Category: Everyday Finance

As you near retirement age, you may find yourself flooded with brochures and commercials about what Medicare option is right for you.

You know you need to sign up for something, but with so many choices how do you determine which healthcare plan will provide adequate coverage?

The Two Medicare Options

There are two ways you can acquire Medicare coverage. You can choose to have the Government as your primary source of insurance, known as Original Medicare. Or you can opt to have a private insurance company provide you with similar coverage through a Medicare Advantage plan.

The Original Medicare program (Parts A and B) is offered directly through the Government. Medicare Parts A and B typically offers limited protection for medical expenses during retirement, so many retirees opt to seek additional benefits in the form of a Medicare supplement (Medigap) policy.

A Medicare Advantage plan (Part C) on the other hand is a private health insurance policy, underwritten by a private health insurance company, which replaces your original Medicare coverage (Parts A & B). With Medicare Part C, only the private company is responsible for paying your medical claims – the government is no longer responsible for those expenses.

Legally, the private company has to provide you with “equal or better” coverage than what you would get with original Medicare. Some plans go above and beyond original Medicare by offering additional benefits, such as vision, dental, and prescription drugs (Part D).

Of course, these benefits can be purchased even if you have original Medicare, so it’s wise to compare the costs carefully.

Is A Medicare Advantage Plan Right For Me?

The first significant element in assessing if an Advantage plan is a fit for you is your health history.

If you expect your health care expenses to be high, you may consider an Advantage plan because most Advantage plans have a yearly limit on your out-of-pocket costs for medical expenses.

The limit is known as your out-of-pocket maximum, and after you reach it, you pay nothing for the rest of the year. With Original Medicare, there is no out-of-pocket maximum, meaning an extended stay in the hospital could leave you with the entire bill. Although, there are generally limits if you have a Medigap Policy.

Another key factor when determining whether or not an Advantage plan is right for you will be your travel plans during retirement. Medicare Advantage Plans are usually structured as HMOs, and therefore, you are limited to a network and geographic area that services are provided.

You may be limited to a selection of physicians that you can use, forcing you to stop seeing a long-time trusted physician who is not part of the network.

Also, if you plan to spend winter or summer months in another location, you may have limited coverage (except in emergency situations) forcing you to return home for treatment.

Keep in mind, these are only a few considerations for determining a coverage that is right for you. You should also consider your budget, medical needs, and coverage preferences when picking a plan.

Should I get life insurance for my kids? I often get asked this question from clients who are parents. 

The most straightforward and easy answer is… of course not.

Life insurance is mainly purchased as an income replacement so your spouse or children can maintain their standard of living. Or it’s often used to cover an expense(s) that survivors wouldn’t be able to pay for otherwise like a mortgage or fully funding children’s education needs.

Since children don’t have an income to replace, there really isn’t any reason to insur their lives.

it’s not just about the death benefit

However, I was recently talking with an insurance agent who has been in the industry for over 30 years. He said that insurance companies are increasingly asking for the results of direct-to-consumer genetic tests as part of their application process. 

The concern is that as prenatal and newborn genetic testing becomes more prevalent, insurance companies will be able to get their hands on the results and deny these children coverage simply for having a higher likelihood of developing a disorder in the future.

Keep in mind this is all totally legal.

As you can imagine, this changes the game when it comes to life insurance for children. It’s no longer about simple income replacement, it’s about preserving a child’s insurability in the face of never being able to acquire it in the first place.

Insurability forever

So how can you go about acquiring insurance in a way that is actually going to preserve a child’s insurability?

A whole life policy.

Whole life insurance is a permanent form of life insurance. Once you have it, and if you continue paying for it, you have it forever. Well… until death. 

I’m not usually a fan of whole life policies (or at least the way they are sold to individuals) but they do serve a special purpose in insurance planning. This being one of them.

The strategY

The strategy is simple. Purchase a whole life policy for a child as soon as possible. Preferably before any genetic testing is done.

Although, the amount the insurance company will let you purchase for a newborn typically won’t be enough for what the child actually needs as an adult.

The solution is to add a rider (an additional option to the policy) that allows the child to buy additional coverage in the future.

The options have different names – depending on the insurance company who’s providing it – but will usually be along the lines of guaranteed insurability rider, future insurability option, etc. The name doesn’t really matter, it’s the option to buy more coverage in the future that’s important.

The rider guarantees a certain amount can be bought at various ages (25, 28,31 37, 40), allowing a child to increase their coverage if necessary without having to go through any medical underwriting. That means no health questions or tests, inquiries about vocation or avocation, or anything else that may prevent them from obtaining coverage in the future. 

I asked my insurance friend how much a typical policy like this costs. He said a $100,000 whole life policy with a $100,000 guaranteed insurability rider is $300-500 per year, depending on the child’s age.

The bottom line

This can be a smart strategy to ensure you, and your children, are in control of their insurability as they age, no matter what happens in life.

However, once the child is an adult and can purchase their own policy, it will probably make financial sense for them to explore term life insurance policies to cover their insurance needs at that time.

They can continue the whole life policy as well or they can simply stop paying the premium and let the protection expire if there isn’t a need for it anymore.