Insurance Quotes & Advice

While the economy is what most Americans are primarily worried about these days, the looming question about healthcare still remains. The outcome  of next month’s elections may very well determine the course of the nation’s healthcare system for the next decade and beyond.

While each candidate has markedly different proposals on how they would implement healthcare in this country, neither has any solution on the main reason why premiums are rising so fast, namely skyrocketing medical costs.  Their plans mainly center on how they would implement insurance coverage and on ways to pay for them.

With the federal government already spending obscene amounts of money attempting to solve the financial crisis, nearly $2 trillion already, how much will Congress be willing to allocate to healthcare in the next few years.  Something also to consider is that AIG is not the only struggling insurer and that the insurance industry may very well require it’s own bailout package before every thing is said and done.

Only one state in the country, Massachusetts, has made an attempt at installing universal healthcare coverage.  While some believed they may act as a model for other states to follow, Massachusetts is quickly finding out that it is much more expensive than originally thought.

In order to fund their healthcare program, the state has had to raise cigarette taxes as well as turn to the government for federal assistance.  At this point it is still uncertain if the their attempt will have any long term success.

Until something is done to try to control rising medical costs, there is just no way you can reasonably attempt to control rising insurance premiums, it’s impossible, the two go hand in hand.

Borrowing against a life insurance policy has grown very popular over the last decade but while there are a number of benefits to this strategy, there are also quite a few consequences as well.  Permanent or universal life insurance policies are made of two components, the death benefit or face value of the policy and the cash value or investment component.

The cash value component is considered an asset so you’re able to use it as collateral for a loan.  Insurance companies will usually let you borrow up to 90% of the cash value of your policy.  A bank can also be used for this as well if they are placed as the beneficiary for the loan amount.

The benefit of borrowing from your own policy is that there is no set repayment schedule so it can offer a lot more flexibility than a regular private loan.  The interest rate will also tend to be lower since there is practically no chance of default.

Theoretically it is possible to not have to pay the loan back until death but that is not recommended.  The loan amount will grow over time as interest is compounded and this is where the danger comes in.

In a bearish market like we currently have, it is quite possible for the loan amount to grow at a faster rate than the cash value component.  If the loan amount ever goes over the cash value amount, one of two things will happen.  Either the borrower pays the difference to the lender to keep the loan amount below the cash value component or the policy lapses.

If a policy is allowed to lapses, what happens is a cash surrender where the cash value amount is paid out, which can have significant tax implications.  Also the death benefit component will now be forfeit which is the main reason you buy insurance in the first place.

Let’s say that you have $100,000 in your cash value account and borrow $75,000 of it from your insurance company.  This doesn’t reduce the cash value component of the policy to $25,000 as the loan is not considered a withdrawal, it’s still at $100,000 and will continue to grow at a tax deferred rate..

Then let’s say you chose not to repay the loan and that eventually over time, both the loan amount and cash value have grown to $300,000 when the policy finally lapses.  The cash surrender value then becomes fully taxable as income by the IRS at whatever tax bracket you are in.

It is quite possible, if you are in a high enough tax bracket and if the loan was for a long enough duration, that the taxes owed may be more than the original amount borrowed.  So even though you only borrowed $75,000 initially, you will be responsible for paying taxes on the full $300,000 amount of the cash value component.

It is very important to talk to a credible financial planner and make an informed decision before entering into this type of loan agreement.

While most Americans would like to believe that we have the best healthcare system in the world, that couldn’t be further from the truth.  What we really have is one of the most expensive healthcare systems in the world.

Of the world’s industrialized nations, we rank fairly low in a number of health statistics.  Granted we do have some of the best doctors in the world, but large segments of the population are unable to afford their services.

It is estimated that the number of Americans without healthcare insurance is at a staggering 60 million.  With the economy taking a turn for the worse you can expect that number to rise over the next year.

The state of Massachusetts has taken the bold step of instituting universal healthcare for it’s residents and California has been contemplating a similar program in it’s state as  well.  It will be interesting to see if they are successful in their attempts and whether it may be a role model for a future nationwide program.

The other industrialized nations have proven that a universal healthcare system can work and at a cheaper cost.  It is estimated that the U.S. spends on average 40% more per capita on healthcare than countries that have a universal healthcare system in place.

With healthcare costs are spiraling out of control and inflation heating up in general, a number of Americans will have to make the difficult choice of abandoning health insurance all together and pray that they don’t get sick.