Monday, May 11, 2009
Go online and search the information yourself. Need help? Just call! And be more responsible to our world!
Friday, January 30, 2009
health generally have a lower quality of life as well as a reduced ability to work and earn
an income. Good health is frequently the result of biology (the genes you inherit), the life
style choices you make (exercise, diet, smoking), and appropriate medical care.
And even the healthiest among us need some medical care. Regular physician and dental
visits are a normal part of maintaining good health. Accidents, illness, and simply
growing older are other reasons medical care is necessary.
Paying For Medical Care
Medical care in the United States is, unquestionably, expensive. According to statistics
compiled by the federal government, over 20% of personal consumption expenditures are
directed to medical care.(1) For those needing medical care, there are three basic choices:
• Don't go: Not seeking medical care when it is needed can result in small, treatable
health problems becoming much bigger ones, with sometimes fatal consequences.
• Pay out-of-pocket: Paying for medical care from your own pocket can quickly exhaust
your assets. Huge medical bills are one reason cited as a cause of personal bankruptcy.
• Health insurance: Although the premiums can be expensive, for many individuals and
families, health insurance is the only practical way to provide needed medical care.
Sources of Health Insurance
There are three broad sources of health insurance in the United States today:
• Individually owned policies: The individual or family purchases a health policy
directly from an insurance company or health maintenance organization. Individual
health policies can be relatively expensive compared to group health insurance.
• Group health insurance: Group health insurance is typically provided through an
employer or another related group such as a professional association. The premiums for
group health policies tend to be less than those for individually owned policies.
• Government programs: For those age 65 and older, Medicare provides a base level of
health insurance. Medicaid provides health care for the impoverished. The federal
government has a number of programs to provide medical care to active duty and former
military service members. Some states have individual programs to provide health
insurance to low-income individuals and families.
The Choice Is Yours
While health insurance may be expensive, trying to pay medical costs out of your own
pocket, or not seeking medical help when needed, can be much more expensive.
(1) Source: Statistical Abstract of the United States:2007. Table No. 656 Personal Consumption expenditures in Current and Real (2000) Dollars, by Type: 1990 to 2004.
Thursday, January 29, 2009
Private Disability Insurance Programs
There are two primary sources of private disability insurance: The individual purchases the policy directly from an insurance company. The terms and benefits of the policy can vary widely.
Group plans are typically purchased through your employer and generally offer a low-cost alternative to individual coverage. The terms and coverage will vary.
Government-Sponsored Disability Insurance Programs
At the federal level, there are a two primary programs offering disability insurance. Both are administered by the Social Security Administration.
Social Security Disability Insurance (SSDI) pays benefits to qualified individuals under the age of 65 regardless of current income. Benefits are based upon your Social Security earnings history.
Social Security Supplemental Security Income (SSI) pays benefits to qualified individuals who are either over 65, blind or disabled, and with limited income. Benefits are not related to the individual's record of Social Security earnings.
The Department of Defense and Veterans Administration offer military service members and veterans disability compensation for service-related health problems. In addition, federal employees covered under the Federal Employees Retirement System (FERS) are eligible for benefits if they have at least 18 months of service, and are unable to perform their job because of injury or disease.
All states and the District of Columbia have workers' compensation laws that provide disability compensation to employed individuals who get sick, become injured, or who are killed on the job. Although most workers are covered, states laws vary dramatically as to who is excluded and to the amount of benefits paid.
A Word of Caution
Neither of the above programs offered through Social Security covers partial disability and both have a strict definition of what it means to be disabled. In fact, over 60% of initial claims for Social Security disability benefits are denied.(1)
(1) General Accounting Office, Social Security Administration: More Effort Needed to Assess Consistency of Disability Decisions (Washington, D.C.: GPO, 2004), 7.
Wednesday, January 28, 2009
On the other hand, the possibility of becoming seriously disabled is a risk few seem to think much about. How likely is it that you will become disabled? According to one study, 30% of all Americans between the ages of 35 and 65 suffered a disability lasting at least 90 days.1 The risk of disability is real. The question is, "What to do about it?"
Don't Count on Social Security
A few individuals do manage to qualify for disability benefits from Social Security. However, the Social Security definition of "disability" is so strict that over 60% of initial claims are rejected.2 Obviously, something else beyond Social Security is needed.
Group Disability Insurance
Many employers will provide – or make available – disability insurance on a group basis. However, even those who are covered by a group policy can still be at substantial risk. Employer-sponsored disability polices seldom provide you with more than 60 % of your monthly salary. Many policies set a monthly maximum benefit that may be far less than what some people earn. Income taxes can also be an issue; if the employer is paying the full cost of the coverage, disability benefits are fully taxable.3
Individual Disability Income Insurance
For many, the real solution to the disability problem is individual disability income insurance. Although individual policies may cost you more, as long as you pay the premiums the benefits are not taxable. Plus, an individual policy allows you to tailor its terms to fit your own needs. Factors to consider when shopping for an individual disability policy include:
• Company strength: You need to know if the company is financially sound.
• Definition of disability: Look for a policy that defines disability in the broadest terms possible. Some policies will permit you to work in a different occupation and still collect disability benefits.
• Elimination period: How long must you wait before disability payments begin?
• Benefit period: How long will you need coverage? Both short-term and long-term disability benefits are available.
• Inflation protection: Try to find a policy that adjusts benefits for inflation.
(1) Based upon the 1985 Commissioners' Individual Disability Table.
(2) General Accounting Office, Social Security Administration: More Effort Needed to Assess Consistency of Disability Decisions (Washington, D.C.: GPO, 2004), 7.
(3) This discussion concerns federal income tax law only. State or local law may vary.
Tuesday, January 27, 2009
What to Look for in a Disability Insurance Policy
• Definition of disability: Are education, experience, and past earnings taken into account in determining whether the insured is qualified to resume work? Many policies provide for an initial own occupation1 definition of disability, for a specified period of time, after which a different definition of disability applies.
• Partial or residual benefits: Partial or residual disability benefits may be paid in some policies when the impairment allows the insured to perform only a portion of his or her duties. This provision may also pay benefits in the event the disability reduces the insured's income by a certain amount (e.g. 20% or more) from pre-disability levels.
• Cost of living adjustment: Is there a cost of living adjustment (COLA) which would increase benefit payments after a disability occurs?
• Cancelability and renewability of policy: Except for nonpayment of premiums, is the policy noncancelable or guaranteed renewable? Noncancelable generally means that the insurance company cannot cancel the policy, change the policy provisions or increase policy premiums after issue, as long as premiums are paid on a timely basis. Guaranteed renewable is similar, but allows the insurance company to increase the premium.
• Waiting and elimination period: Is the waiting or elimination period proper for the insured's circumstances? Commonly available periods may include 30, 60, 90, 180 and 360 days. Naturally, the longer the elimination period one selects, the lower his or her premium payments will be. However, a person's needs, cash reserves and income sources should be the deciding factors in selecting a proper elimination/waiting period.
• Benefit period: What benefit period should be selected? Since a long-term medical disability can be financially devastating, one should elect a long-term benefit where possible. Some companies offer lifetime benefit periods, but periods as short as 24 months to 60 months are also available.
Types of Disability Contracts
Several other specialized disability contracts are available to the businessperson:
• Business overhead expense: Covers expenses such as staff salaries, rent, telephone, utilities, malpractice insurance and other expenses necessary to keep a business open.
• Key person disability: Reimburses the business for the loss of a key employee and allows funding of temporary replacement or training of a successor.
• Disability buyout: Provides income to fund a buy-sell agreement triggered by the total disability of a shareholder/business owner. Payouts may come in the form of a lump sum, monthly installments or a combination of the two.
Caution: Highly-compensated employees should be aware of payment caps in many group long-term disability policies. While some programs will provide disability income payments at 60% or 66% of salary, many have a relatively low dollar limitation, such as $3,000 per month.
(1) Own occupation generally means the insured's current occupation. The own occupation definition of disability may not be available for all occupations or professions.
Monday, January 26, 2009
Premiums for a non-medical benefit such as disability insurance are not deductible when purchased by an individual. See IRC Sec. 213(d)(1).
The benefits from a personally owned disability insurance policy are exempt from income taxation. See IRC Sec. 104(a)(3). State disability compensation is nontaxable if the benefits paid are in the nature of workmen's compensation. However, unemployment compensation from federal and state programs is fully includable in gross income.1
If the premium is paid by the employer for its employee, the results are different.
• The premium is deductible by the employer whether the insurance is a group policy or individual policies, so long as the benefits are payable to the employees or their beneficiaries. See Reg. Sec. 1.162-10(a).
• The amount paid by the employer for disability insurance premiums is not taxable to the employee. See IRC Sec. 106, Reg. Sec. 1.106-1 and Reg. Sec. 1.79-3(f)(3).
• When a benefit is collected, it is fully includable in gross income of the employee. If the employee paid part of the premium, that portion of the benefit will be tax-free.2 See Reg. Sec. 1.105-1(c).
• If the policy pays for accidental death, the proceeds are generally tax-exempt to the beneficiary under IRC Secs. 106 and 101(a). (Policies issued after 12/31/84 must meet the statutory definition of life insurance under IRC Sec. 7702.)
Key Person Disability Insurance
If the policy is payable to the business to protect it from the loss of services of a key employee, the premium is not tax deductible. See IRC Sec. 265(a)(1), and Rev. Rul. 66- 262 and 1966-2 CB 105.
On the other hand, benefits collected by the company are received income tax free. See IRC Sec. 104(a)(3) and Rev. Rul. 66-262.
(1) Based on federal law. State law may vary.
(2) In Revenue Ruling 2004-55, IRB 2004-26, 6/9/04, the IRS reviewed an employer-sponsored disability plan in which an employee could choose to have the employer-paid premium included in current wages, thus treating the premiums as having been made by the employee on an after-tax basis. Any disability benefits received under this arrangement would be excluded from the employee's gross income.
Sunday, January 25, 2009
In the now famous case of Cruzan v. Dir. Mo. Dept. of Health, 110 S. Ct. 2841 1990, the U.S. Supreme Court
held that a state may demand clear and convincing proof of a person's wish to refuse or withdraw medical support. Ms. Cruzan was an accident victim who had not made clear her desire to have medical support withdrawn. Because of this failure, she could have been kept alive, in a vegetative state, for years, at an estimated cost of $200,000 per year.
When Should Medical Treatment Be Withheld?
As the following examples are read, one might ask, "Would I want medical support withdrawn in this situation?"
• In a coma with no hope of recovery
• In a coma with a small likelihood of recovery with permanent brain damage
• Afflicted with brain damage or disease, severe in nature, and a terminal illness
• Afflicted with brain damage or disease, severe in nature, but without terminal illness
In these situations, and others, difficult decisions must be made as to the treatment to be provided or withheld (for example, artificial respiration, medicine, food, water, etc.). When a patient is incapable of expressing his or her wishes, some other way must be found to guide the decision making process. The "living will" and "durable power of attorney for health care" (advance health care directives) are useful in this regard.
Most states recognize some form of what has been called a "living will", or "directive to physicians." Such a document sets down in writing a person's wishes as to the type of medical treatment to be provided, or withheld, and the general circumstances under which the directive applies.
Durable Power of Attorney for Health Care
Many states also have provision for a durable power of attorney for health care, which allows an individual to appoint another person to make health care decisions for them if they became unable to do so. The agent is generally empowered to make decisions beyond end-of-life issues, such as admission to a nursing home, consent for surgical operations, and care in the event of senility or other disability.