Tag: IUL

Biggest Medicare Mistakes

Biggest Medicare Mistakes

The 5 Biggest Medicare Mistakes and How to Avoid Them

No one wants to make a mistake that will cost them hundreds (or thousands) of dollars down the road if they can help it! However, Medicare can be very confusing, and even very knowledgeable people can miss things. Here are the five biggest Medicare mistakes people make, and how you can avoid them!

#1 in Our Biggest Medicare Mistakes: Missing Enrollment Deadlines

Although the government gives us all a little wiggle room around each Medicare Milestone we pass, there are certain deadlines you must mind to avoid late penalties and inconveniences.

Original Medicare Coverage Deadlines

five biggest medicare mistakes and how to avoid them

You will need to sign-up for Medicare when you turn 65 if you are not already getting Social Security. You will be automatically signed-up for Medicare if you are getting Social Security. In addition, you will need to tell the government if you are delaying Medicare because of other credible coverage (such as an employers coverage).

You will have three months before your birthday to sign-up, the month of you birthday, and then three months after to sign-up. However, what some people do not understand, is that if you enroll after you turn 65, your coverage will not start until the first of the month after you enroll. This could lead to a gap in your health care coverage.

A NOTE ON CREDIBLE COVERAGE: Some people will delay Medicare coverage if they have a good health plan from their employer. This is usually okay, but there is an exception for small business employers to be aware of: If your employer has less than 20 employees, you will need to enroll in Medicare right away when you turn 65.

This is because when you work for a small business, their insurance will become secondary insurance and Medicare will be your primary payer. If this is the case, you will need to enroll right away in Medicare to avoid a penalty. (Also note that Cobra is not credible coverage.)

Medigap Guaranteed Enrollment Deadlines

The last Medicare Enrollment Mistake people make is missing their Guaranteed Enrollment period for a Medigap Plan. You will have six months, from the beginning of the month you first turn 65, to enroll in a Medigap plan with a guarantee to be issued a policy. If you apply after this window, you will have to go through medical underwriting. This means that companies have the right to deny issuing you a policy based on your medical history after your open enrollment is over.

It is important to remember that Medicare Advantage Plans have a different enrollment process than Medigap. The Medicare Advantage Annual Election Period is not for Medigap Plans. Which lead us right into Mistake #2…

Medicare Mistake #2: Not Understanding Medigap Plans vs. Medicare Advantage Plans

There are two main ways you can set up your Medicare Health Care Plan: Medicare Advantage (Part C) and Original Medicare with a Medigap Plan. You either have one or the other, not both. Both can be good ways to set up your health care, but not understanding how they work can lead to making on of our biggest Medicare mistakes.

We have a whole article on Medicare Advantage vs. Medigap Plans here. I suggest reading it if you are unfamiliar with the two plan types. Considerations with these plans include how you get your Prescription Drugs and how you want to budget your money. Cash flow can be different plan to plan with premium payments and out of pocket expenses to consider when making a decision. Your lifestyle needs and travel patterns also need to be considered when making a choice between MA and Medigap.

Mistake #3: Assuming Your Doctors and Drugs are Covered

We all know what assuming can lead to… mistakes! It is very important to make sure that your doctors are covered with the Medicare option you choose. The carrier will be able to help you confirm that you will be able to continue with your current doctor if you so desire. If you are working with an Insurance Agent, they will have the ability to do this for you as well.

Checking your drug options with a plan is also an important part of finding coverage. The government does make sure that at least two kinds of drugs are available per category of treatment. Moreover, carriers will have a process for you to make an exception for a drug not on its list (called a formulary). However, it makes for a smoother transition to check ahead of time to see what is covered for your specific needs.

Biggest Medicare Mistake #4: Assuming Medicare Covers Long-Term Care

It is a common mistake to assume that your Medicare coverage includes long term care – it does not. Skilled nursing facilities for recovery from a certain event are covered (and come with different co-insurances based on different plans). However, long term stays in assisted living and nursing homes are not covered. You will need to have a plan in place to cover these needs. Your planning may include, long term care insurance, IUL policies with long term care (or critical illness) riders, or self-insurance (paying cash).

Another option, for those that do not have a lot of resources saved up for retirement, is to “spend down” your assets to qualify for Medicaid to help you in paying for your care. However, I would not suggest this option for those that have the means to plan ahead for the level of care they desire or those that want to pass money on when they pass.

Biggest Medicare Mistake #5: Enrolling Directly with a Carrier

Ok, follow me on this one. When you first turn 65, you are bombarded with advertisements for different Medicare plans. Sometimes, it feels easiest to just pick up the nearest postcard and give that insurance company a call. Or maybe you have done your research on your own (which is just fine!) and decide to enroll directly with the carrier you want to go with. Here is where you should stop and consider this as a mistake.

Here is the problem: when you enroll with an insurance company for one of their plans directly, you have to deal with them alone. On the other hand, when you enroll with that same company through an independent insurance agent, you now have an advocate and support system to help you work with that carrier.

Here is how an independent agent helps:

  • First, if something goes wrong, you can call your agent for help! You are not on your own, and this is a big deal. As we all know, everyone can make mistakes – you, your doctor’s office, your insurance company. When these mistakes happen, you can call your agent for support and they can work with you and the insurance company to make sure you are taken care of.
  • Second, rates and plans change! A good independent agent will keep on top of industry changes and plan changes for you. They can stay on top of your premium rates and what might be new or changing in your area to make sure you always have the best coverage. You will not get this level of service when you work directly with a carrier.
  • Finally, you do not pay anything extra for working with an independent agent. They are still paid as an independent agent from Whichever company you are placed with at no charge to you.

Medicare Mistakes Summary

In addition to this article, another great resource is the Medicare and You book put out by the government. Since this is a large (120 page) document, we have created a Medicare and You User’s Guide for you to read and reference here.

In summary, you can avoid the biggest Medicare mistakes with a little research and a little help.

Reach out to a professional to answer any of your market specific questions and find out more about Medicare, Medicare Advantage, Medicare Supplements, and their differences here on MedicareLifeHealth.com.

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What is Indexed Universal Life Insurance (IUL)

What is Indexed Universal Life Insurance (IUL)

What is Indexed Universal Life Insurance (IUL)? Do I Need One?

What is Indexed Universal Life Insurance (IUL)? That is a question we hear often as IUL’s have been increasing in popularity. I am sure we will hear it even more as they are expected to continue to rise this year.

They have become popular in our low interest bond market as an alternate way to grow savings fund conservatively for both retirement purposes and legacy purposes. However, not everyone needs an IUL. Let’s take a deeper look into what are IULs and who might need/want one.

What is Indexed Universal Life Insurance (IUL)?

An Indexed Universal Life (IUL) Insurance Policy offers insurance with a cash value in addition to a tax-free death benefit. Both the cash value and the death benefit are useful and attractive tax advantaged ways to provide for your family. The cash value can provide you tax advantaged income in retirement, and the death benefit can provide tax advantaged cash for your family when you die.

Premiums

IULs are structured so that premium payments cover not just the cost of insurance, but also the extra money needed to create and maintain the cash value of the policy. Each month the policy cash value grows with excess cash payments and interest. However, the policy is also debited by the cost of insurance and policy charges/fees.

Interest

The interest growth is tied to a financial index (like the S&P 500, Russell 2000, Nasdaq 100 and the Dow Jones) and usually with a minimum growth rate and a maximum (capped) interest rate. This allows participants to take advantage of market growth without having the threat of losing money. The tradeoff for this security is the growth cap. For instance, you might have a minimum interest of 2% and a cap at 12%. If the market loses money, you don’t. If the market grows 20% or 30%, you only see 12%.

The Flexibility of IUL

One of the main reasons, IULs are popular is their flexibility.

  • Premium Flexibility – The premiums are flexible each month. There is usually a minimum and maximum you can feed into the policy each month. Staying within your contracted terms, this allows you to let the accumulated cash value help in paying the cost of insurance if you miss a month’s premium. However, the policy will lapse if there is not enough cash value to cover the cost of insurance and fees. (This is true with most policies, unless you have a no lapse guarantee rider.)
  • Death Benefit Flexibility – You have the ability to increase or decrease your death benefit (subject to underwriting).

Do You Need Universal Life Insurance (IUL)?

Here are some reasons you might need an IUL.

  • First, if you are looking for another avenue to bolster tax advantaged (tax-free) cash flow in retirement.
  • Second, if you need to leave money after you die for final expenses, income replacement, debts, or estate taxes.
  • Finally, if you need an alternative to long-term care insurance.

Let’s break each of these down.

IULs for Retirement Planning

Sometimes you need another revenue stream in retirement. You probably have your taxable accounts (IRAs, Pensions, Social Security, Investments) to draw from as one stream. In addition, you might have tax free accounts such as a Roth IRA (or Social Security if you keep your tax threshold low enough), but often times you need another vehicle to in this tax advantaged category.

This is where an IUL’s cash value comes in. You can borrow against this amount in retirement and the loan is considered a tax free event. This is an avenue is not just for the super wealthy, but if you are looking for a place to grow a lot of money conservatively, this is a good place. It is also a good way to manage your tax exposure in retirement. Are you interested in keeping your taxes as low as possible in retirement? I suggest reading the book, The Power of Zero by David Mcknight to learn more.

IULs for Survivor’s Benefits

These are the traditional reasons for taking out life insurance, and they all stand-up in an IUL. You can structure your policy so that your beneficiaries will receive a lump sum of cash that is not taxed by the federal government. You will need to plan to see how much of a death benefit you will need to leave to help your family in paying off your expenses (funeral, medical) and your debts. In addition, your beneficiary(ies) might need to replace your income after you pass or pay off big ticket items to maintain their lifestyle. Moreover, the death benefit can offer money to help pay estate taxes.

IULs for Long-Term Care Planning

What is an IUL

Long Term Care Riders are a newer benefit of IUL policies. However, only some carriers offer them. Long Term Care Insurance can be very expensive… very, very expensive. Wrapping up the “cost” of insurance in an upfront IUL rider is one way to make it less painful. With an LTC rider, qualified long-term care expenses are paid using the death benefit before death. The insurance company pays what is left to your beneficiaries as a death benefit when you pass. Remember, Medicare doesn’t cover Long Term Care.

Action Steps

Now that you know what is Indexed Universal Life Insurance (IUL) Policy, here is what you can do next:

  • If you have decided that you want an IUL or want more information on one, you should talk to a licensed insurance agent. IUL’s are complicated. In addition, each company structures them differently. This is not a product you can just “click to buy!.”
  • If you have read through this article and thought, “not me” or “not now,” then I would encourage you to consider other alternatives to solve your planning problems.
    • Investing: If you need a place to access cash that is not taxable in retirement, make sure you are maxing out your Roth IRA first.
    • Insurance: If you need life insurance, but just not that much, check out final expense policies, or if you are younger, term life.
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Life Insurance in Retirement?

Life Insurance in Retirement?

Do I need life insurance in retirement?

Personal Finance and Insurance for Retirement

In retirement, you need a plan that will keep you healthy and happy for many years, but what happens when those years run out? Well, you need a plan for that too. Life insurance in retirement is one solution.

We all will end up in different financial places in retirement, and our cash flow and savings will dictate how our “final expenses” play out after we pass. Not everyone needs life insurance in retirement, but even if you don’t “need” it, you still may want it.

Reasons for life insurance in retirement and recommendations

Let’s break down some of the reasons for having life insurance in both the need and want categories.

1. No Savings

You may need life insurance if your saving plan didn’t quite pan out like you thought it would. According to a study done by Northwestern Mutual, 1 in 3 Americans have less than $5,000 saved for retirement. The average funeral costs between $7,000 and $9,000, and many people have large medical bills from their last days, so you can see how that math does not add up.

You might have Social Security coming in monthly or even a pension. However, you typically need that money for retirement living expenses. Unless you think you can save a little of that money each month in retirement, life insurance is a good idea. (Be honest with yourself. If you could not save it before retirement, you probably will not save it now.)

Life Insurance Recommendations

Your options will depend on your cash flow situation. First, you need to decide how much insurance you need. Second, you will need to see what you can afford to pay each a month in premium.

Final Expense – Term life and whole life insurance is usually too expensive when you are older, and your social security death payment is only $255. Final Expense Insurance will give you a smaller face value ($10,000 to $20,000 is very common) but it is priced accordingly. I recommend getting this insurance sooner rather than later, as the premiums will go up every year you get older.

Life Insurance for your final expenses has a bonus when it comes to cash flow – it is paid to the beneficiary directly and is not subject to federal income tax which can save hundreds/thousands. Moreover, because it does not have to go through probate delays, your family gets the money faster. Here is one last benefit. You can assign funds from the life insurance to be paid directly to your funeral home. This little convenience can be a big deal to your loved ones.

2. Market Volatility Concerns

Another type of retiree may want life insurance because they are concerned about their savings being affected by market losses. Maybe you are like “most Americans” who have an average of $84,821 saved for retirement. However, $85k well below what experts consider enough for living expenses. Think of what one bad market year could do to your nest egg.

Even if you had a couple million in retirement, there are reasons for life insurance in relation to market losses. It just depends on how much you are intending to leave behind and for what reasons.

Example

For example, one spouse dies right after a large market crash (hopefully unrelated). The crash leaves the other spouse with half their portfolio assets and the same amount of living costs. The surviving spouse can use the life insurance money to fill in the holes from the lost income and catch up in the market.

You could use this money to pay off a mortgage. Similarly, you could use it to handle any issues with the estate. In addition, it is always good to know that your loved ones will have cash to bury you, no matter what the market conditions.

Life Insurance Recommendations

  1. IUL – For those that have cash to pay premiums and market assets to protect, I recommend you talk to a licensed agent about an IUL – Indexed Universal Life Insurance. These policies offer flexibility for your particular phase in life. However, they are complex, so please talk to a professional about your options.
  2. Final Expense – For those that are mostly concerned about final expense costs (i.e. funeral, medical bills, credit card/loan balances, etc.), a small final expense policy might be your best bet.

3. Long-Term Care Considerations

As an alternative to Long Term Care Insurance, some retirees consider Life Insurance Policies that have LTC riders or a Chronic Illness Rider. For example, an insurance carrier might offer a product (like an IUL policy) with an option to purchase up-front a rider that will cover long term care events. You can pay qualified long-term care expenses with the death benefit, naturally, before death. Then, when you pass, the insurance company pays what is left to your beneficiaries

Life Insurance in Retirement Summary

I would recommend some form of life insurance to retirees.

  • If you can afford to be responsible for your final expenses, do it. Your family will appreciate it.
  • If you can afford to make sure your spouse can continue to enjoy retirement when you are gone, hop to it.
  • If you are looking for an alternative to Long Term Care Insurance, call an agent and learn your options. Medical expenses are not getting cheaper. In addition, Medicare does not cover these.

My Personal Experience

I’ll leave you with my own family’s relevant story. Last year, when my father-in-law unexpectedly passed away, his Final Expense policy saved everyone time and from stress. This left my mother-in-law well taken care of financially, but a lot of her assets were not in cash at the moment.

It was a great relief for all of us not to have to jump through a bunch of hoops to get the bills all taken care of. The policy paid money directly to the funeral home and then sent my mother-in-law the rest in a check. All of that without a tax event. It made me grateful to have a family that planned for each other and made the last year a little less stressful for all.

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