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Why You May Want to Keep Your Life Insurance in Retirement
As a wealth transfer instrument Life insurance can help you transfer assets to your loved ones. The nice thing about life insurance is that the death benefit is income-tax-free and possibly estate-tax-free, if properly constructed.
It also provides an avenue for ensuring that your estate can be split among your children, particularly if you also have assets like a family business, which is not easy to split up if it is to continue as an ongoing concern - especially if some of the adult children are not interested in running the business. Life insurance in this case gives those who aren't interested in the family business a way to still receive a cash amount to the value of the business. Paying for expenses The last thing you want to do is to pass on your health care debts to your surviving spouse. A life insurance benefit can ensure that your family has the funds necessary to pay your medical bills, without reaching into their own pockets. It can also help them pay off an existing mortgage and other types of debt. In addition, it can help pay for funeral costs. The average funeral costs between $7,000 and $9,000. This includes viewing and burial, basic service fees, transporting remains to a funeral home, a casket, embalming, and other preparation. The average cost of a funeral with cremation is $6,000 to $7,000. Paying for a chronic diseaseMany life insurance policies allow you to access benefits to pay for treatment and care for a chronic and end-of-life illness before death. Policies define chronic illness as either cognitive impairment (e.g., Alzheimer's disease) or the inability to perform two out of six activities of daily living. The catch is you need to get a certification from a medical professional. As a charitable giftSome retirees have a non-profit organization to which they wish to leave their life insurance policy benefit. If so, do make sure that the organization will accept your policy and has a 501 (c) (3) not-for-profit status. Some organizations might need the life insurance policy arranged a certain way or not be able to handle the donation at all. If you name the charity as the owner and beneficiary of the insurance policy, then you can deduct the premiums from your federal taxes. The Takeaway While the above are all benefits of keeping a life insurance policy in force while in retirement, keeping the policy also has costs to you, including paying the premium. And if you at some point dropped coverage and decided to get a new policy after retirement, you have to be prepared for much higher premiums due to your age. Also, any health issues you might have developed during the intervening period could prevent you from obtaining coverage at the same rates, if you are able to get coverage at all. That said, if you maintain coverage past the age of 65, you can ensure that your loved ones can be well taken care of and that any associated expenses or debts can be paid for by them after you pass.
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New Law Makes Big Changes to Retirement Savings Plans President Trump has signed landmark legislation that will make the largest changes to the U.S. retirement system in years. The new Setting Every Community Up for Retirement Enhancement (SECURE) Act makes sweeping changes on rules governing individual retirement accounts and employer-sponsored 401(k) plans. They affect not only people enrolled in 401(k)s and IRAs, but also small firms that want to offer 401(k)s to their staff. Most of the changes the law ushers in apply to the 2020 tax year and beyond, unless noted below. Here are some of the main changes:
 Medicare: Planning for Out-Of-Pocket Drug CostsOnce you qualify for Medicare, you have some choices regarding paying for prescription drugs.
Basic Medicare (Parts A and B) does not cover prescription drug costs. You will have to either pay out of pocket, arrange outside coverage, or buy coverage via Medicare Part D or as part of a Medicare Advantage plan (Part C) with prescription drug coverage (MAPD). You will have to pay premiums in order to get coverage under Part D or Medicare Advantage - but the benefits are often well worth the cost. If you are low-income, you may qualify for a reduced premium. If you do not enroll in a Part D plan while enrolling in a Medigap or Medicare Supplement policy, when you are eligible, you will incur a financial penalty for the rest of your life. Ultimately, the costs you pay out of pocket will depend on:
Some drugs cost hundreds of dollars per dose, and occasionally even more, so without drug coverage you run the risk of paying a significant portion of these costs out of your pocket if you need prescription drugs, or of forgoing important treatments if you cannot afford to pay for them. Medicare Part D can be broken down into these phases: The deductible period Some Medicare Part D plans have a deductible, which is what you must spend on covered drugs before your Medicare drug plan coverage kicks in. The maximum deductible allowed by law in 2020 is $435 for the year. Deductibles will vary from zero to $435. For example, if you have a Part D plan with a $200 deductible, you're required to pay the first $200 of costs for covered drugs in a calendar year out of your own pocket. Once you meet your deductible, your Part D plan helps pay for all covered drugs for the remainder of the year. The initial coverage period After you meet your Part D deductible, you enter the initial coverage period. During this phase, you pay a copayment for each covered prescription or coinsurance. Copayment and coinsurance amounts will vary by plan. Many plans will feature different amounts for generic and brand-name drugs. You can check with your plan formulary (drug list) to learn more about what your costs might be for different drugs. Generic drugs are typically on a lower tier and have lower costs than brand-name medications, which are typically on a higher tier. A copay is a set amount you must pay with each new prescription after you have covered your deductible. Each plan has a different copay, but $10 to $25 per new prescription filled and covered by Medicare is not unusual. Coinsurance is a percentage of the cost you pay for the prescription drug. Here's how copays and coinsurance work: If you have an 80-20 plan with a $10 copay and a $435 deductible, and you pick up a prescription that normally costs $1,000 - and it's your first covered prescription of the year - you'll have to pay the following costs out of pocket:
So that prescription will cost $488 out of pocket. But if you need to get it filled again before the end of the year, it will only cost you $210. That's 20% of the $1,000 drug cost, plus a $10 copay. The coverage gap Once you and your plan combine to spend for drugs during the calendar year in 2020, you enter the coverage gap. Medicare part D has a coverage gap, sometimes called "the donut hole." This means that once you and your plan have spent a combined $4,020 on covered prescription drugs for you (as of 2020), you will have to pick up some more of the cost. Starting in 2020, Medicare Part D plan beneficiaries pay 25% of their brand-name and generic drug costs while they're in the coverage gap. The coverage gap does not apply to some lower-income individuals who qualify for a State Health Insurance Assistance Program (SHIP). Catastrophic coverage The donut hole ends when you and your plan have spent $6,350 on medications in 2020. You then enter the final phase of Part D coverage, called catastrophic coverage. During the catastrophic coverage phase, you only pay a small coinsurance or copayment for your covered prescription drugs for the remainder of the year. How to lower costs You may be able to lower costs by using generics rather than name-brand drugs, by choosing a plan that has more coverage if you enter the coverage gap, using a pharmaceutical assistance program or applying for a SHIP program. |
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