What Is the Real Return of an Investment? – SmartAsset
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When measuring investment performance, it’s helpful to understand its real return. The real return on investment is what you earn after returns are adjusted for inflation and taxes. Nominal returns, on the other hand, don’t account for those deductions. Understanding the real return on investment matters, as it can tell you more accurately how much purchasing power it’s likely to yield.
You can talk to a financial advisor about how to create a strategic investment plan.
How Is Real Return Calculated?
Finding an investment’s real rate of return involves a fairly simple formula. Here’s an example:
To find the real rate of return on investment, you need to know the nominal rate and the inflation rate. The nominal rate is the stated interest rate or return that you can expect to earn on an investment. The inflation rate measures changes to the prices of consumer goods and services over time.
As a general rule of thumb, nominal rates are always higher than real return rates. That makes sense since the nominal rate doesn’t account for inflation or taxes. The nominal rate and the real rate of return may align more closely when inflation is close to or at zero, or the economy is experiencing a period of deflation, both of which are rarities.
Real Return Example
It’s easy to gauge the effects of real return, even if you’re not doing a step-by-step calculation. For example, let’s say that you deposit $20,000 into a CD. The bank is offering a 5% APY, which represents the nominal rate you could earn on your money. Over a 12-month period, you’d earn $1,000 in interest.
But what if the inflation rate is 2.5%? That cuts the purchasing power of the $1,000 in interest you earned in half. So now, that money is technically worth $500, which represents your real return.
That just accounts for the impact of inflation on your CD earnings. CD interest is considered taxable income by the internal revenue service (IRS), along with interest earned on other types of savings accounts. Once you factor in what you might owe in taxes on the interest, that can shrink your real return even further.
Are There Any Flaws With Real Return?
Calculating the real rate of return requires you to factor in taxes and inflation. That’s a good thing, as again, it can give you a more realistic picture of how much spending power a particular investment is generating.
There is, however, one thing that real return doesn’t account for. This formula doesn’t incorporate the fees you might pay to own an investment, and that can include:
Managing investment fees is important as those additional costs can detract from the total returns that you get to keep. Choosing tax-efficient investments, such as low-cost index funds or exchange-traded funds (ETFs) with a low asset turnover ratio, can help to minimize your fee expenses.
It’s also important to keep in mind that every investor’s tax situation is different and that inflation is not static. Even small changes to the tax code or slight increases in prices for consumer goods and services can have a significant impact on real return calculations.
How to Maximize Real Return
Getting the most return possible for your money is challenging, as certain factors may be outside of your control. While there are things you can do to pay less in fees for your investments, there’s not a whole lot that you can do directly to control inflation or changes to the tax code.
What you can manage is how you deal with the impact of both on your investments. With regard to inflation, that can mean choosing investments that tend to offer a higher rate of return overall. Stocks, for instance, can outperform certificates of deposit (CD) rates or money market funds. However, investing in stocks does carry more risk.
You can also choose investments that move with inflation or are otherwise inflation-proof. Real estate is a great example. Property tends to appreciate in value over time and when inflation goes up, rental prices can increase in tandem. If you’re renting a property out, then you can ride with the tide so to speak when it comes to how much you charge.
Minimizing the Effects of Taxation
In terms of taxation, there are a few strategies you can use to minimize the effects. Some of the best ways to save on taxes as an investor include:
Choosing longer-term investments, which are subject to the more favorable long-term capital gains tax rate.
Contributing to tax-advantaged accounts, such as 401(k) or individual retirement accounts (IRAs).
Allocating less tax-efficient assets, such as traditional mutual funds, to an IRA or 401(k).
Harvesting tax losses to offset capital gains.
Claiming all eligible deductions in order to shift into a lower tax bracket.
Bottom Line
Understanding real return is important when deciding how to invest money. The more purchasing power you have, the further your dollars can go. If you’re just looking at nominal returns, you can end up with a skewed sense of how much your investment might be worth. For example, say that you’re eyeing an investment that has delivered a 15% rate of return to investors over the last 10 years.
That sounds good but it doesn’t tell you how inflationary changes or updates to the tax code may have affected the earnings investors actually got to keep over that same period. It’s possible that once inflation rates and taxes are factored in, the net return is negative or zero. That’s something you’d like to know before you invest. Talking to a financial advisor can help you come up with a plan for managing taxes on investments so that you can get the best real return possible for your money.
Investing Tips
If you need help calculating the real return on investment, consider talking to a financial advisor. A financial advisor can walk you through the numbers when deciding what to include in your portfolio. And finding one doesn’t have to be difficult. SmartAsset’s financial advisor matching tool makes it easy to connect with three vetted financial advisors who serve your area. It takes just a few minutes to get your personalized advisor recommendations online. Get started now.
Many investors confuse an investment’s returns with its yield. You never have to make that mistake again, though. Learn the difference between these two key concepts, along with how a combination of strong yields and steady returns can help you meet your financial goals.
Rebecca Lake, CEPF®
Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
Dental Savings Plan vs. Insurance: Pros and Cons – SmartAsset
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Health insurance doesn’t cover your teeth. Your teeth can cause pain, get infected and need treatment, just like any other part of the body. But when it comes to actually getting treatment the standard health insurance doesn’t cover it. Instead, you need specialized coverage to pay for a trip to the dentist’s office.
The specialized coverage comes in two main forms. The first is dental insurance. This is standard insurance that covers most of the cost of treatment in exchange for a monthly premium and co-payments. The second is a dental savings plan. This is a discount program that gives you a percent off your bill in exchange for an annual membership fee. We’ll discuss how it works.
A financial advisor can help you plan for future healthcare expenses.
What Is Dental Insurance?
Dental insurance works like standard health insurance. It is accepted at dentists’ offices, including specialists like orthodontists and endodontists, although depending on their range of services, some medical practices might accept it as well if they have dentists on staff. It pays for care that involves your teeth and gums.
With dental insurance, the insurance provider pays for a portion of each treatment. The exact amounts range based on the nature of the treatment and the nature of your insurance plan. For example, many if not most plans will pay for 100% of preventative treatment like routine cleanings and checkups, while the same plans might not pay for any part of a cosmetic procedure like teeth whitening.
What Do You Have to Pay?
You have to pay any amount that your insurance doesn’t cover, which are out-of-pocket expenses. For example, if your insurance covers 50% of a $700 treatment, that means the plan would pay $350 and you would pay the remaining $350.
Like other forms of health insurance, dental insurance is structured around three main forms of payment from the customer:
Premiums – Monthly payments that you make for the plan
Co-payments – Payments that you make when receiving any given service
Deductibles – The amount you pay before your insurance covers costs
Premiums are fixed. You pay the same amount each month for a given plan. Co-payments and deductibles will change based on the nature of the treatment that you get. Your insurance plan will have different co-payments for any given treatment and will apply different rules about deductibles.
Types of Dental Insurance
Like with other forms of medical insurance, there are different major categories of dental insurance. The three main types of dental insurance are:
Dental Health Maintenance Organizations – this offers lower premiums. But it has more restricted coverage options.
Dental Preferred Provider Organizations – Midrange premiums and more treatment options, but fewer providers.
Dental Indemnity Insurance – Higher premiums, but more options and coverage.
Pros and Cons of Dental Insurance
Pros
The main advantage to dental insurance is coverage. This works the same way as all other forms of medical insurance, in that your insurance company pays for a portion of your treatments. They will pay for dental services in whole or part, and your spending for covered services is capped each year.
That doesn’t mean your out of pocket expenses wont’ be high. Dental insurance isn’t subject to many of the same rules as health insurance, so if you need specialty services like braces, a retainer or a root canal you can still expect to spend thousands of dollars out of pocket. That’s still far less than you would spend without insurance or with a dental savings plan though. It’s also far more likely that any given dentist will accept your insurance, as fewer providers accept dental savings plans compared with insurance.
Cons
The main disadvantage to dental insurance is the costs involved when you don’t need treatment. Dental insurance isn’t nearly as expensive as health insurance, but this will still cost a lot more than something like a dental savings plan. Depending on how much coverage you need and how many people are in your household, you can expect to spend anywhere from $20 to $200 per month on dental insurance.
An individual looking for decent, but not comprehensive, coverage should expect to spend at least $50 per month.
Another way of looking at it is this: Dental insurance is better if and when you need treatment. You will spend less money and find care more easily. A dental savings plan is better when you don’t need treatment because it will cost you less.
What Are Dental Savings Plans?
A dental savings plan, otherwise known as a “dental discount plan” is different than health insurance. Instead, it could be thought of as a membership. With a dental savings plan, you pay an annual fee, typically $150 or less for a family, to enroll. In exchange, you receive a discount on services at participating dental providers.
For example, you might receive 40% off a routine cleaning or 25% off the cost of filling a cavity. Unlike insurance, the savings plan doesn’t pay for these costs. Instead, they are negotiated discounts for plan members.
You are responsible for paying for the rest of the costs of any given service. For example, if you have a $1,000 procedure and your dental savings plan gives you a 20% discount, you will pay the remaining $800.
The details of a dental savings plan can vary widely. Every program will have different dentists who participate, different costs for membership and will offer different discounts for services. Generally, fewer dentists accept a savings plan membership than insurance, so you will usually have a smaller provider network to choose from.
Who Should Consider a Dental Savings Plan
There are several situations in which it makes sense to consider a dental savings plan.
If you’re on Medicare. Such plans don’t cover most dental care (including procedures and supplies like cleanings, fillings, tooth extractions, dentures, dental plates or other dental devices). Original Medicare may pay for some dental services that are closely related to other covered medical services. Medicare Part A will also pay for certain dental services that you get when you’re in a hospital.
If you’re unemployed. These plans are relatively inexpensive and, unlike many dental insurance plans, you can access the benefits in two or three days.
If your teeth are in great shape. People who consistently floss, brush and gargle several times a day and have a history of zero cavities, may not need coverage.
Pros and Cons of a Dental Savings Plan
Pros
The main advantage of a dental savings plan is the up-front cost. Typically one of these programs will cost several hundred dollars per year in membership fees. By contrast, dental insurance can cost several hundred dollars per month (if not more) in premiums.
You also have no coverage caps with a standard dental savings plan, meaning you don’t have maximums or deductibles. And you simply receive the set discounts for any given service.
Cons
However, the downside here is that you will almost always pay more for the actual services. Despite co-pays and deductibles, insurance will typically cover more costs when it comes to receiving treatment, so you can expect a savings plan to cost more out of pocket.
The result is that a dental savings plan can often fill a role similar to catastrophic insurance. If you are healthy enough that you only need the occasional cleaning and checkup, this might be a good option. If you will need real treatment, this may end up costing you more in the long run.
Bottom Line
Dental insurance is health insurance that applies to your teeth. In exchange for premiums and a co-pay, the insurance plan pays for the rest of your treatment. A dental savings plan is a discount program, in exchange for an annual payment, that gets you a negotiated percentage off your treatment at the dentist’s office.
Tips for Managing Your Healthcare Costs
Just as you would consult a healthcare professional to assess your well-being, be sure to consult a financial professional to assess your fiscal well-being. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with three vetted financial advisors who serve your area. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
Considering alternatives to health insurance is important for maintaining a healthy budget. A comprehensive budget calculator can help you understand which option is the best for you.
Eric Reed
Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
Ahh … the birds are chirping, the days are getting longer, and the 2023 spring housing market is finally kicking into full gear.
But making predictions about this year’s prime selling season is like trying to see through a cold, thick, fog. Mortgage interest rates are at near 20-year highs, adding hundreds—or even thousands—of dollars to monthly mortgage payments. There aren’t many new homes coming onto the market. And in some markets, home prices are continuing to shoot up. Yet, in others, they’re beginning to come down.
So how are homebuyers and sellers supposed to make sense of it all?
One indicator of how an area’s real estate market is faring is how long it’s taking homes to sell. In the hottest, most competitive markets, where bidding wars and offers above asking price might still be the norm, homes are selling briskly—sometimes within days of being listed. But in other parts of the country, listings are languishing. That’s a sign that sellers could be cutting prices, and buyers have more negotiating power.
That’s why Realtor.com®’s data team took a deep dive into the numbers to uncover the median days that homes are taking to sell across the country.
“Fewer days on market is usually some combination of more demand in places with relatively lower supply,” says Hannah Jones, Realtor.com economic data analyst. “So, the homes that are available spend less time on the market.”
There were just five out of the biggest 250 metropolitan areas in the nation where homes were selling faster than they were last year. These markets were in the Rust Belt and Midwest, where homes are mostly cheaper.
Yet, homes are sitting longer on the market—generally in the more expensive parts of the country.
“The upside is that for buyers who are still looking in these markets, they probably have a little more negotiation power,” Jones says. “Sellers are going to be more motivated to sell.”
To find out how quickly homes are moving, we dug into Realtor.com’s housing data for the 250 largest metropolitan areas. We compared the median days on market (DOM) in March 2023 to March 2022. (Metros include the main city and surrounding towns and smaller urban areas.) We limited our list to just one metro per state to ensure geographic diversity.
So let’s take a look at the cities where you have some extra time to ponder your buying decisions—and those where you better act fast.
1. Erie, PA
Median list price in March 2023: $197,450 Median days on market in March 2023: 58 Year-over-year change in days on market: 14 fewer days
Homes in Erie, in the northwestern part of Pennsylvania, are selling two weeks faster than this time last year—and for buyers, that can make a substantial difference. This time last year, real estate in the Rust Belt city was spending 71 days on market, almost twice the national median figure.
It makes sense in these affordability-crunched times that Erie’s market would be picking up. Home prices were around half of the national median list price of $424,00 in March, though waterfront properties on Lake Erie can still command a premium. And it’s one of the only markets on this list where the number of homes for sale in March was fewer than in the year before.
“There’s definitely a huge shortage right now,” says local realtor Nanci Lore, at Marsha Marsh Real Estate in Erie.
Lorei says high mortgage rates are keeping some would-be local sellers from listing their homes—they don’t want to lose their low rates when buying a new house. So they’re staying put, which makes the housing shortfall even worse.
2. Traverse City, MI
Median list price: $486,475 Median days on market: 59 Change in days on market:: 7 fewer days
Traverse City, in northern Michigan on Lake Michigan’s Grand Traverse Bay, has long been a popular Midwestern tourist destination. The area’s beaches, wineries, pretty cherry orchards, and historic lighthouses have given it a reputation for scenic beauty and a charmed lifestyle, making it especially attractive for buyers seeking a vacation home or place to retire.
It’s also more expensive than every other metro where homes are selling faster this year than last, with a median listing price about 15% higher than the national median listing price.
Buyers who act fast can get a four-bedroom house on half an acre for $319,900. Or they can splurge on this two-bedroom, waterfront home with panoramic views for $825,000.
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Watch: The Top Real Estate Markets of 2023, Revealed
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3. Youngstown, OH
Median list price: $159,900 Median days on market: 50 Change in days on market:: 4 fewer days
In northeast Ohio, Youngstown was once an anchor of the steel industry, dotted with mills and factories. But when those businesses vanished, residents took a powder, too; and there were fewer buyers left to keep home prices strong.
But the affordable real estate has lately become a draw. List prices in Youngstown were up almost 20% year over year in March—the biggest price increase of any metro on the list. Despite the increases, homes are more than 60% less expensive than the national median.
The typical home in Youngstown spends 50 days on the market right now, tied for the fewest in our ranking.
Youngstown also stands out, because there are marginally more homes for sale in the metro compared to a year earlier. That gives buyers a bit more of a selection.
Those who are handy and don’t mind putting in some work can pick up a three-bedroom ranch for under $70,000. There are also plenty of move-in ready homes, such as this five-bedroom, three-and-a-half bathroom house for $378,900.
4. Peoria, IL
Median list price: $140,950 Median days on market: 50 Change in days on market: 2 fewer days
Located on the Illinois River in the central part of the state, surrounded by fertile farmland, buyers here can find some decent, bargain-priced homes for sale. Peoria has the cheapest real estate of any of the places on our list. And that’s even with a 10% year-over-year price increase.
The median listing price in Peoria in March 2022 was $99,900—one of the last U.S. metros where median home prices were below $100,000.
Meanwhile, the number of homes for sale in Peoria in March was also down almost 10% year over year, which helps to explain why homes are selling fast there.
This stately, six-bedroom, historic home is listed for $295,000. Meanwhile, this four-bedroom, brick home is on the market for just $129,900.
5. Charleston, WV
Median list price: $152,090 Median days on market: 65 Change in days on market: 0 (flat)
Charleston’s extreme affordability, with home prices at less than half the national average, helps insulate it from the dynamics pushing up days-on-market numbers in other areas.
Joe Nekoranec, a real estate salesperson at Berkshire Hathaway Real Estate Services Great Expectations Realty in Charleston, says it all comes down to the limited housing supply.
“It’s just scarcity, plain and simple,” he says. “There’s hardly anything to buy.”
Nekoranec says buyers who couldn’t afford to compete during the frenzy of the pandemic market are still coming to Charleston because of how affordable it is.
“I’m seeing stuff that nobody would have bought a few years ago being sucked up by buyers,” Nekoranec says.
1. Huntsville, AL
Median list price in March 2023: $399,875 Median days on market in March 2023: 59 Year-over-year change in days on market: 49 more days
Huntsville, in the foothills of the Appalachian Mountains, leads our list of places with the biggest increase in the number of median days the listing is on the market. Still, at 59 days, Huntsville is just five days more than the national average.
So what’s going on here? Well, at this time last year, the median listing in Huntsville—home to NASA’s Marshall Space Flight Center—was spending only 10 days on the market. That was less than one-third of the national median DOM at the time.
There are more than twice as many homes available in Huntsville now than the same time last year. Sellers are slashing prices to attract buyers. And at under $400,000, the median listing price in Huntsville is still about 6% less expensive than national median.
Andy Dugger, the managing broker and director of business development at Amanda Howard Sotheby’s International Realty, says one of the biggest challenges right now is setting expectations.
“I think a lot of sellers still expect their house to sell in 11 days, like it was a year ago,” Duggar says. “So when you’re expecting that, four weeks can feel like an eternity.”
2. Chico, CA
Median list price: $431,175 Median days on market: 78 Change in days on market: 43 more days
Chico is a relatively small metro at the foot of northern California’s Sierra Nevada mountains, with a history rooted in ranching and farming. It’s also a college town, home to the Chico campus of the California State University system. And by Golden State standards, it has some bargain-priced real estate.
Unfortunately for sellers, there’s a surplus of inventory right n0w. Homes are now sitting on the market more than twice as long as they were a year ago. However, that could be good news for buyers looking in Chico.
This three-bedroom, storybook-style home, for example, is on the market for just $409,000.
3. Raleigh, NC
Median list price: $450,000 Median days on market: 53 Change in days on market: 42 more days
The Raleigh-Durham research triangle has been attracting new residents over the years. The area is home to lots of well-paying science, technology, engineering, and math-related jobs, as well as several top schools—including Duke University.
The market has also experienced a surge in new construction recently, leading to more homes going up for sale. The number of homes for sale in March 2023 is more than three times as many as there were a year ago. That extra inventory has given buyers the power to be a bit choosier.
This three-bedroom, two-bathroom house with a front porch is listed at $315,ooo, while this three-bedroom, brick stunner is available for $438,000.
4. Hilo, HI
Median list price: $628,000 Median days on market: 88 Change in days on market: 41 more days
The Hilo metro includes all of Hawaii, otherwise known as the Big Island. Fun fact: there are four active volcanoes on the island.
High prices, too. In fact, median home prices are up 11% year over year. But as more workers are being called back into their offices, and fewer buyers are seeking out vacation properties, the number of days it takes to sell a home there has almost doubled in one year. The figure hit nearly three months in March 2023.
Buyers on a budget can score a small, three-bedroom house for $550,000.
5. Lebanon, NH
Median list price: $499,000 Median days on market: 70 Change in days on market: 40 more days
Abutting the New Hampshire-Vermont border, Lebanon has seen its home sales slow considerably—likely because they’re just so much more expensive than they were a year ago. The median price per square foot for listings here is up 30% year over year in March.
Sellers hoping they can be the exception to the slowdown are still pricing homes too high, says Ben Cushing, the vice president and regional manager of the Upper Valley of New Hampshire and Vermont Four Seasons Sotheby’s International Realty.
They might be remembering the market as it was at the height of the pandemic or not realizing how much more leverage buyers have gained.
By Contributing Author7 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited August 19, 2011.
My oldest sun turned 16 recently and you know what that means; he’ll be on the road soon.
He’s a good kid, I trust him to be a safe driver but that sill leaves the task of finding him a good first car. For the first time in a decade or two, I’m in the market for a vehicle. A lot has changed, but not everything. There’s still the same list of things to consider when thinking about which car to buy.
Some folks want something that goes super fast and will get them from place to place as fast as physically possible and look flashy while they’re doing it.
Some want something as a sort of status item to let people know that they are successful.
If you’re like me, something that gets good gas mileage is nice, but you’re really looking for something with some longevity. A car that you can depend on to never let you down. For this reason, I consolidated my research into a list of my personal favorite top 5 cars built to last.
Top 5 Dependable Cars Built To Last
Porsche Boxster
I know what you’re thinking, “Really? You’re going to get your 16-year-old a porsche?” No way. This obviously isn’t going to be my son’s first car, but I repeatedly ran into this car when researching about dependability in vehicles. On most occasions, the Porsche Boxster stood head and shoulders above others in its class as far as reliability. The Boxster was introduced in the mid ‘90s as a light weight, turn hugging speed machine, featuring a 2.5 litre flat 6 engine. In 2000, they released a variant with a 3.2 litre and upped the base class to 2.7. From release to today, the Porsche Boxster remains one of the most dependable “vroom” cars out there.
The good old VW Bug
In 1933, Ferdinand Porsche was comissioned to create a car for use by the greater German populous. Thus, a people’s car (or Volkswagen in German) was born with integrety through simplicity and economy being the basic ideas behind it’s conception. The factory survived ally controlled Germany in the mid to late 40s by serving to produce cars for the British army. The factory was almost moved to Britain but the British government decided it would be a massive waste of money and an un-marketable flop. Finally in the 60s, 70s and 80s the factory was pushed back to full production, distributing internationally and playing a major roll in the German economic recovery. To this day, the Volkswagen Beetle in America and Britain alike remains reminiscent of the 60s and 70s and one of the most simply built, dependable and economic vehicles of its time.
Jeep
To this day, enthusiasts can’t come to an agreement about the origin of its name: a sluration of the army name “General Purpose” or GP or of GPW (G for government, P to designate it’s 80″ wheel base and W for it’s Willys-Overland designed engine). Originally developed for militaristic use as a light transport vehicle during WWII, Chrysler’s Jeep set a trend for four-wheel-drive SUV’s that is still an important image in today’s culture. They kept true to the idea that simple means dependable and created a rock solid vehicle that rarely if ever breaks down. When and if a Jeep does break down, the engine and frame were designed to allow complete strip down and rebuild in a matter of hours. Although not number one on my list, this is my personal favorite.
Honda Accord
Between 1982 and 1997, the Honda Accord was consistently the best selling Japanese car in America. Honda developed that title built around a name that became synonymous with dependability. The name “Accord” was meant to be symbolic of “Honda’s desire for accord and harmony between people, society and the automobile.” In 1982, the Accord became the first Japanese car to be manufactured on U.S. soil in Marysville Ohio, concreting its position in one of the largest automobile markets in the world.
Toyota Corolla
Staying true to Toyota’s tradition in using the variations on the word “Crown” in their main models, Corolla is Latin for “small crown.” Introduced in 1966, the Corolla is widely accepted as one of the most dependable, most economical cars ever, breaking the molded cliche of shoddy Asian car production. In 1997, the Corolla earned the title of the best selling nameplate in the history of cars and has maintained that through the new millennium. Over 35 million Corollas were sold as of 2007. Over the last 40 years, has been sold on average every 40 seconds. Where economy and dependability are concerned, it seems Corolla can’t be beat.
What are your thoughts on this list? Do you have your own car that you’d put up as the most reliable car? Tell us in the comments!
Last Updated on February 25, 2022 by Mark Ferguson
When considering either a 15 or 30 year loan for investing, most people choose the 15 year loan. 15-year loans may appear to save money over 30-year loans because they have a lower interest rate, but I would much rather have the flexibility of a 30-year loan. Buying rental properties is a great investment, especially when you are able to use a mortgage to buy the properties and still get great cash flow. Many investors will get a 15-year mortgage because the rates are a little lower and they can pay off the properties quicker. I use a 30-year loan when I buy my rental properties because I get more cash flow and I can make much more money buying more properties than I can be paying off loans.
Why is a short term loan better?
The biggest advantage of a 15-year mortgage is the interest rate is less than a 30-year loan. The difference in rates changes daily and varies with different banks, but a 15-year loan is usually about .5 percent less than a 30 year fixed mortgage. With a lower interest rate, you are paying more towards the principal and less towards interest.
Some people think the biggest advantage of 15-year loans is the shorter length of the loan. I don’t agree because you can pay a 30-year loan off early if you want too. You will have a higher interest rate, but .5 a percent is not a huge rate difference, especially when you consider how much you can make buying more properties.
Are mortgages front-loaded with interest?
A lot of people want to pay off their loans faster because they think the interest is front-loaded on a mortgage. That means you pay more interest at the start of the loan compared to the loan amount than you do at the end of the loan. The truth is you do pay more interest at the beginning of the loan, but not because the interest is front-loaded, but because the loan amount is higher. If you have a 5% interest rate on your mortgage, 5% of your payment is paid to interest. You pay less money to interest as time goes on because the loan amount decreases.
How much do you save with a lower interest rate?
If you get a 15 year, $100,000 loan on a rental property at a 4 percent interest rate, the payments will be $740 a month (check out bank rate mortgage calculator for calculating mortgage payments). Over the 15 years of that loan, you will pay $33,143 in interest. With a 30 year loan at 4.5 percent interest, the total amount paid in interest over the life of the loan will be $82,406.
On the surface, it looks like you are saving almost $50,000 by getting a 15-year loan. However, you are paying interest over 30 years on one loan and over 15 years on the other, which is deceiving. The payment on a 30-year loan is only $507 a month, which is $233 less a month than the 15-year loan. If you were to take that $233 a month and put it back into the 30-year loan each month, the 30-year loan would cost $39,754 in interest and be paid off in less than 17 years. It definitely costs a little more to have a higher interest rate, but over 15 years that is only $550 more each year. As time goes by that money is worth less and less due to inflation.
I go over specific numbers on 15 versus 30-year loans in the video below:
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Why do banks push 15-year mortgages?
You may hear banks and lenders push 15-year loans on the radio and social media all the time! I always wonder if the 15-year loan is so much better for consumers and worse for banks, why are the banks trying to convince people to get 15-year loans? There are a couple of reasons.
The banks want people to refinance their loans because they make more money every time someone gets a new loan. You pay 2 to 5% in closing costs on a new loan and the bank or lender gets most of that money.
Most banks do not want their money locked up for 30 years. There is a reason they offer a lower interest rate on 15-year loans because they want more people to get 15-year loans. 30 years ago interest rates were more than 10%! Now they are less than 5%. The banks know that the lower the rate is, the shorter-term loan they want. They don’t want their money tied up in long-term loans.
The banks and lenders push 15-year loans because they make more money with short-term loans.
Is a 15 or 30 year loan better?
You will pay less interest on a 15-year loan than a 30-year loan. However, you are paying a higher payment every month on the 15-year loan. If you add up the payment savings with the 30-year loan, you save $2,796 each year and $41,940 over 15 years by getting the 30-year loan.
That extra money can be used for many things that will make you much more money than that $6,000 in interest you save. You can save up the cash flow to buy more rental properties. You can use the money to build an emergency fund. You could also pay extra to the mortgage and if you ever need the extra money later, you can stop putting extra money into the mortgage.
If you have nothing to invest that money into, it might make sense to get the 15-year loan. If you want to keep buying rentals and build your empire, the best bet is to get a longer-term loan and buy as many rentals as you can now.
Something else to consider is that inflation makes money worth less in the future. The graph below shows how much more money a 15-year loan costs you at the beginning of the loan when inflation is considered. It takes until year 24 or longer to start saving money with the 30-year loan.
It takes more than 24 years before you start saving money with a 15-year loan when inflation is considered!
Why does a 15-year loan make it harder to buy more rentals?
Another huge factor when considering whether to use a 15 or 30-year loan, is qualifying for more properties. When banks qualify an investor, they will look at debt to income ratios. A 15-year loan will have a higher payment and increase your monthly debt payments. The higher your loan payments are, the less cash flow you will have, and it will be harder to qualify for new loans. Many banks will only count 75 percent of your rental income when qualifying an investor for a loan. Even if you are cash flowing with a 15-year loan, if you can only count 75 percent of the rental income, you may show a loss each month. If you have many rental properties showing a loss, it will be very hard to qualify for new loans.
A 30-year loan with its lower payments will make it easier to qualify for more properties.
What if you cannot get a 30-year fixed-rate mortgage?
I own 180k sqft rental properties and it is really hard for me to find fixed-rate mortgages. I use a local lender and they do not offer 30-year fixed-rate loans, only ARMs.
When I finance my rental properties, I use 30-year ARMs. An ARM is an adjustable-rate mortgage that has a fixed interest rate for a certain amount of time. The interest rate on an ARM can adjust up or down after the fixed time period is up. My portfolio lender offers 5 and 7-year ARMs with a 30-year amortization. The rate will stay the same for the 5 or 7-year term but can adjust after that term is up. There are limits on how much the rate can adjust each year and a ceiling that it can never go over. The great part about ARMs is they have a lower rate than a 30 year fixed rate loan and even the 15-year fixed-rate loan.
If you get an ARM for your rental properties you will have an even lower payment than a 30 year fixed rate loan and save money in interest costs over a 15-year fixed-rate loan. To me, it is the best of both worlds.
Why is an ARM less risky than you may think?
There are obviously some risks involved with an ARM because the rate can go up after 5 or 7 years. I always have plenty of reserves and cash flow to make sure I can afford the higher payment if the rates adjust. Even if I hold the loan well past the initial fixed-rate term, it takes a few years for the ARM to become more expensive than a fixed-rate mortgage. Chances are rents will increase in the time period as well. If you have enough cash flow and a plan for when rates could increase, you should have no problem with an ARM.
If you don’t have enough cash flow and your payments go up, you could get into trouble with an ARM. Negative cash flow is hard to sustain and it will make it harder to qualify for loans as well.
Many lenders will also only offer ARM loans after you have a certain number of mortgages in your name. I would suggest getting the fixed-rate mortgages when first starting out, and as you advance in your investing career look at the ARM option.
Why is a lower payment more important than a lower interest rate?
ARMs allow a small payment at the beginning of a loan and possibly a higher payment in the future. The nice thing about the lower payment is you have more cash flow and inflation comes into play when you are investing money. If you can pay less money now and more in the future it is a good thing, because inflation will make money worth less in the future. Even though your payment might go up on an ARM; 5 or 7 years later that money will be worth less and your rents could have gone up. If you use the money you save on an ARM to invest in more rental properties or something else with a decent return, you will be way ahead than if you had paid a higher payment with the 15 or 30-year fixed loan.
Why is a 30-year loan safer than a 15-year loan?
Many people have a tough time saving money and the higher your mortgage payment is, the harder it will be to save. Having an emergency fund is very important for financial stability. If you do not have an emergency fund, do not get a 15-year mortgage. Get the 3o-year mortgage, and save up for the emergency fund. Once the emergency fund has enough money (6 months of living expenses) you can pay off your mortgage early if you would like to.
Remember that you see no real benefit to paying off your mortgage early unless you pay off the entire loan, refinance, or sell. Your house payment will stay the same until the loan is paid off in full. If you need to access the equity you have in your house, you cannot ask the lender to give you back what you have paid early. You will have to sell the house or get a brand new loan (refinance or home equity line of credit).
If you get a 15-year loan and have a medical emergency, lose your job, or cannot work, the bank will not lower the payment for you. You have to keep paying that high mortgage payment every month. If you had a 30-year mortgage and were paying more to it every month, an emergency would not be nearly as devastating, because you could stop paying extra.
Does a 15-year or 30-year loan allow you to buy more rentals?
My goal is to buy as many rentals as I can. Not only do I want each rental to make as much money as possible, I want to buy a lot of them! The 30-year loan allows you to buy more rentals because you are making more money each month. If you take that money and reinvest it into more properties, the results are phenomenal.
My nephew, who is a math whiz, made this amazing graph. Here is how it was created:
Each rental has a $120k value and $1,200 a month rent. The house was bought 30 percent below market value. but we spent $10k on repairs and 20% on down payments. We also spent 4% on closing costs to buy.
Monthly costs are 1.5% for taxes and insurance, 8% for property management, 5% for vacancies, and 10% for maintenance.
The chart shows what happens when you buy 1 property with a 30-year loan and reinvest all the cash flow into buying more properties vs 1 property bought with a 15-year loan and reinvesting all cash flow into more properties. You buy 119 houses over 30 years with 30-year loans and 32 houses with 15-year loans. You are making $53k a month with 30-year loans vs $11k a month with 15-year loans.
This does not account for inflation! With inflation, the 30 year is even better because rents increase on more properties. You buy 147 houses vs 38. It may be tricky getting a 30-year loan on that many properties, but it shows the value of investing your money early on instead of paying off debt early.
Conclusion
On the surface, a 15-year fixed-rate mortgage may seem like the best way to go. It saves money on interest over the life of the loan and has a shorter term. I believe the 15-year loan is the worst choice because you are tying up your money, making it harder to qualify for loans, and you could be investing that money in something that gives a higher return. If you get a 30-year ARM, the interest rate will actually be lower than the 15-year loan, and you might be able to pay that loan off faster than the 15-year loan.
What Is a Credit Report and Why Does it Matter? – MintLife Blog
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financial wellness. Your credit report includes your revolving accounts — such as credit cards and home equity lines of credit — as well as non-revolving accounts like school and car loans. Credit reports also note any missed payments, the length of your credit history, and your utilization rate on each account. On the whole, the report acts as a central location for measuring your current credit health in detail.
This vital collection of data gathered by a credit bureau helps calculate your credit score and inform potential lenders, landlords, and even employers about your financial wellness, habits, and routines. Your credit report is also a place to keep yourself on track. View your borrowing habits at a glance, make adjustments to possibly raise your credit score, or even catch fraudulent activity. Overall, understanding your credit report is a crucial step in gaining financial confidence.
What Information Is Included in a Credit Report?
You may still be wondering: what is a credit report exactly and how much data does it include? Credit bureaus collect a range of information, from basic, personal data to detailed borrowing history in order to paint a picture of your credit habits. Identification details clarify who you are, where you’ve lived, and a bit about your life. They will list your full name and any alternately used names, your birthday, current and former addresses, social security numbers, and your phone number.
The meat of the credit report includes your account history including the types of credit accounts, how long they’ve been open, and their credit limits. Each month, your balance will rise or fall on your report based on payments or charges. This in turn affects the utilization rate on each card as well. Each account will also note your payment history, noting any late payments for up to around seven years. Your credit report will also include the number of recent hard inquiries, which usually occur when you apply for a new credit card or loan.
Certain public records and legal details — such as lawsuits — may also be listed on your report. It also lists if you’ve filed for bankruptcy, received a tax lien or had a bill sent to a collection agency. Though specifics vary, the majority of these details are wiped from your report after seven years, so there are often ways to improve your credit standing over time.
How Does Information Get on Your Credit Report?
A credit bureau, also known as a credit reporting agency, gathers this information in one place so you don’t have to. Though there are hundreds throughout the world, the three main U.S. reporting agencies are TransUnion, Equifax, and Experian. They receive information via lending companies, courts, and local government to build your credit record. Every month, an assortment of data transfers from these locations to the credit bureau database.
If you open a new credit card, make a purchase on your store card, or pay down a balance, this data is sent to update your report. The agency organizes the data and displays information on your credit report in a clear layout for you or a potential lender to view. This constantly updating system means that your credit score may fluctuate at times. It also allows you to take immediate action on any troublesome accounts or in the case of identity theft.
Why Is It Important to Get a Credit Report?
Credit reports are an excellent tool for guiding large financial decisions. Say you’re looking to purchase a home in the next five years. Your report allows you to fully assess how to raise your score and which credit accounts most strongly affect your overall financial balance. Your report is also a glimpse into why your credit score has remained low or stagnant. It could be helpful to request a report before applying for a new credit card or transitioning to a new phase in life like graduate school.
Checking your credit report at least once a year, even if you are not planning any large financial changes, is often suggested for several reasons. Credit reports allow you to catch any discrepancies either in how your data was reported or if someone attempted to open an account under your name.
Where can you get a free credit report? Free credit report programs, like Turbo, can give you a glimpse into your score and history. If you’re looking to improve your credit score, these tools may be useful for frequent tracking and do not count against your credit as a hard inquiry.
How Does Your Credit Report Impact You?
Potential lenders and employers may check your credit report for the same reason you check in on yourself. Your credit report may signal that you can be trusted to make timely payments and prioritize your financial health. Employers have been known to check credit reports in order to confirm you’re able to stick to contracts and agreements.
Credit reports are most commonly used to determine approval for loans, credit limits, and interest rates. If you have some troubling details on your account, lenders may protect themselves by offering higher interest or lower credit limits until you’ve proven a strong history of payments. On a higher level, credit reports affect your mortgage interest rate or simply your likelihood of being approved for the mortgage in the first place.
In some cases, your credit report could also affect your insurance rates and other monthly bills. Some utility companies and cell phone companies determine offers and down payments based on your credit score. Overall, the healthier your credit report, the more chances you’ll have to practice good borrowing habits with a range of accounts.
A credit report is a detailed tracking tool of your borrowing and repayment history. The greater you understand your credit report, the more it can act as a tool for financial growth. Feeling confident about borrowing and managing debt comes over time, and your credit report is there to help track your progress along the way.
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The earlier you begin investing, the better off you’re likely to be in the long term. Here’s how you can get started if you’re still in your 20s. It’s never too early to start investing—as long as you do so wisely. It’s important to make a proper plan so that your investments actually help you reach your goals. Here are six tips you can implement if you want to start investing in your 20s. A financial advisor can help you manage your investment portfolio.
1. Focus on Retirement
Your first investment move should be to use tax-advantaged accounts to save for retirement. Many employers offer 401(k) plans with matching. If you can afford to, max out the match to capture the greatest retirement savings. So if your employer will match 50% of your 401(k) contributions up to 6% of your paycheck, contribute at least 6% to get the full employer match.
If you don’t have retirement savings options through your employer, there are some tax-advantaged options outside of a job. If you’re self-employed, you can set up a solo 401(k) plan. You can also set up a traditional or Roth IRA on your own and contribute up to $6,500 in 2023.
While retirement savings aren’t the sexiest investment option and you won’t normally be able to access the money without a hefty penalty until the age of 59 ½, they are still the best place to start. You can set yourself up for a secure retirement by starting to build your nest egg now. Being able to take advantage of employer matches and saving on your taxes is the icing on the cake.
2. Build Liquid Savings
While investing for the future is important, it’s still wise to have some liquid savings that you can access quickly if needed. Say you lose your job unexpectedly. If your savings are locked up in a CD for another year, you’ll have to pull them out and lose some or all of the interest you had earned.
While this isn’t the end of the world, it does set you back on your investing goals. The same is true if your money is tied up in stocks—you may have to cash out at an inopportune time from an investment perspective, losing earnings.
So after you’ve set up your retirement accounts, start building an emergency fund. A good goal is to save up enough money to cover your expenses for six months. So if you need $3,000 each month for rent, utilities, transportation, food and other necessities, aim to keep $18,000 in liquid savings.
This money should sit in an account where it’s earning interest. Take a look at high-yield savings accounts, money market accounts and money market funds where your funds can generate interest while still remaining instantly accessible.
3. Start Investing With a Brokerage Account
Once you have retirement funds and an emergency savings account, you can start investing in the market. It’s time for you to set up your own brokerage account so you can buy and sell stocks, bonds, exchange-traded funds (ETFs) and mutual funds.
Many brokerage accounts can be set up and managed completely online. Shop around and see which one is right for you. Some important things to consider are whether they require a minimum initial investment, what their fees and commissions may be and whether they offer helpful tools for analyzing investments.
You might start by investing in mutual funds and ETFs, which bundle different kinds of stocks and bonds. Make sure the operating expense ratio of a fund is not excessive, such as more than 1%. You can also buy stocks and bonds directly—but first research the companies you’re considering to see if they’re a solid investment. For example, government bonds are generally a safe investment, but some corporate bonds can be quite risky. And it’s possible for a company’s stock to crash, taking your money with it.
4. Understand the Risk/Reward Trade-Off
For any investor, diversification is the name of the game. Even if you think you’ve found the most profitable stock of all time, you shouldn’t put all your eggs in the same basket. By diversifying the things you invest in, you can set yourself up for lower risk overall.
A strong understanding of risk can help you avoid meme stocks and other unwise investment maneuvers. The younger you are the higher the portion of your portfolio should be in equities, which are riskier than fixed-income securities like bonds. For example, if you’re in your 20s an 80/20 (equities/bonds) allocation might be a reasonable option for you. Use an asset allocation calculator to help you create a diversified portfolio that matches your risk tolerance.
5. Work With an Expert
If tax planning and the other complications of investing leave you with a lot of questions, you might consider working with a financial advisor to get expert advice. While there are plenty of resources out there for a beginning investor, sometimes talking to someone with deep financial knowledge can quickly pay for itself.
6. Let Your Investment Plan Grow and Evolve with You
As you age, your financial needs will change too. Generally speaking, younger investors are advised to take more aggressive and riskier financial positions because they have time to ride out the highs and lows before they’ll need to cash out. On the other hand, older investors are nearing retirement and have less time for their investments to recover if there’s a market downturn.
As you get older, you might have different financial goals than you had at 20. You might be thinking about buying a home, starting a family or starting your own business—any of which would likely change your investment strategy. Take a look at your investment portfolio at least once a year to make sure your strategy is still working for you.
The Bottom Line
Young investors can start by building retirement savings, creating an emergency fund and opening a brokerage account. Savvy investors will understand the risk/reward relationship, revise their investment strategies as their financial needs and goals change and work with a financial advisor when they need expert advice.
Tips on Investing
As you build a portfolio, you might benefit from working with a financial advisor, who can offer both investment insights and tax advice. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Success in investing is partly about your portfolio’s asset allocation. SmartAsset has an asset allocation calculator that will assist you in picking the right asset allocation for you.
Did you know that the average American has a nearly 70% chance of needing some form of long-term care upon reaching age 65? But did you also know that you may be able to prepare for the event by purchasing long-term care insurance? That’s why we’ve prepared this guide of the 7 best long-term care insurance of 2023.
Before getting into our reviews of the seven best long-term care insurance providers of 2023, scan the table below to see which company you think will work best for you:
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Our Picks for Best Long-Term Care Insurance
Dozens of insurance companies offer long-term care insurance, but below is our list of the top seven, and what each is best for:
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Best Long-Term Care Insurance – Company Reviews
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Maximum Benefits: Varies by provider
Benefit Period: Varies by provider
Waiting/Elimination Period: Varies by provider
GoldenCare, also known as National Independent Brokers, Inc, is a privately held long-term care insurance brokerage firm, and one of the leading such firms in the industry. They provide policies from the top-rated insurance companies in the industry. The company is based in Plymouth, Minnesota, and has been in business since 1976. Their plans are available in all 50 states.
The list of companies they work with includes the following:
GoldenCare also offers critical illness insurance, Medicare supplements and Medicare Advantage plans, prescription drug plans, life insurance, annuities and final expense policies.
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Maximum Benefits: Varies by provider
Benefit Period: Varies by provider
Waiting/Elimination Period: Varies by provider
Like GoldenCare, LTC Resource Centers is also an insurance brokerage specializing in long-term care insurance. Based in Cape Coral, Florida, the company has been in business for more than 40 years. They provide long-term care insurance, short-term care, linked or combination products, Medicare supplements, life insurance, critical illness, and annuities.
A specialization they offer is what is known as asset-based long-term care. It’s a strategy that uses a whole life insurance policy or annuity to provide long-term care coverage, which eliminates the need for an expensive, dedicated LTC policy. A pricing comparison is presented in the screenshot below:
As a broker, they work with multiple long-term care insurance providers. That means to get detailed information you’ll need to set an appointment with a long-term care insurance specialist and make the request. The company’s licensed to operate in all 50 states.
Maximum Benefits: Up to $400 per day or $10,000 per month
Benefit Period: Up to 5 years, or unlimited lifetime benefit
Waiting/Elimination Period: 0, 30, 60, 90, 180 or 365 days
Mutual of Omaha is one of the top individual providers of long-term care insurance. They offer some of the best plans in the industry, including lifetime benefits coverage, multiple elimination periods, and inflation protection. They are a full-service insurance company providing coverage in all 50 states, providing virtually all types of insurance policies.
Mutual of Omaha also offers premium discounts. For example, you can save 15% when you purchase a policy for both you and your partner. You can also save 15% if you’re in good health. There’s even a 5% discount if you are married but your spouse does not purchase a policy.
Maximum Benefits: Up to $7,000 per day, up to a $250,000 lifetime maximum
Benefit Period: Up to maximum daily or lifetime limit
Waiting/Elimination Period: One-time deductible of $4,500 up to $21,000
Like Mutual of Omaha, New York Life is a large, well-established and diversified insurance company. In addition to long-term care policies, they also offer virtually every other type of insurance policy available. Also like Mutual of Omaha, New York Life is a mutual insurance company, which means it’s owned by its policyholders, not shareholders. The company partnered with the American Association of Retired Persons as a preferred provider of long-term care insurance policies.
New York Life provides their NYL My Care long-term care policy. The basic parameters are as follows:
Like other direct insurance providers on this list, New York Life also offers annuities and whole-life insurance policies with long-term care riders.
Maximum Benefits: Up to $750,000 maximum lifetime benefit
Benefit Period: Up to 7 years
Waiting/Elimination Period: 90 days
Nationwide is one of the leading providers of long-term care insurance in America. With a maximum lifetime benefit of up to $750,000, they provide the highest lifetime maximum benefit on our list. They also offer a single, simple, 90 calendar-day elimination period. You can choose between two years and seven years for a maximum benefit period.
The policy will also cover home healthcare, hospice, adult day care, household services, home safety improvements, and even family care. And in a unique twist, nationwide also provides international benefits. If you live out of the country during the benefit period, the policy will pay 50% of the maximum monthly benefit.
Maximum Benefits: Up to $250,000 maximum lifetime benefit
Benefit Period: Up to maximum lifetime benefit limit
Waiting/Elimination Period: 90 days
Brighthouse Financial is an insurance provider that offers two types of products, annuities and life insurance. Either is available with a long-term care rider. The company has $254 billion in assets, serving about 2 million customers.
Brighthouse Financial provides long-term care insurance through its SmartCare plan. It’s a combination plan that adds a long-term care provision to a whole life insurance policy. You’ll get the benefit of long-term care if it’s needed, but you’ll also have a life insurance benefit to pay to your beneficiaries if it’s not, or if there are any funds left over after your long-term-care stay.
The policy will cover adult day care, hospice, and home healthcare, in addition to nursing homes and assisted living facilities, and skilled nursing care.
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Maximum Benefits: Varies by provider
Benefit Period: Varies by provider
Waiting/Elimination Period: Varies by provider
CLTC Insurance Services, or California Long Term Care Insurance Services, is a long-term care insurance aggregator, based in San Francisco. Aggregator is a fancy word for an online insurance marketplace. As an aggregator, CLTC will give you access to a large number of long-term care insurance companies. You can then choose the one offering the plan that will work best for you. The main limitation of this provider is that they offer policies only in the state of California.
In addition to long-term care insurance, they also offer annuities and life insurance policies, both with long-term care riders. These types of policies eliminate the need for a dedicated LTC policy, since the cost of long-term care is paid out of the proceeds of the annuity or life insurance. CLTC also offers critical illness insurance.
Long-Term Care Insurance Guide
What is Long-Term Care?
When an individual reaches a point where they can no longer care for themselves, long-term care becomes necessary. That care can be provided by anyone from family members to nursing homes.
The need for long-term care generally applies when the individual can no longer perform one or more of the six activities of daily living (ADL). This can include inability to dress, groom, go to the bathroom, bathe, eat, or even to move about freely.
In most cases, long-term care becomes necessary after a major health event, like a heart attack or stroke. But it can also be the result of an ongoing, degenerative health condition or simply advancing age.
In most cases, long-term care is provided by a family member. But institutional care may be necessary if the individual is unable to perform several ADLs, which may overwhelm the ability of family members to provide ongoing care.
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How to Purchase Long-Term Care Coverage?
We recommend contacting any of the seven best long-term care insurance providers in this guide. Otherwise, do a search and identify insurance companies that offer long-term care coverage. But be aware that not all insurance companies offer it, precisely because of the many variables. It involves.
When purchasing a policy, be aware of the following:
Like life insurance, it’s best to purchase LTC insurance when you’re young and healthy. That’s when the premiums are lowest.
Consider purchasing a long-term care insurance alternative, like a life insurance policy or an annuity with a long-term care rider (see below). It’s generally much less expensive.
Pay close attention to the maximum benefit paid, whether daily, monthly, annually, or lifetime. It should approximate nursing home costs in your area. (Be aware that these costs vary greatly from one state to another.)
Pay close attention to the benefit period. While the typical number of years an individual needs long-term care coverage is three years, there’s no way to tell what you may need. If you can afford the higher premium, it may be best to go with the longer benefit period, say, five years or longer.
Be aware of the elimination period. The standard is 90 days, but it can be as long as one year. This is not a minor factor, since nursing home care at $8,000 per month could cost you $24,000 with a 90-day waiting period before benefits kick in. The waiting period you choose should match the amount of liquid assets you expect to have available to cover it.
When you take a policy, be prepared to pay the premium for the rest of your life. If you take a policy at 60, stop making the payments at 80, then you need long-term care at 85, you’ll get no benefits from the lapsed policy.
According to the website Consumer Affairs, long-term care insurance premiums look something like this:
Now, the screenshot above reflects only sample averages for very specific policies at ages 55 and 65. The actual premium you will pay will be based on a combination of factors, including your age at the time of purchase, any health conditions you have, as well as the dollar amount and term of the benefits your policy will include.
Finally, given how complicated long-term care insurance is, it wouldn’t be overkill to have the policy reviewed by an attorney before accepting it. If so, an attorney who specializes in elder care will be your best choice.
Who Needs Long-Term Care Coverage?
The short answer to this question is everyone. The unfortunate reality is that people turning 65 have an almost 70% chance of needing some type of long-term care services during their lifetimes. Approximately 37% will require institutional care. And statistically, women and single individuals are more likely to require long-term care than men and married individuals.
If you’re unsure if you need long-term care, check out Jeff’s post, Long term care insurance: do you really need it?.
Though it isn’t well-known outside the industry, there are two basic types of long-term care coverage available. The first is a standalone long-term-care insurance policy.
Like a life insurance policy, medical underwriting will be performed. The insurance company will consider your age, your health condition, your family health history, your occupation, requested benefit levels, and other factors in approving your application and setting the premium level. This is the more costly of the two options.
The other is a hybrid policy. Most commonly, this is life insurance with long-term care benefits. You’ll purchase a basic life insurance policy, then add a long-term care rider to the policy. This will increase the premium on the life insurance policy, but it will be much less expensive than a standalone long-term-care policy.
Meanwhile, you’ll also have a death benefit from the life insurance policy, in addition to long-term-care coverage. But the policy may also include using some or all the death benefits to pay the long-term-care benefits. Your beneficiaries will receive only the amount of the unused death benefit upon your death.
Most of the best life insurance companies offer life insurance policies with this rider.
Another variant of this option is to use an annuity with long-term care rider. Annuities are designed to provide an income stream, very similar to a pension. But similar to a life insurance policy with a long-term care insurance rider, you can also add the rider to an annuity.
Again, it will be less expensive than purchasing a standalone long-term-care policy. And the long-term-care benefits may reduce any death benefit in your annuity. But the provision will be much less expensive than purchasing a standalone long-term-care policy.
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Finding the Right Policy
Long-term care insurance is one of the more complicated insurance types. It also includes more potential variables than other policies. For example, not only will you not know if you will need the coverage at all, but you won’t know when, to what degree, what level of care will be required, or how long it will be needed.
Because of all these variables, the cost of a long-term care insurance policy can be all over the place. But it may be better to pay a little bit more for a more comprehensive policy than to price-shop for the least expensive plan.
Before deciding to purchase a long-term-care insurance policy, first review Jeff’s Podcast episode: Long Term Care Insurance – How much do you need? Given how complicated long-term-care insurance is, it’s best to go in with as much knowledge as possible.
How We Found the Best Long-Term Care Insurance Companies
We used the following criteria to determine the best long-term care insurance companies of 2023:
Maximum Benefits: Given that the cost of long-term care can easily run into hundreds of thousands of dollars, we favored companies with the most generous lifetime benefits.
Benefit Period: One of the most basic problems with long-term care is the uncertainty. There’s no way to know in advance what level of care you might need, or how long it might be necessary. For that reason, we favor the companies that provide the most flexibility in this area.
Waiting/Elimination Period: Just as most insurance policies have deductibles, long-term care insurance uses the waiting period in much the same way. The standard delay on benefits is 90 days. But we prefer companies that offer longer waiting periods, since this will represent an opportunity to lower the cost.
Speaking of cost, as much as we would like to provide a list of average costs per provider, this information simply is not available. That’s because long-term care insurance is highly customized. There’s nothing approximating a “one-size-fits-all” policy, as each policy premium is determined by a multitude of factors.
These include your age at the time you purchase the policy, your general health condition, your family health history, the length and amount of coverage you need, and many other factors. The only way to get a reliable premium figure will be to contact one of the companies above and get a quote.
Best Long Term Care Insurance FAQs
What is long-term care insurance?
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Long-term care insurance is a type of coverage that will provide benefits to pay for your personal care when you’re no longer able to do so for yourself. While the typical long-term-care scenario involves a nursing home, it also applies in lesser situations. That can include assisted living arrangements, home nursing care, and even family care. The policy will begin paying benefits when you qualify for care based on inability to perform several of the ADLs.
What does long-term care insurance cover?
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As mentioned earlier, long-term care insurance benefits begin to apply when you are unable to perform activities of basic living. Depending on the type of policy you have, you’ll receive benefits for a stay in a nursing home, an assisted living facility, skilled nursing care, an adult day care, hospice, and even home care provided by your family.
Some policies will even provide for the cost of modifying your home to better accommodate your capabilities, or the purchase of certain helpful equipment.
How long does long-term care insurance work?
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A typical long-term-care insurance policy will pay benefits between two and five years, though some will go as long as seven, and a few providers offer lifetime benefits. You should be aware that you will need to qualify for whatever coverage term you prefer, and the longer the term, the higher the premium will be.
Is long-term care insurance worth it?
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It really depends on your perceived need for the coverage, and your ability to pay the premiums. Need can be determined by your family history. If you have multiple family members who require long-term care, having the coverage for yourself will be highly desirable. But if you’re in excellent health, and there’s little history of a need for care in your family, you may want to pass on the coverage.
And of course, given the high cost of the premiums, your ability to afford coverage can never be ignored. But if you have very limited financial means, Medicaid may provide benefits for long-term care. However, to qualify your total assets must generally be below $2,000.
Summary of the Best Long-Term Care Insurance Companies
Let’s wrap up this guide by giving you one more look at our list of the seven best long-term care insurance companies of 2023:
Long-term care insurance isn’t inexpensive. But given the unusually high likelihood that will be needed at some point in your life, it’s a policy worth having if you can afford it. And if you can’t, consider taking an annuity or a whole life insurance policy with a long-term care provision.
What Medicare Assignment Is and How It Impacts You
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If a doctor or other healthcare provider accepts a Medicare assignment for a particular service, a patient covered by Medicare will likely have to pay less out of pocket for that service. Accepting Medicare assignment means the healthcare provider has agreed to charge no more than the amount Medicare approved for that service. It also means the doctor agreed to bill Medicare rather than charging you directly. Providers who don’t accept assignments can charge 15% more and require immediate payment from the patient. A financial advisor can help you develop a financial strategy to pay for your healthcare.
Medicare Assignment Basics
Medicare is the government-sponsored national healthcare plan for about 63 million Americans over age 65. Original Medicare is the fee-for-service plan that includes Medicare Part A, which covers hospital costs. And it also includes Medicare Part B, which pays for other healthcare services, including doctor’s office visits.
Almost all doctors accept patients covered by Medicare. And almost all doctors who take Medicare patients accept Medicare assignments. Doctors who accept Medicare assignments are also known as assignment providers, participating providers and Medicare-enrolled providers.
A Medicare assignment provider agrees to charge no more than the Medicare-approved price for a specific service. The doctor or other provider also agrees to bill Medicare directly, rather than charging the patient on the day of service. This means that if you go to a Medicare-participating provider, you won’t usually have to pay anything at the time of service. And you will likely pay less out-of-pocket when all is said and done.
While Medicare assignment is relevant to people covered by Original Medicare, it doesn’t affect people covered by Medicare Advantage plans. These plans have their own rules.
How Medicare Assignment Affects Your Cost
Doctors and other providers who don’t accept Medicare may charge as much as 15% more than the Medicare-approved amount. The exact percentage varies by state. If you go to a non-accepting provider, you may have to pay the extra over the Medicare-approved amount, plus the 20% share of the cost Medicare passes on to all Medicare-insured patients.
For example, consider a visit to an occupational therapist who charges $120 for a treatment session. The Medicare-approved cost of the service is $100.
If the therapist accepts the Medicare assignment, they will charge you $100 and bill Medicare. After Medicare pays $100, you’ll owe 20%, or $20 for coinsurance. That’s if you have already met your Part B deductible. If not, Medicare may not pay anything, up to the amount of the deductible, and you may be responsible for the entire bill.
If the therapist does not accept Medicare assignment, they may charge 15% more than the Medicare-approved amount, or $115. Plus they may ask you to pay the entire amount. If that happens, you have to file with Medicare to get reimbursement.
Whether you or the provider sends the invoice to Medicare, Medicare will pay only 80% of the approved amount, or $80. Your out-of-pocket costs in this case will be $120 minus $80, or $35 instead of $20.
Finding Medicare Assignment Providers
Nearly all healthcare providers accept Medicare assignments. One way to check is to use Medicare’s online tool. You can filter these searches for, among other things, whether the provider accepts Medicare assignments.
You can also ask the provider whether they accept Medicare when you visit. In addition, you may also request information in advance detailing how much they’ll bill Medicare for the service and how much you’ll be expected to pay at the time of the visit.
Bottom Line
Medicare assignment means a doctor or other healthcare provider will charge no more than the Medicare-approved amount for a particular service. This usually means lower out-of-pocket costs for patients who are covered by Medicare. It also means the provider will bill Medicare rather than expecting the patient to pay the full amount at the time of service. Nearly all doctors accept Medicare assignments. But to be sure, you can check Medicare’s provider search tool for more information or ask before your next doctor’s visit.
Healthcare Tips
Consider discussing how you plan to pay for your healthcare with a financial advisor. Finding such an expert doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area. And you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Healthcare costs can be a significant issue for retirees. How big an issue? Median out-of-pocket retiree healthcare costs for 2018 came to $4,311, according to one study. That means after Medicare or other insurance paid everything it would pay, the retiree had to come up with that much in cash to pay for healthcare in that one year alone. That’s why having a plan to pay for healthcare is an important part of retirement planning.
Mark Henricks
Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
You wouldn’t expect to see a log cabin in the Chicago suburbs, but one is there, and has been since 1920.
“It’s an actual log cabin, and it’s kind of smack in the middle of downtown Des Plaines, IL,” explains listing agent Daniel Cartalucca, who’s with Coldwell Banker Realty–McMullen. The log home is located about 20 miles outside of Chicago.
Most likely, a log cabin would have looked a little more at home in the era it was built.
“Probably when it was built, it was mostly farmland surrounding it, or maybe a few single-family homes, but mostly farmland,” Cartalucca explains.
The 2,600-square-foot log home is listed for $472,000.
Entry
(Meg Berger)
Two-story atrium
(Meg Berger)
A tale of taxidermy
Cartalucca says a former Cook County sheriff, who also happened to be the coroner, built the home and had quite a large taxidermy collection.
“The taxidermy count is down to about five, and there used to be a standing giant black bear with his paws up,” he says.
However, the next owner can expect a buffalo head, an elk, a ram, and more that convey with the home.
The home’s heavy front doors open to a two-story atrium.
“Every time I go in, you can feel the history. It’s amazing,” Cartalucca says. “There’s a giant sweeping staircase going straight up, and everyone that comes in does the same thing. You can hear them sigh. It definitely elicits a response.”
Bedroom
(Meg Berger)
Kitchen
(Meg Berger)
Fireplace
(Meg Berger)
Rustic rooms
The home has two bathrooms and four bedrooms, including a suite on the main floor. The living area features a river rock fireplace.
Cartalucca says everything works, but the buyer might want to do some updates, like adding a dishwasher. Currently, the dishes are cleaned in a cast-iron farm sink.
“Inside it has sort of stuccoed walls in some rooms, and in some places, there are still log walls on the inside,” he says. There are many original wrought-iron items like hinges accenting the logs.
“It’s surprisingly quiet in there. You don’t hear trains. You don’t hear airplanes. The logs are so dense and heavy that they muffle any exterior noise,” he adds.
Outdoor space
(Meg Berger)
Living area
(Meg Berger)
Dining area
(Meg Berger)
The current owner has had the place since 1996 and has listed it for sale several times.
“Originally it was surrounded by commercial property. It has an 8-foot-high privacy fence, which is nice, and the backyard has probably 20 trees and is like a private little forest back there,” Cartalucca says.
The home is in an area with commercial and residential zoning, and the listing says it could be a vacation rental, antiques store, or something else.
“We’ve had a few young couples look at it, and they liked the cool factor of it,” Cartalucca says. “It’s not a typical house.”