If you’re looking to purchase a life insurance policy, start here by taking a look at average rates. Also learn more about what factors affect your rate.
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Coronavirus hasnât entirely ended life as we knew it, but itâs certainly caused changes, some of which are likely to be with us for a very long time. For some the coronavirus is literally a matter of life and death, and it raises an important question: how does coronavirus affect life insurance? No one likes […]
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If you're dreaming about leaving a corporate job to work for yourself, getting affordable health insurance is probably one of your top concerns. Fortunately, there are more protections now than ever for those who leave the safety of a group health plan.
This post will cover six tips to find affordable health insurance when you become self-employed or leave a job for any reason, so you and your family get the coverage you need.
Major benefits of the Affordable Care Act (ACA)
The Affordable Care Act (ACA), known as Obamacare, became law in 2010, with significant provisions taking effect in 2014. One critical ACA benefit is that you can't be denied coverage or charged sky-high premiums when you have a preexisting medical condition. However, insurers can charge different rates based on where you live, your age, tobacco use, and family size.
One critical ACA benefit is that you can't be denied coverage or charged sky-high premiums when you have a preexisting medical condition.
The ACA also removes annual and lifetime caps on your health coverage. And no matter how much care you receive, the law caps how much you have to pay for it.
Out-of-pocket annual maximums vary depending on your health plan, but if you get in-network care, you'll never have to pay more than $8,150 as an individual, or $16,300 as a family, for the 2020 plan year. For 2021, these amounts increase to $8,550 and $17,100. Note that these limits don't include your monthly premiums.
What is the Affordable Care Act (ACA) Subsidy?
The ACA also offers many low- and middle-income Americans a health subsidy, which cuts the cost of premiums depending on your income and family size. It's a tax credit paid to your health insurance provider every month, which allows you to pay a lower premium.
For 2020, an individual earning approximately less than $51,000 or a family of four making under $104,000 per year may qualify for an insurance subsidy.
The ACA subsidy applies when your household income is between 100% and 400% of your state's federal poverty level. For 2020, an individual earning approximately less than $51,000 or a family of four making under $104,000 per year may qualify for an insurance subsidy.
One challenge to using a subsidy is that it's based on your estimated earnings in the year when you'll get coverage, not on your last year's income. Since self-employment incomes can vary dramatically from month to month, the chances of knowing exactly how much you'll earn in the current or future year may be difficult.
If you underestimate your income for a health subsidy, you may have to return a portion of the tax credit already spent on your insurance during the previous year. In other words, you may owe additional taxes that you weren't expecting.
When you enroll in an ACA plan, you'll have access to a marketplace account. That's where you can update changes to your expected income or family size that affect your tax credit so you can correct it as quickly as possible.
What is the Affordable Care Act (ACA) Mandate?
The ACA mandated that individuals be covered by a qualified health plan or pay a tax penalty if you're uninsured for more than two consecutive months. The mandate applies no matter if you're employed, self-employed, unemployed, a child, an adult, or where you live.
Technically, it's still illegal to be uninsured, but the federal government won't penalize you for it.
However, starting in 2019, due to the Tax Cuts and Jobs Act, the mandate penalty for not having health insurance no longer applies. Technically, it's still illegal to be uninsured, but the federal government won't penalize you for it.
But several states have their own insurance mandates, requiring you to have a qualifying health plan. You may have to pay the penalty for being uninsured if you live in:
- California
- District of Columbia
- Massachusetts
- New Jersey
- Rhode Island
- Vermont
For example, California residents without ACA coverage in 2020 face a penalty up to 2.5% of household income, or $696 per adult, and $375.50 per child, whichever is greater. So, even if the federal government won't penalize you for being uninsured, you could have to pay a hefty state penalty, depending on where you live. More states will likely adopt penalties to keep the cost of coverage for residents as low as possible.
The ACA established health insurance exchanges, primarily as online marketplaces, administered by either federal or state governments. That's where individuals, the self-employed, and small businesses can shop and purchase qualified insurance plans and find other options, depending on your income.
How to get affordable health insurance
When you go out on your own, the cost of a health plan can be shocking—especially if you just left a company that paid a big chunk of the insurance bill on your behalf.
Remember that the high cost of health insurance pales when compared to the alternative. Having a medical emergency or being diagnosed with a severe illness that you can't afford to treat could be devastating.
Remember that the high cost of health insurance pales when compared to the alternative.
Here are six tips for finding affordable health insurance when you become self-employed or no longer have job-based coverage for any reason:
1. Join a spouse or partner's plan
If your spouse or partner has employer-sponsored health insurance, joining their plan could be your most affordable option. Group insurance generally costs much less than individual coverage. Plus, some employers subsidize a portion of your premium as a benefit.
However, some employer plans may not offer domestic partner benefits to unmarried couples. So, find out from the benefits administrator what's allowed.
If you're under age 26, another option is to join or remain on a parent's health plan if they're willing to have you. Even if you're married, not living with your parents, and not financially dependent on them, the ACA allows you to get health insurance using a parent's plan. However, once you're over age 26, you'll have to use another option covered here.
2. Enroll in a federal or state marketplace plan
As I mentioned, the ACA established federal and state marketplaces for consumers who don't have access to employer-sponsored health insurance. The following states have health insurance exchanges:
- California
- Colorado
- Connecticut
- District of Columbia
- Idaho
- Maryland
- Massachusetts
- Minnesota
- Nevada
- New York
- Rhode Island
- Vermont
- Washington
No matter where you live, you can begin shopping for an ACA-qualified health plan at healthcare.gov. However, you can only apply for a policy during the annual open enrollment period—November 1 to December 15, for coverage that will begin on January 1 of the following year. Some states with healthcare exchanges have an extended enrollment period.
In general, if you miss the enrollment window, you can't get an ACA health plan until the following year unless you qualify for a special enrollment. That allows you to purchase or change coverage any time of the year if you have a major qualifying life event, such as losing insurance at work, getting married or divorced, having a child, or relocating. However, you typically only have 60 days after the event occurs to enroll.
If your income is too high to qualify for a healthcare subsidy, you can still buy health insurance through the federal or your state's exchange. You can also get an ACA-qualified health plan directly from an insurance company, a health insurance agent or broker, or an online insurance aggregator.
3. Consider a high-deductible health plan (HDHP)
One way to reduce the cost of health insurance premiums is to choose a high-deductible health plan (HDHP). You enjoy lower monthly premiums but have higher out-of-pocket costs. If you're in relatively good health, an HDHP can make sense; however, if you get sick, it can end up costing you more.
Paying for a broad range of HSA-eligible medical, dental, mental, and vision costs on a tax-free basis can add up to massive savings!
Another benefit of having an HDHP is that you qualify for a health savings account (HSA). Contributions to an HSA are tax-deductible and can be withdrawn at any time to pay for qualified medical expenses, such as doctor co-pays, prescription drugs, dental care, chiropractic, prescription eyeglasses, and mental health care.
Paying for a broad range of HSA-eligible medical, dental, mental, and vision costs on a tax-free basis can add up to massive savings!
4. Get a short-term plan
If you miss the deadline to enroll in an ACA health plan and don't qualify for special enrollment, are you simply out of luck? Fortunately, no. You can purchase a short-term health plan until the next enrollment period comes around.
The problem is, short-term plans don't have to meet ACA standards and only offer temporary coverage, such as for a few months or up to a year. You may be eligible to renew a plan for up to three years in some states, depending on the insurer.
You won't find short-term plans on the federal or state exchange, and therefore can't get a subsidy when you purchase one. However, they can be less expensive than an ACA-qualified plan.
Short-term plans can charge more if you have preexisting conditions, put caps on benefits, or not cover essential services like prescriptions and preventive care. Because they fall short of ACA requirements, you can have one and still be subject to a state-mandated health penalty.
You won't find short-term plans on the federal or state exchange, and therefore can't get a subsidy when you purchase one. However, they can be less expensive than an ACA-qualified plan.
Having short-term coverage is certainly better than being uninsured, but I recommend replacing it with qualified health coverage as soon as possible. That's the best way to have the protection you need against the enormous financial risk of medical costs.
5. Enroll in Medicaid and CHIP (Children's Health Insurance Program)
If you can't afford health insurance, you may be eligible for free or low-cost coverage through Medicaid or CHIP at any time of year, depending on your income, family size, and the state where you live. In general, if you earn less than the poverty level, which is currently $12,760 for an individual or $26,200 for a family of four, you may qualify for these programs. They may have different names depending on where you live.
Unlike ACA health plans, state-run health programs don't have set open enrollment periods, so if you qualify, coverage can begin any time of year.
When you complete an application at the federal or state health insurance exchange, you can also determine if you qualify for coverage through Medicaid and CHIP programs. You can learn more about both programs at medicaid.gov.
6. Get COBRA coverage
If you leave a job with group health insurance, you can enroll in COBRA (Consolidated Omnibus Budget Reconciliation Act) coverage. It isn't an insurance company or a health plan, but a regulation that gives you the option to continue your employer-sponsored health insurance after you're no longer employed.
Instead of having your plan canceled the month you leave a job, you can use COBRA to continue getting the same benefits and choices you had before you left the company. In most cases, you can get COBRA benefits for up to 18 months.
The problem with COBRA coverage is that it's temporary and can be expensive. Unlike other federal benefits, such as the Family and Medical Leave Act (FMLA), employers don't have to pay for COBRA. You typically have to pay the full cost of premiums, plus a 2 percent administrative charge, to the insurer.
If you're not eligible for regular, federal COBRA, many states offer similar programs, called Mini COBRA. To learn more, check with your state's department of insurance.
Health insurance shopping tips
After you become self-employed and purchase health insurance, it's crucial to shop for plans every open enrollment period. Your or your family's medical needs or income may change.
Additionally, new health insurers come in and go out of the health insurance marketplace. Carriers that offered plans in your ZIP code last year may not be the same set of players this year. In other words, a competitor could offer a similar or better plan than yours, for a lower price. So, if you don't shop annually, you could leave money on the table.
Taking out a life insurance policy is a great way to protect your family’s financial future. A policy can also be a useful financial planning tool. But life insurance is a notoriously tricky subject to tackle. One of the hardest challenges is deciding whether term life or whole life insurance is a better fit for… Read More
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When you have an insurance policy, you may have to foot the bill for some of your medical expenses before your insurance company starts chipping in. This initial amount is your insurance deductible. The size of deductibles can vary depending … Continue reading →
The post What Is an Insurance Deductible? appeared first on SmartAsset Blog.
Chipotle is kicking off the new year with a nationwide hiring blitz. With hundreds of new restaurants in the works, the fast-casual Mexican food chain plans to fill 15,000 new openings, according to the hiring announcement. To make headway on those recruitment efforts, all Chipotle locations are holding a âCoast to Coastâ career event Jan. [â¦]
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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When you are selecting an insurance company, it is important that you are aware of the insurer’s financial strength. Luckily, there are financial rating companies that do the hard work for you. One of these companies is A.M. Depending on the rating, youâll be able to determine which insurance company is best for you. It […]
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Jason says:
Hi, Money Girl. I’m interested in refinancing and getting a lower interest rate on my mortgage; however, I may need to sell my home and relocate in a year or so. In that case, does a refinance still make sense? If so, what factors should I consider?
Jason, thanks for your question! It’s a perfect time for homeowners to consider refinancing because interest rates are at historic lows.
If you’re a homeowner, your mortgage payment is probably your largest monthly expense, so it’s wise to stay alert for opportunities to reduce it by refinancing. Plus, your financial circumstances and needs today may be very different than they were when you originally got your mortgage.
It’s a perfect time for homeowners to consider refinancing because interest rates are at historic lows.
I'll answer Jason’s question by reviewing what a mortgage refinance is, explaining common reasons to consider doing one, and covering five ways to know if it’s a good idea for your situation.
What is a mortgage refinance?
Refinancing is when you apply for a new loan to pay off an existing loan balance. The new loan could be with your same institution or with a different lender. The idea is to swap out a higher-interest loan for a lower-interest one, which decreases the amount of interest you have to pay and may also reduce your monthly payments.
When you take out a mortgage to buy a home, various factors determine the interest rate you get offered. While your credit, down payment, and income history are critical, lenders base mortgages on the prevailing interest rates.
An interest rate is simply the cost of money for borrowers. Rates in the U.S. fluctuate according to the monetary policy of the Federal Reserve or Fed, which is our central bank.
A good rule of thumb is to consider refinancing when the current rate dips at least one percentage point below what you’re paying for your mortgage.
When interest rates are low, it’s like money’s on sale, as strange as that sounds! Banks should display a big banner on their front door or website that reads “bargain basement prices on dollars” or “we sell money cheap” because that’s what happens when interest rates go down. Low rates are great for borrowers, but not so good for lenders.
The Freddie Mac website shows historical data for interest rates on 30-year mortgages since 1971. In August 2020, the average for a fixed-rate, 30-year mortgage was 2.94%. A year earlier, the same loan was 3.62%, and ten years before, it was 4.43%.
Since interest rates change periodically, the rate you’re currently paying on a mortgage may be significantly different than the going rate. A good rule of thumb is to consider refinancing when the current rate dips at least one percentage point below what you’re paying for your mortgage.
What’s the cost to refinance a mortgage?
You need at least one percentage point between the going rate and yours because there’s a cost to do a refinance. Closing a loan means you must pay fees to various companies, including your lender or mortgage broker, property appraiser, closing agent or attorney, and surveyor. Plus, there are fees required by the local government for recording the mortgage, and maybe more costs, depending on where you live.
The total upfront cost of a refinance depends on the lender and property location. It could be as high as 3% to 6% of your outstanding loan balance. The trick to knowing if it’s worth it is to figure out when you’d break even on those costs. In other words, when do you go from the red to black on the deal?
If you pay for a refinance but don’t keep your home long enough to recoup the cost, you’ll lose money. But if you do keep the property beyond the financial break-even point (BEP), you’ll feel like a genius because you saved money in the long run!
If you pay for a refinance but don’t keep your home long enough to recoup the cost, you’ll lose money.
You may be able to roll closing costs for a refinance into the new loan, which means you would have nothing or little to pay out-of-pocket. But adding them increases the amount you borrow and may also increase the interest rate you pay for the life of the loan. For that reason, it’s essential to ask the lender for a side-by-side comparison of all the terms for each loan option so you can carefully evaluate them.
So, how do you figure the BEP to know if doing a refinance is wise? Here’s a simple BEP formula: Refinance break-even point = Total closing costs / Monthly savings.
For instance, if your closing costs are $5,000 and you save $150 a month on your mortgage payment by refinancing, it would take 34 months or almost three years to recoup the cost. The calculation is $5,000 total costs / $150 savings per month = 33.3 months to break even.
For help crunching your numbers, check out the Refinance Breakeven Calculator at dinkytown.com.
Since how long you own your home after a refinance is critical for making it worthwhile, I’m glad that Jason brought it up in his question. For instance, if he finds out that he’d need to own his home for five years to break-even, but he only plans on staying in it for two years, that should be a deal-breaker.
How to get approved for a mortgage refinance
If you believe that doing a refinance could be wise, you’ll also need to consider if you qualify. Lenders have different underwriting requirements, but most require you to have a minimum amount of equity in your property.
Equity is the difference between your home’s market value today and what you owe on it. A critical ratio for refinancing is known as the loan-to-value or LTV.
For example, if your home value is $300,000 and you have a $150,000 mortgage outstanding, you have $150,000 in equity, an LTV ratio of 50%. But if you owed $250,000, that would be an LTV of 83%.
You typically need an LTV less than 80% to qualify for a mortgage refinance.
You typically need an LTV less than 80% to qualify for a mortgage refinance. So, Jason should do some quick math to make sure he doesn’t owe more for his home than this threshold based on the current market value. Lenders may still work with you if you have a high LTV and good credit, but they may charge a higher interest rate.
If you have an existing FHA or VA mortgage, you may qualify for a “streamlined” refinance program that requires less paperwork and less equity than a conventional refinance. Check out the FHA Refinance program and the VA Refinance program to learn more.
Reasons to consider refinancing your mortgage
There are a variety of reasons why it may make sense for you to refinance a mortgage. Here are some situations when doing a refinance may be a good solution.
- Rate-and-term refinance. This is when you get a new loan with a lower interest rate, a different term (length of the loan), or both. It’s probably the most common reason why homeowners refinance their mortgages.
Example: If you have a 30-year, fixed-rate mortgage at 5%, you could refinance with a 30-year mortgage at 3%. That would reduce your monthly payments and the amount of interest you pay over the life of the loan.
- Cash-out refinance. This is when you get a larger loan than your existing mortgage, so you walk away from the closing with cash.
Example: Let’s say your home’s market value is $200,000, and your mortgage balance is $100,000. If you need $25,000 to pay for college or renovate your home, you could do a cash-out refinance for $125,000. After paying off the original mortgage of $100,000, you’d have $25,000 left over to spend any way you like.
- Cash-in refinance. This is when you pay cash at the closing to pay off an existing mortgage balance. That could be necessary if you don’t have enough equity to qualify for a refinance, or you owe more than your home is worth.
Example: You might do a cash-in refinance if having a lower LTV qualifies you for a lower mortgage rate or allows you to get rid of private mortgage insurance (PMI) payments. Read or listen to How to Avoid PMI on Your Home Loan for more information.
You may also need to refinance a mortgage if you want to remove a co-borrower, such as an ex-spouse, from your loan. But if one spouse doesn’t have sufficient income and credit to qualify for a refinance on his or her own, your best option may be to sell the property instead of refinancing the mortgage.
5 ways to know if it’s the right time to refinance
Here are five ways to know if doing a rate-and-term refinance is a good idea.
1. You have an adjustable-rate mortgage (ARM)
Buying a home with an adjustable-rate mortgage comes with lots of advantages like a lower rate, a lower monthly payment, and being able to qualify for a larger loan compared to a fixed-rate mortgage. With an ARM, when interest rates go down, your monthly payments get smaller.
Instead of worrying about how high your adjustable-rate payment could go, you might refinance to a fixed-rate loan.
But when ARM rates go up, you can feel panicked as your mortgage payment increases month after month. There are caps on annual increases, but your rate could double within just a few years if rates have a significant spike.
Instead of worrying about how high your adjustable-rate payment could go, you might refinance to a fixed-rate loan. That move would lock in a reasonable rate that will never change and make it easier to manage money and stick to a spending plan.
2. You could get a lower interest rate
If you bought a home when mortgage rates were higher than they are now, you’re in a great position to consider refinancing. As I mentioned, you need to do your homework to understand the cost and BEP fully.
I recommend shopping for a refinance with the lender who holds your current mortgage, plus one or two different companies. Let your mortgage company know that you’re shopping for the best offer. They may be willing to waive specific fees if some of the necessary work, such as a title search, survey, or appraisal, is still current for your home.
3. You don’t plan on moving for several years
Once you know what a refinance will cost, make sure you’ll own your home long enough to pass the BEP, or you’ll end up losing money. For most homeowners, it typically takes owning your home for at least three years after a refinance to make it worthwhile.
4. You have enough home equity
As I mentioned, you typically need at least 20% equity to qualify for a refinance. If you have less, you may still find lenders that will work with you. However, unless your credit is excellent, you’ll typically pay a higher interest rate when you have low equity.
Also, if you don’t have 20% equity, lenders charge PMI. Adding that to your new loan could cut your savings and give you a much longer break-even point.
5. Your finances are in good shape.
The higher your income and credit, and the lower your debt, the better your refinancing terms will be. If you’re unemployed or your credit took a dive due to a hardship, wait until your overall financial situation has improved before making a mortgage application. Good credit can save thousands in mortgage interest.
Good credit can save thousands in mortgage interest.
If you investigate doing a refinance and decide that it’s not worth the cost, another strategy to save money is to ask your lender for a mortgage modification on your existing loan. You may be able to negotiate modified terms, such as a lower interest rate, without having to pay for a full-blown refinance.
If you’re unsure how much home equity you have or know that you have very little, don’t let that stop you from inquiring about your refinancing options and saving money. Getting advice and refinancing quotes from your lender is free and will help you understand your range of financial options.
Final expense insurance is typically a small whole life insurance policy where the proceeds are earmarked specially for funeral and other end of life expenses. Ultimately, the net result will be a tax-free cash payment to a beneficiary(s). Most insurance companies aim to pay claims within a few days since they know the funds are… Read More
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