Transfer the Risk by Using Insurance
Transferring the cost risk through the use of insurance rather than your own retirement assets employs the concept of “discounted dollars.” As you may recall, the concept of discounted dollars (paying pennies to get one dollar of benefit) is the fourth D of effective tax planning. The concept behind insurance is very simple. You and others like you make small contributions to a pool in exchange for protection from a particular disaster. This may be fire, auto coverage, life insurance or heath-risk coverage. Premiums for any of these forms of insurance are not deductible from income, but proceeds from a claim are not taxable when received. The term “discounted dollars” applies since what you pay in premiums is a mere fraction of the benefit you would receive from a claim.
I want to look at two insurance products that can help address these health-related costs: critical illness and long-term care. For each of these insurance vehicles I will provide a brief overview of what they are and what they do. You need to talk to your advisor about the details and the merits of either or both of these in your own situation.
Critical Illness (CI) Insurance
A critical illness is defined as the diagnosis of or the onset of heart attack, life-threatening cancer, stroke, coronary-artery bypass surgery, multiple sclerosis, Alzheimer’s, Parkinson’s, major organ transplant, kidney failure, paralysis, coma, blindness, deafness or loss of speech. Today in ...