Ken Himmler.com

Your goals and priorities will probably change as you plan to retire. Along with them, your insurance needs may change as well. Retirement is typically a good time to review the different parts of your insurance program and make any changes that might be needed.

Stay well with good health insurance
After you retire, you'll probably focus more on your health than ever before. Staying healthy is your goal, and that may require more visits to the doctor for preventive tests and routine checkups. There's also a chance that your health will decline as you grow older, increasing your need for costly prescription drugs and medical treatments. All of this can add up to substantial medical bills after you've left the workforce (and probably lost your employer's health benefits). You need health insurance that meets both your needs and your budget.

Fortunately, you'll get some help from Uncle Sam. You typically become eligible for Medicare coverage at the same time you become eligible for Social Security retirement benefits. Premium-free Medicare Part A covers inpatient hospital care, while Medicare Part B (for which you'll pay a premium) covers physician care, laboratory tests, physical therapy, and other medical expenses. But don't expect Medicare to cover everything after you retire. For instance, you'll have to pay a large deductible and make co-payments for certain types of care. Medicare prescription drug coverage is only available through a managed care plan (a Medicare Advantage plan), or through a Medicare prescription drug plan offered by a private company or insurer (premiums apply).
To supplement Medicare, you may want to purchase a Medigap policy. These policies are specifically designed to fill the holes in Medicare's coverage. Though Medigap policies are sold by private insurance companies, they're regulated by the federal government. There are 10 standard Medigap plans, but not all of them are offered in every state. All of these plans provide certain core benefits, and all but one offer combinations of additional benefits. Be sure to look at both cost and benefits when choosing a plan.

What if you're retiring early and won't be eligible for Medicare for a number of years? If you're lucky, your employer may give you a retirement package that includes health benefits at least until Medicare kicks in. If not, you may be able to continue your employer's coverage at your own expense through COBRA. But this is only a short-term solution, because COBRA coverage typically lasts only 18 months. Another option is to buy an individual policy, though you may not be insurable if you're in poor health. Even if you are insurable, the coverage may be very expensive.

Don't overlook long-term care insurance
If you're able to stay healthy and active throughout your life, you may never need to enter a nursing home or receive at-home care. But the fact is, many people aged 65 and older will require some type of long-term care during their lives. And that number is likely to go up in future years because people are increasingly living longer. On top of that, long-term care is expensive. You should be prepared in case you do need long-term care at some point.
Unfortunately, Medicare provides very limited coverage for long-term care. You may be covered for a short-term nursing home stay immediately following hospitalization, but that's about it. Other government and military-sponsored programs may help foot the bill, but generally only if you meet strict eligibility requirements. For example, Medicaid requires that you exhaust most of your assets before you can qualify for long-term care benefits. Even a good private health insurance policy will not offer much coverage for long-term care. But most long-term care insurance (LTCI) policies will.
LTCI is sold by private insurance companies and typically covers skilled, intermediate, and custodial care in a nursing home. Most policies also cover home care services and care in a community-based setting (e.g., an assisted-living facility). This type of insurance can be a cost-effective way to protect yourself against long-term care costs–the key is to buy a policy when you're still relatively young (most companies won't sell you a policy if you're under age 40). If you wait until you're older or ill, LTCI may be unavailable or much more expensive.

Weigh your need for life insurance
If you're married, you want to make sure that your spouse will have enough money when you die. You may also have children and other heirs you want to take care of. Life insurance can be one way to accomplish these goals, but several questions arise as you near retirement. Should you keep that existing policy in place? If so, should you change the coverage amount? What if you don't have any life insurance because you lost your group coverage at work (though some employers let you keep the coverage at your own expense)? Should you go out and buy some? The answers depend largely on your particular circumstances.
Your life insurance needs may not be as great during retirement because your financial picture may have improved. When you're working and raising a family, the loss of your job income could be devastating. You often need life insurance to replace that income, meet your outstanding debts (e.g., your mortgage, car loans, credit cards), and fund your kids' college education in case something happens to you. But after you retire, there's usually no significant job income to protect. Plus, your kids may be grown and most of your debts paid off. You may even be financially secure enough to provide for your loved ones without insurance.
It may make sense to go without life insurance in these cases, especially if you have term life insurance and your premium has increased dramatically. But what if you still have financial obligations and few assets of your own? Or what if you're looking for a way to pay your estate tax bill? Then you may want to keep your coverage in force (or buy coverage, if you have none). If you need life insurance but not as much as you have now, you can always lower your coverage amount. It's best to talk to a professional before making any decisions. He or she can help you weigh your needs against the cost of coverage.

Take a look at your auto and homeowners policies
If you stay in your home after you retire, your homeowners insurance needs may not change much. But you should still review your liability coverage to make sure it's sufficient to protect your assets. If you're liable for an accident on or off your premises, claims against you for medical bills and other expenses can be substantial. For additional protection, you might consider buying an umbrella liability policy. It's also a good idea to review the coverage you have on your home itself and the property inside it. Finally, if you plan to buy a second home, find out if your insurer will cover both homes and give you a discount on your premium.
Auto insurance raises some similar issues. Review your policy to make sure your coverage limits are high enough in each area. Again, having the right amount of liability coverage is especially important–you don't want your assets to be put at risk if you cause an auto accident that injures other people or damages property. Weigh your need for any coverages that are optional in your state. Finally, look into ways to save on your premium now that you're retired (e.g., discounts for low annual mileage or senior driving courses).

 Here is a brief recap of what we do and do not know, along with some issues and opportunities to consider.

What we know:
• The federal estate tax and the GST tax (a separate tax on lifetime or at-death transfers to "skip" generations, such as grandchildren) were repealed for 2010, but are set to reappear in 2011 at pre-2001 rates. In 2011, the estate and GST tax exemption amounts will drop to $1 million (from $3.5 million in 2009) and the highest tax rate will jump to 55% (from 45% in 2009).
• The gift tax remains in place with a $1 million lifetime exemption and a tax rate of 35% (down from 45% in 2009).
• In prior years, inherited assets received a step-up in cost basis to the asset's fair market value on the date of death. In 2010, inherited assets generally receive the lesser of the asset's date-of-death fair market value.

Your chances of requiring some sort of long-term care increase as you age, and long-term care insurance (LTCI) can help you cover your long-term care expenses. Although tax issues are probably not foremost in your mind when you buy LTCI, it still pays to consider them. In particular, you should explore whether your premiums will be deductible and your benefits taxable.

You may be eligible for an income tax deduction

You may be able to deduct all or part of the LTCI premiums you pay for yourself, your spouse, or a dependent, but only if your policy meets the IRS criteria for a qualified policy. If you bought the policy before January 1, 1997, and it met the requirements of the state where it was issued, it is automatically considered a qualified policy. If you bought the policy later, it must satisfy several requirements to be considered qualified. First of all, the policy must provide coverage only for qualified long-term care services. These include necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, as well as maintenance or personal care services that are required by a chronically ill individual, in connection with a plan of care prescribed by a licensed health-care practitioner. Also, your policy must satisfy the following conditions:

• It must be guaranteed renewable, meaning that you can renew your policy as needed without undergoing additional medical exams
• It must not have a cash surrender value or any provision that allows you to cash in, pledge, assign, or borrow against the policy, or receive anything more than a refund of premiums paid if you cancel the policy
• It must provide that any refunds and dividends (other than refunds upon termination of the policy) can be used only to reduce future premiums or increase future benefits

• It must not pay for (or reimburse) expenses that are reimbursable under Medicare, unless Medicare is a secondary payer, or unless the policy pays a specified amount per day regardless of actual expenses .It must meet certain consumer protection requirements set out in the Internal Revenue Code.

The amount of your deduction depends on a few factors

If your LTCI policy meets the conditions listed above, or if it was issued before January 1, 1997, at least part of your premium may be tax deductible as a medical expense. To qualify for a medical expense deduction, your unreimbursed medical expenses (including LTCI premiums) must exceed 7.5 percent of your adjusted gross income. Also, you must itemize your deductions.

The maximum amount of LTCI premiums that you can deduct in a year depends on your age at the end of the year. In 2009, deduction limits (which are indexed each year for inflation) are as follows:

Age Limit on Deduction
40 or younger $320
41 to 50 $600
51 to 60 $1,190
61 to 70 $3,180
71 or older $3,980

Watch out–your long-term care insurance benefits may be taxable

A qualified LTCI contract is treated as an accident and health insurance contract, and the benefits are typically treated as tax free. However, if your contract pays a set dollar amount per day (per diem), the tax-free treatment is subject to a certain limit, indexed annually for inflation. Benefits over and above this limit are generally considered taxable income.

Under this limit, the amount of your LTCI benefits that is excluded from taxation in a given period is figured by subtracting any reimbursement received (through insurance or otherwise) for the cost of qualified long-term care services during the period from the larger of the following amounts:

  The actual cost of qualified long-term care services during the period
  The dollar amount for the period ($280 per day for any period in 2009)

It’s a different story if you have a nonqualified LTCI policy, though. Such benefits may be subject to income tax.
 

What does "coordination with government benefits" mean?

The government’s bailout money is not up for grabs. Large insurance companies that qualify for the government’s bailout money have made applications. So far Hartford life, Prudential and Metropolitan are some of the ones that have made the application. They may be eligible for billions that may help bolster their corporate bond positions. Most insurance companies make money on the spreads that they get from buying corporate bonds and government bonds. Just like a bank makes a spread on the money they payout on Cds and savings accounts versus the amount they charge on loans. Insurance companies make money the same way – on their portfolios.

The problem was when the recession – depression hit many companies either stopped their interest payments on their bonds or outright defaulted. This has put a crunch on some insurance companies that may have been leveraged to highly. This new seed of investment help from the government should help these companies buy up more corporate and government bonds. While it still makes sense to have insurance companies as a part of an overall investment plan it also makes sense to diversify between different companies and different insurance products. You also want to check your state to find out what the actual coverage is in case an insurance company does go into receivership. As an example in Florida the amount each person is covered for is $100,000 for an annuity contract. 

Here we are in another day of la-la land with the U.S. and their drug policies. As I was doing research on the portfolios today I noticed some rather odd gyrations within the pharmaceuticals. When I looked further I noticed that just overnight six very popular drugs have doubled in price. As an example Ambien went up 160% in price. Do I have an answer for this, no. I will say that it is primarily a problem with the U.S. Last June (2007) I traveled to Germany to get back surgery done because the cost of this in the U.S. would have been five times as high as it was in Germany. The greatest part of it was it was a single price of 34k. This included everything from the surgery, the post-op and the drugs. If you have ever had any medical work done in the U.S. be prepared to pay $40.00 for a roll of surgical tape. That is another story where a local hospital did in fact try to charge my insurance company $40.00 for surgical tape – until I complained that I could get a roll of hockey tape for $2.00.

Here is the problem:

1) When you are retired or you are going to retire plan on needed a nest egg of about $225,000 per person for medical expenses. (Assuming you retire at age 60 – if you retire earlier it will be more)

2) Plan on an average annual increase of 15% on all medical expenses.  (This sounded good until the 100% increase overnight on drugs)

3) Plan on a 7 out of 10 chance that you will in fact need long term care before you die.

I dont know about you but getting older is really expensive. If you have had an experience with medical expenses ruining someone retirement leave a comment.

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Also check out the other post/article I wrote on Medical Expenses in retirement at

http://www.kenhimmler.com/2008/08/06/healthcare-in-retirement