By Terry Savage, The Street.com

Some life insurance policies are starting to haunt the living. Three years ago, I said “premium financed” policies were “not exactly a scam, but dangerous.” Today that warning seems like an understatement.

More than $20 billion of these so-called “spin life” insurance policies have been sold and now they’re starting to implode. Many policy holders don’t realize the trouble they face.

The concept seemed straightforward when sales were rampant several years ago. Agents promised clients that investors would lend them money to pay the premiums for the first two years, until the policy was past the “contestability period.” Then the policy would be sold to an investor, who would continue to pay the premiums, hoping to collect on this “bet” on the senior’s longevity.

Agents were encouraging elderly people to buy huge life insurance policies on themselves, even though they didn’t need the insurance, and couldn’t afford the premiums.

Why would any person let a stranger become the owner of a policy on his life? The answer is simple: money.

Pre-death bonus: Seniors were tempted by upfront “bonuses” that ranged from thousands of dollars to expensive cruises just for letting the investor bet against the insurance industry’s mortality tables, and eventually collect the policy proceeds. And they were promised more money when the policy was sold.

At first, there was no risk to seniors. The loans to pay the premiums were “non-recourse.” However, three years ago, insurance companies decided that customers needed to guarantee at least 25% of the premium. The insurers potentially sensed problems brewing, but still wanted to sell policies.

Sales agents collected fat commissions by convincing seniors there was no risk. Household names in financial services were raising money to buy these policies, betting they would pay premiums for a few years and then collect on death. Among them were LaSalle Bank (now part of Bank of America (Stock Quote: BAC)), Credit Suisse Group (Stock Quote: CS) and funds managed by Berkshire Hathaway (Stock Quote: BRK.A) and Goldman Sachs (Stock Quote: GS).

Death bet gone wrong: Then came the credit crunch. Demand for the policies dropped as investors struggled to borrow. When the two-year premium period expired, the insured expected brokers to sell the policies, allowing them to collect their bonuses. But there was no money to complete deals.

Suddenly, seniors faced premiums on insurance they didn’t need and couldn’t afford. It wasn’t unusual for a senior to take out a $5 million policy, citing estate tax purposes. The premium on that policy could be $200,000 a year.

Sure, they could stop paying premiums and drop the policies, but most had signed documents agreeing to repay at least 25% of the first two years of premiums, plus interest. At the end of two years, the senior would owe $100,000 plus interest, adding another $6,000 to the tab.

Forgiven loans taxed: If the senior manages to pay off the guaranteed amount, plus interest, the lender will “forgive” the balance and additional interest. However, the policy holders will owe taxes on the forgiven debt.

If $300,000 plus $18,000 in interest was forgiven, a senior in the 35% tax bracket would owe an additional $100,000 in taxes on this phantom income.

Marc Sheridan and Don Tolep of Sheridan Wealth Advisors in Bay Harbor, Fla., say they’re seeing more seniors facing financial ruin with these loans. They say the Internal Revenue Service might be collecting as much as $1 billion in taxes on this income.

It’s estimated that more than 10,000 of these “spin life” policies were sold in recent years. It looked like easy money for those willing to “share” their insurable capacity. Now they’re learning an expensive lesson. And that’s the Savage Truth.

By Randy Diamond | MainStreet.com

The economic downturn is bringing attention to a little known practice by auto insurers that targets consumers with blemished credit histories. Insurers can charge higher rates, decline to renew coverage or deny coverage to these customers.

A task force of state insurance commissioners is examining the issue. They’re expected to make recommendations by August as to whether auto insurers’ use of credit reports should be more tightly monitored, or even outlawed.

“We are trying to cut through the rhetoric and get the facts to make an informed decision,” says Michael T. McRaith, an Illinois insurance regulator who chairs the task force.

Three states currently ban auto insurers from using credit reports: California, Hawaii and Massachusetts.

The insurance industry argues that studies correlate poorer credit with an increased likelihood of filing an accident claim. Consumer advocates, on the other hand, question the fairness and ethics of using credit reports to rate auto insurance customers. They are also concerned that consumers already affected by the current economic crisis may get a double whammy when they see their auto insurance rates go up.

“I don’t understand why someone who lost their job because of the poor economy is suddenly a worse auto insurance risk,’’ says Robert Hunter, insurance director of the Consumer Federation of America.

The insurance industry has statistical correlations but can only theorize about the reason for the connection between credit scores and a higher claim frequency.

“If you’re particular about managing your finances, then that same personality may make you a more attentive driver,” says Alex Hageli, of the Property Casualty Insurers Association of America.

Credit-based insurance scoring has been used since 1993 and is now used by 95% of auto insurers. Insurance representatives insist the current financial crisis hasn’t meant the sky is falling in for auto insurance customers. Rates haven’t risen in general, they say, because insurance scores derived from credit reports have remained flat on average through the financial crisis.

But Lamont Boyd, a project manager for FICO, which sells the most widely used industry model for credit scores, said scores have declined for those directly impacted by the economy.

“As a small but growing number of consumers have experienced recent financial hardships, it is impossible to generalize about the impact of such an event on an individual’s credit-based insurance score,” Boyd says.

The nation’s biggest auto insurer, State Farm Mutual Auto Insurance Company, says it has not seen a spike in higher insurance rates.

Regardless of whether motorists are paying higher rates due to the impact of the poor economy, opponents of insurance scoring say the practice is wrong.

Florida Insurance Commissioner Kevin McCarty says studies have shown that scoring has a disproportionate effect on minority groups. “The industry’s attempt to ignore this issue shows a failure to treat its consumers fairly and equitably” he says.

Hunter, with the Consumer Federation, says another big issue is that the information in credit reports is not always accurate, leading to inaccurate scores. (Which is why you should check your credit report regularly and correct any mistakes.) Scores can also vary, depending on which of the three credit reporting bureaus an insurer is using, he says.

What You Can Do Now to Save
Consumers are advised to shop around for auto insurance. Among companies that do factor in credit, different auto insurers assign different weights to it. Having poor credit could account for 30% of the total premium for one insurer and only 5% for another, says Boyd.

It may even pay to talk to more than one insurance agent because different agents represent different insurers, Hunter says.

He also says under federal law insurers must inform consumers who don’t get the best rates because of their credit history the reasons their insurance score was less than perfect. Consumers are then entitled to a free credit report from the credit agency used by the insurer.

By Karen M. Kroll | MainStreet.com

Finding non-employer based health insurance is becoming a reality for more Americans.

Approximately 90% of Americans under age 65 receive health insurance through their employers, according to the Washington D.C.-based trade group, America’s Health Insurance Plans. But if you belong to the 10% who don’t receive coverage through your job, you may find the individual market for health insurance somewhat intimidating. Take it step by step, however, and you can learn the market and find the policy that best fits your needs.

To start, identify the features of a health insurance policy that are most important to you, says Carol Kelel, owner of the Jane Aubrey Group, a health insurance agency in Bingham Farms, Mich. For example, do you want unlimited office visits? Or is it more important to be able to go outside the network to see a specialist? What level of deductible would you like? You can find a range of policies, so it helps to have some idea of your needs and preferences before you start zeroing in on specific ones, says Kelel.

Do Your Research
The next step is to research the options available. One web site that can get you started is CoverageForAll.org, published by the Foundation for Health Coverage Education, based in San Jose, Calif. From the site, you can download a matrix of health care options within your state including the phone numbers and web sites of both government-sponsored and private health insurance policies for individuals and families. The matrix also offers information on policies that cover individuals with pre-existing conditions.

Another online resource is eHealthInsurance.com. By providing a bit of information on yourself, including your ZIP code, age and gender, the site assembles, working from its universe of 10,000 plans, a list of insurers offering covering in your area. It will include such information as the plan type—for instance, an HMO versus a PPO—the deductible and the charges, if any, for office visits. You can compare the premiums and services covered offered by different plans.

If you’d rather deal with a human than the internet, contact an insurance agent. Ideally, the agent should be independent, rather than affiliated with a specific company, Kelel notes. That way, he or she can present a range of options from different insurers. Most agents earn their money from the insurance providers, so you shouldn’t pay any more purchasing insurance through an agent, says Kelel.

To find an agent in your area, head to the Association of Health Insurance Advisors.

Prepare for the Costs
A word of warning: Purchasing health insurance individually, rather than through your employer, often prompts a case of sticker shock. That’s because most employers subsidize the cost of their employees’ insurance. On average, employers picked up about 73% of the cost of family coverage in 2008, according to the Kaiser Family Foundation.

Without an employer to cover the cost, you’re on the hook for all of it.

Last year, monthly premiums for individual policies were $158, and for family policies, $366, according to a survey of the individual health insurance market by eHealthInsurance.com. Nearly three-fourths (71%) of family plans had deductibles of less than $3,000. Generally, the older you are, the more you can expect to pay. Also, women pay somewhat more than men.

Another significant concern for purchasers of individual policies is qualifying for coverage. Not everyone’s application will be accepted, notes Amir Mostafie, consumer health insurance expert with eHealthInsurance.com. While five states (Maine, Massachusetts, New Jersey, New York and Vermont) are “guaranteed issue” and prohibit insurers from denying coverage to applicants who have pre-existing health conditions, that’s not the case in the rest of the country. If you live in a state that’s not guaranteed-issue and you have a health condition, a knowledgeable insurance agent should be able to tell you which insurers are likely to decline your application because of your condition, and suggest policies that are likely to be a better fit, Mostafie says.

It’s important to point out, however, that this is a concern primarily if you don’t already have coverage, Mostafie notes. If, for instance, you’re coming off group coverage through your job or COBRA, a policy should be available.

Finally, once you’ve purchased a policy, spend some time reviewing it, Mostafie says. Granted, not a fun task. However, you want to make sure the coverage squares with your expectations, so you’re less likely to run into unpleasant surprises when you have to use it.

Just because the doctor sends you a bill does not mean you owe him money.

If you’ve found yourself opening a medical bill that you thought your insurance would cover, it pays to ask questions. You may be dealing with what’s known as “balance billing,” a sometimes illegal practice used by some medical providers.

Under “balance billing,” a health care provider bills the patient for services that are covered by the patient’s insurance, but for which the insurer doesn’t pay the entire amount the health care provider wants to collect.

In-Network Visits Should Negate Balance Billing
Here’s how things might work: Say your insurance requires a copay of 20%. You go to an in-network doctor who charges $100 for his or her services. However, the insurance company only allows $70 for the service. If the doctor is in your network, your insurer will pay $56, or 80% of the $70 charge. Your copay will be $14, which is the remaining 20% of the $70. What about the $30 your insurer isn’t covering? That matter is between your insurer and health care provider, but both will have contractually agreed not to bill you for it.

In addition to the contractual agreement, the insurance codes in most states require insurers and health care providers that are part of an HMO network to “hold harmless” the patient, says Kevin Lucia, assistant research professor with the Georgetown Health Policy Institute. That means providers can’t legally go after patients if the insurer fails to reimburse the entire amount charged by an in-network provider.

Most balance billing comes into play when you see out-of-network health care professionals.

Out-of Network Visits Can Mean More Bills
A second scenario, in which the doctor charging $100 is out of network, changes the numbers. Your insurance company still pays the $56. You, however, may get charged $44, or the balance between the $100 bill and the $56 payment. This practice is typically legal because no agreement is in place between your insurance company and doctor, which would prevent the doctor from billing you for this remaining amount.

What’s most confusing is that you can end up using an out-of-network provider despite your best intentions, or without even realizing it. In an emergency, of course, you may not have a choice of waiting for an in-network provider. In other cases, it’s not clear upfront that a healthcare provider is out of network. For instance, a surgeon at a hospital may be in your network, while the anesthesiologist and radiologist are not. Even the savvy healthcare consumers are unlikely to inquire about this. Finally, your doctor may refer you to a specialist who is outside your network. The treatment may be important to your health, but you can still end up with a balance bill.

States Taking Action
A handful of states, including Colorado, Florida, Maryland and Wisconsin have enacted laws aimed at balance billing, according to a report for the California Healthcare Foundation, of which Lucia is a co-author. However, the protections vary from state to state. Colorado, for instance, requires insurers to protect consumers from balance bills if they received care in a network facility, but from a non-network provider, says Peg Brown, deputy commissioner for consumer affairs in Colorado. In California, ER doctors cannot balance bill HMO members.

How to Protect Yourself
“Ask a lot of questions before you get health care services,” says Jane Cooper, president and chief executive officer of Patient Care, a Milwaukee, Wisc., advocacy firm. Check whether all the health care providers you expect to see are part of your network. Request the information in writing. Although an insurer may balk at taking the time to do this, the request sends the message that you’re trying to be a prudent consumer of health care.

Also, be sure to double check all bills. Many consumers pay up when they do not have to. According to the California Association of Health Plans, a health plan advocacy group, more than 1.76 insured California residents who visited an emergency room in 2006 and 2007 were billed an average of $300 on top of copays and deductibles, or $528 million total.

What if, despite your best efforts, you end up owing money on a balance bill? If your insurance is through your employer, ask for assistance from your human resources department, advises Brown. If paying the bill presents a hardship, talk with your health care providers and try to negotiate a reduction.

By Jeffrey Strain | MainStreet.com

You don’t need a master’s of business administration degree to be financially savvy. It just requires a little common sense. In honor of financial literacy month, here are nine concepts you should understand:

The difference between “wants” and “needs:” Being able to distinguish between the two is essential to making basic financial decisions. Prioritizing your needs doesn’t mean you can never indulge in something that’s not essential. You just need to consider your wants after you’ve addressed your basic needs.

The power of compound interest: Over long periods of time, small amounts of money can grow as interest compounds and adds to your principal. That’s why financial books tell you to start saving as early as possible. Keep in mind that it also works the opposite way when you borrow: You pay more interest as your loan collects interest, increasing the outstanding amount.

How to use credit cards responsibly: Credit cards can be useful tools or a way to destroy your finances. Understanding how credit cards work and how much balances can cost over time is crucial.

How to live within your means: If you make less than you spend, you need to find expenses to cut or ways to increase your income.

How to plan for the future: You must know your financial goals before you can create a plan to reach them. They might involve paying your child’s college tuition and saving enough to retire early.

Understanding contracts you sign: When you sign a contract, you need to read the fine print and know all the terms involved. Failing to understand a contract thoroughly can get you into trouble later.

How to create and maintain a budget: By tracking your spending and knowing where your money is going, you’ll be able to work toward your financial goals.

How to protect your assets: Staying financially sound requires you to prepare for unexpected events, such as death and natural disasters. You should know how much insurance you need to protect your assets. After you’ve figured that out, you’ll need to adjust it as your needs change.

How to do your own taxes: Most people spend a lot of money on taxes. That’s why it’s important to know whether you’re taking advantage of all the deductions and credits available to you.

Whether you have two years until retirement or 30 years, you should still be thinking towards your future and preparing for retirement. With the downturn in the economy, people closer to retirement age are worried about whether or not they will have enough money to get through the rest of their life.

Here are some things you need to do before you retire…

Increase Your Savings – As you near retirement age, you should increase the amount of money you put into savings each year. By increasing the money you put into savings each year, you are ensuring that you will be able to retire when you want to. Set a timeline for yourself and budget out how much you would like to put into savings each year. Although things like job loss interfere with your savings, be sure to stick to your budget schedule as much as possible.

Keep Money in your 401(k) – If you are younger and have not already done so, make sure you open a 401(k) as soon as possible! Having a 401(k) is a great way to put money away towards your retirement. One important factor to remember is NOT to take money out of your 401(k) before you need it. When you remove money you have to pay fees and taxes that are not worth it. Making sure to keep your money in your 401(k) will ensure that you will have a greater return on your money in the future.

Benefits – Figure out what will happen with your benefits when you retire. Although some companies help their employees once they retire, many are stopping this policy because it costs too much money for them to continue to support you. Find out whether or not your company will continue to help you out…if not, you need to make sure that you apply for Medicare. Medicare will help you with hospital insurance, medical insurance, and to help pay for prescription drugs. As you get older, you become more vulnerable to infections, colds, etc. and without medical insurance you may find yourself paying for some very hefty bills from the doctor.

Be Flexible – Try to be flexible with the time you are planning on retiring. Changing the age that you retire until a later date may really benefit you and allow you to save a little bit more money to help you in the future. Although you want to enjoy your time in retirement, many people take up a part-time job in order to supplement the money that they put into savings and make it last longer. This part time job can be something fun and something you have always wanted to do so that you do not really have to consider it a “job.”

Retirement is meant to be one of the best times of your life, but it can only work out that way if you have prepared yourself for the future along the way. Take initiative with your own life and start planning for retirement as early as possible.

Take your retirement IQ quiz to see where you stand and what you know!

— By Hannah Waters, Geezeo.com

Photo by: Kevin P.

Yesterday we shared a recent post by The Weakonomist (you can subscribe to his RSS feed here).  Today we want to share a few more links to his recent articles.

Bad Stock Market Performance Raises Your Insurance Premium : Do you know what your insurance company likely does with the money you pay on your premiums?  Did you know that the stock market has an affect on your premiums as a result?  Check out this recent post to find out how this works.

Recession Psychology : What is the Greatest Loss? : This article shares a little bit of information about a recent post over at Consumerism Commentary.  Check out both here and here.

Weakonomics Web Junction : Earth Day : Find out what The Weakonomist thinks about Earth day now compared to when was younger.

Each year too many homeowners fall victim to roofing scams due to storm chasers.  When it comes to selecting a contractor in the aftermath of a storm, “caution” is the key word.  Many “storm chasers” flock to areas of damage, and do as much work as possible before they leave for the next storm.

Some of these are legitimate, responsible companies that have chosen this way of doing business. Some set up partnerships with local contractors to get the work done much more quickly. This can be a legitimate way of doing business, as long as the local contractor will take care of any problems that occur after the storm chaser leaves.

However, there will be plenty of unscrupulous fly-by-night contractors that you need to be aware of.  Make sure you are watching for the following warning signs to determine if you are being scammed:

• They are pressuring you to act now because of a great price that is a “limited time offer”. This happens a lot if there has been wide spread damage in your area.
• You are asked to pay for a significant portion or even all of the job in advance.
• The roofers are not from your local area. Storm chasers will follow the most recent damage looking to make some quick money with the opportunity brought by hail and thunderstorm damage, etc…

So remember to do (or not do) the following when choosing a company to repair damage created by mother nature:

• Never agree to pay cash up front before the job is complete. This should be a strong indicator as legitimate contractors will not usually ask for cash up front.
• Be sure to ask for references, and check to make sure they have their contractor license and insurance up to date.
• Call the Better Business Bureau for your area. Check to see if there have been any complaints against them.
• Request a written contract with the details of the work to be done as well as the agreed price.
• Always get a phone number and an address for the roofing “company” they represent. Call and/or visit the company to confirm that they do exist and employ the person you have talked to.

Have you ever been the victim of a scam like this?  Do you have any other advice?  Please share in the comments below.

Related articles by Zemanta

• Make 2009 Scam-Free With This List [Advice] (consumerist.com)

If your doctor prescribes you with a prescription for your health, you do not have much choice than to take it and accept whatever the price may be. However, there may be ways to save on your prescriptions. It is typical that as we age the more prescriptions we need to keep up our health or to correct something that may be wrong. If you have several prescriptions, then it will definitely help you to save where you can!

Talk to You Insurance Company – Asking your insurance company which prescriptions they cover and what they do not may save you money in the long run. Knowing which prescriptions will cost you a lot more than others will allow you to talk things through with your doctor about alternative prescriptions that you could try instead. Insurance companies can be pick and choose which prescriptions they do and do not cover and although the reasons may not make much sense to you, it is best to know which ones to steer clear of before you spend a great deal of money.

Try Ordering Online – For some, ordering online is more convenient because it gets delivered to your home, but for others they prefer going to the pharmacy they are comfortable with instead. However, there are times where ordering prescriptions online can save you money. Sometimes if people order more than one prescription online they get a online group discount.

Go Generic – This is something to talk with your doctor about before making the change in your prescription, but it can save you a great deal of money to switch to a generic prescriptions instead of the brand name ones. Sometimes people become so dependent on brand names that they do not realize that often generic prescriptions have the same exact make-up but just cost less money. Buying generic drugs can save you a great deal of money and have the same results as the brand name prescription.

Make Sure the Prescription is Necessary – When we get into a routine of taking a prescription everyday and then re-ordering it when the bottle is empty, sometimes we forget to talk to our doctors about whether the prescription is still necessary for our health. Especially if you have switched doctors, make sure they know your prescription history to ensure that none of the prescriptions you are on overlap or have become unnecessary. Eliminating some of the prescriptions you take will save you money each month, money that you can put towards your savings instead!

When it comes to prescriptions, you really need to do some digging and asking questions in order to save money where possible. Make sure you are taking action to ensure that you are not overspending. Another thing to consider with the cost of your prescriptions is the possibility of opening a Flexible Spending Account, this can help you set aside money year to put towards prescriptions, co-payments for your health insurance, etc.

— By Hannah Waters, Geezeo.com

Photo by: Penywise

By MainStreet.com Staff Writers

Your business is one of the most valuable possessions you own. Why put it at risk? Business insurance makes sure that you and the business you’ve built don’t suffer when the unexpected happens.

Insurance Every Business Should Have
No matter what size your business is, there are some basic types of business insurance you should have.

1. Property insurance protects your business property, including buildings and everything in them. Similar to homeowners insurance, business property insurance covers your equipment, furniture and inventory. This type of insurance is often required for bank financing, but even if it’s not you should have it to protect your investment. Be sure to go over your policy carefully, however. Not all risks are covered in basic policies, and damage from earthquakes, water and utility problems may require a special rider.

2. Liability insurance covers your business in the event that someone is injured on your premises or incurs damages because of your company. If, for example, a supplier gets hurt while delivering inventory to your business, general liability will typically cover up to $1 million per claim. Without liability insurance, your business could take a big financial hit if you are sued.

3. Worker’s compensation covers medical expenses, rehabilitation and lost income for employee injuries suffered on the job. It also pays death benefits for work-related accidents. Depending on which state you do business in, it may be required by law once you have a certain number of employees. If you have any employees, however, it’s wise to have this coverage whether it’s required or not. Work accidents are common and can bankrupt a business if it’s not covered. Here’s a tip: Cover yourself as well. It costs practically nothing to add an owner to a worker’s compensation policy.

You can often save significantly on premiums by buying policies that lump property insurance, liability insurance and other kinds of coverage together. These are called business owner’s policies.

Other Insurance You Might Need
Not all small businesses are exposed to enough risk to justify multiple insurance policies, but here are some other types of business insurance available.

1. Business interruption insurance helps your business get through a period where it’s impossible for you to do business. It covers lost income and pays normal business expenses as well as expenses needed to get you back to in the market. Whether it’s a fire, a natural disaster like Hurricane Katrina or something else, a business interruption policy can save your business from going under while you rebuild. These policies can vary, however, and you’ll need to read the fine print to know when coverage kicks in.

2. Business vehicle insurance covers vehicles owned and/or operated by your business. You should have this insurance if you or your employees drive a company vehicle or use personal vehicles for work. Personal auto insurance will not protect your business if an accident occurs while driving on company time.

3. Employment practice liability insurance protects the company against damages awarded through employment lawsuits and legal costs. Sexual harassment suits and other employment suits are more common than ever, and good conduct isn’t always enough to prevent them. These policies are dirt cheap, but could save you big on the off chance you need it.

4. Errors and omissions insurance is liability insurance for a service provided. This protects your business if the service you provide (giving expert advice, for example) causes damages. This is also called professional liability insurance.

5. Key man insurance is typically only necessary for small businesses that are partnerships or have one or more employees that are invaluable to the company. This can be either a death or disability insurance. If a partner dies, this insurance can be used to buy out the surviving heirs.