How employers and others research your background

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What Is a Background Check?

A background check, also known as a background investigation, is a search for information about someone’s past. The investigating party may uncover information about the person’s past employment, criminal activity, and personal history. Background checks are commonly used by employers when interviewing and onboarding a new employee.

Key Takeaways

• A background check is a search for information about your criminal background, credit history, identity, and more.
• Background checks are frequently used as a part of the hiring process to confirm trustworthy and responsible employees.
• Background checks vary, but commonly include identity verification, employment and education verification, and criminal and credit histories.
• Be honest on your job application and know your rights for each step of the background check process.

How Background Checks Work

A background check is one of the last steps in the hiring process. Most employers do them after they’ve offered a candidate the job but before they’ve onboarded them. In fact, some states prohibit companies from conducting background checks until a job offer has been extended.

Once an employer is ready to complete a background check, they can either do so themselves or hire a third-party company.

Employers turn to more than one database to get information about an applicant. A background check actually includes several different searches, including a criminal background check, a credit check, and identity verification. However, companies can get all of this information in one place when they hire a third party to complete the searches.

Why Is a Pre-Employment Background Check Important?

Pre-employment background checks are among the most common types of background checks. They are used by employers to further investigate someone they are considering hiring. They can dig up relevant information that may not come up during the interview process.

Completing a background check before hiring someone allows employers to vet prospective employees based on more than just what’s included on their resumes. They can then learn about an applicant’s criminal and credit history that may not have been disclosed. Knowing an applicant’s financial history may be particularly important for a role that involves handling the company’s assets.

A background check can provide business owners some peace of mind that the people they hire are trustworthy and responsible.

Types of Background Checks

Background checks may differ depending on a company’s needs and the third-party organization completing them. Generally, a background check can uncover the following information.

Identity and Social Security Verification

A background search can help you verify an applicant’s identity, ensuring they are who they say they are. You can make sure the applicant’s Social Security number is valid and that their address is accurate, thanks to searches of various federal government databases.

Employment History Verification

A background check allows you to verify an applicant’s employment history. You can ensure the work history listed on the applicant’s resume is accurate and gives them the proper experience needed for the job you’re hiring for.

Education History

During a background check, you can verify an applicant’s education history, including the school they attended and the degree they earned. This step may be particularly important if you’re hiring for a job that requires a certain educational background or degree.

Criminal Record

One of the most important components of a background investigation is the criminal background search. Many employers ask applicants to disclose whether they have a criminal history, but some people may not be upfront about that information. A criminal background can uncover any past misdemeanor or felony convictions, as well as pending charges.

Note

While a criminal history won’t always disqualify someone from a job, certain charges and convictions may be a red flag when you’re hiring someone to handle cash, interact with the public, or access sensitive information.

Credit Reports

A background check allows you to access credit reports that are prepared by the major credit bureaus. You can learn information such as the amount of debt an applicant has, accounts in poor standing, previous credit applications, whether they’ve filed for bankruptcy, and more. This information may be especially important if you’re hiring for a job that involves handling money or considerable assets.

What to Look for in a Background Screening Service

If you’re using a background check company to screen your job applications, it’s important to find one that offers three key characteristics,

Legal Compliance

All background checks must comply with the Fair Credit Reporting Act (FCRA) and the Equal Employment Opportunity Commission’s (EEOC) non-discrimination laws. Ensure that any background check company you’re considering is in compliance with these regulations and is accredited by the Professional Background Screeners Association.

Variety of Services

Make sure that any background check company you’re considering offers the services you need. Different companies may offer different searches, including criminal, credit, employment, education, and more. Some companies may specialize in certain types of background checks or certain types of clients, so make sure to find one that best fits your needs.

Pricing and Customer Service

As with any service you’re hiring, it’s important to make sure the company offers fair rates and responsible customer service. Shop around with several different providers to compare rates. Read online reviews to identify which companies offer the best service to their clients.

How to Prepare for a Background Check

If you are the subject of a background check, the first step is to be honest on your resume and application. Employers are likely to ask for information about your past employment, education, work history, and even criminal background. 

It may be helpful to keep copies of your employment and education records as you change jobs. That way, this information is readily available when you’re applying for new jobs.

Tell the Truth

Be honest when answering these questions in your application as your potential employer can uncover the truth later on during the background check. Even if your background doesn’t necessarily disqualify you from getting the job, lying on your application might.

Know What a Check Will Find

Next, learn what information your potential employer might uncover during a background check. Chances are you’re well aware of your criminal background, work history, and education. But you may not know the contents of your credit report. Before you start the job application process, get a copy of your credit reports to see if they include any red flags. Then, take any necessary steps to repair errors.

Know What Can Be Asked—and What Can’t

Finally, know what an employer can and can’t ask you about. Employers can ask you about various aspects of your background during a job interview process. However, they can’t ask about medical information or genetic information, except in very limited circumstances. They also can’t treat you differently depending on your race, national origin, color, sex, religion, disability, genetic information, or age.

If the employer you’re applying with denies you a job based on your background check, they must share that with you. You have the right to know the name and contact information of the background reporting company, dispute information in your background check, and get a free copy of the report directly from the company.

What Background Check Do Most Employers Use?

The most common background check that employers use is a criminal background search. Other common types of background checks include identity verification, credit checks, and employment and education verification. The background check each employer uses may differ depending on the type of company and the job you’re applying for.

What Does a Background Check Show About Employment History?

Many employers use a credit report to verify an applicant’s employment history. This report shows someone’s recent work history but may not be comprehensive and doesn’t include information about your job duties. Additionally, some companies may contact your past employers to get more detailed information about your work history.

How Far Do Most Employers Go for Background Checks?

How far back an employer may go in a background check depends on a variety of factors, including the type of report they’re pulling, the job they’re doing a search for, and the federal, state, and local laws that apply.

For example, when an employer searches someone’s credit report and criminal history, they can only uncover information that’s provided by the credit bureaus or criminal databases. Many negative marks only remain on someone’s credit report for seven years. And depending on the state, criminal charges and convictions may only be accessible by employers for a certain number of years.

The Bottom Line

A background check is standard practice during the hiring process at many companies. It allows an employer to ensure the person they hire is honest, responsible, and can be trusted with certain components of the business. Whether you’re a company hiring out a background check or a prospective employee going through one, it’s important to understand how the background check process works, the information that can be uncovered, and your rights.

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What is the Sahm Rule?

The "Sahm Rule" is a recession indicator created and named after Claudia Sahm, a macroeconomist who worked at the Federal Reserve and the White House Council of Economic Advisers. According to the Sahm Rule, the early stages of a recession is signaled when the three-month moving average of the U.S. unemployment rate is half a percentage point or more above the lowest three-month moving average unemployment rate over the previous 12 months.

The Sahm Rule has been widely recognized for its accuracy, simplicity, and ability to quickly reflect the onset of a recession.

Key Takeaways

• The Sahm Rule is a indicator that looks at signals related to the onset of a recession.
• According to the rule, the early stages of recession are signaled when the three-month average unemployment rate moves above the lowest three-month moving average unemployment rate over the last 12 months by half a percentage point or more.
• The rule has become widely recognized as a recession indicator due to its accuracy and simplicity.
• The Sahm rule was first introduced by macroeconomist Claudia Sahm in 2019 as part of a policy proposal.

How the Sahm Rule works

The unemployment rate represents the percentage of the overall labor force that is unemployed. The rate tends to rise when the economy is struggling and workers are having difficulty finding jobs, and fall when the economy is strong and workers can more easily find jobs. The Bureau of Labor Statistics (BLS) typically releases the unemployment rate for the previous month on the first Friday of every month.The unemployment rate is one of the main economic indicators used to measure the health of the economy, and the Sahm Rule inputs the rate into a simple formula to determine whether the U.S. is headed into a recession.

The rule compares the value of the current three-month moving average unemployment rate to the value of the lowest three-month moving average unemployment rate over the last 12 months. If the former is half a percentage point or more above the latter, the Sahm Rule indicates that U.S. is in the early stages of a recession. The Sahm Rule uses the three-month moving average unemployment rate—rather than the current unemployment rate—to prevent overreacting to a single month of data, Sahm said as a guest on The Investopedia Express podcast released in April 2024.

The Sahm Rule simply indicates that the economy is in the early stages of a recession. Since the early 1970s, the indicator has never been triggered outside of a recession, according to Sahm. Historically, when the unemployment rate passes the threshold outlined by the Sahm rule, it continues to increase.

Types of Sahm Rule Indicators

The Federal Reserve Economic Data (FRED) database includes current and real-time Sahm Rule recession indicators.

Current Sahm Rule Recession Indicator

The BLS regularly revises the unemployment rate of previous months based on additional information from its survey that was not initially available. The current Sahm Rule recession indicator is calculated using the unemployment rate's revised values.

Real-Time Sahm Rule Recession Indicator

Unlike the current Sahm Rule recession indicator, the real-time Sahm Rule recession indicator uses "real-time" data. It is calculated using just the unemployment rate and recent history of unemployment rates that were available in a given month.

History of the Sahm Rule

Sahm first introduced the indicator that would later be named after her as part of a policy proposal called "Direct Stimulus Payments to Individuals" published by The Hamilton Project, an economic policy initiative that is part of the Brookings Institution. The proposal was also included in The Hamilton Project's book "Recession Ready: Fiscal Policies to Stabilize the American Economy" published in 2019.

In the proposal, Sahm explained that consumer spending tends to slow significantly during recession growth, which can make job losses (and a recession overall) worse. She proposed that to combat that unemployment, the government distribute stimulus payments automatically to families in the face of a recessions—specifically, when the three-month average national employment rate jumps at least half a percentage point relative to its low over the last 12 months.

"Recent research finds that broadly distributed, lump-sum payments to individuals directly boost spending and help stabilize demand, making these types of payments effective responses to recessions," Sahm explained. "The total amount of stimulus would offset about half of the slowdown in consumer spending, totaling about 0.7 percent of GDP. " Gross domestic product (GDP) refers to a country's total market value of goods and services within a certain time frame. Fiscal policies like the one Sahm proposed are known as automatic stabilizers.

The indicator became widely recognized, with the Federal Reserve adding it to the FRED database in October 2019.

Limitations of The Sahm Rule

As Sahm has pointed out in her newsletter, the rule is "empirical regularity," not a proposition. She emphasized that this means that the rule can also be broken.

For example, Sahm wrote in an April 2022 newsletter, imagine a scenario in which the unemployment rate increased hovered around 3.5%, up from a low of 3.0%, meeting the criteria for signaling the early stages of a recession based on the Sahm Rule. However, if around that same time, GDP growth held around 2.5%, down from a high of 5.5%, and inflation gradually slid down to 2%, such a combination of circumstances probably wouldn't constitute a recession, she explained.

What is the Sahm Rule today?

First introduced in 2019, the Sahm Rule is a recession indicator based on conditions of the labor market. When the three-month average unemployment rate rises above its 12-month low by at least half a percentage point, we are in the early stages of a recession, according to the rule.

Who created the Sahm Rule?

Claudia Sahm, a macroeconomist who worked at the Federal Reserve and the White House Council of Economic Advisers, introduced the indicator as part of a policy proposal. The rule was then named after her.

How Accurate is the Sahm Rule?

The rule has proved to be very accurate with the indicator always triggering in the early stages of a recession and never outside of one since the 1970s.

The Bottom Line

The Sahm Rule refers to an indicator that signals the early stages of a recession. According to the rule, the beginning of a recession is signaled when the three-month moving average unemployment rate is half a percentage point or more higher than the lowest three-month moving average unemployment rate over the last 12 months. Historically, when the unemployment rate has passed this threshold, it has continued to rise.

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Emergency loans are a type of personal loan for people who find themselves in an unexpected situation and need cash fast. In general, they provide a lump sum of cash, and then borrowers pay off the loan at a fixed interest rate for a specific term.

Banks, credit unions, and online lenders may offer emergency loans. Eligibility and the cost to you will depend on creditworthiness. Typically, emergency loans have a lower maximum loan amount than some other types of lending products.

Learn more about how emergency loans work, how to qualify, and the pros and cons of using this type of loan.

Key Takeaways

• Emergency loans are meant to provide quick financial assistance to help you cover unexpected costs.
• Eligibility for emergency loans typically depends on factors like credit score and income.
• There are various types of emergency loans, each with its own set of features, advantages, and disadvantages.
• While emergency loans offer immediate relief, they have high interest rates and potential risks.

How an Emergency Loan Works

When deciding if an emergency loan is best for you, start by checking your credit score. You can then search for lenders and try pre-qualifying with one or two lenders to see if you’d meet their basic requirements for approval and get a sense of the interest rate you would receive. From there, you could use a personal loan calculator to see what your monthly and overall borrowing costs would be for different term lengths. 

To get an emergency loan, the process is similar to other types of loans. First, you must complete an application, sharing your personal contact information, providing documentation about your income, and stating how much you are hoping to borrow. The lender will review your application and may ask for permission to review your credit. 

Once a decision is made, you may be approved, denied, or receive an alternative offer. If approved, you’ll have time to review the loan agreement to decide if you accept. If so, you’ll sign the loan agreement, and funds will be deposited into your bank account of choice. Timing will depend on the lender; some even fund loans on the day of approval.

Types of Emergency Loans

The most common type of emergency loans are personal loans. They allow you to borrow a lump sum of money and pay it back with fixed payments for a specific term. In addition, there are a few different ways to borrow money for an unexpected situation. 

• Payday loans: If you just need a small amount of cash, a payday loan gives you an advance on your paycheck. The downside is that these short-term loans have a high fee, but you won’t have to repay them over a long period of time like other loans since they are typically due within a short timeframe.
• Title loans: Another short-term loan option, a title loan is a secured loan that uses a car title as collateral. This could be an accessible emergency loan for people with bad credit, but these loans have very high APRs.
• Credit card cash advances: Most credit cards allow you to borrow cash from your line of credit, but you'll typically pay a higher cash advance APR and have no grace period. There is also an upfront fee added, typically around 3% to 5% of the amount borrowed.

Where to Get an Emergency Loan

If you need fast cash, you can get an emergency loan from several types of financial institutions. If you’re going the personal loan route, these are the three main types of lenders.

• Banks: Banks offer personal loans, and many offer fast funding, which can help in an emergency situation. Interest rates and fees vary, as do lending requirements, though bigger banks tend to have stricter qualifications.
• Credit unions: As member-owned institutions, credit unions sometimes have more flexibility to offer competitive interest rates for personal loans, including emergency loans. You’ll have to be a member to apply.
• Online lender: Online loan companies typically offer the fastest funding options as applications are completed online and processed quickly. 

Warning

It’s important to research potential lenders—especially online ones that you may not be as familiar with—to make sure you’re not dealing with a predatory lender. Check the Better Business Bureau, read reviews, and look at consumer complaints.

Eligibility and Requirements

Most lenders that offer emergency loans will have similar eligibility criteria and documentation requirements. Here are some of the key factors lenders will consider.

• Identification: Expect to upload or share a copy of a photo ID such as your driver's license, passport, or other state identification. You’ll also need something to show as proof of address, such as a utility bill in your name. 
• Age and citizenship: To get an emergency loan, or most any loan, you need to be at least 18 years of age. Some lenders might only work with U.S. citizens, though some might have options for non-citizens.
• Minimum credit score: Each lender sets its own credit score requirements, some more stringent than others. In general, if you have a credit score in the good to excellent range (670+), you should have no trouble being approved by most lenders. Those with lower scores may still get approved but might pay higher interest rates.
• Income: Lenders want to know about your ability to repay the loan, so you’ll need to show proof of income. You may have to submit documents like pay stubs, bank statements, or tax returns.
• Debt-to-income (DTI) ratio: In addition to what you earn, lenders also want to understand what your other obligations are so they can determine your DTI, or how much of your income is needed to cover your bills. 
• Reason for the loan: Emergency loans are flexible and can be used for almost any reason, but there are usually a few exclusions such as college tuition, business expenses, gambling, illegal activity, or a home deposit.

Pros & Cons of Emergency Loans

Pros

• Fast access to funds

• Many options

• Easy to apply

• Flexibility in how to use the funds

Cons

• Paying interest

• Some loans have fees

• Another monthly bill obligation

• Low maximum loan amount

Pros Explained

• Fast access to funds: Emergency loans can provide money quickly to help you cover unexpected expenses. Other sources of funding, such as home equity loans, can take several weeks to process.
• Many options: You’ll find several types of emergency loans from various lenders. Each will have different interest rates, terms, and fees. Compare different loans to see which fits your needs.
• Easy to apply: The application process for an emergency loan is fairly straightforward. You’ll need to provide information required by the lender, which usually includes your personal information.
• Flexibility in how to use the funds: You can use the funds from an emergency loan to pay for nearly any expense, such as paying for a medical bill or car repair.

Cons Explained

• Paying interest: Emergency loans generally have a high interest rate, so they can be expensive, especially if you don’t pay them off quickly.
• Some loans have fees: Many lenders charge fees like a loan origination fee or a late fee if you miss payments. Read the loan terms carefully and fully understand the fees before signing a loan.
• Another monthly bill obligation: An emergency loan will add to your total debt, which can lower your credit score and increase your monthly payment obligations.
• Low maximum loan amount: Typically, emergency loans are available in smaller amounts. If you want a larger loan, you will likely have to turn to other funding sources.

Alternatives to Emergency Loans

Emergency loans are not the only option to help you when you need immediate funding. Other options to explore include:

• Emergency savings: Ideally, you should build an emergency savings account that you can draw from. This can help you avoid borrowing costs. Many experts recommend saving three to six months’ worth of expenses in an emergency savings account.
• Borrowing from friends or family: One way to get money quickly for little or no expense is to borrow from your friends or family. The downside of this strategy is that it could affect your relationship with that person, especially if you don’t repay the funds. 
• Home equity line of credit (HELOC) or home equity loan: Homeowners can borrow against their home equity with products like HELOCs or home equity loans. While these options might provide some temporary relief, your home debt will increase and you will potentially put your home at risk if you cannot repay the loans.

To start an emergency fund, set up automatic deposits into a separate account every pay period (consider a high-yield account for extra interest), and let it grow. If you do borrow from it, replenish the funds as soon as you can.

What Is the Minimum Credit Score Needed to Get an Emergency Loan?

Minimum credit score requirements vary by lender. In some cases, you may only need a fair credit score (580 and above), but other lenders might only work with people who have good credit (670 and above).

How Quickly Can You Get an Emergency Loan?

Emergency loans are intended to provide fast funding, and you may even find some same-day loans. Timing really depends on the lender and when you submit your application. For example, applying early in the day mid-week rather than late Friday afternoon of a holiday weekend can help you get your loans faster. Also, be sure to fill out the application accurately and provide the necessary documentation for a faster process. 

How Quickly Do You Need to Pay Back an Emergency Loan?

Emergency loans can have a wide range of terms—it depends on the type of lender you work with and the amount of money you’re borrowing. In general, personal loan terms can range from two to seven years. If you’re using a short-term lending product like a payday loan or title loan, the timeframe will be shorter, such as within two weeks or 30 days.

How Much Could an Emergency Loan End up Costing?

When you need cash quickly, you can expect it to come with a steep cost. The cost will depend on the loan type and your credit status, which determines what the interest rate will be. Some loans may also have fees.

The Bottom Line 

In life, unexpected things happen, but it’s important to carefully consider your options before taking out an emergency loan. Emergency loans can be costly, increase your debt, and add to your monthly expenses. Having a payback plan can help you successfully pay back your emergency loan. Once you get through your setback, try to create an emergency fund so that you’re better protected in the future.

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What Is a High-Yield Checking Account?

A high-yield checking account—sometimes called rewards checking or high-interest checking—works like any interest-bearing checking account, but offers a much more competitive annual percentage yield (APY). In exchange for this higher rate, customers typically have to meet monthly eligibility requirements, such as maintaining a minimum balance and completing a certain number of debit transactions during the statement period. The best high-yield checking accounts pay rates that may be competitive with high-yield savings accounts or CD rates.

Key Takeaways

• High-yield checking accounts can be a good way to earn higher interest on money you keep in your day-to-day checking account. 
• To earn top interest, these accounts usually have one or more monthly requirements that you must meet—most commonly, completing a set number of debit card transactions.
• It’s worth researching high-yield savings accounts in tandem with high-yield checking accounts; if savings rates are more competitive, that might be a better place to park cash (with fewer obligations on your part). 

How Do High-Yield Checking Accounts Work?

High-yield checking accounts generally work like any other checking account except that to earn the best yield, you may have to meet certain monthly requirements, like making a certain number of debit card transactions. These requirements are typically more difficult to meet than those of an average checking account, and there may be more of them. 

The checking account balance earns interest each statement period. The amount of interest you earn may depend on whether or not you complete the required activities for that period. Although the best rate may be very good, if you don’t meet the requirements, the alternative rate may be quite low.

High-yield checking accounts have the same kinds of fees as other checking accounts, like monthly fees and paper statement fees.

Carefully read through the terms and conditions of any high-yield checking account you’re considering. Misunderstanding how it works can cost you money. 

How to Qualify for a High-Yield Checking Account 

Every bank and credit union sets its own terms and conditions for high-yield checking accounts. To earn top interest, you may have to meet any combination of the following requirements:

• Minimum opening deposit: Some high-yield checking accounts have minimum opening deposits as high as $500, although many are smaller and some have no such requirement.
• Minimum number of monthly debit card transactions: This can be as high as 15, so it could take some getting used to if you don’t regularly use a debit card for spending.
• Set up direct deposit to the account: Some banks may also specify a minimum amount for the direct deposit.
• Maintain a minimum balance for the statement period: With some accounts, you might forfeit the best yield or pay a fee if you drop below a designated minimum balance amount; some will look at your average daily balance amount for the month.
• Enroll in online banking: This is the standard in many cases today, but if you haven't engaged in online banking before, this requirement might be more burdensome.

Warning

Keep in mind that if you’re required to make a minimum number of transactions monthly with your debit card, you shouldn’t wait until the last day of your statement to play catch-up. That’s because some transactions may take a day or two to post and settle, so they may not qualify for the current statement period.

High-Yield Checking vs. High-Yield Savings Accounts

In general, a high-yield savings account may offer more benefits without stringent account requirements, like monthly debit card transactions. You can keep money there, and transfer it to a checking account as needed. That said, there could be times when it makes more sense to go with a high-yield checking account, such as if APY offers are better. 

Here are some of the account differences to help you choose between the two.

	High-Yield Checking Accounts	High-Yield Savings Accounts
Rates	Higher than regular interest-bearing checking	Higher than regular savings
Requirements	Must meet special conditions to earn the highest APY	Many accounts offer competitive interest with no requirements; some may require a minimum balance
Purpose	A transaction account for bill payment and debit card purchases	A safe place to park cash for an emergency fund or another short-term savings goal
Level of Access	High: Check-writing privileges and a debit card for purchases and withdrawals, usually unlimited	Moderate: Some accounts limit withdrawals; usually no checks or debit card
Availability	Offered by select banks and credit unions	Most commonly offered by online banks and credit unions

Pros & Cons of High-Yield Checking Accounts

Pros

• Opportunity to earn interest on everyday banking

• High yield and high access to funds

• May include additional account perks like ATM rebates

Cons

• High number of debit transactions usually required

• Minimum average balance may be required

• APY earnings may be capped

Pros Explained 

• Opportunity to earn interest on everyday banking: If rates are competitive and you have a lot of checking-account activity anyway, high-yield checking accounts could be worth exploring.
• High yield and high access to funds: Unlike savings accounts that might have withdrawal or transaction limits, high-yield checking accounts provide ongoing easy access to your funds.
• May include additional account perks like ATM rebates: Some high-yield checking accounts provide rebates on ATM fees incurred when you use out-of-network machines.

Cons Explained

• High number of debit transactions usually required: Using your debit card more frequently (as much as 10 to 15 times per month) might have you missing out on potential credit card rewards, not to mention the extra consumer protections that credit cards provide.
• Minimum average balance may be required: Some accounts might require you to keep a certain threshold of money in your account to earn the best APY. If that’s not realistic for your budget, then you’d be better served with a high-yield savings account instead.
• APY earnings may be capped: Most high-yield checking accounts put a cap on the amount that earns interest at the best rate, like $10,000 or $25,000. Be sure to check this so you can maximize your interest-earning potential by depositing some money elsewhere if needed.

How to Find a High-Yield Checking Account That Works for You

Research the following factors to find the best high-yield checking account:

• Interest rate: If you’re looking for earnings potential, start by comparing APYs.
• Fees: Monthly maintenance fees and fees for not meeting minimum balance requirements can quickly eat away at your earnings, so learn what you need to do to avoid those.
• Balance requirements: Is there a minimum balance requirement and is it realistic for you to maintain it?
• ATM policies: Some high-yield checking accounts may offer rebates on outside ATM fees, which is worth looking for if you withdraw cash often.
• App/online features: If you prefer online banking, enjoy the convenience of mobile check deposit, or like being able to use texts for basic account functions, you may find an account with those features.
• Customer service: It’s important to feel comfortable with your bank, which could mean being able to pop into a local branch or just getting someone by phone or live chat if you have an issue.

Frequently Asked Questions (FAQs)

What's the Difference Between a Money Market Account and a High-Yield Checking Account?

The main difference between money market accounts and high-yield checking accounts is that money markets are technically savings accounts, and they often come with monthly transaction limits. High-yield checking accounts are designed for paying bills, making debit purchases, etc., and they usually do not have transaction limits. Money market accounts and high-yield checking accounts do have a lot of similarities—both may earn interest and may have minimum balance or other requirements to qualify for interest or avoid fees, among other rules. Some money market accounts may have check-writing privileges as well,

What Are the Risks of High-Yield Checking Accounts?

If you’re required to use your debit card more often, you may be putting your financial data at risk. Debit cards aren’t as robust when it comes to fraud liability and consumer protections as credit cards are.

Should I Put All My Money in a High-Yield Savings Account?

High-yield savings accounts are great tools for earning interest on your emergency fund and other short-term savings. Keeping your funds in a high-yield savings account can be a good idea when the rate environment is strong, as long as you’re mindful of FDIC coverage limits. In fact, when high-yield savings account rates are competitive, you may find them to be the best place to park cash. However, when that’s not the case, products like certificates of deposit (CDs) or Series I Bonds (tied to the inflation rate) might provide better return opportunities.

The Bottom Line

Whether a high-yield checking account is worth it comes down to current rate offers across different account types and how challenging it would be for you to meet the account requirements. If checking account rates are more favorable than savings account rates and you’re already using your debit card for purchases throughout the month, then it’s likely a no-brainer for you. 

On the other hand, if it’s challenging for you to meet the monthly requirements, and/or high-yield savings account rates are higher or comparable, then you may be better off with a high-yield savings account. There is less account management to keep track of, and you may be less apt to spend your earnings because savings accounts make it a bit harder to access the funds than checking accounts.

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What Is a Reverse Mortgage?

A reverse mortgage allows older homeowners to tap their home equity for money to use for other purposes. It’s essentially a loan against a home that you either own outright or have a small mortgage on that can be paid off with the reverse mortgage funds, leaving you extra cash to use as you like. Learn more about the pros and cons of reverse mortgages, including the typical criteria to get one. 

Key Takeaways

• A reverse mortgage lets you convert some of your home equity into cash, but they are designed for older homeowners.
• Eligibility for a reverse mortgage is based on factors such as age and the amount of equity you have, among others.
• For the most common type of reverse mortgage (HECM), you must be over 62.
• Getting a reverse mortgage involves figuring out the loan amount, repayment terms, and interest rates.
• Reverse mortgages allow you to tap your equity while staying in your home.

How a Reverse Mortgage Works

Reverse mortgages are designed for older homeowners who own their homes and need a source of money. The most common type of reverse mortgage is the Federal Housing Administration’s (FHA) Home Equity Conversion Mortgage (HECM), which is for homeowners 62 and over. You must have at least 50% equity in your home for these loans, and the home must be your primary residence. 

You may find some private reverse mortgages are available to younger homeowners, such as those 55 and older. They may have different equity criteria as well. But homeowners taking out a reverse mortgage have either paid down their mortgage and have no loan, or have a small loan amount. 

Note

The 2024 loan limit for a government-backed reverse mortgage is between $498,257 and $1,724,725, depending on where you live.

A reverse mortgage lets you keep the title to your home while you access your equity. As opposed to a traditional mortgage, you don’t make monthly mortgage payments toward a reverse mortgage. However, interest and fees are added to the loan balance every month, which lowers the amount of home equity.

If you are approved for a reverse mortgage, you might receive proceeds in one lump sum, a series of monthly payments, or a line of credit. Then, you must pay property taxes and homeowners insurance and keep up with home maintenance. A reverse mortgage is paid back once you no longer live in the home and the home is sold.

Interest Rates on Reverse Mortgages 

Typically, the interest rate for a reverse mortgage is higher than the interest rate for a regular mortgage but on par with interest rates for home equity loans and home equity lines of credit (HELOCs). The interest rate for a reverse mortgage may be fixed or adjustable.

Several factors can affect your interest rate on a reverse mortgage. First, rates will vary by lender. 

As with a traditional mortgage, a lender will review your credit history as part of the approval process. Although lenders rely less on your credit as a determining factor for approval, it can play a role in what interest rate you are offered. Having a better credit score and better credit history, including a record of making on-time payments and a low debt balance, can result in a lower interest rate.

Note

Some lenders may also offer lower rates to older borrowers.

Eligibility Criteria for a Reverse Mortgage

Not every homeowner can take out a reverse mortgage. Just like with traditional mortgages, you must meet the lender’s criteria as well as other factors. Eligibility criteria for an HECM include:

• You must be over age 62.
• The mortgage must be on your primary residence.
• You must have no late payments in the past 24 months for property-related expenses, such as mortgage payments, property tax bills, and insurance premiums.
• You must complete a government-approved counseling session.

A reverse mortgage lender will review your credit history, but these loans don’t have specific credit score or income requirements like traditional mortgages.

Types of Reverse Mortgages

Generally, there are three types of reverse mortgages:

• Home equity conversion mortgages (HECMs): Most reverse mortgages are HECMs, which are insured by the Federal Housing Administration (FHA), a division of the U.S. Department of Housing and Urban Development.
• Proprietary reverse mortgages: Geared toward borrowers who own higher-value homes, proprietary reverse mortgages are offered by some private lenders. These loans aren’t government-insured and may have different lending criteria.
• Single-purpose reverse mortgages: Some state government agencies, local government agencies, and nonprofit organizations offer single-purpose reverse mortgages. These funds must be used for a stated purpose, such as to pay taxes or make home improvements.

Pros & Cons of a Reverse Mortgage

Pros

• Flexibility with loan funds

• Less stringent loan requirements

• Ability to remain in your home

Cons

• Age requirements

• Interest rates and costs

• Impact on estate

Pros Explained

• Flexibility with loan funds: You have flexibility when using proceeds from a reverse mortgage. You might put the money toward additional income, home improvement projects, debt payoffs, or retirement savings, for example.
• Less stringent loan requirements: Lenders generally have no minimum credit score or income requirements for a reverse loan, although they will review your credit history for past delinquencies and other factors.
• Ability to remain in your home: When you want to tap your equity for cash, a reverse mortgage is a solution that allows you to stay in your home. You can then delay mortgage payments until you no longer occupy the home.

Cons Explained

• Age requirements: You generally have to be an older homeowner to get a reverse mortgage. For the most common type of reverse mortgage, and the only one backed by the U.S. government, you must be 62 or older.
• Interest rates and costs: Interest rates for reverse mortgages tend to be higher than those for traditional mortgages. Among the upfront and ongoing expenses are lending fees, closing costs, loan servicing fees, government-mandating counseling, homeowners insurance, property taxes, and annual mortgage insurance.
• Impact on estate: A homeowner with a reverse mortgage can leave the home to their heirs, but the heirs must repay the mortgage.

What Is the 60% Rule in a Reverse Mortgage?

In the first year of an FHA-approved reverse mortgage, you can tap into just 60% of the loan amount, or the amount required to pay off your current mortgage plus 10%, whichever is greater. This rule will be in effect through 2027.

Can I Lose My Home With a Reverse Mortgage?

Yes, you can lose your home with a reverse mortgage if you don’t abide by the loan’s terms. A lender might foreclose on your home if you fail to keep up with property tax payments, homeowners insurance premiums, or home maintenance requirements.

Can I Use the Funds From a Reverse Mortgage for Any Purpose?

Yes, you can typically use the funds from a reverse mortgage for any purpose. Examples include wiping out credit card debt, stashing money in an emergency fund, or paying for home improvements. However, if you have a single-purpose mortgage, you must use the funds for a stated purpose, such as renovating your home or paying your taxes.

What Are Some Alternatives to a Reverse Mortgage?

If you need funds and want to tap your home equity, you have alternatives to a reverse mortgage. You can use a home equity loan, home equity line of credit (HELOC), or cash-out refinance loan to access your equity. There are no age requirements for these loans, but you may face stricter credit requirements than you would with a reverse mortgage. 

Can You Have More Than One Reverse Mortgage?

You can have only one active reverse mortgage at a time. Once you’ve paid off a reverse mortgage, you can get another one.

The Bottom Line

A reverse mortgage can be a great option for older homeowners who need an extra source of funds. It allows you to tap into your home’s equity without needing to make monthly loan payments or sell your home. But a reverse mortgage does come with drawbacks, such as the need to keep up with home maintenance, homeowners insurance premiums, and property tax payments. Consider consulting with a financial advisor to learn how a reverse mortgage may fit into your overall financial plan.

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It covers prescription drug costs for people with limited incomes

What Is Medicare Extra Help? 

Medicare Extra Help is a government program that provides financial assistance to individuals and couples who need help paying for prescription drugs. It’s sometimes referred to as the Low-Income Subsidy (LIS) program. 

Key Takeaways

• Medicare Extra Help can pay for your Medicare Part D costs. 
• It can help with your monthly premium, yearly deductible, coinsurance, and copayments.
• Some people qualify automatically, while others need to apply. 
• The program has income and resource eligibility limits. 

Understanding Extra Help

If you qualify for the Medicare Extra Help program, it can help reduce your out-of-pocket costs for Medicare Part D coverage, which include your monthly premium, yearly deductible, coinsurance, and copayments.

You can apply for Extra Help before or after you enroll in Part D. If you qualify, you won’t have to pay a Part D late enrollment penalty.

Important

Medicare Extra Help only applies to Medicare Part D prescription drug costs. It doesn’t reduce other healthcare costs.

Benefits of the Extra Help Program

The government estimates the Extra Help program can save you about $5,300 a year on your prescription drug coverage. Here are the ways it helps: 

• Limits how much a pharmacy can charge you for generic or name-brand drugs
• Eliminates the coverage gap or “donut hole” in your Medicare Part D plan
• Removes the Part D late enrollment penalty

In addition, your application for the Extra Help program can serve as a starting point for your Medicare Savings Program application. These state-run programs can help you reduce your other healthcare costs, such as Part A and Part B deductibles. 

Where Extra Help Is Unavailable

The Extra Help program isn’t available everywhere. You won’t qualify if you live in a U.S. territory, including:

• Puerto Rico
• The U.S. Virgin Islands
• Guam
• The Northern Mariana Islands
• American Samoa

If you live in one of the above locations, other programs may be available to help you save. You can call your territory’s Medical Assistance Office to request information. 

Who Automatically Qualifies 

Some people automatically qualify for Extra Help. If you have full Medicaid coverage, get help paying your Part B premiums from a state Medicare Savings Program, or receive Supplemental Security Income (SSI), you won’t need to fill out an application for the Extra Help program. 

Instead, you’re automatically enrolled and will receive a yellow notice in the mail explaining your enrollment. This notice includes some next steps you can take, including changing your Medicare drug plan. 

Note

If you automatically qualify, you’re re-enrolled in the Extra Help program each year for as long as you’re eligible. If your situation doesn’t change, you’ll keep the same coverage level you had the previous year.

Extra Help Eligibility

If you don’t automatically qualify for Extra Help, you can still apply by completing an application through Social Security. However, you must meet certain income and asset requirements to enroll in the program. Here’s a look at the 2023 limits.

Your Status	Income Limit	Resource Limit
Individual in the Lower 48	$21,870	$16,600
Married Couple in the Lower 48	$29,580	$33,240
Individual in Hawaii	$25,155	$16,600
Married Couple in Hawaii	$34,020	$33,240
Individual in Alaska	$27,315	$16,600
Married Couple in Alaska	$36,960	$32,240

Not all sources of income or types of assets count toward this limit. For example, bank accounts and stocks count toward the resource limit, but your primary residence, vehicles, and personal possessions do not. The Social Security website lists what to include when calculating your income and resources. 

How to Enroll in Medicare Extra Help

If you meet the eligibility requirements, you can apply for Extra Help online or over the phone. 

Be ready to give information about your income and resources by gathering the following documents: 

• Social Security card
• Bank account statements
• Tax returns
• Pay stubs
• Investment statements
• Benefits award letters

If you’re applying online, you can take breaks as needed by clicking on the “Save and Exit” button. You’ll get a reentry number to put in when you’re ready to continue your application.

Once you submit your application, you’ll be notified in writing if you qualify. Watch for a letter in your mailbox. 

Extra Help Costs

Extra Help doesn’t cost you anything to have. Its goal is to save you money. Here’s how much you’ll pay for different coverage factors. 

	Plan Premium	Plan Deductible	Maximum Prescription Cost
Full Extra Help	$0	$0	$4.50 for generic $10.35 for brand-name

Before 2024, Social Security offered Partial Extra Help as a secondary level of assistance through the Extra Help Program. If you qualified for it, you’d pay more out-of-pocket expenses than those who qualified for the Full Extra Help. 

However, beginning in 2024, the Partial Extra Help program is going away. Everyone who qualifies for Extra Help will receive the full amount. 

Frequently Asked Questions (FAQs)

How Else Can You Lower Your Prescription Drug Costs?

In addition to the Extra Help program, you can lower your prescription drug costs by: 

• Going with generic versions of your medications 
• Comparing prices at different pharmacies
• Enrolling in a different Medicare Prescription Drug Plan with lower expenses
• Taking advantage of savings programs and discounts offered by pharmaceutical companies and other companies like GoodRx
• Using a mail-order pharmacy

What Is the Medicare Drug Plan (Part D)?

Medicare Drug Plan (Part D) is an optional part of Medicare that helps cover the costs of prescription drugs. It’s available to anyone who has Medicare Part A or Part B.

Where Can I Get More Information on Extra Help?

The U.S. Centers for Medicare and Medicaid Services and the Social Security Administration have additional information on Extra Help.

The Bottom Line

Extra Help is a valuable program that significantly lowers your out-of-pocket expenses for prescription drug coverage. If you think you qualify, it’s worth applying to see if you can receive assistance.

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Exploring The 21st Century’s Next Generation of Innovators

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What Is Generation Alpha?

Generation Alpha is the name given to the generation of people who are or will be born between 2010 and 2024. Generation Alpha is the first generation to be born entirely in the 21st century. It comprises the largest cohort in human history, which will total over 2 billion people.

Generation Alpha members have been immersed in technology since birth, spending more time online and in front of computer screens, smartphones, and tablets than any prior group. Due to longer life expectancy trends, many members of this generation will live to see the 22nd century.

Key Takeaways

• Generation Alpha refers to the demographic cohort succeeding Generation Z, born between 2010 and 2024.
• Generation Alpha are mostly the children of Millennials or Generation Y and is expected to be the largest generation in history. 
• Technology plays a significant role in the lives of Generation Alpha, shaping their experiences and behaviors.
• Generation Alpha will confront unique circumstances, particularly environmental challenges such as extreme weather events, which are projected to increase in prevalence during their lifetimes.

Who Is Generation Alpha?

Generation Alpha is the successor to Generation Z, which comprises those born between 1997 and 2012, according to Pew Research Center. Generation Alpha are mostly the children of Millennials, those born between 1981 and 1996.

The term Generation Alpha was first coined in 2005 by demographer Mark McCrindle, founder of the Australian consultancy firm McCrindle. McCrindle explained the thinking behind his naming choice as follows: "In keeping with this scientific naming of using the Greek alphabet in lieu of the Latin, and having worked our way through Generations X, Y and Z, we settled on the next cohort being Generation Alpha—not a return to the old, but the start of something new."

Characteristics of Generation Alpha

Despite the relative youth of Generation Alpha, researchers have already begun to predict the characteristics that will define it. Below are some of the emerging features of this new generation:

Technology Benefits and Drawbacks

Generation Alpha is projected to be the most tech-savvy and digitally empowered generation in history. Their time spent online and in front of screens will likely exceed prior generations. This familiarity and exposure to technology can be seen as a social experiment in some ways, whose consequences are not yet fully known.

Despite its benefits, the technology may also have drawbacks, such as reduced attention spans and difficulty with social interaction. While the Mayo Clinic recommends children under the age of 5 limit their screen time to 1 hour per day, studies show that the children of Generation Alpha often significantly exceed that threshold.

43%

How many millennial parents say their kids have had a virtual playdate in virtual spaces, such as Minecraft and Zoom.

Formal Education

Because Generation Alpha will have more access to data and information than any generation that came before it, this may produce tangible benefits in education. According to McCrindle, "[Generation Alpha's] formal education has never been equalled in the history of the world, with a predicted 1 in 2 Gen Alphas to obtain a university degree."

COVID-19 Pandemic

In a similar vein, the education of Generation Alpha will be defined in large part by virtual learning, accelerated by the COVID-19 pandemic. This generation was forced to adapt to new methods of remote learning. This has given members of Generation Alpha a unique perspective on the virtual classroom and revolutionized how they interact with teachers and fellow students.

Environmental Awareness

Generation Alpha will face environmental challenges to a degree that prior generations have not encountered. According to McCrindle, Generation Alpha has exhibited an even higher environmental awareness than Gen Z.

87%

of 13-15-year-olds believe it is up to their generation to stop climate change.

Future Outlook for Generation Alpha

In addition to understanding the characteristics of Generation Alpha, it's critical to note the particular economic circumstances and challenges they'll confront.

Economic Challenges

It is estimated that 65% of Generation Alpha will work in a job that does not exist today. This is primarily due to emerging industries that are expected to create new fields of work, such as "nanotechnology, blockchain, cyber security, autonomous transport, and virtual reality."

As they age, and enter the workforce, their impact will likely continue to grow. According to Harvard Business Review Analytic Services, when the oldest members of Generation Alpha reach adulthood in 2029, the collective economic footprint is expected to exceed $5.46 trillion. As such, this generation will be highly valued by marketers, but they will need to understand their unique attributes and adapt their marketing strategies to reach them. That means more in-their-face ads, as companies seek to build brand loyalty early.

Environmental Challenges

Generation Alpha’s two billion people will face challenges related to population growth and the environment that no generation before has faced. According to a paper published by the American Association For the Advancement of Science, children born in 2020 will see a two to seven-fold increase in extreme weather events compared to children born in 1960. Many members of Generation Alpha’s two billion people will live to see the 22nd century, where they will share the planet with over 11 billion people.

Which Generations Preceded Alpha?

Generation Alpha is immediately preceded by Generation Z, which encompasses those born between 1997 and 2012. Generation Y, more commonly referred to as Millennials, came before them, and include those born between 1981 and 1996. Generation X, those born between 1965 and 1980, preceded Millennials.

Going further back, we reach Baby Boomers, which includes people born between 1946 and 1964; the Silent Generation, which includes people born between 1928 and 1945; and the Greatest Generation, which includes people born between 1901 and 1927.

How Is Gen Z Different from Gen Alpha?

Generation Z includes people born between 1997 and 2009. As of 2024, its oldest members are beginning to move into their post-education years and may have begun setting the stage for independent financial futures.

What Are Gen Alpha Demographics?

In the United States, Generation Alpha is projected to be incredibly diverse. According to the Annie E. Casey Foundation, an organization that advocates for the well-being of children, Generation Alpha is the first generation in which the white population represents a minority share of the overall population. So far 26% of the generation is Latino or Hispanic, 16% Black, 7% Asian, 6% two or more races, and 2% American Indian or Alaska Native.

The Bottom Line

Generation Alpha is the largest generation in human history, encompassing those born between 2010 and 2024 and totaling over 2 billion people. This generation is projected to be characterized by heightened technological savvy and environmental awareness. Generation Alpha will also face unique challenges given the evolving economy, changing climate, and growing global population. Many members of Generation Alpha will live long enough to see the 22nd century, at which point the world population will surpass 11 billion.

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Employment practices liability insurance (EPLI) covers claims against your business by employees for illegal acts like discrimination, wrongful termination, and retaliation. It pays for judgments, settlements, and the cost of defending your business from employment-related lawsuits. EPLI protects your business from discrimination claims by current or former employees and job applicants.

Key Takeaways

• Employment practices liability insurance covers claims against your business by current, former, or prospective employees for wrongful acts like discrimination and wrongful termination.
• Most EPLI policies are claims-made, meaning they cover claims filed against your business during the policy period.
• Employees can’t sue your business for discrimination unless they have filed a claim with the EEOC and obtained the right to sue.
• Businesses need EPLI to protect themselves from costly discrimination claims.

How Employment Practices Liability Coverage Works

EPLI covers claims by your current, former, or prospective employees for employment-related acts like discrimination, harassment, and demotion. Some policies also cover discrimination claims against your business by third parties, such as customers and vendors.

EPLI pays for damages or settlements awarded to claimants and the cost of defending your business from lawsuits. It may also cover regulatory actions filed against your business by the EEOC. Some policies cover defense costs in addition to the policy limit, while others include them in the limit.

Most EPLI policies are claims-made, meaning they cover claims made against your business while your policy is in effect. They don’t cover claims filed after your policy has expired. Policies typically require you to report all claims to your insurer during the policy period.

Some policies exclude claims resulting from “prior acts,” which are incidents that occurred before your policy began. Others cover claims resulting from prior acts that occurred on or after a date (called the retroactive date) listed in your policy. The retroactive date is usually the starting date of the first EPLI policy you purchased.

Note

Before you can sue your employer for workplace discrimination, you must have filed a claim with the Equal Employment Opportunity Commission (EEOC) and get a right-to-sue notice.

Types of Claims EPLI Covers

EPLI covers claims by current, former, or prospective employees alleging their employer violated their civil rights by committing a wrongful act such as discrimination, harassment (including sexual harassment), or wrongful termination.

Policies vary but many cover claims based on:

• Wrongful discipline
• Failure to employ or promote
• Negligent evaluation
• Deprivation of career opportunity
• Wrongful infliction of emotional distress
• Mismanagement of employee benefit plans
• Retaliation
• Breach of employment contract

In employment law, retaliation means taking revenge against a worker for doing something that’s protected by federal law, like complaining to management about sex discrimination or requesting an accommodation for a disability.

What Does Employment Practices Liability Exclude?

Many EPLI policies exclude claims involving the following:

• Bodily injury or property damage
• Wage and hour law violations
• Workers compensation law violations
• Labor disputes
• Fraud or dishonesty
• Violations of federal laws like the Occupational Safety and Health Act or the Worker Adjustment and Retraining Notification Act
• Unemployment insurance
• Punitive damages
• Criminal or civil fines or penalties

Important

Some EPLI policies cover punitive damages, but the coverage applies only in states where punitive damages are insurable. Many states prohibit insurance that covers punitive damages.

Why Businesses Need EPLI

If you’re wondering whether your business needs EPLI, you should consider the potential cost of an employment-related claim. Federal law limits the amount of damages a worker can recover in a discrimination suit. The limits vary depending on the size of the employer.

They range from $50,000 for businesses that employ 15 to 100 workers to $300,000 for businesses that employ more than 500 workers.The average out-of-court settlement for a discrimination claim was $75,000 in 2020, and the average jury award was $217,000.

If your business is hit with a discrimination claim and doesn’t have EPLI, your company will have to pay all costs out of pocket. 

Important

How much does EPLI cost? Many small businesses pay an annual premium of about $2,665, according to Insureon data as of Jan. 2024.

Employment Practices Liability Claim Example

An example of an employment claim based on age discrimination can help you understand how it works.

Let's say Beth is 52 and has worked as a sales representative for Fancy Furniture for 15 years. One day, Beth’s boss informs Beth that she’s being replaced with a 25-year-old. He says Fancy Furniture wants to attract youthful buyers and needs young salespeople, “not old fogeys like you.” Beth files a liability claim for age discrimination with the EEOC, which investigates the claim and gives her the right to sue her employer. Beth sues Fancy Furniture for $75,000.

Frequently Asked Questions (FAQs)

Is Employment Practices Liability the Same As General Liability?

Employment practices liability and general liability are different coverages. EPLI covers claims by employees for job-related issues like discrimination and sexual harassment. It excludes claims for physical injuries or property damage. General liability insurance covers claims by third parties for bodily injury or property damage caused by an accident or personal and advertising injury caused by a covered offense such as libel or wrongful eviction. General liability policies don’t cover claims resulting from discrimination and other employment-related acts.

What Is the Difference Between Professional Liability and Employment Practices Liability?

Professional liability insurance covers claims by your customers for financial losses caused by mistakes you made or faulty advice you gave while providing a professional service. Employment practices liability insurance covers claims by your employees for civil rights violations like discrimination and wrongful termination. It may also cover regulatory actions filed by the EEOC.

What Does Employment Practices Liability Not Cover?

EPLI does not cover claims involving bodily injury, breach of a contract, criminal or fraudulent acts, labor disputes (including strikes), unpaid wages, or workers compensation benefits. Policies also exclude claims resulting from violations of certain laws, such as the Employee Retirement Income Security Act, National Labor Relations Act, and the Occupational Safety and Health Act.

The Bottom Line

Employment practices liability insurance protects businesses from claims by employees for wrongful acts like discrimination and retaliation. If an employee sues your business for discrimination, your EPLI will pay for the award or settlement and the cost of defending you.

If you have a business, consider buying EPLI because employment-related claims can potentially result in large settlements.

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What Is Limited Payment Life Insurance?

Limited payment life insurance is a type of whole life insurance that you pay off over a set period—instead of making premium payments for the rest of your life. Like ordinary whole life insurance, it offers lifelong coverage and a savings component. But you pay premiums only for a set number of years. 

For example, State Farm offers limited payment life insurance policies with terms of 10, 15, or 20 years. The premiums are often higher than those on ordinary whole life policies but only continue for a fixed number of years. Once paid off, your coverage remains in place for life.

Key Takeaways

• Limited payment life insurance is a type of whole life insurance.
• It provides the benefits of whole life coverage, including a guaranteed death benefit, fixed premiums, dividends, and a cash value component.
• Instead of paying premiums for the rest of your life, you pay off the policy over a fixed term.
• Terms often range from 10 to 20 years.

How Limited Payment Life Insurance Works

Limited payment life insurance provides all of the benefits of whole-life coverage, such as a guaranteed death benefit, a cash value savings component, and fixed premiums. However, instead of paying for the policy for the rest of your life, you pay it off over a fixed number of years.

With ordinary whole life insurance, insurers divide your policy’s cost into payments based on your current age and life expectancy. For example, if you’re 35 and they expect you to live to 82, the cost would be based on a life expectancy of 47 years. On the other hand, with limited payment life insurance, the policy’s cost is divided over a set term that often ranges from 10 to 20 years. 

While the premium amount is often higher on limited payment insurance policies due to the shorter term, the policies get paid off sooner and the cash value grows faster. Once the policy is paid in full, you’ll retain coverage for life and won’t need to make any additional premium payments.  

Note

Insurers often allow you to pay fixed premiums on a monthly, quarterly, semi-annual, or annual basis.

Alternative Payment Options

A limited payment life insurance policy is just one way to pay for whole life insurance. If the premiums are a bit too high, you can stick with an ordinary policy that splits up the policy’s cost over the rest of your life. If you’d rather pay the policy off as soon as possible, you can opt for a single upfront lump-sum payment.

Further, if you’d like both permanent coverage and payment flexibility over the years, adjustable (universal) life insurance may be a good fit.

Pros and Cons of Limited Payment Life Insurance

Pros

• Limited payments

• Permanent coverage

• Cash value accrual

Cons

• Higher premiums

• Opportunity cost

Pros Explained

• Limited payments: Payments are limited to a set term. So you can potentially have no payments in retirement, but maintain your coverage.
• Permanent coverage: Coverage lasts for life as long as the policy is paid.
• Cash value accrual: The cash value accrues faster than with an ordinary whole life policy. 

Cons Explained

• Higher premiums: The premiums are usually higher than those on an ordinary whole life policy. 
• Opportunity cost: By investing more into a life insurance policy over a shorter time, you can miss opportunities to earn greater returns by investing elsewhere.

Is Limited Payment Life Insurance Right for You?

Limited payment life insurance can be beneficial in a few scenarios, such as if you have more disposable income now than you expect to have in the future. For example, if you’re 40 and don’t want to pay life insurance premiums in retirement, a 20-year limited payment life policy could help you secure coverage and avoid the premiums later. 

Limited payment life insurance can also be helpful if you want to purchase life insurance coverage for a child. For example, if you open a 15-year policy when a child is born, it’ll be fully funded by the time they turn 15. Without ever needing to pay another premium, they’d gain access to the cash value component and a guaranteed death benefit that lasts for life.

Frequently Asked Questions

What Is an Example of Limited Pay Life Insurance?

To illustrate how limited pay life insurance works, consider this example. Say you are 50 and are shopping for permanent life insurance. After calculating the monthly fixed income you’ll have after you retire at 65, you find a life insurance premium will be unaffordable in retirement. However, you can afford the premium on a 15-year limited payment life insurance policy while you're working. So you purchase the 15-year policy to gain coverage that won’t require premium payments in retirement.

What Is the Difference Between Limited Payment Life Insurance and Ordinary Life Insurance?

The difference between a limited payment and ordinary whole life insurance policy is the way you pay for the coverage. Limited payment policies split up the policy’s cost over a set term, often 10 to 20 years—resulting in higher premiums. Ordinary policies often come with lower premiums but they are due for the rest of your life.

How Does Limited Pay Whole Life Insurance Work?

Limited pay whole life insurance requires you to pay off the policy’s cost over a set term through a series of fixed premium payments. Once the term ends, you’ll have permanent coverage and won’t need to make any additional payments. The coverage includes all the benefits of ordinary whole life insurance, including a guaranteed death benefit and a cash value savings component.

The Bottom Line

Limited payment life insurance enables you to get whole life coverage without making payments for the rest of your life. It can be a good fit if you can afford the higher premium payments over the next decade or two. However, it’s important to weigh the benefits against the returns you could get by investing your money elsewhere. A financial advisor can help you consider all of your options and decide which route will best help you reach your goals.

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Covered California allows Golden State residents and small businesses to shop for health insurance providers. Covered California offers state healthcare administration and assistance, including an online health marketplace like ACA Health Insurance Marketplace. The types of health insurance provided for adults and children include:

• Health insurance 
• Medi-Cal, for low-income Californians
• Dental coverage
• Vision coverage

Learn more about how Covered California works, including enrollment periods, discounts, qualifications, and penalties.  

Key Takeaways

• Covered California is the marketplace for Californians to purchase health, vision, and dental coverage, or to qualify for Medi-Cal.
• By buying through Covered California, many enrollees qualify for helpful discounts on insurance, including reduced premiums. 
• Open enrollment is between Nov. 1 and Jan. 31, but many life circumstances may qualify you for a special enrollment period. 
• Covered California plans are similar to ACA plans, but do offer a few different plans.

How Covered California Works 

Covered California offers plans from all of the top health insurers active in the state. Federal law requires Covered California plans to offer essential health benefits. These plans are the same as the plans available outside of the marketplace.

“Some Californians have a misconception that Covered California is ‘government insurance,' or they would be getting a lesser health plan, which is completely false,” Craig Tomiyoshi, deputy director of communications at Covered California said. 

Small businesses can apply for employee health and dental insurance plans via the Covered California for Small Business marketplace.

Enrollment Periods

Any Californian can enroll in Covered California between Nov. 1 and Jan. 31 each year. However, coverage doesn’t start right away. After you choose a plan, the plan begins on the first day of the following month.

Outside of the open enrollment period, Covered California offers an extremely comprehensive list of more than two dozen life events that could qualify you for a special enrollment period, including:

• Administrative: Incomplete application due to time; misinformation from an agent.
• Economic: Income less than 150% federal poverty level; paid the tax penalty for no health insurance; newly qualifying for health insurance stipend.
• Emergencies: Affected by public health emergency or wildfires or another public state of emergency.
• Life event: Had, adopted, or fostered a child; got married or are in a domestic partnership; lost or will soon lose health insurance.
• Location: Permanently moved to or within California; gained citizenship; returned from active-duty service.

Unfortunately, you aren’t eligible for coverage until your employer-sponsored plan expires. If you experience a sudden job and benefits loss, you could have a gap between when you sign up for Covered California insurance and when coverage begins. If so, consider COBRA coverage after termination if your employer offers it. 

Discounts

Many Californians who are uninsured said the main reason they don't have insurance is because of the cost, Tomiyoshi said. Covered California, now in its eleventh year, has undergone substantive changes to make the program more affordable, he said.

“More financial help is available for more Californians than ever before to help them get health coverage,” he said. “The increased federal subsidies through the Inflation Reduction Act combined with California’s new Cost-Sharing Reduction program will help reduce out-of-pocket costs for many Covered California members.”

Almost 90% of Covered California’s enrollees get financial help. Covered California allows applicants to qualify for help paying for health plans or enrolling in Medi-Cal, California's version of Medicaid.

Discounts include: 

• The Premium Tax Credit: Either lowers your monthly premium cost or offers a tax credit when you file taxes. Around 20% of enrollees benefit from $0 premiums. 
• Cost-sharing reductions: Reduces your deductible, copays, and coinsurance if you earn 250% or less of the Federal Poverty Level. The federal poverty level depends on your household size and income. More than 650,000 enrollees qualify for unique plans with these reductions.

Covered California subsidies kick in at an income of up to $33,975 for a single person and $69,375 for a family of four in 2024. 

Penalties

Although health insurance isn’t mandatory at the federal level, California requires state residents to have health insurance. Otherwise, they may pay a hefty penalty when filing state tax returns. For 2024, the penalty is $900 per adult and $450 per dependent child under 18 living in the household.

Covered California offers tax penalty exemptions, but only in limited situations: 

• Hardship: Such a bankruptcy, natural disaster, eviction, and other life circumstances.
• Affordability hardship: The lowest-cost plan available costs more than 8.17% of your 2023 household income.
• Religious conscience: Your faith doesn’t allow medical healing or acceptance of public health benefits.

You may also be able to claim some exemptions when you file your state tax return.

Types of Covered California Plans 

Like other ACA plans, Covered California plans may be offered as health maintenance organizations (HMOs), preferred provider organizations (PPOs), and exclusive provider organizations (EPOs). Covered California offers plans from 12 companies. Not all plans are available in all locations, but 92% of Californians can choose from four or more carriers.

Also, like ACA plans, Covered California health insurance plans come in four tiers. However there are some differences, particularly around cost-sharing reduction plans: 

	Bronze	Silver	Gold	Platinum
Types	Standard and High-Deductible	Standard and Enhanced Silver Cost Sharing Reduction	Standard	Standard
Premiums	Lowest	Lower	Higher	Highest
Out-of-Pocket	Highest	Highest	Lower	Lowest
Percentage of Coverage	60%	70% to 94% coverage	80%	90%

High-Deductible Bronze Plans

High-Deductible Bronze Plans allow enrollees to open a health savings account (HSA). The plans are a good fit for those who want to save in a tax-advantaged account and think they’ll use fewer non-preventive medical services. 

Silver Enhanced Cost Sharing Reduction Plans

These California-only plans offer more benefits for lower out-of-pocket costs, including $0 deductibles. They’re only available to households at or below 250% of the Federal Poverty Level. 

Catastrophic Plans

A minimum coverage plan (also known as a catastrophic plan) is typically only available to those 30 or younger. However, Covered California only sells these plans to adults under age 30.

Adults 30 and older must apply for an affordability or general hardship exemption. You apply for a general hardship exemption through Covered California for approval and an Exemption Certificate Number (ECN). Then, you buy a catastrophic plan directly from an insurance company.

“Covered California encourages consumers interested in a catastrophic plan to consider a Bronze plan instead,” Tomiyoshi said. “The premium costs are often similar, and deductibles are usually lower on a Bronze plan. Bronze plans are available to everyone without needing an exemption.”

Requirements for Covered California

All U.S. citizens, U.S. nationals, and noncitizens residing in California can apply for health care through Covered California if lawfully present. But you’re not lawfully present in California, you can use CoveredCA.com to see if you qualify for Medi-Cal.

Important

As of Jan. 1, 2024, adults in California ages 26 through 49 can qualify for Medi-Cal regardless of their immigration status.

You cannot buy a plan through Covered California if you have Medicare. You also can’t buy Medicare Advantage or Medicare Supplement plans through Covered California. 

History of Covered California

In 2010, the federal Patient Protection and Affordable Care Act (ACA), also known as “Obamacare,” created a series of health care protections and rights, including the ability for states to create their own health insurance marketplaces. California was the first in the nation to offer its own health insurance marketplace, by creating Covered California.

Covered California appears to be a success. Those who were uninsured for a year or more dropped from almost 13% in 2015 to 4.5% in 2022, according to data released in late 2023.   

How to Get Covered California

You can compare plans and insurance pricing, then buy online at CoveredCA.com. Or you can get help from a licensed insurance agent or certified enrollment counselor in person or by calling 800-300-1506.

The online application process takes about an hour. You can choose to pay online after choosing a plan, or get billed by the insurer after it receives your application. Your insurance card is mailed to you. 

Note

If you qualify for Medi-Cal but apply through Covered California, your information will be sent to your local county offices for enrollment. 

When Is Covered California Open Enrollment?

Open enrollment for Covered California runs from Nov. 1 through Jan. 31. You could qualify for special enrollment if you miss this period and experience a major, qualifying life event—including marriage, job loss, or adopting a child.

What Is the Difference Between Medi-Cal and Covered California?

Medi-Cal provides low-income Californians—including those not in California legally—free or low-cost healthcare coverage. It’s California’s version of Medicaid. Covered California may offer financial help through tax credits to help pay your premium and assistance with other out-of-pocket costs. But you must be a legal resident to sign up for Covered California. 

What Is the Minimum Income for Covered California in 2024?

There’s no minimum or maximum income requirement to enroll in a Covered California plan. Eligibility for federal subsidies through the Affordable Care Act is based on the Federal Poverty Level. Those with an income of 138% FPL and lower are eligible for Medi-Cal in California.

The Bottom Line

Applying for health insurance through Covered California can help you get affordable coverage for yourself and your family. This health insurance protects against a personal financial crisis resulting from unexpected medical bills.

Covered California insurance plans also offer preventive care to keep you and your family healthy now and long into the future. Investigate options to discover a plan that fits your budget and lifestyle while benefiting from any insurance discounts that might apply if you qualify. 

Read the original article on Investopedia.