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Financial Planning

Health issues: The impact on your client’s wealth

The flu and other health issues can impact not only your client’s physical well being, but also their financial health. What steps can you take to help them prepare for this possibility? Here are conversations financial professionals may consider having with their clients about planning for the financial risk and cost of illnesses.

The threat of an illness

Approximately 43% of all adults received the flu vaccination during the 2015-16 flu season, asserts the Centers for Disease Control (CDC). Though figures aren’t exact, an estimated 9.2 to 35.6 million Americans are affected by the flu annually, resulting in 140,000 to 710,000 hospitalizations and between 12,000 and 56,000 deaths. Furthermore, between 70% and 85% of seasonal flu-related deaths have occurred in people over the age of 65.

An untimely diagnosis—whether the flu or another illness—can catch clients at all stages of life financially unprepared. Without enough assets and insurance, their caregivers or heirs could be left in financial straits. A reminder to clients to get their flu shot can be an effective lead-in to a discussion about the importance of life insurance protection, the significance of up-to-date beneficiary designations, and the preparation required to account for potential health complications later in life.

While some of these costs may be offset by health insurance plans, much will be paid out-of-pocket. In fact, the Centers for Medicare & Medicaid Services estimate that out-of-pocket spending for health care is projected to grow at an average of 4.4% through 2019.

Do people understand HSAS?

Only 51% of Americans believe they are knowledgeable about HSAs, according to a March 2018 joint report by the LIMRA Secure Retirement Institute and Insured Retirement Institute (IRI). The survey found that many Americans are unaware that they can use their HSA assets to pay for health care and long-term care expenses in retirement. Two out of five Americans mistakenly believed their balances had to be spent by the end of the year, or forfeited. This is an opportunity for you to help clients who are still working to utilize their HSAs.

Paying for health care in retirement

HSAs 

HSAs are only available in conjunction with high-deductible health insurance plans. Your clients may have this option via their employer or as a health insurance option if they are self-employed. Contributions to the HSA are made on a pre-tax basis and withdrawals to cover qualified medical and dental expenses come out tax-free.

An HSA can serve as an additional retirement savings option along with a client’s IRA, 401(k), annuity, and other investment and savings accounts. If your clients can cover out-of-pocket medical costs from other sources while they are working, the HSA can grow tax-free until retirement. The money can be used to cover Medicare premiums, some long-term care premiums and a host of other medical expenses.

Many employers and other administrators offer investment options for HSA accounts. Once the client reaches age 65, he or she can withdraw the money for any purpose beyond medical costs. The money will be taxed, but there are no penalties for non-medical related cost withdrawals. Note that once a client begins Medicare, he or she is ineligible for further HSA contributions.

Disability insurance

Disability insurance is often considered to be “lifestyle insurance,” as disability policies provide monthly payments if you are disabled and can’t work.

For clients who are employed, disability insurance is often part of the employee benefit options available. Group disability policies vary, but generally the terms are less flexible than the ones offered as part of an individual policy. For clients who derive a significant portion of their income from bonuses and other variable forms of compensation, their group policy may be limited to replacing a portion of their base salary only.

An individual disability policy can be a good solution for those clients who are self-employed and who otherwise don’t have access to disability coverage elsewhere. It may also be a smart solution as a supplement for clients covered by group disability through their employer to ensure they are adequately protected.

Medicare 

Medicare is the basic health insurance coverage for retired clients. Those who are receiving Social Security by age 65 will receive notification to enroll; others seeking to do so will need to take the initiative to enroll.

Clients enrolled for Medicare have the chance to review and change their coverage each year during the annual open enrollment period that runs from Oct. 15 through Dec. 7 each year. Encourage your clients to review their coverage and consider whether it still aligns with their medical needs.

Clients should also be aware of what Medicare does and does not cover. Consider having a conversation with them about this and help them explore Medicare supplements, Medigap policies and other alternatives to help ensure their coverage needs are met to the fullest extent possible. This can help mitigate the financial drain that healthcare costs can bring in retirement.

Long-term care insurance 

Along with the cost of medical and related care in retirement, the cost of long-term care in its various forms can drain your clients’ assets if they are not properly covered. The cost of nursing home care is high and increases every year. According to a recent study by Senior Living, the average costs for a private or semi-private room are:

   Semi-private  Private
 Daily  $225  $253
 Monthly  $6,844  $7,698
 Annual  $82,128  $92.376

These costs vary widely by state and even by city. If your clients don’t have proper coverage, this can spell financial ruin for a care-giving spouse and might mean that your client doesn’t receive the type and level of care they may need.

Protecting your health is critical to your wealth

With flu season in full steam, this is an opportune time to start an open dialogue with your clients about the importance of appropriate saving methods. Of course, many health events are unavoidable, but as a financial professional, it is critical that you encourage clients to have proper coverages in place to protect them and their families from the potentially devastating financial impact of a major illness or health event.

 

SM.1048195.10.18

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