BIDaWIZ Blog » INSURANCE

What Should I Do With My Life Insurance Policy?

The BIDaWIZ Team — Wed, 04 Feb 2015 20:05:24 +0000

If you have a life insurance policy that you purchased years ago and borrowed against it, you may now not have a need for it. If this is the case, you have a few different options to explore. Find out what makes the most sense for you.

Loans against life insurance
It’s important to first note that any loans against your policy reduced the cash value. This is important to note as any withdrawals in excess of your tax basis in the policy will be taxable at federal income tax rates. Having said that, you have a few options:

1) Initiative an IRC Section 1035 Tax-Free Exchange: It appears as though you would like to mitigate the amount of taxes paid as a result of the withdrawal. This provision allows the policyholder to transfer a life insurance policy for another one or a life insurance policy for a annuity. The annuity option may be appealing to you as it generally has a more beneficial investment component than life insurance policies. This option will allow you to avoid all taxes.

2) Withdraw the funds and offset the liability by contributing to an IRA or 401(K): This strategy can help you to offset any tax liability for the withdrawal, while also providing you with an investment opportunity.

3) Withdraw the funds and pay the taxes: This option is not going to be tax-friendly. However, if you need the money, then there’s really no other way around it.

In summary, we would recommend that you explore option 1 and possibly option 2.

More Questions? Browse Answers or ask your life insurance questions online.

What Is The Health-Care Insurance Penalty?

The BIDaWIZ Team — Sat, 04 Oct 2014 00:04:21 +0000

This will be the first year that the health-care changes passed in 2010 will have an impact on those that opt out of coverage. Specifically, under the Individual Shared Responsibility Provision, individuals that are subject to the penalty will have to remit payment with their 2014 tax returns on April 15th. The penalty will not apply to those that obtain health insurance coverage through their employer or a state sponsored exchange. Still, there are certain groups that will pay hundreds and in some cases thousands in penalties.

Who will be subject to the health-care penalty?
It’s likely that very wealthy families that want to self-insure or utilize a nonconforming policy will be subject to the penalty. On the other end of the spectrum, there will be healthy younger individuals that would rather pay the penalty than monthly health insurance premiums. Independent contractors in their 20s and 30s are likely to represent the largest segment of this group.

How much is the penalty?
The penalty is equivalent to the greater of 1% of your household income or a flat amount. The flat amount is equivalent to $95 per adult and half that for children under 18 with a cap of $285. Unfortunately, the flat amount increases significantly to $325 in 2015 and $695 in 2016 per adult and half that per child with a maximum of $975 in 2015 and $2,085 in 2016. In addition, the percentage of household income rises from 1% in 2014 to 2% in 2015 and 2.5% in 2016.

How will the IRS enforce the penalties?
It will be difficult for the IRS to enforce a penalty in the 2014 tax year as the IRS will only be privy to a limited amount of information. However, for the 2015 tax year, insurers and employers will be required to send the IRS plan participant data that can be matched against the individual tax returns.

Are any groups exempt from the penalty?
Yes, certain religious groups, Indian tribes, those covered by Medicare, illegal immigrants as well as prisoners are exempt from the penalty.

More Questions? Ask your health insurance tax questions or find a cpa online.

What Should You Do If You Have A Large Medical Bill?

The BIDaWIZ Team — Fri, 04 Apr 2014 16:27:16 +0000

Many health insurance providers will not cover the entire cost of a hospital visit. Your coverage will vary by provider, but in many cases you can expect 60-80% of the medical bill to be covered by your insurance. This can result in a medical bill in the thousands. Fortunately, there are ways in which you can get relief.

Understanding the fee structure
Many hospitals and health-care providers will provide a medical bill detailing the nature of the visit and procedures performed with a total bill. This amount is derived by the providers own fee schedule and lack a detailed listing of the itemized expenses. It’s important to note that by accepting the services of the medical provider, you agree to pay their bill no matter what it is and whether or not an insurance company covers the expense.

Ask for a bill with the itemized expenses
We still would recommend that you contact the billing department and request an itemized bill. Errors occur and it’s not totally uncommon for expenses to be double counted and services to be listed that were never performed. The administrative department will need to create hundreds and sometimes thousands of invoices each week. If you do identify the mistake, contest it with the medical provider.

Contact your insurance provider too
Insurance companies can also make clerical errors (wrong diagnosis code, missing modifiers), which may be why you weren’t fully covered. The medical provider can send additional evidence supporting why the visit and procedure was necessary for your well-being. If your insurance company will not budge and your claim has merit, you can send an appeal to your state insurance commissioner.

Options of last resort
If you appeal without success, then you should consider any payment plan that is offered by the medical provider. They will typically try to work with you on a monthly payment that you can manage. If you can’t afford this option, then you can ignore the debt and let it go to a collection agency, which takes time. However, if you’re unable to make payment over time, you may need to file for bankruptcy.

More Personal Finance Questions? Browse Answers or Ask Personal Finance Experts Online.

Should I Buy Variable Universal Life Insurance?

The BIDaWIZ Team — Fri, 18 Oct 2013 22:31:44 +0000

Many individuals learn of variable universal insurance policies through their financial planner. It’s one of the more complicated financial products on the market and can easily be misused if proper due diligence isn’t done prior to purchasing a policy.

What is a variable universal life insurance policy?
A variable universal life insurance policy is like a whole life insurance policy that includes many components in addition to a payout if you pass away. For instance, the premiums the account holder pays goes towards insurance, investments, and fees. It should be no surprise to you that variable universal life insurance is more expensive than other insurance products such as term life, while they both serve the same main purpose.

How expensive is a variable life insurance policy?
It’s typically very expensive. Expect that the annual returns generated by the policy will be 2-4% lower than other policies as a result of high fees and commission charges. There are also high surrender fees should you need to withdraw early from the policy. Not to mention, it’s very difficult to comparison shop the product as it’s hard to find apples to apples comparison of policies offered by brokers.

When does a variable life insurance policy make sense?
It makes sense to consider a variable life insurance policy if you’ve accumulated a significant amount of wealth and need to protect assets from other parties. The beneficiary of the policy essentially has permanent protection upon the policy holder’s passing.

More Questions? Browse Answers or ask your insurance questions online.

How Much Will Health Insurance Cost Through The Exchanges?

The BIDaWIZ Team — Thu, 26 Sep 2013 23:29:32 +0000

While online enrollment for health insurance through the exchanges has been delayed until November, you can still apply via mail or in-person or by phone. With that said, we thought it is important for those planning to utilize the exchanges to have some expectation of the cost. Surely, there’s going to be some variances in premiums based on locations and other key factors, but there’s now a projection.

The average monthly premiums for Obamacare
The Obama administration recently released a statement indicating that Americans can expect to pay an average monthly premium for health insurance through the exchanges of $328 per month or $3,936 annually. This price may actually be lower for those with income of roughly 400% the national poverty rate as they likely qualify for the health care insurance subsidy. However, the annual premiums may still be greater than the health insurance tax penalty for not complying of the greater of $95 per adult or 1% of adjusted gross household income. Still, the Department of Health and Human Services has stated that nationally, the premiums are 16% lower than expected and most that are uninsured live in state with a lower than expected premium.

Where will the premiums be the lowest?
Americans seeking coverage through the exchanges can expect the lowest premiums in states with many insurers or eight or more competing for your business. The opposite is true for states with high average monthly premiums. The data suggests that you can expect higher premiums if your state has three or fewer insurers competing for your business. Texas is a great example of a state with many insurers competing for your business. Thus, the average premium is low or below $200 per month. Age, family size and city are key factors to consider here.

More Questions? Ask your health insurance premium questions or find a cpa online.

Do You Recommend Variable Universal Life Insurance?

The BIDaWIZ Team — Fri, 19 Jul 2013 20:01:26 +0000

The list of insurance and annuity products that a financial advisor can offer their clients seems to be never ending. An investor can easily find themselves following their advisor’s recommendations without doing their own due diligence. It’s important to understand all of the mechanics of a variable universal life insurance (VUL) policy.

How is a variable universal life insurance policy different?
Let’s first explain a term life insurance policy since that differs greater from an VUL. A term life insurance policy is purchased for a certain length of time, such as 20 or 30 years. If you die during that time, your beneficiaries will be paid the amount of the policy. In addition, it’s important to note that term life insurance premiums are paid solely for insurance. In contrast, variable universal life insurance includes other components in addition to a policy payout if you die. For instance, the premiums the account holder pays goes towards insurance, investments, and covers fees. It should be no surprise to you that variable universal life insurance is more expensive than term life insurance, while they both serve the same main purpose.

Should you ever consider variable universal life insurance (VUL)?
Probably not, it’s too expensive. In most cases, the VUL policy is a good move for the adviser (i.e. sales commission and fees as high as 2% annually) and not so much for the client.

What if I already committed to a VUL policy? Is there anyway out?
Yes, you can always withdraw the cash value of the policy. However, it comes at a price. You’ll have to pay income taxes on any earnings and may owe a hefty surrender fee (i.e ~10%). Depending on how long you’ve held your policy, it may make sense to stay the course until the surrender fee is waived. This is typically 10 years. Below are some of your options to consider if you are holding a VUL policy.

1) Withdrawing the cash in whole – If you withdraw the entire amount, you will be charged a surrender fee (i.e. 10%) and owe taxes on the earnings in excess of your basis in the policy. Do you know how much earnings are in the policy? Also, usually the surrender fee is waived if you hold the policy for a certain period of time. Do you know when that period ends?

2) Keeping the policy in place – If you stay the course, you won’t be charged the surrender fee, but you will continue to be charged an annual fee for the policy.

3) Rolling it over to a low-fee annuity – It is possible to rollover the policy tax-free to an annuity that is lower-cost. Did you inquire with the adviser about this option?

More Questions? Browse Answers or ask your insurance questions online.

Insurance Coverage You Probably Don’t Need

The BIDaWIZ Team — Fri, 12 Jul 2013 15:55:40 +0000

There are many reasons to purchase insurance that covers different risks, but that doesn’t mean you should buy every insurance product under the sun. Insurance can best be evaluated by whether or not it covers catastrophic events, financial loss and provides for a comprehensive policy.

Home warranty and extended warranty insurance
There’s separate coverage for major appliances in your home that include wiring and plumbing. Usually these policies aren’t worthwhile because most appliances already come with warranties and there are still deductible and service charges with these policies. You may consider this insurance only if you’re purchasing a home with old appliances and don’t anticipate you’ll have enough money to cover repairs over the years.

Purchasing extended warranty insurance hardly every makes financial sense. Most newer products already come with a warranty that should provide sufficient coverage. If you do decide to opt-in for the extended warranty coverage, never pay more than 10% of the cost of the product.

Credit life insurance is generally a waste
In a nutshell, it is a type of insurance often bought with cars and homes in which the insured pays a premium & in return the loan is repaid in full in the event of death. This means that if you purchase a home with a $500,000 mortgage & enroll in credit life insurance then you will be paying premiums in case you pass away to ensure the debt is fully repaid. At first glance, it may seem like a nice option, but in reality it is very costly. Moreover, it pays only your mortgage and doesn’t give your heirs the flexibility to use the money for anything else. In almost all circumstances a term life insurance policy is a better option than credit life insurance.

Special event insurance
If you’re planning an event such as wedding with plans to spend tens of thousands of dollars if not more, there may be reason to consider special event insurance. These policies typically cover the non-refundable deposits given to the venue and vendors if a natural disaster or other problem occurs that requires you to cancel the event. The coverage costs $200 to $600 upfront and then another $200 for $1 million of liability coverage. The policy may only make sense if your homeowners insurance policy doesn’t already provide coverage and there are only limited protections in your contract with vendors. It should be noted that these policies usually do not cover the risky case when the bride or groom calls off the wedding.

More Questions? Browse answers or ask your insurance questions online. Also, you can explore our tax research services online.

Review Your Auto Insurance Policy When Planning Your Next Roadtrip

The BIDaWIZ Team — Wed, 26 Jun 2013 03:34:40 +0000

A new AAA survey indicated that 66% of the adult US population plan to travel at least once this year. In addition, the average adult is expected to make 3.5 trips this summer. You can bet that a large percentage of those travelers will be hitting the roadways with gas prices expected to be lower than in the summer of 2012. If you’re planning a road trip, it’s important to understand your auto insurance coverage across state lines.

Does your auto insurance policy cover out-of-state travel?
Generally, most auto insurance policies cover travel outside of your home state. However, states vary by minimum liability coverage requirements. This could mean that the minimum liability coverage in your home state is less than in another state that you are traveling through on your trip. However, a broadening clause in your policy can go into effect, which increases the coverage limits to that state’s minimum requirements. For instance, a driver from New York with the minimum liability coverage of 25,000/50,000 for injury, $50,000/100,000 for death, and $10,000 for property damage or 25/50/10, can increase to 30/60/25 when traveling through North Carolina.

It’s also possible to be covered in a no-fault state, which requires personal injury protection even if your policy lacks it.

How should you review your auto insurance policy?
When reviewing your policy, be sure to note whether or not there is a broadening clause in place when traveling through another state. Also, note any exclusions or restrictions that put you at risk. States with very high minimum liability coverage limits are typically excluded from the broadening clause as those states bear too much of a financial risk to the insurance provider.

In addition, review the policy for restrictions that prevent other passengers from driving the vehicle without insurance protection. You don’t want to put yourself financial at risk for an accident caused by another passenger that drives the car for a short period of time.

It’s also important for car owners to have higher liability coverage levels if they have significant savings and assets to protect themselves if another party should try to go after their pockets.

What if your auto insurance policy is very restrictive for long distance travel?
Contact the insurance provider and explain the restrictive nature of the policy as it compares to the marketplace. If they will not budge, shop around for a new policy. There are plenty of other providers out there that can offer an attractive policy.

More Questions? Browse answers or ask your insurance questions online. Also, you can explore our tax research services online.

Should We Buy An Automatic or Portable Generator?

The BIDaWIZ Team — Fri, 31 May 2013 20:23:16 +0000

The hurricane season is now upon us and forecasters are predicting above average activity levels. Those in the northeast last year, experienced the wrath of Super Storm Sandy with some outages lasting several weeks. If you’re concerned about the upcoming hurricane season and future storms, now may be the time to start thinking about investing in a generator to power your home or business when the electricity goes out. Should you invest in an automatic or portable generator?

This hurricane season could be destructive
This season forecasters are predicting 18 named storms, nine hurricanes and four intense category 3 or stronger hurricanes. As a reference point, last season there were twice as many storms as were predicted. Hopefully, it won’t that bad, but you should still be prepared.

What are the benefits for purchasing a generator?
For one, you will have electricity when the main source of power goes out. You also will negate the risk of appliances malfunctioning in the future and air conditioning units causing leaks and mold in your home. Also, you’ll be able to keep all perishable items in your refrigerator. Lastly, many of the insurance companies provide for a 5% reduction in your homeowners insurance policy if you have an automatic stationary generator.

What’s the main drawback?
Generators are not cheap. Many of the best ones on the market cost more than $5,000 plus installation for a typical home. The price can vary substantially based on the size of the home and the required kilowatts to power all circuits and appliances.

Should you buy a stationary or portable generator?
The automatic stationary generator is your best option for a number of reasons. The generator will automatically turn on when the power goes out, extension cords aren’t necessary, it’s fuel efficient, secure, adds value to the home and results in a 5% home insurance premium discount. A portable one can work for emergencies or for a quick fix, but they generally aren’t your best option. They can be dangerous, they require constant refueling, can be subject to corrosion, and are generally more inconvenient than a stationary generator. We understand though that not everyone can afford a stationary generator as the cost is typically 3 to 5 times the price of a portable and the installation fee to connect to a gas or propane line can cost $3,500 or more. That’s another point to consider. Stationary generators require that you have an easily accessible gas or propane line to attach to the equipment.

More Questions? Browse answers or ask your insurance questions online. Also, you can find small business accountants online.

The Best Ways To Use Your Health Savings Account

The BIDaWIZ Team — Thu, 25 Apr 2013 14:47:03 +0000

The deadline to contribute to a health savings account (HSA) for 2013 is near as the April 15, 2014 tax deadline approaches. You can actually elect whether or not you want to apply the contributions to the 2013 or 2014 tax year. Find out the best ways to use your health savings account.

HSA 2013 Contribution Limits
You can contribute up to $3,250 for individual health insurance coverage and $6,450 for family coverage and an additional $1,000 if you’re 55 years or older. To contribute to a health savings account, you must have a high-deductible health insurance plan of at least $1,250 for individual coverage and $2,500 for a family plan.

The tax benefits for a health savings account
It’s very similar to how a traditional 401(k) works from a tax perspective. You can make tax deductible contributions to your health savings account, which lowers your modified adjusted gross income. In addition, the monies in the account grow tax-deferred and can be withdrawn tax-free to pay for current and future health care costs. Lastly, unlike a flexible spending account, you don’t have to use the funds by the end of the year. It’s essentially a retirement plan for health care costs.

What medical expenses can be used for a health savings account?
It can be used for out-of-pocket medical expenses. This includes co-payments for medical care and prescription drugs, your deductible, and other items that aren’t covered by insurance such as routine dental work. Typically, HSA issuers provide account holders with a debit card for ease of use.

HSA fees
Your employer may cover you for the fees associated with the account such as administrative costs. If you have an individual or family plan you opened yourself, you may be subject to a start-up fee and then a $3 to $5 monthly fee and/or transaction fees. It shouldn’t cost you more than $50-$100 annually, but be aware of the transaction fees. There are also other fees for items such as excess contributions, copy of account and tax statements, and account closures.

More Questions? Browse Answers or ask your hsa tax questions.