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By LIZ PULLIAM WESTON
Long-Term Care Policies Are Regulated
Dear Liz: I keep reading that it's smart to get long-term care insurance ahead of retirement, so I called a highly reputable insurance company. I was shocked to learn that they are allowed to raise rates at any time, even though the dollar amount of the maximum daily benefit is fixed, and the decision as to whether to pay a claim is entirely up to the company. Why would anyone buy a policy like this?Answer:What you're describing isn't that different from any other insurance policy you buy, with one exception: Long-term care insurance providers aren't allowed to raise rates on you individually after you purchase the policy. They typically can raise rates only for groups of people, such as those in your age bracket.
This doesn't prevent rate hikes, of course, and some people with less established companies have seen their premiums skyrocket, which is why you want to choose an insurer that's been in this business for a while.
As for the payment of claims, the conditions under which the insurer pays for care are spelled out in the policy and enforced by state law. It can't decide arbitrarily not to pay a claim without regulatory action.
Dear Liz:I've wiped out my debt and am starting to save, but my credit score is still too low. Now what? I recently applied for a car loan and the rate I got was astronomical (16.5 percent). Luckily, the payments were still manageable, and I plan to pay it off early since there's no penalty for doing so. Is not having a credit card hurting me?
Answer:Congratulations on nuking your debt. As you've learned, though, paying off old bills doesn't erase the damage done to your credit scores by late payments and other credit blunders.
You've taken the first step in rehabilitating your score by getting an installment loan. Yes, the interest rate is painful, but making these loan payments on time will go a long way toward improving your credit. In a year or so you might even be able to refinance into a lower-rate loan.
The next step to rebuild your scores is to get a credit card and use it responsibly. However, since your credit is still bad, you may have to start with a so-called secured credit card. To get one of these, you make a deposit at the issuing bank and you're given a credit card with a limit equal to that deposit.
You'll want to find an issuer that reports to all three credit bureaus and that will convert your account to a regular card after 12 months of on-time payments.
You can find good secured card offers at Bankrate.com and CardRatings.com, among other sites.
Once you get your card, use it lightly but regularly. Try not to charge more than 30 percent of the credit limit and pay the balance in full every month.
Dear Liz:I'm a financial planner who wanted to respond to the reader who complained about the cost of engaging a fee-only advisor. This reader reminds me of my newest client, who has a net worth of $2 million and annual income over $150,000. Before meeting with me, the client had invested $200,000 in a bond fund with a high expense ratio and paid a four percent commission to the securities salesperson who recommended the fund. Yet the client gasped when I quoted a $2,000 fee for a comprehensive financial plan. Writing a check for $2,000 seemed more painful to him than having $8,000 insidiously deducted from his account. I think my fees are low when you consider the fee- and commission-saving advice I provide.
Answer:People in the market for financial advice also should remember that those who make their living on commissions aren't generally required to put their clients' financial interests ahead of their own. If you want a true fiduciary – someone who's obligated to put you first – the fee-only model is the way to go.
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© 2008, No More Red Inc. Liz Pulliam Weston is author of the new book “Easy Money: How to Simplify Your Finances and Get What You Want Out of Life.” She regrets that she cannot respond personally to inquiries, but questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., #238, Studio City, CA 91604, or use the “Contact Liz” form at her website, www.lizweston.com.
