There a lot of misnomers when it comes to insurance planning. The marketplace for various types of insurance continues to innovate and respond to changing needs on the part of consumers. Accordingly, we thought you might find the following list of “Did You Know’s” of interest:
Did You Know That…..
- There is one traditional/stand-alone long-term care insurance carrier that offers (a) joint coverage; (b) a lifetime benefit period; (c) limited premium payment periods in addition to lifetime premiums (with guaranteed premiums after the limited payment period has been met; (d) a share care rider providing a 3rd benefit pool and (e) a return of premium rider and policy surrender rider in the event not all long-term care insurance is utilized or the insured wishes to cancel/surrender his/her policy?
- There is also a traditional/stand-alone long-term care insurance carrier that offers the ability to dial up and/or down the inflation on one’s policy while enabling independent home aides to be utilized (many carriers require a home care agency), as well as providing a favorable definition of the elimination period (calendar days instead of service days)?
- As a result of The Pension Protection Act of 2006, 1035 exchanges on a tax-free basis are available to fund long-term care insurance (e.g. in the case of non-qualified annuities with a built-in gain to convert potentially taxable income to tax-free long-term care benefits if needed)?
- With respect to hybrid/asset-based long-term care insurance (in this case combined with life insurance), there is one carrier that offers (1) an unlimited long-term care benefit period; (2) joint coverage of two insured’s such as a husband and wife through one policy and (3) even accepts IRA (qualified) monies to fund the policy?
- Separately, there are two (2) hybrid long-term care insurance carriers that offer indemnity benefits – no bills required to be provided; access to the maximum monthly benefit upon triggering a claim absent having to provide any documentation for how the monies are spent?
- A number of “multi-life” long--term care, disability income and life insurance programs exist, wherein applications are submitted on ‘multiple lives’ through a common employer? Among other things, this may offer permanent annual savings as well as potentially underwriting concessions/reduced underwriting (this varies by type of insurance and carrier)?
- This may be particularly advantageous in a business setting wherein buyout/buy-sell and/or key-man insurance is needed on multiple individuals.
- With respect to C. Corporations, it is possible to (a) provide long-term care insurance to owners and their spouses (provided reasonable compensation); (b) discriminate in terms of who is provided coverage (subject to meeting necessary requirements such as a certain status, title, class, etc.); (c) receive a 100% tax deduction for the C. Corporation while (d) none of the recipients of long-term care insurance having to pick up any taxable income; (e) receiving income-tax free long-term care benefits if needed and (f) receiving a discount based upon a minimum number of lives being insured, with (g) portable coverage if the employee/executive/owner ever leaves the Corporation?
- It is possible to obtain a stand-alone disability policy to replace/cover your lost retirement contributions (indexed for inflation if desired) in the event of a total disability? Note that disability income insurance is meant to cover your day-to-day living expenses, not unfunded retirement contributions (which you are not able to make if disabled since you must have earned income – and, if disabled, you are unable to earn wages).
- As of a few years ago, although ½ of all households could not raise $2,000 within a month if needed and 75% of workers did not have enough emergency savings to cover six (6) months or more of their expenses (as per Bankrate.com), just 1/3 of workers maintained disability coverage? And of those that did, were they aware of the typical limitations inherent in group disability income insurance (e.g. cap on maximum monthly benefit; further reduced as benefits are typically taxable; no inflation rider or other riders; not as liberal a definition of disability; etc.; etc.)?
- Individual disability income insurance premiums may be graded up over time to provide immediate savings now and for a number of years relative to level premiums – while also enabling you to lock in the ability to obtain additional benefits in the future absent medical underwriting?
- For unique risks and/or very high incomes, there are specialty insurers/reinsurers that offer niche products spanning occupation classes and covering extremely high levels of compensation to provide coverage above and beyond what is typically available in the traditional individual and group disability income marketplaces?
- One life insurer introduced a new approach wherein policyholders accumulate ‘points’ after a policy is issued and when they complete health-related activities (e.g. visiting the dentist annually; exercising; etc.), which may not only reduce their premium each year but also provide rewards and discounts from leading retailers?
- Given advances in medical technology, longer lifespans and more competitive underwriting, it may be possible to receive a better rating class on previously issued life insurance – and even pay less despite being older?
- There is considerable value in a conversion privilege for term life insurance, and all term life should be obtained with such a privilege (preferably for a long period of time and various permanent product offerings from the carrier)?
- Many newer life insurance policies automatically include a provision calling for the acceleration of a percentage of the death benefit in the event of a terminal illness?
- Rather than leaving retirement accounts to trusts for the benefit of loved ones, life insurance is a much preferable asset since (1) distributions from life insurance to beneficiaries are income tax-free; (2) life insurance is not subject to required minimum distribution rules; (3) life insurance does not entail complicated tax rules and (4) life insurance may also be estate-tax free if owned properly? This may be even more so if the limitations on the stretch-out of retirement account benefits to certain non-spouse beneficiaries becomes law as is presently being considered in Congress.
- There is a secondary market for life insurance policies which may offer significantly greater value relative to other alternatives (e.g. surrendering a policy for its cash value)? Even in the case of term life insurance – providing it has that all-valuable conversion feature?
- A Health Savings Account (HSA) can combine the benefits of a Traditional IRA (pre-tax contributions) with a Roth IRA (tax-free withdrawals for qualified medical expenses), along with tax-deferral (which either type of IRA receives)? This represents a way for highly compensated employees to obtain greater savings on a pre-tax basis (particularly those who work for companies whose 401(k) plans fail to pass nondiscrimination testing).
- Funding for future medical costs is no easy task. The average expected retirement health costs (solely premiums) for Medicare Parts B, D and Supplement insurance for a healthy couple retiring this year at age 65 will be nearly $364,000 in today’s dollars according to HealthView Services’ “2018 Retirement Health Care Cost Data Report.” The costs rise to over $537,000 in future dollars (due to the effects of inflation) when including total health care costs (premiums plus all out-of-pocket expenses such as co-pays, dental care, etc.) – exclusive of long-term care. Unfortunately, health care cost inflation has consistently run at two to three times the average annual percentage increase received by Social Security recipients.
- For someone insured through an HSA, it is possible (once in a lifetime) to fund medical expenses prior to the age of 59 ½ from a tax-free rollover of funds from an IRA, when incurring such a distribution from one’s IRA would be taxable and subject to a 10% penalty?
- Umbrella insurance, if coordinated with underlying auto and homeowner’s coverages, may provide millions of dollars of liability coverage for pennies on the dollar?
- While Medicare Supplement insurance policies are all identical from carrier-to-carrier among the same Plan type, Medicare Prescription Drug Plans can vary considerably by carrier and even among different plans offered by the same carrier (with formularies and tiers subject to changes each and every year)? And the most popular Plan, Plan F, is no longer going to be available commencing January 1, 2020?
The importance of various types of insurance within one’s life (e.g. for personal financial planning; business planning; charitable planning and other types of planning). However, as with most things one’s insurance portfolio needs to be periodically reviewed, evaluated, analyzed and modified as circumstances and conditions warrant – either internally (e.g. the birth of a child or hiring of a new business owner) or externally (e.g. new insurance products and riders). As always, LIFECO ASSOCIATES INC. remains available to address any of your insurance questions and welcomes the opportunity to review your insurance needs.
IRS CIRCULAR DISCLOSURE
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained
in this communication (including any attachments) is not intended or written to be used, and cannot be used
for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.