1 Life & Health Insurance Advisor MRCT Benefits Plus is a comprehensive employee benefits, wellness and Human Resources consulting firm offering a variety of financial services to businesses and individuals Life Insurance December 2012 Volume 5 Number 12 Buy Life Insurance, Benefit a Charity At year end, you might be thinking of ways to reduce your tax liabilities. You are probably also receiving appeals from many charities. Life insurance can help you make a sizable donation to the charity of your choice. Certain life insurance-funded strategies might also have tax advantages. You can use life insurance in five different ways to donate to a nonprofit: 1 Name the organization as 230 S. Bemiston; Suite 900 Clayton, MO (314) FAX (314) the beneficiary of a life insurance policy you already own or buy for this purpose. Instead of giving several hundred or thousand dollars to your charity every year, investing that money in life insurance premiums can guarantee a sizable donation, even if you should die prematurely. Your charity will receive a guaranteed contribution the policy s death benefit upon your demise. And since some life insurance policies offer a waiver of premium if you become disabled before age 65, you can guarantee this donation no matter what your health situation later in life. Name the charity as the primary beneficiary if you want the death benefit to go to it first. If you want a family member to receive the death benefit and the charity to receive it only if your primary beneficiary dies before you do, name the charity as the contingent beneficiary. This Just In How do your savings compare? A LIMRA study revealed that twothirds of middle-income ($40,000- $99,999) American workers are saving less than five percent of their annual income for retirement with nearly a quarter saving nothing at all. These results, while not surprising, are very troubling, said Matthew Drinkwater, associate managing director, LIMRA s retirement research. Less than 30 percent of American workers have a traditional defined benefit retirement plan that could help them pay for their expenses in retirement, so the responsibility for providing the financial resources for retirement lies squarely on the individual. Many Americans will live at least 20 years in retirement, and will need significant savings to ensure their financial security. Overall, four in five American
2 Life Insurance Life & Health Insurance Advisor December 2012 Tax consequences: If you retain ownership of the policy, you receive no income tax deduction for the policy s current value or any premium payments you make. However, you retain control over the policy and can change the beneficiary should your situation wishes change. 2 Apply for life insurance that the charity will own. Many nonprofits have planned giving programs to help donors do this. Instead of paying premiums to an insurer, you make a donation to the nonprofit to cover premiums. This approach benefits the charity and the donor. According to the National Committee on Planned Giving, If the charity provides the initial funding and is the owner of the policy, it may have the right to collect cash dividends, borrow against the policy, and make partial or complete surrenders of the policy. Tax consequences: If you make an annual contribution to a nonprofit for the amount of policy premiums, you can receive a charitable deduction for these amounts. 3 Donate a life insurance policy to the nonprofit. The simplest way to use life insurance in charitable giving is to donate a policy to the organization. Let s say you bought a permanent life policy years ago. Your children are now grown and the policy has cash value. You can donate the policy to a charity, which can then access the cash value as either a policy withdrawal or loan, or it can wait to obtain the full death benefit. Tax consequences: You might be able to deduct premiums you paid or the policy s replacement value, whichever is less, from your income taxes as a charitable donation. However, some states do not consider a nonprofit to have an insurable interest on a donor s life. Consult a tax professional for more information. 4 Make a charity the beneficiary of your taxqualified account, such as a pension, 401(k) or IRA. If your heirs inherit these accounts, they must pay income taxes on withdrawals. If your total estate is large enough, it might have to pay estate taxes, reducing usable balances even more. A qualified nonprofit can avoid estate and income taxes. To make up the difference in what your family members would have otherwise inherited, you can purchase a life insurance policy, naming them as beneficiaries. They will receive the policy s death benefit outside the estate, and the benefit will not be subject to income taxation. Tax consequences: No immediate tax benefits to you, but this method could prevent taxes from eating up assets your heirs receive. 5 Use a split-dollar arrangement, in which the organization pays part or all of the premiums on a life insurance policy on which it is named a beneficiary, among other beneficiaries. Tax consequences: The IRS cautions that taxpayers cannot deduct contributions made toward a split-dollar insurance policy. You cannot deduct any part of a donation made to a nonprofit if the organization uses it to buy a cash value life This Just In workers are saving less than 10 percent of their income for retirement. Most disturbing, the largest age group that reported not saving for retirement was those ages 55 and over (26 percent) often considered within years of retirement. One in four workers ages reported not saving at all for retirement. While more workers age report saving some percentage of their income for retirement, almost one in five are not saving for retirement at all. insurance policy whose beneficiaries include members of your family or any person other than a qualified charitable organization. Even though the charity may benefit from the insurance policy, you cannot deduct any part of the donation. For more information on life insurance and its many uses, please contact us. For advice on the tax consequences of any form of charitable giving, including with life insurance, please consult your tax advisor. As the IRS cautions, Only donations to qualified organizations are tax-deductible. IRS Publication 78, searchable and available online, lists most organizations that are qualified to receive deductible contributions. It can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.
3 Life & Health Insurance Advisor December 2012 Health Insurance Hospital Indemnity Coverage Helps Fill Coverage Gaps Today, more Americans than ever have health plans with high deductibles. While these plans offer lower premiums, they can leave insureds with higher out-of-pocket expenses than other types of plans. A hospital indemnity plan can help pay these expenses. In 2013, a high-deductible health plan must have a minimum deductible of $1,250 for single coverage or $2,500 for family coverage to qualify for a health savings account (HSA). With this type of plan, you also have high annual out-of-pocket expense limits: $6,250 for single coverage and $12,500 for family coverage. In an ideal world, you will have saved enough in your HSA to cover deductibles and other out-of-pocket expenses before you or a family requires hospitalization. But in reality, many families lack the immediate access to funds that a medical emergency could require. Consider the following statistics: In 2009, for each death by injury, there were about 11 times as many hospitalizations and 182 times as many emergency department (ED) visits. Y Americans made 32 million emergency room visits for accidental emergency in Y In 2010, about 6 percent of the population had stayed overnight in the hospital once in the past 12 months; about 1 percent had stayed overnight on two or more occasions. 2 Y Cost per day for hospital charges averaged $3,949 in the U.S. in Y In 2009, the average length of hospital stay for treatment of an injury was 4.8 days. 4 Sources: 1, 2, 4 : Centers for Disease Control, 3 International Federation of Health Plans Many people of working age incorrectly assume that most injuries would be workrelated, and covered by workers compensation. However, injury is far more likely to occur in the home or during leisure activities than at work. Nearly half of the respondentreported non-fatal, medically attended injury episodes occurred in or around the home, and nearly 40 percent occurred while a person was engaged in leisure activities including sports. A hospital indemnity policy will pay you a cash benefit when you or an insured family member are confined to a hospital for medically necessary treatment of an injury or illness. Policies pay a flat amount per specified term or event, such as per day of hospitalization or per outpatient surgery. Benefits can range from $50 per day to $100 or $200, depending on your policy. Some policies also cover charges for outpatient surgical centers and skilled nursing facilities. Supplemental health policies, such as hospital indemnity policies, do not provide comprehensive coverage rather, they wrap around and complement your basic major medical insurance plan. They add an additional layer to help fill in some of the gaps your major medical insurance plan.
4 Life & Health Insurance Advisor December 2012 Hospital indemnity coverage can give insureds more flexibility than many other types of health policies. You can usually select whether benefits go directly to your healthcare provider or to yourself. Often, a hospitalization will cost much more than your hospital and physician bills for example, you might lose work time or need additional help around the house. Benefits from a hospital indemnity policy can help you cover these expenses. Hospital indemnity policies provide this extra coverage at a very affordable price often at a dollar a day or less. Most insurers will not increase your rates solely because of age, and many policies are guaranteed renewable, regardless of your health status. Rules governing health savings accounts generally prohibit individuals (and their spouses, if you have family coverage) from having any other health coverage that is not a high-deductible health plan. The IRS permits an exception for insurance that provides benefits only for a specific disease or illness (such as cancer or dread disease insurance), or insurance that provides a fixed amount per day (or other period) of hospitalization. Most hospital indemnity plans would fall into the latter category. However, if you have a health savings account, you will want your tax advisor to confirm that any supplemental coverage meets the IRS rules for allowable other coverage. For more information on hospital indemnity insurance, please contact us. Financial Planning Planning for Long-Term Care Needs About 70 percent of people over age 65 will require some type of long-term care services during their lifetime. More than 40 percent will need care in a nursing home. Planning ahead for the care needs of yourself or a family member can reduce stress and ensure funds are available when needed. You need long-term care when you are not able to complete personal care or other daily activities on your own. Things that increase your risk or make it more likely that you ll need longterm care include: Y Age: The older you get, the more likely it is that you ll need help. Y Living alone: If you live alone, you re more likely to need paid care than if you re married or living with a partner. Y Gender: Women are more likely to need long-term care than men, primarily because women tend to live longer. Y Lifestyle: Poor diet and exercise habits increase the chance that you ll need longterm care. Y Personal history: Health and family history can increase the chances you ll need long-term care. How Much Care Will You Need? Service and support needs vary from person to person and often change over time. Y On average, someone who is 65 today will need some type of long-term care services and supports for three years. Y Women need care longer (on average 3.7 years) than men (on average 2.2 years), mostly because women usually live longer. Y While about one-third of today s 65-yearolds may never need long-term care services and supports, 20 percent will need
5 Financial Planning Life & Health Insurance Advisor December 2012 care for longer than five years. Individuals who need long-term care services and supports can obtain assistance from one or more of the following: Y Assistance with personal care or other activities from an unpaid caregiver who may be a family member or friend Y Services in your home from a nurse, home health or home care aide, therapist, or homemaker Y Services in the community, such as adult day services Y Care in any of a variety of long-term care facilities. Who Pays for Long-Term Care? Surveys reveal that many Americans mistakenly think that Medicare or their medical insurance will cover long-term care services. However, Medicare and other health insurance plans typically cover long-term care only after a covered hospitalization, and only for a limited time. If you have fairly low income and savings, you may qualify for Medicaid, the federal public program that pays for most long-term care services. Other federal public programs, such as the Older Americans Act, and statefunded programs, pay for long-term care services, but, like Medicaid, these programs cover services for people with high levels of disability and low income and savings. If you have enough income and savings, you will likely need to pay for long-term care services on your own, from your income, savings, and possibly from the equity in your home. You can also purchase long-term care insurance to cover your personal care needs. Even if you only need a little assistance at home with personal care, paying for it can be difficult. For example, in 2010, the cost of a home health aide coming to assist three times per week averaged more than $19,000 on an annual basis. Those who needed more care services paid an average of: Y $205 per day or $6,235 per month for a semi-private room in a nursing home Y $229 per day or $6,965 per month for a private room in a nursing home Y $3,293 per month for care in an assisted living facility (for a one-bedroom unit) Y $67 per day for services in an adult day health care center. Private long-term care financing options include: Y Long-term care insurance Y Trusts Y Annuities Y Reverse mortgages. Which option is best for you depends on your age, your health status, your risk of needing long-term care services, and your personal financial situation. Some methods of paying for long-term care services require that you undergo health screening, and that you be in relatively good health. This typically means that you do not currently need long-term care services and do not currently have a debilitating chronic condition, such as Parkinson s disease, that would almost certainly mean you would need long-term care eventually. In contrast, some options are only available to you if you are in poor health. The table below shows which payment options to consider given your current health status. We can help you review your financial situation and determine what financing method(s) would be best for your needs. For more information, please contact us. Relatively good health Poor health or terminally ill Health considerations are not important Long-term care insurance Options with life insurance Saving for long-term care Deferred long-term annuity Continuing care retirement communities Reverse mortgages more on next page
6 Life & Health Insurance Advisor December Plan Changes Here are some important figures to keep in mind for your 2013 financial planning. High-deductible health plans: New limits for health savings account (HSA)-qualified high-deductible health plans go into effect in Minimum deductibles for these plans will increase to $1,250 for single coverage or $2,500 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) cannot exceed $6,250 (single) or $12,500 (family). Health savings account limits: For 2013, an individual with self-only coverage under a high-deductible plan can contribute up to $3,250 to a health savings account; individuals with family coverage can contribute up to $6,450. HSA account holders who are age 55 and older can contribute another $1,000, for a maximum contribution of $4,250 for those with self-only coverage and $7,450 for family coverage. You can deduct these amounts from taxable income, and any gains in your HSA accrue free of taxes. Long-term care plans: Insureds can deduct a portion of long-term care insurance policy premiums, based on age. Deductibility levels will increase for 2013 to $360 for individuals age 40 or less, $680 for individuals between ages 41-50, $1,360 for individuals 51-60, $3,640 for individuals ages 61-70, and to $4,550 for individuals ages 71+. Payroll: If you have employer-provided health coverage, your W-2 for tax year 2012 might include a new section, showing costs of this coverage. The W-2 will include portions paid by both the employer and any contributions you made. This reporting is for information only; employer contributions to a qualified health insurance plan will not affect your taxable income. For more assistance in getting your finances together for 2013, please contact us. SmartsPro MARKETING The information presented and conclusions within are based upon our best judgment and analysis. It is not guaranteed information and does not necessarily reflect all available data. Web addresses are current at time of publication but subject to change. SmartsPro Marketing does not engage in the solicitation, sale or management of securities or investments, nor does it make any recommendations on securities or investments. This material may not be quoted or reproduced in any form without publisher s permission. All rights reserved SmartsPro Marketing. Tel