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The answer is no.  Children’s life insurance is typically marketed as a way to protect your child in case he develops a chronic illness later in life that would make him uninsurable.  If you buy coverage now, he’ll already have that policy in place. Many insurers also tout the benefits of having a policy on hand that will pay for burial expenses, and some offer coverage as a way to save for college – the premiums you pay for a whole life policy will build up over time, and you can borrow from the cash value.

But here’s the thing:  Life insurance is a valuable tool, but it’s a tool for people who are bringing in an income.  If you have other people who depend on your paycheck – your kids, your spouse, your elderly parents, in some cases – or you’re a stay at home parent and your spouse would have to pay for day care if something were to happen to you, you need life insurance.  Children don’t fall into either category.

I think the first reason insurers give in favor of life insurance for children – to protect them from being uninsurable later on – is the hardest one to get over, as a parent.  But it’s also very unlikely to come true.  Chances are, they’ll be able to purchase an inexpensive term life insurance policy as an adult, or they’ll be eligible for group life coverage through their employer.  As for the other two reasons? There are less expensive ways to scrape together the cash for funeral arrangements, and much better ways to save for college.

In both instances, you’re better off saving and investing on your own.  Start with an emergency fund, and build up six or, better yet, nine months of living expenses in there.  Then split the difference between saving for your own retirement and saving for college. Your retirement comes first, so grab any matching dollars you can from your employer’s 401(k).  With any money left over,  open a Roth IRA, if you’re eligible (you can make the full contribution of $5,000 if your adjusted gross income is less than $167,000 as a joint filer or $105,000 as a single filer).  When college comes around, you can decide whether you want to use the money you’ve accumulated in the Roth for it, or save it for your own retirement.   And if you still have money to set aside after you’ve topped out the Roth IRA, and you want to save more for college, look at a 529 plan.

And, just to give you the math behind my reasoning, I did some digging and found that $50,000 of coverage for a one-year-old in my area would cost about $32 a month, or $384 a year.  That doesn’t sound like much, but invest it in a Roth IRA at an 8% return and you’ll have $15,236 by the time your kid is 18.

A will. When you’re a parent, you need a basic estate plan, and that means writing a will. It’s the only document that allows you to name guardians for your children, which means you’ll be able to select who will take care of them if something happens to you. If you don’t have a will, the choice may be up to the court and the rules in your state. If your financial situation is rather simple, you can make an inexpensive will on a website like LegalZoom. If things are more complicated – you have a lot of assets – you’re better off seeing an attorney. It will cost you about $1,000 for a basic estate plan, but it’s more than worth it.

Insurance. Obviously, you want to make any necessary changes to your health insurance, so your child’s care falls under your plan. If you’re married and you and your spouse are on different plans through work, compare them to see which option has the best coverage for the lowest cost for your new addition (if you don’t have health insurance, every state has a program that proves free or very low cost coverage for children. Check out insurekidsnow.gov for details). You also want to make sure you have life insurance, because you now have a family dependent on your income. If something were to happen to you, you’d want them to be taken care of. I wrote about this in detail a few weeks ago here.

College. Maybe you’re not quite ready to save for college yet, and that’s perfectly okay. You’ll get there, and your own retirement needs to come first. No, that’s not selfish – it’s practical. Not only can your kids borrow for college if they choose to go, but the best gift you can give them is not having to rely on them in your retirement years. To do that, you need to have a healthy nest egg that will get you through.

But when you’re ready to start putting away money for college, you can do it in a variety of ways. I always recommend starting with a Roth IRA, if you don’t already have one, because it will allow you to pay for your own retirement, but also college for your kids. If, when your kids are ready to start school, you think you have enough banked for yourself, you can pull some money out of the Roth to help with tuition. If you’re behind, you can leave it in and continue contributing for yourself.

Beyond that, I like 529 plans. Every state has one (or more) and they offer some tax benefits for saving for college. You can stash a little money away automatically each month, and invest it appropriately for your kids age – when they’re young, you’ll be more aggressive; as they approach high school, you’ll get more conservative because the money won’t have as long to bounce back from any market downturns. To find a plan, start with your state, which will often give you extra incentives and tax benefits. If you don’t like the plan’s investment options, or it hasn’t performed well in the past, shop around. Savingforcollege.com is the best place to do your research.

Finally, go ahead an open an account with UPromise or BabyMint. Both allow you to save money by purchasing things you already buy anyway, because they partner with retailers to deposit a percentage of your purchases into a 529 or other account.

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If you have children, or anyone relying on your income, for that matter, life insurance is a must.  It doesn’t have to be expensive, or complicated, or scary.  In fact, it’s rather simple:  A good term policy is enough to cover the needs of most people.

Term life insurance is very much what it sounds like – a policy that terminates at a set point in time.  It includes a death benefit, with no investment attached, and when the amount of time you’ve purchased the policy for (you can buy 1 year, 10 years, 20 or 30 years) lapses, your coverage ends.  Because of this, it’s significantly cheaper than many other options.  The average 40-year-old’s annual premium for a 20 year policy is $198.

Your other option is permanent insurance, also called cash-value, which stays in place until your death, whenever that happens, and consists of two parts – a death benefit and an investment account.  On portion of your premium funds the death benefit, and the other portion is invested in mutual funds, stocks, bonds or money markets.  The hope is that the interest you earn on the investments will increase the policy’s cash value.  All of these extras will cost you more in annual premiums.

In either case, in order to purchase, you need to figure out how much your benefit needs to be.  That means taking a look at your current income and how much of it your dependents (children, partner, aging parents, whoever) would need to replace if you were to pass away.  You need to look at it on a one-year basis, then decide how many years they’d need to replace your income for, and do the math.  If your children are in college, for instance, you may only need a few years of coverage.  If they’re toddlers, you’re looking at a 20-year policy. And if you have children with special needs, a permanent policy is probably going to be your best option.  You also want to look at whether your you want your death benefit to pay for college, pay off the mortgage, or provide an inheritance.

To get as close to your magic number as possible, go through the calculator at Insure.com, or use this worksheet that was included in my last book, Money 911.

For starters, you should know that nothing about this bill is immediate. It takes awhile to get the ball rolling with a huge piece of legislation like this, and it is certainly going to take some time for the insurance companies to get acclimated. But two big changes are going to come in September, and I want you to be prepared for them.

The first is that health insurance companies will no longer be permitted to decline coverage to children because of pre-existing conditions. That means if you’ve been struggling to find care for a child with asthma or other medical conditions – or you’ve been paying an arm and a leg for the coverage you have – you may want to shop around again come September. Believe it or not, buying individual coverage can sometimes be cheaper than group coverage, so it pays to do a little research. If you find a good children’s policy on the open market, you can keep yourself on your work’s plan – especially if your employer pays for a portion – and set up your children on the individual plan. You can shop and compare plans at ehealthinsurance.com.

The second big change when it comes to children is that they can now stay on their parent’s health insurance plan until age 26, regardless of whether or not they’re in school. Prior to this, states made the rules here, and often coverage was cut off at age 18 or 19. This could be a big money-saver, but no one should cancel their plan before the new coverage is in place. If you crunch the numbers and determine that it would be cheaper for your child to have coverage through you, rather than an individual plan, wait until they are safely on your plan, then cancel the old.

Finally, if you participate in your state’s Children’s Health Insurance Program (CHIP), which is for lower-income families, the reform included a provision that maintains that program at least until 2019. That means that even in extreme budget shortfalls, your state can’t cut your child’s coverage – certainly a sigh of relief.

-Jane, Maine

A HSA, or a Health Savings Account, is a tax-advantaged savings account that’s used to fund your medical expenses. These plans are becoming more and more popular—in fact, according to a 2008 survey by America’s Health Insurance Plans, 6.1 million Americans used HSA-qualified plans.

For those of you who are unfamiliar with them, here’s a little background on how HSAs work. Health Savings Accounts are funded one of two ways: either by your employer or by you. If your plan is employer sponsored, your employer deposits money into your HSA periodically. If you’re funding the account, you’re responsible for making the deposits. When it comes to deposits, there are limits. In 2010, the maximum annual contribution for an individual policy will be $3,050. The maximum contribution for a family policy will be $6,150. Are you 55 or older? If so, you can make an additional “catch up” contribution of an extra $1,000 each year.

HSAs are especially appealing for a couple of reasons. The first being taxes; or rather, the lack of taxes. If you’re the one depositing, you’ll get a tax deduction for your contribution. Additionally, the money, no matter who makes the deposit, grows tax free in the account and any withdrawals you make to cover medical expenses are also tax exempt.

Another upside to HSAs is the high level of control you have over your money. With a HSA, for the most part, you’re in full control over your account. This means that you’re the one calling the shots—which procedure you get, which doctor you see, which medical expenses you pay from the account, etc. Money in your HSA can also be used to cover procedures that aren’t typically covered by traditional insurance plans. Another added benefit is the fact that you’re able to use the money in your account to cover medical expenses for your spouse or any dependents you might have.

But where there are positives, there are sure to be negatives, and unfortunately, Jane, that’s where the answer to your question comes in. With Health Savings Accounts, when you need to withdraw money, you’re going to be taxed at regular income tax rates. Are you younger than 65? If you are, you’ll also be subject to a 10% penalty when you withdraw. If you’re over 65, you can withdraw your money without the 10% penalty. You will, however, be taxed.

-Leslie, California

Before you look into renewing your policy with the same company, take some time to reevaluate things. Have you made any additions to your home that would increase the amount of coverage you need? Do you have a floater (extra insurance for items in your home that aren’t covered by your standard policy) on your policy that’s irrelevant now?

You’ll also want to check and see if you’re eligible for any discounts with your current company before you decide to stay with your current provider or switch. Because you’ve had both your homeowners insurance and auto insurance with the same company for so many years I would say that you’re on track for a discount, if you’re not getting one already. Companies will often offer a discount for having both your auto and homeowners insurance with the same company. They’re also likely to knock a percentage off your premium for being loyal for a significant number of years. These discounts can be anywhere from 5-15%.

If you’ve put in a call to your provider and you don’t like the price you’d be paying if you renewed, do some shopping around. Sites like insure.com and insurance.com provide free quotes from a variety of different carriers. After you’ve got a rough idea of where you can get the best deal, make some calls to the different providers to get an idea of what your premium would be.

Ultimately, the premium you’re going to pay is based on the risk you present to the insurance company. If the company feels they’re taking a big risk by offering you coverage, you’re going to be paying a higher premium. Luckily, there are things you can do to downgrade the level of risk you’d present to the company.

For one, making your home more secure (by installing things such as deadbolts and a security system) can reduce your premium by about 5%. Minimizing the risk of fire by installing smoke detectors, kicking your smoking habit if you have one, and equipping your home with fire extinguishers also will result in a less expensive premium.

Then there’s the financial aspect. Raising your deductible can reduce your premium. Your deductible is the amount you agree to pay per claim toward the total amount of an insured loss. Most companies recommend that your deductible be at least $500. If you raise your deductible significantly, say from $500 to $1,000 you could potentially save around 25%. Just make sure that you’d be able to pay the higher deductible in the event that something did actually happen.

Keeping your credit score high affects how much you pay too. Your “insurance risk score”, which is similar to a credit score, is taken into account by providers to determine just how likely you are to file a claim. According to the Insurance Information Institute, people who have a poor insurance risk score are more likely to file a claim. But insurers aren’t looking at how much debt you have, they’re looking to see how consistent you are with making payments.

When you’re making calls to providers, keep in mind that many of them offer discounts for a variety of things. Does your employer administer group insurance programs? Are you part of a professional association that offers group insurance? Are you 55 or older and retired? These things might net you a better deal on your premium.

Once you’ve compared the costs, take a look at provider’s complaint ratios and financial ratings. You can check complaint ratios with your state’s insurance department or with the National Association of Insurance Commissioners. You’re also going to want to check the company’s financial ratings. You can do so through Standard & Poors or Moody’s.

One final word of advice: Don’t just choose a provider based on price alone. It’s definitely worth shelling out just a little bit more to get a financially stable provider that will be able to pay for a claim should one arise.

Question: “My life insurance company just had its rating taken down a notch. What does this mean? Should I be worried?”

Answer: Like the rest of the financial world, life insurance ratings aren’t immune to the effects of the recession. According to the American Council of Life Insurers, these ratings are used to help potential and current policyholders see the insurer’s present-day ability to pay claims. Ratings also provide an assessment of the insurer’s vulnerability to possible economic downturns. If your insurance company’s rating has gone down a notch, it means that the financial circumstances of your provider have changed in such a way that increases the odds that your insurer may not be able to pay all it’s expected claims. However, a rating downgrade doesn’t necessarily mean that your life insurer will have this problem. “A one notch downgrade is not serious…there are a lot of companies who are in good shape that have faced minor downgrades,” says David Wentworth of the American Council of Life Insurers. In short-if your insurance company’s rating has gone down slightly, I wouldn’t worry, as long as they had at least a fairly secure rating before the downgrade.

But how do you know if your insurer’s rating is good, or in this case, at least fairly secure? There are four separate organizations that rate life insurance companies: A.M. Best, Fitch Ratings, Standard & Poor’s and Moody’s. According to the ACLI, the way that they rate insurers varies by organization:

A.M. Best: A.M. Best assigns ratings ranging from A++ to F. Ratings from A++ through B+ are thought of as being “secure.” Ratings from B through F are thought to be “vulnerable.” Categories under the “vulnerable” heading range from “fair” to “in liquidation.”

Fitch Ratings: Fitch Ratings assigns life insurance ratings ranging from AAA to C. An AAA rating means that the financial circumstances of your insurer are “exceptionally strong.” A C rating means that the insurer is “distressed.” Ratings from AAA through A are thought to be “strong.” BBB ratings are thought to be “good.” A BB through CC grade denotes a “weak” rating.

Standard & Poor’s: Standard & Poor’s ratings range from AAA to R. AAA, AA and A suggest that the insurer is in a financial standing that is “extremely strong,” “very strong,” and “strong,” respectively. A BBB rating means your insurer is in “good” standing. BB denotes a “marginal” rating. B, CCC and CC ratings mean that your insurer is in “weak,” “very weak,” and “extremely weak,” financial standings respectively. R stands for “regulatory action taken.”

Moody’s: Moody’s ratings range from Aaa to C. Aaa means that your provider has “exceptional financial security.” A C rating suggests that your provider has “extremely poor prospects of ever offering financial security.” A Baa rating means that your insurer has “adequate financial security.”

You’ll be able to access ratings through each of the above company’s websites or at insure.com. For a more in-depth guide to life insurance-what the ratings mean, where they fit, where the division is between secure and vulnerable-check out the September issue of The Insurance Forum available here.

This morning, I joined Dr. Nancy Snyderman – author of Medical Myths That Can Kill You – on Today to talk about the number one cause of bankruptcy in the country.  If you watched the video above, you know it’s not unaffordable mortgages or even credit card debt.  

It’s illness. And cancer patients are suffering. They’re having trouble paying for life-saving care – running up large debts, filing for personal bankruptcy and even delaying or forgoing potentially life-saving treatment. Even having private health insurance (that you purchased or receive through your employer) isn’t enough to save you.

A new report by the Kaiser Family Foundation and the American Cancer Society notes that cancer patients in particular suffer financially because: 

• Even covering part of the cost can be hugely expensive. It’s fairly common for patients to max out on the number of treatments for, say, radiation, that your insurance policy will cover. Then you need to come out of pocket for those costs. And patients routinely hit the lifetime maximums their coverage allow and then are left on their own.
• Patients lose benefits by being too sick to work. If you’re sick and unable to work for 60 days or more, you could lose your job and with it your health coverage. You are eligible to maintain those benefits under COBRA for 18 months, but premiums for a family run $1,200, or sometimes more, a month.
• Pre-existing conditions. Private insurance companies often won’t cover people who have had cancer. Or, if they are willing, the premiums are again prohibitively expensive. One man, a 10-year survivor of prostate cancer, has to pay one-quarter of his income just to cover the premiums on his policy.

So what are patients – and the people who love them – supposed to do?

Talk to your doctor. When you receive a diagnosis, sit down with your doctor with pencil and paper – it’s very difficult to remember things when you’re under stress – and ask:

1. What type of treatment will I need
2. What are the side effects in relation to my job? And how can these be managed?
3. If I’m worried about managing the costs of care.  Who can help me?

Take that information to your benefits department, or if you work for yourself or a small company without a benefits department, talk to your insurer directly. You need to understand what is covered under your plan, what sort of pre-approvals you will need, how you can best work within their process to get your claims paid, and – if you can – find a person within that insurer that you can talk to if and when you have questions. The sad thing about health insurance, although it’s such a necessity these days, is that most people spend less than an hour deciding which of the plans they are offered makes sense for them. And very few people read the manual until they need it. We’ll have another open enrollment period in the fall, and it makes sense to spend a little time making sure you’re on the best plan for you and your family.

If you don’t have health insurance – if you’re one of the 45 million people without – understand that there is a much bigger, more democratic market for policies for individuals. A high deductible policy, which won’t cover your occasional visits to the physician, but will step in to help protect you from financial ruin if you’re facing cancer, is much more affordable and available than it used to be. Go to ehealthinsurance.com to get started.

Also know that there is a network of organizations that offer financial assistance for everything from travel (including corporate jets, private pilots and transportation for families of the patient as well as the patient), housing (there is a network of more than 150 nonprofits that provide lodging and support to people receiving treatment away from home), medication (through various prescription assistance groups), and out-of-pocket medical costs that insurance doesn’t cover.  Go to cancer.net or cancercare.org for comprehensive lists.