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Private Student Loans vs Federal Student Loans

There are a few different options when it comes to financing a college education, and it’s important to understand the pros and cons of each. Then, you’ll likely be better able to develop a funding strategy that fits your unique situation.

Depending on your academic qualifications, you may have been awarded scholarships or grants, which is funding that won’t (typically) need to be repaid. Any expenses not covered by a scholarship will need to be financed, often through a combination of work-study, personal funds, or student loans.

It is fairly common for college students to take out student loans to finance their education. There are two main types of student loans — private student loans and federal ones. We’ll compare and contrast some of the more popular features of both private and federal student loans and explore some features that can help you determine what makes the most sense for your financial situation.

Recommended: How Do Student Loans Work? Guide to Student Loans

Federal Student Loans

Federal student loans are funded by the federal government and, in order to qualify, you must fill out the Free Application for Federal Student Aid (FAFSA®) every year that you want to receive federal student loans. We’ll delve more into FAFSA soon — but first, here are some important distinctions to consider.

Subsidized vs Unsubsidized Loans

Federal loans can be subsidized or unsubsidized. If you’re an undergraduate student and you have a certain level of financial need, you may qualify for a subsidized loan. The amount of money you qualify for will be determined by your school . They’ll also determine how much money you should receive in subsidized loans, if any.

If you are granted a subsidized loan, the U.S. government will cover, or subsidize, the cost of accrued interest on the loan while you are a full- or half-time student. Your interest payments are also covered with subsidized loans during the six-month grace period after graduation as well as during any periods of loan deferment.

If you receive unsubsidized federal loans, you will not need to demonstrate financial need when applying and, as with subsidized loans, your school will determine the amount you can receive, based on what it will cost you to attend. But with unsubsidized loans, you are responsible for the principal amount of the loan as well as any interest that accrues throughout the life of the loan.

Direct PLUS Loans for Parents and Graduate Students

Direct PLUS Loans are another source of federal student loan funding. To qualify for graduate PLUS Loans, you need to be a graduate-level or professional student in a program that offers graduate or professional degrees or certifications and be attending college at least half-time.

Or, parents can also apply for a Parent PLUS loan if they’re the parent of a dependent undergraduate student attending an eligible school at least half-time. “Parent” can be defined as biological or adoptive — or, under certain circumstances, you can be a step-parent.

To obtain a Direct PLUS loan, you cannot have an adverse credit history (you can learn more about that here ). Plus, you (and, if applicable, your dependent child) must meet the general eligibility requirements for federal student aid.

Recommended: The Differences in Direct vs. Indirect Student Loans

More About the FAFSA

If you plan to apply for any of these types of federal loans, you’ll need to fill out the FAFSA form. Be aware of your state’s FAFSA deadline — FAFSA funding is determined on a rolling basis, so the sooner you can apply, the sooner you may qualify.

Benefits of Federal Student Loans

First off, you won’t be responsible for making student loan payments while you are actively enrolled in school. Your repayment will typically begin after you graduate, leave school, or are enrolled less than half-time. Interest rates on federal student loans made after July 1, 2006 are fixed and are typically lower than interest rates on private student loans.

And depending on the type of federal loans you have, the interest you pay could be tax-deductible. Aside from Direct PLUS Loans, credit history doesn’t factor into a federal loan application. When it comes to federal student loan repayment, there are several options to choose from, including several income-driven repayment plans.

And if you run into difficulty repaying your federal student loans after graduation or when you drop below half-time enrollment, there are deferment and forbearance options available. These programs allow qualifying borrowers to temporarily pause payments on their loans should they run into financial issues — but interest may still accrue. The loan type will inform whether a borrower qualifies for deferment or forbearance.

Borrowers can contact their student loan servicer for more information on these programs.

Qualifying borrowers can also enroll in certain forgiveness programs, such as Public Service Loan Forgiveness (PSLF). These programs have strict requirements, so borrowers who are pursuing forgiveness should review program details closely.

Federal Student Loans Pros and Cons

Here is a recap of some of the pros and cons of federal student loans.

Pros Cons
Aside from PLUS Loans, borrowing a federal student does not require a credit check. Federal borrowing limits may mean that students aren’t able to borrow enough funds to pay for college.
Undergraduate students may be eligible to borrow Direct Subsidized student loans. The borrower isn’t responsible for paying interest that accrues on subsidized loans while they are enrolled at-least half time, during the grace period, and during qualifying periods of deferment or forbearance. There is a borrowing limit on Direct Subsidized student loans and not all students will qualify for subsidized loans, since they are need-based.
There are deferment and forbearance options if borrowers run into financial difficulty during repayment. Depending on the type of loan interest may accrue during periods of deferment or forbearance.
There are deferment and forbearance options if borrowers run into financial difficulty during repayment. Depending on the type of loan interest may accrue during periods of deferment or forbearance.
Borrowers have access to federal repayment plans, including income-driven repayment plans.
Fixed interest rates that are generally lower than interest rates on private student loans.
Borrowers have the option to pursue federal loan forgiveness through programs like Public Service Loan Forgiveness.

The CARES Act and Federal Student Loans

The CARES Act, passed in March 2020 in response to COVID-19, includes provisions to help borrowers with federal student loan repayment. The bill temporarily pauses payments on most federal student loans, without interest, through May 1, 2022.

Additionally, the CARES Act suspends involuntary collections and negative credit reporting during the same time period.

While required payments are paused, borrowers are still able to make payments on their loans if they so choose. 100% of payments made during this time will be applied to the principal balance of the loan.

Borrowers enrolled in forgiveness programs will not be impacted by the nonpayment of their loans during this time. The Education Department will consider this time period as if the borrower had continued making payments.

Private Student Loans

Private student loans are not funded by the government. To apply for them, you can check with individual lenders (banks, credit unions, and the like), with the college or university you’ll be attending, or with state loan agencies.

Because these loans are available from multiple sources, each will come with its own terms and conditions. So, when applying for private student loans, it’s important to clearly understand annual percentage rates (APRs) and repayment terms before signing as well as the differences between private vs. federal student loans.

Since private student loans are not associated with the federal government, their repayment terms and benefits vary from lender to lender. Some private loans require payments while you’re still attending college. Unlike federal loans, interest rates could be fixed or variable. If you are applying for a variable-rate loan, it’s a good idea to check to see how often the interest rate can change, plus how much it can change each time, and what the maximum interest rate can be.

When applying for a private loan, the lender typically reviews your financial history and credit score, which means it may be beneficial to have a cosigner.

Again, be sure to ask your lender about repayment options in addition to any deferment or forbearance options.

These will all vary by lender, so it’s important to understand the terms of the particular loan you are applying for.

Private loans can help fill the monetary gap between what you’re able to cover with grants, scholarships, federal loans, and the like, and what you owe to attend college. It’s never a bad idea to take the time to do your research, shop around, and find the best loan options for your personal financial situation. For a full overview, take a look at SoFi’s private student loan guide.

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Determining Whether a Student Loan is Federal or Private

To find out if the student loan you have is a federal student loan, one option is to check the National Student Loan Data System (NSLDS). This database, run by the Department of Education, is a collection of information on student loans, aggregating data from information about student loans, from universities, federal loan programs, and more.

Borrowers with federal student loans can also log into My Federal Student Aid to find information about their student loan including the federal loan servicer.

Private student loans are administered by private companies. To confirm the information on a private student loan, one option is to look at your loan statements and contact your loan servicer.

Options for After Graduation: Consolidation vs Refinancing

After graduation, depending on one’s student loan situation, borrowers may wish to consider consolidation or refinancing options to combine their various loans into a single loan.

What is Student Loan Consolidation?

The federal government offers the Direct Consolidation Loan program that allows borrowers to combine all of their federal loans into one consolidated loan.

Loans consolidated in this program receive a new interest rate that is the weighted average of the interest rates of all loans being consolidated — rounded up to the nearest one-eighth of a percent. This means that the actual interest rate isn’t necessarily reduced when consolidated. If monthly payments are reduced, it is most likely because the repayment term has been lengthened. Additionally, only federal student loans are eligible for consolidation in the Direct Consolidation Loan program.

What is Student Loan Refinancing?

Borrowers with private student loans might consider refinancing their loans. Essentially, refinancing is taking out a new loan. Depending upon individual financial situations, applicants could qualify for a lower interest rate through refinancing.

When an individual applies to refinance with a private lender, there is typically a credit check of some kind. Each lender reviews specific borrower criteria, which varies from lender to lender, which influences the rate and terms an applicant may qualify for.

Recommended: The SoFi Guide to Student Loan Refinancing

But what if you have both federal and private loans? If you combine your federal loans through the Direct Consolidation Loan program and refinanced your private loans, you’d still have two payments. SoFi can refinance federal and private student loans together to give you one convenient payment. It’s important to note, however, that the benefits and protections offered with federal student loans don’t transfer when loans are refinanced by private lenders, so keep that in mind.

To get a sense of how refinancing might impact your student loans, take a look at this student loan refinancing calculator.

Refinanced Student Loans Pros and Cons

Refinancing student loans can have pros and cons. This table details a few to consider.

Pros Cons
Potential to secure a more competitive interest rate depending on factors like borrower’s credit score and income history. This could result in a substantial reduction of accrued interest over the life of the loan. Not all borrowers will qualify to refinance or be approved for a lower interest rate than on their existing loans.
Potential borrowers can apply with a cosigner to potentially secure a more competitive interest rate. Interest rate and loan terms are set by the lender and are based on factors including the applicant’s credit history.
Refinancing allows you to have a single monthly payment with the lender of your choice. Refinancing any federal loans eliminates them from borrower protections, including deferment options, income-driven repayment plans, or the option to pursue Public Service Loan Forgiveness.
The loan term can be adjusted — either shortened or extended — when student loans are refinanced. Extending your loan term will generally result in lower monthly payments, but will typically result in increased interest costs over the life of the loan.

Can You Refinance a Private Student Loan to a Federal One?

It’s not possible to refinance private student loans into federal loans. Because private student loans are made directly with private lenders, not the federal government, it is not possible to refinance them into federal student loans.

Combining Federal and Private Student Loans

Refinancing federal loans with a private lender is the only option that allows borrowers to combine both federal and private student loans into a single loan. While refinancing may allow borrowers to secure a competitive interest rate or preferable terms, it’s very important to understand that when you refinance federal student loans, they no longer qualify for federal benefits or borrower protections.

Refinancing may make sense for federal student loan holders who do not plan to take advantage of any federal programs or payment plans, but it won’t make sense for everyone. When you are evaluating whether you should refinance student loan debt reflect realistically on your professional and financial situation. For example, borrowers who are enrolled in income-driven repayment plans or are pursuing Public Service Loan Forgiveness, may find that refinancing their federal student loans doesn’t make sense for their personal goals.

The Takeaway

Refinancing won’t be the right choice for everyone. Again, refinancing federal loans eliminates them from the federal benefits and borrower protections — including the current CARES Act protections. Consulting with a financial professional could be helpful as you determine which repayment strategy fits best with your financial goals.

Those who are still interested in refinancing could consider SoFi, where there are no origination fees and no prepayment penalties. You can choose between a fixed or variable rate loan. And borrowers who unexpectedly lose their job could qualify for SoFi’s unemployment protection program, which allows the suspension of monthly payments for up to 12 months.

Learn more about whether student loan refinancing or a private student loan with SoFi could be the right financial solution for you.


We’ve Got You Covered

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL MAY 1, 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’swebsite .
SOSL20010

Source: sofi.com

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American Express Increases 35% Business Platinum Rebate Cap (To 1,000,000 From 500,000)

In 2017 American Express reduced the 50% rebate on business class airfare or even economy airfare on your selected airline to 35% on the Business Platinum card and introduced a 500,000 points cap as well. That cap is now increasing to 1,000,000 points. In 2018 American Express did experiment with offering an increased cap when reaching spending requirements. This obviously won’t affect most cardholders.

Hat tip to DDG

Source: doctorofcredit.com

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Can You Afford a Baby? 5 Expenses Associated With Being a Parent

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Additional Resources

Spoiler alert: Kids are expensive.

The most recent estimate from the U.S. Department of Agriculture puts the average cost of raising a child to adulthood at $233,610, and $284,570 factoring in inflation. That doesn’t include college education, if you plan to help your kids pay for college.

But these numbers are just averages. How much you actually spend to raise a child depends on factors ranging from where you live to your health insurance to just how much you plan to spoil your children. Keep the following broad expenses in mind, and remember that you have more control over most of them than you probably assume. 

Can You Afford a Baby? – 5 Expenses to Consider

My wife and I waited until relatively late in life to have our first child, partially out of fear of the cost. But our daughter hasn’t cost us as much as we feared. It helps that we have good health insurance, which covers most medical costs. But we bought a secondhand crib and changing table, and we spend little on clothing and extra food. The wave of extra costs just hasn’t hit us the way we worried. 

The cost of raising a child does spread out over 18 years, plus nine months of pregnancy. And much of it depends on where you live — which you do control, even if you don’t necessarily want to move for a more affordable cost of living. 

Still, having a child can seem financially overwhelming. The expenses break down broadly as follows.

1. Pregnancy & Delivery Costs

Pregnancy involves more doctor’s appointments than you ever wanted to have in your life. All leading toward the dramatic climax of giving birth. 

Plan on monthly checkups with your obstetrician, but the costs don’t end there. You’ll also have a battery of lab tests and ultrasounds, all of which cost money. 

Insurance Coverage for Pregnancy, Delivery, and Neonatal Care

Your out-of-pocket costs depend heavily on your health insurance coverage. Your health insurance plan may cover nearly all pregnancy-related expenses or it may require you to cover most expenses until you reach your deductible.

Federal law does require insurance companies to include delivery, prenatal, and maternity care as essential medical services, but your deductible, copays, and co-insurance costs can still vary based on your policy. 

If you’re an expecting mother under 26 and remain on your parents’ health insurance policy, different federal rules apply. Your insurer must still cover pregnancy and maternity care, but they’re not necessarily required to cover delivery or neonatal care. And they won’t cover your child once they’re born. Read more about these rules at the Kaiser Family Foundation if you’re still covered under your parents’ plan. 

If you don’t have health insurance, look for ways to enroll before getting pregnant. Explore your options for getting health insurance without employer coverage, and you can even look into part-time jobs that offer health insurance. Depending on your income, you may also qualify for Affordable Care Act premium subsidies or Medicaid coverage. 

As for delivery, nationwide it costs an average of around $15,000 before insurance. But it varies wildly by state: New Jersey hospitals charge an average of $29,048, more than three times Nebraska’s average of $8,805. Consider it your first taste of how where you live affects the cost of raising a child. 

What portion of the hospital bill you pay depends, of course, on your insurance. 

Fertility Treatments & Adoption

Remember that fertility treatments add another slew of expenses. If you plan on medical help to get pregnant, look into ways to reduce the costs of fertility treatments. 

Adoption doesn’t necessarily cost less than having a child yourself, either. Do your homework on adoption costs and how to reduce them if you’re considering that route. 

2. First-Year Costs

After your family adds a new member, the costs just keep accumulating. 

You’ll need a certain amount of basic supplies, including:

  • Crib
  • Car seat
  • Stroller
  • Baby blankets & bedding
  • Bottles
  • Diaper changing pad
  • Onesies and other clothes
  • Breastfeeding supplies such as a pump, nipple pads, and nursing bras

That says nothing of disposables like diapers, wipes, and baby formula. Or any of the optional-but-you’ll-feel-pressured-to-buy items like a diaper bag, changing table, rocking chair for nursing, baby books, and a hundred other things that The Joneses buy. 

You can save some money on these items, by using family hand-me-downs and buying used. Since babies outgrow their clothes, furniture, and other necessities so quickly, buying used usually makes sense, as baby items tend to have plenty of usable life left in them. Read up on ways to save money on newborn expenses before going on a shopping spree. 

In their uncertainty and anxiety, new parents tend to overspend. But the more you know going in, the better you can judge what you absolutely need and what you can skip. Do your homework on how much it costs to have a baby, and as importantly, how to prepare financially for kids. 

3. Child Care

Many new parents find that their largest cost isn’t in material supplies or even medical bills, but in childcare. 

That could mean paying for daycare or a nanny, once maternity leave ends. Or it could mean one parent ceasing to work for years, until the child reaches school age. Either way, it can cost your family thousands of dollars each month. 

Nationally, childcare averages $216 per week for an infant, according to an analysis by Move.org. That comes to 17.1% of the median U.S. income. But like every other expense in the US, it varies enormously by location. In Washington DC, families pay an average of $21,678 per year, while in Alabama, they pay roughly a quarter of that at $5,593. 

Daycare tends to cost less than hiring a nanny or au pair, but if you have multiple children, a single nanny can watch several children. They may charge more for a second child, but not double the cost of watching a single child. That “economy of scale” might make sense once Number 2 comes along. 

It certainly helps if you have extended family who can watch your children. But beware of moving across the country solely for more affordable childcare. You might trade in one set of costs for higher housing costs and other boosts to your cost of living. 

If you’re thinking about becoming a single-income family, don’t ignore the cost to your career. Leaving your career for several years doesn’t just hit the pause button — it can lead to permanent damage to your earning potential. While there’s little solid research on the subject, a 2018 study in the UK found that people who took a five year hiatus from their career went on to earn $12,894 less per year on average. 

Start exploring ways to save on childcare costs long before you actually need to make a decision about where Junior will spend their days. 

4. Ongoing Costs

As expensive as it is, at least childcare only costs you money for a few years. 

Many other costs of raising a child keep nipping your wallet at every turn however. Costs like larger housing, larger cars, food for more mouths, and clothing for more backs.

Higher Housing Costs

Of these, larger housing puts the deepest dent in your pocketbook. A one-bedroom apartment sets you back an average of $1,670 in the US, according to Apartment Guide. A two-bedroom unit costs nearly $300 more per month at $1,951. In other words, that extra bedroom costs you $3,372 per year on average. 

Once again, your location matters. For example, in Long Beach, CA, you can expect to pay an average of $965 more for a two-bedroom apartment than a one-bedroom. That’s an annual cost difference of $11,580. 

The same economics apply to homeowners. In 2018, homebuyers paid nearly $70,000 more on average for a two-bedroom home than a three-bedroom, according to RealtyHop. If you put down 20%, that means a higher down payment of almost $14,000, which can delay your dreams of homeownership.

Education Costs

Then there are education costs, which location also impacts. Some school districts come with phenomenal public education for your tax dollars, while the quality of education is so poor in others that every family with means sends their children to private or parochial schools. 

My hometown of Baltimore offers an example of the latter, where high local taxes and close to the highest per-student spending in the nation continue to produce atrocious schools. Middle- and upper-middle class families strain their budgets to spend upwards of $30,000 per year in tuition in Baltimore and its surrounding counties, on top of their high tax bills already funding public schools. 

Of course, you can move into a school district with better public schools. But you’ll pay for them in dramatically higher housing costs. 

If you choose to help your kids with college costs, you could spend up to hundreds of thousands more on education. Some parents handle this by contributing a certain amount each month to a 529 plan or ESA, and telling their children that they’re on their own above the amount in the account once they reach college age. You may qualify for tax benefits on your contributions; read up on 529 plans and Coverdell ESAs for details. 

Entertainment & Travel Costs

Then come the higher entertainment and travel costs for a family with children. When you go out to dinner, you buy three meals instead of two. When you go out to the movies, you buy three tickets — and more popcorn and drinks. And when you book travel, you pay for another airline ticket and eventually another hotel room. 

My wife and I live abroad with our daughter, and we travel internationally several times a year. When my daughter turned two, our airfares jumped by 50% as most airlines charge full adult fares for two-year-olds. 

Of course, you can and should get scrappy in the fight to find savings, even as you add more mouths to feed and backs to clothe. Start simple in your search for money saving ideas for families, but don’t be afraid to seek larger savings through tactics like house hacking. 

5. Health Insurance

Larger families pay larger health insurance premiums, as the policy must cover more people. 

One the simplest level, health insurers offer individual plans and family plans. A married couple, or a single parent with one child, or a family of ten, all require a family plan. The distinction matters because most health insurance companies charge double the deductible and out-of-pocket maximums for family plans compared to individual plans. 

However insurance companies charge monthly premiums based on the number of covered family members. So when your family of two becomes a family of three, your premium goes up accordingly. 

That said, many health care policies cap the premium at a certain number of children under 21. For example, Blue Cross Blue Shield caps premium pricing at three children under 21 in a family plan, so having a fourth child wouldn’t raise your premiums — you’d still pay for five people despite having six on the policy. 

Moderate-income families may qualify for the Children’s Health Insurance Program (CHIP) as well. As the name suggests, CHIP provides low-cost health coverage for children, in families that earn too much to qualify for Medicaid but which fall below specified income limits. 

Final Word

Financial stability helps relieve the stress of bringing home a new baby. A stable job, a stable domestic partnership, and stable health insurance all make the transition easier. 

You don’t need to wait until 40 before becoming a parent, like I did. But beware of rushing into it before you’re financially ready. 

You won’t hear any motivational speakers say it, but there’s an ideal window for becoming a parent. This window arrives after you’ve achieved a foothold in your career and gained a measure of financial stability. It begins to close as fertility risks take off exponentially.  

That doesn’t mean you have to pay off every cent of student loan debt or buy a house or reach some arbitrary net worth. Just start practicing good personal finance habits: paying down debt steadily each month, building an emergency fund in an FDIC-insured savings account, and saving and investing money automatically. Do that, and you’re already ahead of the average would-be parent on the planet. 

Besides, having kids isn’t all financial doom and gloom. You get to claim an ever-expanding child tax credit, and you get a backup retirement caregiver in case you run out of money in retirement!

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G. Brian Davis is a real estate investor, personal finance writer, and travel addict mildly obsessed with FIRE. He spends nine months of the year in Abu Dhabi, and splits the rest of the year between his hometown of Baltimore and traveling the world.
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Source: moneycrashers.com

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You can now order four free…

You can now order four free at-home COVID tests from the federal government, regardless of whether you have health insurance. A new website, covidtests.gov, went live on Tuesday, Jan. 18, one day ahead of schedule.

The website allows every home in the U.S. to order four free rapid antigen tests that deliver results in 30 minutes. PCR tests aren’t available. Tests are expected to ship within seven to 12 days, according to the website.

How to Get 4 Free COVID Tests

Signing up for your free tests is incredibly simple. All you need to do is go to covidtests.gov and provide your name and address, plus an email address if you want shipping notifications. And that’s it.

The U.S. Postal Service will deliver the tests. Currently, the website limits you to four free tests for each residential address, no matter how many household members you have.

Technically as of Tuesday, the website was in beta mode, which means it’s being tested for possible hiccups. Though there have been concerns that the website could crash upon launch due to high demand for tests, the site appeared to be functioning early Tuesday afternoon. A staff writer for The Penny Hoarder placed an order for testing kits without issue.

A health worker grabs two at-home COVID tests
Youngstown City Health Department worker Faith Terreri grabs two at-home COVID-19 test kits to be handed out during a distribution event, Dec. 30, 2021, in Youngstown, Ohio. David Dermer/AP

What About the 8 Free Tests Insurers Have to Provide?

As of Jan. 15, health insurance companies are required to pay for eight home tests per month for each person covered by the plan. However, many people are still finding that they need to pay out of pocket for the tests and submit a receipt for reimbursement.

You can access four free tests for your household using the federal government’s website regardless of whether you have health insurance. The website doesn’t ask for insurance information, and no upfront payment is required. For now, the four free tests are a one-time only offer.

What if I Can’t Wait for My Test?

The earliest you can expect to receive your test through the federal website is late January. If you need a test before then and you have private insurance, you can pay for a home test and then get reimbursed for any upfront payment. The challenge, of course, is finding a home testing kit.

You can also access free and low-cost tests through a community testing center. To find a site, use HHS.gov’s testing center locator.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected]

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Source: thepennyhoarder.com

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What Is Prepaid Interest? Here’s Why You Need to Pay the Mortgage Lender Ahead of Time

As the name implies, “prepaid interest” is money you owe to a bank or mortgage lender that is paid in advance of when it is actually due.

In terms of why it needs to be paid before the due date, there are several reasons, though it mostly boils down to the fact that mortgages are paid in arrears.

This means mortgage payments are due after the month ends, because interest must accrue (over time) before it can be paid.

This differs from rent, which is paid in advance of the month in which you occupy a rental unit.

If buying a home or refinancing an existing mortgage, prepaid interest will often be listed as a line item along with your other closing costs. Let’s learn why.

Prepaid Interest on a Home Purchase

Mortgages are generally due on the first of the month, though there is also typically a grace period to pay until the 15th.

Additionally, mortgage lenders don’t accept partial payments, so an entire month’s payment must be paid each month.

When you purchase a home, there’s a good chance you’ll close on a random day of the month, say the 10th or the 15th, or the 24th.

This means your mortgage will accrue interest for an odd number of days during that initial month.

Instead of asking you to pay that odd amount of interest as your first mortgage payment, you simply take care of it at closing.

By take care of it, I mean pay it in advance at a daily rate so you start with a clean slate once the loan funds.

Using one of our closing dates above, those who close on the 10th would owe 20-21 days of “per diem interest” at closing. Per diem simply means per day. It is also known as interim interest.

This ensures the lender is paid interest for the time you hold the loan and reside in the property, despite a full mortgage payment not being due yet.

However, as a result of that prepaid interest, your first mortgage payment is pushed out a month.

Remember, a full month of interest must accrue before a payment is generated.

So if your home loan closed on January 10th, you’d pay 21 days of prepaid interest at closing, but the first mortgage payment wouldn’t be due until Match 1st.

Why? Because you already paid the interest that would normally be included in your February 1st payment at closing.

And now you must wait until interest accrues throughout the month of February to pay that amount in March, along with a portion of the principal balance (the loan amount).

This is often referred to as “skipping a mortgage payment,” though it’s not really skipping, it’s deferring and paying the interest portion only.

Prepaid Interest on a Mortgage Refinance

prepaid interest

If you already own a property with a mortgage attached, interest accrues daily throughout the month.

Assuming you decide to refinance that loan by taking out a replacement loan, interest will be due on both the old loan and the new loan at closing.

Similar to a home purchase loan, the interest will be calculated by taking the mortgage interest rate and how many days each lender holds your loan.

This will be broken up between old lender and new lender, with interest before your closing date going to your old lender, and prepaid interest from closing date to month-end going to your new lender.

So if you close on January 20th, you’d pay 20 days of interest to your old lender and 11 days of interest to your new lender.

This way the full month’s interest is squared away when you close, and you can start fresh with no interest due.

Then after a month’s time, enough interest will have accrued to make a full payment, which will be due on March 1st.

For the record, the payment due on January 1st would cover interest for the month of December.

In terms of how that interest is paid, you’d owe daily interest to the old lender based on the current principal balance and mortgage rate.

For example, if your loan payoff was $250,000 and your mortgage rate 3.5%, daily interest would be roughly $24. That’s about $480 for 20 days.

On the new loan, you’d owe 11 days of interest based on the new loan amount and interest rate.

If we’re talking a rate and term refinance with a 3% interest rate, it’d be $20.55 a day for 11 days, or $226.

Together, you’d owe about $706 to both lenders for the month of January.

As you can see, interest is paid to both the old lender and the new lender at closing when it’s a mortgage refinance.

How to Calculate Prepaid Interest

While you shouldn’t have to calculate prepaid interest on your own, thanks to the escrow officer assigned to your loan, it’s good to know how it works.

You can also check their math and better understand how mortgage lending works.

Veterans may qualify for a $0 down VA loan

Let’s look at an example of prepaid Interest.

Loan amount: $200,000
Mortgage rate: 3%
Daily interest: $16.44

First, you take the mortgage rate and divide it by 365 (days) to determine the per diem interest amount.

For example, if the mortgage rate is 3%, it’d be .03%/365, or 0.00008219.

Next, you multiple that by the loan amount (we’ll pretend it’s $200,000) to get $16.44. I rounded it up from $16.438.

Finally, you multiple that amount by the days in which you’re required to pay per diem interest, which will be the total amount of prepaid interest due.

So if you need to pay it for 12 days, it’d be $197.28, and that would be included with your other closing costs, such as your loan origination fee, home appraisal, etc.

Tip: Prepaid interest isn’t a junk fee or an unnecessary add-on. It’s mostly unavoidable unless you close on the very last day of the month.

When Is the Best Time to Close Escrow?

  • Most home buyers choose to close at the end of the month
  • This can help keep closing costs down (including prepaid interest)
  • May also align better with your old rental lease if it renews on the first of the month
  • But if you close early in the month your first payment won’t be due for a long time

Ultimately, you don’t always get to pick when you close, whether it’s a home purchase or a refinance, but there are some considerations here.

If it’s a home purchase, closing late in the month means less prepaid interest will be due. And possibly less wasted rent will be paid out to your landlord.

For example, if you close on the 30th of the month and per diem interest is $50, you’d pay maybe $100.

And you wouldn’t have to pay another month’s rent assuming your lease renews on the first of the month.

Conversely, if you close on the 8th of the month you may owe roughly $1,150 in per diem interest at closing. This means higher closing costs, which could jeopardize your loan approval.

The caveat is your first mortgage payment wouldn’t be due for about seven weeks, versus four weeks for the mortgage that closes on the 30th.

So you get extra time until that first payment is due, which can be nice. And it’s also possible to receive a lender credit that covers the prepaid interest anyway.

Many transactions are structured as no cost loans these days, meaning the lender covers closing costs via these credits and they aren’t paid out-of-pocket directly.

The home sellers may also provide seller concessions to cover these costs.

The flipside is that the interest you pay doesn’t actually go toward paying down your loan amount and is basically just extra interest.

If you close near month’s end, beware that lenders are often extremely busy so there could be delays or mistakes.

If you close very early in the month, such as on the 4th, your lender may provide a “credit” for those days of interest and make your first mortgage payment due less than 30 days later.

The downside is your first payment is due the following month, but the upside is you don’t pay any unnecessary interest.

Best Day to Close a Refinance

  • Generally favorable to close late in the month to avoid higher closing costs
  • But the very last week of the month can be extremely busy and cutting it close
  • Also consider the rescission period that tacks on 3 days to your closing date
  • Signing loan docs on a Wednesday or Thursday could help you avoid extra interest charges

When it comes to a refinance, the same logic basically holds, though you’re paying interest to the old lender and the new lender.

Those who are refinancing to a significantly lower interest rate will want to get it done ASAP to avoid paying the higher per diem rate of interest.

You could argue avoiding the end of the month due to how busy lenders are, and maybe shoot for the third week of the month to keep interim interest at bay.

That would still give you five weeks or so until the first payment is due on the new refinance loan.

And as noted, a lender credit could absorb the interest paid to the old lender and new.

If you time it absolutely perfectly, it might be possible to skip two payments if you close early in the month, though this isn’t for the faint of heart.

Also consider the right of rescission, if applicable, which pushes your loan closing out at least three days.

If you sign docs on a Monday, the lender won’t be able to fund until Friday, and there’s a decent chance you pay “double interest” through the weekend if the old loan isn’t paid off immediately.

To avoid this, even though it’s not a major cost, you’d ideally want to sign on say a Wednesday or Thursday, then fund on a Monday or Tuesday.

Simply put, the earlier in the month you close, the longer it will be until the first payment is due on the new loan.

Tip: If you pay discount points at closing, these are also considered prepaid interest because you’re paying money upfront for a lower mortgage rate during your loan term.

(photo: Abhi)

Source: thetruthaboutmortgage.com

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What Assets Should Be Included in Your Trust?

One of the largest financial planning misconceptions people hold is that having a will ensures their property will transfer quickly to their heirs. The truth is, whether you have a will or not, your assets will go through the probate process when you die.

Probate can be a rather lengthy and costly process for your heirs. The procedure can extend from a couple of months for a simple estate, to a couple of years for a more complex estate. For most people, ensuring their property is preserved and passed on at the lowest possible cost is essential to a comprehensive estate plan.

Advantages of Revocable Living Trusts

A revocable living trust is an instrument created for the purpose of protecting your assets during your lifetime. It also creates an avenue to pass your assets with ease after your death. There are several benefits of creating a trust. The chief advantage is to avoid probate. Placing your important assets in a trust can offer you the peace of mind of knowing assets will be passed onto the beneficiary you designate, under the conditions you choose, and without first undergoing a drawn-out legal process. A trust can also provide you with some level of privacy as to the information shared about your estate. Another feature is that placing your assets in a trust will help protect them should you become incapacitated.

Can I Avoid Probate with a Trust?

It is important to note that there is no way to completely bypass probate. While your most important assets may be transferred as part of your trust, there are some assets that will not fund your trust for a variety of reasons. These other assets will still go through the probate process. Though setting up a trust can be costly and complex, it can make the inheritance process easier on your beneficiaries. To ensure your trust performs as it was intended, timely and proper funding is vital.

What Type of Assets Go into a Trust?

Many people assume that once they sign the trust documents at their attorney’s office, they are ready to roll. Setting up a trust, however, is only half of the solution. For a revocable living trust to take effect, it should be funded by transferring certain assets into the trust. Often people fund a living trust with real estate, financial accounts, life insurance, annuity certificates, personal property, business interests and other assets. The most notable types are outlined below:

Real Estate: Many people wonder whether it is a good idea to place their house in a trust. Considering that your home is potentially one of your largest assets, living trusts can be especially beneficial as they can transfer real estate quickly. Additionally, they help avoid the hassle of separate probate proceedings for land, commercial properties and homes that are owned out of state or held in different counties. Any property with a mortgage, however, would require refinancing into the name of the trust, and some lenders may be reluctant to do this.

Financial Accounts: There are several types of financial assets that can be owned by a trust, including:

  • Bonds and stock certificates
  • Shareholders stock from closely held corporations
  • Non-retirement brokerage and mutual fund accounts
  • Money market accounts, cash, checking and savings accounts
  • Annuities
  • Certificates of deposit (CD)
  • Safe deposit boxes

Funding your trust with bank and brokerage accounts generally requires new account paperwork in the name of the trust as well as signed authorization to retitle or transfer the asset. Likewise, physical bond and stock certificates require a change of ownership to be completed with the stock transfer agent or bond issuer. You may also wish to fund the trust with a checking or saving account, though it is important to carefully consider any implications if these accounts require regular withdrawals or activity. Additionally, while you may fund the trust with an annuity, these instruments already enjoy a preferential tax treatment, and transferring them may forfeit this benefit. With existing certificates of deposit, they are usually transferred to a trust by opening a new CD. When doing so, it is a good idea to see if your issuer will waive any penalties. Finally, safe deposit boxes may be issued to the trust, or ownership may be transferred for an existing box.

Life Insurance: Many people ask if it is a good idea to put life insurance in a trust. The benefits include protecting it from creditors and making it easier for your loved ones to access the money by avoiding probate. Naming the living trust as a beneficiary of your life insurance may come with some risks. If you are the trustee of your revocable living trust, all assets in the trust are considered your property. In this instance, life insurance proceeds are counted as part of your estate’s worth and could create a taxable situation should you reach the IRS threshold for taxable estates. In 2022, that amount is $12.06 million for an individual and $24.12 million for couples. Funding a trust with life insurance and annuity contracts generally requires a change of ownership form submitted to the contract issuer.

Valuable Personal Property: Personal items, such as jewelry, art, collectibles and furniture, including pianos or other important pieces, may be placed in a trust. Personal property without any legal certificate or title is commonly listed on an accompanying schedule that is kept with your trust documents. Those assets with certificates or legal title often require the owner to quitclaim their ownership interest to the trust.

Collectible Vehicles: Some cars retain their cash value for long periods of time and therefore may be worth transferring to your revocable living trust. It is worth considering the title transfers and taxes that may be imposed, so it is important to speak to a trusted financial adviser or lawyer before transferring such assets.

Can You Put a Business in a Living Trust?

There are a number of advantages of transferring your business interest into a revocable living trust. Benefits generally include providing relief to your family from carrying the burden of your business debts, as well as the potential to reduce the tax burden on your estate. Below are the effects of several types of business ownerships:

Sole Proprietorships: Transferring a small business during the probate process can present a challenge and may require your executor to keep the business running for months under court supervision. Often sole proprietors hold business assets in their own name, so transferring them to a trust would offer some protection for the family. For a sole proprietor, transfers to a trust behave generally the same as transferring any other type of personal assets you own, including your business name.

Partnerships: With partnerships, you may transfer your share in the partnership to a living trust. If you hold an ownership certificate, you will, however, need to have it modified to show the trust as the shareowner rather than yourself. It is important to note that some partnership agreements may prohibit transferring assets to living trusts, so you will want to consult a financial adviser or attorney.

Limited Liability Companies (LLC): Depending upon your operating agreement, LLC business owners often need approval from the majority of owners before they can transfer the interests in the company to their living trust. Once transferred, the voting ability remains with you, but your ownership share will fall to the trust.

What Assets Cannot Be Placed in a Trust?

There are a variety of assets that you cannot or should not place in a living trust. These include:

Retirement Accounts: Accounts such as a 401(k), IRA, 403(b) and certain qualified annuities should not be transferred into your living trust. Doing so would require a withdrawal and likely trigger income tax. In this instance, it is possible to name the trust as the primary or secondary beneficiary of the account, which would ensure the funds transfer to the trust upon your death.

Health Savings Accounts or Medical Savings Accounts:  Since these accounts already allow you to use the money tax-free for allowable medical expenses, they cannot be transferred to a living trust. Like retirement accounts, however, you can name the trust as the primary or secondary beneficiary.

Active Financial Accounts: It is not advisable to transfer accounts you use to actively pay your monthly bills unless you are the trustee and granted full control of the trust assets. For many people, it is simply easier to keep these accounts out of the trust.

Vehicles: Generally, everyday vehicles like cars, boats, trucks, motorcycles, airplanes or even mules or snowmobiles are not placed in a trust because they often do not go through probate, and unlike collectible vehicles, they are not appreciable assets. Additionally, many states impose a tax when the vehicles are retitled, and some do not allow vehicle owners to name a beneficiary after death.

A Word About Irrevocable Trusts

While the assets placed in an irrevocable trust are no longer vulnerable to creditors or subject to an estate tax, you forfeit ownership of the assets. Careful consideration should be made when using an irrevocable trust, and it is highly advised that you first consult your financial adviser or attorney.

While creating a living trust may be costly and require a lot of legwork to fund, there are many benefits to using it as an instrument to protect your assets. The flexibility these trusts offer helps to ensure that your assets are protected during your lifetime and pass easily to heirs after your death.

Estate laws vary from state to state. This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax adviser or lawyer.
Kris Maksimovich is a financial adviser located at Global Wealth Advisors 4400 State Hwy 121, Ste. 200, Lewisville, TX 75056. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Financial planning offered through Global Wealth Advisors are separate and unrelated to Commonwealth. He can be reached at (972) 930-1238 or at [email protected]
© 2022 Global Wealth Advisors
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

President and Founder, Global Wealth Advisors

Kris Maksimovich, AIF®, CRPC®, CRC®, is president of Global Wealth Advisors in Lewisville, Texas. Since it was formed in 2008, GWA continues to expand with offices around the country. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Financial planning services offered through Global Wealth Advisors are separate and unrelated to Commonwealth.

Source: kiplinger.com

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Here’s the Best Way to Get Cash Back on eBay Purchases

If you shop on eBay, you know it can be a great place to find a bargain. But if you’re like most eBay shoppers, you’re probably not getting any cash back on your eBay purchases.

What’s that? you ask. I could be getting cash back on eBay?

Yes, although it’s getting trickier now that eBay is shutting down its own cash-back program.

“Enrollment in the eBay Bucks Rewards Program is currently closed,” eBay’s website says. “After careful and thorough consideration, we decided to retire the 1% earning as we look to continuously optimize our offerings.”

That’s OK, though! Getting eBay cashback is still easier than you might think.

Just make sure you’re using a reputable cash-back platform so you’re not getting ripped off. There are plenty of shady outfits out there that’ll promise you the moon while gouging you with some kind of costly subscription service. You don’t want that.

To help out, we’ve got a list of cash-back websites that’ll get you rebates on eBay purchases:

1. Rebaid

Rebaid helps shoppers find freebies, rebates and discounts on scores of shopping sites, such as Amazon, Walmart, Target, Etsy — and eBay cash back. In some cases, it offers up to 100% cash back!

It’s free to sign up, and it’s easy to use. You start at the Rebaid website, where you browse through offers or search for specific offers. Once you choose an available offer, it’ll take you to the retailer’s website to buy your item.

Once you’ve made your purchase, you copy your order number and go back to Rebaid to claim your rebate. Discounts typically vary from 25% to 100%. Most rebates arrive in your mailbox via a check, but some are done via direct deposit.

You can also get direct discounts where you enter a code at checkout and get savings right away.

It’s that simple. That’s all there is to it.

2. Swagbucks

If you use the free rewards website known as Swagbucks next time you shop online, you can save on purchases at some of your favorite sites like Amazon, Target and Old Navy. It also features eBay cashback offers and eBay coupons.

Swagbucks’ eBay rewards offers continually change, so you have to check. On any particular day, Swagbucks might offer something like a $10 off coupon on select jewelry purchases of $40 or more. Or 10% off Under Armour apparel. Just look at each coupon code and decide if it’s right for you.

It just varies from day to day.

3. MyPoints

MyPoints is another cash-back portal that lets you earn rewards by shopping online and printing coupons. It’s connected to thousands of stores, including favorites like Walmart, Amazon, Target — and eBay. You earn points by purchasing from stores through the MyPoints portal, and you can eventually convert the points into cash.

4. Ibotta

Ibotta is mostly known for grocery rebates. It’s best known for paying you cash back for buying hundreds of different brands at the supermarket.

In the past, the Ibotta platform offered cash back on various eBay purchases, but that’s not currently the case. Ibotta used to have an eBay page, but it no longer exists.

5. Rakuten

Rakuten is a browser extension that used to be known as Ebates. It helps you find coupons, cash back and other deals when you shop at thousands of stores including Target, Walmart, Macy’s and Kohl’s.

It offers eBay coupons, promo codes and up to 1% cash back on various purchases from eBay if you shop through Rakuten’s browser extension. Cash back is only available for certain departments on eBay, though.

First you have to install the browser extension. You can use it with Chrome, Firefox, Safari or Microsoft Edge.

6. RebatesMe

The RebatesMe Cash Back Button lets you earn money and score savings when shopping at your favorite online retailers, including Overstock and eBay. When you check out, this browser extension will show you coupon codes, and it’ll alert you if the site you’re visiting has any cash-back offers.

7. But Wait, There’s More!

There’s a whole slew of other cash-back websites, browser extensions and shopping portals out there, including BeFrugal, Better Sidebar, Extrabux, Giving Assistant, Kiindly, Slickdeals and Yazing.

You can also buy discounted eBay gift cards or eBay branded gift cards.

In other words, there’s no shortage of options available to you.

So how do you choose which one to use?

We’re actually partial to Rebaid, and here’s why:

Why Rebaid is Our Choice

There’s a lot of public skepticism about rebate sites, because so many of them have gone out of business, or because they fail to actually pay the promised cash back.

Rebaid is an established, U.S.-based company, and its members consistently get their rebate checks.

That’s why it has a high rating of 4.7 out of 5 on Trustpilot, based on hundreds of positive customer reviews. It’s simply better than a lot of the other sites.

If you’re looking for eBay deals, don’t neglect this easy extra step to save money.

It may be one of the world’s largest online marketplaces, but a lot of eBay shoppers aren’t accustomed to getting cash back on their eBay purchases. But if you’re getting cash back at the gas pump or getting cash back from your credit card, there’s no reason you should have to pay full price on eBay.

Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder.

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Source: thepennyhoarder.com

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8 Popular Types of Life Insurance for Any Age

No matter what your age, it’s probably a good time (and not too late!) to think about getting life insurance. It’s a key step in financial planning, so let’s get to know the two main types – term and permanent – so you can understand which is the right option to protect your loved ones.

First, a crash course in what insurance is: When you purchase a life insurance policy, you make recurring premium payments. Should you die while covered, your policy will pay a lump sum that you’ve selected to the beneficiaries you have designated. It’s an important way to know that if you weren’t around, working hard, your loved ones’ expenses (housing, food, medical care, tuition, etc.) would be covered. Granted, no one wants to imagine leaving this earth, but buying life insurance can give you tremendous peace of mind.

Types of Life Insurance

Now that the basic concept is clear, let’s take a closer look at the two types of life insurance policies: term and permanent. Term life insurance offers coverage for a certain amount of time, while permanent life insurance provides coverage for the policyholder’s whole life as long as premiums are paid. (These policies come in a variety of options. We’ll break those down for you in a moment.) There’s no right or wrong type; only a policy that is right for you and your needs. Figuring out which one will be easier once you understand the eight different kinds of life insurance and the needs they were designed to satisfy.

1. Term Life Insurance

Term life insurance, as the name suggests, protects a policyholder for a set amount of time. It pays a death benefit to beneficiaries if the insured person dies within that time frame. Term life insurance coverage usually ranges from 5 to 30 years. Typically, all payments and death benefits are fixed.

There are several reasons why a term life insurance policy might be right for you. Perhaps there is a specific, finite expense that you need to know is covered. For instance, if covering the years of a mortgage or college expenses for loved ones is a priority, term life insurance may make the most sense. These policies can be helpful for young people too. If, say, you took out hefty student loans that are coming due and your parents co-signed, you might want to buy a life insurance policy. The lump sum could cover that debt in a worst-case scenario.

Another reason to consider term life insurance: It tends to be more affordable. If you don’t need lifelong coverage, a term policy might be an excellent choice that’s easier on your budget.

A few variables to be aware of:

•   Term life insurance may be renewable, meaning its term can be extended. This is true “even if the health of the insured (or other factors) would cause him or her to be rejected if he or she applied for a new life insurance policy,” according to the Insurance Information Institute. Renewal of a term policy will probably trigger a premium increase, so it’s important to do the math if you’re buying term insurance while thinking, “I’ll just extend it when it ends.”

•   If you would be comfortable with your coverage declining over time (that is, the lump sum lowering), look into the option known as decreasing term insurance.

2. Whole Life Insurance

Whole life insurance is the most common type of permanent life insurance, which protects policyholders for the duration of their lives.

As long as the premiums are paid, whole life insurance offers a guaranteed death benefit whenever the policyholder passes. In addition to this extended covered versus term life insurance, whole life policies have a cash value component that can grow over the policy’s life.

Here’s how this works: As a policyholder pays the premiums (these are typically fixed), a portion goes toward the cash value, which accumulates over time. We know the terminology used in explaining insurance can get a little complicated at times, so note there’s another way this may be described. You may hear this referred to as your insurance company paying dividends into your cash value account.

This cash value accrues on a tax-deferred basis, meaning you, the policyholder, won’t owe taxes on the earnings as long as the policy stays active. Also worth noting: If you buy this kind of life insurance and need cash, you can take out a loan (with interest being charged) against the policy or withdraw funds. If a loan is unpaid at the time of death, it will lower the death benefit for beneficiaries.

The cash value component and lifelong coverage of this type of life insurance can be pretty darn appealing. And it may be perfect for funding a trust or supporting a loved one with a disability. However, buying a whole life policy is pricey; it can be many multiples of the cost of term insurance. It’s definitely a balancing act to determine the coverage you’d like and the price you can pay.

For those who are not hurting in the area of finances, whole life can have another use. A policy can also be used to pay estate taxes for the wealthy. For individuals who have estates that exceed the current estate tax exemption (IRS guideline for 2021) of nearly $11.7 million , the policy can pay the estate taxes when the policyholder dies.

3. Universal Life Insurance

Who doesn’t love having freedom of choice? If you like the kind of protection that a permanent policy offers, there are still more varieties to consider. Let’s zoom in on universal life insurance, which may provide more flexibility than a whole life policy. The cash account that’s connected to your policy typically earns interest, similar to that of a money market. While that may not be a huge plus at this moment, you will probably have your life insurance for a long time, and that interest could really kick in. What’s more, as the cash value ratchets up, you may be able to alter your premiums. You can put some of the moolah in your cash account towards your monthly payments, which in some situations can really come in handy.

This kind of policy is also sometimes called adjustable life insurance, because you can decide to raise the benefit (the lump sum that goes to your beneficiaries) down the road, provided you pass a medical exam.

4. Variable Life Insurance

Do you have an interest in finance and watch the market pretty closely? We hear you. Variable life insurance could be the right kind of permanent policy for you. In this case, the cash value account can be invested in stocks, bonds, and money market funds. That gives you a good, broad selection and plenty of opportunity to grow your funds more quickly. However, you are going to have more risk this way; if you put your money in a stock that fizzles, you’re going to feel it, and not in a good way. Some policies may guarantee a minimum death benefit, even if the investments are not performing well.

This volatility can play out in other ways. If your investments are performing really well, you can direct some of the proceeds to pay the premiums. But if they are slumping, you might have to increase your premium payment amounts to ensure that the policy’s cash value portion doesn’t fall below the minimum.**

This kind of variable life insurance policy really suits a person who wants a broader range of investment options for the policy’s cash value component. While returns are not guaranteed, the greater range of investments may yield better long-term returns than a whole life insurance policy will.

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5. Variable Universal Life Insurance

Variable universal life insurance is another type of a permanent policy, but it’s as flexible as an acrobat. If you like to tinker and tweak things, this may be ideal. Just as the name suggests, it merges some of the most desirable features of variable and universal plans. How precisely does that shake out for you, the potential policyholder? For the cash account aspect of your policy, you have all the rewards (and possible risks) of a variable life insurance policy that you just learned about above. You have a wide array of ways to grow your money, which puts you in control.

The features that are borrowed from the universal life model are the ability to potentially change the death benefit amount. You can also adjust the premium payments. If your cash account is soaring, you can use that money towards your monthly costs…sweet! It’s a nice bonus, especially if funds are tight.

6. Indexed Universal Life Insurance

This is another type of permanent life insurance with a death benefit for your beneficiaries as well as a cash account. You may see it called “IUL.” In this instance, the cash account earns interest based on how a stock-market index performs. For instance, the money that accrues might be linked to the S&P (Standard & Poor’s) 500 composite price index, which follows the shifts of the 500 biggest companies in America. These policies may offer a minimum guaranteed rate of return, which can be reassuring. On the other hand, there may be a cap on how high the returns can go. A IUL insurance plan may be a good fit if you are comfortable with more risk than a fixed universal life policy, but don’t want the risk of a variable universal life insurance product.

7. Guaranteed or Simplified Issue Life Insurance

With most life insurance policies, some form of medical underwriting is required. “Underwriting” can be one of those mysterious insurance terms that is often used without explanation. Here’s one aspect of this that you should know about. Part of the approval process for underwritten policies involves using information from exams, blood tests, and medical history to determine the applicant’s health status, which in turn contributes to the calculated monthly costs of a policy. Underwriting serves an important purpose: It helps policyholders pay premiums that coincide with their health status. If you work hard at staying in excellent health, you are likely to be rewarded for that with lower monthly payments.

However, sometimes insurance buyers don’t want to go through that process. Maybe they have health issues. Or perhaps they don’t want to wait the 45 or 60 days that underwriting often requires before a policy can be issued. With guaranteed or simplified issue life insurance, the steps are streamlined. Applicants may not have to take a medical exam to qualify and approvals come faster.

These policies tend to have lower death benefits (think $10,000, $50,000, or perhaps $250,000 at the very high end) than the other types of life insurance we’ve described. Less medical underwriting also means policies tend to be more expensive. Who might be interested in this kind of insurance? It may be a good option for someone who is older (say, 45-plus), has an underlying medical condition that would usually mean higher insurance rates, or has been rejected for another form of insurance. The coverage may suit the needs of someone looking for insurance really quickly, like the uninsured people who, during the COVID-19 pandemic, wanted to sign up ASAP.

One point to be aware of: Many of these policies have what’s called a graded benefit or a waiting period. This usually means that the beneficiaries only receive the full value of the policy if the insured has had it for over two years. If the policyholder were to die before that time, the payout would be less; perhaps just the value of the premiums that had been paid.

Of the two kinds we’ve mentioned, guaranteed is usually the easiest to qualify for (as the name suggests) but costs somewhat more than the simplified issue variety, which tends to have a few more constraints. You might be deemed past the age they insure or a medical condition might disqualify you.

Worth noting: You may hear these life insurance policies are known as final expense life insurance or burial insurance. As with any simplified issue or guaranteed issue life insurance policies, no medical exam is required. These plans typically have a small death benefit (up to $50,000 in many cases) that is designed to cover funeral costs, medical bills, and perhaps credit card debt at the end of life.

8. Group Life Insurance

Group life insurance is often not something you go out and buy. Typically, it’s a policy that’s offered to you as a benefit by an employer, a trade union, or other organization. If it’s not free, it is usually offered at a low cost (deducted from your payroll), and a higher amount may be available at an affordable rate. Since an employer or entity is buying the coverage for many people at once, there are savings that are passed along to you.

That said, the amount of coverage is likely to be low, perhaps between $20,000 and $50,000, or one or two times your annual salary. Medical exams are usually not required, and the group life insurance will probably be a term rather than permanent policy,

A couple of additional points to note:

•   There may be a waiting period before you are eligible for the insurance. For instance, your employer might stipulate that you have to be a member of the team for a number of months before you can access this benefit.

•   If you leave your job or the group providing coverage, your policy is likely to expire. You may have the option to convert it to an individual plan at a higher premium, if you desire.

Deciding Which Life Insurance Is Best for You

So many factors go into creating that “Eureka!” moment in which you land on the right life insurance policy for you. Your age, health, budget, and particular needs play into that decision.

If you need life insurance only for a certain amount of time, you may want to select a term life insurance policy that dovetails with your needs. Covering a child’s college and postgraduate years is a common scenario. Another is taking out a policy that lasts until your mortgage is paid off, to know your partner would be protected.

A term life insurance policy may also be a good fit for someone who has a limited budget but needs a substantial amount of coverage. Since term policies have a specific coverage window, they are the more affordable option.

For someone who needs coverage for life and wants a cash accumulation feature, a permanent policy such as whole life insurance might be worth considering. Not only will this policy stay in place for life (as long as the premiums are paid), but the cash value element allows use of the funds to pay premiums or any other purpose. Permanent life insurance lets you know that, whenever you pass on, funds will be there for your dependents. It can be a great option if you have, say, a loved one who can’t live independently, and you want to know they will have financial coverage. Whole life insurance is more expensive than term life insurance, but the premium remains the same for the insured’s life.

In terms of when to buy life insurance, here are a few points to keep in mind:

•   It’s best to apply when you’re young and healthy so you can receive the best rate available.

•   Typically, major life events signal people to buy life insurance. These are moments when you realize someone else is depending on your (and, not to sound crass, your income). It could be when you marry or have a child. It could be when you realize a relative will need long-term caregiving.

•   Even if you are older or have underlying health conditions, there are options available to you. They may not give as high an amount of coverage as other life insurance policies, but they can offer a moderate benefit amount and give you a degree of peace of mind.

The Takeaway

Picking out the right life insurance policy can seem complicated, but in truth, the number of choices just reflects how easy it is to get the right coverage for your needs. There’s truly something for everyone, regardless of your age or budget. Whether you opt for term, permanent, group, or guaranteed issue, you’ll get the peace of mind and protection that all insurance plans bring.

Taking the Next Step

Are you among the millions of people who learn about life insurance and say, “A term policy is right for me!”? If that’s the way you want to protect your loved ones, we have good news: You can apply for a policy in a matter of minutes online. It’s a simple, straightforward way to tailor a policy to your needs without a lot of meetings or endless phone calls with an agent.

SoFi teamed up with Ladder to offer term life insurance that’s affordable and easy to understand. Get started today.

Ladder policies are issued in New York by Allianz Life Insurance Company of New York, New York, NY (Policy form # MN-26) and in all other states and DC by Allianz Life Insurance Company of North America, Minneapolis, MN (Policy form # ICC20P-AZ100 and # P-AZ100). Only Allianz Life Insurance Company of New York is authorized to offer life insurance in the state of New York. Coverage and pricing is subject to eligibility and underwriting criteria. SoFi Agency and its affiliates do not guarantee the services of any insurance company. The California license number for SoFi Agency is 0L13077 and for Ladder is OK22568. Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other. Social Finance, Inc. (SoFi) and Social Finance Life Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderLifeTM policies. SoFi is compensated by Ladder for each issued term life policy. SoFi offers customers the opportunity to reach Ladder Insurance Services, LLC to obtain information about estate planning documents such as wills. Social Finance, Inc. (“SoFi”) will be paid a marketing fee by Ladder when customers make a purchase through this link. All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Source: sofi.com

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Huge Retention Offers On American Express Business Platinum Cards

Update 1/17/22: Reports of generous retention offers again, including $595 and $695 statement credit offers.

In May we reported that American Express was offering some juicy retention offers on most credit cards. In the last week there has been some reports of a huge retention offer on the American Express Business Platinum card. Some cardholders are being offered 30,000 Membership Rewards points on renewal and then an additional 50,000 Membership Rewards points after $40,000 in spend within three months. Obviously the spend requirement of $40,000 will be difficult for a lot of people to meet.

Keep in mind this card is also offering a $200 appreciation credit on renewal currently as well. The American Express Business Platinum card also offers a $20 per month credit for both wireless and shipping purchases until December 31, 2020 as well. Obviously there is no guarantee you’ll get such an offer, but it is worth making the call.

Source: doctorofcredit.com