What to Expect When Buying Individual Medical Coverage

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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 Health Insurance December 2011 Volume 5 Number 12 What to Expect When Buying Individual Medical Coverage If you re entering the world of individual medical coverage for the first time, you re not alone. The percentage of firms that offered health benefits to their workers dropped from 69 percent in 2010 to 60 percent in Individual medical insurance can provide the coverage you need, but finding the right plan for you requires more research and decision-making than simply opting into an employer-paid plan.whatever the the most important things you ll reason you need to know. lack health insurance whether because you ve lost your job, started your own company or aged out of your parents plan buying individual coverage for the first time can be a daunting experience. Here are some of 230 S. Bemiston; Suite 900 Clayton, MO (314) FAX (314) Your health matters. HIPAA, the Health Insurance Portability and Accountability Act of 1996, requires insurers to write even the smallest of employer group plans on a guaranteed issue basis. This means that the insurer must accept any small employer group that applies for coverage, regardless of the group members health This Just In For tax year 2012, you will be able to deduct more for long-term care insurance premiums than in past years. The maximum deduction allowed depends on your attained age before the end of the taxable year, as follows: 40 or less: $350 >40 to 50: $660 >50 to 60: $1,310 >60 to 70: $3,500 >70: $4,370 A qualified long-term care insurance contract provides only coverage of qualified long-term care services. The contract must: Y Be guaranteed renewable, Y Not provide for a cash surrender value or other money that can be paid, assigned, pledged or borrowed, Y Provide that refunds, other than

2 Health Insurance status or claims history. All employees have to do is enroll when they first become eligible, or during the plan s annual open enrollment period. Individual insurance works differently. Insurers underwrite these plans on an individual basis, so it will consider your current health and health history. If you have a pre-existing health condition, your insurer can exclude coverage for it or even refuse to issue a policy. 2 Your timing matters. If your existing group coverage (whether COBRA or a student health plan) ends soon, you will want to apply for new coverage within 63 days. Why 63 days? HIPAA allows an individual who has group coverage to obtain new coverage with a reduced, or no, exclusion period for pre-existing conditions. This HIPAA protection applies only to insurance applicants who have had continuous creditable coverage with no gaps greater than 63 days. HIPAA will allow you to obtain either new group coverage, an individual conversion policy from the same insurer that provided your group coverage, or a special group to individual portability policy available in every state. 3 Your flexibility matters. Are you willing to switch your healthcare providers if needed? Then you might be able to save some money with a preferred provider organization (PPO plan), which provides higher benefits and usually lower copayments when you use an in-network provider. 4 Your ability to budget matters. Are you one of those people who spends every cent they make? Or can you budget and set money aside? The individual who doesn t like to budget will likely feel more comfortable with a rich plan that involves little out-of-pocket expense. You ll want to look for a plan that offers low copayments for routine office visits and prescriptions. Of course, there is a tradeoff you ll pay more in premiums for this type of health plan. Budget-conscious individuals and families can pay less for their health insurance (and enjoy additional tax benefits) with a high-deductible health plan linked to a health savings account (HSA). The high-deductible plan (HDHP) will protect you from catastrophic health care costs, provide coverage for specified preventive care treatments, and cost a lot less than a rich health plan. With the HDHP, you can put aside pre-tax dollars in an HSA to pay healthcare costs not covered by the HDHP. (In 2012, an individual with self-only coverage under a qualifying HDHP can contribute up to $3,100; an individual with family coverage can contribute up to $6,250.) The HDHP/ HSA option offers the following advantages: Y You can claim a tax deduction for contributions you (or someone other than your employer) makes to your HSA, even if you do not itemize This Just In refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract must be used only to reduce future premiums or increase future benefits, and Y Generally not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer, or the contract makes per diem or other periodic payments without regard to expenses. For more information on long-term care insurance, please contact us. deductions on Form Y Contributions remain in your account until you use them. Y Interest or other earnings on your account balance accumulates tax-free. Y Distributions you take from the account to pay qualified medical expenses are tax-free. An experienced life/health insurance agent can help you evaluate different types of policies and even find coverage for hard-toinsure individuals. For help in navigating the world of individual health insurance, please contact us.

3 College Savings Save Smart with 529 College Savings Plans Have a newborn or expecting a child? By the time he or she is 18, one year at a private college will cost more than $102,000, projects the Massachusetts Educational Financing Authority (MEFA). Despite its astronomical cost, a college education still has value. Historically, the average college graduate out-earns lesseducated peers. And many jobs now require a minimum of a two-year degree. If you plan to send your child(ren) to college, you can estimate your costs by using MEFA s online calculator at If you find the results terrifying, it s time to start saving! A Section 529 college savings plan, authorized by Section 529 of the Internal Revenue Code, can help you save for the costs of a beneficiary s college education or other qualified post-secondary training. Although contributions to a 529 plan are not deductible, a Section 529 plan lets your savings grow tax-free, and withdrawals are exempt from federal income taxes when used to meet eligible educational expenses. Some states also exempt withdrawals from state income taxes. Each 529 plan has one custodian and one beneficiary. A student or future student can be the beneficiary of more than one 529 plan. How Does a Section 529 Plan Work? A 529 plan can be established and maintained by a state, state agency or an eligible educational institution. Each 529 plan is somewhat unique. Some state-sponsored plans offer incentives to in-state participants, such as state income-tax deductions or credits. All 50 states and the District of Columbia sponsor at least one type of 529 plan. There are two basic types of 529 plans a pre-paid tuition plan and a college savings plan. Pre-paid tuition plans generally allow college savers to purchase units or credits at participating colleges and universities at current prices. Most prepaid tuition plans are sponsored by state governments and have residency requirements. Many state governments guarantee investments in pre-paid tuition plans that they sponsor. College savings plans permit an individual to establish an account for the purpose of paying a beneficiary s college expenses. An account holder may typically choose among several investment options for his or her con-

4 tributions, which the college savings plan invests on behalf of account holders. Investment options often include stock mutual funds, bond mutual funds, and money market funds, as well as age-based portfolios that automatically shift toward more conservative investments as the beneficiary gets closer to college age. With limited exceptions, you can only withdraw money invested in a 529 plan for eligible college expenses without incurring taxes and penalties. If your designated beneficiary s plans change say, your son or daughter decides not to go to college you can designate another beneficiary. Prepaid Tuition Plan or College Savings Plan? There are several significant differences between prepaid tuition plans and college savings plans. With a prepaid tuition plan, you lock in tuition prices, letting you budget future expenses. However, you must use the funds at a participating college or university for tuition and mandatory fees only. (Some plans will allow you to buy a room and board option.) A college savings plan does not lock in costs, but you can use the funds for any qualifying expense including books and computers, if required at any accredited postsecondary school in the U.S., and at some foreign institutions. Prepaid tuition plans often come with state guarantees. With a college savings plan, you do not get a guarantee, and your investment is subject to the same risks as any mutual fund. Your investment could grow, stay the same or even decline in value. As with many other investments, college savings plans often have fees that can reduce your yield, including commissions (for broker-sold plans), enrollment fees, annual maintenance fees and asset management fees. Prepaid tuition plans also usually charge enrollment and administrative fees. Contributors to Section 529 plans should be aware of potential gift tax liability if they contribute more than $13,000 (including other gifts) to that beneficiary. For a general discussion of gift tax rules, see IRS Publication 950, Introduction to Estate and Gift Taxes. For information on a special rule that applies to contributions to 529 plans, see the instructions for Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. And for a discussion of Section 529 plans and other savings options, please contact us. Not surprisingly, investment in 529s is booming. By September 2011, total assets in 529 plans reached a new record of nearly $170 billion, with an average account balance of $17,000. Source: The College Savings Plan Network Life Insurance Ten Uses for Life Insurance Life insurance stems from the benevolent societies of ancient Greece and the trade guilds of the Middle Ages. These groups pooled funds to pay funeral benefits for members, to support widows and orphans of members and to help members who became elderly or infirm. Today, life insurance can do all of this and a lot more. Ten things life insurance can do for you: 1 Pay funeral expenses. According to the National Funeral Directors Association, funerals cost an average of $6,560 in 2010 and that doesn t include cremation or cemetery costs. 2 Pay final medical bills. Statistically, most Americans incur their highest medical bills during their final year of life. The deceased s estate must pay any of his/her uninsured medical bills. 3 Ensure your spouse or children can maintain their lifestyle if you die prematurely. You can structure a life insurance policy to provide enough funds to pay off your mortgage or pay for your children s college education. 4 Provide funds outside of probate. Complex estates can take years to settle. Life

5 Life Insurance insurance proceeds do not fall into probate, so your beneficiaries will have funds for living expenses while your estate settles. 5 Provide a tax-free inheritance. Generally, death benefits of a life insurance policy are not taxable. Your policy can provide a tax-free inheritance to a beneficiary. 6 Support your favorite charities. Name your favorite charity as a beneficiary of a life insurance policy, and you can ensure a substantial gift will be made on your behalf. 7 Give you hassle-free loans when you need them. Permanent life policies have two parts: the face amount, or the death benefit beneficiaries will receive, and the cash value. The face amount remains unchanged over the life of the policy, as long as premiums are paid. However, the policy s cash value builds up over time, reflecting the accumulation of your premiums minus allowances for company expenses and claims. These funds grow tax-deferred. Provided your cash balance is high enough, you can take out a loan from the insurance company, which uses the policy s cash value as collateral. Why should you care about this feature? You can structure your policy so the cash value becomes available when you anticipate high expenses such as a child entering college. And policy loans don t require a credit check or affect your credit record. 8 Build retirement savings. The cash value feature of permanent policies (which include whole life, variable life and universal life policies) lets you build up a nest egg for retirement. You can structure a policy so that by the time you re ready for retirement, your policy will have a significant cash value that you can withdraw. 9 Insure your business continuation plan. Owners or partners of a closely held business or partnership should protect their business and their heirs with a buy/sell agreement. This agreement requires the firm or surviving owners/partners to buy out the interest of another owner/partner if he or she dies. It should also spell out the method used to valuate an owner s interest. A buy/sell agreement allows the continuation of the business, ensures heirs get a fair value for their interest and helps prevent succession struggles. Using life insurance to fund a buy/sell agreement ensures the funds needed to execute the buyout are available when necessary. 10 Protect your company from the loss of a key employee. Life insurance can protect an employer from the loss of a key employee on whose special skills or experience the firm depends. The firm buys a policy on the key employee s life, naming itself as the beneficiary. Policy proceeds can pay for income lost due to the key employee s death and help pay the costs of recruiting and replacement. For more information on the many roles life insurance can play in your family s financial plan, please contact us.

6 Should You Invest in a Section 529 Plan for College Savings? Before selecting a plan, consider the following: 1 What fees does the plan charge? How much of your investment will go toward commissions and broker compensation? Under what circumstances does the plan waive or reduce certain fees? 2 Is the plan available directly, either through the state or an institution? 3 What types of college expenses does the plan cover? For example, tuition, fees, books, dorm/dining expenses, computers, etc. 4 Which colleges and universities participate in the plan? 5 What types of investment options does the plan offer? How long are contributions held before being invested? 6 Does the plan offer special benefits for state residents? Some states offer state income tax or other benefits, such as matching grants, for investing in a 529 plan. Would you be better off investing in your state s plan or another plan? 7 What limitations apply to the plan? When can you change investment options, switch beneficiaries or transfer ownership of the account to another account holder? 8 Who manages the program? 9 How has the plan performed in the past? 10 Although you can change plan beneficiaries and sometimes roll funds from one 529 plan into another, you will pay a penalty on any withdrawals not used for qualified educational expenses. Before investing in a Section 529 plan, consider it in the context of your other financial goals, such as saving for retirement, paying down debt or buying a house. Even if you use a qualified tuition plan to finance a student s education, the student or the student s parents still may be eligible to claim the American opportunity credit or the lifetime learning credit. Contact your tax advisor for more information. For more information on Section 529 plans, please contact us. 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. Smart s Publishing 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 Smart s Publishing. Tel