Saturday, February 7, 2015

Medigap Insurance: Who Needs It?

If you’re looking for an example of a large government program that’s difficult to understand, look no further than Medicare. Medicare.gov contains hundreds of pages of information – few of which are easy reading.
But one of the most confusing aspects is why, given all of Medicare's parts (see Medicare 101: Do You Need All 4 Parts?) Americans on Medicare are encouraged to buy even more health insurance: a Medicare Supplementary Medical Insurance policy, also known as Medigap. These answers will explain why.
1. What is Medigap Insurance?
Medigap is additional insurance for Medicare recipients. Insurance for your insurance, basically.
2. Why do I need more health Insurance?
Because Medicare has holes (or gaps – get it?). "Original Medicare," as the government calls it, defined as parts A, B, and D, doesn’t do a very good job of really covering you if you were to get seriously ill or injured. It pays some of your expenses, but far from all.
That’s where Medigap insurance kicks in. Depending on the plan you get, Medigap will pay all or a potion of the costs Medicare doesn’t cover.
3. Those “extra” charges can’t be that substantial, can they?
Oh, yes they can. Here are a few examples. If you are admitted to the hospital and only have Original Medicare, you have to pay the first $1,216 of expenses. If you stay more than 60 days, you have to pay a portion of each day’s cost from then on.The size of your daily payment depends on how long you have been in the hospital and goes up the longer you stay.
Doctor visits and medical procedures are going to cost you too. Your deductible is $147 but, after that, you have to pay 20% of "the Medicare-approved amount" for most doctor services. What if you have a $250,000 bill? Look for a $50,000 bill in your mailbox – even more if the Medicare-approved fee is lower than $250,000. There’s no limit on how high it goes.
Prescription drugs can also eat at your budget. Original Medicare will leave you paying as much as 72% of the cost of some of your prescription drugs if you need enough medication to push you into notorious doughnut hole, the period when Part D gives people with high medication costs no coverage until their spending exceeds $4,550.
4. How do Medigap insurance policies work?
Glad you asked! You know all those “parts” of Medicare? Part A, B, and D? Medigap policies have parts of their own.They're labeled with the  letters, A–N  (though E, H, I, and J are no longer offered). The last thing you need with Medicare is more letters, but these letters make the options consistent across every provider.
Because private insurance companies offer these policies, you have to do some comparison shopping. Your shopping is made easier because an “F” plan, for example, is the same no matter which insurance company offers it. You don’t have to worry about one insurance company offering something different in the “F” plan than another does.
5. Which Medigap insurance plan is right for me?
You know what we’re going to say, right? “Talk with a qualified insurance agent or Medicare advisor to find the plan that fits your individual profile.” Here's some other advice. First, read the Medicare publication, “Choosing a Medigap Policy.” On page 11 you’ll find a chart of each policy type and what it covers. If you want to be completely covered—as in 100% of everything—“F” is your choice. The other options cost less but allow more of those gaps to remain open.
6. What’s the difference between Medigap insurance and Medicare Advantage?
A Medicare Advantage plan is similar to an HMO or PPO; it incorporates your Original Medicare benefits, plus additional coverage, such as for preventive care, within a pre-selected network of doctors and hospitals.
A Medigap policy supplements your Original Medicare coverage, paying expenses Original Medicare doesn't cover. It will probably give you more freedom of choice than Medicare Advantage (as long as your physician or facility accepts Medicare) and is a better option for snowbirds and others who travel a great deal or live in more than one location. You need to be signed up for Medicare before you can get Medigap. For more on the pros and cons, see Medigap Vs. Medicare Advantage: Which Is Better?
7. Can I have both Medicare Advantage and Medigap Insurance?
No. However, an insurer can sell you a Medigap policy if you explain that you’re leaving Medicare Advantage. This allows you to start your Medigap coverage the day after your Advantage plan runs out.
8. Does a Medigap policy cover both my spouse and me?
Unfortunately, it doesn’t. A Medigap policy covers only one person.
9. Can the insurer cancel my Medigap insurance if I get sick?
No…that’s illegal. As long as you pay your premiums, your policy is renewable for the rest of your life.
The Bottom Line
Original Medicare has coverage gaps. Without some type of supplemental insurance, you could end up paying a lot of money out of pocket. Medigap insurance closes those gaps. If you want to search for a policy that is right for you, click here for Medicare's official Medigap search capability.


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Steer Clear of Over-Priced Gap Insurance Providers

If you lease or purchase a new car with a loan, you might want to consider obtaining the extra financial protection known as gap insurance. In the event the vehicle is stolen or totaled in an accident, this specialized coverage pays the difference between what you owe on the loan and the compensation your primary insurer will offer you. For more on this, see Do Drivers Really Need Gap Insurance?
While gap insurance can be a good idea if eat up a lot of miles on the road or have a model that’s known to depreciate quickly, be careful about where you buy it. The dealership may try to sell you its own policy, but that is likely to end up costing a good deal more than going with an outside carrier.
Gap Insurance Basics
The idea behind gap insurance is to provide a safety net for drivers who are underwater on their loan – in other words, they owe more than the car would be worth on the used market.
Because cars lose a significant amount of value the moment you pull off the lot, having negative equity is actually quite common in the early years of a car loan. According to Edmunds.com, the worth of the average car drops by about 19% after just one year of driving. After the second year, it typically loses another 12%.  Unless you have a short-term loan, it can be difficult to keep the loan balance below the vehicle’s market value during these early years.
Gap insurance makes up for this shortfall. Let’s say you have a sedan that you bought for $30,000. A year later, you get into a major collision and the car is declared a total loss by the insurance company. With traditional coverage alone, the primary insurer will reimburse you for the “actual cash value” of the vehicle, which is $24,000. Unfortunately, you still owe $26,000 to the lender. If you have a gap policy, it will cover the remaining $2,000 to help you retire the loan. For more on this, see Get Up To Speed On Car Gap Insurance.
Know Your Options
Drivers who lease a car may have gap insurance built into their contract. But if it’s not included with the lease, or you’re purchasing the automobile with a loan, you can do some shopping around.
Experts say you’re generally better off going with one of the major insurance companies than getting it from your car dealer. Dealerships typically charge a flat fee between $500 and $700 for gap coverage – and it could go higher still if the premium is combined into the loan.
One place to start for a more competitive rate is the company that already insures your car. Several big-name insurers offer a variant of gap protection – including Esurance, Progressive and Nationwide.  Ordinarily, they’ll bill you between 5% and 6% of your collision and comprehensive premium. So if you pay $1,000 for these two components, gap coverage will amount to roughly $50 or $60 a year in addition.
Keep in mind that depreciation is most aggressive when cars are relatively young, so you may only need gap insurance for two or three years. When you go with a major insurer, you can usually cancel the policy once you start to build equity, thus lowering your bill. It’s a good idea to periodically check the NADA Guides or other valuation sources to make sure you’re not paying for coverage you don’t need.
Some specialty insurers also provide gap insurance.  If you choose to go this direction, just make sure the company has a strong financial rating from A.M. Best, as well as a favorable grade from the Better Business Bureau.
Some Policies Don't Cover the Full Gap
Perhaps the biggest caveat when price-shopping among different insurers is that not all gap policies are the same. For example, some companies, including Progressive, refer to their offering as “loan/lease” coverage.
The main distinction is that loan/lease policies put a cap on the payout. Typically, the company reimburses up to 25% of the car’s cash value at the time of the accident or theft. Most of the time, this won’t make a huge difference, except for those who are deep underwater on their loan.
As an example, say you crash an SUV that’s currently worth $20,000 and you still owe $30,000 on your car loan. Rather than pay the full $10,000 difference, loan/lease protection entitles you to just $5,000 (25% of the SUV's $20,000 cash value).
To be on the safe side, go over the policy details before taking out gap coverage, and ask a representative to explain exactly how the coverage works, with specific examples such as the one above.
The Bottom Line
Gap insurance plays an important role for drivers who have significant negative equity in their automobile. Just remember: It pays to shop around rather than blindly accepting what the dealer has to offer.



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Burial Insurance Costs

And is even the least costly burial insurance a good buy? Be sure to compare it against term life or permanent life before you sign up.
Burial insurance is a type of life insurance marketed to seniors and their families that is used to pay for funeral expenses.
At various online independent agencies and insurance companies, you can get instant quotes on burial insurance policies that will give you a basic idea of how much this type of insurance would cost. Of course the rates that you are quoted, as they are based just on brief questionnaires, are not a guarantee. Before you sign up for anything, get a careful explanation of any policy you’re considering from an experienced professional.
Sample Costs
The prices quoted here are for a $20,000 policy for a 65-year-old male nonsmoker who lives in Florida. The three companies on the bottom of this chart say that they offer “guaranteed issue,” and Gerber and Kemper say they ask “no health questions.” These guarantees are a key reason burial insurance policies attract seniors who are concerned about being screened.
Company
Monthly premium

Foresters
$102.29
SI _Provider Simplified Issue
$108.18
Vantas Life
$133.76
Gerber Life Insurance
$148.00
Kemper
$170.14

Doing the Math
Is burial insurance a good buy?  Probably not, compared to other forms of life insurance that you can buy. Consider that the cheapest option listed here, Foresters, would cost $1,227.48 a year. If the 65-year-old lives for 20 more years, he would end up paying $24,549.60 in premiums for a $20,000 payoff.
Compare these figures to an automated quote from Prudential for a $100,000, 20-year Term Essential Life Insurance policy. The premium is $113.58 a month or $1,362.96 a year. If the person lives for 20 years he would pay in $27,259.00. If he dies while the insurance is in effect, his beneficiaries would get $100,000.
Not Underestimating Your Lifespan
The Prudential policy quoted above is for survivorship to 100 year of age. The company also offers a slightly more expensive option that insures you to 121. While that may seem laughable, keep in mind that a person who turned 65 in 2008 can expect to live, on average, until age 84.3 if he’s male and 86.6 if she’s female. About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95, according to data compiled by the Social Security Administration.
Finding Help
On-line quotes are a convenient way to get a general idea of costs. It's wise to start your shopping that way so that you can get a sense of the marketplace. But most insurance companies offer a range of products with subtle but important differences among them. You're unlikely to pick up these fine-print differences by comparison shopping on your own.
An insurance broker who deals with multiple companies can help you find the best deal. Bring your research to a broker and search together for the best options for someone in your situation. One possibility is a term life insurance policy with a clear renewal process if you outlive the term. Another is a permanent life insurance policy.
Some policies accrue cash value and can be expanded to cover accidents and disability. One possible approach: Instead of choosing a benefit amount, tell the insurance broker how much you’re willing to pay in monthly premiums and ask for the best deal for the money. See Burial Insurance Vs. Life Insurance.
The Bottom Line
Don’t be wooed by “easy” insurance. Take the time to research your options and see what kind of deal you can get.
Even if you have health problems, you may still qualify for term or permanent life insurance and avoid the higher prices of “guaranteed issue” burial insurance policies. An independent insurance agent who deals with multiple companies can help steer you to the best buy for your situation. Ask the agent for quotes on a variety of insurance options that could cover funeral expenses.



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Burial Insurance Vs. Life Insurance

Term or whole life insurance is usually a better deal than burial policies. Here's why.
Whether it has a gentle name, like final expense, memorial or pre-need insurance, or is frankly called burial insurance, there are a variety of plans being sold to people who want to make sure they’ve tied up all their financial loose ends before they depart this life. A type of burial insurance – referred to as industrial life, small benefit and street insurance – was widely sold door-to-door in poorer neighborhoods in the past, though that is now on the decline.
Whatever it’s called, burial insurance is, in fact, a form of life insurance, and can be a term or permanent life policy. Many insurance companies sell it – and it is sometimes included in the pre-need packages offered by funeral homes.    
The Burial Insurance Sell
Often marketed to seniors, burial insurance plays to many powerful practical and emotional needs.
– Easy to get. You can buy the policy online or on the telephone without waiting for an insurance-company doctor to examine you. In fact, burial insurance does not require a medical exam. Applicants are asked about age, smoking history and whether they currently have some serious conditions, and for some policies acceptance is guaranteed. Some require a two-year premium-paying period before you can collect and only insure you to 100 years of age. This may seem like no problem, but remember that one out 10 people who survive to age 65 are expected to live past 95.
– Seemingly inexpensive. Burial insurance can be purchased for small amounts, such as $5,000 and $10,000, while other term or whole life insurance may require substantially larger minimum coverage. The premiums for burial insurance may therefore seem more affordable than bigger benefits policies; look more closely before you decide it’s a bargain.
– A love vehicle. The ads can be touching, touting burial insurance as one of the most important things you can do for your family so they don’t have to struggle to pay for your funeral and settle your bills. This is a worthy goal, but burial insurance is neither the only, nor necessarily the best, way to achieve it.
Life Insurance: Similar Cost, Much Higher Benefits
Consumer advocates have raised red flags about burial insurance. It’s “a predatory type of insurance,” according to J. Robert Hunter, director of insurance at the Consumer Federation of America. People who buy it tend to be less educated, minority and low-income, and they get a poor deal.  Hunter reports he recently helped a woman buy a 20-year term life policy with $75,000 in coverage for the same premium as a $5,000 burial policy.
Here’s why burial insurance is usually a bad deal. The very fact that a medical exam is not required and acceptance is guaranteed means you’re being insured as part of a high-risk pool of people. In order for the insurer to make a profit, the premiums have to be high relative to the benefit.
Yet most people, even with severe health issues, qualify for policies many times better than burial insurance. Don’t assume poor health locks you out of underwritten term or permanent life insurance policies. Term life insurance expires after a set period and you may need to go through the process again and not be eligible at that point, so find out what the options are when the term expires. Permanent life insurance, as the name implies, is guaranteed to cover you as long as you pay the premiums.
A Third Option
Another strategy for making sure your survivors have money to pay for final costs is to contribute regularly to a small savings account for that purpose, set up either as a trust or simply as a joint account with your designated survivor. This money could be withdrawn immediately if needed after you die. Survivors won’t have to wait for the insurance check or probate.
The Bottom Line
Think through your goals before you decide on how to set aside money for final costs. If the pressing issue is to make sure there are sufficient funds available to survivors to pay for a funeral and settle bills, a term or permanent life insurance policy can be purchased – or a bank account set up – for that purpose.
If the main concern is to ensure that the individual’s wishes for burial, cremation and/or memorial service will be funded and followed, and the demise is expected in the next few years, it may also pay to make pre-need pre-paid arrangements with a funeral provider. If a longer life is anticipated, this route has drawbacks, such as a possible change of mind about the services desired or a move to a location far from the funeral site. For more on the overall topic see Intro To Insurance: Types Of Life Insurance.



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