Life & Health Insurance Advisor
Life Insurance December 2012 Volume 5 • Number 12
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Buy Life Insurance, Benefit a Charity
At year end, you might be thinking of ways to reduce your tax liabilities. You are probably also receiving appeals from many charities. Life insurance can help you make a sizable donation to the charity of your choice. Certain life insurance-funded strategies might also have tax advantages.
This Just In…
H
ow do your savings compare? A LIMRA study revealed that two-thirds of middle-income ($40,000-$99,999) American workers are saving less than five percent of their annual income for retirement —with nearly a quarter saving noth-ing at all.“These results, while not surpris-ing, are very troublsurpris-ing,” said Matthew Drinkwater, associate managing di-rector, LIMRA’s retirement research. “Less than 30 percent of American workers have a traditional defined benefit retirement plan that could help them pay for their expenses in retirement, so the responsibility for providing the financial resources for retirement lies squarely on the indi-vidual. Many Americans will live at least 20 years in retirement, and will need significant savings to ensure their financial security.”
Overall, four in five American
Y
ou can use life insur-ance in five different ways to donate to a nonprofit:1 Name the organization as
the beneficiary of a life in-surance policy you already own or buy for this purpose. Instead of giving several hundred or thousand dol-lars to your charity every year, investing that money in life insurance premiums can guarantee a sizable dona-tion, even if you should die prematurely. Your charity will receive a guaranteed contribution—the policy’s death benefit—upon your demise. And since some life insurance policies offer a
waiver of premium if you be-come disabled before age 65, you can guarantee this donation no matter what your health situation later in life.
Name the charity as the pri-mary beneficiary if you want the death benefit to go to it first. If you want a family member to receive the death benefit and the charity to re-ceive it only if your primary beneficiary dies before you do, name the charity as the contingent beneficiary. 230 S. Bemiston; Suite 900 • Clayton, MO 63105
(314)727-5522 • FAX (314)727-5568 www.mrctbenefitsplus.com
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MRCT Benefits Plus is a comprehensive employee benefits, wellness and Human Resources consulting firm offering a
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As the IRS cautions, “Only donations to qualified organizations are tax-deduct-ible. IRS Publication 78, searchable and available online, lists most organizations that are qualified to receive deductible contributions. It can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.”
Life & Health Insurance Advisor • December 2012 Life Insurance
Tax consequences: If you retain owner-ship of the policy, you receive no income tax deduction for the policy’s current val-ue or any premium payments you make. However, you retain control over the poli-cy and can change the beneficiary should your situation wishes change.
2 Apply for life insurance that the charity will own. Many nonprofits have “planned giving” programs to help donors do this. Instead of paying premiums to an insurer, you make a donation to the nonprofit to cover premiums. This approach benefits the charity and the donor. According to the National Committee on Planned Giv-ing, “If the charity provides the initial funding and is the owner of the policy, it may have the right to collect cash divi-dends, borrow against the policy, and make partial or complete surrenders of the policy.”
Tax consequences: If you make an annual contribution to a nonprofit for the amount of policy premiums, you can receive a charitable deduction for these amounts. 3 Donate a life insurance policy to the
non-profit. The simplest way to use life insur-ance in charitable giving is to donate a policy to the organization. Let’s say you bought a permanent life policy years ago. Your children are now grown and the pol-icy has cash value. You can donate the policy to a charity, which can then access the cash value as either a policy with-drawal or loan, or it can wait to obtain the full death benefit.
Tax consequences: You might be able to
insurance policy whose beneficiaries in-clude members of your family or any per-son other than a qualified charitable or-ganization. Even though the charity may benefit from the insurance policy, you cannot deduct any part of the donation. For more information on life insurance and its many uses, please contact us. For advice on the tax consequences of any form of charitable giving, including with life insur-ance, please consult your tax advisor. deduct premiums you paid or the policy’s
replacement value, whichever is less, from your income taxes as a charitable donation. However, some states do not consider a nonprofit to have an insurable interest on a donor’s life. Consult a tax professional for more information. 4 Make a charity the beneficiary of your
tax-qualified account, such as a pension, 401(k) or IRA. If your heirs inherit these accounts, they must pay income taxes on withdraw-als. If your total estate is large enough, it might have to pay estate taxes, reducing usable balances even more. A qualified nonprofit can avoid estate and income tax-es. To make up the difference in what your family members would have otherwise in-herited, you can purchase a life insurance policy, naming them as beneficiaries. They will receive the policy’s death benefit out-side the estate, and the benefit will not be subject to income taxation.
Tax consequences: No immediate tax benefits to you, but this method could prevent taxes from eating up assets your heirs receive.
5 Use a “split-dollar arrangement,” in which the organization pays part or all of the premiums on a life insurance policy on which it is named a beneficiary, among other beneficiaries.
Tax consequences: The IRS cautions that taxpayers cannot deduct contributions made toward a “split-dollar” insurance policy. You cannot deduct any part of a donation made to a nonprofit if the or-ganization uses it to buy a cash value life
Life & Health Insurance Advisor • December 2012 Health Insurance
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Hospital Indemnity Coverage Helps Fill Coverage Gaps
Today, more Americans than ever have health plans with high deductibles. While these plans of-fer lower premiums, they can leave insureds with higher out-of-pocket expenses than other types of plans. A hospital indemnity plan can help pay these expenses.
I
n 2013, a high-deductible health plan must have a minimum deductible of $1,250 for single coverage or $2,500 for family coverage to qualify for a health savings account (HSA). With this type of plan, you also have high annual out-of-pocket ex-pense limits: $6,250 for single coverage and $12,500 for family coverage.In an ideal world, you will have saved enough in your HSA to cover deductibles and other out-of-pocket expenses before you or a family requires hospitalization. But in real-ity, many families lack the immediate access to funds that a medical emergency could re-quire.
Consider the following statistics:
In 2009, for each death by injury, there were about 11 times as many hospitalizations and 182 times as many emergency depart-ment (ED) visits.
Y Americans made 32 million emergency room visits for accidental emergency in 2009.1
Y In 2010, about 6 percent of the popula-tion had stayed overnight in the hospital once in the past 12 months; about 1 per-cent had stayed overnight on two or more occasions. 2
Y Cost per day for hospital charges
aver-aged $3,949 in the U.S. in 20113
Y In 2009, the average length of hospital
stay for treatment of an injury was 4.8 days.4
Sources: 1, 2, 4: Centers for Disease Control, 3
In-ternational Federation of Health Plans
Many people of working age incorrectly assume that most injuries would be work-related, and covered by workers’ compen-sation. However, injury is far more likely to occur in the home or during leisure activities than at work. Nearly half of the respondent-reported non-fatal, medically attended injury episodes occurred in or around the home, and nearly 40 percent occurred while a per-son was engaged in leisure activities includ-ing sports.
A hospital indemnity policy will pay you a cash benefit when you or an insured fam-ily member are confined to a hospital for medically necessary treatment of an injury or illness. Policies pay a flat amount per speci-fied term or event, such as per day of hospi-talization or per outpatient surgery. Benefits can range from $50 per day to $100 or $200, depending on your policy. Some policies also cover charges for outpatient surgical centers and skilled nursing facilities.
Life & Health Insurance Advisor • December 2012 Financial Planning
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Planning for Long-Term Care Needs
About 70 percent of people over age 65 will require some type of long-term care services during their lifetime. More than 40 percent will need care in a nursing home. Planning ahead for the care needs of yourself or a family member can reduce stress and ensure funds are available when needed.
Y
ou need long-term care when you are not able to complete personal care or other daily activities on your own. Things that increase your risk or make it more likely that you’ll need long-term care include:Y Age: The older you get, the more likely it
is that you’ll need help.
Y Living alone: If you live alone, you’re more
likely to need paid care than if you’re mar-ried or living with a partner.
Y Gender: Women are more likely to need
long-term care than men, primarily be-cause women tend to live longer.
Y Lifestyle: Poor diet and exercise habits
in-crease the chance that you’ll need long-term care.
Y Personal history: Health and family
histo-ry can increase the chances you’ll need long-term care.
How Much Care Will You Need?
Service and support needs vary from person to person and often change over time.
Y On average, someone who is 65 today will need some type of long-term care servic-es and supports for three years.
Y Women need care longer (on average 3.7 years) than men (on average 2.2 years), mostly because women usually live lon-ger.
Y While about one-third of today’s 65-year-olds may never need long-term care ser-vices and supports, 20 percent will need Hospital indemnity coverage can give
in-sureds more flexibility than many other types of health policies. You can usually select whether benefits go directly to your health-care provider or to yourself. Often, a hospi-talization will cost much more than your hos-pital and physician bills—for example, you might lose work time or need additional help around the house. Benefits from a hospital indemnity policy can help you cover these expenses.
Hospital indemnity policies provide this extra coverage at a very affordable price—of-ten at a dollar a day or less. Most insurers will not increase your rates solely because of age, and many policies are guaranteed renewable, regardless of your health status.
Rules governing health savings accounts generally prohibit individuals (and their spouses, if you have family coverage) from having any other health coverage that is not a high-deductible health plan. The IRS per-mits an exception for insurance that provides benefits only for a specific disease or illness (such as cancer or dread disease insurance), or insurance that provides a fixed amount per day (or other period) of hospitalization. Most hospital indemnity plans would fall into the latter category. However, if you have a health savings account, you will want your tax advi-sor to confirm that any supplemental cover-age meets the IRS rules for allowable “other coverage.”
Relatively good health Poor health or terminally ill Health considerations are not important Long-term care insurance Options with life insurance Saving for long-term care Deferred long-term annuity Reverse mortgages
Continuing care retirement communities
Life & Health Insurance Advisor • December 2012 Financial Planning
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care for longer than five years.
Individuals who need long-term care services and supports can obtain assistance from one or more of the following:
Y Assistance with personal care or other ac-tivities from an unpaid caregiver who may be a family member or friend
Y Services in your home from a nurse, home health or home care aide, therapist, or homemaker
Y Services in the community, such as adult day services
Y Care in any of a variety of long-term care facilities.
Who Pays for Long-Term Care?
Surveys reveal that many Americans mis-takenly think that Medicare or their medical insurance will cover long-term care services. However, Medicare and other health insur-ance plans typically cover long-term care only after a covered hospitalization, and only for a limited time.
If you have fairly low income and savings, you may qualify for Medicaid, the federal public program that pays for most long-term care services. Other federal public programs,
such as the Older Americans Act, and state-funded programs, pay for long-term care services, but, like Medicaid, these programs cover services for people with high levels of disability and low income and savings. If you have enough income and savings, you will likely need to pay for long-term care services on your own, from your income, savings, and possibly from the equity in your home. You can also purchase long-term care insurance to cover your personal care needs.
Even if you only need a little assistance at home with personal care, paying for it can be difficult. For example, in 2010, the cost of a home health aide coming to assist three times per week averaged more than $19,000 on an annual basis. Those who needed more care services paid an average of:
Y $205 per day or $6,235 per month for a semi-private room in a nursing home
Y $229 per day or $6,965 per month for a private room in a nursing home
Y $3,293 per month for care in an assisted living facility (for a one-bedroom unit)
Y $67 per day for services in an adult day health care center.
Private long-term care financing options include:
Y Long-term care insurance
Y Trusts
Y Annuities
Y Reverse mortgages.
Which option is best for you depends on your age, your health status, your risk of needing long-term care services, and your personal financial situation. Some methods of paying for long-term care services require that you undergo health screening, and that you be in relatively good health. This typi-cally means that you do not currently need long-term care services and do not currently have a debilitating chronic condition, such as Parkinson’s disease, that would almost cer-tainly mean you would need long-term care eventually. In contrast, some options are only available to you if you are in poor health.
The table below shows which payment options to consider given your current health status.
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M A R K E T I N G
The information presented and conclusions within are based upon our best judgment and analysis. It is not guaranteed information and does not necessarily reflect all available data. Web addresses are current at time of publication but subject to change. SmartsPro Marketing does not engage in the solicitation, sale or management of securities or investments, nor does it make any recommen-dations on securities or investments. This material may not be quoted or reproduced in any form without publisher’s permission. All rights reserved. ©2012 SmartsPro Marketing. Tel. 877-762-7877. www.smartspromarketing.com
Life & Health Insurance Advisor • December 2012
2013 Plan Changes
H
ere are some important figures to keep in mind for your 2013 financial planning.High-deductible health plans: New limits for health sav-ings account (HSA)-qualified high-deductible health plans go into effect in 2013. Minimum deductibles for these plans will increase to $1,250 for single coverage or $2,500 for fam-ily coverage, and the annual out-of-pocket expenses (deduct-ibles, co-payments, and other amounts, but not premiums) cannot exceed $6,250 (single) or $12,500 (family).
Health savings account limits: For 2013, an individual with self-only coverage under a high-deductible plan can contribute up to $3,250 to a health savings account; individu-als with family coverage can contribute up to $6,450. HSA ac-count holders who are age 55 and older can contribute an-other $1,000, for a maximum contribution of $4,250 for those with self-only coverage and $7,450 for family coverage. You can deduct these amounts from taxable income, and any gains in your HSA accrue free of taxes.
Long-term care plans: Insureds can deduct a portion of long-term care insurance policy premiums, based on age. De-ductibility levels will increase for 2013 to $360 for individu-als age 40 or less, $680 for individuindividu-als between ages 41-50, $1,360 for individuals 51-60, $3,640 for individuals ages 61-70, and to $4,550 for individuals ages 71+.
Payroll: If you have employer-provided health coverage, your W-2 for tax year 2012 might include a new section, show-ing costs of this coverage. The W-2 will include portions paid by both the employer and any contributions you made. This reporting is for information only; employer contributions to a qualified health insurance plan will not affect your taxable income.
