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Insurance Protection
Life Insurance provides financial protection for the insured’s family in the event of the insured passing prematurely, whereas Annuity provides income protection for someone who lives too long. Long Term Care (LTC) Insurance is designed to pay or reimburse covered long-term care costs. For example, a long-term care insurance policy pays for the cost of care due to a chronic illness, a disability, or injury. It also provides an individual with the assistance they may require as a result of the general effects of aging. Disability Insurance (DI) is also called disability income insurance, or income protection, is a form of insurance that insures the beneficiary's earned income against the risk that a disability creates a barrier for completion of core work functions. Accident Insurance is an extra layer of protection that pays cash when the insured suffers an unexpected, qualifying accident such as severe burn, broken bone or emergency room visit. It provides money to cover any extra, out-of-pocket expenses associated with your injury, e.g. Medical cost, rent, groceries etc.
Life Insurance
If you are planning to purchase a life insurance policy or an annuity contract, you should first consider your needs and understand the different type of insurance products that are available. Many more consumers are using life and annuity products as part of their financial planning goals, which could be a great tool to protect your family financially, plan for retirement, and plan for your legacy.
There are many reasons why life insurance policies or annuity contracts are purchased, but these reasons should be based upon your financial planning needs. Schedule an appointment to discuss With our agent.
Insurance to provide financial protection and security for surviving family members upon the death of the insured person.
Insurance to cover a particular need such as paying off a mortgage or other debt upon the insured's death.
Business insurance to compensate a company on the death of a key employee or to provide a surviving partner the resources to buy out the deceased partner's share of the business.
Insurance to provide funds to pay estate taxes or other final obligations necessary to settle a deceased person's estate.
Insurance to provide the funds necessary for the deceased person's burial expenses
There are two basic types of life insurance: Term Life Insurance and Cash Value Life Insurance. There are many policy variations between these two types of life insurance.
Term Policies
Term policies provide life insurance for a specified period of time. This period could be as short as one year or provide coverage for a specific number of years such as 5, 10, 20 years or to a specified age.
If you die during the term period, the company will pay the face value to your beneficiary. If you live beyond the term period you had selected, no benefit is payable.
As a rule, term policies offer a death benefit with no savings element or cash value. If you have a limited amount to spend, and only need insurance for a specified period of time, you may be able to get more coverage by buying term insurance than by buying cash value insurance. Keep in mind that the cost of term insurance increases as you get older, which may make it more expensive than cash value insurance in the long run.
Cash Value Insurance
Cash Value Insurance combines death benefits with a cash value accumulation feature. The buyer of a cash value policy pays more in the early years than for term insurance, but the premium not needed to pay for the cost of the death benefit accumulates with interest within the policy. If the policy is surrendered before the insured person dies, there may be a cash value paid to the owner, less any outstanding loans placed against the policy. The cash value can be used as loan collateral for borrowing funds at the interest rate specified in the policy. Any outstanding loans are deducted from policy proceeds at death or at policy surrender. Some of these products may enjoy tax advantages while they remain active – as such, some consider cash value insurance as an investment tool for retirement supplemental income.
Universal
Universal Life Insurance is the most flexible of all the various kinds of policies because it treats the elements of the policy separately; universal life allows you to change or skip premium payments or change the death benefit more easily than any other policy. It works by treating the three elements of the policy — premium, death benefit, and cash value — separately. Cash values are accumulated by crediting premium payments and interest to a fund from which deductions are made for expenses and cost of insurance. Interest rates are linked to an external index such as Treasury bills. Because the cash value element of this type of policy is interest-rate sensitive, predictions of future costs are highly dependent upon the accuracy of interest rate projections. The policy can also be structured to operate like term insurance.
Variable
Variable Life Insurance has a death benefit that varies in relation to the investment experience of the assets underlying the policy. A higher rate of return on the invested fund will cause the death benefits to increase, while a low or negative rate will cause the death benefits to decrease.
Variable Universal
Variable Universal Insurance combines the flexibility of universal life insurance with the investment account features of variable life insurance.
Whole Life Insurance
Whole Life Insurance (also known as straight life, ordinary life, and traditional permanent insurance) is designed to provide coverage for your entire lifetime unlike term insurance which provides protection for a specified time period. To keep the premium level, the premium at the younger ages exceed the actual cost of protection. This extra premium builds a reserve (cash value) which helps pay for the policy in later years as the cost of protection rises above the premium. Whole life policies stretch the cost of insurance over a longer period of time in order to level out the otherwise increasing cost of insurance. Under some policies, premiums are required to be paid for a set number of years. Under other policies, premiums are paid throughout the policyholder's lifetime.
Various type of Life Insurance policies
Type of Policy | Premium | Face Amount | Cash Value | Policy Loans |
|---|---|---|---|---|
Term
| Low; but increase w/age | Renewable into old age | None | No |
Universal | Flexible | Level; can vary | Yes; no ability to choose investment | Yes |
Variable | Level | Level; Can't be changed | Yes; abililty to choose investments | Yes |
Variable Universal | Flexible | Level; can vary | Yes; ability to choose investments | Yes |
Whole | Level | Level; can't be changed | Yes; no ability to choose investments | Yes |
Long-Term Care Insurance
Long-term care events happen to a family, not just a person. LTC is NOT covered by Medical Insurance!
As people live longer and Long-term care expenses continue to rise, the need for long-term care planning becomes more of a “when” than an “if” situation. By having a long-term care strategy in place earlier, you’ll be better prepared for the tough financial, emotional and administrative decisions you and your loved ones may need to make.
Total life expectancy has increased by 9 years in the last decade and is projected to increase another 7 years in the next decade. As longevity continues to rise, long-term care planning becomes a must-have for someone’s long term financial and retirement planning. Note that Long-Term Care is not only for seniors, and it may be required for young ages as well.
What is Long-Term Care?
Long-term care involves the assistance or supervision you may need when you are not able to do two (2) out of the six (6) basic "activities of daily living" (ADLs) which are, generally, eating, continence, bathing, dressing, toileting and transferring (e.g. moving from a bed to a chair). You might need assistance with ADLs if you suffer from an injury like a broken hip, an illness, a stroke or from advanced age and frailty. Other people may need long-term care because of mental deterioration, called "cognitive impairment" that can be caused by Alzheimer's Disease, other mental illness or brain disorders.
Long-term care is sometimes called "custodial care" or "personal care." Formal long-term care (the kind of care you must pay for) is provided by skilled and unskilled workers. Unskilled workers are sometimes supervised by skilled medical personnel such as registered nurses. Informal long-term care is frequently provided by unpaid family members and friends.
Long-term care services can be provided in your own home, in a community program like an Adult Day Care Center, in an assisted living facility licensed as a Residential Care Facility (RCF) or a Residential Care Facility for the Elderly (RCFE) or in a nursing home.
Long-term care is not necessarily "long term." Some people only need long-term care for a few months, for example, while recovering at home from a broken hip, while others may need care for the rest of their lives.
Who needs Long-Term Care Insurance?
According to AARP 70% of people 65 and older will require some form of long-term care in their lifetimes, with an average need of 3 years. As the cost of LTC could be extremely high, everyone needs to plan for Long-Term care. You’d think health insurance would cover all your medical costs in your senior years. Unfortunately it’s not quite that simple. Getting older often requires specific types of medical care, and without long-term care insurance millions of seniors can find themselves without insurance options to cover the bills. Long-Term care can totally ruin one’s retirement plan due to the unexpected high cost!
To understand who needs long-term care insurance, you first need to understand a couple things about Medicare and Medicaid:
Medicare is health insurance automatically granted to all Americans 65 or older. It does not cover long-term care costs. Medicaid is health insurance given primarily to poorer Americans. It does cover long-term care, but only if you’re broke.
If you’re thinking you can just give your kids your money when the time comes and qualify for Medicaid, think again - you can’t offload your money and qualify for Medicaid unless you did it more than 5 years ago.
Long-term care insurance pays for the costs of a nursing home and other kinds of elder care that seniors need, such as in-home nursing care. Nursing homes can be incredibly expensive—while nationwide averages hover just over $200 per day (as of 2019), they can easily run to $400 per day depending on your area. That’s anywhere from $75,000 - $150,000 per year. A 5-year stay in a nursing home can easily cost over $750,000. This has not taken inflation into account!
Long-term care insurance is worth considering for people with savings who don’t want to spend that much on elder care in their senior years. If you’re broke and think you may always be, bummer. But the good news is, if you need long-term care Medicaid will cover you. There’s no need to consider long-term care insurance.
What does Long-Term Care Insurance cover?
Long-term care insurance covers the costs associated with treating chronic illnesses or other ailments in old age, such as at-home care for Alzheimer’s patients or nursing home costs for people unable to live alone. In addition to nursing home costs LTC covers home health care, homemaker services, respite care and memory facilities. It does not cover costs of surgeries, prescription drugs and doctors’ visits—those are covered by health insurance, or Medicare in the case of most seniors.
When should I buy Long-Term Care Insurance?
Long-term care insurance costs increase dramatically as you get older. If you haven’t bought it by the time you’re 60, it may become unaffordable. Also, insurance companies may not accept your application if you already have some symptoms regardless your age - once a change of health occurs, long-term care insurance may not be available! The bottom line is you better purchase LTC insurance when you are still young and when you are still healthy!
What options are available for Long-Term Care Insurance?
There are primarily 3 categories of long-term care insurance policies:
- Nursing Facility and Residential Care Facility Only, or
- Home Care Only, or
- Comprehensive Long-Term Care.
There are also primarily 3 options for long-term care insurance policies:
- LTC Stand-alone policy
- Life insurance policy with LTC Rider
- Linked benefit insurance policy
Long-term care is complicated and it’s becoming more so as we receive better medical care and live longer. Discuss with our agent to see which option fits best for your financial situation.
Long Term Care vs. Medicare
Medicare is the federal health insurance program designed primarily for people aged 65 and older. Adults with certain permanent disabilities or medical conditions may qualify for coverage at a younger age.
Medicare Part A is hospital insurance that covers portions of a hospital bill for inpatient hospital care, hospice care and limited time in a skilled nursing home facility. Deductibles, coinsurance and copayments will generally need to be paid even if Medicare covers the service. Medicare does not pay for homemaker services.
Medicare will pay for services once the following conditions are met:
1. You had a recent prior hospital stay of at least three days.
2. You are admitted to a Medicare-certified nursing facility within 30 days of your prior hospital stay (not all facilities are Medicare-certified).
3. You need skilled care such as physical therapy or skilled nursing services.
If you meet ALL of these conditions, Medicare will pay 100% of your costs for the first 20 days. As of April 2022, for days 21-100, you pay your own expenses up to $194.50 per day and Medicare pays any balance. After 100 days, you are fully responsible for the entire cost of your care for each day you remain in a skilled nursing facility. This is not a comprehensive list of Medicare resources and/or criteria that may be required to meet eligibility.
Long-Term Care vs. Medicaid
Medicaid is a joint federal and state public assistance program for financing health care for low-income people. It pays for health care services for those with low incomes or very high medical bills relative to income and assets. It is the largest public payer of long-term care services.
Medicaid pays for certain health services and nursing home care for people with low incomes and limited assets. Eligibility is usually based on income and personal financial resources. So, to qualify for Medicaid you may have to spend down your assets. As mentioned previously, you have to be broke 5 years prior to the long term care event in order to qualify for Medicaid. It's important to know that Medicaid benefits may vary by state.
Disability Insurance
Disability Insurance (DI) is an Income Protection Insurance. Statistics show that more than 25% 20-year-olds today will be unable to work due to an illness or injury for one year or more before retirement. For example, the worker may suffer from an inability to maintain composure in the case of psychological disorders or suffer an injury, illness or condition that causes physical impairment or incapacity to work. DI encompasses paid sick leave, short-term disability benefits (STD), and long-term disability benefits (LTD). A lot of companies provide Disability Insurance to their employees - one of the most common reasons for disability is on-the-job injury. Those whose employers do not provide benefits, and self-employed individuals who desire disability coverage, may purchase policies themselves. Premiums and available benefits for individual coverage vary considerably between companies, occupations, and states.
A typical LTD Disability Insurance benefit pays 50~60% of the insured’s gross income. High-limit disability insurance is designed to keep individual disability benefits at 65% of income regardless of income level.
Disability insurance benefits are paid out tax-free as long as you bought the policy with after-tax dollars. However Social Security disability insurance (SSDI) benefits are taxable as income. For Short-term disability insurance offered by employers, it depends on the premium payment arrangement but most of the employer-sponsored disability insurance benefits are taxable.
Types of Disability Insurance:
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Long-term disability insurance
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Short-term disability insurance
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Mortgage disability insurance
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Supplemental disability insurance
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Social Security disability insurance
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State disability insurance
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Workers' compensation
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Disability overhead expense insurance
Long-term disability insurance pays out monthly benefits if you become too ill or disabled to work. The benefit period can last two, five, or 10 years, or even until retirement, and the monthly benefit is up to 60% of your gross monthly income. It generally costs about 1% to 3% of your salary. Statistics show that the average length of a long-term disability for someone in their 30s or 40s is 2~3 years. Because of this, long-term disability insurance provides the most robust protection if you become disabled.
There are two types of long-term disability insurance policies:
Any-occupation disability insurance: Only pays benefits if you can’t work any job that you’re reasonably suited for because of illness or injury. This is much harder to prove and it’s harder to receive a benefit, but it’s also generally less expensive than own-occupation disability insurance.
Own-occupation disability insurance: Defines a disability as an inability to work at your regular occupation and will pay out even if you can work another job.
There are also three kinds of own-occupation disability insurance policies:
True own-occupation: If you can’t work in your own occupation due to injury or illness, you get benefits even if you start working a different job.
Transitional own-occupation: If you can’t work in your own occupation due to injury or illness and you get a new job that provides a lower salary, you get benefits to make up the difference between your new (lower) and old (higher) salaries.
Own-occupation, not engaged: If you can’t work in your own occupation and you haven’t started a new job, you get benefits. Once you start a new job, no matter what field, you stop receiving benefits
Short-term disability insurance typically provides benefits up to 60% of your gross income and for up to one year if you can’t work due to an illness or injury. Short-term disability benefits are often offered by your employer (group disability insurance), and some states require that employers provide short-term disability coverage.
Because the average disability lasts about three years, short-term disability insurance policies shouldn’t be bought in lieu of a long-term disability plan. Instead, they are a good supplement to long-term policies because they have a drastically shorter elimination period that can be just a few days. Short-term policy can be used to cover living expenses during the elimination period of your long-term policy.
Short-term policies are also the same cost as long-term disability policies, but because coverage isn’t as comprehensive it’s not a very cost-effective choice.
Mortgage disability insurance also known as mortgage payment protection insurance — is a type of long-term disability insurance that specifically covers your mortgage payments if you can’t work due to an illness or injury.
Mortgage disability insurance can be purchased from your mortgage lender, an insurance agency, or a broker, and doesn’t require the typical underwriting process or medical exam that other long-term disability insurance policies do. It’s a good alternative if you cannot qualify for regular long-term disability coverage but don’t want to risk defaulting on your mortgage.
Supplemental disability insurance closes the gap, for example between the benefits paid by employer-sponsored disability plans (which can be taxed or capped), and the full amount of money you’ll need to cover your expenses in case you can’t work. If you are receiving Social Security Disability Insurance (SSDI) or State Disability Insurance (SDI), it is a good supplement for you. There are two types of supplemental disability insurance are long-term or short-term policies, and which one you need depends on what type of coverage you already have.
Social Security disability insurance (SSDI) is a federal program that provides payouts to some disabled U.S. workers and families, but only after a drawn-out application process that can take three to five months. Over 60% of applications are denied at the first application level and the average payout is just over $1,000 a month, so it’s not worth relying on. Most people are better off with a private disability policy.
State disability insurance (SDI) - Some states offer their own short-term disability insurance plans that either employers pay for, employees pay for through payroll deductions, or a mix of both. The following states (and U.S. territory) offer state disability insurance, also known as temporary disability insurance:
California
Hawaii
New Jersey
New York
Rhode Island
Puerto Rico
Because state disability insurance benefits are short-term (less than one year), you’ll get the most protection by purchasing a long-term disability insurance policy even if you have state disability insurance.
Workers' compensation (also known by variations of that name, e.g., workman's comp, workmen's comp, worker's comp, compo) offers payments to employees who are (usually temporarily, rarely permanently) unable to work because of a job-related injury. However, workers' compensation is in fact more than just income insurance, because it compensates for economic loss (past and future), reimbursement or payment of medical and life expenses (functioning in this case as a form of health insurance), and benefits payable to the dependents of workers killed during employment (offering a form of life insurance). Workers compensation provides no coverage to those not working. Statistics have shown that most disabilities occur while the injured person is not working and therefore not covered by workers' compensation.
Business Overhead Expense (BOE) disability insurance reimburses a business for overhead expenses should the owner experience a disability. Eligible benefits include: rent or mortgage payments, utilities, leasing costs, laundry/maintenance, accounting/billing and collection service fees, business insurance premiums, employee salaries, employee benefits, property tax, and other regular monthly expenses. BOE insurance needs to be bought in addition to a long-term disability policy, as it will not cover the loss of your own salary and expenses.
Accident Insurance
Accident Insurance policy generally covers any accidents you may experience during your daily life activities, and sometimes these include injuries suffered at work, but not in all cases. The benefit will be paid directly to you and can be used as you wish (i.e., to pay medical bills, rent, or child care). Note that benefits will not be paid if you suffer an injury while under the influence of any drugs, as a result of self-harm, resulting from any sickness or disease not related to an accident, and other limitations.
Accident insurance is a good add-on for people who already have health and disability insurance. If you already have life and disability insurance, this policy could be redundant. However, if you only have health insurance, this could cover a gap in your insurance coverage and help you pay any high-cost deductibles. One of the main reasons to get accident insurance is to help cover the cost of medical bills, e.g. deductibles and ER visits that are not covered by the medical insurance. It is important to note that accident insurance does not offer enough coverage to be exempt from the Affordable Care Act (ACA).
For example, Accident insurance may pay you a lump sum in cash after you suffer an accident like a severe burn, broken bone or emergency room visit. And some accident insurance policies also pay extra for children injured while playing an organized sport like soccer, baseball, lacrosse, football etc. Some accident insurance policies cover things like rent or groceries as well. The monthly premiums as low as $4 or as high as $50, depending on the company and type of coverage.
Annuity
While life insurance proceeds are paid at the time of death of the insured, the proceeds of an annuity can provide you with an income for as long as you live. There are two types of annuities:
The first is when you pay a lump sum to a life insurance company, and they pay it out to you right away in periodic installments. This type is known as an immediate annuity — the payments to you start immediately.
The second, and more common, is where money paid by you accumulates with interest over a period of time. If you choose, the accumulated amounts will then be paid out to you in periodic installments, usually when you retire, in order to supplement your retirement income. This type is known as a deferred annuity — the payments to you are deferred for a number of years. Currently, a deferred annuity may have tax advantages, in that the interest credited to your funds is deferred from current taxation. That is to say, income tax is not owed until you start receiving distributions from the annuity.
Both types of annuities offer you certain options for receiving your income. It is usually paid to you monthly. The most common options are:
Life Annuity - The company will pay you an income for as long as you live.
Period Certain Annuity - The company will pay you an income for a specified amount of time (5 years, 10 years, 20 years, etc.).
Life Annuity with Period Certain -The company will pay you an income for as long as you live, but if you die before the period certain that you choose, the income will be paid to a survivor you designate until the end of that period.
Joint and Survivor Annuity - The company will pay an income to you during your life, and after your death will pay a percentage of that income (50% or 75%, for example) to a survivor you designate during his or her life.
Annuity is similar to the cash value account in Life Insurance. There are several variations on how the interest is accumulated, such as Fixed Annuity, Indexed Annuity, or Variable Annuity.