Smart and Simple Financial Strategies
for Busy People
by Jane Bryant Quinn. Copyright
by Berrybrook Publishing, Inc. Reprinted
by permission of Simon & Schuster,
Jane Bryant Quinn is the voice of personal
financial planning for a generation of
Americans. On the following pages the author of
a bookshelf of bestsellers, Newsweek columnist
and popular AICPA PFP conference speaker gives
AICPA members a glimpse of her new book,
Smart and Simple Financial Strategies for
Busy People, which is just hitting the shelves
of stores around the country. This excerpt is
from the chapter “Your Safety Net.”
or all of us there’s
the life we’re living and a potential, different
life. Our normal days—filled with work, family,
friends, shopping, movies, sports, books—are the
ordinary way of the world. But down in the dark
lies another life that we might have to face if
something goes awfully wrong. Fire, accident,
sickness, premature death—you hate to think about
it and so do I. But even during crises, good
financial-backup systems can support your hopes
and dreams. Here, you’ll find the most practical
ways of weaving yourself a safety net.
IFE I NSURANCE
You buy life insurance for
just one reason: to support the people who depend
on your income if you die prematurely. Based on
that test, it’s easy to answer the question “Do I
need insurance?” No , if you’re single
with no children or other dependents. And no
, if you’re married and your spouse would be
self-supporting if you died. But absolutely
yes , buy life insurance, lots of it,
if someone relies on you to pay the
bills—children, spouse or anyone else you help
What kind of insurance should you buy?
You want term insurance—coverage that
lasts for a certain period of time (or “term”).
It’s plain, simple and so cheap that you can buy
as much of it as your family needs.
How much do you need? I vote for
the rule of thumb offered by the Consumer
Federation of America: Married couples with two
small children need eight times their joint annual
income to cover future living expenses for 20
years (nine times earnings for 30 years). Add a
fund for college on top of that. Subtract any
insurance you get automatically at work. The total
gives you the amount to buy. Is this exact? No.
But the future is unknowable, so this simple rule
is close enough. If you’d like to try a Web
calculator, you’ll find good ones at
choosetosave.org and tiaa-cref.org .
Should you buy term insurance through your
employer? Large companies offer you
some free insurance—often an amount that equals
one year’s salary. You can buy more through
payroll deduction, but should you? Yes, if you’re
in poor health—it’s probably the best deal you can
get. Otherwise, I give this idea a qualified
maybe. Buy the coverage only if (1) its price is
low (compare it with the cost of individual
insurance, using the online quote services term4sale.com
), and (2) you can take it with you when you
leave your job. If your health turns bad, a
portable policy may be the only insurance you can
get at a decent price.
What should you look for in an individual
policy? The industry has made buying
term insurance super easy today, thanks to the
Web. Here’s a quick checklist:
The policy term.
Most term insurance today is sold for
fixed periods of time, ranging from five years to
30 years. It’s called “level-term” insurance. The
longer the term, the higher the annual premium
(the premium is the price you pay). Buy coverage
for the longest period you can imagine needing
it—usually until retirement. During the years that
you hold the policy, your price won’t change.
The annual premium.
Insurance companies offer term at wildly
different prices. You can save thousands of
dollars by comparison-shopping on the Web. As an
example, take a 35-year-old man, a nonsmoker in
excellent health, buying a 30-year term policy
worth $500,000. A low-priced insurer might charge
him $564 a year. A high-priced insurer might
charge $1,189—and for exactly the same product!
Renewing your term policy. You
might need life insurance for longer than you
thought. Maybe you married late and have young
children. Maybe you lost your savings through bad
luck or bad investments and have to keep working
to help support a spouse. If you want to extend
your coverage after the term expires, you have
three choices, two of them fine and one for
If you’re in good-enough
health: Shop for new level-term
insurance. There’s a medical exam, but a policy is
If you’re in poor health:
Convert your term policy to cash-value
insurance, with no medical exam. It’s more
expensive, but you can cap the cost by buying less
of it. Good timing is important! You must convert
within the period that the policy allows. If you
wait too long, you’ll lose your chance.
If you’re in poor health and
missed your chance to convert to cash-value
coverage: You can renew your expiring
level-term coverage without a health exam but only
at incredibly high premiums.
H EALTH I
If you get health insurance at
work, you’re a lucky duck. The amount you pay
toward the cost will keep on rising. But at least
you’re covered, which is more than 46 million
other people can say.
With no employee
plan, you face a harsher world. Premiums are high.
Past or present illnesses may be excluded from
coverage. Yet without health insurance, an
accident or illness that fells you, your spouse or
your child could wipe you out.
insurance comes in three main types.
HMOs (health maintenance
organizations). Good for young families
who need routine care and are happy with the
group’s network of doctors.
PPOs (preferred provider
organizations). The best deal for
people who want to see specialists and get medical
tests without referrals. PPOs offer larger
networks of doctors and charge higher premiums.
For people who can’t afford a
comprehensive plan but want to protect themselves
from a wipeout. You pay all your medical bills up
to a certain ceiling—say, $2,000 to $10,000. The
insurer picks up most of the rest. The higher the
deductible, the lower your monthly premiums.
Parents often buy high-deductible coverage for
young-adult children who can’t afford health
insurance on their own.
Tips for People With Company Plans
Slash your out-of-pocket
costs with a health-care flexible spending
account. Most larger companies offer
one. You contribute tax-free dollars to the plan
and use the money to pay medical expenses. That
cuts your costs by 15 to 35 percent (and sometimes
Use COBRA to maintain your
health insurance—for yourself and your
family—when you leave a group plan.
COBRA lets you continue your current
group health plan for a limited period of time
while you hunt for other coverage. You pay the
premiums out of pocket at the group rate plus 2
percent. Generally, you’re entitled to COBRA if
you work for the government or for a company that
employs 20 people or more. You don’t get it,
however, if you’re insured through a trade
COBRA coverage lasts for up
to 18 months if you quit your job, lose it or go
part time. You get up to 29 months if you’re
totally disabled. Divorced spouses, widows and
widowers, and their dependents, get up to 36
months. You have a limited number of days to tell
the insurer you want COBRA. If you wait too long,
you’re out of luck.
Safeguard your access to
future health insurance if you have a health
problem (or someone in your family does) and you
leave your job. This is critical! If
you have, say, diabetes or serious allergies, and
you leave your group health plan, another insurer
might not want to pick you up. A law known as
HIPAA (the Health Insurance Portability and
Accountability Act) protects you from health
discrimination. A new insurer can’t turn you down,
charge you more or impose long waiting periods for
coverage when your health is poor. But to qualify,
you have to show that you’ve been without group
insurance (or COBRA) for no more than 63 days.
Your proof is a “Certification of Creditable
Coverage” that you get from your former company
when you leave the job. Don’t lose it. Your new
insurer will check it to see how much protection
you’re due. It also covers spouses and children
who lose coverage after a divorce or when a parent
Tips on Buying Individual Coverage
Shrink your health-insurance
premiums by buying high-deductible catastrophic
coverage. If you’re self-employed or
have no employee plan, this may be the only policy
you can afford. You’re covered for serious
illnesses but have to pay lesser bills yourself.
The higher the upfront deductible (usually
anywhere from $2,000 to $10,000), the lower the
premium you pay.
Shop the Web. Many
state Web sites list health-insurance companies
and compare their premium costs. You can get
sample quotes at
Look at a Health Savings
Account (HSA) if you’re self-employed.
It combines catastrophic health insurance
with a tax-favored savings plan. You choose a sum
that you’re willing to pay out of pocket for
medical expenses. The insurer pays most of the
bills over that amount. You meet your own costs by
making tax-deductible contributions to the HSA and
using that money, tax-free, for medical bills. Any
unspent money stays in your HSA for future use.
HSAs work best if (1) you’re rarely sick and
can build up big reserves, or (2) you can afford
to pay medical bills from your current income and
will treat the HSA as if it were a tax-favored
Turn to an insurance agent if
you’ve had poor health. An insurance
company may reject you, or charge you more, for
reasons that astound you—say, seasonal allergies,
an old knee injury or current treatment for
depression (so much for “Prozac Nation”). You need
an insurance agent who specializes in “impaired
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for Making Changes in Your Life |
Did you marry or
divorce? Change the
beneficiary on your life
insurance, annuities and
Individual Retirement Account
(these go to the named
beneficiary, even if your will
says something different).
Notify your medical insurer.
Change your will, power of
attorney and health-care
Did you have a new
baby? Buy or
increase your life insurance,
notify your medical insurer
and change your will. Get
eligible stepchildren into
your medical plan. Start
saving for college—it’s not a
moment too soon.
Did your child leave
home or leave college?
Be sure he or she has
health insurance, even if you
have to buy it.
Did you move?
Send your address
change to your bank, broker,
mutual fund, insurance
companies and Social Security.
Include former employers, if
you’re owed a future income
from their retirement plan.
Did you change jobs or
lose one? Nail down
your medical insurance.
Replace any life insurance you
bought through the company
plan. Decide whether to leave
your retirement savings in
your former company’s 401(k)
or roll it into an Individual
Did your spouse die?
Review your will,
power of attorney, health-care
representative and IRA or
annuity beneficiary. Go on
COBRA if you were covered
under your spouse’s plan. See
whether you still need life
D ISABILITY I NSURANCE
Your earning power
is your most important asset. If you fall off a
roof and wind up in a wheelchair, how are you
going to pay the bills? That’s what disability
insurance is for. It pays you a regular
benefit—say, $3,000 or $5,000 a month—if you’re
too sick or injured to earn a paycheck or can’t
earn as much as you did before. If you have to
work for a living and have no disability
insurance, you don’t have a financial plan. You’re
a circus act without a net.
plans, you may be able to buy group long-term
disability coverage at an attractive price. Group
plans have a couple of drawbacks, however. You
usually can’t take your policy with you if you go
to another job. Also, after the first two years,
it might pay only if you’re totally disabled, not
if you can work part time. If you can afford it,
go for individual coverage. Here are the main
points to consider:
How much coverage do you
need? Enough for a decent standard of
living if you couldn’t work. Single people need
more than working couples.
When are you considered
disabled? This is critical. Low-cost
policies pay only if you’re totally disabled and
can’t work at all. But most disabled people can
theoretically work at something, whether they find
a job or not. So your claim may be denied. No
good. You want a policy that pays if you can’t
work in your own occupation.
How long will the policy pay?
Ideally, you want to be covered until
retirement age, usually 65. If that costs too
much, a policy that pays for five years will cover
What if you can work only
part time? Your policy should pay
residual benefits, giving you, say, half a
disability check if you’re working half time.
How long do you have to wait
before the policy pays? Three months is
the most popular waiting period, although you can
lower the cost by agreeing to wait for six or 12
You also have some automatic
coverage. There’s Worker Compensation for
work-related injuries; veterans’ insurance, if
your disability arose at least partly from
something that happened while you were on active
duty, and Social Security, if you’re totally
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Short, Easy Action List |
these steps one at a time. In
a month, you’ll be financially
more secure. Buy more term
life insurance if you don’t
have a policy worth at least
eight times your income.
1) Sign up
for your company’s health-care
flexible spending account.
2) If you
lack health insurance, look
for a catastrophic policy you
can afford. If your
young-adult children are
uninsured, find a policy for
them, too. If you have young
children and can’t afford a
family plan, try
4) Write or
update your will, durable
power of attorney and living
will, and name a health-care
representative to be sure that
your living will is carried
L ONG-TERM-CARE I NSURANCE
policies help pay the (very high!) nursing-home
cost if you need constant care. They also cover
care in your home or in an adult day-care center.
There are two reasons to own LTC insurance: (1)
you don’t want to use your own savings to pay the
nursing-home bill, and (2) you want to be able to
pay for quality care in the private market rather
than depending on rickety government programs.
What should you consider in a
policy? Find out what local nursing
homes cost—probably $150 to $250 a day, depending
on where you live. Many buyers insure for the full
amount. You might also insure for less and pay the
difference out of your savings. Add automatic
inflation protection so your benefit will keep up
with costs. Pick a waiting period before payments
kick in: A policy with a six-month wait costs less
than one with only three months. Insure for the
longest period of care you can afford, typically
three to five years. If you stay longer, you can
fall back on personal savings (or Medicaid, if
you’re out of money). Include home-care coverage,
but don’t buy a policy that’s home care only. You
may be forced into a nursing home, and that’s the
W RITE I T D OWN !
Every time you make a decision about a
safety-net product, write it down. Why did you buy
that much life insurance? What’s the deductible on
your medical insurance? Just a couple of sentences
will do, filed with the documents they refer to.
Soon you’ll forget why you made those particular
choices (everyone does, me included). When you
wonder if you’re really OK, your files will give
you the answer: Yes!