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Five Smart Things You Can Do with Life Insurance Cash Value
Stay put -Let life insurance be life insurance. Your money is growing tax-deferred within the policy. And in the event of your death, an amount much greater than your current cash value will generally pass to your heirs, tax-free. That's a significant benefit right there, and a compelling reason not just to let your policy grow, but to add more premium to it if you can. Borrow against the death benefit - You can withdraw accumulated dividends, and then borrow against the rest of it, generally with no tax consequence, as long as you don't completely surrender the policy. Interest will accrue, but you don't have to repay the loan yourself unless you want to. If you don't pay it back, the insurance carrier will simply subtract the balance due from any death benefit they pay to your beneficiaries. Cash out the policy altogether - This option lets you get substantially all the cash in your policy. However, you may be subject to capital gains tax to the extent your cash value exceeds the amount you paid in. Exchange for another life insurance policy - If you choose, you can execute a Section 1035 exchange of one life policy for another, tax-free. You may opt to do this if you find ongoing premiums at a new carrier are lower for some reason, or if you want some specific protections or riders you can't get from your old carrier. For example, you may be able to exchange a straight-ahead universal or whole life insurance policy for a policy that also provides a benefit in the event you need long-term care insurance. Exchange for an annuity - You can also exchange a life insurance policy for an annuity, tax-free, under Section 1035. You might choose to do this if you decide you no longer want the life insurance protection, but you do want regular and reliable income. For example, if your beneficiaries are grown up and no longer rely on your life insurance death benefit, you may execute a 1035 exchange to a lifetime income annuity - maximizing your income over your expected lifetime, rather than paying a large death benefit. You can choose a joint and survivor annuity to guarantee income to your spouse as well. The takeaway Life insurance is among the most flexible and powerful resources you can have in your portfolio as you grow more established. But to have all of the above options later in life, you must plan ahead now. Talk to us today. We can help you develop a plan that meets your needs and financial objectives.
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Do You Know Your Flood Risk?
Gauging your flood risk
FEMA considers a property to be at high risk of flood if there is at least a one-in-four chance of flooding during the life of a 30-year mortgage. Geographic areas with this risk are known as special flood hazard areas (SFHAs). Federal regulations require federally regulated or insured mortgage lenders to confirm that mortgaged properties in these areas carry flood insurance. The traditional way to determine a property's flood risk is to locate it on a flood insurance rate map (FIRM). FEMA publishes these maps based on geographic survey data. They are the official depictions of flood hazards in a locality. FIRMs are freely available for review at the Flood Map Service Center on FEMA's website. As a property owner, you can view your flood risk by entering your address in the search field. Flood maps assign each area in a community to labeled flood zones. Areas with low-to-moderate risks of flooding are assigned to zones with labels beginning with the letters B, C, X or a shaded X. SFHAs are designated with the letters A or V. These areas are shaded on the maps for easy identification. Property owners can also search for their flood risks at FEMA's flood insurance consumer web site, www.floodsmart.gov. By entering your address in the fields on the home page, you can quickly learn whether you face a low-to-moderate or high risk. The site offers other valuable tools, such as an estimator that can calculate how much financial damage a given amount of water (two inches, four inches, etc.) would cause in homes of various sizes. For example, six inches of water in a 2,000 square foot home would cause $39,150 in damage. FEMA also offers a suite of flood risk products that go beyond the information provided in a FIRM. They include: • Flood risk maps, which show the overall picture of risk for a given area, • Flood risk reports, which show community-specific risk information, and • The Flood Risk Database, which stores all flood risk data for an area. These products are helpful for community planners, but individual property owners can also use them to get a clear idea of their flood risks. Elevation certificates may also be on file with local governments for certain properties. These documents show the elevation of the lowest floor of a building (including the basement) compared to the base flood elevation for the area. An elevation certificate demonstrates community compliance with flood-plain management laws and is used to set appropriate flood insurance premiums. The takeaway A flood can be every bit as catastrophic as a fire. It is worthwhile for property owners to learn their flood risk and take steps to reduce it. Additionally, with the increasing risk of flooding in non-flood-plain areas, if you live near a flood plain, you may want to secure flood insurance. 5 Ways You Can Maximize Your Social Security Benefits
Clearly, Social Security is not sufficient income for most of us by itself to fund an acceptable retirement lifestyle. But there are some things you can do to boost your monthly payout.
Controlling the Risks of Business VehiclesAs the cost of commercial auto insurance continues climbing at unprecedented rates, any business with vehicles has to make sure that it has procedures and policies in place to reduce the chances of its drivers causing accidents.
When a business entrusts a vehicle to an employee, it is literally putting its assets on the line. You should set these no-exception rules for drivers:
You should also set guidelines for employees to follow when they use company vehicles, such as: Limit their non-business use of vehicles - If employees take company cars home with them, you should set reasonable limits on personal use. Allow plenty of time between meetings and assignments - This will make it less necessary for employees to speed. Park vehicles wisely - Instruct workers to park vehicles in well-lit areas, and to lock them. Weeding out trouble You should also try to make sure that you don't put people in driving positions that are risky. You can:
But, even with all the preventive measures in the world, an accident will occasionally happen. You should prepare your drivers for that event. Develop procedures for what a worker should do after an accident. Keep copies of the procedures handy in vehicle glove boxes. Post-accident procedures
If one of your employees is involved in an accident, report the accident to us or your insurance company as soon as possible. Follow the conditions listed in the insurance policy. Check with us if you do not know what they are. Follow the insurer's instructions for getting repair estimates and communicating with physicians. Your insurance company may be able to help. Many insurers offer loss-prevention guidance for their customers. Businesses can reduce their risks and control their costs by working with their insurers and following the simple steps set out above. With more cars connected to the web, helping us navigate, talking to other cars as we zoom down the road and sometimes even driving for us, it won't be long until our autos can also make an insurance claim for us after an accident.
Consider that more cars are being built with sensors and technology that allows them to communicate with external parties. It's not hard to imagine that the car could communicate immediately with emergency services and your insurance company if there is an impact. The emergency authorities could be notified in real time with detailed information about the condition of the vehicle and the location of the accident. Insurers are currently teaming up with tech firms and are developing programs that would prompt your vehicle to report immediately to your insurance company's data center if it's been in an accident, which could start the claim. These programs could also:
Right now, all of the technological parts of this puzzle are in place, and insurers are working with tech companies on apps to make it happen. Pioneering partnerships Insurance companies are also currently working to create partnerships with auto manufacturers to make all this a reality. The most notable of these partnerships involves General Motor's OnStar system, with the auto giant having secured relationships with about a half dozen auto insurance companies already in the US. In Europe, BMW and Allianz have a similar partnership. The evolution is ongoing, but in the next few years, as cars become smarter, it won't be long until we see the next stage in development for car insurance that will make your life easier and also give you an added sense of security. Renter's Insurance and Misconceptions among MillennialsA recent study found that millennials are renting in larger numbers than ever before, but that they are not getting renter's coverage even though it's inexpensive and can provide protection for their belongings. Researchers also found that most (75%) of the people surveyed did not know they could obtain renter's insurance for about the same monthly cost as a pair of movie tickets, and had therefore not purchased coverage for their possessions. They concluded that there was a clear misconception among this group of young people about how important it is to have renter's insurance and the true cost of coverage. Leaving belongings at risk when about $20 per month can buy adequate coverage is an unwise move. Renters often live in properties with multiple units, and they may not always realize how high the risk of fires and other disasters are in these places. Although property owners are responsible for repairs to the structure in the event of most disasters, they are not responsible for tenants' belongings. It is up to renters to make sure their possessions are protected. In their research, experts also found that about 40% of people without renter's coverage did not think it was necessary. Nearly 70% of all young adult renters replied that the cost to replace all of their belongings would exceed $5,000. Renters who had coverage said they bought policies because they wanted the peace of mind to know they were protected. Renters' biggest fears:
Inexpensive peace of mind A plan that costs around $300 a year generally covers up to $50,000 worth of property. But most people won't need that much coverage as renters. A policy that covers $15,000 to $20,000 worth of property should be enough for most millennials. Such policies can sometimes be had for less than $200 a year, or as little as $10 to $15 a month. (The average renter's insurance premium cost about $187 in 2017, according to the Insurance Information Institute.) Renter's insurance is quick and easy to buy, and millennials everywhere should make sure they always have it. To learn more about this type of coverage and how affordable it is, call us today. 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. New Law Makes Big Changes to Retirement Savings PlansPresident 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. What changes can you make during the Medicare Open Enrollment Period (January 1 - March 31)?
Medicare General Enrollment Period
If you have any questions, please email Patrick Hecht or call 540-712-2199 |
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