Outside Economics

Disability Insurance

Posted by Wendell Brock, MBA, ChFC on Wed, May 14, 2014

There are a few types of insurance coverage that are essential to have in this day and age. Disability insurance is one of those. If you die, your life insurance will take care of your family; but if you get hurt and become disabled, then what? The average monthly benefit from Social Security disability is $1,004 a month. Will that be enough to take care of your current needs?DDApic

Many people live such active lifestyles that the risks of a serious injury is very real. We all know someone who has been injured playing one sport or another, an auto accident, or simply injured falling off a ladder trimming the tree! It happens all the time – that is why we have Emergency Rooms at the hospitals!

Disability insurance helps protect a portion of your income and provides financial protection if you become disabled for an extended period of time. If you are permanently disabled, not only will you be unable to work, but you may also need financial resources to be cared for. Anyone who depends on their income to pay the bills or maintain their lifestyle should consider disability insurance protection.

Many companies offer great rates on disability insurance to their employees. You can also shop around for private insurance companies to find out their rates and policies. Make sure 65-70% of your current income is covered for an extended time period, usually until death or age 65.

A simple rule of thumb is the M.U.G.® Plan = Mortgage, Utilities, & Groceries. Do you have enough disability insurance to cover these three very important expenses? Think of it this way, which job would you prefer:

Monthly Income Job A Job B
While Working $6,000 $5,900
If Disabled $0 $4,000

There are some key features of disability insurance that are important to be aware of. A disability insurance policy can complement existing disability benefit coverage that may be available to you. A disability insurance policy is fully portable; you own the policy and so you can take it with you throughout your career. There are policies that offer flexible solutions for various income levels. Also, depending on how the policy is set up, the benefits may or may not be tax-free.

Determining whether your benefits are taxable depends on a few factors. These factors include what type of benefits you receive, whether the premiums were paid with pretax or after-tax dollars, and who paid the premiums (you or your employer).

The rules surrounding taxation of individual disability income insurance benefits are generally simple. When you pay the premiums with after-tax dollars, the benefits you receive are tax free. When you pay your premiums with pre-tax dollars, your benefits will be taxed. This rule of thumb is the case whether you are enrolled in a group plan, a cafeteria plan or a medical reimbursement plan. However, unlike health insurance premiums, you can't deduct premiums paid for disability insurance as a medical expense.

If you are enrolled in a group disability insurance plan sponsored by your employer, the tax-ability of your benefits depends on who pays the premium. If you pay the total premium using after-tax income, then your benefits will be tax free. On the other hand, if your employer pays the total premium and does not include the cost of coverage in your gross income, then your benefits will be taxable. If your premiums are split by you and your employer, then your tax liability will be split as well.

It comes down to this: If you never use your disability benefits, you'll save money by paying your premiums with pretax dollars. But if you do use your disability benefits, using after-tax dollars to pay your premiums places you in a better position.

Different rules apply to an employer who pays for a disability insurance policy on an employee. This may be the case if there is a key employee in the business. If the employer gets the benefit, then the premium is not deductible to the company, and the benefit is not taxable when received by the company.

All, part, or none of the disability benefits you receive through government disability insurance programs may be taxable. How much of the benefit is taxable and under what circumstances depends on the type of government disability benefit you are receiving. These government benefits include Social Security disability income, Medicare benefits, worker's compensation, veteran's benefits, military benefits, and Federal employee's retirement system benefits.

A lot relies on your income, perhaps even more than you think. If the unexpected happens – if you become too sick or hurt to work – would your savings or the disability benefits you receive through your employer be adequate?  As always, consult a trusted professional for advice.

I know what your saying, "It will never happen to me!" Right?

Topics: life insurance, Social Security, Medicare, Disability Insurance

Medicare Basics

Posted by Wendell Brock, MBA, ChFC on Wed, Apr 23, 2014

Medicare is health insurance for Americans 65 and older, those younger than 65 with certain disabilities, and people of any age with End Stage Renal Disease (ESRD). The federal government administers Medicare, and you apply for it through the Social Security20071227 medicare 18 Administration (SSA). There are several types of Medicare coverage.

  • Original Medicare, or Parts A and B, cover inpatient care (Part A) and outpatient services (Part B).
  • A Medicare Advantage plan, called Part C, is sponsored by a private company. Medicare Advantage plans sometimes offer additional services not covered under Original Medicare. Some Medicare Advantage plans also provide prescription drug coverage. You must have enrolled in Parts A and B to enroll in Part C.
  • Medicare prescription drug coverage is called Part D. Like Part C, Part D is provided by private companies.
  • Medigap plans are forms of supplemental insurance that pay for costs not covered by Original Medicare. If you have a Medicare Advantage plan, you cannot also have a Medigap plan.

The advantage plans or Part C, and Part D are likely to become more important than ever. With the baby boomers retiring in massive amounts the Medicare System will be stretched very thin. This will cause two things, 1) an increase in taxes and premiums to pay for the coverage, and 2) a continued reduction of benefits paid for by Medicare.

There are different time periods during which you can enroll in Medicare. For many people, the Initial Enrollment Period - a seven-month period around your 65th birthday - is common. There are also Special Enrollment Periods for people who are retiring and losing employer health coverage, or whose spouse who carried coverage is retiring.

You will want to learn about the different times you can enroll, and which time applies best to your situation. If you don’t enroll on time, you could be without coverage for up to four months and you may have to pay a penalty that lasts as long as you have Medicare!

Timing is also important if you decide to purchase supplemental insurance. You should sign up for supplemental insurance within six months of when you sign up for Part B. If you wait too long, the insurance company can deny you coverage, or charge you higher premiums for pre-existing conditions and impose a waiting period before your coverage starts.

Many people continue to work past age 65, and have health coverage through their employers. Others may be retired, and have insurance through the military (VA or TRICARE benefits) or employee unions. There are different rules depending on whether you are “actively employed” or retired.

Be sure to contact the benefits administrator of your current plan to ask about how it works with Medicare, and if and when you need to sign up for Medicare. You may also want to call the Social Security Administration to make sure that your employer’s advice is consistent with SSA policies.

It is recommended that you seek advice well in advance of signing up for Medicare. Find a trusted insurance source that is well trained in the ins and outs of Medicare. Do your own research as well. Knowing when to sign up and what to sign up for can save you headaches and hassles down the road!

One headache is finding the right doctor, prior to signing up you will want to find out if your current doctor accepts Medicare. If not you will have to go Medicare doctor hunting, which is about the same thing as hunting elephants in Alaska! Fewer and fewer doctors are accepting Medicare – I was visiting with one Doctor who had to stop because his office overhead (staff, rent, utilities, supplies, etc.) was higher than what he was being reimbursed by the government. What has been your experience with Medicare? Good? Bad? Or indifferent? 

Topics: Medicare, Baby Boomers, Social Security Administration


Wendell W. Brock, MBA, ChFC

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