How to Prevent the Cost of Critical Illnesses From Destroying Your Retirement Savings
Understanding your total exposure to health care expenses is the best way to prevent the cost of critical illness from destroying your retirement savings.
Health care is clearly the greatest financial risk faced by retirees. The incidence of expensive chronic diseases is higher for today's retiring baby boomers than it was for their parents. Longevity gains have added years to average life spans, but these extra years will be more of a curse than a blessing if they are spent dealing with serious illness and unaffordable medical bills.
The Employee Benefit Research Institute reports that a 65-year-old couple with median drug expenses would need $283,000 to have a 90 percent chance of covering their out-of-pocket drug expenses during the remainder of their lives. And this total does not include long-term care.
It is important to understand that basic Medicare leaves retirees on the hook for a 20 percent co-pay with no cap. Supplemental Medicare policies can close much of this gap. But they don't cover most long-term care expenses, and neither does Medicare.
There is a solution for forward thinking couples and individuals who are interested in protecting their retirement savings: Living Benefits Life Insurance.
Living benefits allow the insured to "accelerate" a portion of the death benefit on the policy so that the funds can be used to protect the policy holder’s financial well-being.
Insureds must qualify based on a health or medical condition to receive the cash. Living benefit funds can be received either as one single lump sum, or they can be taken by the insured in regular installments. The funds may be used to pay off insurance deductibles, pay for medical procedures, or used in any other way the insured desires that may not be related to offsetting health insurance costs.
The amount of the cash that is accessed will be applied against the policy's death benefit. So its important to consider how much survivors will need at the insured's death and whether decreasing the amount of the death benefit will create a potential hardship for beneficiaries.
The money received by the insured is typically not subject to federal income tax, provided that the distribution meets certain criteria. This criteria includes the insured being classified as terminally ill when filing an income tax return.
Also, living benefits from life insurance policies aren't subject to state income tax in most U.S. states. (There may still be some instances where taxes are due, though, so it is always best to check with a tax advisor in this situation).
Living benefits should be an integral part of everyone’s retirement planning. For more information contact us at 800-257-1723 or click here to schedule an appointment.
