HMOs and PPOs

Conventional health insurance is expensive, are there alternatives that cost less?

Health maintenance organizations (HMOs) and preferred provider organizations (PPOs) are types of managed health-care plans and can cost much less than comprehensive individual policies.

Through the use of managed care, HMOs and PPOs are able to reduce the costs of hospitals and physicians. Managed care is a set of incentives and disincentives for physicians to limit what the HMOs and PPOs consider unnecessary tests and procedures. Managed care generally requires the consent of a primary care physician before a patient can see a specialist.

What is an HMO?

HMO stands for Health maintenance organizations. And an HMO can provide a comprehensive health care services to the insured for a fixed periodic payment. With an HMO, you may also pay a nominal fee when you visit a health care provider. Generally, HMOs have various relationships with hospitals and physicians. Plan physicians may be salaried employees, members of an independent multi-specialty group, part of a network of independent multi-specialty groups, or part of an individual practice association.

One notable thing about HMOs is that since they combine heath care providers with insurance, they can provide better health care delivery. Often, this allows for lower costs of service.

What is a PPO?

PPO stands for preferred provider organizations. Much like an HMO a PPO has relationships with hospitals and doctors to provide healthcare services. However, a key difference from an HMO is that with a PPO you aren’t limited to these doctors. If you do choose to go with an out of network healthcare provider, you will have to pay more. Usually, PPO plans have a deductible, which is the amount the insured must pay before PPO starts to pay. At a certain point the PPO will begin to pay, but only at a percentage, you are responsible for paying the rest. This is called “coinsurance”.

Fortunately, most plans have an out of pocket maximum, meaning that per year, you will never pay more than a given amount. When you exceed the out of pocket maximum, the PPO will pay 100% of the costs for the rest of the year.

To learn more about HMOs or PPOs, click here, or call our office at Federal National Funding today. One of our associates will be happy to speak to you. 

Why Purchase Life Insurance

Why should I consider purchasing life insurance?

Life insurance is a way to financially protect children and other dependents in the event of the primary household earner’s death. The benefits from life insurance can not only pay for funeral and burial costs, it can also create a stream of income for dependents. Furthermore, the life insurance death benefit can pay for financial obligations such as state taxes, and a mortgage.

Many people purchase life insurance because they prefer to plan for risk. Most people, would rather be prepared and have their loved ones protected.

On our website, you can even get a quote for life insurance, just click here!

Please note that health, age, and type of insurance purchased will be factors in how much a policy will cost.

What types of life insurance are there?

There’s whole life, term, variable, and universal life insurance. These are all different and come with their own sets of pros and cons.

In general, having a whole life policy means that you will pay regular premiums as long as the policy is enforced or as long as you live. Then, in exchange, the insurance company will pay a set death benefit upon your death. Whole life insurance is popular because it builds cash value that is tax deferred. You can surrender the policy for its cash value or take out a loan against the policy. Under federal tax rules, loans taken out are free of income tax as long as the policy is still in effect until the insured’s death. Once a whole life policy is purchased, the terms are set and cannot be changed.

Term life insurance is less expensive than other types of insurance, especially when the insured is younger. Unlike other types of insurance, it only offers protection for a certain period of time. At the end of the period, the policy expires, and one does not receive a refund. The main drawback with term insurance is that premiums increase every time coverage renews. This can eventually make coverage too expensive for when you need it most—in later years. Still, there are versions of term insurance that offer level premiums for up to 30 years without proof of insurability (this is called renewable level term life insurance).

Variable life insurance gets its name for the variety of investment subaccounts you can have within your policy. A few examples of subaccounts include: stock; bond; and fixed interest options. These subaccounts allow you to build your investment portfolio as a bonus. A disadvantage of variable life is if your subaccount preforms poorly, your death benefit will not be as high as you might like. Fortunately, your death benefit will never go below a specified dollar amount.

Most universal life policies pay a minimum guaranteed rate of return. Any returns above the guaranteed minimum vary with the performance of the insurance company’s portfolio. The policyholder has no control over how these funds are invested; funds are managed by the insurance company’s professional portfolio managers. The big advantage with universal life is that coverage and premiums are flexible. For example, you can at any point choose to increase your cash value by paying higher premiums or if you happen to be at a financial strain, you can pay less for a while.

To learn more about whole, term, variable and universal life insurance, please click on the links provided below for a comprehensive article on each type. Or for one of our associates at the office to answer your questions, please call us today at 201-342-3300.

·         Whole Life

·         Term

·         Variable

·         Universal

Retirement Planning

 How much do I need to save for retirement?

That depends on several factors such as: retirement age, life expectancy, future healthcare needs, lifestyle, social security and inflation. 

For instance, the earlier you retire, the more money you will need. And although we all want to believe that we will retire and 65, that might not be your case. One reason you may retire earlier than planned is because you might develop a disability which may prevent you from working.

There is no one size fits all answer, everything is dependent on the factors of your life. However, once all factors are considered, we recommend you visit an experienced financial adviser to assist you further.

Though it is not intended to replace seeing a financial adviser, we do have a retirement cost calculator on our website here.

Finally, for more factors that can help determine how much you need to save, read our article here.

What are some living benefits to annuities?

In many cases and for an added cost, you can add guarantees regardless of the account value.

For example, adding a guaranteed minimum withdrawal benefit to a variable annuity contract could allow the contract owner to withdraw a fixed percentage (about 5% to 7%) of the premiums paid until 100% of the premiums paid had been withdrawn. This will still be possible even if the underlying investments were to lose money.

Another benefit available is the guaranteed minimum income benefit. When the contract owner is ready to collect retirement income payments, they would be based on a minimum payout. In the event of poor investments minimum payout would still be provided by the company.

Thirdly, a guaranteed minimum accumulation benefit can help ensure that the contract value will not fall below a certain minimum after a specified term. This is usually equal to the premiums made.

If you have questions about annuities or their living benefits, take a look on our articles here and here.

What is an IRA rollover?

If you leave a job, or you retire, you might want to transfer the money you’ve invested in one or more employer sponsored retirement to an individual retirement account (or an IRA). An IRA rollover is an effective way to keep your money accumulating tax deferred.

When using an IRA rollover, you transfer your retirement savings to an account at a private institution of your choice, with the bonus of choosing how to invest the funds. To protect the tax deferred status of your retirement savings, the funds must be deposited within 60 days of withdrawal from an employer’s plan. To avoid potential penalties and a 20% federal income tax withholding from your former employer, you should arrange for a direct, institution to institution transfer.

You are able to roll over assets from an employer-sponsored plan to a traditional IRA or a Roth IRA. Because there are no longer any income limits on Roth IRA conversions, everyone is eligible for a Roth IRA conversion; however, eligibility to contribute to a Roth IRA phases out at higher modified gross income levels. Keep in mind that ordinary income taxes are owed (in the year of the conversion) on all tax-deferred assets converted to a Roth IRA.

An IRA can be fitted to your needs, goals and can incorporate various investment vehicles as opposed to the limited options of many employer-sponsored retirement plans. Additionally, tax deferred retirement savings can later be consolidated.

Over time, IRA rollovers may make it easier to manage your retirement savings by consolidating your holdings in one place. This can help cut down on paperwork and give you greater control over the management of your retirement assets.

Lean more about IRA rollovers on our website here.

To learn more about estate planning or to find out about what options best suit you, please call our office at Federal National Funding, at 201-342-3300. One of our associates will be happy to speak to you and will schedule a free consultation. 

Roth IRA

What is a Roth IRA?

A Roth IRA is one of the many investment vehicles available to investors that aim to save for retirement. One key bonus that Roth IRAs have is that they are tax favored. This means they are not taxable, which is advantageous because you would then get to keep more of your money.

What are other advantages to a Roth IRA?

One advantage of a Roth IRA is that you can continue to make contributions after age 70½ as long as you have earned income. Additionally, you do not have to start mandatory distributions due to age as one has to with Traditional IRAs. However, beneficiaries of Roth IRAs must take mandatory distributions.

Roth IRA withdrawals of contribution can be made at any point for any reason. These are also considered tax free and not subject to the 10% federal income tax penalty typically associated with withdrawals. In order to make a qualified tax-free and penalty-free distribution of earnings, the account must meet the five-year holding requirement and the account holder must be age 59½ or older. If your withdrawals do not meet this requirement, they are taxed as any other withdrawal with some exceptions that include: death, disability, unreimbursed medical expenses in excess of 10% of adjusted gross income, higher-education expenses the purchase of a first home ($10,000 lifetime cap) substantially equal periodic payments, and qualified reservist distributions.

To learn more about Roth IRAs, or to learn how you can qualify, click here. Or for personalized attention, call our office today at 201-342-3300. One of our associates will be happy to speak to you. 

Estate Planning

What are some estate planning tools I should be aware of?

For starters, there are wills and trusts. Wills allow you to determine how you would like your property to be distributed, they also allow you to appoint guardians for minor children. While wills are completely optional, one should have one because otherwise the courts will have power over how property is distributed and who will be your children’s guardian. One more thing to keep in mind is that property distributed through a will is subject to probate—they may require time to be considered valid—which can be a time consuming and costly process.

Trusts, on the other hand are actual legal entities. Like a will, a trust can be customized to determine the distribution of an estate with the bonus of avoiding probate because it is a legal document. However, they do incur upfront costs and ongoing fees. You should also know that a trust exists in a complex web of rules and regulations. For your benefit, please consider seeing an experienced estate planning professional before getting a trust.

In the event that you become incapacitated—or unable to speak for yourself—you should also have a durable power of attorney. A durable power of attorney is a legal agreement that avoids the need for a judge to decide who should be responsible to make legal and financial decisions for you. Unlike the standard power of attorney, durable powers remain valid if you become incapacitated.

Much like the power of attorney, the health-care proxy is a document used to designate a trustworthy person with making health care decisions on your behalf if you become incapacitated. Such decisions can include: choosing a hospital, medical treatments, and authorizing surgeries.

These are common and very useful options, you can learn about even more options on our article on our website here.

What is a living trust?

A trust is a legal arrangement you can make to control what happens to your estate upon your death. When you set up a trust, you transfer the ownership of all the assets you would like in the trust from yourself, to the trust. As a result, you no longer own any of the assets in the trust, the trust itself does. But, as the trustee, you have complete control of the trust: you may buy or sell as you please and even give assets away.

An advantage to a living trust is no probate, which saves money and time. Shortly after your death, according to the trust, your assets will be distributed to your heirs.

For more information about living trusts, feel free to call our office or click here.

What is joint ownership?

Another way to distribute your estate is through jointly held property — specifically, joint tenancy with rights of survivorship. When you hold property this way, it will pass to the surviving co-owners automatically, “by operation of law.” Because title passes automatically, there is no need for probate.

If you happen to have more questions about estate planning, living trusts, or joint ownership, we would be more than happy to assist you in finding answers at Federal National Funding. For more information about estate planning please call our office at 201-342-3300. One of our associates will be happy to speak with you. 

Reverse Mortgages

What is a reverse mortgage and how can it help me?

A reverse mortgage turns the value of your home equity into usable cash, which can be used to supplement income, pay for college, finance home improvements and more. Instead of making monthly payments, the lender pays you in the form of fixed monthly payments, or as a lump sum, or as a line of credit that can be tapped when needed (up to a certain limit).

To be eligible for a reverse mortgage you must be age 62 or older and the home must be your primary residence. Even though this is a home loan, you do not have to repay the principle, interest, and fees for as long as you live in your home or the house is sold.

With a reverse mortgage you can annuitize your home. The monthly payments you will receive is computed using standard annuity methods that take into account your age and life expectancy (and your spouse’s if you are joint borrowers), the appraised value of the property, current interest rates, the type of distribution you use, and the amount of equity you decide to assign to the loan company.

For instance, you may choose to take the loan against only 50% of the equity stake in your house. This will result in the reduction of the potential monthly check compared with a higher equity percentage. If property prices decline after you take out a reverse mortgage, it will not affect the remainder of your estate; should something like this happen, the lender bears the loss. This like in a traditional annuity in which the insurance company bears the loss of continuing annuity payments in the event that you live past your life expectancy.

Although you will never owe more than the value of your home when the loan becomes due (upon your death or until you no longer live in it), keep in mind that home values tend to increase over time. However, if the remaining equity is lower than the appraised value, of the property, your heirs might have a hard time paying back the loan if they want to keep the home rather than sell it.

Before getting a reverse mortgage, we stress that you exercise some caution. You will still be responsible for paying property taxes, homeowner’s insurance and all repairs. As for the fees associated with the reverse mortgage, it is generally higher than that of a traditional mortgage. Costs may include, an origination fee, closing costs, and servicing fees over the life of the mortgage. Typically, reverse mortgages have variable interest rates which could rise over time.

The Home Equity Conversion Mortgage (HECM) is a federally insured reverse mortgage that is generally less expensive than private-sector reverse mortgages, though you typically are charged mortgage insurance premiums.

For more in-depth information about reverse mortgages, check out our article on our website here. Or if you would like, call us today at 201-342-3300, one of our associates will be happy to speak to you. 

Medicare

Today we at Federal National Funding would like to provide introductory information about Medicare.

Medicare, not to be confused with Medicaid, is a government health care insurance program for the elderly as well as certain disabled people. This program has four basic parts: A, B, C, and D. Part A provides basic coverage for hospital care as well as limited skilled nursing care (up to 100 days), home health care, and hospice care. Part B can assist can with covering physician services, inpatient and outpatient medical services and diagnostic tests. Lastly, part D covers prescription drugs.

There’s also Medicare Advantage; this is a type of private insurance that includes Medicare-approved HMOs, PPOs, fee-for-service plans and special needs plans. Some of these plans offer prescription drug coverage. In order to join Medicare Advantage plan, you need to have Medicare Part and Part B, pay the monthly premium for Medicare Part B to Medicare and the Medicaid Advantage premium.

Costs

Every time you go to the hospital you would have to pay for a part of your hospitalization costs, unless your visits are separated by less than 60 days. If that is the case, you would only have to pay the deductible the first time. Now if you were to stay in the hospital longer than 60 days you would have to pay a copayment every day from day 61 to 90.

Skilled Nursing Care

Medicare will pay for the first 20 days of skilled nursing care, but only after you’ve been in the hospital for three days. This means you’ll have paid at least the deductible for that three-day stay. From the 21st day through the 100th day, Medicare will cover some of the costs of skilled nursing care, but you still have a copayment. After 100 days, Medicare will not pay for skilled nursing care, and you must bear the full cost. The 100 days are per benefit period.

Medigap

To put it simply, Medigap is Medicare supplemental insurance that is made to cover the costs Medicare does not. Usually, it pays for the deductibles and copayments required by Medicare. Please note that coverage will vary according to individual policies.

Medigap insurance may not pay for any additional procedures that aren’t specifically addressed by Medicare. Most policies will only help to cover the deductibles and copayments imposed by Medicare.

Long Term Care

Be aware that Medicare only provides limited coverage for skilled nursing care and only pays for up to 100 days of care following a three-day hospital stay. Medigap will not fill in the gaps for this coverage.

For more information regarding Medicare or Medigap, please call our office at 201-342-3300 or click here. To learn more about us at Federal National Funding, feel free to call our office or click here. 

Medicaid

On today’s blog we would like to break down the basics of Medicaid. Often, we get calls from families who aren’t able to pay for the average of $8,500 a month for nursing home care for their loved one. If they do not happen to have Long Term Care Insurance already, we need to determine their eligibility for Medicaid and other alternative means.

But what is Medicaid?

Medicaid is a benefits program that is primarily funded by the federal government and administered by each state. Rules tend to vary from state to state. The primary benefit of Medicaid is that unlike Medicare (which only pays for skilled nursing) the Medicaid program will pay for long term care in a nursing home once a person has qualified. Medicare does not pay for treatment of all diseases or conditions. For example, a long term stay in a nursing home may be caused by Alzheimer’s or Parkinson’s disease and even though the patient receives medical care, the treatment will not be paid for by Medicare. In that case, one will have to pay privately (e.g. using long term care insurance or other funds) or they’ll have to qualify for Medicaid.

To qualify for Medicaid, applicants must pass some fairly strict tests on the amount of assets they can keep. To understand how Medicaid works, we first need to review what are known as exempt and non-exempt (or countable) assets. Exempt assets are those which Medicaid will not consider (at least for the time being). In general the following are primary exempt assets:

•         Home, (equity up to $800,000). The home must be the principle place of residence. The nursing home resident may be required to show some “intent to return home” even if this never actually takes place.
•         Personal belongings and household goods.
•         One car or truck.
•         Income producing real estate.
•         Burial spaces and certain related items for applicant and spouse.
•         Up to $1,500 designated as a burial fund for applicant and spouse.
•         Irrevocable prepaid funeral contract,
•         Value of life insurance if face value is $1,500 or less. If it does exceed $1,500 in the total face amount, then the cash value is countable.

All other assets are generally non-exempt and countable. Basically all money and property, and any item that can be valued and turned into cash, is a countable asset unless it is listed above as exempt. This includes:

•         Cash, savings, and checking accounts, credit union share and draft accounts.
•         Certificates of deposit.
•         US savings bonds.
•         Individual Retirement Accounts (IRAs), Keogh plans (401K, 403B).
•         Nursing home accounts.
•         Prepaid funeral contracts that can be cancelled.
•         Trusts (depending on the terms of the trust).
•         Real estate (other than primary residence).
•         More than one car.
•         Boats or recreational vehicles.
•         Stocks, bonds, or mutual funds.
•         Land contracts or mortgages held on real estate sold.

Why seek advice for Medicaid?

As life expectancies and long term care costs continue to rise, the challenge quickly becomes how to pay for these services. Many people cannot afford to pay $8,500 per month or more for the cost of a nursing home. And those who can pay find their life savings to be wiped out in a matter of months, rather than years. Fortunately, the Medicaid Program is there to help. In fact, within our lifetime, Medicaid has become the long term care insurance of the Middle class. But the eligibility to receive Medicaid benefits requires that you pass certain tests on the amount of income that you have. The reason for Medicaid planning is simple. First, you need to provide enough assets for the security of your loved ones. Second, the rules are extremely complicated and confusing. The result is that without proper planning and advice, many people spend more than they should and their family security is jeopardized.

Many of our clients have expressed peace of mind knowing they have taken the necessary steps to protect their assets and not to leave their loved ones with the burden of responsibility. If you are in need of suitable facilities and don’t know where to begin, inquire about our senior placement services. For Medicaid application assistance, Medicaid planning advice, or to learn more about us, click here or feel free to call our office today at (201) 342-3300. 

Gifting Strategies

Why can’t I just give my assets away?

No one is saying you can’t give them away, but there are tax laws that will deplete the amount you would originally want to gift. Without a proper strategy the gift tax can take a bite out of your gift.

What is the gift tax?

The gift tax is a federal tax that applies to property or money that is gifted while the donor is living. On the other hand, there is also the federal estate tax which applies to property received by others (with spouses as an exception) after a person’s death.

The gift tax applies to the person giving the gift. Thus, the recipient is under no obligation to pay the gift tax, however other taxes may apply. Meanwhile, the federal estate affects the estate of the deceased and can reduce the amount given to heirs.

Though any gift can be considered taxable, there are some exceptions. For example, gifts that pay for tuition or medical expenses that you pay directly to a medical or educational institution for someone else aren’t considered taxable. If you give a gift to a spouse who is a U.S. citizen, to a qualified charitable organization, and gifts to a political organization those are not considered taxable.

More details on the gift tax and be found here.

What gifting strategies are available to me?

Luckily, there are several gifting strategies you can utilize, each with its own unique features and drawbacks.

For example, instead of making an outright gift, there is the option of using a charitable trust. With a charitable trust, you gift is moved to a trust. The recipient of the gift draws the income from this trust. Then, upon your death, your heirs will receive the principal with little or no estate tax.

If you would prefer to retain an income interest in your gift, you could use a pooled income fund, a charitable remainder trust, or charitable annuity trust. With these strategies, you can receive income generated by your gift and the recipient gets the principal upon your death.

And lastly, you could purchase a life insurance policy and name the charitable organization as the owner and beneficiary of the policy. This would allow you to make a large future gift at a lower cost.

For more in-depth information about the advantages of each option, please check out the chart on our article here.

If you would like more information about the gift tax, or gifting strategies please call our office today at 201-342-3300. We would be happy to discuss it with you.