Frugal Babe

We’re thinking about adding an umbrella liability policy to our homeowners/auto insurance policy.  I talked with our agent about it, and it would cost $216/year to add a $1 million umbrella to our coverage.  We’ve talked about it for ages, but keep forgetting to do anything about it.  I emailed our agent with a few questions, but I think we’re going to go ahead and do it when he gets back to us.  We’re currently paying a total of $1297 a year for our homeowners policy and our car insurance for both vehicles.  I feel like $216/year is a good deal for the amount of coverage we would be getting, although I know that the chances of ever needing that sort of coverage are slim (our homeowners policy already has $300,000 in liability coverage).  But then again, lawsuits are not pretty things, and I’d much rather have an insurance company taking care of the mess if there should ever be one.

Any thoughts?  Do you pay extra for a liability umbrella on your insurance policy?  For those who do, does $216/year sound like a good price for a $1 million policy?

Last night, during the “quiet your mind” part of yoga class, I came to an epiphany about how to solve our HSA vs HELOC dilemma (good thing I’ve never been able to quiet my mind during that part of the class). 

When we first set up the HSA, we were planning to use it primarily as a long-term investment account, and we still planned to pay medical expenses out of pocket, while maxing out the HSA each year and rolling the money over from one year to the next, watching it grow.  We did plan to take money out to pay for childbirth, but that was it.  Then my husband hurt his knee last summer, and all of a sudden we needed to ramp up our contributions to make sure we had enough to pay our deductible so that he could get his knee fixed.  But since we’ve had the goal of not taking money out of the HSA firmly in our mind, we had been paying smaller medical expenses throughout the year, out of pocket, without reimbursing ourselves from the HSA.  I had been keeping the receipts just in case, because the law allows you to withdraw money from an HSA any time after a medical expense occurs – even years in the future – as long as you have receipts to prove the charges.

So this morning I sat down and looked at our medical expenses from this year.  Between my husband’s lipoma surgery last spring, and some dental fillings that we had, we incurred $1666 in medical expenses this year, which we had paid from our regular checking account.  So I transferred that amount from our HSA to our checking account.  Then I transferred $1900 from our checking account to our HSA, bringing our total contributions for the year to $5400.  Next week, when I get paid from my library job, I’ll transfer another $250 to the HSA, and we will have maxed out that account for 2007.  So we’ll get the full allowable tax deduction for HSA contributions.  And the $1666 that I transferred to our checking account can go back into our HELOC, since we already paid for the medical services.

The beautiful thing about an HSA is that in effect, we’re getting a first dollar tax deduction on our medical expenses this year.  In the past, before we had an HSA, we were limited by the 7.5% rule, where we could only deduct medical expenses that exceeded 7.5% of our income.  So that $1666 we spent this year wouldn’t have gotten us a deduction at all.  But since we have the HSA and we put money in it, we’re allowed to deduct everything we put in (up to $5650), and then take out as much as we spent on medical expenses.  I am so glad that we decided to switch our health insurance last winter!!!

We decided a few weeks ago to make our HSA a priority, ahead of retirement accounts for the time being.  HSA’s double as retirement accounts if you don’t have to use the money for medical expenses, but the same is not true in reverse.  And we have our HSA invested in a great growth fund, so it’s not like the money is just sitting in a bank account.

Earlier this month, I arranged to cut my 457 plan contributions from about $480/month to about $80/month.  We’re putting the extra money into our HSA, and I made a $600 contribution this week.  We want to max out the account by year end ($5650 is the IRS limit for 2007 for a family HSA), which will be a stretch because we’ve only put in $2100 so far this year.  But we hadn’t been focusing on the HSA as much until this month.

My husband will get his knee fixed in January, which will meet our health insurance deductible ($3000) for 2008.  We have 100% coverage after the deductible, so anything else we get done for the rest of the year will be covered in full.  This is why we decided to schedule the knee surgery (if it does indeed need surgery) for January instead of December, when the first appointment is available.  We have no intention of using doctors or a hospital for the birth of our baby or anything related to the pregnancy, but just in case some crazy complication were to arise, our health insurance deductible will already be met for both of us for the year once my husband’s knee is taken care of. 

Paying the deductible for his knee will take a big chunk of the money out of our HSA, but we intend to replace it in 2008, and keep the HSA as a major focus until we have $10,000 in it.  Medical expenses are really our largest potential emergency expense.  We have a $1000 deductible on our homeowner’s insurance (I’d prefer a higher deductible, but that’s as high as our mortgage lender will allow).  We own two cars but could easily get by with one, since we both work from home, and I ride my bike to my job at the library.  If an appliance goes out, we’ll get a “new” one at the refurbished appliance place where we got our washer and dryer for under $200 each.  We’re pretty savvy about finding ways to deal with the stuff that life throws at us without spending big bucks.  But medical expenses are always a possibility.  We take very good care of ourselves, but you never know when some freak accident or strange illness will strike.  And with a $3000 deductible on our health insurance, we don’t want to be caught without a solid medical emergency fund – our HSA. 

After my husband made an appointment to have his knee examined, we read the details about the doctor he was going to be seeing.  Turns out that he’s a world class elbow and shoulder doctor, but knees seemed like more of a side thing for him.  We decided that if my husband is going to be driving 4 hours round trip every time he has treatment, he might as well be seeing the top knee doctor rather than the top shoulder doctor.

So he called back and asked about this.  The knee doctor is one of the best in the world, and is the founding doctor at the clinic.  And appointments for him are currently booked out almost three months.  Okey dokey.  So we cancelled the appointment for today, and left a message with the knee doc’s office to set up a consultation.  Once we started thinking about it, we decided that if he can’t get in before December anyway, he might as well request an appointment in early January.  That way it’s a new calendar year for our deductible.  It doesn’t make sense to book an appointment and possibly a surgery in the last month of the year, meet our deductible, and then start all over again in January.

So now the plan is to see the knee doctor in early January, meet our deductible early in the year, and if anything else happens to either of us for the rest of 2008, there would be no charge to us.  We have an HSA, so the deductible is for both of us, and the policy covers 100% after we meet our deductible.  Since it would only mean delaying the appointment by a few weeks, we decided that it makes good financial sense to do it this way.

I reduced my 457 contribution to 5% of my pay yesterday, so now we can start putting most of the money that would have gone to that account into our HSA instead.  Having the appointment pushed out a few months will give us plenty of time to get money built up in our HSA to cover the deductible.  The plan is to put $600/month into the HSA for the next several months.  It feels a bit like a juggling test right now, but I feel like we’re making the best decisions we can and putting our money where we need it most.  It will feel good to have a few years worth of deductibles built up in the HSA going forward, as a medical emergency fund – since we never know when we might need it.