Accident Insurance: Financial Protection Doesn t Happen by Accident

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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 Accident Insurance July 2013 Volume 6 Number 7 Accident Insurance: Financial Protection Doesn t Happen by Accident Accidents of many kinds increase during the summer. Did you know that the average emergency room visit now costs more 40 percent more than the average month s rent? How will you manage these and other accident-related expenses? Summer means more accidents, according to Unum, an insurer that writes accident and disability coverage. Last summer, Unum reported that accident claims typically jump 20 percent during summer months. Summer poses particular dangers for teens and children. The National Safety Council says, The 100 deadliest days for teen drivers stretch from Memorial Day to Labor Day, with July S. Bemiston; Suite 900 Clayton, MO (314) FAX (314) the single deadliest day for teen drivers. Drownings, the secondhighest cause of accidental death among children, also occur much more frequently during summer. However, all populations have a higher risk of auto accident, drowning and other accidental injuries during summer months, when vacations, travel and holidays take people on the road and outdoors. Injury accidents can result in steep medical bills for anyone. This Just In More than 40 percent of Baby Boomers say they are not very or not at all knowledgeable about investing, reported the Insured Retirement Institute (IRI), a nonprofit trade association for annuity salespeople and insurers. Working with a financial advisor can help. The IRI s third annual survey of Boomers retirement expectations also found that: Y 48 percent of Boomers who work with a financial professional are very or extremely confident with their financial preparations for retirement, compared to only 28 percent working on their own. Y 71 percent of Boomers working with an advisor have de-

2 Accident Insurance Life & Health Insurance Advisor July 2013 Among working people, they can also cause lost work time. Between 2004 and 2007, employed persons suffered an average of 15.7 million injuries per year. Half of these injuries resulted in time lost from work: 8 percent resulted in less than one day of time lost, 26 percent resulted in one to five lost days, and 16 percent resulted in more than six days lost. If an injury accident occurs during the course of work, your employer s workers compensation will cover your medical and lost-time costs. But if it occurs elsewhere, any costs will come out of your pocket. That s where accident insurance can help. The Different Types of Accident Insurance Accident insurance pays insureds when a covered accident causes injury or loss of use of a limb or key sense. If an illness were to cause any of these serious consequences, you would generally have some warning and time to prepare yourself and your family. But when an accident occurs, it s sudden and unexpected, making the loss all the more traumatic. Accident insurance differs from medical insurance in that it pays benefits directly to policyholders. Policyholders can use benefits to pay deductibles, copayments and other costs not covered by major medical plans. You can choose from two basic types of insurance to cover financial losses due to accidents. Each covers different loss scenarios. Exact terms of coverage and exclusions vary by insurer and policy, but a brief overview follows. Accidental Death & Dismemberment Insurance (AD&D): AD&D pays a benefit when an insured dies or loses use of a limb or key sense due to an accidental cause. AD&D policies pay a flat death benefit, for example, $250,000 or $500,000. They will also pay a portion of the death benefit if a covered accident causes loss of a limb or key sense, according to a schedule that depends on relative severity of the loss. For example, the policy might pay half the death benefit for loss of an eye or vision in one eye, but full benefits for loss of vision in both eyes. Insurers offer standalone AD&D policies, but often individuals will buy AD&D coverage through a rider, or addition, to their life insurance policies. A life insurance policy with an AD&D rider will pay a double indemnity, or two times the death benefit, if the policyholder dies due to a covered accident. Accident Indemnity Insurance: You might find this type of coverage under a different name, such as personal accident insurance or simply accident insurance. Like an AD&D policy, accidental indemnity insurance covers you for accidental injury. And like an AD&D policy, it pays benefits according to a schedule. Although this type of policy frequently does not provide a death benefit, it covers a broader range of events, paying a scheduled benefit when you suffer many types of accidental injuries, such as fractures, burns and dislocations. Many policies also pay a specific benefit when you incur medical expenses to treat accidental injuries. They typically pay a flat amount per accident or per incident, such as $100 per ambulance service, $150 per This Just In termined a retirement savings goal and 94 percent have retirement savings. This compares to only 34 percent and 64 percent, respectively, of Boomers who have not consulted an advisor. Y Boomers working with an advisor are more engaged with their retirement plans. Nearly two-thirds rebalance their portfolios yearly or every few years, while 61 percent of Boomers who have not consulted an advisor rarely or never rebalance their portfolios. The IRI offers several retirement planning tools for consumers, including retirement planning calculators and information on retirement advisors. See www. irionline.org/consumers or contact us. emergency room visit and $1,000 per hospitalization, when you require these services due to an accidental injury. Limitations and Advantages of Accident Coverage Both types of accident coverage strictly limit benefits to death or injuries stemming from accidental causes only. They specifically exclude claims for death, dismemberment or injury due to sickness. They usually also exclude accidental injury or death resulting from the medical or surgical treatment of a sickness, cosmetic surgery or dental treatments, and uninsurable events, such as war and nuclear event.

3 Life & Health Insurance Advisor July 2013 In many cases, a time period also applies. That is, death or injury must occur within a specified time period after a covered accident for the policy to pay. As with most insurance, accident insurance excludes claims for self-inflicted injuries or suicide and claims that occur while using illegal drugs, while intoxicated or while engaged in illegal activities. Your accident insurance or AD&D premiums might rise over time. Although premiums vary by the insured s location and age and the coverage terms selected, you might find this insurance surprisingly affordable. For example, a relatively young woman can buy AD&D coverage for less than $200 per year. Accident insurance and AD&D have several features that make them excellent supplements to your medical plan: Y They have no deductibles or copayments. Y They pay the same benefit regardless of the medical provider you choose. Y They pay regardless of any other coverage you might have. Y They pay benefits directly to you, so you can use them however you choose. Although they cannot replace a major medical policy, accident insurance and AD&D provide low-cost peace of mind. For more information, please contact us. How to Prepare for the ACA The Patient Protection and Affordable Care Act (known as the Affordable Care Act, or ACA) goes into full effect in If you have medical insurance through an individual or small group plan, here are some dates and facts to be aware of. On October 1, 2013, the health insurance exchanges will open for enrollment. The ACA created these marketplaces, where private insurers will offer a variety of health plans that must meet certain quality and coverage standards. The exchanges will help small businesses (generally, those with fewer than 100 employees) and individuals shop for and compare health insurance plans based on price, benefits and services, and quality. Policies bought through the exchanges can begin covering the individuals and small groups who purchase them on January 1, 2014 or later. Play or Pay On January 1, 2014, the individual responsibility provisions of the law also go into effect. Otherwise known as play or pay, these provisions require individuals to be enrolled in a health insurance plan that meets basic minimum standards. Those who don t may be required to pay an assessment. You won t have to pay an assessment if you cannot obtain affordable coverage, or for specified other reasons, including religious beliefs. Affordable Care Act You can also apply for a waiver asking not to pay a penalty if you don t automatically qualify for an exemption. Starting in 2015, individuals filing a tax return for the previous tax year will indicate which members of their family (including themselves) are exempt from the provision. For family members who are not exempt, the taxpayer will indicate whether they had insurance coverage. Those who can afford to purchase health insurance coverage but do not will face a penalty of the greater of $95 or one percent of income in 2014, $325 or two percent of income in 2015 and $695 or 2.5 percent of income in 2016, up to a cap of the average premium for a bronze plan, or the least expensive type of health plan available on the insurance exchanges. For each non-exempt family member who doesn t have coverage, the taxpayer will owe a payment. Families will pay half the amount for children up to a cap of $2,250 for the entire family. After 2016, dollar amounts will increase by the annual cost of living adjustment. Individuals with lower to middle incomes may qualify for a tax credit to buy health insurance coverage.

4 Life & Health Insurance Advisor July 2013 With most tax credits, you have to wait until you file your taxes to get the credit. These tax credits operate differently: you will be able to take your credit in the form of advance payments to lower your monthly health plan premiums starting in You ll see the amount of tax credit you re eligible for right after you submit your exchange application (coming in October 2013). Once you enroll in a qualified health plan, you can control how much of your tax credit you want to use to help pay your monthly health plan premiums. The tax credit is sent directly to your insurance company and applied to your premium, so you pay less out of your own pocket. The amount of tax credit you re eligible for depends on how much income your family expects to earn. When enrollment starts in October 2013, it s important to double-check your application to make sure everything is accurate. If the amount of income you report isn t accurate, you may not get the right amount of tax credit you re eligible for, and it could mean you have to pay back money at the end of the year. If You Have Coverage through a Small Group Plan Shared responsibility provisions require large employers (those with 50 or more fulltime equivalent employees) to provide health insurance that meets certain minimum standards to employees or to pay a penalty. If you currently obtain your health coverage through a small employer plan, or if your employer is a small employer subject to the shared responsibility requirements, your employer might opt to have employees obtain health coverage through the exchange. If that s the case, be prepared to make some decisions on your health insurance coverage. At a minimum, this means: a) Understanding how insurance works, including deductibles, out-of-pocket maximums, copayments, etc. b) Knowing your household income. Many families will qualify for price breaks, which vary depending on income. c) Setting your budget. Exchanges run by the states will offer health plans to meet a variety of needs and budgets, and breaking them down by cost can help narrow your choices. For 2014, employers buying coverage on an exchange run by the federal government might have to offer only one plan to employees. After 2014, though, all exchanges expect to offer a wider variety of plans. Health insurance agents and brokers will be able to access plans on the exchanges, if the state permits and if the agent or broker enters into a formal agreement with the exchange. They can also help you apply for any credits you may qualify for. Keep in mind, though, that you do NOT have to buy coverage on an exchange to avoid the play or pay penalties. If you already work with an agent or broker, or if you are new to the individual insurance market and prefer the guidance of a trained professional, an agent or broker can help you find the coverage you need. For more information on the Affordable Care Act and your insurance coverage, please contact us. Term vs. Permanent? Life Insurance You may have heard the phrase Buy term and invest the difference. That works if you have the discipline for a regular investment program. But for some, a permanent life insurance policy will provide more security and better returns. It also offers tax advantages that other investments lack. There are two categories of life insurance: term and permanent. Term coverage provides pure death benefit coverage only. Permanent, or cash value, programs provide some additional benefits, including the taxdeferred accumulation of cash. Term insurance provides financial protection for a specific time (one to 30 years), and gives a death benefit but no cash savings. If you have employer-provided life insurance, it is probably term insurance. Term insurance comes in several varieties: Renewable. Policy owners can renew coverage at the end of their policy term without having to submit new medical information, though the premium rate will generally rise with each renewal. Convertible. A convertible policy allows the insured to convert term coverage into a permanent policy without providing evidence of insurability (usually a medical exam). A convertible policy costs more, but

5 Life Insurance Life & Health Insurance Advisor July 2013 the premium remains fixed after conversion. Level. Level-premium policies have a fixed premium for a certain number of years (usually 10 or 20), while the death benefit remains unchanged. Although the rate locks in for the policy period, it can jump considerably upon renewal. Permanent Life Permanent insurance provides lifelong protection and includes a savings element that grows on a tax-deferred basis and may become substantial over time. Premiums are generally higher than for term insurance, but they remain fixed. All permanent insurance has a face value and a cash value. The face amount is the money that will be paid at death, while cash value is the amount of money currently available to the policyholder. Permanent life offers other benefits purchasers can withdraw some of the cash value, obtain a loan using the cash value as collateral or use the cash value to pay premiums, provided cash value is high enough. The different types of permanent life policies include: Whole or ordinary life. The face amount of the policy is fixed, while premiums remain level and must be paid on a regular basis. It offers a death benefit and a savings account, which grows based on insurance companypaid dividends. Universal or adjustable life. More flexible, insureds can pay premiums at any time, in virtually any amount, and may change the amount of the death benefit, although an increase usually requires a medical examination. After accumulating sufficient funds in the cash value account, insureds can change premium payments, a useful feature if your economic situation suddenly changes. Variable life. This policy combines death protection with a savings account that a policyholder can invest. The death benefit and cash value vary with the performance of the underlying investments, although some policies guarantee a minimum death benefit. Variable-universal life. The policyholder has the investment risks and rewards of variable life insurance, coupled with the ability to adjust the premiums and death benefit available under universal life. Regardless of the type of policy you buy, your beneficiaries will receive any benefits free of taxes. For assistance in determining how much and what kind of insurance you need, please call us.

6 Life & Health Insurance Advisor July 2013 Credit Insurance: Yes or No? About 22 percent of consumers who take out closedend consumer loans or mortgages buy credit insurance to cover them. When you take out a personal loan or mortgage or open a credit card account, should you take the optional credit insurance? Credit insurance protects a loan if you can t make your payments. There are four main varieties: Y Credit life insurance pays off all or some of your loan if you die. Y Credit disability insurance, also known as accident and health insurance, makes payments on the loan if you become ill or injured and can t work. Y Involuntary unemployment insurance, also known as involuntary loss of income, makes your loan payments if you lose your job due to no fault of your own, such as a layoff. Y Credit property insurance protects personal property used to secure the loan if destroyed by events like theft, accident or natural disasters. Before deciding to buy credit insurance from a lender, think about your needs, your options, and the rates you re going to pay. You may decide you don t need credit insurance. If you do, credit insurance can be an expensive form of insurance. For example, it may be less expensive and more practical for you to get life insurance than credit insurance. Before you sign any loan papers, ask the lender whether the loan includes any charges for voluntary credit insurance. And review your loan papers carefully to be sure they have been drawn up correctly. Lenders can t deny you credit if you don t buy optional credit insurance and if you don t buy it directly from them. If a lender tells you that you ll only get the loan if you buy the optional credit insurance, report the lender to the state attorney general, state insurance commissioner or the Federal Trade Commission (FTC). 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