1. If your car is stolen, vandalized or damaged by hail, wind, fire or flood are you covered?

These types of damage are covered by comprehensive and collision coverage. If you purchase comprehensive and collision insurance when you get your policy, you are covered. You are required to purchase these if you’re leasing or financing your vehicle. If your car is paid for then you are not required to carry it.

2. I’m automatically covered for a rental car.

Nope, you are not covered automatically. If your car is stolen or damaged, rental car reimbursement is usually not standard in your policy. This is something you need to ask your agent to add on to your coverage. Rental reimbursement coverage usually cost only a $1 to $2 a month with most insurers.

But read the fine print, there may be limits on how many days you can rent a car, or how much is allowed per day toward rental costs (including a maximum cap).

Don’t assume if you use a credit card to pay for the rental, the credit card company insurance will be enough. Each credit company has its own policy inclusions and exclusions.

For more information on saving money on rental cars see our post Car Rental Consumer Tips

3. Comprehensive Claims Don’t Affect Premiums

Let’s say your car gets stolen or you hit a pole in a parking garage. Are your rates going to go up. Well, the answer is it depends. It depends on state laws and if you don’t have state laws that prevent your insurer from doing this then it will be up to the guidelines and rating system of your insurance provider.

If you change insurance companies after your comprehensive claim, you can definitely expect a rate increase.

4. Your Credit Score Affects Your Premiums

This one is something many people are not aware of. A few states do limit the use of scores when setting insurance rates but most do not.
The relationship is not a direct one such as this credit score dictates this much of an increase in the standard rate. It has more to do with predicting the behavior of someone who is having financial problems.

Think how many times have you been in an accident and you or the other driver said “let’s not report this to insurance company so my rates won’t go up.” Insurance companies know that this goes on and if you ask any insurance agent they may even advise you not to report the small accidents. The insurance companies wants drivers who are NOT going to submit claims. A higher credit score usually indicates more sound financial footing, hence more mat oney to pay for expenses out of pocket.

Insurance companies also consider that someone with a low score might appear more likely to stop making their insurance payments.

In general insurers are taking more factors into account when setting premiums. It used to be that they based their premiums on only a handful of variables — type of car, place of residence, age, marital status and driving record. Now they focus on 30 or more factors.

5. Color determines price of auto insurance.

It really is a myth that red cars cost more to insure. What does matter is the type of car you select. Sporty cars with big engines are more expensive to insure also cars that areexpensive to repair are expensive to insure. If the type of car you buy is one that is frequently stolen that will raise your rates. Many insurers offer discounts for features that reduce the risk of injuries or theft.

One of the more frequently asked questions about long term care insurance is if you can’t afford the long term premiums are there any tax benefits to owning a long-term care policy that might help subsidize the premiums.

Here are some answers to those questions given by tax experts:

1. Long-term care premiums are deductible as a medical expense (subject to the 7.5 percent-of-AGI floor), although there are limits to the deduction based on the taxpayer’s age. For example, a taxpayer between ages 61 and 70 may deduct as much as $3,080 in 2008 ($3,180 in 2009). A couple filing a joint return can deduct as much as $6,160 in 2008, if each spouse pays premiums on qualified long-term care policies. Payments in excess of any LTC benefits may be deducted as medical expenses.

On October 20, 2011, the Internal Revenue Service (IRS) issued Revenue Procedure 2011-52, which included inflation adjustments for the tax deductibility limits of long term care insurance for 2012. This is one of the ways the way the government is trying to encourage people to get long term care policies. There may also be state programs which offer tax deductions or credits for the purchase of long term care insurance.

Here is the table with the age divisions and deductions:

2012 Federal Long Term Care Insurance Tax Deductible Limits

Taxpayers Age at End of Tax Year 2012 2011

40 or Less $350 $340

More than 40 but not more than 50 $660 $640

More than 50 but not more than 60 $1,310 $1,270

More than 60 but not more than 70 $3,500 $3,390

More than 70 $4,370 $4,240

Source: IRS Revenue Procedure 2011-52 and IRS Revenue Procedure 2010-40

If you are self-employed you get an even better deal on your deductions. You are eligible to deduct 100% of long term care insurance premiums (subject to the maximum deductibility limits) without having to meet the 7.5% adjusted gross income medical expense requirement. This includes premiums paid for a spouse or dependents. The amount exceeding the deductibility limits will be taxed as ordinary income.

What if an employer pays for a portion or all of an employee’s tax-qualified long term care insurance premiums? If you are employed and your employer pays premiums on your behalf these are tax deductions for your employers business expense. The deduction for these premiums is not subject to age-based maximum deductibility limitations. You do not have to include these in your adjusted gross income.

If you are employed and your employer only pays a part of the premium you can deduct the remaining premium subject to the age-based deductibility limits set forth in IRS Revenue Procedure 2011-52, provided they are able to satisfy the 7.5% adjusted gross income medical expense requirement.

2. Using a distribution from an HSA to pay for the premiums is a qualified tax free HSA distribution, you do not get an additional itemized deduction because the HSA contribution itself was deductible and the distribution is tax free for qualified medical expenses. So here you get a double tax free supplement which will help reduce your cost. For more information see our postAre Long Term Care Premiums HSA Contribution

3. The new annuity 1035 exchange effective in 2010 allows you to do a partial 1035 from your NQ annuity to pay for a qualified LTC contract. The annuity distribution is tax free, but you do not get an itemized deduction for the LTC purchase. Tax experts say you would probably have to do one of these exchanges each year to pay the current LTC premium.

Credit Card Accountability Responsibility and Disclosure Act of 2009

Getting control over your credit cards is one way to help begin frugal simple living. Credit cards are convenient and sometimes we have no choice but to use them. In some cases the only payment a merchant will accept is a credit card. Other times when we don’t have the cash available and we have to spend the credit card is the only way. So credit cards are part of life and we have to accept that.

But we can limit their drain on our wealth if we understand how they work. One of the problems is that most people don’t read the fine print and wind up getting hit with fees they had no idea existed. Credit card companies count on the fact that you are busy and probably won’t take the time to wade through all long boring complicated explanations about how the fees are computed.

But guess what? I love doing research and I did some research to find out what you need to watch for on your credit card bill and I am going to explain to you.

First thing to watch for is the credit card grace period. Credit card companies tell you it is the slice of time you have where you will not accrue interest charges, if you pay your bill off in full. The grace period begins when your billing cycle closes. It ends when the payment is due for that billing cycle.

As of February 2010 (from the Credit CARD Act of 2009) a portion of a new law to help consumers manage their credit went into effect. It requires cardholders to be given a “a reasonable amount of time” for making payments. The law reads that a minimum of 21 days must be given for credit card grace periods, which starts when the billing statement is issued.

Prior to this legislation some credit card companies would start charging you interest as soon as you made the purchase. The law eliminated that possibility for the credit card companies but there is a catch and it is a big expensive one.

If you don’t pay your balance off in full before the grace period ends, then you will be charged interest going back all the way to when the purchases were made.

Even if you make a partial payment when the bill is due you will be charged interest going back to the date of purchase for the entire purchase. Here is a simple example: You buy a computer for $1000. You pay $200, when your bill is due but because you didn’t pay the entire balance you are charged interest for $1000 going back to the date of purchase.

Not paying off the balance in full is what causes your bill to ratchet up so quickly. Interest rates are high and you are paying interest on the full amount of your purchase no matter how large a portion of the total you pay.

Cash advances and convenience checks have no grace period at all. They start accruing interest from the day you begin using them and you will be charged that interest even if you pay off your credit card statement in full.

Find out more about what the
Credit Card Accountability Responsibility and Disclosure Act of 2009 did for you in terms of protecting you from the credit card companies. See our post How to Understand Credit Card Account Terms at Fasthow.com

What does “Frugal Living” mean to you? Probably it raises visions of generic brand food products, rinsing out plastic bags to reuse again and generally making do with less.

Most of us feel frugal living is just a rationalization for a reduced income. If we live in a frugal way it is because we just don’t make enough money to live in an enjoyable way. When you put it that way it certainly does not sound appealing.

But what if I told you many wealthy people live in frugal way and live very comfortable lifestyles? Wealthy people often become that way because they spend wisely and because wealthy people feel like they can buy what they want, they feel less of an urge to buy things.

Frugal living is actually not associated with lack of things but with peace of mind. Doesn’t peace sound good and beautiful?

When someone first proposed the idea to me it came in the form of a book called “Simple Abundance” by Sarah Ban Breathncac. Then I found the very same thoughts in a book called “Don’t Sweat the Small Stuff and It’s All Small Stuff” by Richard Carlson. Both books were bestsellers and many more follow-up books were written.

Both authors discussed the lack of contentment most of us feel and how this translates into overspending. We spend a lot of time focusing on what we are going to buy and then when we get the thing all we can think about is getting the next thing. Plus we are bombarded by advertising always urging us buy more, upgrade and have the latest version.

Buying stuff does make us feel good for a short period of time. Dr. Carlson explains that it is because we stop focusing on what we don’t have. The catch is though the wanting feeling comes right back after we make the purchase and we start thinking about the next thing we have to have.

Frugal living not only means spending more thoughtfully but about being content and at peace with what we have right now. When you really think about it most of use have a great deal.

We have food to eat, friends, family, clothing, music to listen to, a beautiful sky to look at, beloved pets – so many things. Appreciating what you have is the very first step into frugal living.

So you can make the journey into frugal living just by taking that first step. Just get into the habit of thinking about what you have instead of what you don’t have.

Then something rather amazing begins to happen. You start to feel better and you begin feeling like you need less. When you get into the mind set of being happy with what you have it translates into better financial and mental health.

Contented satisfied people are less likely to use their credit cards to buy unnecessary items. Therefore they have more room on their credit cards when those big unexpected expenses pop up. And when you are able to pay for the unexpected expenses you stay in a better mental state.

Less credit card debt means you can save more money. You will feel financially secure and when you do make a purchase you will do it for the right reasons. Plus if you are thinking about retirement, learning to live frugally may let you retire early.

Frugal living is a way of getting out of that want it, put it on my credit card, regret it later financial misery prison.
Frugal living brings freedom from debt, freedom from constant wanting, freedom from overspending and disappointment when your purchase doesn’t bring lasting happiness.

The first step to financial freedom is easy. You don’t have to complete a worksheet or buy anything. Just begin with a mental shift, when you start thinking about all you want, think about all the things you have.

I have lots more ideas about frugal living and loving it so check back with me and get some more ideas. Also, let me know how you are doing. I would love to hear from you and if you want publish your thoughts on this blog. Use the contact form or make a comment.

Our sister site Cheapskateliving.org has great post on frugal living called Simple Way to Force Yourself to Save for Retirement

If you are anywhere close to retirement frugal living can help you have a more comfortable retirement.

You don’t have to buy a course, read a book or sign anything to begin your journey in frugal living. Just begin by focusing on what you have and feeling content. When you start to think about what you don’t have just dismiss that thought. Count your blessings.

Stay tuned for more lessons in frugal living. The journey is more fun if you go with someone, so let’s go together.

One reason so many people hesitate to purchase long term care policies is the expense. It is a huge expense at a time when we have so many other things to pay for like our kids college and our retirement. The government has enacted legislation to help with this problem.

The Pension Protection Act of 2006 says that starting Jan. 1, 2010, you ll no longer have to pay federal income tax on an annuity s proceeds if you use those proceeds to pay for long-term-care coverage.

The very fact that Congress enacted this legislation indicates a growing awareness by regulators that there is a fundamental need for long-term-care insurance. and they are trying to create better tax incentives to enable the industry

In response to the legislation insurance companies now offer what they call a hybrid policy which is a an insurance policy with a long-term-care rider.

Here is how it usually works. You put money ($50,000 is about the minimum) — into an annuity. Or you can use an annuity you already own or a whole or universal life insurance policy that you no longer need through what the IRS calls a 1035 exchange.

You then choose the amount of long-term care coverage you need. Average is usually 200 percent or 300 percent of the face value of the annuity. You also choose if you want inflation coverage and how long you want coverage to last.

Be aware though there are pros and cons to long-term-care annuities By definition, annuities expire after a certain amount of time whatever the length of the contract is. If you are sick for more than three years (called extended long-term care in the industry), you would really need to have an a regular long-term-care insurance policy because that will keep paying for as long as you live.

Here are the pros and cons in very simple terms:

Long-term-care annuities offer the flex appeal of having long-term-care coverage, but, if you don t need it, you can get your money back. In regular long-term-care insurance policies if you don’t use it you lose it.

Long-term-care annuities let you build up money tax-deferred. Good if you are in a high tax bracket. who plan to be in lower brackets when they begin drawing down their accounts.

If you are too ill to qualify for a regular long-term-care insurance policy, you might have an easier time getting coverage through a long-term-care annuity because they ask you fewer insurability questions and there are no medical underwriting requirements

The main drawback on long-term-care annuities is the length of coverage. If you don t deposit money enough upfront, your coverage may not last during an extended long-term-care situation.

If you can t afford to tie your money up for a long period of time you won’t want to do the annuity because the penalty for withdrawing your cash early are steep.

You ll also need to have between $75,000 and $150,000 just to get coverage in the first place whereas a regular long-term-care insurance policy you, in will make monthly payments.

Long term care insurance policies and annuities are expensive and can be confusing. Your best bet is to read up on what is available so that you have an idea what is going on. Then talk to an agent that is reputable and has some experience with these types of policies. They can simplify the jargon and decipher the policy and help you figure out what is best for you.

Another option tax exempt way to pay for long term care insurance is to use an HSA or health savings account to pay for long term care. See our post Are Long Term Care Premiums HSA Contribution

A health savings account (HSA) is a tax-favored savings account created for the purpose of paying medical expenses. Contributions to the HSA are 100% deductible (up to the legal limit) — just like an IRA. If you use the money to pay for qualified medical expenses you do not have to pay taxes.

Any interest you earn on the money is also tax free provided you use it to pay for qualified medical expenses.

HSA money is different than the flexible spending account you do not have to forfeit the money at the end of the year. In other words if you don’t use it – you get to keep it and it continues to grow, tax-deferred.

No penalty or taxes will apply if the money is withdrawn to pay premiums for qualified long-term care insurance.

Many people were concerned that health care reform would affect their HSA account if they were using it to pay for long term care insurance premiums. The latest information on health care reform says there is not an impact on long term care premiums. There is an increased penalty on HSA distributions that are not used for qualified medical expenses for those under the age of 65 from 10 to 20 percent but long term care premiums are not unqualified medical expenses.

The Patient Protection and Affordable Care Act (PPACA) has created long-term care insurance programs to be financed by voluntary payroll deductions as a way to provide benefits to adults who become disabled.

You should be able to participate in this insurance program without losing your HSA eligibility. You may also be able to pay for the premiums from your HSA.

Here is the wording directly from the IRS web site regarding long term care insurance premiums and HSA’s
http://www.irs.gov/publications/p969/ar02.html#en_US_2010_publink1000204083

Insurance premiums. You cannot treat insurance premiums as qualified medical expenses unless the premiums are for:

You cannot claim this credit for premiums that you pay with a tax-free distribution from your HSA. See Publication 502 for more information on this credit.

As way to help pay for those long term care policies HSA’s a great way to help cut the cost. No taxes on the money you set aside and no taxes on the interest you accrue.

What is so frightening for us aging baby boomers is that the cost of long term care is rising at an alarming rate. It does make sense that since people are living longer, more and more people are making claims which would account for the risings rates. As hard as it to save money none of us wants to see our savings wiped out to pay for long term care.

In some cases you can find government subsidies and programs that will help you out. In some cases though you may need to supplement with long term care insurance.

Everyone agrees that long term health care insurance premiums take a huge bite out of most seniors income. If you are going to buy one of the policies you want your rates to remain relatively stable. So to help understand what causes rates to increase and how you can protect yourself from policies that do this here is some information from the GEORGETOWN UNIVERSITY Long-Term Care Financing Project

Even if insurers have the intention to sustain level premiums, things happen that cause them to increase premiums. For instance, in recent years the lapse rate—that is, the proportion of policyholders who drop their policy—has declined. This means more people are keeping their policies and will eventually be making claims. If the insurer did not predict this decline they may have increase rates to stay in business.

Premiums can also change for other less ethical reasons. According to the Georgetown University report “Every market has “bad actors”—in this case, insurers who set premiums for short-term gain rather than long-term price stability. One such practice is the use of “loose” underwriting rules—selling to less-healthy people along with others—and then setting rates that are too low to cover the long-term risk level of the purchasers.

Another is setting inappropriately low rates (that is, “low-balling”) in order to sell a particular policy and then closing enrollment in that policy (or “block of business”)—enrolling new applicants in a new and separate policy and raising the premiums for holders of the closed policy. The result is a “death spiral” for the initial policy—individuals who can pass medical underwriting drop such policies because they are able to purchase less expensive ones, and individuals who cannot are forced to pay significantly higher rates or lose their coverage.”

The NAIC Long-Term Care Insurance Model Act and Regulation was created to better protect consumers from rate instability. It was amended in August of 2000, to financially penalize companies that intentionally underprice policies and, help state regulators prevent insurers that do this from selling policies in their state. Also, the new model requires insurance companies to provide more disclosure of premium increases and provides policyholders more options when their premiums are increased.

Several states have recently adopted NAIC premium rate stability provisions so that their residents can better afford long term care insurance. The NAIC has an excellent publication called “A Shopper’s Guide to Long-Term Care Insurance” and here is the link to it NAIC Shopper’s Guide to LTC

What financial experts say is that rate increases don’t always mean your policy is bad, and the lack of rate increases doesn’t always mean your policy is good. If you do have rate increases you want to be assured that they are for a valid reason.

If your state has adopted NAIC premium rate stability provisions you have some reassurance but you also need to make sure you pay careful attention to any wording about rate increases in the policies you are looking at.

Can You Do Retirement Math?

If you are 50 plus, you probably have wondered if you have saved enough resources to put yourself on he path to retirement. Of course, you will probably be much better off if this thought occurs to you at age 20 or 30. The more time you have, the easier retirement savings will prove to be.

Why Retirement Math?

You do not have to be able to solve complex equations to figure out if your current savings, and savings rate, will help you enjoy a secure retirement at a certain date. In the old days, you may have had to be able to do some simple retirement math.

These days, you can find plenty of free online financial calculators that give you answers in minutes. This online, free retirement savings calculator is simple to use, totally free, and provides a lot of answers.

There are, of course, two big problems with our best retirement math.

• You may not like the answers that you get. You may find that your current savings, plus retirement income, will be inadequate. You ma also find that it will be almost impossible, with your current plan, to catch up!
• You will find the predicting the future is still impossible, no matter how many fancy figures you can produce. We cannot really know how inflation or market returns will affect us. We really have no idea how much electricity or gasoline will cost in ten years, of if current fuel sources will get replaced by something else. If so, we can only hope that the alternatives will be better and cheaper. It is just as likely we will pay more though.

The Truth May Get You Going On A Better Retirement Path

You know what they say about the news. Even if it is bad news, it is still good news to know. Take some time to estimate the numbers.

What can you learn? You will not get a magic bullet, but you will have a starting place so you can continue with your goals.

You will know if you can really take early retirement, or if you should delay your plans to quit work. Maybe you can put your own retirement plans back on track by adding a bit more to your savings each month, setting up an online IRA, or exploring some extremely frugal changes in order to have a chance to enjoy your golden years in peace.

You Know What A Bad Retirement Plan Is?

The reality is that the only truly awful retirement plan is a total lack of one! Figure out where you are, and then try to figure out where you need to be. Answers come when you know what the questions are.

Our paper had a really good article on the expanded child tax credit 2011. So here is a quick summary:

Who is a dependent and how much can you deduct:

For each dependent child, you can take a $3,650 personal exemption. The more children, the more exemptions you can take. Each personal exemption serves to reduce your income.

Children under age 19 can be claimed as dependents; those under 24 if they are full-time students. Children 24 or older who are full-time students can be claimed provided their income is less than $,3650. Age limits do not apply to disabled children.

If parents are divorced only one may claim the child as a dependent. Child support is not taxable as income although alimony is.

Expanded Child Tax Credit 2011

For parents to quality for the credit of up to $1,000 their child must be under 17, must be claimed as a dependent on the parents’ tax return, and must have lived at home more than half the year. Only U.S. citizens , nationals or legal residents are eligible. This credit phases out as income increases.

If the credit exceeds the income tax owed, taxpayers may be eligible for the Additional Child Tax Credit which is refundable. That means you may be able to get the money even if you don’t owe taxes.

Adoption

The maximum credit if you adopt a child is $13,170 for each child. The IRS says the credit is based on the reasonable and necessary expenses related to a legal adoptions, including adoption fees, court cost, attorney’s fees and travel expenses. Eligibility for the credit begins phasing out for taxpayers whose adjusted gross income exceeds $182,520.

The adoption credit is refundable, so if you qualify you will get money even if you have no tax liability. You must fill out a special form (Form 8839). You must also provide documentation showing the adoption was completed so you can not file your return electronically.

Earned Income Credit

The maximum income a family can have and still qualitfy is now $48,362. Actual credit amounts vary, depending on income, family size and other factors.

Tax Deductions for Children in College

The American Opportunity Credit is a maximum of $2,500 of the cost for tuition and other higher education expenses. The credit can be used for the first four years of college, compared to the first two years for the Hope credit. Students must be enrolled at least half-time. If you have mulitiple students attending college, you get to the claim a separate credit for each of them. The credit which is partially refundable phases out at higher incomes.

Tuition deduction – For those that don’t qualify for the American Opportunity Credit, another option might be the tuition and fees deduction of up to $4,000. The deduction doesn’t require someone to attend school at least half-time. You cannot use both the American Opportunity Credit and the tuition deduction together. The IRS says though the credit will usually result in greater tax saving taxpayers should calculate it both ways and see which is better.

The tuition deduction was included in the tax law passed in Congress last month so the IRS has not had a chance to update their systems. If you claim the tuition deduction you will have to wait until mid February to file.

I saw this in Heloise’s column and thought it would be good to post it at this time when so many of you may be renting cars for holiday trips. Here are some car rental consumer tips from Heloise:

When you rent a car, auto experts say to fill the gas tank before you return it. Otherwise, you will have to pay a high per gallon fee. Save money and top off before turning it in.

Because of high gas prices, car renters want more fuel-efficient vehicles. So, make your reservation early to be sure you get the vehicle you want.

If you are thinking about renting a car, shop around. Compare prices at the airport to local rental spots. Prices may vary quite a bit. Look for specials or online deals to get a better price.

Also and this is my own personal tip, check and see if you need the car rental insurance. See our post Is Rental Car Insurance Necessary at Cheapskateliving.org You may be able to save yourself some significant dollars but not opting for the extra insurance.