Tag: Insurance

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.

Life happens.

You get rear-ended on your way to work. Hey, good thing you had car insurance.

A huge hailstorm rips through your neighborhood destroying your roof. Nice! You had homeowner’s insurance!

You slip and fall and can’t work for a few months. Thank goodness you had disability insurance.

You like the way icicles look from directly underneath when it snaps off the roof and impales your brain…

Do You Need Life Insurance?

It’s true that not everyone needs life insurance. But if you have someone who relies on you for income, you likely need it.

Like the other types of insurance mentioned above, life insurance is a tool we use to handle a specific need. In this case, it’s keeping loved ones from feeling the financial impact of your absence.

The Needs Guide

In case you’re still wondering if this applies to you, here are a few common situations that I see and whether they needed life insurance or not.

Of course, this list isn’t all-encompassing. Every person’s situation is different and needs to be assessed on an individual level.

However, you may notice a common theme. In each of the situations where life insurance was needed, it was because someone was relying on another person financially.

How Much Do I Need?

Okay. So you’ve determined you need life insurance. What’s next?

The next step will be to calculate how much you need. There are a few online calculators that can get you started.

If you think your need is immediate, I recommend contacting a fee-only financial advisor before going to see your insurance agent.

The bigger the policy, the more commission the insurance agents get paid. They have an incentive to sell you more insurance then you need. Fee-only advisors only get paid by you and will be able to give you an unbiased calculation that you can take to your insurance agent.

There are two basic types of life insurance, term and permanent. 

Depending on your age, health, and overall financial goals you need to weigh the benefits of both before deciding which type of insurance to purchase.  You may only need one type or you may need both.

Understanding what each has to offer is key in making a sound decision.

Term Life Insurance

• Term insurance only pays a benefit as a result of death within the term period.  The term period usually ranges from one to thirty years.
• There are two types of term insurance, level term and decreasing term.
• Level term means that the death benefit will remain the same throughout the existence of the policy.
• Some level term policies may contain an increasing benefit rider, which increases the death benefit each year over the course of your term.  You will, however, agree to pay slightly higher premiums each year as well.
• Decreasing term means that the death benefit is steadily reduced, usually in one-year increments, throughout the existence of the policy.
• Term conversion options are included in many term life insurance policies which allow you to convert to a permanent form of insurance, like whole life.
• The years in which you can convert — and the products you can convert to — will vary depending on the specific policy and carrier.

Permanent Life Insurance

• Permanent life insurance does not expire, hence the name. It will pay a death benefit no matter when you die.  It does not limit you to a term period.
• There are four types of permanent life insurance: traditional whole life, universal, variable, and variable universal.
• In a traditional whole life policy, the death benefit and premium stay “level” throughout the life of the policy.  This means that a higher than needed premium is paid in the early years to offset the cost of benefits in the later years.  Basically, the “overpayments” are invested to cover the death benefits of older policyholders.  Companies are legally bound to adhere to the limitations of these “overpayments.”  Once they reach a certain amount, the money becomes available to the policyholder if they choose not to maintain the policy until death.  Essentially, it is like having a savings account.
• A universal policy has its own key characteristics.  You may be able to increase your death benefit if you pass a medical exam.  The cash value account or “savings account” earn interest at a money market rate.  Once you have enough money in your cash value account you may be able to adjust your premium payments.
• A variable policy allows you to invest your death protection and cash value in stocks, bonds, and mutual funds.  You have the opportunity to grow your policy quickly.  You also, however, assume more risk and may end up with a decreased benefit or cash value.
• The variable universal policy combines the principles available in both universal and variable policies.  You can adjust premiums and death benefits like you can with universal, but you can also invest aggressively with the potential for greater rewards as with variable.

Educating yourself and understanding the life insurance options that are available is the first step.  Next, you will need to examine your own family structure and financial goals to determine which policy will be best for you and your loved ones.

A financial advisor can help you determine which life insurance is right for you.

To many folks, pets are an important member of their family. As such, they would do anything for them.

But when the family pet gets sick with a life-threatening illness, you could be faced with expensive veterinary care that you haven’t quite budgeted for and be put in a tight financial spot.

Take for example some real-life costs of typical surgical procedures: gastric dilation volvulus (bloat), $3,525; foreign-body ingestion, $2,964; cancer, $5,351; hit by a car with a fractured pelvis, $3,717. Here is a link to the source of the information with other examples.

It’s situations like these that pet insurance can be as valuable as people health insurance.

does it make sense to buy?

Whether you choose to purchase insurance or self-insure, you’ll need to weigh what you can afford over your pet’s expected life span.

For example, as your pet ages, the more you’ll pay to insure them and the less the insurance company will likely cover. At some point, it makes sense drop the insurance and purely pay out of pocket.

You can choose to self-insure (paying for medical care with your own accumulated funds) for the entire lifetime of your pet. If you’re going to self-insure, it is smart to set up a designated account exclusively for your pet’s care. That way the funds aren’t comingled with other emergency reserves and used for another purpose.

Having the foundation in place to care for your pet — without going into a financial strait — will avoid putting you in the situation of having to decide to put them to sleep because of money.

Before you buy

Okay, you’ve made the decision to purchase the insurance. There are few things you need to do before handing any money over to the insurance company.

• Read the policy very carefully. As with anything, you need to look at the terms of the coverage. Some companies apply the deductible per incident, others per year. Make sure you know what you are buying.
• Understand co-pays, deductibles, and caps. Pet insurance works differently than human health insurance. Know how much you’ll be responsible for paying and how you’ll be reimbursed by the insurance company.
• Know what is excluded. Generally, you won’t be reimbursed for anything preventable and many times there are breed-specific exclusions.

Pet insurance is more about peace of mind than anything. Having the coverage may give you the freedom to make medical decisions for you pets based on their quality of life, and not because of finances.