If you know even a little bit about insurance, you realize that insurance carriers set their pricing based on the perceived risk of who or what they are insuring. The higher the chances that the beneficiary will need to make a claim, the higher the insurance premium is going to be set at. Logically then, it only makes sense that insurance companies would want to charge a higher premium to seniors for health insurance. After all, are we not more likely to need healthcare services at a higher frequency in our senior years than in our younger days? This is where the idea of Medicare came from. It was created to help senior citizens in the United States acquire health insurance at a reasonable price. Without it, many seniors would be unable to afford health insurance.

Although Medicare does help alleviate much of the health care costs seniors would face, it does not provide comprehensive coverage. There are many areas where coverage is not provided. These are called “gaps”. To further assist seniors, the government also created Medicare supplemental insurance, also widely known as Medigap insurance.

Medicare is administered and issued by the government, while Medigap plans are overseen by state governments, but issued by private insurers. Today, every state except for Minnesota, Wisconsin, and Massachusetts mandates that insurance carriers can provide any combination of 10 standardized plans. That is they can offer one, two, or all of the plans if they choose to. The 10 standardized plans offer the same coverage from state to state. An individual who purchases one of the available California Medicare supplements is going to have the exact same health coverage as someone purchasing the same Florida Medicare supplement.

Because all of the plans are standardized, it is one of the rare cases in the insurance business where a consumer can actually compare apples to apples when they receive quotes from different carriers. The only decision a consumer has to make is based on price and the carrier’s reputation for service.

The states of Minnesota, Wisconsin, and Massachusetts have elected to standardize their own versions of the Medigap plans. They are similar, but not exactly the same as the 10 plans standardized across the rest of the United States.

The cost of the plans will be based on the age, gender, overall health, and location of the consumer purchasing the coverage. Seniors just turning 65 or signing up for Medicare Part B for the first time can enter into a plan during the Open Enrollment. For these 6 months, individuals have the opportunity to enroll in a Medicare supplemental insurance plan without any type of health screening. This means that even if an individual has a serious health condition or has a lifestyle that normally would cause an insurance provider to raise their monthly premium to extend health coverage, the individual is going to pay the same premium amount for coverage that a perfectly healthy person would be charged. A smoker, for example, is going to find it beneficial to enroll during this time. If they do not, they may face paying a much higher premium or not being extended coverage at all. Insurance providers must offer supplemental insurance coverage and cannot reject anyone for their health conditions during Open Enrollment.

With the 10 plans available to combine with Traditional Medicare coverage, a person can have just a few of their coverage gaps covered or nearly all of them covered and not have to worry about out-of-pocket expenses for health care.

An individual’s credit score is one of the most misunderstood things I have ever found in personal finance, yet it is one of the most vital things to understand to stay in good financial health. Believe it or not, many people think that things like income and paying your utilities on time impact your credit score. They do not. Here are 5 things that do impact your credit.

1)    Payment history. This accounts for 35% of your credit score. It has a bigger impact than any other single factor. If you pay your creditors on time, this will have a big impact on your score. If you do not, you are likely to see your credit score plummet. If you do have any late payments, the best thing to do is stay current. The longer you pay on time, the older those late or missed payments become and the less impactful they will be on your credit.

2)    Debt. Your debt makes up 30% of your score. Nearly the same as your payment history. Some debt is okay, but too much can hurt you. Credit card debt is especially impactful. High credit card balances, maxed out credit cards, and too many accounts with balances can all drive your score downward.

3)    Length of credit history. This accounts for 15% of your score. It takes a look at your track record of having credit accounts and managing them well. The longer you have had credit, the better. Recently opened accounts or little to no history can have a negative effect on your score. The only thing that can fix this is time.

4)    New credit. This makes up 10% of your score. Every time you put in an application for a new credit account, an inquiry will post to your credit report showing your activity. Excessive shopping for credit and too many inquiries on your credit report in too short of a time period will hurt your score. Inquiries stay on your credit report for 2 years, but only those in the last 12 months are counted towards your credit score.

5)    Credit mix. The type of credit you have makes up the final 10% of your score. Having a healthy mix of credit cards, auto loans, and mortgages will help your score. Having too many or only one type of account can actually hurt you in this category. Diversity is beneficial.

These are the primary factors impacting your credit score.

It’s been said that there are only two things that you can depend on: Death and taxes.

The one is a certainty, and the other nearly so for most people.

And I suppose that given a choice, most people would choose to pay their taxes.

But, what about those who are left behind? What financial burdens can a grieving spouse or other relative expect to incur?

That’s not something that most of us think about. Instead, we imagine that that there is a rich uncle somewhere in the family tree who will leave us all his money; and then we can live happily ever after.

We never stop to think that it could us that end up footing the bill, because the estate of our dearly departed was insufficient to cover the cost of dying.

So just how bad can it be?

Here’s a list of the main items. It makes for some grim reading.

_Cremation_ - $1,500-$4,000. Depends on whether the arrangements are made through the crematorium or the funeral home.

·        _Casket _- $1000 and up. Some are as high as $30,000! It depends on the material they are made from.

·        _Embalming_ - $225 to $1220. Not all states require it provided the funeral takes place within a couple of days.

·      _  __Funeral home fees_ (includes viewing, a ceremony, graveside services, the use of a hearse) - $1750-$4,800

·        _Headstone_ - $200 and up. The engraving is extra. The lowest price is for an engraved, flat, stone about the size of a legal pad, only thicker.

The cost of the grave space and digging the hole is extra, and varies between cemeteries.

Then there are the extras: flowers, more than one hearse if the family is large, or there are a number of close relatives, and publishing the obituary in your local newspaper can be an additional expense.

Conservatively, a funeral would cost at least $3,000, and if you had to make expensive decisions such as the type of casket while you were in mourning, your expenses could inadvertently go through the roof. That’s because funeral homes, while providing a service, are in the business to make money. And they have a reputation for taking advantage of people when they’re vulnerable.

That’s where final expense insurance can save your day. It can help to take the emotion out of another otherwise difficult situation.

For one thing, the person buying the insurance may well be the same one who eventually is in the coffin. And if that is the case, then he or she is more likely choose the least expensive option than his or her relatives.

The other thing is that that person won’t be coerced into buying services that are neither necessary nor required while grieving.

Both of those factors can contribute to your inability to think clearly and make sensible financial decisions.

The cost of final expense insurance varies widely depending on the policy. Check with a local provider for more details.

QUESTION:

Dear Bill,

I recently opened a new checking account. When I did so the banker asked me, actually strongly encouraged me, to sign up for what they called “overdraft protection”. The way he described it was that if I was out to eat and did not realize that there was not enough money in my bank account to cover the mean, by default, my debit card would be declined. However, if I opted into the overdraft protection, the bank would allow the purchase to go through, and I would be charged a $35 fee.

As I declined the service, I pointed out to him that would also mean if I bought a $2 pack of gum at a convenience score with less than $2 in my account, that $2 pack of gum is now $37.

He seemed rather shocked, and even annoyed, that I pointed out the absurdity of this “service”. He continually argued that the bank was offering it as a favor to me and other customers.

Am I missing something here? Is this something I should have looked at harder?

Sincerely,

Thanks, But No Thanks

ANSWER:

Dear Thanks, But No Thanks,

In my opinion, you made a good decision. In the wake of the financial fallout a few years ago, new legislation was passed in 2010 that changed how overdrafts were handled. Before this new legislation, almost all banks enrolled customers into “overdraft protection” automatically. They would allow customers to spend more money than what was in their accounts. Each transaction in the negative would be charged a fee ranging from $24-40 at most institutions.

Your example of the $2 pack of chewing gum, while it may seem humorous, was all too real. When I worked for one of the major banks, we saw customers all the time with not just one such transaction, but many such transactions. Racking up $250 or more in overdraft fees in just a few days was quite common. Now add in there the number of student age customers that had no idea how to balance their checking account and rarely kept track of their balance, and you can just imagine how much money banks were making off of these fees.

To sweeten the pot for themselves, many banks also would post debits daily in order from largest to highest. The way they justified this was by saying that larger payments were probably more important things such as a mortgage, rent, or car payment, so it was more important that those things got paid instead of rejected. In reality what it did was allow the banks to collect even more in fees.

Imagine a customer with a balance of $1275. Over the weekend, their mortgage payment ($975), a purchase at the grocery store ($165), a little shopping for some clothes ($125), a fill up at the gas station ($43), dinner with friends ($29), a movie afterwards ($13), and a stop by the local coffee shop on the way to work ($8) all come through the account. Under the system of posting from highest to lowest and assuming their bank charges $35 per overdraft, they were looking at $140 in overdraft fees. If they posted from lowest to highest, there would be one overdraft, at $35.

After the new legislation, customers opening new accounts are not enrolled into overdraft protection by default. A customer has to request the service, and even sign a form saying in writing that they were requesting it. The order in which items are posted to an account and what can be charged an overdraft fee were also regulated.

Bankers will use that story about being at a restaurant and your card is rejected (even if you balance your account regularly, everyone can make a mistake from time to time) and you have no other method to pay the bill. Sure this can be embarrassing, but the reality is that they are just trying to get you to opt in because this was a huge loss of revenue for banking institutions. They are trying to recoup as much of it as they can. There are better, and cheaper solutions.

One option is to have a second account in which you keep a small balance of $50-100 that links to your primary account just for such a situation. You can also open a credit card to use just for emergencies. Even at some of the ridiculous interest rates that some credit cards charge, this is a far cheaper option than allowing the bank to overdraw your account.

I see no reason for anyone to opt into this service. It is simply a money grab by banks.

If you are 65 and transitioning to Medicare from traditional insurance can be a frightening time for those who are used private health insurance.  The truth is that making the move to Medicare can be easy and comforting if you know what to expect.

THE PARTS OF MEDICARE The First step in understanding your Medicare Coverage is to realize that there are parts and plans.  The Parts of Medicare have been developed as a part of federal legislation.  Each Part covers a different part of potential health care expenses.  Part A is designed to help with in-patient hospital, skilled nursing, and hospice care.  Part A is provided at no charge for most people but does have both a deductible and coinsurance.

Part B is designed to help with out-patient care and doctor’s office visits.  A little simpler than Part A,  Part B has a monthly premium, a deductible and ongoing coinsurance of 20%.  So once you pay the deductible you are responsible for 20% off all the Medicare approved charges that your doctor charges.

Part D is a partnership between the federal government and private insurance companies.  This part of Medicare covers prescription drugs.  The price of the plans is determined by what medications you require.  For most people the plans will average between thirty to sixty dollars per month.

While none of these parts are comprehensive coverage they do provide significant savings.  Both Part A and Part B can become comprehensive by adding one of the Medicare Supplement plans, also referred to as Medigap plans.

MEDIGAP PLANS There are ten Medigap plans in all.  They will cover at least four and as many as all nine of the gaps left by Medicare Part A and Part B.  Supplement Plan F is the most comprehensive covering all of the gaps and Plan A is the least only covering four.  The plans are made to be standardized by letter so if you are looking at Medicare supplemental insurance plan F from three different companies the coverage will be exactly the same even if the price is different.  By getting one of these plans you can make sure that you will not be stuck with a big bill when you do need to use your Medicare insurance.

By arming yourself the knowledge of the different parts and plans associated with Medicare you can make sure that you are getting the best coverage for your needs.

QUESTION:

Dear Bill,

What is the difference between APR and APY? I see both advertised, but never know what the difference is.

Thanks,

Confused Sally.

ANSWER:

Dear Sally,

I spent 8 years working for a major bank and can tell you that you are far from the only person confused by these two rates. Both APR (annual percentage rate) and APY (annual percentage yield) are used to describe the interest rate paid on something. The difference between the two is in how the interest is applied.

APR is simply the annual interest rate that is paid on an investment. It does not take into account how the interest on your investment is applied. APY, on the other hand, does take into account how the interest is applied to the balance.

Let’s say that you deposit $10,000 into a 12-month CD that has an APR of 5%. If interest is only applied once per year, you would earn $500 in interest after one year.

In another example, let’s say the interest is applied to the balance on a monthly basis. In this case, it is said that the interest compounds monthly. The 5% APR would be broken down into twelve interest payments for each month, which would be about 0.42% each month. Your $10,000 CD will earn $42 the first month. That interest is then credited to the balance, and in the second month you earn 0.42% on the new balance of $10,042. This continues on each month throughout the year.

Even though the APR is 5%, with the interest compounded monthly, you would see almost $512 of interest after one year. The APY is 5.12%

APY’s are advertised so that you can compare deposit offers from bank to bank. With different rates and maturity terms, it would be difficult to compare products from different institutions without the APY. This is why banks and other financial institutions are required to disclose the APY on such products.

Remember if you have the interest on a CD paid out to you on a regular basis, you will not be receiving the APY. You will be receiving the APR because the interest is not compounding.