When life doesn’t go according to plan, insurance can be there as a helping hand.
Today, Jeremy Keil is back with part two of his mini-series on insurance to explore two more types of insurance, disability and health insurance. In this informative episode, Jeremy outlines key points around each type of insurance and how they can help protect you through life’s ups and downs.
In this episode, you’ll learn:
What to consider if you already get disability coverage through work
Terms like elimination period, benefit amount, and benefit periods — and why you should know them
How the Affordable Care Act works
The ins and outs of Medicare
Listen in now to learn how you can protect your ideal retirement using insurance!
The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Keil Financial Partners. Keil Financial Partners is a part of the Thrivent Advisor Network, a registered investment advisor. The Content has been made available for informational and educational purposes only. The Content is not intended to be a substitute for professional investing advice. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.
Keil Financial Partners does not provide legal, accounting, or tax advice. Consult your attorney or tax professional. Representatives have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.
Retirement Revealed Episode 14: How to Protect Yourself With Insurance: Part 2
Are you ready to uncover your retirement solution? Learn more as Jeremy Keil and his guests guide you along the path of retirement and reveal the five steps you need to take to solve your retirement puzzle. Now onto the show!
Aric Johnson: Hello and welcome to Retirement Revealed with Jeremy Keil. Today is part two of a two part series where Jeremy is discussing insurance. In the first podcast, if you have not heard it, he talked about life insurance and long term care insurance, and those are very, very important topics. Today we're going to be covering a few different things. So Jeremy, how are you this morning?
Jeremy Keil: Doing well Aric. How are you doing?
Aric Johnson: Fantastic. It's still cold. Just giving everybody a weather update. It's still cold.
Jeremy Keil: I was lucky enough to be down in Texas a week ago, and it was 77 degrees, which made the folks up here in Wisconsin a little jealous.
Aric Johnson: No kidding. That’s some shorts and t-shirt weather. Where about in Texas?
Jeremy Keil: San Antonio.
Aric Johnson: Oh nice. That's where all my wife's family is.
Jeremy Keil: Oh my goodness. Are they in the military?
Aric Johnson: No, my family has just always been there. My father-in-law and my brother-in-law served, but they weren't stationed in San Antonio.
Jeremy Keil: Gotcha. Because I'm an army brat, so I know that San Antonio is a big place for the military. I didn't realize how many folks actually work downtown. I was walking around downtown and saw a lot of folks in their military uniforms. It was kind of nice to see the interaction with the civilians.
Aric Johnson: Nice. Well that's always good. All right, so we talked about life insurance and long term care insurance on the first podcast. What are we covering today in part two?
Jeremy Keil: Today we're talking about disability and health insurance. If you take a look at the different types of insurance that are out there, a lot of them are related to your personal situation. So there is life insurance, long term care, disability insurance, and health insurance. Those have a lot to do with you and what's going on with you personally. And there's other types of insurance. They call it property and casualty. That’s your car, your home, expensive jewelry, or different things like that. That's something that I am not an expert in, so we'll have to find someone to come on in and give us an update on that. But if we think through insurance covering you as a person or your stuff, the topic we are dealing with is insurance that comes into play when something does not go to plan.
Aric Johnson: All right, so where do we start with this?
Jeremy Keil: Well, a lot of people think of life insurance. That's kind of the easy one because it is binary. You are either dead or you are not, but there is another insurance that is related to it. Well, what if you're sick or hurt? That’s called disability insurance, if you just don't have the ability to work in the way that you were before. I think people tend to think about it less often. Also, when we talked to folks about it they say they have disability insurance at work. Well what kind of disability insurance? So I say when you have disability insurance through work, you need to figure out what kind of disability insurance it is. We'll just talk about a few different buzzwords on that topic.
Aric Johnson: All right. It's funny that you said that you're either dead or alive, but there's really only one type of dead, right? But there's a couple different types of alive. You're alive, but you're injured, or you're alive but maybe you're incapacitated. So you can be alive but just in a different form.
Jeremy Keil: And when it comes to a disability, somehow you don't have the ability to fully work the way you did before. So if you want an income coming in to help you or your family out, the disability insurance is what comes into play. And again, a lot of people think they have it at work. Well, what do you have at work? And do you have short term disability, which typically covers you up to about six months or so. Or do you have long term disability, which might cover you for years or even all the way to retirement. And if we're just going to make some broad generalizations, when a company provides you with disability insurance it’s typically short term which might cover two thirds of your income. If they have long term, that typically covers half of your salary. And the big question is, is half of your salary enough for you? Most people are having trouble living on their full salary. Seriously. Can you make life happen with half your salary? Even if you do have disability insurance covered at work, you might want to look at it and supplement what you have through work with your own personal disability insurance.
Aric Johnson: Yeah that's a great point because I don't know any one of my close friends or relatives that could survive for long.
Jeremy Keil: Yeah. It would be tough for just about anybody.
Aric Johnson: Yeah. You can supplement with your emergency fund, but again that's your emergency fund. That's going to be dwindling very quickly, and it's just not good, especially if you have something that's a long term situation.
Jeremy Keil: Yeah. Your emergency fund is nice, and it's nice that they often cover you with a little bit more payouts in the shorter term, but if you have troubles with your bills for a month or two, you can recover from that. If you can't work for the rest of your life, you can't recover from that. That is why this is so important. Even if you've got coverage at work, find out what you have for the long term and whether it is going to cover enough for you. Now we're going to talk about two other differences. The first one is that if the company is providing you the disability insurance, you're not paying for it. That means when you get that money you never paid taxes on it before, so you still have to pay taxes. So not only are you sick or hurt and you're only getting half of what you were getting before, but you still have to pay taxes on that half a month that the insurance is covering. So sometimes when you're looking at it, getting your own coverage is a way to make sure you get some additional dollars since you've already paid taxes on it. So when you get that disability insurance and it comes back to you because you bought it on your own, that's actually tax free. The government doesn't tax you on that amount because you're just recovering what you've already lost. So another reason to look at your own coverage is just the difference between the taxable amount coming from the company insurance versus your own insurance.
Aric Johnson: Yeah, and let's face it, the IRS does not care. They really don't care. You are a single person receiving money. They want some.
Jeremy Keil: Yea, so having your own disability insurance that should be coming out to you tax free is a big help. There is another big difference when it comes to the work provided disability insurance. It's a little technical here, but they talk about something related to your “own occupation” versus a “regular occupation”. Own occupation says that if you're a nuclear scientist and somehow you get sick or injured in a way that you can no longer be a nuclear scientist anymore, then you've got a disability. You're getting the coverage there because you can't do that specific job so you may need some help with your bills. A regular occupation says if you can do any job then you need to do that job. So we'll keep going with the example of the nuclear scientist. If you can no longer be a nuclear scientist, but you can become a teacher, there's a difference there. Now teachers are great, but I got a feeling you might get paid more as a nuclear scientist than you would as a teacher. A regular occupation says that if you can work and do something, then you're not covered. The own occupation says that if you can't do your own thing then you're covered. Often your coverage through work is the regular occupation one. When you buy it on your own it usually comes with the ability that if you can't do the thing that you were doing before, then you are covered. So it's better and more expansive coverage when you buy the insurance on your own.
Aric Johnson: Mm, wow. That's something to think about. I can't imagine being in that situation and being told that because I can do a completely different job that I am not covered. What a hit that would be.
Jeremy Keil: And when do people find this out? After you've gotten hurt or after you have gotten sick. So if you have the insurance at work, it is well worth figuring out if it is shorter or longer term, how much it covers, and if it is covering any old job or your specific job. Those are the things to look into. And the same thing goes for if you're buying it on your own. Those are the things to look into, and it's not a one and done deal. It's not the choice of either I have company insurance or I have my own. Oftentimes if you have company insurance for disability, you can supplement it with your own. You can say ok this is covering me but not as much as I wanted, so I'll buy my own disability insurance so that I am comfortable with the amount of disability insurance I have.
Aric Johnson: Yeah and any document like that that's coming from your employer, they've had an attorney write it. If folks have questions about this and they want to bring you what they've received from their HR department from work, can you help them go through it and read the mumbo jumbo language?
Jeremy Keil: Definitely. I think half of our job sometimes is interpreting for folks. We're not interpreting another language, although it kind of is. When you're reading through these contracts, it feels like another language. So yeah, absolutely. We look at these benefits all the time and help you understand what you have and if it is covering the full amount that you want covered. And if there's a gap, we help you understand how you make up for that difference. And real quick, before we move on to the next topic, I want to bring up three terms that are very important when you are out there buying your own disability insurance. First there is the elimination period. The insurance might not cover you for a certain amount of time. It is like a deductible, but it's a deductible of time. You know, if your elimination period is one month or six months, the insurance will kick in after that. Then there's the benefit amount, which is how much they are going to pay you. Is it $1000 a month or $10,000 a month? That's your benefit amount. And then there's the benefit period. And again, if it's more of a short term situation it might only be six months. If you buy it on your own, it might even be one or two years and you decide to have it for short term coverage. But if it's long term, oftentimes it's 10 years or all the way up until you hit your full retirement age, which for a lot of younger folks is the 67 age. Social security helps you out after that. So these are three phrases to keep in mind.
Aric Johnson: Gotcha. Definitely.
Jeremy Keil: Yeah. So let's talk about health insurance. Hopefully you have health insurance. That's a big debate in our country, right? How many people have health insurance, and how do you help the folks that don't? But a lot of people we are talking to have health insurance through their company, but then at some point in time that probably changes. Before you're 65 you get your insurance through work, or if you left your job you get something called COBRA. That's a way to continue on your coverage for up to 18 months. Or there is the Affordable Care Act. Depending on where you are on the political spectrum, you might call that Obamacare, right? But the idea of the Affordable Care Act is that it is a way to help these folks that didn't have access to insurance through work or through COBRA. And what's so interesting about the Affordable Care Act is the government comes in and helps subsidize certain people to help them pay for those costs because it can be expensive, right? If you're 60 years old and you're not working, you can't get health insurance normally. You're not yet 65 so you can't get on Medicare yet. Where are you gonna get the insurance from? And what's the cost? It could easily be $1000 a month per person, and that's where the subsidy comes in. I am using the word subsidy but it's really not a subsidy. The government is not actually subsidizing your health insurance. They actually call it a pre-refundable tax credit. Basically what they're doing is they're saying that if it costs $1000 a month, we're going to help you on your taxes later on. Let's say it's $900 a month and they say they are just going to pre-refund that tax credit. If it's January, February, March, you know the whole months of the year, they are going to help pay that towards your health insurance costs. But at the end of the year, if it gets to the point where you didn't earn that subsidy because you made too much money, then guess what? You have to pay it back. And right now if your income (as a couple) is less than (roughly) $65,000, you'll get some of that subsidy. If it's above (roughly) $65,000, you won't get that subsidy. So it's just so interesting. Maybe it’s December and they are thinking that you need to take out four or five grand from your IRA to help pay your property taxes, or maybe you want to prepay that vacation you are taking next year, but then you do your taxes and guess what? You made $69,000 instead of $64,000, so you might not earn the subsidy. You might be paying that back because it's a pre-refundable. You might get quite the surprise in April that all of a sudden you owe back $20,000 to $24,000 back to the government, so we don't want people to have that surprise. You have to know about it. So make sure you understand that it is not a subsidy. That's something you have to be so careful of when you are looking at your retirement income and deciding if you need to take money from this bucket or that bucket. It's your taxes that you're usually thinking about. And if you're not yet 65 and you're on the Affordable Care Act, you better be talking to a good tax planner, someone that understands how this whole Affordable Care Act and the subsidies work. It is important to understand whether taking money out from different areas is going to kick out the subsidy.
Aric Johnson: Wow. I had no idea about that. That's scary. How would somebody even survive that at that moment? All of a sudden they owe $20,000 to $24,000. That's ridiculous.
Jeremy Keil: It's a big deal. It is unfortunate that it gets so complicated. It just proves how important it is to work with a financial planner, a tax planner that knows all these different areas. They can maybe help you rearrange your income so that you qualify for the subsidy.They can help you maybe avoid those mistakes towards the end of the year. Your 65th birthday will be the best birthday of your life because you get on Medicare. You don't have to worry about company insurance plans. You don't have to worry about this Affordable Care Act subsidy anymore. It's kind of nice to be on Medicare, right? You can talk about the political stuff in a different podcast, but you will love it when you turn 65 and get on Medicare. So let's just talk about how Medicare works. There's a lot of misunderstanding when it comes to Medicare. Basically Medicare will pay 80% of whatever it covers. They cover just about everything. I mean, they cover a lot of stuff. They don't cover your eye doctor or your dentist. We'll talk about that later on. But when you go to the doctor, you go to the hospital, and you get a medical bill, roughly speaking, they're covering 80% of that and then you're on the hook for the rest. This is the whole reason people usually sign up for something else called Medicare supplement. You might be saying I don't want to pay the full 20%. What if I have a big $10,000 bill? Where am I going to come up with that two grand? Well, if you have the Medicare supplement or something called Medicare advantage in your plan, your insurance company pays that for it. And when it comes to Medicare, you hear all these different letters. You've maybe heard of Medicare A, Medicare part B, or Medicare D, right? What does that even mean? When it comes to Medicare, Medicare A covers when you go to the hospital, and that's actually free. You don't have to pay for Medicare A because you do not go to the hospital that often. But then there's Medicare B. That's what covers when you go to the doctor. This is when you are getting tests because the doctor suggested it or when you go to the doctor and they've got their own bills for you.
That's where Medicare B comes in and that actually has a cost. A lot of people don't realize it until they get there, but Medicare B does have a cost. Right now in 2020 it's about $145 a month and that is per person. So that is $145 per month for you and $145 per month for your spouse. And what's interesting is that in those first couple years of retirement, sometimes you're getting payouts from your pension or employer stock plan. These things are coming in that might make your first year of retirement your highest income year ever. And guess what? If you make more money, then you actually have to pay more in your Medicare B premiums. Now that's a big surprise. A lot of people don’t realize going into age 65 that they will have to pay for Medicare, but they're even more surprised when they get an inheritance or something happens where their income is temporarily high and they end up having to pay even more for Medicare. That's why it's so important when you're looking at your taxes and income. It's not even just a matter of needing money for a certain month. You need to consider where you are moving money around how it is going to affect you tax wise. You actually have to figure out at that point in time how what you are doing will affect what you are paying for Medicare. It is a big deal. Then there's Medicare D which is drug coverage. That costs about $15 to $75 a month, just depending on which coverage you go for. And what's so interesting about Medicare D is that you can go right to the Medicare website, plug in the prescriptions you're using, and they will just tell you right there what the best plan is for you. It is a great website. Let's actually put that in the show notes. If you're someone that needs prescription drug coverage through Medicare D, go right to the Medicare website, plug in your prescriptions, and they'll just tell you right there what's going to be the best coverage for you. It's amazing. It's really nice.
Aric Johnson: Yeah. That's a great advantage.
Jeremy Keil: Yeah, and once a year you can change that. So if your prescription changes or perhaps the drug coverage itself that you signed up for changes, the insurance company can change things around a little bit year to year. So it is just worthwhile in the fall of each year to go to that website, plug in your prescriptions, and just find out what's going to be the best drug coverage for you the following year. So we talked just a little bit earlier about this idea of a Medicare supplement or advantage where if Medicare is covering roughly 80%, your insurance company can cover the rest. We'll talk about supplement real quick here. Supplements are pretty easy. You go to the doctor, Medicare pays 80%, then the supplement just comes in and pays the 20% of whatever it is you owed. So a lot of times people say that they’ve got to figure out which company gives them the best coverage, but it's all basically the same, right? They're just paying 20% of whatever Medicare doesn’t pay. So a lot of times people are almost putting in too much work in comparing these different companies, but they are all virtually the same. Now there is a difference when it comes to something called advantage, and this is kind of a philosophical decision that you have to make when you are first signing up for Medicare. Do you want the supplement that just basically covers everything within that 20%, or do you want this idea of an advantage plan. Medicare advantage is where the insurance company might say that you have to go “in network”, or you will have to pay extra if you go “out of network”. With supplement you don't have to worry about that. With advantage you do. But guess what? The advantage is cheaper because they've given you these limited, local networks. A lot of these different networks are like the Milwaukee area network or the Madison area network. There are specific networks in Florida. That is why it is cheaper since there are a lot of efficiencies that come with only working within a smaller system with a smaller group of doctors. But it's also why it's more limiting. So you have to decide if you want to pay more to not have to worry about local networks and all that kind of stuff. So that is a big decision you have to make going into retirement, whether you want supplement or advantage.
Aric Johnson: I was going to ask, what if people are snowbirds? What if they spend part of the year in one location and part of the year in another location? What if they want to go on vacation for a month? Is it possible to then add something on just for that month or is this something where you have to sign up and you only have that window once a year to change things?
Jeremy Keil: So that's what's interesting about it all is when it comes to the advantage. It's kind of like the Medicare D where you can change once a year in the fall for the following year. When it comes to the supplement, technically you can change anytime you want, but the issue is that the insurance companies do not have to take you on. So when you turn 65 and go on Medicare, the supplement companies are forced to take you on. But later on they can do something called underwriting which is a big, fancy word that means they figure out if you are healthy or not, and usually they're very skeptical. They know that if you are trying to switch to supplement it means that you want better coverage, and you usually only want better coverage if your health has taken a turn for the worse. So it’s pretty tough to switch to Medicare supplement. A lot of times we’ll just suggest to our clients that they sign up for Medicare supplement the first year and in the meantime they figure out the whole new system and take the time to then research whether they are better off in Medicare advantage or Medicare supplement. The reason we like to do that is because it is much easier to go from supplement to advantage than it is to go from advantage to supplement. You don’t want to look back two years from now and say man I wish I had that bigger coverage from supplement because your health is a little different than it was before because it might be tougher for you to actually go get that supplement. So we had a client I’m thinking of right now. He just really wanted to go with advantage. He had it figured out. In his mind it was cheaper to go with advantage. He didn’t have to worry about paying more every month with the supplement. I told him to just do me a favor and follow my suggestion of signing up for supplement for the first year. I told him that he has never been on Medicare before. He has had 45 years of company insurance. So I told him to just take this first year and go with the option that is going to give you a little bit more coverage and then figure out which way you want to go. Well, 11 months later he had some health issues, and got some big bills in the mail that he didn’t have to worry about. Medicare took care of the 80% and supplement took care of the remaining 20% and guess what? If you have that health issue 11 months down the road and you are trying to figure out if you can get better coverage, it is probably too late. The insurance companies don’t want to take sick people. They want to take healthy people. And at that point in time, he was very, very grateful that he had taken my suggestion of starting out with supplement and switching over to advantage later on if he ended up wanting to. Now I am thinking of another couple too, and for these clients, they did follow that suggestion. They both signed up for supplement. A year later they decided that supplement worked well for the husband with his health condition, so they decided they would keep him on it forever. The wife however was in really good condition and decided that she would switch over to advantage which was really easy to do. They were both grateful that they signed up for supplement to begin with, and they are grateful that they had that opportunity to switch the wife over to advantage. And it is interesting. A lot of people are used to this idea of family coverage through your company, right? When you get Medicare, there are no more families anymore. The husband and wife each have their own separate Medicare cards, and they can also each have their own separate Medicare supplement companies. One can even have supplement while the other has advantage. You don't have to choose these all together, so it gives you more flexibility. It's really nice to get this flexibility so that the two of you can go get different insurances just based on your own personal situations.
Aric Johnson: Yeah, that is nice. That's great. All right. Well we are running out of time. What are some of the main points that people need to take away from this podcast?
Jeremy Keil: The main point when focusing on disability insurance is that a lot of people feel like they are covered for work. But you need to look into what you really have at work. Is it shorter term or longer term? How much does it really cover? Does it cover the specific job you are doing right now or does it cover just any job that you can have? When it comes to health insurance, keep in mind a couple things. When you’re below 65 and you are on the Affordable Care Act, it’s not actually a subsidy. It’s a pre-refundable tax credit. What that means is that you might do your taxes in March or April and find out you have to pay it all back. So when you are on the Affordable Care Act, be very careful with where you’re taking money from. Is it a taxable account? Is it your bank account? Work with an advisor that knows exactly how those systems work so that you don’t get surprised with a big tax bill at the end. And then when it comes to Medicare, you’ve got this almost philosophical choice of do you want supplement or do you want advantage? Do you want the higher costing system that covers you in more places? Or do you want the lower costing system that kind of limits you somewhat to local networks and things like that. And that’s a choice that you and your spouse can make separately based on your different health situations. But overall, you have to figure out what it is that you need and then go out and get that from someone you trust. It’s a big deal, especially when it comes to these Medicare decisions. You need to know that when you sign up for supplement with a company that you may be stuck with them for the rest of your life. So these are big decisions. Find someone that you trust and be careful of anyone that has a solution that’s looking for a problem. If someone comes in and it sounds like they only sell a certain type of insurance, you should know that they might not actually be listening to your needs.
Aric Johnson: Yeah. If they're pushing you one way or another, there's probably a reason and it's more for them than for you. So great advice Jeremy. Thank you so much for your time today. I look forward to the next podcast. Again, if people have questions, what is the best way to reach out to you.
Jeremy Keil: Yeah, give us a call at 262-333-8353 or check us out online at keilfp.com.
Aric Johnson: All right Jeremy. Always a pleasure. Thank you so much. And audience, thank you for listening to the Retirement Revealed podcast with Jeremy Keil. If you have not subscribed to the podcast yet, please click the “Subscribe Now” button below. This way, when Jeremy comes out with a new podcast, it'll show up directly on your listening device. This makes it much easier to share these podcasts with your friends and family. And if you’re of the age where you’re thinking about disability insurance, Medicare, and all these different questions, you most likely have friends that have those same exact questions. So please share this podcast with them, have that discussion, and then reach out to Jeremy and his team so that they can help you, your friends, or your family members navigate through all of this. Again, thanks for listening today. For everyone at Keil Financial Partners, this is Aric Johnson reminding you to live your best day every day, and we'll see you next time.
Thank you for listening to the Retirement Revealed Podcast. Click on the subscribe button below to be notified when new episodes become available. Visit Retirement-Revealed.com to learn more. The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Keil Financial Partners. Keil Financial Partners does not provide legal, accounting, or tax advice. Consult your attorney or tax professional. Representatives have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration. Keil Financial Partners is a part of the Thrivent Advisor Network, a registered investment advisor. The Content has been made available for informational and educational purposes only. The Content is not intended to be a substitute for professional investing advice. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.