Insurance Needs

 

How Much Life Insurance Do I Need?

You can’t pinpoint the ideal amount of life insurance you should buy down to the penny. But you can make a sound estimate if you consider your current financial situation and imagine what your loved ones will need in the coming years.

In general, you should find your ideal life insurance policy amount by calculating your long-term financial obligations and then subtracting your assets.

The remainder is the gap that life insurance will have to fill. But it can be difficult to know what to include in your calculations, so there are several widely circulated rules of thumb meant to help you decide the right coverage amount.

 

One Rule of Thumb: The DIME Formula

This formula encourages you to take a more detailed look at your finances than the other two. DIME stands for Debt, Income, Mortgage and Education, four areas that you should consider when calculating your Life Insurance needs.

  • Debt and final expenses: Add up your debts, other than your mortgage, plus an estimate of your funeral expenses,
  • Income: Decide for how many years your family would need support, and multiply your annual income by that number. The multiplier might be the number of years before your youngest child graduates from high school. Use this calculator to compute your income replacement needs,
  • Mortgage: Calculate the amount you need to pay off your mortgage,
  • Education: Estimate the cost of sending your kids to college.

The formula is more comprehensive, but it doesn’t account for the Life Insurance coverage and savings you already have, and it doesn’t consider the unpaid contributions a stay-at-home parent makes.

 

How to Find Your Best Number

Follow this general philosophy to find your own target coverage amount: financial obligations minus liquid assets.

  • Calculate obligations: Add your annual salary (times the number of years that you want to replace income) + your mortgage balance + your other debts + future needs such as college and funeral costs. If you’re a stay-at-home parent, include the cost to replace the services that you provide, such as child care,
  • From that, subtract liquid assets such as: savings + existing college funds + current life insurance.

 

Final Tips

  • There are many types of  Life insurance, Long-Term Care insurance and Annuities so Contact IFM to discuss your Insurance Needs and let him provide you quotes from several companies,
  • Don’t let Insurance Salespeople sell you on their specific company, compare several quotes from several companies, IFM will help you do that.

 

What are the Benefits of an HSA? 

You may enjoy several benefits from having an HSA.

  • You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you don’t itemize your deductions on Schedule A (Form 1040),
  • Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income,
  • The contributions remain in your account until you use them,
  • The interest or other earnings on the assets in the account are tax free,
  • Distributions may be tax free if you pay qualified medical expenses, See Qualified medical expenses, later,
  • An HSA is “portable.” It stays with you if you change employers or leave the workforce.

 

Qualifying for an HSA Contribution

To be an eligible individual and qualify for an HSA contribution, you must meet the following requirements.

  • You are covered under a high deductible health plan (HDHP), described later, on the first day of the month,
  • You have no other health coverage except what is permitted under Other health coverage, later,
  • You aren’t enrolled in Medicare,
  • You can’t be claimed as a dependent on someone else’s 2021 tax return.

Under the last-month rule, you are considered to be an eligible individual for the entire year if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers).

If you meet these requirements, you are an eligible individual even if your spouse has non-HDHP family coverage, provided your spouse’s coverage doesn’t cover you.

Also, you may be an eligible individual even if you receive hospital care or medical services under any law administered by the Secretary of Veterans Affairs for a service-connected disability.

If another taxpayer is entitled to claim you as a dependent, you can’t claim a deduction for an HSA contribution.

This is true even if the other person doesn’t receive an exemption deduction for you because the exemption amount is zero for tax years 2018 through 2025.

Each spouse who is an eligible individual who wants an HSA must open a separate HSA. You can’t have a joint HSA.

 

High Deductible Health Plan (HDHP) 

An HDHP has:

  • A higher annual deductible than typical health plans, 
  • A maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you must pay for covered expenses. Out-of-pocket expenses include copayments and other amounts, but don’t include premiums.

An HDHP may provide preventive care benefits without a deductible or with a deductible less than the minimum annual deductible.  Preventive care includes, but isn’t limited to, the following.

  1. Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals.  Routine prenatal and well-child care.
  2. Child and adult immunizations.
  3. Tobacco cessation programs.
  4. Obesity weight-loss programs.
  5. Screening services. This includes screening services for the following.
    1. Cancer.
    2. Heart and vascular diseases.
    3. Infectious diseases.
    4. Mental health conditions.
    5. Substance abuse.
    6. Metabolic, nutritional, and endocrine conditions.
    7. Musculoskeletal disorders.
    8. Obstetric and gynecological conditions.
    9. Pediatric conditions.
    10. Vision and hearing disorder

 

2023 HSA Contribution Limits

HSA Contribution Limit for Under 55 years old (Employer + Employee)                   

Self-only: $3,850

Family:  $7,750

HSA Contribution Limit for Over 55 years old (Employer + Employee)                   

Self-only: $4,850

Family:  $8,750

The information in this post has been taken directly off IRS.gov.

If you would like to discuss HSA accounts further, please email us.

 

Understanding Long-Term Care

In the year 2020, almost 19 million people needed some form of Long-Term Care in the United States. 

Of this population, 3.6 million (37%) were under age 65 and 6 million (63%) were over age 65.

Recent research suggests that most Americans turning age 65 will need Long-Term Care at some point in their lives. 

Your path will be unique to you, and based on your preferences and circumstances. Let’s look at the basic questions covered in this section:

 

What is Long-Term Care?

Long-Term Care is a range of services and supports you may need to meet your personal care needs. 

Most Long-Term Care is not medical care, but rather assistance with the basic personal tasks of everyday life, sometimes called Activities of Daily Living, such as: 

Other common Long-Term Care services and supports are assistance with everyday tasks, sometimes called Instrumental Activities of Daily Living (IADLs) including:

  • Housework
  • Managing money
  • Taking medication
  • Preparing and cleaning up after meals
  • Shopping for groceries or clothes
  • Using the telephone or other communication devices
  • Caring for pets
  • Responding to emergency alerts such as fire alarms

 

Recent research suggests that most Americans turning age 65 will need Long-Term Care services at some point in their lives.

Age

  • The older you are, the more likely you will need Long-Term Care.

Gender

  • Women outlive men by about five years on average, so they are more likely to live at home alone when they are older.

Disability

  • Having an Accident or Chronic Illness that causes a disability is another reason for needing Long-Term Care,
  • Between ages 40 and 50, on average, eight percent of people have a disability that could require long-term care services,
  • 69 percent of people age 90 or more have a disability.

Health Status

  • ✦Chronic conditions such as diabetes and High Blood Pressure make you more likely to need care,
  • Your family history such as whether your parents or grandparents had chronic conditions, may increase your likelihood,
  • Poor diet and exercise habits increase your chances of needing Long-Term Care.

Living Arrangements

  • If you live alone, you’re more likely to need paid care than if you are living with a spouse or partner.

The duration and level of Long-Term Care will vary from person to person and often change over time. Here are some statistics (all are “on average”) you should consider:

  • Someone turning age 65 today has almost a 70% chance of needing some type of Long-Term Care services and supports in their remaining years,
  • Women need care longer (3.7 years) than men (2.2 years),
  • One-third of today’s 65 year-olds may never need Long-Term Care support, but 20 percent will need it for longer than 5 years.

The table below shows that, overall, more people use Long-Term Care services at home (and for longer) than in facilities.

 

Distribution and duration of Long-Term Care Services

Type of care

Average number of years people use this type of care

  Percent of people who use         this type of care (%)

Any Services

3 years

69

At Home

Unpaid care only

1 year

59

Paid care

Less than 1 year

42

Any care at home

2 years

65

In Facilities

Nursing facilities

1 year

35

Assisted living

Less than 1 year

13

Any care in facilities

1 year

37

 

Long-Term Care services and support typically come from:

  • An Unpaid Caregiver who may be a Family Member or Friend,
  • A Nurse, Home Health or Home Care Aide, and/or Therapist comes to the Home,
  • Adult Day services in the area,
  • A variety of Long-Term Care facilities.

A caregiver can be your Family Member, Partner, Friend or Neighbor who helps care for you while you live at home. 

About 80 percent of care at Home is provided by Unpaid Caregivers and may include an array of Emotional, Financial, Nursing, Social, Homemaking, and other services. 

On average, Caregivers spend 20 hours a week giving care.

More than half (58 percent) have intensive caregiving responsibilities that may include assisting with a Personal Care activity, such as Bathing or Feeding.

 

Information on Caregivers show that:

  • According to a 2022 study by AARP and the National Alliance on Caregiving, about 45.3 million people in the US had been an unpaid caregiver in the last 12 months,
  • About Two-Thirds are women,
  • Fourteen percent who care for older adults are themselves age 65 or more,
  • Most people can live at home for many years with help from unpaid family and friends, and from other paid community support.

 

Most Long-Term Care is provided at home

Other kinds of Long-Term Care services and supports are provided by community service organizations and in Long-Term Care facilities.

 

Examples of Home Care Services include:

  • An unpaid caregiver who may be a family member or friend,
  • A nurse, home health or home care aide, and/or therapist who comes to the home.

 

Community Support Services include:

  • Adult Day Care service centers,
  • Transportation services,
  • Home Care Agencies that provide services on a daily basis or as needed,
  • ✦Often these services supplement the care you receive at home or provide time off for your Family Caregivers.

 

Outside the home, a variety of Facility-Based programs offer more options:

  • Nursing Homes provide the most comprehensive range of services, including Nursing Care and 24-hour Supervision,
  • Other Facility-Based choices include Assisted Living, Board and Care Homes, and Continuing Care Retirement Communities. With these providers, the level of choice over who delivers your care varies by the type of facility. You may not get to choose who will deliver services, and you may have limited say in when they arrive.

 

Who Pays for Long-Term Care?

The facts may surprise you.

Consumer surveys reveal common misunderstandings about which public programs pay for Long-Term Care services. 

It is important to clearly understand what Is and Isn’t Covered.

 

Medicare:

Only pays for Long-Term Care if you require Skilled Service or Rehabilitative Care:

    • In a Nursing Home for a Maximum of 100 days, however, the average Medicare covered stay is Much Shorter (22 days),
    • At home if you are also receiving Skilled Home Health or other Skilled In-Home services. Generally, Long-Term Care services are provided only for a Short Period of Time,
  • Does not pay for Non-Skilled assistance with Activities of Daily Living (ADL), which make up the majority of Long-Term Care services,
  • You will have to pay for Long-Term Care services that are not covered by a Public or Private Insurance Program.

 

Medicaid:

  • Does pay for the largest share of Long-Term Care services, but to qualify, your income must be below a certain level and you must meet minimum State Eligibility Requirements,
  • Such requirements are based on the amount of assistance you need with ADL,
  • Learn more about Medicaid coverage for Long-Term Care,
  • Other federal programs such as the Older Americans Act and the Department of Veterans Affairs pay for Long-Term Care services, but only for specific populations and in certain circumstances.

 

Good To Know

Like public programs, private sources of payment have their own rules, Eligibility Requirements, Copayments, and Premiums for the services they cover.

 

Health Insurance:

  • Most Employer-Sponsored or Private Health Insurance, including health insurance plans, cover only the same kinds of limited services as Medicare,
  • If they do cover Long-Term Care, it is typically only for skilled, short-term, medically necessary care.

There are an increasing number of private payment options including:

 

Long-Term Care Insurance Guide

Long-Term Care is different from traditional medical care, which tries to treat or cure illnesses. 

Long-Term Care helps with routine daily activities, such as eating, getting around, and bathing. 

It also can help if you need supervision, protection, or reminders to take medicine.

To learn more about Long-Term Care Insurance, go to our Long-Term Care Insurance guide. Some topics include:

  • The cost of Long-Term Care
  • Deciding if Long-Term Care is right for you
  • Buying coverage
  • How policies work

 

Deducting Health Insurance Premiums

If you are self-employed, you may be eligible to deduct premiums that you pay for medical, dental and qualifying long-term care insurance coverage for yourself, your spouse and your dependents.

  • This health insurance write-off is entered on Part II of Schedule 1 as an adjustment to income and transferred to page 1 of Form 1040, which means you benefit whether or not you itemize your deductions,
  • Unlike an Itemized Deduction, this deduction treatment is beneficial because it lowers your Adjusted Gross Income (AGI),
  • Having lower AGI can reduce the odds that you’ll be affected by unfavorable phase-out rules that can cut back or eliminate various tax breaks.

 

Eligibility is determined Month-by-Month

You can only claim the health insurance premiums write-off for months when neither you nor your spouse were eligible to participate in an employer-subsidized health plan.

For example, if you were single and ineligible for any Employer-provided health plan during the last six months of the year because you left your job and started your own business, you can claim the deduction for premiums you paid for coverage during that six-month period.

 

Earned income limitation

The deduction cannot exceed the earned income you collect from your business.

For example, if your Self-Employment activity is a Sole Proprietorship that generated a tax loss for the year, you’re not allowed to claim the deduction because the business didn’t generate any Positive Earned Income.

 

Partners and LLC members

Partners and LLC members who are treated as partners for tax purposes are considered to be Self-Employed.

  • If you fit into this category and directly pay your own Health Insurance Premiums, you can claim the page 1 Deduction,
  • If the Partnership or LLC pays the premiums, special tax reporting rules apply to the Partnership’s or LLC’s return, but you can still claim the Deduction for premiums paid for your coverage.

 

Premiums Paid to Cover Your Employees

If your business has Employees and you pay Health Insurance Premiums for them, these amounts are deducted on the applicable tax form and line for Employee benefit program expenses.

For example, if your business is a Sole Proprietorship, you deduct premiums paid to provide Health Coverage to Employees on Schedule C.

 

The Bottom Line

If you qualify, the deduction for Self-Employed health insurance premiums is a valuable tax break. 

With the rising cost of health insurance, a tax deduction can help you pay at least a portion of the premium cost. 

And that will help to keep you Healthy & Happy in 2023 and beyond.

All opinions expressed by James R. Wigen on this website are solely his opinions and do not reflect the opinions of IFP Advisors, LLC, dba Independent Financial Partners, (IFP).  Investment Advice offered through IFP Advisors, LLC, dba Independent Financial Partners (IFP), a Registered Investment Adviser. IFP and Independent Financial Management, LLC (IFM), are separate entities.