In the last blog post, we discussed the first two tests, Cost comparison check and Compliant index check to start. This post, we will continue with 3 more tests which can be performed against the insurance companies.

Test 3: Ratings and Reviews

These days any type of consumer product or service gets rated and reviewed. There are only few reputed rating companies rating branded products giving guidance to the consumer. A well known name is J.D. Power and Associates' which rates auto insurance taking lot of criteria’s into consideration.  You can find thee ratings for any auto insurance at jdpower.com

There are other third party websites which also gather the reviews of the insurance companies from the consumer. For example, this website http://www.automobileinsurancereview.com has the reviews for most well know insurance companies. But these reviews are more personal from the consumers and difficult to know the actual cause for the complaints so use them with your own discretion.

After checking the ratings and reviews, give scores to your list companies according to their ratings.

Test 4: Financial Strength

Many of the publically traded insurance companies are rated on their financial strength. A.M. Best and Standard&Poor's, both of these companies publish financial strength ratings for all insurance companies — they measures insurance company's ability to pay out claims. The A.M. Best rating is expressed as a letter grade from A++ (the highest) to D. Some companies may be assigned ratings of E (indicating regulatory action regarding the company's solvency), F (in liquidation) and S (suspended). In any case, you should only work with companies that have at least a B+ rating.

The Standard&Poor's ratings range from AAA (the highest) to CC. Some companies receive ratings of R (under regulatory supervision) and NR, which means 'not rated'. The letter grades might be modified by a + or - mark. Consider only those companies that have at least a BBB rating. Insurance companies often provide this information on their Web sites, but if not, you can run a search at the A.M. Best and Standard&Poor's sites or this site insure.com.

Keep in mind that these ratings have nothing to do with the way an insurance company treats its customers. It is only the rating of their financial strength. Give scores for your list companies accordingly.

Test 5: Customer Service&Support

A very important criterion to judge a company is by their customer service and support. These days many companies have website support. You can request quote, chat with the customer service personnel online and clarify your downs, maintain your account online, make changes, start a claim, make payments and renew your insurance. It’s all done without even talking to a person. It has become so easy after Internet revolution except their website should be fast and reliable enough to handle the customer traffic.

Check whether your insurance companies have fully organized website with support 24/7 and how fast they respond to your queries. It is very important to have faster response when you are in emergency situation. Give score to your list of companies by calling them or visiting their website.

Whenever I think of any insurance, a common phrase pops in my mind,

“Any insurance is only worth dollars, if and only if the insurance company is strong enough to pay you when needed”

We feel safe by having insurance so it doesn’t really worth a dollar if the insurance company won’t be able to pay for your claims. It will be a mere waste of money and can cause a financial turmoil in our life. That brings an important point, you better select the right insurance carrier for your insurance needs. It is totally our responsibility to do so.

Even with as many cars in the road, insurance companies still fight to get your business in whatever way they can. They always market their products like any other business person by buffing it up to attract you, the consumers. But it is us, the consumers who need to research about the insurance companies and make a sound decision to avoid getting trapped. It is not an easy task to judge a company but there are few simple tests that can help you determine which insurance company is better or best. 

If you are currently looking to buy auto insurance, first list down all the companies you short listed in a paper. Then try out these test criteria’s one by one and see how they score out of 10 points.

Test 1: Cost/Premium check

Cost (premium) is the key factor in many of our buying experience and one among many important parameters in our decision making process. As the saying goes, “You get what you pay for”, which holds true in insurance too. Lot of small insurance company’s charges little bit more compared to nationwide companies. But they work very closely with the insured taking care of their needs especially process the claims timely.  At the same time, big insurance companies which charges hefty premium and promises to offer premium service, fail to deliver them in the long run.

So don’t just make the decision solely based on the premium or cost of the insurance because premium is not just only based on the insurance company’s expenses. It is also computed taking lot of other factors into consideration like your credit rating, driver’s history, your age risk pool and many others. Keeping that in mind, try to use the cost as a benchmark to compare against different companies for the same level of coverage and give a score for your list of companies.

One more important thing, almost all sates have insurance commissioners who monitor the insurance rates to keep them under certain limit. It is regulated to certain extent so you won’t see a big difference.

Test 2: Complaints Index

Every business always has good and bad customers. Some really like the service and happy with it whereas others who had bad experience complain all about it. Insurance companies aren’t an exception. The best kept secret is the compliant records of the insurance companies. Your state, and every state, has a department of insurance. Here is the link for State of Texas. Due to lack of marketing, not many of us know about it. Most of them even have web sites, and many publish "consumer complaint ratios" for all of the insurance companies that sell policies in their state. This ratio tells you how many complaints an insurance company received per 1,000 claims.

If you can't get complaint ratios for your state, you can get an idea by looking how a company treats it’s customers by checking the complaint ratios published by other states.  High number of complaints surely makes you pause for a moment, even if the company is financially appealing.

Check out the complaint ratio by visiting this site which has links for every state's department of insuranceand see how your insurance companies scored according to their complaint ratio.

Additionally, the department of insurance websites often provides basic rate comparison surveys like the one by  Texas. It sheds you another clue about insurers who might suit your budget avoids taking trouble getting quotes directly.

Look out for other Tests in next blog post...

Many of you know, I am working on my CFP certification and doing courses thru Boston University. I was fortune to read online materials prepared by experienced professionals and one among them is Carolynn Tomin. She is a Certified Financial Planner™ professional who specializes in financial education. Carolynn is a consultant to Boston University's Program for Financial Planning, where she edits, writes and oversees curriculum for their online Financial Planning Program.

As we are discussing more about 401K, retirement and financial planning in the past few posts. I decided to get in touch with her personally and was able to get some answers for questions everybody has these days.

Vijai: Can you explain to an ordinary person who doesn't have any money management experience about financial planning? Is it a essential to any person for their financial wellness?

Carolynn: The purpose of financial planning is to make sure you have a plan in place to reach your financial goals. Money is only a means to an end- what do you need to spend it on (your fixed expenses) and what do you want to spend it on (your short-term and long-term goals) Once you have identified your goals you will know how much money you will need at a future date. Then you devise a plan to make sure that money will be available when you need it. If you don't have enough income, assets, investments etc. to reach your goal, you may have to delay achieving your goal or create strategies to obtain more income, invest more wisely, save more money each month, cut back on your discretionary expenses etc. But if you don't have a financial plan in place, you may be planning to fail.

Vijai: What do you see as the major distinction between financial planning and estate planning? 

Carolynn: Estate planning is an important part of financial planning. Estate planning protects you, your family and your entire estate, which is the wealth and assets you have accumulated during your life, and plans for how those assets will be protected and distributed during your life and at death. Estate planning also ensures that you have proper legal documents in place such as wills, trusts and powers of attorney, and estate planning may even lower your gift and estate taxes.
 
Vijai: What is the importance of Will and Trust?

Carolynn: There are many different types of trusts and they are used for specific purposes. For example, if you wanted to protect your property if you became incapacitated, you could set up a revocable trust now that would manage your money and property if you became incapacitated in the future. All trusts have a trustee who manages the money and property in the trust for the trust beneficiaries. 

Vijai: I mentor people to be their own financial planners. I recommend them to start planning their finances for their better future. I tell to make money rightly, save more, spend less and give graciously.  At the same time, no one can be an expert of everything. It is a tough task so I suggest them to seek CFP and CFA's help when thing go beyond your control. What do you think about that?

Carolynn: I like your approach to helping people who are in need of financial planning advice. Many people are overwelmed by the complexity and sheer volume of financial planning information that's available when they are trying to sort out what information may pertain to them. Once they get beyond learning the basics of financial planning there are topics such as insurance, investments, retirement planning, taxes and estate planning to learn about.
 
People who need financial planning advice should consult a Certified Financial Planner because that person has completed their education, has passed a rigorous 10 hour exam, has at least 3 years of work experience, and they are bound by a Code of Ethics for Certified Financial Planners. These 4 E's- education, examination, experience and ethics are what separates Certified Financial PLanners from those who just call themselves financial planners or financial advisors. People in need of planning will receive competent advice by Certified Financial Planners who will put their clients interest before their own. That's because CFP practitioners have a fiduciary duty to put their client's interests first.
 
I hope to get some more questions answered and will publish them as Final part.

Being an ING DIRECT customer for almost 5 years, I am currently taking advantage of quite a few of their offerings like Orange Savings, Electric Orange Checking, Orange Business and Sharebuilder accounts. I am amazed by their different way of approaching customers which can't be compared to any other banks. You can read more about their Orange Code of Ethics and more from a recent interview by ING Direct CEO to Costco Connections.

ING Direct,  an online banking legend is going to celebrate it's 10th year anniversary with 10 million customers weathered the past economic storm by taking a unique approach, persuading customers to save instead of spending more. Through social media like twitter, facebook and their own blogspace, wethesavers.com, they encourage customers to share their thoughts and ideas about saving, spending less and being frugal.

With their new subsidary ShareBuilder, an online brokerage designed for automatic, long-term investing. They also started offering investment and retirement solution. As we been talking about 401k and IRA in the last few posts, I wanted to bring something from ING Direct. So I got in touch with my PR contact at ING Direct and able to get a short email interview with M. Dan Greenshields, President of ShareBuilder.

Vijai: Thank you for taking time to answer few questions about IRA Rollovers.

Dan:  It's my pleasure.

Vijai: Dan, as we all know there are millions of people out their looking for job and not finding them. So many are planning to dip into their retirement savings. How is ING DIRECT helping their members who lost their job and have 401K? Do you help educate them with options?

Dan: Because of the potential for taxes and penalties, we feel that qualified retirement savings should be some of the last assets that people tap into. As an organization, we encourage customers through our website, service team, and advocacy efforts to build an emergency fund and educate them on the value of regularly investing in their retirement, even if that means just a few dollars a month. An emergency fund could be used for exactly this purpose, which we hope they’d tap first.  

Vijai: How different is ING DIRECT’s IRA Rollover options from other brokerage and mutual fund companies?

Dan: We feel we have a distinct advantage on two fronts: our low-cost investment options and our people. Between ING DIRECT and our brokerage subsidiary ShareBuilder, we are able to offer both investment (stocks, ETF’s and mutual funds) and FDIC-insured options (high-interest savings and CD’s), providing more choices than a standalone bank or brokerage can offer.

At ShareBuilder, there is no minimum investment required to open an account and no inactivity fees. Customers are able to invest in stock, as well as a range of exchange traded funds and mutual funds, and are able to buy fractional shares of stocks.  We also created http://www.RetireMyWay.com, a consumer-friendly retirement savings and investment channel.  The Retire MyWay planning tool allows users to create a personalized retirement action plan specific to how they want to live during their golden years. Customers can create and commit to retirement goals using interactive calculators and tools, and they can learn about places to invest and review model portfolios designed to match their investing style and needs.

On the service front, we have a dedicated team of Retirement Specialists who understand both bank and brokerage products, and can talk customers through these alternatives while helping them navigate the rollover process. 

Vijai: Does Dollar cost averaging methodology really works and how, show me with proof?

Dan: The longer your time horizon, the better the results.  That’s what history shows.  Dollar based investing allows you to purchase partial shares of your favorite companies for a fraction of a share’s total cost.  In a sense, it democratizes investing, lowering the entry barrier and giving everyone a chance to own a piece of the market.
 
Take the simple, hypothetical but fairly typical example of a market that starts at 10,000, drops to 8,000, increases to 10,000, and then increases further to 12,000. In this case, an investor would be better off with dollar cost averaging.  Here’s why: If you are the person that knows to buy at 8,000, then congratulations – you’re probably a professional investor. For the rest of us, however, you might have been better off investing $1,000 at each of those four points in time (resulting in holdings of $4,900), than investing $4,000 up front (resulting in holdings of $4,800). In addition to the fact that it’s mathematically advantageous, it also just makes sense as a discipline. Because most of us make monthly payments in other facets of our lives (utilities, car, mortgage, etc.), it’s relatively easy to adopt and stick with an investing plan that is monthly as well. 
 
Vijai: I saw advertisements for free Transaction Fee on IRA Rollovers with some fine prints. I always thought ING DIRECT don't like gimmicks to attract customer. Any comments?

Dan: Last year, 40 percent of Americans believed the economy would cause them to retire later than expected, but as we begin the New Year, we want to make saving for retirement easier. Currently, we’re allowing customers who open an Individual Retirement Account (IRA) by April, 15, 2010 to make an unlimited number of free automatic investments in 2010. These credits apply to any stock or exchange traded fund, plus any mutual funds so long as the mutual fund’s minimum has already been met. Go here for more information: www.sharebuilder.com/retire. We feel this offer will lend a helping hand to those people who are having a hard time getting started investing in their retirement or need help getting their retirement goals back on track.
 
Vijai: Is IRA Rollover easier to do without much paper work through ING DIRECT? Explain the process.

Dan: There are a few different ways to initiate and complete a rollover, depending upon the type of plan the participant’s assets are in and in what form the participant wants to roll them over, but the process almost always involves a little paper at some point.  We try to reduce the paperwork and fine print, and make that process as seamless as possible. Our goal is to understand each participant’s particular situation, and use that information to help them complete the process as quickly and as easily as we can. 
 
Vijai: If a person has ING DIRECT mutual funds thru employer and lost his/her job, can they keep their plan and maintain low fees after becoming non-participant?

Dan: Generally, if a participant has less than $5,000 in a plan, the employer may have the right to cash out the participant, or automatically roll their assets into an IRA. However, as long as a plan participant has over $5,000 in a 401(k) plan, they always have the option of keeping their assets in that plan. If the plan has no annual administration fees, and a broad mix of funds that perform well and have low expense ratios, this can be a good option. If the plan has limited options, poorly-performing funds, or expensive funds, than it usually makes sense to complete a rollover into an IRA. 

Vijai: Final comments or any other thing you want to add about ING DIRECT’s goal towards 401K and IRA Rollover?

Dan: Awareness of your financial situation is a critical component to getting on the retirement saving track. Try to fully fund your 401K (or encourage your employer to set up one if it doesn’t exist), diversify your assets within the account and regularly rebalance them.  Also, an IRA Rollover can help you consolidate and better manage your retirement funds. 

Vijai: Thank you for your time Dan. 

Dan: Glad to answer and explain our position to our customers. Thank you for this opportunity.

Websites discussed above are,

www.retiremyway.com and www.sharebuilder.com/retire.

Lost your job and wondering what happens to your 401k or employee sponsored savings?

Getting bombarded by calls/ads/emails from financial firms to rollover your 401K fund?

Many Americans are facing the same situation and asking similar questions as more than 4 million lost their job last year. After losing a job, you don't think about 401k for a while because you are busy hunting for the new job. With job market still in limbo land, many people are having tough time finding any job and struggling to feed their families. In this situation, they are looking for options to earn and even willing to break their nest egg to get through the current situation and worry about retirement later.

In my last post, I stressed the importance of timely action on your 401K  before it's too late whether you decide to save or take out distributions. How you handle your 401-K account can result in anywhere from zero to hefty taxes and penalties. This blog post, I plan to share few important questions and answers with my research, study and experience in rolling over 401K during the job change 2 years ago. 

First question, What are my options?

There are several options when it comes to saving your 401-K and your former employer or 401k administrator from investment company should have already provided you with information. If not, here are some important options:

1. Stay In

You can stay put with the former employer plan unless there is no restrictions and limitations.

Pros: No Paper work, Low fees, Better investment options, money grows tax deferred.

Cons: Higher fees, no contribution from employer, no flexibility, less attracive plans and importantly minimuim balance requirement. ($5000 most cases)

2. IRA Rollover

Next comes the IRA Rollover which is highly recommended and advertised in the past year by lot of brokerage and mutual fund companies. It is easy and has lot of advantages.

Pros: No penalty or Income tax when rolled over directly, tax deffered growth, more investment options, Direct control over money, great flexibility to change funds any time.

Cons: 401K security value might be down because of stock market and lose money by rollover since they need to cash the security before rolling over. Also usual IRA withdrawal rules apply.

In general all the contribution by you and vested employee portion in the 401K plan is eligible for rollover. A rollover can be paid directly to you or it can be implemented as a direct rollover.

Direct Rollover: The funds in your 401-K account are paid directly into the IRA. With a direct rollover, the 401-K administrator is not required to withhold any income tax and you do not owe a penalty. It has become easy with Internet and many companies allow internet application submisions.

Check Payment: Many 401K administrators send check directly to you if they havn't heard with 60 days. When you receive your 401-K distribution, your former employer has withheld 20% as taxes. This withholding is a requirement. It does not mean you will owe the tax. In order to avoid taxes and tax penalty you must: 1. Deposit full amount including the 20% withheld by employer with your funds into your IRA account within 60 days of receiving the funds. When you file your taxes for the year you will not owe taxes on your rollover, but will be able to include the 20% withheld as income tax paid.

If you do not pay full amount, you will owe Income taxes at your current tax rate on the amount of 401-K funds you did not rollover plus additional 10% tax penalty is due because you received retirement funds before you reached 59-1/2. 

Because of above complications direct rollover is less risky, faster, less time consuming and not as complicated as a payment made to you.

3. Rollover to New Employer 401K Plan

You can also choose to wait and roll over to your new employer 401 plan depending upon your situation. That helps to keep all your 401k money in one place. But you have to find the job on time and also you have to satisfy balance requirement to keep funds in the former 401k plan. You might endup paying higher fees during the interim period. Be aware of it and make decision.

4. Rollover Annunity

You can rollover to Insurance companies annunity option. A Rollover Annuity is a contract between you and a life insurance company that allows you to specify how you want to receive future income, and even elect a death benefit for your beneficiaries. Your money transfers to the annuity and earnings, if any, will continue to grow tax deferred until withdrawn.

Pros: No penalty or Income tax when rolled over directly, tax deffered growth, more investment options, Direct control over money, great flexibility to change funds any time and decide how your income will be paid.

Cons: If elected to get immediate withdrawal and below 59 1/2, penaly applies

5. Lumpsum Cash Out/Distribution

It is not recommended option but if you are above 59 1/2 age limit you can take out the money without any penalty and taxes implications. But when you don't find job and need to take care of the family, this has become only option for many people. SO if you cashing out 100,000 and you are in 25% tax rate, you would end up paying 25,000 + 10% penalty would be $35,000 loss. 

Pros:  Instant money from nest egg 
Cons: Need to pay Income Tax if you are younger than 59 1/2 upto your tax rate + 10% penalities.

6. Safe Harbor Hardship Withdrawals

If you don't wish to take out full amount, you can always withdraw certain portion using the hardship withdrawal requirements. In this bad economy, uncle sam allows certain withdrawals (listed below)but still might need pay income tax and 10% penalty. Also funds are limited to the elective portion of the deferral, and not any income or interest on the deferred amounts. It might help to overcome the situation and not a bad option in worse situations.

This year just started off and half of January is almost over now. Days are moving fast so you better focus on things you want to get accomplished.

Do a quick check on your goals or Resolutions for this year. Did you ever get started with any of them? If you did, how far along are you? Do you think you are moving along as planned or just dragging yourself, waiting to quit? If you never got started, you still got till 31st to do something about it so you can atleast brag that you started something new this year. If you are chucking along, good job and keep it going!!

Moving on to Money smartness, it is not only about making and saving money right. It is also about doing things which could help to manage and preserve the wealth you earned. It is about getting ready for emergency situations and planning for proper wealth distribution when you are gone. In this post, I like to share and remind few Don't and Do's which most of us take it for granted in our everyday busy life. We don't consider them serious enough until it hits us hard.

Don'ts

Don't lose your 401 (K) contributions

I called my friend who lives in East coast to wish him Happy newyear. During our conversation he was mentioning about his 401k from his previous employer. It has been almost 2 years, he still not moved his funds over to new account. He don't know where to start because his previous company had gone through few mergers after he quit and don't know how much the account worth now and where exactly the funds are held.

I strongly urged him to get on it, start working first thing otherwise he might lose his hard earned money. Many of us fail to roll over my 401 (K) when change jobs. We forget about it, while we struggle to find a new job. With some many job losses last year, I am sure money of you aren't thinking about 401K accounts yet. If you get a chance, do take time and start working on rolling over to Roth IRA account or mutual fund.

Don't be a Identify Theft/Scam/fraud Victim

Identity theft, Ponzi schemes and scams are the talks all over the internet last year. Many millions of people get affected by identify theft every year especially via phishing over Internet. Whether you use online banking to check your account or make your credit cart payment, be careful in protecting your identity by protecting your computer from getting hijacked by the hackers. There is more to avoiding a identify theft than just virus protecting your computer and will talk more about it in my later posts.

Avoid Impulse buying

Beware of persuasive or forceful sales pitches. If it seems too good to be true, it might very well be, so avoid taking action at the spur of the moment. Try to be wise by not paying more for what it's worth and always do comparison shopping. There is a reason why Milk cans are stored way back in any grocery store! Try to always compare different offers whether you are on the street shopping for car or expensive items.

DO's

Pay yourself First

That's the mantra of many Money Guru these days. First take out some money from your pay check for yourself and put it away in a saving account before it disappears. Start small and stretch it out slowly. With automatic saving with online banking, you can do it easily in minutes. By saving periodically, you are also taking advantage of time to work for you. Magic of compounding is the be8th wonder invented by Einstein..  I like to say, Saving is an habit not an hobby, so start a habit this year. Once you get started with saving, you can expand to invest the savings for future purpose like kids education or retirement.

Plan to be Debt free

Are you debt free? I would be surprised if you were. Everybody has debt in  some sort or other whether it is home mortgage or just credit card debt. But you can plan to be debt free and try to get out deep debts avoid paying high interest rates charges.  Don't let your revolving debt to shift as long time debt. That will reckon your financial wealth. If you are in deep credit card debt, try to contact national credit counseling agency and work out a plan to get out of debt and shift to revolving debt situation.

Prepare a WILL

Last but not the least item in the list, Estate planning. Do not think estate planning is only for wealthy individuals. Estate planning is all about preparing for unexpected. It is just about preparing Will/Testament or Trust for the benefit of your dependents.These paper works are very important especially if you are married and have kids. You can make a will in just few minutes using Willmaker by Quicken and execute according to your state law. It is a cost efficient solution compared to Trust but not cost saving solution if you have big estate. Consult your CFP for more details.

I hope these Do's and Don'ts help you to start thinking about few things which are important always not just in a new year. I am planning to touch upon these topic in more elaborate manner in my future posts. Please check back periodically.

20Century Fox

Avatar, the movie which has made headlines all over the globe, movie which has given another avatar to the Hollywood movie industry during this recession, and a movie which is the topic of many house hold dinning table talks. It has broken many records and making history in the world movie industry.

Before I talk about the main interest, here are some titbit's you might be interested if you are not aware of them.

1. Producers spent around $300 in production cost and more for marketing.

2. It already raked up 1 Billion from all over world in just 2.4 weeks. According to Box Office Mojo it’s current box office total stands at $$1,018,811,000  million.

3. Opening Weekend:  $77,025,481
(#1 rank, 3,452 theaters, $22,313 average)
% of Total Gross:  21.9%  
Widest Release:  3,461 theaters 
In Release:  17 days / 2.4 weeks 
 

A movie which cannot stop making money and surely a movie to watch. After hearing  rave reviews and commentaries,especially setting itself apart from ther sequels like Lord of the Rings with Sanskrit title, I was intrigued to see it. I finally watched the movie yesterday and it surely didn't fail to surprise with spectacular animation,  special effects and astonishing camera. I was totally blown away by the Himalayan effort put forth to bring this movie as a sensational entertainer with a great message for this time.

James Cameron proved himself again as the Best Director of all time by giving back to back hits. But, as an person born and bought from India, I felt that the story is old and many of my Indian friends agreed with me. I have seen similar kinda of movies when I was a kid in the Indian cinema with little special effects available at that time frame. Those movies had stories where person transfers from body to body too. I am talking about 20-30 years back. Except the special effects, graphics and animation, I  see the old story line in many aspects but with new scientific proofs which makes it believable. It has lot of connection and adaptation from Veda's(Sanskrit literature) and many other Indian literatures. Even the character visualization and makeup's can be related to many ancient Indian traditions and especially the body color can be related to Lord Krishna avatar deplicted below in the picture.

Being said all that, James Cameron not only just gave new look to the old story but a brand new planet creating a new paradigm for the many more avatars to come. As money examiner, I would say it surely money maker but do have couple of questions.

What was James Cameroon thinking?  While the nation is just recovering from recession, 300 million dollar spent in making a movie, doesn't really makes sense? At the same time, it is giving people totally new experience in a new world and also bringing them to theaters to spend money during the holiday season helping the economy.

Share your thoughts about Avatar and money spent in making the money. Is it worth spending this much money or waste?

ehealthInsurance.com, a health insurance portal which allows consumer to compare, apply and buy affordable health insurance in this high health cost days. I been using service for almost 3 years and all our health insurance are actually bought through their service.

I recently got in touch with the VP of the ehealthinsurance and had a nice chat about the company and especially about the Cobra subsidy provided by the government.

Read on the Interview with Sam Gibbs, eHealthInsurance

Vijai: Can you tell me about you role at eHealth?

Sam: I’m a Senior Vice President at eHealthInsurance.  I’ve been with the company since 2000. I’ve been involved in many parts of the business, from building our technology to working with consumers and small businesses.

Vijai: How does eHealthInsurance help people with their insurance needs?

Sam: Simply put, we show Americans their health insurance options and empower them to find the best health insurance products for their personal needs and budget.  Shoppers visit the eHealthInsurance.com website and with just a few clicks compare real-time health insurance quotes from a big selection of brand-name health insurance plans in their area.  They can read customer reviews, compare plans side by side, sort by their favorite doctors and get personal recommendations.  Then they can actually apply for coverage and buy online.  

We also have a Customer Care Center staffed with licensed agents as well as representatives who can provide help and unbiased advice by phone, email or online chat. 

eHealthInsurance sells individual and family policies, short-term coverage and small business group coverage, as well as dental and vision coverage and a number of other products.  We’re licensed to sell health insurance in all fifty states plus DC and we offer plans from over 180 health insurance companies nationwide.

Vijai: With more than a half million jobless people, what is the general situation when it comes to their insurance needs? Do you have stats showing how many people are actually using COBRA and individual insurance?

Sam: Actually, I think you’ll find there are a lot more than half a million unemployed people out there.  The October data from the Bureau of Labor Statistics put the overall unemployment rate at 10.2 percent, which works out to 15.7 million people.

Generally speaking, people out of work have three choices: 1) They can temporarily continue their employer coverage under COBRA with the help of the nine-month federal subsidy designed to make COBRA more affordable; 2) They can apply for individual or family coverage in the private market; or 3) They can go without coverage entirely and leave themselves at serious financial risk in case of an emergency.

Hewitt and Associates recently released data suggesting that there are about 14 million people currently eligible for COBRA coverage in the US.  Of those, the Hewitt study shows that about 38 percent are utilizing the 65% federal COBRA subsidy to help them make COBRA coverage more affordable.  That would put the number of Americans with COBRA coverage today at something over 5 million.

It’s difficult to say just how many of today’s unemployed are purchasing individual and family health insurance.  But according to a March 2009 US Census report, about 13 percent of the insured population in the US get coverage on their own rather than through an employer or organization.

Vijai: What can you tell us about your experience with the COBRA subsidy? Is it working and how confident are you for it being renewed again for a few more months?

Sam: The Hewitt study I mentioned indicates that thanks to the COBRA subsidy people are electing COBRA coverage at twice the rate they did before, so, yes, I think it’s working.  The point of the subsidy was to make COBRA coverage more affordable so that fewer people would be tempted to go without coverage.

When you go on COBRA coverage, you’re actually keeping your former employer’s health insurance plan, but at your own expense.  Since employers generally cover the bulk of an employee’s monthly health insurance premium, many laid off workers are surprised to find out how much COBRA is going to cost them.  The value of COBRA, however, is that it allows you to retain the coverage you’re used to, and you can’t be turned down based on your medical history.  The trouble with COBRA is that without the subsidy, it is so expensive that few people are able to actually afford it.  The federal subsidy covers 65% of the monthly COBRA health insurance premium, so it stands to reason that it would prove popular and keep more people covered through their former employer’s plan. 

Families USA recently released some interesting data showing that the national average cost of COBRA coverage for a family without the subsidy is $1,111 per month, which works out to be over 80% of the average unemployment check!  With the subsidy, however, that monthly COBRA premium comes down to a national average $389 per month.

Congress is approved the possible extension of the COBRA subsidy through the end of February, so people who are laid off in January and February will qualify. It also adds six months of subsidies, extending coverage assistance for a total of 15 months.  It was first made available in March of this year and that means that the first recipients of the subsidy faced tripling of their COBRA premium when it was about to end on the month of December. 

Vijai: Is it possible that individual insurance works out better than COBRA with the subsidy? How and when?

Sam: It may for some people.  COBRA is the best option for those with pre-existing medical conditions, since COBRA guarantees them coverage, if they can afford it.  But people who are healthy may actually find more affordable coverage by purchasing insurance on their own, even compared to their subsidized COBRA premiums.  For example, I mentioned that the national average monthly premium for subsidized COBRA coverage was $389?  Well, in a report that eHealthInsurance issued in August, we found that the national average monthly premium for family policies purchased through our website was slightly lower than that, $383.  The costs are comparable.

Once the subsidy expires and their monthly premiums triple, healthy people currently covered under COBRA may be able to save hundreds of dollars per month by purchasing an individual or family health insurance plan instead. 

Then you may have a scenario where one family member has a pre-existing medical condition while several others are healthy.  It may make sense for families in this kind of situation to continue COBRA for the one person with the medical history while purchasing affordable individual policies for the other family members.

Vijai: What is the part played by eHealthInsurance and how they are getting compensated?

Sam: eHealthInsurance is a licensed agent like your local agent down the street, but we have a bigger selection of plans and we do business online.  Since health insurance premiums are regulated by each state’s Department of Insurance, there’s no difference in health insurance prices whether you buy direct from the insurance company or through an agent.  Commissions are built into all health insurance premiums.  If you buy from the carrier, the carrier gets the commission portion of the premium.  If you buy from eHealthInsurance or a local agent, eHealthInsurance or the local agent gets it.

Vijai: What is your suggestion for people who have no other option than COBRA?  With the COBRA subsidy expiring by the Feb, what would you suggest?

Sam: I would ask first, are you sure you don’t have any other options?  Talk with a licensed agent to find out.  But don’t go without coverage in any case.  If you have a pre-existing medical condition, try to find some way to make it work.  If you have dependents who are healthy, try splitting the family up under multiple coverage options, like I suggested earlier.  But try to stay on COBRA if you have a medical condition that might prevent you from finding coverage elsewhere.  It’s a greater risk to go without coverage, since a single uninsured hospitalization could put you in bankruptcy.

If you have a pre-existing condition and unsubsidized COBRA premiums are simply too costly and there’s no way you can afford it, I’d suggest you contact the non-profit Foundation for Health Coverage Education at www.coverageforall.org to see what government-sponsored programs and high-risk pools are available in your area.

Vijai: With the Health reform bill just crossing the half way mark by passing the house, do you think it will have a great effect in many American’s lives?

Sam: That remains to be seen.  The majority of Americans currently get their coverage through employers and these people may not be very effected.  Obviously, mandating that all people have health insurance is a big change.  And for people with pre-existing medical conditions, the idea that they can never again be turned down for coverage based on their health history would be a big change too.

Vijai: Final words, what do you like to tell people about shopping for their insurance needs?

Sam: Know your options.  When it comes to health insurance, knowledge is power – and it can be savings too.  Work with a licensed agent that represents multiple companies in your area to get an idea of what’s really out there so that you can find the best match for your needs and budget.  And don’t wait for health reform.  Many provision of the health reform bill won’t phase in until 2013.  So if you’re uninsured, check into your options today.  When and if health reform does become law, you may be obliged to purchase coverage anyway.  Protect yourself in the meantime.

You can visit a special website designed to guide people who are getting out Cobra at cobralearning.com

References:

Bureau of Labor Statistics October Report on Unemployment:

http://www.bls.gov/news.release/empsit.nr0.htm

Hewitt and Associates Study on COBRA Subsidy Utilization:

http://www.hewittassociates.com/Intl/NA/en-US/AboutHewitt/Newsroom/PressReleaseDetail.aspx?cid=7133

Families USA:

http://www.familiesusa.org/assets/pdfs/expiration-of-cobra-subsidy.pdf

Feb 2009 eHealthInsurance data:

http://news.ehealthinsurance.com/pr/ehi/health-insurance-premiums-ehealth-102617.aspx

March 2009 US Census Data:

http://www.census.gov/hhes/www/cpstables/032009/health/h05_000.htm

Happy Newyear Everyone!!

Year 2009 has come and  gone. It surely made imprints with lot of headliners and became a part of the history book. Year 2010 just started ticking it's counter and adding a brand new decade in the 21st century. Another thing to notice about 2010 is, by doubling the last 2 digits either like "10" *2 or 1+1 0+0 makes the first 2 digits "20". I found that to be interesting because it doesn't happen often. Let's hope year 2010 doubles our happiness by doubling our wealth and keeping us healthy.

Newyear Resolution -A waste of time

"May your troubles last as long your Newyear Resolutions" - Author Unknown

I saw the above funny quote posted outside of an auto repair shop. Nowadays people are not at all really serious about newyear resolutions and studies literaly reflects the downtrend. In the recent resolution study, while 52% of participants were confident of success with their goals, only 12% actually achieved their goals despite all the best intenstions.

Whether you resolve your resolution are not, somebody is will make big buck out of you. It is most likely going to be,

1. Fitness centers and Trainers
2. Weight loss program and weight loss book sellers
3. Dieticians and Weight loss Food producers

Just be aware of it and don't get pulled by all the marketing gimmicks and TV ads. Most goal setting experts believe this is due to ignorance concerning how to set goals properly. Let me share my very own 3 Talk method which might help achieve things in all the areas of your life.

T1. Talk to yourself first

It might seem wierd but the truth is everything starts from you. You have the answers to know what will work  best for you! So, use this time make an appointment to yourself to think with an open mind, about past year’s mistakes and missed opportunities or goals. Ask yourself what type of life you would like to create for yourself in the coming year.

If you have the habit writing journal, it helps in this process. If you don't have one, I would recommend to start one today.  Try to take these steps during your own interview.

1.Check your past year goals and see how you resolved/performed. Pat your back if you scored well. Tweak them if it need to continue this year.

2. Make 3 new goals for this year whether short or long term. Just Three only, no more!

3. KISS method - Keep it simple stupid. Always set goals as simple as possible to start with.  Try to set SMART goals. These are goals that are Specific, Measurable, Achievable, Relevant, and Trackable. If you want to lose weight, start with losing 5lbs in 2 weeks and continue to maintain it for 2 more weeks.

4.  Write them down and start planning towards working on those goals. If you plan to reduce wait, look for a good and cheaper options to start instead of getting an expensive Treadmill at first. Try signing up for $10 fitness center which has mushroomed in many areas.

5.  Take action by start working out twice a week and gradually move to thrice a week. Adjust your diet accordingly and you will surely see a change in your health. Be resilient.  Don't throw towel in just a week. Try atleast 3 weeks. Ask for help is a old techique. I would say advertise your goals which will motive yourself to achieve them when your friends ask about it.  Eva

2T. Talk to your Doctor

Next an important one. Make an appointment with your family doctor to do the physical checkup during the month of January. Almost all the insurance companies cover the physical check once a year upto $300. Most physical checks including labs won't take more than $300. I try do it by end of Jan so I can see my levels on  LDL, HDL, total cholestrol, Sugar and compare from the last years. 

By doing at the beginning of the year helps to manage those levels  or work to improve on them in the coming months. Prevention is better than cure. By doing physical checkup atleast once a year, it surely helps to find any problems before ahead and gives more time take action to treat the problem in the starting stage itself.

3T. Talk to your Financial Planner/CPA

Finally, your wealth check up. You better meet with your CFP/CPA to check your current financial status. If you are your own financial Planner, try to set up a time to go over your financial condition. Check your financial goals and objectives, see it is performed last year. Make any changes to your short or long term financial goals for this year. Don't forget to check on your IRA, SEP for 2009 to get ready for the tax season. If you missed out, you still have 4months to catch up. Also plan for 2010 contributions and save more money on tax returns.

Also take time to check some important documents like WILL, Trust, Durable Power of Attorney and Living Wills. If there is any change in your family staus like new kid, new house, you surely need to make proper adjustments to the Will or Trust to reflect your current status to avoid any future problems.

By doing just these 3 simple Talks at the beginning of the year, you are setting your life boat in proper condition to sail this new year in the right direction to reach your destination.

Happy Goal setting!!

Recently, I came across United Prosperity, a organization which is similar to kiva.org guaranting loans to entrepreneurs in poor nation. I took some time to contact and talk to the founder to hear more about the organization.  Here is the snapshot of the interview.


Hello Bhalchander, Welcome to nrimoneyreallymatters.com.
 
Thank you for taking time to talk to me about your organization, United Prosperity (UP). I looked at the http://www.UnitedProsperity.org  website and it looks inviting. You made real good progress in the past few months. 

1. Before we talk about United Prosperity (UP) which is making waves in the media recently, let's get to know you. Please go ahead and introduce yourself to the readers.

Vijai, Thank you very much for giving this opportunity to talk about United Prosperity. I grew up in Pune, India and live in the SF-Bay Area. I did my Bachelors degree from IIT Bombay and after working for two years with Tata Motors did my MBA from IIM Bangalore. I subsequently worked with Wipro, Microsoft, Mphasis and most recently Infosys and led several multi-year projects in financial services and insurance. Since September 2007 I left my job with Infosys to set up United Prosperity and since then I have enjoyed seeing this idea become a reality.

2. UP is your brainchild, share with us how the idea was born and evolved? 

Having grown up in India I had noticed on numerous occasions that the poor were borrowing money from their employers, friends, shop keepers or others to meet their family needs. The amounts they borrowed used to be pretty small E.g. Rs. 500 ($12). This always puzzled me and I sometimes wondered why banks would not lend to them. 

Fast forward several years later I was consulting with an organization called PMI. PMI does mortgage guarantees. i.e. A mortgage guarantee  offered by PMI allows people who cannot put the 20 % down payment to get a mortgage and achieve the dream of home ownership. In case the borrower is unable to payback the mortgage PMI will cover the losses of the bank upto a certain extent.  So it struck me that if one can get a $500,000 mortgage with a guarantee, why cannot we make microloans available to people using a guarantee.

United Prosperity builds on the same idea. In case the microfinance institution lending to the poor entrepreneurs defaults on its loan to the bank, then the micro lenders or  guarantors on our website will cover the losses up to a certain extent. With the guarantee the bank is more open to making a loan to the microfinance institution which lends to the entrepreneurs.
I have been fortunate to get the support of my team mates Chiradeep Vittal, my wife Shubha Shankaran, Ashok Parameswaran and several dozens of volunteers who have helped us start United Prosperity. We also got great pro bono support from institutional supports including Cognizant, who built the website, Netsuite who provided us the accounting software, several law firms who did the legal research and books2taxes.com which does the accounting for us.

We became operational in the summer of 2009 and have supported more than 200 entrepreneurs so far.

3. Tell us in general about UP and its mission/vision in elaborate.

Our mission is to allow people to combat extreme global poverty and multiply the impact of their microloan through loan guarantees.

There are small entrepreneurs all over the world who cannot afford to start and grow their business alone. Expanding their business may be the only means to adequately feeding their family or sending their children to school. However, banks do not lend to them without collateral, and that’s where people like you and I come in.

We can become a compassionate social guarantor with United Prosperity by providing an interest-free cash collateral or microloan guarantee for an entrepreneur on our website. Based on our microloan guarantee, the bank makes a loan which is nearly double our contribution.  No minimum amount is required, and on loan repayment we get our money back.

4. Do you really think by helping or lending needy entrepreneur, you can abolish poverty? How is it possible? You are also just helping like any other charity organization.

Abolishing poverty is not going to happen overnight, but studies have shown that through microcredit people do improve their livelihoods and come out of poverty over a period of time. Microfinance is not the only way to end poverty but it is a highly sustainable way. It is also one of the few programs which have scaled to a good extent.

5. From outside, UP seems like a copy cat of Kiva.org, another micro finance lending institution. The model seems to be same except the way you lend to the Micro finance institutions. From your answer, it is seems to be totally new idea with a similarity to Kiva.org. If that's so, tell us the difference.

With other international lending models, the loan made by individual lenders goes to a  microfinance institution which in turn lends to the entrepreneurs. In our case, the loan made by the individual lenders serves as collateral or guarantee which is deposited with a lending bank. Based on the guarantee, the bank makes a larger loan to the microfinance institution which in turn lends to the entrepreneurs.

Our model has several advantages:
a) Doubling of impact: Since the bank makes a loan which is nearly double the guarantee amount, there is a doubling of impact for the individual microlenders.

b) Mitigates foreign exchange risk: Since the loans from Bank to Microfinance institution(MFI) and MFI to entrepreneur are in local currency, foreign exchange risk is mitigated for the MFI and the individual lenders. 

c) Local linkages: Our guarantee facilitates the creation of local linkages between domestic banks, MFIs and poor entrepreneurs. In the course of repaying the loan, both the entrepreneur and the MFIs develop credit histories that will enable them to access more funds at a later date with a lower guarantee percentage, or even without a guarantee. MFIs also get to form relationships with banks and offer other products like savings, insurance, money transfer etc. through the bank.

d) Manages risk better: We get the additional benefit of monitoring of the loan by the bank which is not available with other person to person models. We are also focused on those living in extreme poverty typically, living on less than $2/day.

6. You kept mentioning about "Guarantees". What exactly is a guarantee? How does it different from direct lending?

A loan guarantee is an agreement between a guarantor, a lender, and a borrower in which it is agreed that a guarantor will repay the loan if the borrower defaults. You can learn more about guarantees going to our website at http://www.unitedprosperity.org and clicking the about us link.

7. Your loan/entrepreneur profiles are very limited and centered towards India only. Why and any reason?

We only launched this summer and we eventually plan to roll out to other countries. We will launch in other countries once we have greater traffic to fulfill the need.

8. I see all the guarantees are going towards group of entrepreneurs? Why aren't they individually listed?
We try to reflect the local lending model as much as possible. Most of the microcredit lending is group and we reflect that.

9. Do you think you are competing against Kiva.org for loans and lenders? How you see yourself placed against Kiva.org which has grown manifolds in recent years?
Kiva  has  done a great job in popularizing online microlending. United Prosperity is focused on entrepreneurs in extreme poverty and offers greater impact for individual microlenders with mitigated foreign exchange risk.

10. KIVA is also helping people to get out of poverty and UP just jumped in the same bandwagon. Why someone has to shift their strategy from KIVA to UP? Is there any added advantages?

As I mentioned earlier, our model is totally different from Kiva. We are not
lending, we are only giving guarantees to the loans. We avoid the foreign exchange risk. May be both of our destination might be similar but the path we are taking has lot of more different and more  benefits for both sides.

11. I see many features lag in UP compared to KIVA like forming a team, communicating with other members etc., Are you plan to add them soon?

We have the groups feature on our community site : http://unitedprosperity.ning.com.  Members can form groups and communicate amongst themselves here. However, one cannot assign a guarantee to a particular team. We plan to add that feature in some time. We will be also be adding the gift certificate features by the end of this year.

12. What are you plans in getting the word around?

We have largely used social media marketing to get the word around – facebook, twitter so on. We recently got a google adwords grant and plan to use that for increasing visibility. We will be soon introducing a gift certificate feature for members to invite their friends and family. We also look forward to people like you and others writing about United Prosperity in their blogs and telling their friends.

13. Do you plan to expand your offerings to other nations? If so, anything currently on the works?

Yes, we plan to expand to countries other than India, but the expansion plans are still at a very early stage. Apart from that there is also an ample need in India. The World Bank estimates that 456 million Indians (42% of the total Indian population) now live under the global poverty line of $1.25 per day (PPP). This means that a third of the global poor now reside in India.

14. What are the ways, others can help your organization?

The easiest way is to sign up on http://www.unitedprosperity.org and start guaranteeing loans. It is very easy to sign up and one could start with even $10. Apart from that you could tell your friends, post a link to United Prosperity on Facebook or Linkedin. You could also write about United Prosperity in your blog and help spread the word. You could also choose to volunteer with us if you could spare around 8 hours per month.

Thank you again Bala. I appreciate your time and all the best for success. I know it is not an easy task to setup an organization legally of this big with a strong motive too improve their life style of poor and needy by bringing us altogether. It is a noble cause and hope you will get more support from the community.

Hope you all enjoyed my interviewer the founder of United Prosperity, Bhalchander. As a contributor and lender myself in kiva.org, I recently joined UnitedProsperity.org  few weeks ago and started making few guarantees. It was a simple process and gave me full satisfaction by providing opporunity to help needed entreprenuer directly for their growth and improved life style.  I always feel lucky to have enough to help needy and find different avenues to do so. Kiva.org and UnitedProsperity.org are doing a great job giving us these new avenues.

I strongly believe in the Chinese proverb, “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” 

Go ahead and make a difference in lending your hand to others by lending your money, start with just $10 or $25. Your money is not earning these days sitting in a bank account; let it at least do some karma to you. If you have any questions about UP, please don't hesitate to comment here. I will try my best to get answers for them.