Ask Karen Gibbs

Veteran business correspondent Karen Gibbs answers your personal money questions and addresses current topics that affect YOUR finances on a daily basis. Karen is the financial expert in your corner--no question is too basic or too small. Karen boils down the issues simply: here's what you need to know, and here's what you need to do. Send your money questions to and post your comments below.



Term Insurance Vs. Whole Life

Karen Gibbs

Hi Karen, I’m looking at insurance and want to know the difference between term insurance and whole life.

- Thanks, Steve from Waldorf.

 Life Insurance Policy

Steve: thanks for your question.  Term life insurance is coverage for a specific time payable upon death.  If you are alive at the end of the contract, you get zero, nothing.  There is no cash value that accrues.  But term life insurance offers the maximum coverage for the lowest price.  Its best to purchase it when you are young as the premiums become more expensive as you age.


Whole life insurance is a policy that gives you death benefit coverage plus an investment/savings element, where the cash value of the policy increases every year.  Whole life insurance premiums are more expensive than term insurance because of those elements.


There is another form of life insurance called universal.  It is a more flexible insurance vehicle than either term or whole life.  Universal policies ...

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The Dangers of Late Fees

Karen Gibbs

Hi Karen, I missed my credit card payment by one day and was charged a late fee.  Will that affect my credit score?

-  Brenda from Baltimore

 Last Fee Bill

Brenda, join the club.  I think we’ve all been there.  But there’s good news.  Generally being just one day late won’t affect your credit score, but it depends on your credit card issuer and your payment history.  Some lenders track payments in 30-day increments; 1-30 days late; 31-60 days late and 61-90 days late. While credit rating agencies may not consider a payment late until it is 30-59 days in arrears, you don’t want to have a history of late payments.  Payment history can account for as much as 35% of your credit score.


While your credit score may not get hurt, you will feel it in your wallet.  Most credit card issuers charge a late-fee if payment is not received by the close of business on the due date.  If this is your first late payment, you may be able ...

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My last column addressed 529 plans and Coverdell Education Savings Accounts (ESA).  But what happens if your child decides not to attend college?

College Fund
If you’re a parent or relative who has used an ESA to save for a child’s college tuition and that child opts not to go to college, you might not be happy but you have options.  First, you can always change the beneficiary of the ESA to anyone, regardless of relationship, as long as that person is a U.S. citizen or resident foreign national with a social security number or Federal tax identification number

You can also defer the use of the ESA and leave the contribution invested in the account.  Lastly, you can take a “non-qualified” ESA distribution, which in tax speak means that the earnings in that account will be subject to federal and state taxes plus a 10% federal penalty
To avoid that penalty, some parents use a Roth IRA as an education savings account.  Contributions to both 529s and Roth IRAs ...

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Saving for College

Karen Gibbs

Hi Karen, I have two young sons; ages seven and two, and I want to start saving for their college education.  What are my options? 

  -Thi, Owings Mills


Thi, the government has made it easier to start saving for college, but as with everything, you have to do your homework.  There are advantages and disadvantages to every choice you make, and it’s no different when saving for your children’s’ education.

Graduation Piggy Bank

There are two federally sponsored, tax-advantaged education savings plans available; 529 College Savings Plans and Coverdell Education Savings Accounts, named after the late Georgia senator Paul Coverdell.   With both plans you have income limits and contribution limits.  There are also issues of who controls the account – you or your child – that can affect financial aid calculations.  There are limits and restrictions regarding how the funds can be used and penalties may be assessed.

Additionally, ...

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Estate Planning

Karen Gibbs

Estate planning is not just for the rich and famous.  If you have possessions and relatives, a plan will go a long way in giving you peace of mind while avoiding conflict among family members.

Estate planning is not only in case of death.  What will happen to your belongings if you become disabled or incapacitated?  Having a plan inEstate Planning place before the emergency strikes takes the pressure off of having to make decisions under stress and insulates you against those who might want to exploit your loss.

There are four documents that you should include in your estate plans.  First and foremost is your will.  How do you want your assets to be distributed?  Do you have a business?  Do you want to keep it in the family?  Do you have children from several marriages or a blended family?  Having a written, legal will aids in probate – the legal process of administering an estate, resolving claims against the estate and distributing the deceased’s ...

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