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Seniors |
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General Information Life Insurance Medicare Supplement (Medigap) Long-termCare Individual Retirement Plans Annuities
This section deals specifically with life and health insurance products which are of interest to seniors. Although most of the following topics are touched on in our other Product Overview pages, we have gathered them together here for your convenience.
Life insurance is one of the key components of a senior’s financial portfolio. But, what happens if additional life insurance coverage is unexpectedly needed later in life? Even after the mortgage and cars notes have been paid off and the kids have left the nest, the reasons a senior may be looking for additional coverage are as unique as he or she is. Here are a few typical examples for needing additional life insurance coverage:
- Pay final medical bills and expenses - Estate preservation - Income for surviving spouse - Gifts to grandchildren - Legacy gifts to favorite charities
After the decision to purchase additional insurance is made, the two questions seniors ask most often: “Can I afford it?” and “Will I medically qualify for it?” Needs that arise later in life are usually of a permanent nature, so permanent insurance is usually the appropriate choice. As the baby boomers are starting to retire and the parents of the baby boomers are living longer, it is no surprise that our population as a whole is aging. Living longer mean greater financial needs for more years than many anticipated back in the 50’s, 60’s, 70’s and 80’s when today’s seniors were purchasing life insurance to cover their growing families. It is likely that much of the coverage seniors had earlier in life was term insurance that has now expired or become too expensive to maintain.
Of course, healthy seniors have full range of product choices, but what about those with not-so-perfect health histories? Fortunately, today there are many quality insurance companies that specialize in the needs of seniors. Specialty products offer “simplified issue”, meaning the health standards are slightly reduced and/or fewer health questions are asked. Some policies provide a full death benefit from day one, while others offer a reduced death benefit for a period of time before full benefits are payable. While not all seniors can medically qualify for life insurance, simplified issue does enable more seniors than ever before to acquire the additional coverage they need.
Many life insurance plans offer options (called “riders”) that allow, under certain circumstances, for the early payout of a portion of the death benefit while the insured is still alive, including diagnosis of a terminal illness and/or confinement to a nursing home. Not all policies offer these riders, so it is important to discuss which options may be important in meeting the financial security needs of the family.
Seniors who work beyond age 64 for employers who offer group medical insurance have some decisions to make. Contact us to discuss the particulars of your situation.
A Medicare Supplement (or Medigap policy) is designed to cover most of the “gaps” in care through Medicare. The federal government mandates the benefits in 12 different plan types, referred to as Plan A, B, C, etc. Any insurance company that sells Medicare Supplement policies must include the mandated benefits. In other words, all Plan A policies from one company offer the exact same benefits as Plan A from another company, etc. Not all companies are required to sell all plan designs in every state, so it is important to check the availability of the plan and carrier you want in the state in which you reside.
Where Medicare Supplement policies differ from one insurance company to another is in the premiums they charge. Some companies rate your policy annually based on your current age while others rate your policy based on your age when the policy was first issued.
When you reach Medicare age, you will need to apply for Medicare Part A and Medicare Part B to be eligible for a Medicare Supplement. There are separate premiums for the Medicare Part B (which is currently $93.50 in 2007) and the premium you pay your insurance company for your Medicare Supplement. As long as you pay your premiums on time your policy is guaranteed renewable, which means it cannot be cancelled. Spouses cannot be covered by the same Medicare Supplement; each must purchase their own coverage.
Medicare now offers prescription drug benefits. The easiest method for selecting the plan which is best for you and/or your spouse is to visit the Medicare website.
For your convenience, we have provided a link to the official US government Medicare website. This site provides a wealth of information on Medicare, Medicare Supplement policies and access to informational brochures on a variety of topics that can be downloaded or ordered at no cost to you.
General Information: Long-term Care Insurance (LTC) is coverage that provides you with the money to reimburse the cost of providing custodial nursing home care, home health care and assisted living should you be unable to care for yourself due to an accident or illness. Does it seem unlikely that such a thing would happen to you or one of your loved ones? Well, think again. The odds are 50% that you will need some type of long-term care after you reach the age of 65. An even more surprising statistic is that 40% of patients receiving long-term care are under the age of 65 (according to the Life & Health Insurance Foundation for Education, Washington, DC). In fact, statistics show that at least 6.4 million people aged 65 or older need long-term care, with one in two over age 85 requiring care. At least half of the population who are 85+ will need help with activities of daily living (according to the United Seniors Health Council, Washington, DC, 2002 as reported). Sudden accidents or disabling illnesses can happen to any one of us without notice. In fact, whether it was your spouse, one of your parents, grandparents, an aunt or uncle, there is hardly anyone out there who doesn’t know of at least one family member or friend who has needed some form of nursing home care at some point in their lives.
It is a misconception to think that the government will pay for all or most of long-term nursing home care for those over 65. There are two government programs that provide some nursing home care, Medicare and Medicaid:
Medicare will only pay for short-term skilled nursing home care, after you have been hospitalized for at least three days. This type of care is for those who need medical care as they are getting well from an accident or illness, for a period of no greater than 100 days. Medicare will also pay for some home rehabilitative, intermediate care. This is care that you don’t need everyday, but perhaps several times per week. In fact, only 5% of nursing and home health care is the “skilled” type which is eligible under Medicare. 95% of nursing home admissions are for “custodial” care, that is, to care for people who cannot perform the activities of daily living without assistance but don’t need acute medical treatment for a condition that is expected to improve with medical intervention. See the Medicare consumer website for more information.
Medicaid is the government program which pays healthcare expenses for those who meet the federal poverty guidelines. Medicaid pays for about 50% of the custodial nursing home care in the U.S. today, but is only for those who have exhausted most of the their finances. With Medicaid as the payor, the patient does not have many choices in the type of facility they are admitted to. See the Medicaid consumer website for more information.
Cost of Care: So, what does it cost to be in a private nursing home? The costs vary widely by region of the country, but here are some local average numbers from a MetLife Survey of Private Nursing Home Care Costs from 2003:
Washington, DC $230.60 per day Silver Spring, MD $176.40 per day Baltimore, MD $183.11 per day Arlington, VA $219.86 per day Richmond, VA $176.60 per day
That means the average annual cost of in-patient private nursing home care in the Washington-Baltimore corridor in 2003 was $64,000 - $84,000! Also cited is the cost of hiring a home health care aid to come to the home three days per week which can cost $20,000 or more per year. Expenses like these can eat away an estate in short order, limiting your lifestyle choices and destroying hopes of passing on a financial legacy to your heirs.
The answer is long-term care insurance. A well written policy can give you the flexibility to seek traditional care in a nursing home, but will also provide alternative coverage for assisted living facilities, adult day care, home health care and sometimes even homemaker services. Today’s seniors want the flexibility to seek the level of care and the location they find most comfortable. In addition, many long-term care policies are tax qualified, meaning that all or some of the premiums you pay may be tax deductible. Check with your tax advisor regarding the deductibility of your long-term care policy.
How Can You Buy Long-Term Care Insurance?: There are two main ways to purchase long-term care coverage, through your employer or on your own. If you are still working, your employer may offer long-term care plans that you can purchase on a voluntary basis through payroll deduction. This avenue may offer discounts off the open-market price and may be easier to obtain if you already have some health problems. Employer sponsored plans are usually portable, which means you can take your policy with you when you retire or if you change jobs. Another advantage to workplace plans is that they often will extend the discounted price to your spouse or even your parents. The downside of purchasing your long-term care at work is that your employer will chose the insurance company for you and often will have some say regarding the options made available to you.
The most flexible way to obtain long-term care coverage is through a personal policy that you buy yourself. There are several ways you can get coverage in addition to a traditional long-term care policy. We will touch on all the options here:
Long-term Care Policy -- This is a stand-along long-term care policy that you purchase and pay for yourself. There are many good quality carriers that sell long-term care policies, but not all carriers sell in every state so it is important to be sure the carrier you want offers the policy you want in the state where you live. When you purchase your own policy, you have the flexibility to custom tailor the policy options and benefits to meet your own anticipated needs and budget. It is important that any policy you buy be affordable over your lifetime. It will do a disservice to you and your loved ones if you have an LTC policy for 10 years, only to have to let it go because you can no longer afford it. The perceived down-side of personal LTC policies has been that some carriers have raised their rates because the risk has been greater than they anticipated. Many people bought policies when they were younger, hoping their lower age-based premium would remain in place for their lifetime. Carriers cannot raise rates on an individual, but most states allow carriers to raise rates for everyone in a class or state. Alternatively some insurance companies have, to date, chosen not to raise rates on current policyholders. Though there are no promises or contractual guarantees that rates may not be increased in the future, it may be preferable to consider a carriers that have established a good track record for keeping premiums level.
Life Insurance with a Long-term Care Rider -- This method of purchasing LTC is relatively new and is a win-win for yourself and your estate. If you need money to pay for long-term care during your lifetime, it’s available. If you don’t, the premiums you pay provide a death benefit to your beneficiaries. Different carriers handle this option in different ways. One plan allows you to select a percentage of the life insurance death benefit (for example 1 – 4%) which is then made available to you to on a monthly basis to reimburse you for qualifying long-term care expenses. Any money spent on long-term care is simply deducted from the death benefit.
Policy “Exchange” -- Another method of providing funds to pay for nursing home care is not a long-term care policy at all. If one has money in an existing CD or annuity that will not be needed for living expenses during your lifetime, it can be exchanged into a tax-favored life insurance plan with an accelerated benefit rider. This rider allows a portion of your death benefits to be released prior to death to pay eligible expenses in the event of terminal illness or permanent confinement to a nursing home. Note again, this is not a long-term care policy and is only appropriate for someone who has extra cash assets that will not be needed during one’s lifetime.
Options & Features: You become eligible to receive benefits from your LTC policy when you cannot perform a certain number of “Activities of Daily Living” (ADL’s). These are:
Continence Control of one’s bladder and bowels Toileting Use of toilet and associated hygiene Transference Moving from bed to chair and back again Dressing Ability to clothe oneself Eating Ability to feed oneself Bathing Ability to bathe oneself
Also included is cognitive impairment, which requires substantial supervision to protect one’s health and safety.
There are several factors and benefits to consider when considering the purchase of a long-term care policy. Each of these factors and benefits has an impact on the rate and it is important that the final policy design fit both your needs as well as your budget.
Daily or Monthly Benefit -- is the maximum dollars that are paid for each day or period of care. Some policy benefits have different dollar benefits for nursing home vs home health care. The higher the benefit you purchase, the higher the premium.
Policy Duration -- is the maximum period of time that benefits will be payable. Examples are 2 years, 5 years, lifetime, etc. The longer the policy duration, the higher the premium.
Benefit Cap -- is the daily or monthly benefit multiplied by the duration of the policy (for example 200 per day x 365 days x 5 years)
Elimination Period -- is the number of days or months you will have to wait before benefits are payable after the day your claim begins. The length of the elimination period you should select will depend on the assets you can comfortably allocate to paying for the up-front costs of long-term care. Longer elimination periods will lower your premium.
Inflation Protection (or COLA) -- allows for an increase in benefit which is usually based on a defined percentage. This benefit increases the cost of the policy but is intended to keep your benefit current as costs rise in the future.
Guaranteed Renewability -- means that premiums can only be increased if they are increased for an entire class of policyholders. It means your policy cannot be cancelled as long as you pay premiums on time according to the schedule.
Waiver of Premium -- allows for premiums to be waived during times when benefits are being received.
Factors Affecting Rates and Availability: Age -- Your premiums will be lower if you purchase your LTC policy at a younger age. Policies are generally available to persons from age 18-84, but this varies by carrier. Remember that 40% of those needing long-term care are under the age of 65, so it is not unreasonable to consider purchasing a policy at a younger age. Please note that premiums may increase as you get older if the company you purchased from is increasing premiums for the whole class of policyholders. It is important for you to know how the carrier you are considering has handled premium increases in the past, although past history is not a guarantee for the future.
Health -- You will be asked health questions and may be asked to undergo a physical as part of the application process. If you have chronic health conditions or injuries, your premium may be increased of the company may exclude certain pre-existing conditions.
Benefits -- The benefits you apply for will affect your premium. The more options and the higher benefit levels you request, the higher your premium will be. See the Options & Features section above.
Final Thoughts on Long-term Care: Most consumers are not as familiar with LTC provisions and terms as they may be with life and health insurance, so it can be confusing for the first time purchaser. We suggest you request and read a sample “draft” policy carefully before you purchase an LTC plan. There are variations from company to company, and from state to state. The contract wording will completely explain your rights and benefits. You will also have a “free look” period (usually 10 – 30 days) after the policy is delivered to you. Look through your actual policy carefully during this time as you will have the right to return your policy for a full refund during your free look period.
“Tax-Qualified” Individual Retirement Accounts (IRAs): For the tax year 2007, employed individuals may set aside up to $4,000 for himself/herself (and an additional amount of for a non-working spouse) if you are age 49 or younger, and up to $4,500 if you are age 50 and older. This amount may be reduced or you may not qualify for a tax-qualified IRA if you have a qualified retirement program through your employer.
You may establish a new IRA or contribute to an existing IRA for the 2007 tax year until you file your 2007 federal taxes, but no later than 4/15/2008 (whichever date comes earlier). We suggest you not wait until the last minute to complete your IRA application as paperwork needs to be completed, the money needs to be collected and everything must be postmarked no later than 4/15/2008. The sooner you get started, the more tax-deferred growth will be available to you when you are ready to retire.
Contributions to a qualified IRA are deductible from your taxable income and the growth on your account is tax deferred. Tax penalties will apply for pre-mature withdrawals (before age 59 ½). The principal and growth are both fully taxable as ordinary income when withdrawn at any age. In addition, insurance company surrender charges may apply depending on your contract. You must begin taking withdrawals as required by the IRS by age 70 ½.
Rollover IRAs: If you have left employment or retired from an employer where there was a 401(k) plan or other retirement program that has individual vested accounts that are portable, you have the option to move those monies into a qualified rollover IRA. Because the rules for moving qualified money without incurring current taxation are very specific, contact us before you do anything to discuss your options.
Roth IRAs: The Roth IRA is a newer alternative to the traditional IRA:
How are traditional IRAs and Roth IRAs similar? --Growth in the contract is tax-deferred until withdrawn --The same withdrawal, surrender and tax penalties apply to withdrawals made before age 59 ½.
How are traditional IRAs and Roth IRAs different? -- Contributions to a Roth IRA are made with after tax dollars, that is, you do not receive a current year tax deduction --Withdrawals of principal and growth after age 59 ½ are tax-free --You do not have to begin withdrawing income by age 70 ½
For the tax year 2007, employed individuals may set aside up to $4,000 for himself/herself (and an additional amount of for a non-working spouse) if you are under age 50, and up to $4,500 if you are age 50 and older. This amount may be reduced or you may not qualify for a Roth IRA if you have a qualified retirement program through your employer.
You may establish a new Roth IRA or contribute to an existing Roth IRA for the 2007 tax year until you file your 2007 federal taxes, but no later than 4/15/2008 (whichever date comes earlier). We suggest you not wait until the last minute to complete your Roth IRA application as paperwork needs to be completed, the money needs to be collected and everything must be postmarked no later than 4/15/2008. Of course, you can make your 2007 Roth IRA contributions anytime during 2007 or until you file your 2007 federal taxes, but no later than 4/15/2008 (whichever date comes earlier). The sooner you get started, the more tax-deferred growth will be available to you when you are ready to retire.
How do you decide which IRA option is the best for you?: Picking which plan (or combination of plans) is right for you will depend on your age, your current tax bracket and how you feel about future tax rates. Also, keep in mind that there is no guarantee that rules regarding either IRA option will not be amended by the IRS in the future. As always, we suggest you discuss your qualified retirement options with your tax or legal counsel. If desired, we will gladly talk to your financial advisors to be sure your contracts are set up according to their plan.
Annuities are a good alternative to bank CD’s, money market accounts and other low-yield taxable savings vehicles. The growth within the annuity contract is tax-deferred and the return will generally be higher than those listed above. Annuities can be used to fund “tax-qualified” traditional IRAs and Roth IRAs. They can also be established with after-tax contributions to supplement your retirement income. Here are some special features of annuities:
Lifetime Income -- The number one feature that distinguishes annuities from all other long-term savings plans is that once you are ready to retire, you have the option of setting up a distribution arrangement to produce an income stream that you will never outlive!
Your Principal is Guaranteed -- The principal you deposit into an annuity is always guaranteed. This is one of the safe-guards built into this tax-deferred growth vehicle that makes them an attractive addition to an overall retirement strategy.
Flexible Payment & Distribution Schedules -- Today’s annuities are very flexible. They can be purchased with periodic payments made on a regular basis or you can establish one with a single deposit. Likewise, you can choose to make withdrawals after age 59 ½ in lump sums as needed, or you can arrange to receive a lifetime income, or you can take distributions over a certain number of years or you can start taking your income stream right away with an “immediate annuity”. The choice is yours and you don’t have to purchase a new contract to accomplish the retirement arrangement that is best suited for you.
Fund Allocation Choices -- You can select to have your principal accumulate at a fixed interest rate that is adjusted annually, or you can have your accumulation follow the growth in certain markets, such as the Dow, NASDAQ or the S&P. Some contracts allow you to split your fund allocation between both types, with the annual option of changing your allocation. While both types of annuities are considered to be “Fixed Annuities”, the later type is called an “Equity Indexed Annuity (EIAs)”. Different insurance companies calculate the growth in the markets they follow in many different ways, but the best news is that you only share in the up-side of the market. If the market falls, your principal is always guaranteed. In addition, earnings from previous years, once credited to your contract, are also guaranteed.
Tax-deferred Growth -- No matter which type of fixed annuity you choose, all of the growth will accumulate on a tax-deferred basis. This means that, unlike CD’s and money markets, you will only pay income tax once you begin withdrawing funds from your annuity. Because annuities receive this tax-favored status, you will be subject to tax penalties and ordinary income tax on the growth should you withdraw your funds prior to age 59 ½. If the annuity is part of a tax-qualified Individual Retirement Account, the IRS will impose tax penalties and ordinary income tax on the entire amount withdrawn.
Surrender Charges -- Insurance companies are able to credit higher interest rates than are generally available with CD’s because they have an expectation that you will leave your funds with them for a guaranteed period of time, usually anywhere from 3 – 15 years. This length of time is contractual and will differ from company to company, contract to contract. Remember, annuities are intended for long-term savings. Insurance companies will impose “surrender charges” if funds are withdrawn before the contractual surrender period has expired. You will generally be rewarded for purchasing contracts with longer surrender periods with a higher rate of return.
Annuity Exchanges -- Once the surrender charge period has expired, it may be in your best interest to move your annuity to another contract. The IRS allows you to move your money from one annuity contract to another without incurring current income tax or penalties, so long as you make a direct exchange from one company to another and the funds never pass through your hands. This exchange has to be handled properly to avoid taxation, so contact us if you have an underperforming account(s) before withdrawing any funds.
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