When Congress was debating health-care reform, prior to passage of The Patient Protection and Affordable Care Act, there were what I considered inflated examples of individuals denied insurance, and claims not paid by insurers. These examples ignored the fact that historically insurers have paid 99.5% of all claims.
In many states, group plans, which are defined as employer-sponsored plans with two or more employees, offer guaranteed insurance coverage with no waiting period for preexisting conditions. Individuals with complicated medical histories can also obtain coverage, but at rates which are higher, in order to cover the risk.
One of unintended consequences of the new law, however, is that many carriers will withdraw coverage for individuals, as has already happened in Florida. Because the law permits anybody to get insurance at any time, companies fear that people, especially parents of children, will wait until they are sick and then seek coverage. This places the companies in danger of facing highly unpredictable costs, which there is no way to control.
As a financial consultant who sells and advises business owners and individuals about life and health insurance, I would like to share with you a real-life experience. I was referred to a young hairdresser who owned her own shop and employed two additional people. She was six months pregnant with her fourth child, and was estranged from the father of this baby. Her other three children were covered by her ex-husband. She had no health insurance.
Since she had a business and employees, we were able to establish a small group plan, which insured herimmediately. Her premium was $300 a month. Two months later, complications occurred, and the baby was delivered early by cesarean section. (All her previous prior pregnancies were normal, and this pregnancy was as well, up until this point.)
Since the new baby girl was premature, it was necessary for her to remain in the hospital for over a month. Today, mom and daughter are healthy and doing well. Our client is back at work with the comfort of knowing her medical bills, in excess of $20,000, have been fully paid, no hassles, no questions asked. That’s what good insurance companies do: protect individuals and families at the time an unexpected life event occurs.
The new regulations are the wrong prescription for what ails health care. Free markets and less regulation, not more, is what is needed.
The healthcare debate and the legislation that recently passed put a bright spotlight on the insurance industry, the insurance companies as well as agents and advisors. Much of what was said and portrayed in the press and on Capitol Hill was not favorable. But as often is the case, the larger picture being drawn is most often not the reality that people face in their day-to-day lives.
Let me share the stories of two of my clients that I think serve as real-life examples of how government, or mandated, benefits work vs. how insurance company benefits work.
Client A, age 48, was diagnosed with muscular dystrophy a few years ago. During this time, in the middle of the economic downturn, his job was outsourced. When he lost his job, he also lost his group disability insurance coverage and his only paycheck benefits. As the disease progressed, he was unable to work any longer.
In late 2008, he filed for Social Security disability benefits and was denied. You may not know it, but this is a common occurrence for first time filers of Social Security benefits. In fact, the industry statistics indicate that 65% of all Social Security claims are initially denied.
With my help, my client engaged an attorney who specializes in Social Security disability claims. A year and a half after filing and paying attorneys fees, he was approved for benefits.
Contrast this experience with Client B. He had a substantial life insurance policy with me that was scheduled to expire for lack of payment. When I spoke with the client’s wife, I learned her husband had been declared totally disabled four years ago, due to the effects of exposure to Agent Orange when he served in Vietnam. The family had never shared this information with me.
I informed them that his insurance policy had a “waiver of premium” benefit, which meant that if he were to become disabled and unable to work, his life insurance premiums would be paid by the company for the rest of his life.
Once the client sent me the documentation I needed, the insurance company sent the client a refund check for those four years’ worth of premiums that they had paid. And now the policy is now paid for life! The whole process took just over a month, and there were no attorney fees and no hassle.
I leave it to you to decide: Which “system” worked better? The government’s or the insurance industry’s? We all want reform, but we need to understand what that truly needs to be.
Imagine paying absolutely no federal estate tax. It was “almost” a reality.
I say almost because the estate tax was due to disappear in 2010, unless Congress took action, which it did (and still is). On Dec. 3, the House of Representatives passed H.R.4154, which would permanently freeze the estate-tax exemption at $3.5 million, and the estate-tax rate at 45%. The senate is poised to follow, but time is quickly running out.
But if you think about it, zero estate tax is certainly an unlikely tax policy in this budget-hungry environment, when the government is looking in every corner for ways to pay for programs. The good news is that all the estate-planning techniques that we, financial professionals, have been employing to care for families and business owners are still very much applicable today.
A cornerstone of that planning is life insurance. It’s not just a tool for you to provide basic financial security to your loved ones when you die. If you’re a high-net-worth individual, it can also help you protect the estate you have worked so hard to create. Life insurance, when payable at death, is income tax free, capital gains tax free, and estate tax free (when properly structured through third-party ownership or trusts). It’s the only asset class in our financial system that enjoys these tax privileges.
Life insurance is an excellent way to pass on money from your estate to your family and heirs in a tax-efficient manner. By setting up an irrevocable life insurance trust (ILIT) and paying your life insurance premiums from that, you transfer ownership of the life insurance to the trustee of the ILIT. And since you no longer own the policies, the proceeds can’t be taxed in your estate when you die. The ILIT will also be designated as the primary beneficiary of your life insurance policies. So after you die, the insurance proceeds will be deposited into the ILIT and held in trust for the benefit of your spouse during his or her lifetime, and then the balance will pass to your children or other beneficiaries. Aside from this, the ILIT can provide your family with a quick source of cash to pay your estate-tax bill while at the same time not increasing your overall estate-tax burden.
Life insurance is an excellent tool for paying estate taxes and other fees upon your death, which means your family doesn’t have to immediately tap into or sell other assets, like real estate, to take care of those obligations.
We all want to support our government by paying tax where tax is due, but we also want to ensure our children and their children and perhaps even their children’s children can benefit from our hard work. Life insurance was, is and will be a sound financial tool to do just that. This is why it’s so important to protect, promote and preserve the core tax treatment of life insurance products for the 75 million American families who rely on it every day.
