Individual and Family Insurance Information

There are two main types of Life Insurance that are the most sought after – Term Life and Permanent Life Insurance

Term Life Insurance

Term Insurance Insurance is life insurance that is for a specified period of time typically between 10 and 30 years. If the insured outlives the period of time no payout is made. You can usually renew the period as long as you medically qualify up to an age of 70 – 80 years old. This is the least expensive type of life insurance which protects your family in the event of your premature death. If the wage earner is deceased, the family would loose the income that is generated by the wage earner(s) so a life insurance pay-out would off-set the lost income of the deceased. Proponants of Permanent Life Insurance would use the analagy that term life insurance is like renting verses owning a home. The family is protected by the term life insurance but you don’t get to keep it. If the insured survives the specified term the insurance disappears. The philosophy behind term life insurance is that when you are relatively young you tend to have young children, expenses, some debt and minimal savings. As you get older the idea is that you tend not to need life insurance because you should have less debt, the children will have grown and left the home and the family should theoretically has a good amount of savings. I repeat, IN THEORY the need for insurance is unnecessary. I have never met a beneficiary that complained that they received too much in life insurance proceeds.

Permanent Life Insurance

Permanent Life Insurance is life insurance that is created to last for the entire lifetime of the insured. It will be a higher premium but will allow you to have a number of options you could not get from any other financial instrument. One advantage is that when you pre-decease your beneficiaries you will leave them with a sum of money that in theory, they will not need but will be very grateful to have and it will allow them more options than if they had no life insurance proceeds. Another benefit is the tax advantages – not only does your cash value accumulate tax deferred but you can pull out the cash as tax free income in later years when you retire. Proponants of Term Life insurance would tell you that you will end up with more money at retirement age if you buy term and invest the difference rather than placing the same amount of money into a permanent life policy. On the surface this may be true, but if you take a close look you will find that premise to be false. When you calculate the tax advantages and the safety of the cash accumulation you will come out way ahead with permanent life insurance?

Traditional Co-pay Plan

Traditional Co-pay Plans will have an annual deductible ($1,000 to $5,000) which must be met before the major medical claims will be paid including, surgery, hospitalization, out-patient surgery or out-patient procedures. Once the deductible is met the insured and the insurance company will cost-share the next $5,000 to $15,000 at a typical rate of 80/20 (insurance company pays 80%, the insured pays 20%), 90/10 or 70/30. After the insured pays their portion of the cost-sharing the insurance company will pay 100% of the rest of the bill. January 1 resets the deductible and co-insurance amounts all over again. Doctor visits for sickness and prescription drugs will have a co-pay of $20 – $50, even up to $75. Sometimes a plan will have a separate drug deductible (typically from $200 – $1,000) that must be met before you can access drugs that have a co-pay. You will usually have 3 or 4 tiers of co-pay drugs, the 1st tier is the cheapest being generic drugs. Tier 2 are brand name or preferred drugs. Tier 3 is the non- formulary drugs that are not on an insurance company’s preferred list of drugs. Tier 4 would be the mail order drugs that you can buy 90days at a time. As of September 23, 2010, wellness visits such as physicals, mamograms, pap-smears and PSA screenings are free of charge to the insured.

High Deductible Plans

High Deductible Plans like the name would imply these plans have a high deductible anywhere from $2500 up to $10,000 or even higher. These plans suit people that have a sum of money set aside that they can use to pay for the high deductible if needed. Not only is this suited for people with savings but also those that are fairly healthy who rarely go to the doctor’s office. When they do go to the doctor’s office they pay the office visit out of pocket at a network discount. (All networks have a discount for their members). In order for a provider to be included in a health provider network, they agree in advance to see member patients of the network at a discount. This saves the insurance company money, it saves the member patients money and it also fills up the waiting room of doctors who are contracted with the network.) A typical example would be a patient going in to see a doctor for a sick visit. After the visit the patient shows the office worker their insurance card. When the insurance card is checked and the patient is verified that they indeed are a member of the network a standard charge is applied based on the code the doctor checks off on the billing. The charge for a non-member coming in off the street might be $125 for the visit, the contracted price that the doctor charges the network member might be $70. Of the $70 the insurance company may pay the doctor $35. The remaining $35 would be charged to the member and that would be applied to the deductible if the annual deductible has not been met.

HSA Plans

HSA Plans have become increasingly popluar since they were introduced in 2004. My belief is that these plans are best for the insurance carrier, the medical provider and the insured. The idea behind an HSA is that you are self-insuring for the small stuff like doctor visits and prescriptions and out-sourcing to the insurance company the large risks such as hospitalizations, surgery and out-patient procedures. HSA’s have 2 components: a Qualified High Deductible Health Plan and a savings account. You pay a premium to the insurance company for the health insurance (which is typically a lower premium than a traditional co-pay plan) and you contribute every month to your savings account with pre-tax money. The money in the savings account accumulates tax deferred and can only be used for medical expenses as listed by the Internal Revenue Code, Section 213 (d). This works very similar to a IRA; If you take you money out of the Savings account and use it for anything other than qualified medical expenses the IRS will impose a 10% penalty and you will pay taxes as ordinary income on the monies used. At age 65 you can draw money out for any purpose without penalty or taxation. When using the money in the savings account you will exercise more prudence with the funds because that’s your money. For example, if you need an MRI you may have several to choose from. Some MRI machines are state of the art and some while just as capable will cost less. If you have a choice between a state of the art MRI machine that costs $3,000 for a scan or another imaging center may have a regularMRI machine and only charge $1,000. What would you choose when you are spending YOUR money? Maybe the $3,000 MRI but it is a choice you get to make.

Dental Insurance Plans

Before I explain the difference between the two I want to paint a picture for you. If you were to work for a large company, say 5,000 employees and dental insurance was offered to every employe and their family how many would use the dental insurance. All 5,000? How about 3,000? Try 1,500. That means that 3,500 employees and their families are not using the dental insurance and yet the premiums are paid every month. Do you think that is a good deal for the insurance company? You bet! They are getting premiums from 5,000 employees and their families and yet less than 1/3 are using the benefit. Now let’s take one individual or one family who wants dental coverage. They contact the insurance company that offers dental coverage. Do you think that the insurance company believes that this family or individual are going to really use the dental benefits? Of course they are. They would not have contacted the insurance company in the first place, right? Do you think that the insurance company is going to give them a great deal on dental insurance. Now then, lets talk about each one seperately.

Dental Insurance Plans

Dental Insurance Plans have a deductible of $50 or $100 and a maximum annual limit of $1,000 to $1,500 per person per year. Typically most carriers break down dental coverage into three categories; Preventive, Basic and Restorative. Preventive covers costs for your annual/semi-annual check-ups. This will include x-rays and a cleaning. Preventive care is an immediate benefit meaning you can get the coverage on day one and go to the dentist on day two for a preventive care visit.

There is no waiting period and the carrier pays 100% of the cost. Basic care is considered as basic fillings. There are some companies that have no waiting period and some that do, usually 90 to 180 days and the carrier will pay 80% of the cost.

Restorative coverage is usually dental work such as root canals, bridges, crowns and dentures. The carrier will typically pay 50% of the costs and there is usually a waiting period of 12 months or more. Orthodontia coverage is usually sold as a separate option and is usually reserved for patients who are children and teens.

The Orthodontia benefit will usually be paid by the carrier at only 25-50%.

Dental Discount Plans

Dental Discount Plans have several advantages over dental insurance. The coverage is good from day one with no waiting periods. There are no annual limits on the usage of your plan unlike the $1,000 to $1,500 annual limits on dental insurance plans.

You can also receive big discounts for Cosmetic Dentistry such as teeth whitening, bonding and veneers. Even if you already have dental insurance you can use your dental discount plan for even more savings after maxing out your annual limits on the dental insurance.

Disability Insurance

Disability Insurance is need by just as many people who need life insurance. Disability insurance is designed to insure your income. If the breadwinner cannot produce an income in the event of a disability the standard of living the family is accustomed to will be drastically affected. While a death in the family is certainly a tragic event, a disabled breadwinner will have more needs than they had previously when they were producing an income due to medical costs and custodial care. A family member may need to stay at home with the disabled breadwinner preventing a secondary source of income. Disability insurance can be sub-divided into long and short term disability insurance.

Long Term Disability Insurance

Long Term Disability Insurance insures the breadwinners income for longer than 6 months up to a maximum of up to age 65. The maximum amount of disability income someone will be eligible for is up to 70% of their present income. Proof of income will be required with tax returns before a policy is issued. Underwriting can be quite strict so if you can qualify it would be a great idea to get some.

Short Term Disability Insurance

Short Term Disability Insurance will begin from the time the insured is disabled on day one or even up to two weeks. The payout is usually for 13 to 26 weeks. As with Long Term Disability the maximum an insured can receive due to a disability is 60-70%. Short Term Disability is sometimes considered an unwise expense because you can self-insure for the short term by saving 3 to 6 months of income in case you become disabled. However, if this is not possible I can certainly help you get short term disability.

Disability Insurance Terms You Should Know

1. Waiting Period or Elimination Period. Time from when someone has a disability until the time a payout is received. For STD insurance the waiting period is usually 0, 7 or 14 days. For LTD the waiting period would be 90, 180 or 360 days before a monthly payout is received.

2. Own Occupation (Own Occ). If disability occurs the insured may be able to work at another position as defined by the insurance carrier. If so they would not be considered 100 % disabled but rather partially disabled. The amount of payout would be adjusted to offset the income earned by the secondary occupation. Own Occ is considered to be a feature that is most desirable which obviously makes it more expensive.

3. Benefit Period. Period of time that an insured receives a payout. For STD disability the benefit period is usually 13, 26 or 52 weeks. For LTD insurance the benefit period can be 2, 5, and 10 years or up to age 65.

4. Cost of Living Allowance (COLA). Increases the monthly payout as a percentage usually 3%, 5% or Consumer Price Index (CPI).

5. Insurability Purchase. An option for the insured for an increased premium to have the right to purchase additional disability insurance in the future for pre-specified limits at the future cost without having to go through medical underwriting.

6. Social Security Income (SSI) provision. Social Security pays a disability benefit without regard to whether or not the individual has private disability coverage. If the insured receives a Social Security disability payout the private carrier off-sets the total disability payout with the amount that Social Security pays.

Accidental Insurance

Accident Insurance is coverage that pays out only in the event of an accident and is paid out to the insured and not the hospital, clinic or doctor. AI pays out an amount up to a pre-determined maximum. AI is a great compliment to health insurance that has a high deductible. The premium savings on a high deductible plan can allow you to purchase an Accident plan that will reduce your risk exposure while saving you on overall monthly premium costs.

Cancer Insurance

Cancer Insurance pays out in the event of diagnosis of cancer. An attractive feature of cancer insurance is that there is only one underwriting question and that is, have you ever had cancer? If the answer is no you can get cancer insurance no matter how prevalent it is in your family. One in three women and one in two men will be diagnosed with cancer during their life time.

Critical Illness Insurance

Critical Illness Insurance is similar to cancer insurance and includes cancer as a claim to benefit but also includes other illnesses like heart attack, coronary bypass surgery, loss of limbs, terminal illness, heart valve replacement, stroke, major organ transplant, paralysis, Alzheimers Disease and major burns. The benefit is paid directly to the insured. CI insurance, like accident and cancer insurance compliments health insurance as well.

Travel Insurance

Travel Health Insurance is something most people don’t realize they need. Many do not realize that most health insurance carriers do not cover most of the health care expenses that might be needed while traveling overseas. Travelers health insurance is very inexpensive. A 35 year old male could have a one-time premium of $15 – $25 that would give you health care if needed while overseas.

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