Checklist: Insurance, Taxes, and Wills
With a baby on the way, it's time to get your affairs in order. Here's a rundown of points to consider.
Check your maternity benefits. Many states require that health-insurance policies include maternity benefits. The best plans pay the full cost of all prenatal care as well as hospital and doctors' bills for the baby's birth. Some policies, however, consider pregnancy a "preexisting condition" that is not covered during the first 3, 6, or even 12 months the policy is in effect. Ask your company's benefits manager to explain exactly what is covered under what conditions.
Make sure you're not paying for too much coverage. Usually, one family medical plan costs less than two individual plans, but a lot may depend on how much of the policy's cost is paid for by the employer. Some couples are able to coordinate benefits so that a second policy pays the deductible and other bills not covered by the first. Others find that the cost of a second policy exceeds any extra payments they'll receive.
Get continuing coverage if you're leaving a job. If you plan to quit work and are not covered by your spouse's medical plan, the law requires that you be given the option of continuing your group insurance for up to 18 months. (You will pay 102 percent of the cost, however.) To be sure your baby is covered, notify the insurer of the birth within 30 days.
Do your research before choosing a new plan. Low premiums are not necessarily a bargain. If you choose an HMO, your trusted family doctor may not be on the network, so find out how much it costs to go outside the plan. If you're planning a family, review your prenatal coverage; many HMOs limit hospital choices, which affects such services as delivery procedures. Ask, too, about preventive care, such as well-baby visits. Some plans offer them for free, while others don't cover them at all.
Make sure you have disability coverage. For many parents, the risk of becoming too disabled to work is greater than that of dying before a child is 18. Disabled wage earners are covered by Social Security, but the benefits don't kick in until six months after the disability begins, and recipients must be too disabled to do any kind of work for a year. That's why you need long-term disability insurance. Many employers carry group policies that usually pay 50 to 60 percent of an employee's salary in the event of long-term disability (defined as more than 26 weeks), so as with short-term disability for childbirth, it may be worth paying extra to upgrade it.
Up your coverage before a pregnancy, if possible. If you're planning to get pregnant, look into increasing your disability coverage. If your company provides disability insurance, you can also collect pregnancy and childbirth disability payments for the six to eight weeks that is typically. (Five states--New York, New Jersey, Rhode Island, California, and Hawaii -- even pay six weeks of pregnancy disability insurance to women unable to work because of pregnancy or childbirth.) Since most disability policies pay only part of your salary, it's often worth paying an extra premium to increase short-term coverage to 70 or 90 percent.
Consider term insurance. For most people, term insurance provides the most protection for the least cost. Because of the many variables, including your age and that of your children, there is no hard-and-fast rule for how much coverage to buy. But experts often suggest an amount equal to five times your annual salary.
Check to see what life insurance your employer offers. Many companies provide term policies for employees equal to a year's salary; coverage can often be increased by paying an extra premium.
Consider insuring a stay-at-home parent. A non-salaried, stay-at-home parent should carry enough life insurance to cover child-care costs, since, in the event of his or her death, the working spouse would likely need to hire a caregiver.
Keep good records. Save the receipt for that fancy crib -- and all the other baby gear you buy. Most policies will reimburse you for the loss of any items acquired for the baby, but fair reimbursement is more likely if you keep receipts and a detailed inventory of household possessions. Keep the inventory, along with receipts, photos, or videotapes, in a safe-deposit box or other secure place.
Cover your home office. Will you be working at home once the little one arrives? You may need additional coverage for office equipment.
Make sure you have enough personal liability coverage. If a baby-sitter or other household worker will be coming to your home on a regular basis, make sure your policy gives you adequate liability protection against any lawsuits or claims for injuries that occur on your property. (In most states, you must also provide such workers with workers' compensation insurance.)
Claim the child tax credit. Most parents are entitled to a tax credit for every child 16 or under who has a tax identification number (usually a Social Security number). This is in addition to the personal exemption for each family member. It's easiest to fill out the paperwork at the hospital just after you've given birth. But, if your child doesn't have a number yet, get an application from your local Social Security office, the Social Security Administration's web site (www.ssa.gov), or by calling 800-772-1213.
Take credit for your child-care costs. If you pay someone to look after your children (under age 13) while you work, you may be able to reduce your taxes with another credit. You must list the name and Social Security number of your day-care provider on the tax form (Form 2441).
Take advantage of any Flexible Spending Accounts your employer offers. Money put into FSAs escapes both Social Security and federal income taxes. You put set aside money in the account, then withdraw it to reimburse yourself for child-care or medical costs. It's important to estimate costs carefully, though, because any money left in the account at year's end is forfeited.
Get credit for child-related generosity. Deduct all your donations to charities, from donations of used toys and clothes to out-of-pocket expenses for when volunteering for a school or scout troop (ingredients for bake-sale cakes, for example, or supplies for art projects). Admissions to non-profit museums and zoos are tax-deductible, too.
Collect a bonus for working at home. Whether you're self-employed full-time or earning extra money by word-processing, selling crafts, teaching music, or doing other part-time work at home, you can write off most costs. Office equipment (including a computer), stationery and supplies, business publications, advertising, telephone calls, and other expenses can be subtracted from your self-employment income. Do you drive to make deliveries, meet clients, or sell your work? Your travel expenses are deductible, too. Another tax break: If you pay your own health-insurance premiums, you can take 60 percent of the cost as an income adjustment. Using a separate room or area regularly and exclusively for a home business permits you to deduct a percentage of your mortgage interest, homeowners' insurance, utilities, and other maintenance costs.
Choose a guardian. Every parent needs a will, because, most importantly, a will allows you to name guardians for your kids. Otherwise, if something happened to you and your spouse, your child could end up a pawn in a custody fight -- or raised by relatives whose parenting style may be at odds with your own. Why take the chance?
Specify how you'd like your assets distributed. You may think you don't have enough assets to merit a will, but you're wrong. Even if you're just scraping by, your home, insurance proceeds, retirement plans, and other employee benefits could add up to a substantial estate. If you die without a valid will, state law determines who gets everything -- which can create big problems for survivors. Spouses in such cases generally receive only one-third to one-half of an estate, with the rest going to the children. If they are under 18, their inheritance goes into a special account controlled by state-appointed administrators, who may charge high fees. Writing a will lets you specify exactly how you want your property distributed.