number of constituents -- the lender who made the loan, the servicer who manages the loan, the regulators who oversee it, and the investors who buy it. All these components of the mortgage market work together in order to extend a mortgage loan to you, the consumer.

Here's how the cycle works: You get a mortgage loan from a lender, and most lenders hold the loan for a short period before selling it. The sale of your mortgage gives the lender the money it needs to give a loan to someone else who wants to buy a home.

The mortgage market in the United States has worked this way for decades -- very successfully, I might add. It's why millions of people all over the country can borrow money to buy a home.

From Mortgage to Investment

Traditionally, mortgages have been one of the safest and most stable investments going, since so few homeowners default and a relatively low percentage of people pay off their loans in any given year.

For this reason, capital market investors -- usually Wall Street institutional investors or securities underwriters like Bear Sterns or UBS -- buy a large number of loans and then group them to back security bonds.

Big corporations invest in these bonds through their pensions, mutual fund investors buy the bonds for their bonds funds (which you and I then invest in through our 401(k) plans), and insurance firms buy the bonds to cover future insurance claims.

Rock the Boat

Why won't your lender call you "early" to prepare you for a rate hike? If you're showing no outward signs of being delinquent on your mortgage, the lender -- who's servicing your loan on behalf of the investors who loaned you the money to buy a house -- has to be sensitive to their desire for a stable investment.

So, depending on the product you have, the lender might not initiate a conversation with you if your loan payments have been coming in on time.

For this reason, you must do the initiating. You have to pay attention to your mortgage, interest rate, and the date it will adjust, and it's up to you to call early instead of waiting to be contacted.

A Solution on the Horizon

Given the recent uptick in delinquencies, investors, lenders, regulators, and legislators are discussing proactive solutions for consumers who need help. That'll take some time, since they have to figure out a method of relief that doesn't disrupt a complex financial system that supports both a healthy exchange of investment capital and homeownership -- the key driver of the American economy.

The brutal truth is that you don't have enough time to wait for their solution. You have to take matters into your own hands. So if you have an adjustable rate mortgage, take out your loan documents today. Call your lender and have them calculate your adjusted monthly payment. Finally, ask about your refinancing options.

The same advice holds true for anyone having trouble making their mortgage payments -- call your lender immediately. It's a simple approach to a not-so-simple set of circumstances.

Ironically, June is National Homeownership Month, and my advice to all the Automatic Millionaire homeowners out there is to stay the course during challenging times. Be smart, responsible, and proactive. Your home is probably the best investment you'll make in your lifetime, so protect it by paying attention to your mortgage and how the financing works. The more you know, the more you can do.

How Identity Thieves Can Steal Your Life

Before I wrote "Six Ways to Avoid Identity Theft" last November, I was always careful to do the typical things you hear about to avoid becoming a victim. I bought a paper shredder, I didn't throw away my receipts, and so on.

After learning that there were 9 million cases of identity theft in 2006, which resulted in an average loss of $6,383 per victim, I realized that there was still a lot more I could do to protect myself. So I signed up for an identity protection program with myFICO, stopped using ATM machines located outside New York City delis, and stopped giving out my Social Security number as freely as I had been.

Five Ways to Stay Safe

What really got me thinking about the issue again, though, is a great new book by Frank Abagnale called "Stealing Your Life: The Ultimate Identity Theft Prevention Plan."

You've already heard of Frank Abagnale if you saw the movie "Catch Me if You Can." Leonardo DiCaprio played Abagnale in that film, which is loosely based on the author's early life and shows how he got away with passing over $2 million in bad checks. Abagnale served five years in prison and has since turned his life around, dedicating the last two and a half decades to helping our government and thousands of corporations and consumers deal with the problem of white-collar crime.

Here are five of my favorite tips from his book:

1. As careful as you are, your personal information is out there.

What first blew me away in this book is how truly risky it is to give out your Social Security number. It wasn't that long ago that people wrote their number on their checks -- something you should never do.

In 2006, there were about 230 million Social Security numbers held by individuals. As Abagnale puts it, those are 230 million targets of opportunity for identity thieves. If someone gets their hands on your name, birth date, and Social Security number, that's all they need to become you.

In fact, right now anyone who knows your name can log on to various web sites and access your Social Security number in a matter of seconds. Don't believe me? Check out the NetDetective web site. For $29, an identity thief can use it to pull up not only your Social Security number and date of birth, but also your employer name, salary, and the name of your spouse! Chilling.

Abagnale identifies web sites like NetDetective and others for the sole purpose of education. While there's always a chance that you risk educating potential thieves by sharing such knowledge, people need to know that these sites exist. Because as careful as you might be, your information is out there and readily available -- and believe it or not, it's all perfectly legal. Which leads me to the next point.

2. Don't be so generous with your personal information.

As Abagnale points out, even though your information is readily available, you don't need to hand it over to thieves on a silver platter. Yet everyone seems to want your Social Security number, from the video store to the health club to the dentist.

Why do so many businesses and organizations request this private data? Simple -- because "it's on the form." But just because you're asked for the information doesn't mean you have to give it.

Who does have the right to it? Your employer, the DMV, welfare and tax departments, and institutions that handle transactions involving your taxes, like your bank. If you're unsure, the Social Security Administration recommends that you ask the following questions to anyone asking for your Social Security number:

• Why is my number needed?

• How will my number be used?

• What happens if I refuse to give my number?

• What law requires me to give the number?

For example, when my dentist's office asked for my Social Security number and I said "no," they still cleaned my teeth and took my credit card for payment.

3. Opt out wherever and whenever possible.

The fine print -- it'll get you every time. Whether you're completing an application for a new bank account, credit card, or sweepstakes, you need to read the fine print carefully to find out how to opt out, which means your personal information won't be shared.

Abagnale provides a wakeup call about sharing seemingly harmless personal information without getting a guarantee that it won't be sold or shared. When this happens, he explains, your information enters the public domain and becomes fodder for the ever-expanding information industry. And you have no way of knowing what's in these information files, which soon become permanent.

So try this. Log on to your bank's web site. Chances are that if you scroll all the way to the bottom you'll see a "Privacy" or "Privacy Statement" link. Click it and read what your bank's privacy policy is. It should provide instructions on how to choose not to have your personal information shared -- that is, to opt out. If so, protect your privacy and opt out today.

4. Monitor your credit automatically.

Anyone who's read up on identity theft knows that it's absolutely critical to check your credit report regularly. But Abagnale goes a step further by recommending that you subscribe to a credit monitoring service.

To that end, he's behind the development of a program called PrivacyGuard that provides unlimited copies of your entire credit report from each of the three major credit bureaus. This service notifies you within 24 hours whenever someone applies for credit in your name. There's a monthly fee of $12, but like insurance, it's a small price to pay for peace of mind and protection.

When I subscribed to the identity theft protection service at myFICO, I didn't give much consideration to the fact that it only monitors one of the three major credit bureaus (TransUnion), or that its email fraud alerts can take as long as a full week to be sent. (In fact, when I recently applied for a new credit card, I didn't receive an email alert at all. Granted, it may have been caught by my spam filter -- something to be aware of.)

Take Frank Abagnale's advice and make sure your credit monitoring service looks at all three credit bureaus and sends fraud alerts within 24 hours.

5. Write your congressperson.

There's a bill called the Social Security Number Misuse Prevention Act that, if passed, would prohibit the sale and display of Social Security numbers and limit their use by government agencies and businesses without the consent of the individual.

The bill would prevent the government from posting Social Security numbers in public records on the Internet. It would also restrict a business's ability to require that customers provide their Social Security numbers, and would prevent them from requiring the number when consumers purchase goods and services.

Finally, it would authorize the Social Security Administration to issue penalties of up to $5,000 against anyone who misuses a Social Security number, and a thief who uses someone's number to assume their identity could get up to five years in prison.

Let your voice be heard. Find out who your state representative is and how to contact him or her in order to let them know you want this bill passed

Eight Steps to Better Health Insurance

Open-enrollment season is upon us -- that time of year when companies across America communicate what's new in your benefits package for 2007.

It's possible that there's a package containing your company's benefit options for 2007 sitting on your work desk right now. And if you're self-employed and running your own company like me, now's the time to be reviewing these options as well.

Your health benefits are an important part of your 2007 financial strategy. Here's what you need to know in order to plan successfully:

1. Get the deadline on your calendar

You'll usually get a full month, maybe more, to review your open-enrollment package. Don't just let it sit on your desk. You need to open the package up and read it. Give yourself enough time to thoroughly review all your options.

If you don't take any action, your company will probably enroll you in what you selected for 2006 or, worse, you might not get enrolled for anything at all. So be smart -- know the deadline and give yourself plenty of time.

2. Include your spouse or partner

If you're married or have domestic partner benefits, don't forget to include your significant other in the decision-making process. Schedule a "benefits date" for the two of you to review everything.

If you both have company-sponsored medical coverage, you'll want to compare plans. One of them may be noticeably better than the other, in which case you may want to cancel the lesser plan and use the superior one to cover you both and save some money in the process.

3. Know that your health-care costs are going up

With annual open enrollment comes annual premium rate hikes for companies -- which translates into a higher paycheck deduction for you.

According to the Kaiser Family Foundation/Health Research and Educational Trust 2006 Annual Employer Health Benefits Survey, the average premium increase for employer-sponsored health plans in 2006 was 7.7 percent.

On average, employees contributed about 27 percent of the premium ($2,973 a year) for family coverage and 16 percent of the premium ($627 a year) for single coverage. But the Kaiser report also reveals that in 2007, 49 percent of employers are likely to increase what employees pay for coverage. Thirty-nine percent are likely to increase plan deductibles, co-payments, and /or co-insurance.

What does this mean for you? That you've got to factor rising costs into your budget for 2007.

4. Review, research, and compare options

Start your options review process by taking an inventory of what benefits you currently have and how much you're paying for each. This will give you a good reference point. Then, review your new options in detail.

You'll probably be given several different types of health insurance plans to choose from. Briefly, there are three major types to consider:

• Managed Care
  

  Includes HMO, PPO, and POS plans. All managed care plans involve a prearranged agreement between the insurance company and a selected network of doctors, and all three will offer you financial incentives to use the doctors in that network.
  

  An HMO requires you to select a primary care physician and to get a referral to see a specialist. Out-of-network care is generally not covered. PPO and POS plans allow you more flexibility with their out-of-network options but you may need to meet a deductible.
  

• Fee for Service
  

  Also known as an indemnity plan. After you pay a deductible, a specific percentage of the cost is reimbursed to you up to an annual cap. There are no networks to consider, although you'll probably end up with more out-of-pocket charges in exchange for having more freedom to see the doctor of your choice.
  

• Consumer-directed
  

  Also known as consumer-driven or consumer-choice plans. These are high-deductible plans designed to give members more flexibility with health benefit decisions and more control over their health benefit dollars. Examples of consumer-directed plans include Health Savings Accounts, Health Reimbursement Arrangements, and Flexible Spending Accounts.

5. Don't be intimidated

The choices can be complex, but don't be alarmed. Instead, get the facts. For full details on the different types of plans, check out these helpful web sites:

• The U.S. Department of Health and Human Services Agency for Healthcare Research and Quality
  
  
• HealthInsurance.info
  
  
• Plan for Your Health
  

  While you're there, check out the free book you can order called Navigating Your Health Benefits for Dummies.

6. Collect information on each plan

Here's a list of questions to ask yourself when comparing plans side by side:

• What's my new monthly premium going to be?
  
  
• What's my co-pay?
  
  
• Am I required to meet a deductible? If so, what's the deductible?
  
  
• After my deductible has been met, what percentage of my medical expenses is reimbursed?
  
  
• What's my maximum out-of-pocket expense?
  
  
• Are my doctors in the plan's network?
  
  
• Am I allowed to see a doctor outside the network? If so, what's the reimbursement difference?
  
  
• Do I need a referral to see a specialist?

Don't simply go with a plan because it's the cheapest. Go with the very best plan you can afford. The more expensive the plan, the more flexibility and most likely better quality of care you'll get. After all, this is your health we're talking about!

7. Make your 401(k) plan automatic

According to a study by Barclays Global Investors Services, about 80 percent of people who sign up for a 401(k) plans never make a change after the day they sign their enrollment form.

Check to see if your employer has added new options to your plan this year. My recommendation is to increase whatever you're saving -- in 2007, the maximum you can save is $15,500 if you're under 50, $20,500 if you're over 50. And if you're not enrolled, sign up. Saving money automatically is the secret to becoming an Automatic Millionaire.

8. Ask questions

If your company offers any open-enrollment meetings, take the time to go. Otherwise, don't hesitate to stop by your Human Resources department to get all your questions answered.

By the time open enrollment is over, you'll have made some smart, educated decisions that are an important part of your overall financial plan. So congratulations -- here's to your health benefits and to your good health in 2007!