Ken Himmler.com

Planning for Incapacity
What would happen if you were mentally or physically unable to take care of yourself or your day-to-day affairs? You might not be able to make sound decisions about your health or finances. You could lose the ability to pay bills, write checks, make deposits, sell assets, or otherwise conduct your affairs. Unless you're prepared, incapacity could devastate your family, exhaust your savings, and undermine your financial, tax, and estate planning strategies. Planning ahead can ensure that your health-care wishes will be carried out, and that your finances will continue to be competently managed.

It could happen to you
Incapacity can strike anyone at any time. Advancing age can bring senility, Alzheimer's disease, or other ailments, and a serious illness or accident can happen suddenly at any age. Even with today's medical miracles, it's a real possibility that you or your spouse could become incapable of handling your own medical or financial affairs.

What if you're not prepared?
Should you become incapacitated without the proper plans and documentation in place, a relative or friend will have to ask the court to appoint a guardian for you. Petitioning the court for guardianship is a public procedure that can be emotionally draining, time consuming, and expensive. More importantly, without instructions from you, a guardian might not make the decisions you would have made.

Advanced medical directives
Without legal documents that express your wishes, medical care providers must prolong your life using artificial means, if necessary. With today's modern technology, physicians can sustain you for days and weeks (if not months or even years). To avoid the possibility of this happening to you, you must have an advanced medical directive.
There are three types of advanced medical directives: a living will, a durable power of attorney for health care (or health-care proxy), and a Do Not Resuscitate order (DNR). Each type has its own purpose, benefits, and drawbacks, and may not be effective in some states. You may find that one, two, or all three types of advanced medical directives are necessary to carry out all of your wishes for medical treatment. Be sure to have an attorney prepare your medical directives to make sure that you have the ones you'll need and that all documents are consistent.

Living will
A living will allows you to approve or decline certain types of medical care, even if you will die as a result of the choice. However, in most states, living wills take effect only under certain circumstances, such as terminal injury or illness. Generally, a living will can be used only to decline medical treatment that "serves only to postpone the moment of death." Even if your state does not allow living wills, you may still want to have one to serve as an expression of your wishes.

Durable power of attorney for health care
A durable power of attorney for health care (known as a health-care proxy in some states) allows you to appoint a representative to make medical decisions for you. You decide how much power your representative will have.

Do Not Resuscitate order (DNR)
A DNR is a doctor's order that tells all other medical personnel not to perform CPR if you go into cardiac arrest. There are two types of DNRs. One is effective only while you are hospitalized. The other is used while you are outside the hospital.

Protecting your property
Without someone to look after your financial affairs when you can't, your property could be wasted, abused, or lost. To protect against these possibilities, consider putting in place a revocable living trust, durable power of attorney (DPOA), or joint ownership arrangement (or a combination of any or all options).
Revocable living trust

You can transfer ownership of your property to a revocable living trust. You name yourself as trustee and retain complete control over your affairs. If you become incapacitated, your successor trustee (the person you named to run the trust if you can't) automatically steps in and takes over the management of your property. A living trust can survive your death. There are, of course, costs associated with creating and maintaining a trust.

Durable power of attorney (DPOA)
A DPOA allows you to authorize someone else to act on your behalf. There are two types of DPOA: a standby DPOA, which is effective immediately, and a springing DPOA, which is not effective until you have become incapacitated. Both types of DPOA end at your death. A DPOA should be fairly simple and inexpensive to implement. However, a springing DPOA is not permitted in some states, so you'll want to check with an attorney.

Joint ownership
A joint ownership arrangement allows someone else to have immediate access to property and to use it to meet your needs. Joint ownership is simple and inexpensive to implement. However, there are some disadvantages to the joint ownership arrangement. Some examples include: (1) your co-owner has immediate access to your property regardless of incapacity, (2) you lack the ability to direct the co-owner to use the property for your benefit, (3) naming someone who is not your spouse as co-owner may trigger gift tax consequences, and (4) if you die before the other joint owner, your property interests will pass to the other owner without regard to your own intentions, which may be different.

If you're older and/or in poor health, you're definitely somebody who should have health insurance coverage. Unfortunately, you don't, and you're having difficulty getting it. All of the insurance companies you've applied to refuse to offer you coverage because they see you as too great a risk. They may even classify you as totally uninsurable. The good news is that you're not without options.

Shop around

In reality, few people are totally uninsurable. More likely, you're one of the "hard to insure." The variety of health insurance sources in this country means that most people have at least one option available to them. Most states have an insurer of last resort (e.g., Blue Cross Blue Shield) that must accept all applicants. In addition, beginning in 2010, the Patient Protection and Affordable Care Act (PPACA) prohibits health plans from denying children coverage based on pre-existing conditions or from including pre-existing condition exclusions for children. Beginning in 2014, all health insurers must sell coverage to everyone who applies, regardless of their medical history or health status, nor can plans exclude coverage for those medical conditions. Of course, depending on your health and other factors, the company may require you to pay a higher-than-average premium or offer restricted coverage to cover its risk of loss. If so, you must weigh the cost of the insurance against the potential benefits.

One additional note: Hard-to-insure individuals may feel tempted to lie or withhold information on an insurance application in order to get the coverage they desire. No matter how badly you need health insurance, don't do this. Not only is it unethical and illegal, but your insurance company generally has the right to immediately terminate your policy (and sue you to recover any benefits paid) if it discovers that you've been dishonest.

A new, more insurable you

The two primary factors that an insurance company looks at in deciding whether to insure you (and at what cost) are your medical history and your present health, both physical and mental. Although there's nothing you can do to change your medical history, you can take steps to improve your present health. Exercising regularly, following a better diet, and reducing your stress level all promote a healthier lifestyle. These steps can also dramatically improve your general health over a relatively short time and make you less of a risk. Insurance companies may then find you more attractive as a candidate for health insurance.

In addition, an insurance company considers other factors in determining insurability, such as your age, gender, marital status, income, occupation, and personal habits. Some of these factors are within your power to change, and certain changes may increase your chances of getting health insurance at an affordable rate. You could, for example, give up smoking or drinking. If you work in a dangerous occupation, you might consider switching to a less hazardous line of work.

Work it out through work

If you have no health insurance but work for a company that offers employer-sponsored group coverage, consider participating in the plan. If your employer doesn't have a group health plan, you might even consider leaving your present job and going to work for a company that does.

Group health insurance generally provides extensive coverage and may cost you little or nothing, especially if your employer pays all or most of the premium. Moreover, this type of insurance is ideal for hard-to-insure people who have difficulty obtaining individual coverage. When you enroll in a group plan, you generally don't have to take medical exams, answer a lot of probing questions, and undergo the other screening processes that are typically required before you can get an individual policy. This is because your portion of the group premium isn't based on personal factors about you–it's based on the risk characteristics of the group as a whole (e.g., average age).

COBRA

If you terminate your service with an employer, any group health insurance coverage you were receiving through that employer generally ceases as well. This is true whether you leave the job voluntarily or involuntarily. You may also lose employer coverage due to a reduction in your work hours. These events don't necessarily mean, however, that you have to go without health insurance or start shopping for individual policies. The reason: You are eligible for benefits under the Consolidated Omnibus Budget Reconciliation Act (COBRA) if your former employer had more than 20 employees.

The medical coverage you receive through COBRA is identical to the coverage that you had under your employer's plan, but you must now pay the full premium out of your own pocket. This can be expensive, but if you're not in the greatest health, it's better than being uninsured or trying to get an individual policy. The key for hard-to-insure people is that you can elect COBRA coverage without having to undergo any individual screening to evaluate your risk. COBRA coverage typically lasts up to 18 months, although this may be extended to 36 months in some cases.

Government benefits

Another way to get health insurance coverage is through government benefits. The three main sources of such benefits are Medicare, Medicaid, and the Department of Veterans Affairs (VA), formerly known as the Veterans Administration. These programs can be an excellent way to receive health insurance at relatively low cost, but you must meet the eligibility requirements and sometimes fund certain medical expenses out of your own pocket. In addition, some of these programs are not comprehensive and may need to be supplemented with other health insurance.

Medicare is a federal program designed to provide reasonably priced health insurance for retirees, regardless of medical condition. You generally become eligible for Medicare at the same time you become eligible for full Social Security benefits (currently age 65). In addition, some disabled individuals and people with kidney disease are eligible for coverage. Medicare is broken down into two parts, A and B. The specific eligibility rules, benefits, and costs to you will vary between parts A and B. It's important to realize that Medicare may not be enough after you retire, but supplemental insurance policies known as Medigap policies, sold by private insurers, can help fill the holes in Medicare's coverage. If cost is a concern, you can also choose to participate in a Medicare managed care plan. These plans, called Medicare Advantage plans, are health maintenance organizations offered by private insurance companies. If your income is limited, your state may help pay Medicare costs such as your premiums and deductibles.

Medicaid is a joint federal and state program that provides medical benefits to individuals who can't afford medical care, including elderly, disabled, and blind individuals, as well as needy dependent children. Each state has its own Medicaid program, and specific eligibility requirements and benefits vary from one state to another. In addition, Medicaid benefits depend on whether you are considered medically needy or categorically needy. However, certain core benefits (including coverage for hospital bills, physician services, and long-term nursing home care) are shared by most Medicaid programs.

In general, all veterans who served in the U.S. military (except those who were dishonorably discharged) qualify for VA hospital and outpatient care. However, some veterans may not have full access to such care. For specific information on eligibility and the types of benefits available, contact your local VA office or visit the VA website.

A nonqualified deferred compensation (NQDC) plan is an arrangement between an employer and one or more employees to defer the receipt of currently earned compensation. You might want to establish a NQDC plan to provide your employees with benefits in addition to those provided under your qualified retirement plan, or to provide benefits to particular employees without the expense of a qualified plan.

NQDC plans vs. qualified plans

A qualified plan, such as a profit-sharing plan or a 401(k) plan, can be a valuable employee benefit. A qualified plan provides you with an immediate income tax deduction for the amount of money you contribute to the plan for a particular year. Your employees aren't required to pay income tax on your contributions until those amounts are actually distributed from the plan. However, in order to receive this beneficial tax treatment, a qualified plan must comply with strict and complex ERISA and IRS rules, and the plan must generally cover a large percentage of your employees. In addition, qualified plans are subject to a number of limitations on contributions and benefits. These limitations have a particularly harsh effect on your highly paid executives.

In contrast, NQDC plans can be structured to provide the benefit of tax deferral while avoiding almost all of ERISA's burdensome requirements. There are no dollar limits that apply to NQDC plan benefits (although compensation must generally be reasonable in order to be deductible). And you can provide benefits to your highly compensated employees without having to provide similar benefits to your rank and file employees.

Funded vs. unfunded NQDC plans

NQDC plans fall into two broad categories–funded and unfunded. A NQDC plan is considered funded if you have irrevocably and unconditionally set aside assets with a third party (e.g., in a trust or escrow account) for the payment of NQDC plan benefits, and those assets are beyond the reach of both you and your creditors. In other words, if participants are guaranteed to receive their benefits under the NQDC plan, the plan is considered funded.

You might consider establishing a funded plan if your employees are concerned that their plan benefits might not be paid in the future due to a change in your financial condition, a change in control, or your change of heart. Because the assets in a funded plan are beyond your reach, and the reach of your creditors, these plans provide employees with maximum security that their benefits will eventually be paid. Funded plans are rare, though, because they provide only limited opportunity for tax deferral and may be subject to all of ERISA's requirements.

Unfunded plans are by far more common because they can provide the benefit of tax deferral while avoiding almost all of ERISA's requirements. With an unfunded plan, you don't formally set aside assets to pay plan benefits. Instead, you either pay plan benefits out of current cash flow ("pay-as-you-go") or you earmark property to pay plan benefits ("informal funding"), with the property remaining part of your general assets and subject to the claims of your general creditors. You can set up a trust ("rabbi trust") to hold plan assets, but those assets must remain subject to any claims of your bankruptcy and insolvency creditors. A rabbi trust can protect your employees against your change of heart or change in control, but not against a change in your financial condition leading to bankruptcy.

In order to achieve the dual goals of tax deferral and avoidance of ERISA, your NQDC plan must be both unfunded and maintained solely for a select group of management or highly compensated employees. These unfunded NQDC plans are commonly referred to as "top-hat" plans.

While there is no formal legal definition of a "select group of management or highly compensated employees," it generally means a small percentage of the employee population who are key management employees or who earn a salary substantially higher than that of other employees.

Income tax considerations

Generally you can't take a tax deduction for amounts you contribute to a NQDC plan until your participating employees are taxed on those contributions (which can be years after your contributions have been made to the plan).

Employees generally don't include your contributions to an unfunded NQDC plan, or plan earnings, in income until benefits payments are actually received from the NQDC plan. The taxation of funded NQDC plans is more complex. In general, your employees must include your contributions in taxable income as soon as they become nonforfeitable (i.e., as soon as they vest). The taxation of plan earnings depends on the structure of the plan; in some cases employees must include earnings in taxable income currently, and in some cases they aren't taxed until they're actually paid from the plan.

Who can adopt a NQDC plan?

NQDC plans are suitable only for regular (C) corporations. In S corporations or unincorporated entities (partnerships or proprietorships), business owners generally can't defer taxes on their shares of business income. However, S corporations and unincorporated businesses can adopt NQDC plans for regular employees who have no ownership in the business. NQDC plans are most suitable for employers that are financially sound and have a reasonable expectation of continuing profitable business operations in the future. In addition, since NQDC plans are more affordable to implement than qualified plans, they can be an attractive form of employee compensation for a growing business that has limited cash resources.

Types of plans

Because a NQDC plan is essentially a contract between you and your employee there are almost unlimited variations. Most common are deferral plans and supplemental executive retirement plans (also known as SERPs). In a deferral plan your employee defers the payment of current compensation (e.g., salary or bonus) to a future date. A SERP is typically designed to supplement your employee's qualified plan benefits (for example, by providing additional pension benefits).

How to implement a NQDC plan

An ERISA lawyer can guide you through the maze of legal and tax requirements, and draft the plan document. Often the board of directors or compensation committee must approve the plan. Your accountant or consulting actuary can help you decide how to finance the plan. If you choose an unfunded plan, almost all that ERISA requires is that you send a simple statement to the Department of Labor informing them of the existence of the plan, and the number of participants.

 Before you receive any Social Security benefits, the Social Security Administration (SSA) will need to determine your eligibility. Remember that Social Security is an insurance system designed to pay you benefits during times of economic hardship. Just as a medical insurance plan representative must review your policy coverage before paying your surgical bill, a Social Security administrator must examine your Social Security record to ensure that you are eligible for the type of benefit for which you have applied. Determining your eligibility will mean finding answers to the following questions:

·         Have your earnings been subject to Social Security taxes?

·         What is your insured status?

·         Have you met the eligibility requirements specific to your benefit claim?

·         Have you filed your benefit claim?

Your earnings have probably been subject to Social Security taxes

Most people are covered by Social Security. Since Social Security is compulsory, most company employees, members of the armed forces, and self-employed persons participate and will someday be eligible for benefits. Two groups that are excluded from Social Security coverage are railroad workers whose work is covered by the Railroad Retirement Act and federal employees hired before 1984, who are covered under the Civil Service Retirement System (CSRS). Special coverage terms apply to other groups, including hospital interns, farm workers, members of religious orders, student nurses, newspaper vendors, and domestic workers. If you are covered by Social Security, you will know it when you look at your paycheck. Currently, 6.2 percent of your pay up to an annual limit of $106,800 is deducted each pay period. A 1.45 percent Medicare tax is also withheld from your pay (no annual limit applies). Your employer matches your tax payments. If you are self-employed, you pay a 15.3 percent self-employment tax on your net earnings to finance Social Security.

Your insured status affects your eligibility for benefits

Your insured status is the foundation of any benefit claim. You are considered insured when you have acquired a certain number of Social Security credits. These credits are also known as quarters of coverage. Since 1978, covered workers receive credits based on their annual earnings. Every year, the earnings necessary to earn one credit increase according to how much the national average wage has increased. In 2010, you earn one credit for every $1,120 (up from $1,090 in 2008) in earned income, up to a maximum of four credits per year. Prior to 1978, an employee earned one credit for each calendar quarter (three-month period ending March 31, June 30, September 30, or December 31) in which covered wages paid were $50 or more (hence the term "quarters of coverage"). However, even if the employee received no wages in some of the quarters, he or she could still earn the maximum four credits if his or her total annual wages equaled or exceeded the maximum Social Security earnings base for that year.

Earning Social Security credits (quarters of coverage)
Credits earned are based on your total annual income

The number of credits you earn in a year depends upon how much money you made, not how many months you worked. For instance, if you work for two months in 2010 and make $2,240, you will have earned two credits ($1,120 x 2). If you work six months and make $2,550, you will also have earned two credits. To earn three credits, you would have to earn at least $3,360 ($1,120 x 3). To earn four credits for the year, you would have to make at least $4,480, the income required to earn the maximum number.

Credits are awarded in whole units only

If you earn $2,240 in 2010, you will earn two credits. If you earn $2,800, you will still earn only two credits, not two and one-half credits, since credits are awarded in whole units only.

Credits can be acquired at any age (even after retirement age)

You're never too old to earn credits. Unless you've already reached the maximum credits possible (40 credits), any income you have that is subject to Social Security taxes can earn you more credits, even if you are already old enough to retire.

Credits can't be lost once you've earned them

Once you earn the credits, they're yours to keep, even if you never work again.

Credits don't determine the amount of your Social Security benefit

The size of your benefit check has nothing to do with how many credits you have earned. They only determine what type of benefits for which you might be eligible.

Fully insured status versus currently insured status

Determining your insured status is important because if you have not acquired the credits necessary to receive Social Security benefits, your claim will be denied even if you meet other eligibility requirements. To receive some types of benefits, such as retirement benefits, you must be fully insured. To receive other benefits, such as survivor's benefits, you may only need to be currently insured.

Obtaining fully insured status means that you are entitled to full Social Security benefits. To become fully insured you must:

       Earn 40 credits (10 years in work subject to Social Security taxes) or

       Earn at least one credit for each year elapsing after 1950 (or, if later, after the year in which you reached age 21) and before the year in which you reach age 62, die, or become disabled (whichever comes first), and earn at least six total credits

Example(s): Example A: John died after suffering a head injury. He was 45. He had earned 30 credits during his lifetime. Because he had earned at least one credit for every year that had elapsed between the year he turned 21 and the year he died, he was fully insured, and his survivors were entitled to benefits based on his Social Security earnings record.

Example B: Jill was disabled in a car accident. She was 49. She wants to apply for retirement benefits at age 65. She had earned 40 credits by the time of her accident. Even though she might not work again, she has already earned the maximum credits required to become fully insured.

Obtaining currently insured status means that you (or your eligible survivors) are entitled to partial Social Security benefits based on your earnings record, such as survivor's benefits, disability benefits, and a $255 lump-sum death benefit. You will not be entitled to old-age retirement benefits. To become currently insured you must:

       Earn at least six credits during the 13-quarter period ending with the calendar quarter in which you die, become entitled to retirement insurance benefits, or become entitled to disability benefits

Example(s): Mary died in April of 2009. She was 25. Between January 1, 2007, and the time of her death, she had earned eight credits. She earned three in 2007, four in 2008, and one in 2009. Because she had earned more than six quarters within the 13-quarter period, she was currently insured at the time of her death.

How you can file for benefits

Social Security benefits are not automatic. To receive benefits, you must apply for them by contacting a local Social Security office (check your telephone directory) or by calling the Social Security Administration (see below). You should file promptly in person, by mail, or by phone.

·         For retirement benefits: The Social Security Administration recommends that you contact a Social Security office two or three months before you reach age 62. If you decide not to file an application for benefits at that time, you should contact a Social Security office two or three months before you decide to retire.

·         For survivor's benefits: File for benefits in the month of the insured worker's death. Each entitled person should file.

·         For disability benefits: You can file for benefits before you actually become entitled to benefits. If you file early (for example, before the five-month waiting period has ended), and your claim is approved, your application date is considered to be the first month you have satisfied the eligibility requirements.

·         For the lump-sum death payment: The beneficiary should file within two years of the insured person's death.

If you have any questions about filing a benefit claim, or want information regarding eligibility for benefits, call the Social Security Administration at (800) 772-1213 or visit its website at www.ssa.gov.

Cash value, or permanent, life insurance is life insurance that is designed to be kept until your death–whenever that may be. Part of your premium pays for the "pure" insurance coverage and expenses, and the balance is held by the insurance company in a cash value account. The type of permanent life insurance you buy (e.g., whole, universal, variable) will influence the pace at which the cash value portion of your policy grows. The interest and earnings grow tax deferred until you withdraw the funds, and are part of the income-tax-free death benefit if you die. However, these policies may require a higher cash outlay than term life policies.

Who should consider cash value life insurance?
Cash value life insurance is well suited to cover long-term needs, because coverage continues for the rest of your life. You won't need to renew your policy periodically, nor will you need to provide proof of insurability (e.g., a medical exam) once the policy is in place. Cash value insurance allows you to lock in a premium schedule, so you won't have to worry about rising premiums as you get older or your health deteriorates.

Advantages of cash value life insurance
As with any life insurance policy, the purpose of cash value insurance is to provide adequate financial resources for your surviving loved ones in the event of your premature death. Knowing that this protection is in place may allow you to sleep a little easier at night.  A cash value policy is similar to an annuity in this respect. All of the interest and earnings on the policy's investments are allowed to grow free from income taxes until you surrender the policy or begin to withdraw your funds. Depending on the amount credited to the cash value account, you can accumulate a substantial amount of equity in your cash value policy over a period of years.

Generally, you'll have the right to take a loan from the insurance company, secured by the cash value in your policy. A fixed or variable interest rate will be charged. Keep in mind, however, that if you take a loan against your cash value, the death benefit available to your survivors will be reduced by the amount of the loan. In addition, policy loans may reduce available cash value and can cause your policy to lapse. Finally, you could face tax consequences if you surrender the policy with an outstanding loan against it.
With most cash value life insurance, you can take withdrawals from your cash value account. Policy withdrawals may be tax free up to your basis in the policy (the amount you've paid into the policy in premiums). As with loans, the amount of the withdrawal from your cash value account will reduce the death benefit available to your survivors, as well as the available cash value,n some cases by an amount greater than the withdrawal amount. Different tax rules apply to withdrawals and loans from cash values if the policy is a Modified Endowment Contract. In that case, withdrawals and loans are considered made from earnings first, and would be subject to income tax.

Disadvantages of cash value life insurance
The premiums for cash value insurance usually cost more than for a comparable amount of term insurance in the early years of the policy. The reason is that with a cash value policy, you're initially paying more than is currently needed to pay for the insurance, so that you can build a fund (the cash value account) to help offset the higher insurance costs you'll need to pay when you're older.

If you buy a variable life insurance policy, the underlying investments in the cash value account expose you to the possibility of financial loss as well as financial gain. It all depends on how those investments fare. Any losses will cut directly into your cash value account and may affect the amount of the death benefit, although a minimum death benefit is usually guaranteed. (Guarantees are subject to the claims-paying ability of the insurer.) Now with the invention of the Equity Linked Life Insurance there is now a way to participate with the potential upside of the market without the downside.

Your need for life insurance changes as your life changes. When you're young, you typically have less need for life insurance, but that changes as you take on more responsibility and your family grows. Then, as your responsibilities once again begin to diminish, your need for life insurance may decrease. Let's look at how your life insurance needs change throughout your lifetime.

Footloose and fancy-free

As a young adult, you become more independent and self-sufficient. You no longer depend on others for your financial well-being. But in most cases, your death would still not create a financial hardship for others. For most young singles, life insurance is not a priority.

Some would argue that you should buy life insurance now, while you're healthy and the rates are low. This may be a valid argument if you are at a high risk for developing a medical condition (such as diabetes) later in life. But you should also consider the earnings you could realize by investing the money now instead of spending it on insurance premiums.

If you have a mortgage or other loans that are jointly held with a cosigner, your death would leave the cosigner responsible for the entire debt. You might consider purchasing enough life insurance to cover these debts in the event of your death. Funeral expenses are also a concern for young singles, but it is typically not advisable to purchase a life insurance policy just for this purpose, unless paying for your funeral would burden your parents or whomever would be responsible for funeral expenses. Instead, consider investing the money you would have spent on life insurance premiums.

Your life insurance needs increase significantly if you are supporting a parent or grandparent, or if you have a child before marriage. In these situations, life insurance could provide continued support for your dependent(s) if you were to die.

Going to the chapel

Married couples without children typically still have little need for life insurance. If both spouses contribute equally to household finances and do not yet own a home, the death of one spouse will usually not be financially catastrophic for the other.

Once you buy a house, the situation begins to change. Even if both spouses have well-paying jobs, the burden of a mortgage may be more than the surviving spouse can afford on a single income. Credit card debt and other debts can contribute to the financial strain.

To make sure either spouse could carry on financially after the death of the other, both of you should probably purchase a modest amount of life insurance. At a minimum, it will provide peace of mind knowing that both you and your spouse are protected.

Again, your life insurance needs increase significantly if you are caring for an aging parent, or if you have children before marriage. Life insurance becomes extremely important in these situations, because these dependents must be provided for in the event of your death.

Your growing family

When you have young children, your life insurance needs reach a climax. In most situations, life insurance for both parents is appropriate.

Single-income families are completely dependent on the income of the breadwinner. If he or she dies without life insurance, the consequences could be disastrous. The death of the stay-at-home spouse would necessitate costly day-care and housekeeping expenses. Both spouses should carry enough life insurance to cover the lost income or the economic value of lost services that would result from their deaths.

Dual-income families need life insurance, too. If one spouse dies, it is unlikely that the surviving spouse will be able to keep up with the household expenses and pay for child care with the remaining income.

Moving up the ladder

For many people, career advancement means starting a new job with a new company. At some point, you might even decide to be your own boss and start your own business. It's important to review your life insurance coverage any time you leave an employer.

Keep in mind that when you leave your job, your employer-sponsored group life insurance coverage will usually end, so find out if you will be eligible for group coverage through your new employer, or look into purchasing life insurance coverage on your own. You may also have the option of converting your group coverage to an individual policy. This may cost significantly more, but may be wise if you have a pre-existing medical condition that may prevent you from buying life insurance coverage elsewhere.

Make sure that the amount of your coverage is up-to-date, as well. The policy you purchased right after you got married might not be adequate anymore, especially if you have kids, a mortgage, and college expenses to consider. Business owners may also have business debt to consider. If your business is not incorporated, your family could be responsible for those bills if you die.

Single again

If you and your spouse divorce, you'll have to decide what to do about your life insurance. Divorce raises both beneficiary issues and coverage issues. And if you have children, these issues become even more complex.

If you and your spouse have no children, it may be as simple as changing the beneficiary on your policy and adjusting your coverage to reflect your newly single status. However, if you have kids, you'll want to make sure that they, and not your former spouse, are provided for in the event of your death. This may involve purchasing a new policy if your spouse owns the existing policy, or simply changing the beneficiary from your spouse to your children. The custodial and noncustodial parent will need to work out the details of this complicated situation. If you can't come to terms, the court will make the decisions for you.

Your retirement years

Once you retire, and your priorities shift, your life insurance needs may change. If fewer people are depending on you financially, your mortgage and other debts have been repaid, and you have substantial financial assets, you may need less life insurance protection than before. But it's also possible that your need for life insurance will remain strong even after you retire. For example, the proceeds of a life insurance policy can be used to pay your final expenses or to replace any income lost to your spouse as a result of your death (e.g., from a pension or Social Security). Life insurance can be used to pay estate taxes or leave money to charity.

Life insurance has many uses, including income replacement, business continuation, and estate preservation. Long-term care insurance provides financial protection against the potentially high cost of long-term care. If you find yourself in need of both types of insurance, a life insurance policy that combines a death benefit with a long-term care benefit may appeal to you.

Here's how it works

Some life insurance issuers offer life insurance with a long-term care rider available for an additional charge. If you buy this type of policy, you can pay the premium in a single lump sum or by making periodic payments. In any case, the policy provides you with a death benefit that you can also use to pay for long-term care related expenses, should you incur them.

The amount of death benefit and long-term care allowance is based on your age, gender, and health at the time you buy the policy. The appeal of this combination policy lies in the fact that either you'll use the policy to pay for long-term care expenses or your beneficiaries will receive the insurance proceeds at your death. In either case, someone will benefit from the premiums you pay.

Long-term care riders

The long-term care benefit is added to the life insurance policy by either an accelerated benefits rider or an extension of benefits rider.

Accelerated benefits rider–An accelerated benefits rider makes it possible for you to access your death benefit to pay for expenses related to long-term care. The death benefit is reduced by the amount you use for long-term care expenses, plus a service charge. If you need long-term care for a lengthy period of time, the death benefit will eventually be depleted. This same rider also can be used if you have a terminal illness that may require payment of large medical bills. Because accelerating the death benefit can have unfavorable tax consequences, you may want to consult your tax professional before exercising this option.

Example: You pay a single premium of $50,000 for a universal life insurance policy with a long-term care accelerated benefits rider. The policy immediately provides approximately $87,000 in long-term care benefits or $87,000 as a death benefit. If you incur long-term care expenses, the accelerated benefits rider allows you to access a portion, such as 3% ($2,610), of the death benefit amount ($87,000) each month to reimburse you for some or all of your long-term care expenses. Long-term care payments are available until the total death benefit amount ($87,000) is exhausted (about 33.3 months). Whatever you don't use for long-term care will be left to your heirs as a death benefit.

(The hypothetical example is for illustration purposes only and does not reflect actual insurance products or performance. Guarantees are subject to the claims-paying ability of the issuer.)

Extension of benefits rider–An extension of benefits rider increases your long-term care coverage beyond your death benefit. This rider differs from company to company as to its specific application.

Depending on the issuer, the extension of benefits rider either increases the total amount available for long-term care (the death benefit remains the same) or extends the number of months over which long-term care benefits can be paid. In either case, long-term care payments will reduce the available death benefit of the policy. However, some companies still pay a minimum death benefit even if the total of all long-term care payments exceeds the policy's death benefit amount.

Continuing from the previous example, if the policy's extension of benefits rider increases the long-term care benefit (the death benefit–$87,000–remains the same) to three times the death benefit ($261,000), the monthly amount available for long-term care increases to $7,830. On the other hand, if the extension of benefits rider extends the length of time the monthly long-term care benefit is available, then the monthly payments ($2,610) are extended for an additional 24 to 36 months beyond the initial number of months (33.3) available.

Other provisions

Ty pically, qualifying for payments under a long-term care rider is similar to the requirements for most stand-alone long-term care policies. You must be unable to perform some of the activities of daily living (bathing, dressing, eating, getting in or out of a bed or chair, toilet use, or maintaining continence) or suffer from a severe cognitive impairment.

An elimination period may also apply: you pay for the initial cost of long-term care out-of-pocket for a specific number of days (usually 30 to 90) before you can apply for payments under the policy. As with all life and long-term care insurance, the insurance company will require you to answer some health-related questions and submit to a physical examination before issuing a combination policy to you.

Is a combination policy right for you?

Deciding whether a combination policy is right for you depends on a number of factors. Do you need life insurance and long term care insurance? How much life and long-term care insurance will you need? How long will you need it? Will the long term care part of a combination policy provide sufficient coverage?

A long-term care rider may not provide as many features as a stand-alone long-term care policy. For example, the combination policy may not cover assisted living or home health aides. It also may not provide an inflation adjustment, an important feature considering the rising cost of long-term care. The tax benefits offered by a qualified long-term care policy may not apply to the long term care portion of combination policies, which could result in taxation of long-term care benefits received from the policy. 

What if your life insurance needs change as you get older and you find that you no longer want life insurance protection? It's not uncommon for people to drop their life insurance in their later years if there's no compelling need for it, but if you surrender the combination policy, you're also forfeiting the long-term care benefit it provides, usually at a time when you are most likely to need it.

And keep in mind that as you use your long-term care benefits, you're depleting the death benefit–a death benefit you presumably wanted to pass on to your heirs or perhaps use to pay for estate taxes.

Finally, compare costs of combination policies to other forms of life insurance, such as term insurance, and stand-alone long-term care policies. Depending on your age and health, the cost for the combination life policy may actually be higher than the total premiums paid for separate life insurance and long-term care policies, especially if your life insurance need is temporary (such as income replacement during your working years) rather than permanent.

Caring for your aging parents is something you hope you can handle when the time comes, but it's the last thing you want to think about. Whether the time is now or somewhere down the road, there are steps that you can take to make your life (and theirs) a little easier. Some people live their entire lives with little or no assistance from family and friends, but today Americans are living longer than ever before. It's always better to be prepared.

Mom? Dad? We need to talk

The first step you need to take is talking to your parents. Find out what their needs and wishes are. In some cases, however, they may be unwilling or unable to talk about their future. This can happen for a number of reasons, including:

•Incapacity
•Fear of becoming dependent
•Resentment toward you for interfering
•Reluctance to burden you with their problems 

If such is the case with your parents, you may need to do as much planning as you can without them. If their safety or health is in danger, however, you may need to step in as caregiver. The bottom line is that you need to have a plan. If you're nervous about talking to your parents, make a list of topics that you need to discuss. That way, you'll be less likely to forget anything. Here are some things that you may need to talk about:

•Long-term care insurance: Do they have it? If not, should they buy it?
•Living arrangements: Can they still live alone, or is it time to explore other options?
•Medical care decisions: What are their wishes, and who will carry them out? •Financial planning: How can you protect their assets?
•Estate planning: Do they have all of the necessary documents (e.g., wills, trusts)? •Expectations: What do you expect from your parents, and what do they expect from you? Preparing a personal data record

Once you've opened the lines of communication, your next step is to prepare a personal data record. This document lists information that you might need in case your parents become incapacitated or die. Here's some information that should be included:
 

•Financial information: Bank accounts, investment accounts, real estate holdings
•Legal information: Wills, durable power of attorneys, health-care directives
•Funeral and burial plans: Prepayment information, final wishes
•Medical information: Health-care providers, medication, medical history
•Insurance information: Policy numbers, company names
•Advisor information: Names and phone numbers of any professional service providers •Location of other important records: Keys to safe-deposit boxes, real estate deeds 

Be sure to write down the location of documents and any relevant account numbers. It's a good idea to make copies of all of the documents you've gathered and keep them in a safe place. This is especially important if you live far away, because you'll want the information readily available in the event of an emergency.