Breaking down the basics.

Whether your 65th birthday is on the horizon or decades away, understanding the different parts of Medicare is critical, as this government-sponsored program may play a role in your future health care decisions.

Parts A & B: Original Medicare. There are two components. In general, Part A covers inpatient hospital care, skilled nursing facility costs, hospice, lab tests, surgery, and some home health care services. One thing to keep in mind is that, while very few beneficiaries must pay Part A premiums out of pocket, annually adjusted standard deductibles still apply.1,2

Many pre-retirees are frequently warned that Medicare will only cover a maximum of 100 days of nursing home care (provided certain conditions are met). Part A is the one with these provisions. Under the current Part A rules, you would pay $0 for days 1-20 of care in a skilled nursing facility (SNF). During days 21-100, a $176 daily coinsurance payment may be required of you.1,2

Knowing the limitations of Part A, some people look for other choices when it comes to managing the costs of extended care.

Part B covers physicians’ fees, outpatient hospital care, certain home health services, durable medical equipment, and other offerings not covered by Medicare Part A.3

Part B does come with some costs, however, which are adjusted annually. The premiums vary, according to the Medicare recipient’s income level, but the standard monthly premium amount is $144.60 for 2020, and the current yearly deductible is $198.1

Part C: Medicare Advantage plans. Sometimes called “Medicare Part C,” Medicare Advantage (MA) plans are often viewed as an all-in-one alternative to Original Medicare. MA plans are offered by private companies approved by the federal government. Although these plans come with standardized minimum coverage, the amount of additional protection offered can differ drastically from one person to the next. This is due to unique provider networks, premiums, copays, coinsurance, and out-of-pocket spending limits. In other words, comparing prices and services offered from different vendors may be the best way to find a Medicare Advantage plan that works for you.3

Part D: Prescription drug plans. While Medicare Advantage plans often offer prescription drug coverage, insurers also sell federally standardized Medicare Part D plans as a standalone product to those with Medicare Part A and/or Part B. Every Part D plan has its own list (i.e., a “formulary”) of covered medications. Visit Medicare.gov to explore the formulary of approved drugs for your Part D plan as well as their prices, organized by tier.

In fact, Medicare.gov is a great place to start all your research. Once there, you’ll find answers to your most common questions and more information on the different Medicare plans offered in your area.4

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.
  1. CMS.gov, November 8, 2019
  2. Medicare.gov, 2020
  3. Medicare.gov, 2020
  4. Medicare.gov, 2020

What you should know about them.

Individuals hold about $2.2 trillion in annuity contracts; a tidy sum considering an estimated $9.2 trillion is held in all types of IRAs.1

Annuity contracts are purchased from an insurance company. In exchange, the insurance company makes regular payments to the buyer — either immediately or at some future date. These payments can be made monthly, quarterly, annually, or as a single lump sum. Annuity contract holders can opt to receive payments for the rest of their lives or a set number of years.

The money invested in an annuity grows, tax deferred. When the money is withdrawn, the amount contributed to the annuity will not be taxed, but earnings will be taxed as regular income. There is no contribution limit for an annuity.

There are two main types of annuities. Fixed annuities offer a guaranteed payout, usually a set dollar amount or a set percentage of the assets in the annuity. Variable annuities offer the possibility to allocate premiums between various subaccounts. This gives annuity owners the ability to participate in the potentially higher returns these subaccounts have to offer. It also means that the annuity account may fluctuate in value.

Indexed annuities are specialized variable annuities. During the accumulation period, the rate of return is based on an index. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies). The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities are not guaranteed by the FDIC or any other government agency.

Variable annuities are sold by prospectus, which contains detailed information about investment objectives and risks as well as charges and expenses. You are encouraged to read the prospectus carefully before you invest or send money to buy a variable annuity contract. The prospectus is available from the insurance company or your financial professional. Variable annuity subaccounts will fluctuate in value based on market conditions and may be worth more or less than the original amount invested when the annuity expires.

Case Study: Robert’s Fixed Annuity. Robert is a 52-year-old business owner. He uses $100,000 to purchase a deferred fixed annuity contract with a 4% guaranteed return.

Over the next 15 years, the contract will accumulate, tax deferred. By the time Robert is ready to retire, the contract should be worth just over $180,000.

At that point, the contract will begin making annual payments of $13,250. Only $7,358 of each payment will be taxable; the rest will be considered a return of principal.

These payments will last the rest of Robert’s life. Assuming he lives to age 85, he’ll eventually receive over $265,000 in payments.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax, or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – Investment Company Institute, 2020.

Health Savings Accounts may provide you with remarkable tax advantages.

Why do higher-income households inquire about Health Savings Accounts? They have heard about what an HSA can potentially offer them: a pool of tax-exempt dollars for health care, a path to tax savings, even a possible source of retirement income after age 65. You may want to look at this option yourself.

About 26 million Americans now have HSAs. You must enroll in a high-deductible health plan (HDHP) to have one, a health insurance option that is not ideal for everybody. In 2020, this deductible must be $1,400 or higher for individuals or $2,800 or higher for a family. In exchange for accepting the high deductible, you may pay relatively low premiums for the coverage.

You fund an HSA with tax-free contributions. This year, an individual can direct as much as $3,550 into an HSA, while a family can contribute up to $7,100. (These contribution caps are $1,000 higher if you are 55 or older in 2018.) Some employers will even provide a matching contribution on your behalf.

HSAs offer you three potential opportunities for tax savings. Your account contributions are tax free (that is, tax deductible), the earnings in your account grow tax free, and you can withdraw funds from your HSA, tax free, so long as they are used to pay for qualified health care expenses, such as deductibles, co-payments, and hospitalization costs. (HSA funds may not be used to pay health insurance premiums.)1,3

At age 65, you can even turn to your HSA for retirement income. Current federal tax law allow an HSA owner 65 and older to withdraw HSA funds for any purpose, penalty free. You can use the an HSA to pay Medicare premiums (other than premiums for a Medicare supplemental policy, such as Medigap) or extended-care insurance premiums. No Required Minimum Distributions (RMDs) are ever required of HSA owners. Keep in mind, however, if you take a distribution that is not used for a qualified medical expense, the money may be taxable and a penalty could apply, depending on your age.1

Why is an HSA less attractive for some people? Well, the first thing to mention is the related high-deductible health plan. When you enroll in one of these plans, you agree to pay all (or nearly all) of the cost of medicines, hospital stays, and doctor and dentist visits out of your pocket until that high insurance deductible is reached.1

The other hurdle is just saving the money. If you pay for your own health insurance, just meeting the monthly premiums can be a challenge, especially if your household contends with other significant financial pressures. There may not be enough money left over to fund an HSA. Also, if you are a senior (or a younger adult) with a chronic condition or illnesses, you may end up spending all of your annual HSA contribution and reducing your HSA balance to zero year after year. That works against one of the objectives of the HSA – the goal of accumulation, of growing a tax-advantaged health care fund over time.

If you would like to explore opening an HSA, your first step is to consult an insurance professional to see if you can enroll in a qualified HDHP, unless your employer already sponsors such a plan. Finding an HSA provider is next.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – thebalance.com/hsa-vs-ira-you-might-be-surprised-2388481 [8/13/17]

What features should it have? What terms should it offer?

Have you thought about bundling your insurance? You may want to consider that, as insuring your house and vehicles with the same carrier could save you some money.

Most people buy insurance without doing much homework. That holds true for auto insurance, property & casualty insurance, even life insurance. Some people just buy on price. Some just choose the company their parents chose. Others follow the suggestion of a title company, a real estate professional, or a friend or relative.

Due to these quick decisions, households frequently pay out more in premiums than they should and receive more paperwork than they prefer. By contrast, combining home and auto insurance under one policy means one deductible, one premium payment, one yearly bill, and one agent as a point of contact.

A spring 2015 study from financial education website NerdWallet reveals that the average U.S. household spends $2,438 annually on life, auto, and homeowners insurance – 5.6% of its annual income. Mom and Dad may not know that simply bundling their home and auto insurance may save them as much as 15% annually on both premiums. According to a recent InsuranceQuotes survey, the average savings from that move is $270.1,2

What distinguishes good multi-line coverage from the run-of-the-mill? Often these policies are of the good-better-best variety. The good ones provide you with medical expense coverage for accidents at home or in your car, landscaping coverage and lock replacement, liability and dwelling coverage on a rental property, built-in coverage for precious-metal collectibles, and reimbursement for certain police and paramedic services.

The better ones offer more. It is not uncommon to see a policy offer all of the above plus higher coverage levels (150% or 200% of a home’s value), coverage for land restoration, accident forgiveness, roadside assistance plus coverage for towing, reimbursement for rental cars, no-deductible windshield repair, trip interruption, even coverage against libel or slander.

In addition, the really deluxe policies may insure your septic tank, your collectibles, and even a fleet vehicle or other vehicle you drive that is provided by your employer, offer coverage for additional living expenses incurred as a result of an auto accident or damage to the home, and provide reimbursement against identity theft – all while offering even greater coverage levels.

Select home and auto policies come with some little-recognized perks. The better car insurance policies will also provide you with rental car coverage, and pick up the cost of a replacement car seat for your infant after a car accident (even if the seat appears undamaged to the eye). They may also cover rodent/animal damage to your vehicle’s interior or engine.3

In some cases, homeowner’s insurance coverage even extends to the dorm your child lives in at college. There are policies that insure homeowners against damages claimed by guests who eat spoiled food from a refrigerator or pantry. Others cover damage to “other structures” besides the primary residence – meaning damage to a guest house, a tool shed, a treehouse, a fence.3

What are some of the top mistakes people make when buying multi-line insurance? Compare features and deductibles, not just premiums. A really cheap plan may not offer enough protection to restore a home to its full value or provide a car of similar quality after an accident.

Many homeowners and vehicle owners make the mistake of equating market value with replacement cost. The present value of your home or car is not necessarily what it would cost to replace it. Some homeowner insurance includes ordinance or law coverage – raising the coverage limit by as much as 25% to account for the cost of rebuilding an older home to suit newer construction codes.4

Homeowner policies typically have caps – they insure the contents of the home up to a certain dollar value. If you have really valuable stuff at home, look for a rider that can be added to the basic policy to cover the additional cost of replacing such valuables. If you run a business out of your home, you may need more homeowner’s coverage than you assume.2

Another mistake is to dismiss regional risks. Some people move to the desert, near a dry riverbed, and never consider flood insurance. In the Southwest, there are many stories of dry riverbeds suddenly filling with flash floods that wash away cars, RVs, yards, or whole homes. People move from the west coast and believe they have no need for earthquake coverage – but fracking is unsettling the ground in some areas in the South and the Plains states.

When should you review your coverage? You should do so annually, by comparing bundled quotes from few different insurers. You should also review your coverage after a life event – a marriage, a new addition to the family, even a new job with a change to your daily commute. As you shop, ask for quotes from independent agents as well as those affiliated with one insurer. The independent agents can introduce you to a variety of coverage from different companies, possibly opening the door to more savings options.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – nerdwallet.com/blog/life-insurance/where-people-pay-most-least-for-homeowners-health-auto-life-insurance-2015/ [6/22/15]
2 – thestreet.com/story/13190620/1/even-your-marriage-requires-an-insurance-policy.html [6/18/15]
3 – money.usnews.com/money/personal-finance/articles/2015/01/22/7-perks-hiding-in-your-insurance-policy [1/22/15]
4 – fool.com/how-to-invest/personal-finance/2014/03/16/tips-to-find-the-best-homeowners-insurance-coverag.aspx [3/16/15]

 Take a moment to see if you are adequately protected.

Not all home insurance policies are alike. Coverage amounts obviously vary, and so do coverage areas. Taking ten minutes to scrutinize what your policy does (and does not) cover is a wise idea.

Homeowner policies routinely provide tornado, windstorm, & hailstorm coverage. If a tornado, windstorm, or hailstorm damages your home or yard, the insurer will commonly pay out in response to your claim, unless your residence has somehow failed to qualify for such coverage.1,2

How about hurricanes & floods? Here, basic coverage may not be enough. Most homeowner policies cover hurricane damage, but a hurricane frequently results in flooding. A flood is not usually a covered peril in a standard home insurance policy.2

In areas with serious flood risks, mortgage lenders often require borrowers to obtain flood insurance. Nationally, about a fifth of flood insurance claims are filed in regions that have low or moderate flood risks. If you live by a normally calm creek, river, reservoir, bay, or beach, you must decide if flood insurance is worth purchasing. You should consider it even if a creek, river, or reservoir near you is dry most of the year – flash floods, for example, can wreak havoc in a desert community.3

How about earthquakes? If you live in quake country, you likely know that the standard homeowner policy will not cover earthquake damage. Just like those who consider an optional flood policy, you must conduct your own informal cost-benefit analysis: is the extra coverage worth the money?3

Many homeowners decide against buying hurricane, flood, and earthquake insurance. They see this supplemental coverage the same way they see long-term care insurance – a lot of money spent for something they may never need. Their decision may come to haunt them, however. One temblor, one storm, or one rising river may impact them more than they could imagine.

How about fire & lightning? The answer is yes – homeowner policies commonly provide coverage against lightning damage as well as damage from fire and smoke. Explosions from gas leaks may also be covered, at least under most circumstances.1

What about sewer problems? Damage caused by leaking or ruptured septic tanks, sump pumps, and sewer systems is usually not covered in a home insurance policy. You can often attach a rider to a policy to gain that kind of protection.3

How about theft? Coverage against larceny – the theft of real property – is common in any homeowner policy. Limits are set on coverage of art, antiques, collectibles, and jewelry, but they can be raised. They may need to be raised because, in some instances, the payout may fall short of the full value of what was stolen. All homeowners would do well to keep a home inventory checklist of valuable items on their property, complete with some kind of visual record.1

You may want to add some business coverage if you work at home. That coverage should be tailored according to the nature of the work you perform, and it may need to include inventory or liability coverage. An umbrella liability policy could also come in handy, especially if you have clients coming over to your home or you provide goods and services to others as a function of your work.

What events will home insurance not protect you against? You will be hard-pressed to find any homeowner policy that offers protection against terrorist acts, acts of warfare, nuclear accidents, or movements of the earth (earthquakes, mudslides, landslides, and sinkholes). Some things are very difficult or nearly impossible to imagine, predict, or guard against.

Renters need insurance, too. If you rent rather than own, you can still face many of the risks mentioned in this article. If you lack renter’s insurance, think about getting a policy – it may be cheaper than you assume.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – cleveland.com/insideout/index.ssf/2017/01/home_insurance_tips_kids_sewin.html [1/12/17]
2 – 360financialliteracy.org/Topics/Home-Ownership/Homeowners-Insurance/Windstorms-Hurricanes-and-Tornadoes-Are-You-Covered [1/19/17]
3 – realestate.usnews.com/real-estate/articles/do-you-need-additional-home-insurance/ [2/18/16]

If you are injured or ill, it could help you keep afloat financially.

If you can’t work and pay your bills, how are you going to cope? Let’s say an injury or illness prevents you from doing your job. How do you deal with the lost income?

Disability income insurance provides an answer. Few of us opt for such coverage, even though it may help us maintain our income (and quality of life) in a crisis.

A case in point: the non-profit Consumer Federation of America just polled 1,200 private-sector U.S. workers and found that two-thirds of them had no such coverage.1

Mention that to most employees, and they may just shrug. Who cares, who wants to buy more insurance, especially coverage you don’t think you’ll need?

The skepticism is understandable, because we never believe we will be disabled. We don’t dare think about it. Additionally, few of us comprehend the varieties of “disability” that we could end up experiencing.

The non-profit Council of Disability Awareness notes that 90% of disability claims in the U.S. are unrelated to workplace injury. Rather, they are filed for acute or chronic illnesses or health conditions. Musculoskeletal disorders (such as arthritis, spine and joint disorders, fibromytis and back pain) represent the largest percentage of disability claims, more than any other condition.1,2

Do you think you don’t need disability coverage? Think again. It may shock you how little of your wages you can replace. You can only get workers compensation if your injury or illness is job-related – but less than 5% of disabling illnesses or injuries are. Social Security disability benefits typically provide about $1,100 per month – not exactly the income you want. Additionally, it might take a year or more for you to get your first check. In 2009 (the midst of the Great Recession), the SSA denied 65% of initial SSDI claim applications.1,3,4

This is why disability income insurance can be so useful. Some of these policies allow payments to start just a week after an employee stops working, and many of them will provide coverage in the neighborhood of 60% of a worker’s salary.1

What are your chances of becoming disabled during your working years? As a 2011 Social Security Administration Fact Sheet notes, just over 25% of today’s 20-year-olds are projected to become disabled before they retire. More than 5% of U.S. wage earners – 8.3 million people – were getting SSDI in 2011.4

The Society of Actuaries finds that once someone is disabled for 90 days, the average length of disability is two years. The CDA reports that the average long-term disability claim has a duration of 31.2 months.1,2

If your income drops, your stress level could soar. Do you know someone who has had to quit their job or walk away from their profession due to a disability? Then you’ve seen the financial stress that can result.

Even if you don’t know someone facing such financial pressure, you have probably read stories that touched your heart, stories of economic hardship that can be traced back to a disability. A hard-working man or woman loses a home to foreclosure; a couple separates or divorces under economically trying circumstances; a single parent with children has to accept charity from a food bank or becomes homeless. In too many of these stories, a sudden disability is an underlying cause.

If you die, your income stops and so do your expenses. If you are disabled and can’t work, your income stops … but your expenses keep piling up. In fact, with the cost of medical treatment, your expenses may balloon.

It’s time to start thinking about disability insurance. We’d all like to believe that we’ll never be disabled. But the reality is … it could happen to you. If it does, how will your family manage? Are you prepared?

If your employer doesn’t offer or provide you with disability income insurance, take some time to look at some of the options available. You don’t always know what the future holds; if you become disabled, this insurance may give you added economic stability.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – bucks.blogs.nytimes.com/2012/05/01/most-workers-lack-disability-insurance-survey-finds/ [5/1/12]
2 – www.disabilitycanhappen.org/chances_disability/causes.asp [5/2/12]
3 – www.nytimes.com/2010/02/06/your-money/life-and-disability-insurance/06money.html?_r=1 [2/6/10]
4 – www.disabilitycanhappen.org/chances_disability/disability_stats.asp [5/2/12]

 

Are they worthwhile alternatives to traditional LTC policies?

The price of long-term care insurance has really gone up. If you are a baby boomer and you have kept your eye on it for a few years, chances are you have noticed this. Last year, the American Association for Long-Term Care Insurance (AALTCI) noted that married 60-year-olds would pay between $2,000-3,500 annually in premiums for a standalone LTC policy.1

Changing demographics and low interest rates have prompted major insurers to stop offering LTC coverage. As the AALTCI notes, the number of LTC policies sold in this country fell from 750,000 in 2000 to 105,000 in 2015. Today, only about 15 insurers offer these policies at all. The demand for the coverage remains, however – and in response, insurance providers have introduced new options.1,2

Hybrid LTC products have emerged. Some insurers offer “cash rich” permanent life insurance policies that let you tap part of the death benefit to pay for long-term care. Other insurance products feature similar potential benefits.1,2

As these insurance products are doing “double duty” (i.e., one policy or product offering the potential for two kinds of coverage), their premiums are costlier than that of a standalone LTC policy. On the other hand, you can get what you want from one insurance product, rather than having to pay for two.3

Another nice perk offered by these hybrid LTC products: sometimes, insurers guarantee that the premiums you pay will never rise. (Many retirees wish that were the case with their traditional LTC policies.) Whether the premiums are locked in at the initial level or not, the death benefit, coverage amount, and cash value are all, commonly, guaranteed.3

Hybrid LTC policies provide a death benefit, a percentage of which will go to your heirs. Do traditional LTC policies offer a death benefit? No. If you buy a discrete LTC policy, but die without needing long-term care, all those LTC policy premiums you paid will not return to you.3

The basics of securing LTC coverage applies to these policies. The earlier in life you arrange the coverage, the lower the premiums will likely be. If you are not healthy enough to qualify for a standalone LTC insurance policy, you might qualify for a hybrid policy – sometimes no medical exam is required. The LTC insurance benefit may be used when a doctor certifies that the policyholder is unable to perform two or more of the six activities of daily living (eating, dressing, bathing, transferring in and out of bed, toileting, and maintaining continence).4,5

These hybrid LTC policies usually require lump-sum funding. A single premium payment of $75,000-$100,000 is not unusual. For a high net worth individual or couple, this is no major hurdle, especially since appreciated assets from other life insurance products can be transferred into a hybrid product through a 1035 exchange.2,3,4,6

Are these hybrid policies just mediocre compromises? They have critics as well as fans. Detractors cite their two sets of fees per their two forms of insurance coverage. They also point out that hybrid LTC policies are not inflation protected, so the insurance benefit is worth less with the passage of time. Also, while the premiums paid on conventional LTC policies are tax deductible, premiums paid on these hybrid policies are not.3

Funding the whole policy up front with a single premium payment has both an upside and a downside. You will not contend with potential premium increases over time, as owners of stock LTC policies often do; on the other hand, the return on the insurance product may be locked into today’s low interest rates.

Another reality is that many middle-class seniors have little or no need to buy a life insurance policy. Their heirs will not face inheritance taxes, because their estates will not exceed the federal estate tax exemption. Moreover, their children may be adults and financially stable, themselves; a large death benefit for these heirs is nice, but the opportunity cost of paying the life insurance premiums may be significant.

Cash value life insurance can be a crucial element in estate planning for those with large or complex estates, however – and if some of its death benefit can be directed toward long-term care for the policyholder, it may prove even more useful than commonly assumed.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – tinyurl.com/ych92alo [7/21/16]
2 – nytimes.com/2016/03/06/business/retirementspecial/hybrid-long-term-care-policies-provide-cash-and-leave-some-behind.html [3/6/16]
3 – today.com/series/starttoday/have-healthy-retirement-jean-chatzky-how-pay-long-term-care-t106862 [1/10/17]
4 – elderlawanswers.com/hybrid-policies-allow-you-to-have-your-long-term-care-insurance-cake-and-eat-it-too-15541# [4/5/16]
5 – elderlawanswers.com/activities-of-daily-living-measure-the-need-for-long-term-care-assistance-15395 [11/24/15]
6 – kiplinger.com/article/insurance/T036-C001-S003-tax-friendly-ways-to-pay-for-long-term-care-insura.html [8/16/16]

 

 

Life insurance choices can be confusing.

Man is Mortal. That makes life insurance a little unique and interesting, doesn’t it? We purchase things like health insurance, car insurance and home insurance, then hope we never have a need to use them. Life insurance is different because it’s a widely accepted fact that, sooner or later, each one of us will die.

So many choices. When it comes to life insurance, there are many options. You may have heard terms like “whole life insurance,” “term insurance,” or “variable insurance,” but what do they all mean? And what are the differences? Well, first let me point out what they have in common: all life insurance policies provide payment to a beneficiary in the event of your death. Except for that basic tenet, the differences between policies can be major.

Whole life insurance. This type of insurance covers your entire life (not just a portion or a “term” of it). Insurance companies tend to be cautious when selecting their investments, so the benefits could be, potentially, lower than if you invested on your own. Whole life policies also tend to cost more than “term” policies. This is both because they grow what is known as “cash value,” and, after a certain period of time, you will be able to borrow against or withdraw from your whole life benefits.

Term insurance. Rather than covering your whole life, “term” insurance covers a pre-determined portion of your life. If you die within that term, your beneficiaries receive a death benefit. If not, generally, you get nothing. To put it simply, term insurance allows you to purchase more coverage for less money. Basically, you are betting on the probability of your death occurring within that specified “term.”

Variable life insurance. Variable life insurance is a permanent insurance. Unlike whole life insurance, however, variable insurance allows you to invest the cash value of your policy into “subaccounts” (which can include money market funds, bonds or stocks). Variable insurance offers a bit of control, as the value and benefit depend upon the performance of the subaccounts you select. That means there could be significant risk involved, though, since the performance of your subaccounts cannot be guaranteed.

Universal life insurance. With universal insurance, it all comes down to flexibility. It is permanent life insurance that provides access to cash values, which, over time, build up tax-deferred. You can choose the amount of coverage you feel is appropriate, and you retain the ability to increase or decrease that amount as your needs change (subject to minimums and requirements). You also have some flexibility in determining how much of your premium goes toward insurance, and how much is used within the policy’s investment element.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

A good financial strategy is not just about “making money;” it is also about protection.

Some people mistake investing for financial planning. Their “financial strategy” is an investing strategy, in which they chase the return and focus on the yield of their portfolio. As they do so, they miss the big picture.

Investing represents but one facet of long-term financial planning. Trying to build wealth is one thing; trying to protect it is another. An effort must be made to manage risk.

Insurance can play a central role in wealth protection. That role is underappreciated – partly because some of the greatest risks to wealth go unnoticed in daily life. Five days a week, investors notice what happens on Wall Street; the market is constantly “top of mind.” What about those “back of mind” things investors may not readily acknowledge?

What if an individual suddenly cannot work? Without disability insurance, a seriously injured or ill person out of the workforce may have to dip into savings to replace income – i.e., reduce his or her net worth. As the Council for Disability Awareness notes, the average length of a long-term disability claim is nearly three years. Workers’ compensation insurance will only pay out if a disability directly relates to an incident that occurs at work, and most long-term disabilities are not workplace related. Disability insurance can commonly replace 40-70% of an individual’s income. Minus disability coverage, imagine the financial impact of going, for instance, three years without work and what that could do to a person’s net worth and retirement savings.1

What if an individual suddenly dies? If a household relies on that person’s income, how does it cope financially with that income abruptly disappearing? Does it spend down its savings or its invested assets? In such a crisis, life insurance can offer relief. The payout from a policy with a six-figure benefit can provide the equivalent of years of income. Optionally, that payout can be invested. Life insurance proceeds are usually exempt from income tax; although any interest received is taxable.2

Most people want a say in what happens to their wealth after they die. Again, insurance can play a role. At a basic level, those with larger estates may use life insurance to address potentially large liabilities, such as business loans, mortgage payments, and estate taxes. An ILIT may also shield the cash value of a life insurance policy from “predators and creditors.” Beyond that, a sizable life insurance policy can be creatively incorporated into an irrevocable life insurance trust (ILIT), through which an individual can plan to exclude life insurance proceeds from his or her taxable estate.3

Yes, the estate tax exemption is high right now: $5.49 million. Even so, if a person dies in 2017 while owning a $5 million life insurance policy and a $500,000 home, his or her estate would be taxed. An ILIT would be a useful estate-planning tool in such a circumstance.3

Why do people underinsure themselves as they strive to build wealth? Partly, it is because death and disability are uncomfortable conversation topics. Many people neglect estate planning due to this same discomfort and because they lack knowledge of just how insurance can be used to promote wealth preservation.

The bottom line? Insurance is a vital, necessary aspect of a long-term financial plan. Insurance may not be as exciting to the average person as investments, but it can certainly help a household maintain some financial equilibrium in a crisis, and it also can become a crucial part of estate planning.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – nerdwallet.com/blog/insurance/disability-insurance-explained/ [6/27/16]
2 – tinyurl.com/knroq9u [3/27/17]
3 – thebalance.com/irrevocable-life-insurance-trust-ilit-estate-planning-3505379 [3/21/17]