A. Based on our experience, AIG （友邦保险） is the most lenient among life insurance companies towards foreign nationals. If you meet the following requirements from AIG, yes, you can apply for life insurance in the U.S.!
Q. I am a Chinese living in mainland China, can I buy life insurance in U.S.?
A. Based on our experience, AIG （友邦保险） is the most lenient among life insurance companies towards foreign nationals. If you meet the following requirements from AIG, yes, you can apply for life insurance in the U.S.!
Q. Are we overestimaing healthcare related costs in retirement?
A. Possibly. While most people probably have seen the annual Fidelity study that predicts individual retirees may need as much as $133,000 to $147,000 to cover health care costs in retirement, a recent EBRI study finds that after Medicare premiums, actual retirees are self-reporting the median spending on health care services is actually “just” $27,000, which averages out to barely more than $1,000/year or $100/month of out-of-pocket expenses over 25+ years of retirement, while total spending on all out-of-pocket medical expenses after Medicare premiums was under $2,000/year.
In other words, beyond the ongoing cost of Medicare premiums themselves, the range of medical expenses in retirement may actually be much narrower, and much less uncertain, than is commonly suggested.
Of course, there is still the challenge that medical expenses have, for decades, been inflating at a higher pace than the general level of inflation, and the cost of long-term care expenses in particular still remain a substantial wild card. Nonetheless, the EBRI survey shows that even those who die at age 95 or later and experience the most expensive (95th percentile) of costs, cumulative medical expenses are “just” $269,000 (effectively producing a range of medical expenses in retirement from $27,000 to $269,000). Which suggests in the end that the bulk of medical expenses may actually be more “plannable” and stable than commonly conveyed, and the real issue is how to plan for (or insure) long-term care expenses or the risk of a serious terminal illness that could rack up substantial medical bills in retirement.
Q. How to plan for health care in retirement without going broke?
A. According to Fidelity’s latest estimate, a 65-year-old retiring couple will need an estimated $275,000 in today’s dollars to cover health care expenses in retirement (calculated as the present value of monthly Medicare premiums, copayments and deductibles, and prescription drug out-of-pocket expenses, but not nursing home or long-term care expenses).
Notably, though, it’s not as though these retiree health expenses are actually due at a lump sum at the start of retirement; instead, the retirement is that they’re simply a series of $5,000 – $10,000/year expenses for retirees throughout the retirement years (albeit slightly lower in the early years, and higher in the later years as intermittent health events lead to a progressive series of higher-cost “one-off” health events). And in fact, the relative stability of health care expenses in retirement (at least until the later years) means it’s often easiest to simply earmark certain income retirements in retirement for those (recurring) health care expenses, such as one spouse’s ongoing Social Security payments.
Pre-retirees might look to fund their future retiree health expenses by contributing to a Health Savings Account, and leveraging the HSA’s triple-tax-free benefits not for current medical expenses but retiree medical expenses. And for more affluent individuals, often the biggest challenge of health care expenses in retirement isn’t the actual cost, but simply the “sticker shock” of transitioning from a world where the employer often pays some, part, or even all of the health insurance expenses, while the retiree must handle the entire cost of Medicare premiums and co-pays, and Medigap supplement insurance, all by themselves. Of course, it’s also important to remember that one of the most straightforward ways to manage retiree health expenses is simply to try to live a healthier lifestyle in the first place, too!
Check out the Marketwatch article for more details.
Q. How to plan for retirement health care costs?
A. Fidelity Investments estimates that the average 65-year old couple retiring now will need about $260,000 to pay out-of-pocket health care costs, including deductibles and Medicare premiums, over the rest of their lives. And this doesn't even include long term care costs.
There are a few options to use to plan for health care costs in retirement time -
1. Use HSA
An HSA offers triple tax advantages, to maximize HSA's benefits, contribute as much as you can to the account and pay current medical bills out of pocket, in this way, the money in HSA will have time to grow.
2. A Hybrid Life Insurance
A hybrid policy combines life insurance and long term care benefits. It's basically a permanent life insurance policy that allows you to spend down the death benefit to pay for long term care should you need it. If you don't need long term care, the money will be paid to your heirs when you die.
In our last blogpost, we described HSA as the ideal retirement planning tool. However, there are several hundreds HSA plans on the marketplace today, most plans charge monthly maintenance fee and investment fee, as well as mandating minimum cash balance, if your HSA account has a small balance, it's important to shop around and don't let fee eat most of your returns.
Morningstar analyzed 10 of the largest HSA plans - evaluating such criteria as monthly maintenance fees and mutual fund offerings - found only 1 plan "compelling" for use both as a spending vehicle to cover current medical costs and as an investment vehicle to save for future medical expenses, that plan is HSA Authority, offered through Old National Bank.
Q. Should HSA be part of my long term retirement portfolio?
A. Generally the answer is yes, but let's first see when HSA should not be held for long term -
HSA is only available in conjunction with high-deductible health plans, however, if you have high medical expense and would be better off with a lower-deductible plan, HSA might not be the best plan for you.
Other than the above situation, everyone should keep HSA as part of the long term retirement portfolio, which means you should pay medical expense out of your current cash flow rather than using money inside HSA to pay for it, because HSA is the only account that offers you tax-free contribution, growth, and withdrawal, making it an ideal retirement planning tool.
Even if you withdraw money from an HSA after age 65 and use it for non-medical purposes, you do NOT incur a penalty, although you do have to pay taxes.
What's the best HSA plan? We will discuss Morningstar's finding in next blogpost.
Q. How to avoid steep price for Medicare?
A. Not all Medicare premiums are equal - while the standard Medicare premium is $134 a month, for couples filing jointly, for MAGI between $170K and $214K, monthly premium for Medicare is $187.50, for MAGI between $214K and $320K, monthly premium for Medicare is $267.90, for MAGI between $320K and $428K, monthly premium for Medicare is $348.30, and above $420K, monthly premium for Medicare is $428.60, and this premium is destined to raise each year.
How to avoid high Medicare premium?
The trick lies how MAGI is calculated- it is based on 2 years ago's income. For example, your income in 2017 will be reported for 2018 tax return, and will be used to determine 2019 Part B premium
For people who just retired, it is possible to pay high premium for 2 more years. It is important to appeal IRMAA (income related monthly adjustment amount) immediately after retirement, this is a legit reason to drop IRMAA.
Q. I heard talks that health care costs will be very high in one's entire retirement life. How much should I prepare for the retirement health care costs?
A. Based on HealthView Service's 2016 Retirement Health Care Costs Data Report:
More than half of your social security benefits will go to health care costs:
Q. What should I focus on when shopping for a disability insurance?
A. You should look for the following in a disability insurance policy:
1) How long is the elimination period (in other words, how long you have to wait before getting paid benefits)?
2) How long is the benefit period (in other words, how long does the insurance company pay you the benefits)? Common benefit periods are 2-5-10-20 years or age 65 or age 67
3) What is the rating class of your occupation (1A-5A)? The lower the number, the higher the premium.
4) How much does the benefits reduce when you become eligible for Social Security benefits (there are riders to increase that reduction)?
5) Is there any opportunity to buy additional coverage in the future without evidence of insurability?
It's best to use an experienced independent broker to find the right coverage at the best price for your unique situation. Please contact us if you need help.
Q. Can I use HSA money to pay for life insurance premiums?
A. Unfortunately you cannot use HSA money to pay for life insurance premium, but according to Publication 969 of the IRS, HSA funds can be used for the following insurance premium payments:
Q. What's the medicare appeal process?
A. There are 4 levels of Medicare appeals process as outlined below:
You have 120 days after receiving your claim denial to file for "redetermination", which takes up to 60 days to get a decision.
You ahve 180 days to file for "reconsideration", which takes up to 60 days to get a decision.
You have 60 days to file for a hearing before an administrative law judge, who should take up to 90 days to rule.
You have 60 days to appeal to a Medicare Appeals Council, which can take 90 days to decide.
You have 60 days to ask for a review by the federal district court (for claims of at least $1,460).
Q. How to find the best hospital?
A. If you require care in a hospital, the first step you will do is probably start searching hospital's rankings and ratings. Below are some reputable websites that provide hospital rankings and ratings:
Ratings of over 4,000 hospitals in the U.S. You can find how hospitals in your area are ranked.
Helps you find the right hospital!
The Leapfrog Group
Provides hospital safety scores
U.S. News and World Report
US News and World Report's annual best hospital rankings
The Bottom Line
Rankings just give you the statistics, don't forget to listen to your Dr.'s advice, and check out patients' reviews and stories.
Do you have disability insurance?
Which is First: Health or Disability Insurance?
The U.S. health insurance industry faces a strange situation - health insurance is mandatory for everyone today, but only 27% of American income earners have Disability Insurance, based on LIMRA, the Life Insurance Marketing and Research Association research.
However, few people knows about this - the health insurance business started as disability insurance! Do the industry and consumer get the priority wrong?
Health Insurance Benefits Doctors, Disability Insurance Benefits You
In theory, yes. Because with health insurance, it provides the necessities of life for doctors, hospital workers and the medicine merchants, but it does not pay the mortgage or buy food and clothing for the family. On the contrary, Disability Insurance pays benefits for the necessities of life when accidents happen.
Do You Have Adequate Disability Insurance Coverage?
One possible reason is most working people got their disability insurance coverages from their workplaces, another possible reason is lack of awareness - for example, few people know if they have adequate disability insurance coverage from their workplaces.
If you want to do a shop around of the best disability insurance, please contact us, we can find the best plan that fits your needs as an independent agent.
Q. I plan to leave my job and work as a freelancer. If I do that, I will be missing my state's health insurance open enrollment, can I still get health insurance through my state's marketplace later? Since I will expect a drop in income, I expect to receive subsidy, but what if I earn more than expected?
A. Yes, you can buy health insurance from the state exchange outside of open enrollment if you experience some of the life changes, such as losing employer health insurance coverage (even you qualify for COBRA), having a baby, move to a new area, etc.
To qualify for health insurance subsidy, your income must be below 4 times of Federal poverty level (about $62,000 for couples), since you don't know your actual income yet, you can estimate it. When you know the actual amount you earn, you could either get a refund or pay some of the subsidy back. You can adjust the numbers during the year by contacting the exchange.
Q. Is Dec 31 or March 15 of the following year the deadline to use up the Flexible Spending Account money?
A. It depends on your plan, there are total 3 possible options offered by an employer regarding the deadline to use up FSA money:
1. Dec 31
Most plans' deadline is Dec 31 of the same year, if you don't use it up, you lose it.
2. Mar 15
Some plans offer a grace period to March 15 of the following year, you can spend the money till March 15 of the next year.
3. $500 Carryover
Some plans offer $500 carry over option which means you can carry over up to $500 to spend in the entire next year.
An employer can not offer the option 2 and option 3 at the same time, so one way or the other.
How is life insurance taxed?
Historically, life insurance has been tax free. As insurance products have become more sophisticated, however, the line separating insurance products from investment products has become a bit more complicated, depending on the type of policy(s) you own. As a result, a mix of complex rules and exceptions now govern the taxation of insurance products. Familiarity with these rules will help you avoid an unwary consequences and help you plan accordingly.
Taxes are typically levied whenever cash changes hands. During the term of any life insurance policy, there are a number of occasions when money can and does change hands. The only question is whether the transaction amounts to a taxable event that triggers current income tax liability. For instance, in most cases, premiums are paid with after-tax dollars. To the extent they are deemed a return of premiums, benefits paid out during your lifetime are usually paid out tax free. Typically, death benefits are received tax free by your beneficiaries after your death. But, the sale or surrender of your policy during your lifetime triggers a tax on the realized gain.
Premiums may be paid with pre-tax dollars
If your company offers the option to purchase life insurance through a qualified retirement plan, then your pre-tax contributions to the plan (and/or your company's contributions) can be used to buy a life insurance policy. However, few companies offer their employees the option to purchase life insurance through their qualified retirement plan. If you do not purchase the insurance policy through a qualified retirement plan, then the premiums have to be paid with after-tax dollars.
Cash value accumulates tax deferred
As the investment element of your policy grows, you realize gains. Generally, you are allowed to defer taxes on those gains as long as you don't sell or surrender the policy. There are a few rare--but important--exceptions.
Dividends are typically not taxable
Dividends are paid out of the insurer's surplus earnings for the year. Regardless of whether you take them in cash, or keep them on deposit with the insurer, they are considered a return of premiums. As long as you don't get back more than you paid in, you are merely recouping your costs and no tax is due.
Cash withdrawals in excess of basis are taxable income
When you begin to withdraw cash from a cash value life insurance policy, the amount of withdrawals up to your basis in the policy will be tax free. Your basis is the amount of premiums you have paid into the policy. Any withdrawals in excess of your basis will be taxed as income. If the policy is classified as a "modified endowment contract," then untaxed earnings must be withdrawn first and taxed.
Policy loans usually not taxable
If you take out a loan against the cash value of your insurance policy, the amount of the loan is not taxable (except in the case of a modified endowment contract). This result is the case even if the loan is larger than the amount of the premiums you have paid in. Such a loan is not taxed as long as the policy is in place.
Interest on policy loans usually not tax deductible
The interest on any loans you take out against the cash value of your life insurance is usually not tax-deductible.
Surrender of policy may result in taxable gain
If you surrender your cash value life insurance policy, any gain on the policy may be subject to federal (and possibly state) income tax. The gain on the surrender of a cash value policy is the difference between the net cash value and loan forgiveness amounts and your basis in the policy. Your basis is the total premiums you paid in cash, minus any policy dividends and tax free withdrawals that you made.
Policy exchanges are typically not taxable
The tax code allows you to exchange one life insurance policy for another without triggering current tax liability. However, you must follow the IRS's rules when making the exchange.
Death benefits usually not subject to federal income tax
Whoever receives the death benefits from your insurance policy (at the time of your death) usually does not have to pay federal income tax on those proceeds. Thus, if you die owning a cash value life insurance policy with a $500,000 death benefit, then the beneficiaries under the policy will generally not have to pay any federal income tax on the receipt of the $500,000. In addition, the payment of death benefit proceeds from a cash value life insurance policy to a beneficiary is usually not considered a taxable gift.
Insurance proceeds may be included in your taxable estate
If you hold any incidents of ownership in an insurance policy, the proceeds from that insurance policy will be included in your taxable estate. Furthermore, if you gift away an insurance policy within three years of your death, then the proceeds from that policy will be pulled back into your taxable estate. Incidents of ownership include the right to change the beneficiary, the right to take out policy loans, and the right to surrender the policy for cash.
Part A - What is the difference between a primary and contingent beneficiary?
A primary beneficiary is the person who will receive your life insurance's death benefit payment in the event of your death.
A contingent beneficiary is a back up plan - in case the primary beneficiary person doesn't survive you.
You can name several primary beneficiaries and several contingent beneficiaries, just specify the percentage allocation among them of your death benefit payment.
Part B - what if you have multiple primary beneficiaries, and none of some of them don't survive you?
Q. I have an existing life insurance policy with $500K coverage just approved recently, now I want to increase it to $1M. Do I need to start a new application?
A. Yes, if you want to increase the coverage amount, a new application will be required; if you want to lower your coverage amount, a new application is not required.
Since your policy is fairly new, you might be able to use the same medical exam results, especially if you want to go with the existing insurer. Nevertheless, a new underwriting decision is needed and the final decision will depend on your age, the face amount and the current policy.
Q. Can I contribute to HSA and my spouse contribute to FSA at the same time?
A. First of all, you cannot contribute to HSA and FSA at the same time. If you did it and later on audited by IRA, you will face penalty.
Now for your specific question, if your spouse has a limited FSA, then you can qualify for your own HSA.
It's important to note that your spouse's limited FSA cannot cover your expenses.
If you try to open both HSA and FSA accounts and later audited by IRS, you will face penalty.
Q. How can I quickly find out how much will be my family's healthcare insurance cost under the Obamacare plan?
A. It could be very confusing when you try to navigate the HealthCare.gov website to figure out your cost of coverage. Fortunately, the Kaiser Family Foundation has developed the handy calculator below to determine what the answer is for you, based on your income, smoking habits, and other relevant factors.
To actually buy a plan, you'll need to visit HealthCare.gov, but this tool will give you a sense of the cost. It only takes a few seconds. Give it a try.
Q. What is the difference between a Medigap policy and an Advantage plan?
A. We have discussed two common yet confusing Medicare questions in Part A and Part B of the series, now we turn to the third confusing question which is the difference between Medigap policy and an Advantage plan.
Medicare supplemental insurance policies
Aka Medigap policies, they provide additional benefits and can reduce out-of-pocket costs when combined with parts A and B.
They're provided by private insurance companies and require additional premium payments. Because they usually exclude prescription drug coverage, you may need to add Part D coverage to it. That means most people could end up with three different monthly insurance premiums to pay and coverage plans to manage - Part B, Medigap, and Part D.
There's a vast marketplace for Medigap policies, so you should shop around and get the one that fits your needs.
If you find it hard to manage the different premiums, the Advantage plans combine Medicare parts A, B and sometimes D. In essence, these policies bundle coverage into a single Medicare-approved health plan offered by a private insurance company. The level of coverage varies depending on the plan chosen; again, there are numerous options available and you should shop around.
The Bottom Line
If you still have employer health plan coverage, it can sometimes act as a Medigap plan, so usually additional coverage is not necessary. Otherwise, if you have a special health situation, a traditional Medicare combined with a Medigap plan is probably a good idea.
Advantage plans are more like the traditional employer health plans; they are great if you are willing to pay a little more for the convenience.
Finally, you can get personalized health insurance counseling at no cost from your local State Health Insurance Assistance Program.
The following are great official Medicare resources if you want to learn more:
Q. Should I apply for Medicare Part B?
A. We discussed the first common Medicare question here, now the second common and confusing Medicare question.
Should you sign up for Medicare Part B at the same time as Part A? The logic behind this question is simple - unlike Part A, you need to pay a premium for Part B, if you don't need the coverage, why waste the money?
But the problem is, the timing for enrolling in Part B is tricky and the stakes are high - late enrollment in Part B can cause a permanent premium increase!
Group Insurance Coverage
The single most important factor to consider: do you have employer group coverage? If not, then enrolling in Part B is a no-brainer, you should apply during your seven-month initial enrollment period!
But if you are covered under a group health plan based on current employment -- whether your own employer or a spouse's -- you may qualify for a special enrollment period SEP). You may delay enrolling in Part B until your group health coverage is terminated, and avoid the late enrollment penalty.
Special Enrollment Period
The SEP is an 8-month special period that starts the month after the end of either employment or the group health insurance coverage based on that employment -- whichever happens first.
Note that COBRA coverage does NOT qualify as employer coverage.
Q. When should I apply for Medicare Part A?
A. You probably know the Medicare eligibility - it begins when you turn 65 or have a qualifying disability.
But do you know when you should begin the Medicare application process?
This question becomes important if you may apply for Part A and B at different times.
For most people, you should think of a 7-month enrollment period for Part A: it includes the three months prior to your 65th birthday, as well as the birthday month and the three months after.
There is an exception: if you are already receiving Social Security, you will be automatically enrolled.
What If You Missed the Initial Enrollment Period
Note that if you miss your initial enrollment period, you application may have to wait until the general enrollment period, which occurs each year between January 1 and March 31. That delay could cause a gap in coverage, since you will have to wait until July 1 for coverage to start.
Next blog post will discuss the 2nd most common Medicare question.
Q. How much health expense should I plan for my retirement?
A. Are you ready for the sticker shock? A recent Fidelity survey shows total average outlays for health expenses in retirement at $220,000 for a couple who lives to average life expectancy.
Most people who prepare their retirement tend to underestimate the health expenses.
An estimate puts a Medicare beneficiary whose adjusted gross income at $85K (double that if married filing jointly) will spend an average of about $8K each year on routine medical expenses in retirement, and that figure will rise each year, due to higher inflation rate of health costs.
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PFwise's goal is to help ordinary people make wise personal finance decisions.