insurance

Life Insurance: FAQs

Scarsdale accountant Paul Herman has all the answers to your personal finance questions! The following are frequently asked questions our Westchester CPA firm receives regarding life insurance. Get to know these important facts, as well as our previous life insurance discussion, to make sure you choose the best possible life insurance for you!

▼ How are people classified for rate purposes?

To ensure that you receive the best rate possible it is useful to understand how these premiums are calculated by insurers. Firstly insurers will place people into four main categories:

  • Preferred
  • Standard
  • Substandard
  • Uninsurable

Someone who has a semi-serious illness such as diabetes or heart disease can be insured but will pay a higher premium. People with a chronic illness will be placed in the substandard category. Someone with a terminal illness will be rendered uninsurable.

People with high risk jobs or hobbies will be considered substandard as well.

The premiums that you are charged will correlate with the category that you are placed in.

Life Insurance FAQs from Scarsdale CPA

Life insurance can be a real life-saver for your dependents!

Since the categorizing is not an exact science, one company may place you in a different category than another, thus drastically changing the prices of your premiums.

Once you are approved for coverage from a company, they cannot deny you coverage for any reason unless you cease payment.

 What should I be on the lookout for when I am purchasing life insurance?

First of all, beware that many insurance salespeople work on a commission basis, and may want to persuade you to purchase the policy that brings them the largest commission, rather than getting you the policy that makes the most sense for you.

Most of all, be sure that the company you are buying from will be in existence when you need them. Make sure that you check the insurer’s rating before you consider doing business with them.

Always review the costs of any recommended policy. The commissions will be stated, and you can see exactly where the money that you contribute will go.

Ask the insurance agent to explain the different policies and why the one you agree on is the best for you considering your circumstances.

▼ How can I easily compare prices between insurance companies?

In most states there will be a set of rules laid down by a group of insurance regulators. Agents may be required to calculate two different types of indexes to aid in price shopping.

  • Net payment index
  • Surrender cost index

The net payment index calculates the cost of carrying the policy for ten to twenty years. This can be judged easily by remembering that the lower this number is, the more inexpensive the policy is. This is most helpful if you are more concerned with the death payout than the investment.

On the other hand, the surrender cost index is more useful to those who are concerned with the cash value of the investment. The lower this number is, the better.

The cash surrender value is what you will receive in return if you were to surrender the policy, which is different than the cash accumulation value. If you are checking the prices of universal life policies, if the policies have different premiums and death benefits, the policy with the higher cash surrender value would be the better investment.

▼ Why should I have life insurance? Do I really need it?

The main reason that people purchase life insurance is to know that in the event of their passing, their children and loved ones will be taken care of. Life insurance can also help with the distribution of your estate. Your payout could go to family, charity, or wherever you choose to distribute it.

The main reasons to buy life insurance would be because you have dependents that would be put in a tough position without you providing for them. For example, if you have a spouse, a child, or a parent who is dependent on your income, you should have life insurance.

If you have a spouse and young children, you will need more insurance than someone with older children, because they will be dependents for a longer amount of time than older children. If you are in a position where you and your spouse both earn for the family, then you should both be insured in proportion to the incomes that you garner.

If you have a spouse and older children or no children, you will still want to have life insurance, but you won’t need the same level of insurance as in the first example, just enough to ensure that your spouse will be provided for, to cover your burial expenses, and to settle the debts that you have accumulated.

If you don’t have children or a spouse, you will only need enough insurance to make sure that your burial expenses are covered, unless you would like to have an insurance policy in order to help in the distribution of your estate.

 What amount of life insurance should I have?

In order to figure out how much insurance you need, you will need to explore your current household expenses, debts, assets, and streams of income. If you need assistance in this, consult either your accountant or financial advisor.

The amount of money that you want to leave behind for your dependents should allow them to use some of the money to maintain their current standard of living, then reinvest another lump sum to ensure that they will be well off in the future.

When attempting to calculate the amount of money that you need to leave behind, be extremely meticulous. If you err low, your family may not receive the help that they need from the insurance company, and if you err the other way, you will be spending more than necessary in insurance premiums.

Our Scarsdale tax preparers here at Herman & Company CPA’s are here for all your financial needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Bedford Hills NY, Bronxville NY, Harrison NY, Mt. Kisco NY, Larchmont NY, Scarsdale NY, Rye Brook NY, Stamford CT and beyond.

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Which Type of Life Insurance Fits Me Best?

Scarsdale CPA Paul Herman has all the answers to your personal finance questions! As we pass lifetime milestones such as getting married, having children and starting a business, the need for life insurance grows increasingly important. However, choosing a specific type of life insurance can be a tricky process. Discover which type of life insurance is the best match for you:

There are 7 major types of life insurance:

  • Term
  • Renewable
  • Re-entry
  • Level
  • Decreasing
  • Cash Value
  • Whole Life
  • Universal Life
  • Variable Universal
  • Variable Whole Life
▼ Term

Term insurance is best described as a policy for which you pay over a specific amount of time. In the event that you die within that period of time, your beneficiaries will receive a payoff.

Types of Life Insurance from Scarsdale Tax Preparers

Get to know the different types of life insurance available to determine the best match for you.

People that are under the age of 40 will find this package less costly than a whole life policy. These policies generally do not build in cash value. However, they can convert over to a whole life policy without a mandatory physical.

▼ Renewable

The policy which is bought most frequently is the Renewable Term Policy. This policy renews every year without you having to do anything, and there is no need to input any new information or take physicals. This can continue every year until you are in your 70s. The policy will increase incrementally every year, along with your age.

▼ Re-entry

With this life insurance policy, you will have to periodically take physicals for the company to judge your rate of risk. If you don’t, you will be subject to paying an extra premium.

▼ Level

In the Level Term policies, you will be locked into a given rate of premium and you will stay there during a certain period (although not necessarily during the entire period of coverage).

▼ Decreasing

A Decreasing policy is one which decreases in face value with time while the premium remains the same.

▼ Whole Life

Whole Life is the most traditional policy given; this has a cash-value build up, sometimes offers dividends, and provides death benefits. This is not a policy that needs to be renewed constantly, as long as the payments are made, the policy will continue until death.

▼ Universal Life

This policy is similar to the whole life policy. However, it offers more flexibility in many ways; you will have different options in cash value growth and the payment of premiums.

 Variable Universal

Variable Universal policies will give you the option to choose the investments for your cash value. This is more risky, but simultaneously gives you more control over where this money is invested.

 Variable Whole Life

This is the same as the previous in regards to control over the investments that are made. The difference between these two is the same as the difference between Whole Life and Variable.

Our Scarsdale tax preparers here at Herman & Company CPA’s are here for all your financial needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Armonk NY, Bedford NY, Harrison NY, Scarsdale NY, Bronxville NY, Mamaroneck NY, Greenwich CT and beyond.

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Getting Divorced: FAQs Part 2

Scarsdale CPA Paul Herman has all the answers to your personal finance questions! Continuing our “Getting Divorced: FAQs Part 1” discussion, the following are more frequently asked questions and answers regarding divorce and your finances.:
▼ During a divorce, what are the legal issues that must be handled?

Make an agreement with your spouse to plan for the legal issues that will be dealt with in the future, such as division of property, alimony or support payments and child custody. Divorce FAQS from Scarsdale Accountant

 

The amount of time and money that will be spent trying to reach a legal solution will be lessened dramatically if this can be done, either with the help of lawyers or court. The following are general tips to face the legal aspects of divorce:

  • If there are important issues with regards to child custody, alimony or assets, find your own attorney.
  • Use referrals from other professionals, trusted friends or the American Academy of Matrimonial Lawyers to find a good matrimonial lawyer.
  • Verify that the agreement of divorce approaches all topics such as insurance coverage, life health and auto.
  • On IRA accounts, life insurance policies, pension plans, 401(k) plans, and other retirement accounts make sure to modify the beneficiaries.
  • Update your will.
▼ How does the division of property in a divorce work?

Each state has their own laws regarding the division of property between ex-spouses. When it comes to applying those laws, matrimonial judges have a great amount of flexibility.

Whether or not an attorney represents you, you should make sure to have done the following:

  • Learn how the laws of your state function with respect to property division.
  • Make sure to have the papers to confirm that property owned separately during the marriage has been kept separate.
  • Be prepared to report any non-financial contributions to the marriage that you have made – such as any non-financial contributions to his/her financial success or spousal support while he/she went to school.
  • Be willing to report any need for alimony or child support.

Consider having the divorce agreement supply you with funds if you have not worked outside of the home during the marriage.

▼ With a divorce, what are the tax implications?

Upon completion of a divorce, individual tax returns will be filed. There are a few areas that may result in tax consequences. The following are the most common:

  • Child Support
    It is not taxable to the recipient and is not deductible by the payer. If it is specially designated as child support in a divorce agreement or lessened by the occurrence of a contingency relative to the child, meaning a child reaches a specified age, it is considered as a payment.
  • Alimony
    It is taxable to the recipient and deductible by the payers. It is known as a payment in accordance with a divorce agreement other than child support or when allocated in the decree as something other than alimony. In a separation agreement, similar treatment is in accordance with separate maintenance payments. Payments may not end upon death of the recipient and may not be front-loaded.
  • Property Settlements
    When in accordance with the divorce or separation, they are not taxable. In the event of transfers of assets amongst spouses, they do not become taxable income, gains, loses, or deductions. The recipient spouse gets the cost basis of the property. Your spouse may provide you with an equal share of the property based on a fair market value, but be careful with the lower basis. In the end, it can produce a taxable gain at the asset’s sale.
 When retirement plans or IRAs are divided in a divorce, what happens?

If in accordance with the qualified domestic relations order or other order of the court in the case of an IRA, these plans are separated as non-taxable. However, this is the case only if the assets stay in the retirement account or IRA. Once the funds are allocated, they will be taxed to the recipient. The payer does not get the benefit of a deduction and the recipient does not have taxable income when divided.

 Is the cost of getting a divorce a deduction?

Typically no, although specific fees paid for income or estate tax advice due to the divorce may be deductible. The fees used to decide the alimony amount or to collect the alimony may be deducted. These would be subject to the 2% limitation under the miscellaneous item deductions.

▼ Am I entitled to deduct the dependency exemption of a child after divorce?

Typically, the custodial parent has the right to the deduction. This is normally discussed in divorce agreement negotiations. If agreed to in writing, the non-custodial parent may have the deduction.

Scarsdale accountant Paul Herman is here to help you with all your personal finance needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Armonk NY, Bedford Hills NY, Harrison NY, Katonah NY, Scarsdale NY, Purchase NY, Rye NY, Greenwich CT and beyond.

How Do Your Finances Change When You Get Married? FAQs, Part 1

Scarsdale CPA Paul Herman has all the answers to your personal finance questions!  
Marriage and finance tips from scarsdale tax preparers

Marriage can have a large impact on your personal finances.

 

 

Marriage is an exciting milestone, and a wonderful time for all of those involved. However, with marriage also comes many changes in terms of your finances. The following are FAQs our Westchester CPA firm receives on marriage and how it can affect your financial situation:

How does legal treatment differ between married and unmarried couples?

 

Unmarried couples don’t:

  • Inherit each other’s property automatically. Married couples have the state intestacy laws to support them if they do not have a will. Under the law, the surviving spouse will inherit (at the minimum) a fraction of the deceased spouse’s property.
  • Have the privilege to speak for one another in a medical crisis. In the case that your life partner loses capacity or consciousness, someone will have to make the go-ahead decision for a medical purpose. It should be you, but if you haven’t filed certain paperwork, you may not have the ability to do so.
  • Have the privilege to handle one another’s finances in a crisis. A married couple that jointly own assets is less affected by this problem than an unmarried couple.
▼ How should unmarried couples protect their estate and financial holdings?

Here are some important steps to take for couples that are unmarried:

  • Draft wills. The chances of the intentions being followed through with after a death are greater if both partners make wills. Without wills, the probability of the unmarried surviving partner having no rights is more likely.
  • Think about owning property together. This is a way to guarantee that property will pass to the other joint owner at the time of the other’s death due to the right of survivorship.
  • Make a durable power of attorney. This will permit the partner to sign papers and checks and take care of other financial issues on his/her behalf should one become incapacitated.
  • Make a health care proxy. Also known as a medical power of attorney, this permits the partner to talk on your behalf to make medical decisions, should you become injured.
  • Have a living will. This lets your wishes regarding artificial feeding and other measures to prolong your life be known.
▼ Is more insurance necessary for married couples?

In the case of death, life insurance will provide a form of income for your dependents, children or whoever is your beneficiary. Because of this, married couples usually require more life insurance than singles.

Having someone dependent on your income will determine if you need to have life insurance. If someone such as a child, parent, spouse or other individual is dependent on your income, you should have life insurance. The following are situations where life insurance is necessary:

  • Single parents or families with young children or other dependents. The younger your children, the more insurance is necessary. Insurance should be in proportion to the amount earned. If both spouses are working, they should both be insured. If both earners cannot afford to be insured, the primary wage earner should be the first to be insured and the secondary will follow. To fill the insurance gap, a less expensive term policy may be used. Insurance should be bought to cover the absence of services such as childcare, bookkeeping, housekeeping, which are provided by the spouse that works within the home. The insurance that covers the non-wage earner is secondary to the insurance that covers the wage earner’s life, if funds are scarce.
  • Adults that have no children or other dependents. You will need less insurance than people in the previous situation if your spouse can live comfortably without income. However, some form of life insurance is still necessary. You will want at least enough to cover burial expenses, to pay off any debts you may have acquired, and to provide an easy transition for the surviving spouse. You may want to buy more insurance if you think your spouse would go through financial hardship without your income or if your savings aren’t adequate. This depends on your salary level as well as the amount of your spouse’s, the amount of savings you have and the amount of debt incurred.
  • Single adults without dependents. Unless you would like to use insurance for the purposes of estate planning, you will only need insurance to cover expenses for burial and debts.
  • Children. Typically, children only need life insurance to cover burial expenses and medical debts. An insurance policy could also be used as a long-term savings instrument, in some instances.

Scarsdale accountant Paul Herman is here to help you with all your personal finance needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Larchmont NY, Scarsdale NY, Purchase NY, Mount Kisco NY, Briarcliff Manor NY, North Salem NY and beyond.

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Long-Term Care Insurance FAQ

Scarsdale CPA Paul Herman has all the answers to your personal finance questions!
▼ Is it worthwhile for me to purchase long term insurance?

There are good arguments for and against purchasing this type of insurance, and every person’s situation will differ.

Long-term insurance information from scarsdale accountant

With life expectancy rates on the rise, purchasing long-term insurance makes sense for many Americans.

Even though Long-Term Care Insurance can be costly up front, it could save you from paying much more in the long run. The home care coverage that is included in the policies could possibly allow you to live independently for more time before having to switch to assisted living. Since the price of this service increases with time, if you choose to purchase it, it is much better to do so earlier than later.

If this policy is too expensive for you, it may be a better idea to apply for Medicaid. Some of these policies may not give you enough money to stay at home and will force you into assisted living if you don’t have sufficient funds to support yourself and your personal help.

▼ What features should I look for in a Long-Term Care Insurance Policy?

The four main factors that you will want to take into consideration when looking for a LTCI policy are: flexibility, eligibility, inflation, and duration.

Check to make sure that the flexibility of your policy allows for personal help so you can stay in your home for as long as possible before assisted living is absolutely necessary. Some of the policies will allow you to be paid cash for you to distribute as you please.

Make sure that your policy will pay for more than just what is medically necessary. These policies may not cover all of your needs.

Make sure that you are protected against inflation; you can place a clause into the policy that your payout adjusts 5% annually to cover you against raising prices.

Remember that a policy which lasts 5 years is probably more than you would need. A policy of two to three years will generally be enough.

▼ Do I really need Long-Term Care Insurance?

Over 40% of the American population will eventually need to be in a nursing home or an assisted living facility. Your chances of needing this depend on a number of health factors.

▼ Is it worthwhile for me to purchase long term insurance?

There are good arguments for and against purchasing this type of insurance, and every person’s situation will differ.

Even though Long-Term Care Insurance can be costly up front, it could save you from paying much more in the long run. The home care coverage that is included in the policies could possibly allow you to live independently for more time before having to switch to assisted living. Since the price of this service increases with time, if you choose to purchase it, it is much better to do so earlier than later.

If this policy is too expensive for you, it may be a better idea to apply for Medicaid. Some of these policies may not give you enough money to stay at home and will force you into assisted living if you don’t have sufficient funds to support yourself and your personal help.

▼ What is the elimination period?

The elimination period is the time you will need to wait from the time you are ready to get the long term insurance to the time in which you will actually receive it. This period of time is negotiable in the terms of the contract and the longer this time period is, the cheaper the premium.

▼ How are Long Term Insurance Companies rated?

These companies are rated in the same manner in which stocks and bonds are rated, through Standard and Poor’s.

▼ How can I ensure that I have adequate coverage?

  • Make sure that your policy can be renewed every year
  • Know that if you are disabled, yet able to work part time, you will still receive coverage
  • Choose a waiting period (elimination period) of three to six months, to keep the premium down, and then set aside a nest egg for that time.
  • Make sure you will be eligible to receive coverage until the age of 65, when your retirements will kick in.
  • Make sure that the policy will pay if you cannot perform the work in your field.

The elimination period is the time you will need to wait from the time you are ready to get the long term insurance to the time in which you will actually receive it. This period of time is negotiable in the terms of the contract and the longer this time period is, the cheaper the premium.

Scarsdale tax preparers at Herman & Company CPA’s are here to help you with all your personal finance needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Mamaroneck NY, Scarsdale NY, Bedford NY, Katonah NY, Purchase NY, Rye NY and beyond.

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Health and Medical Insurance FAQ’s for Employers

Scarsdale accountant Paul Herman has all the answers to your personal finance questions! Health Insurance tips for employers from Scarsdale tax preparersAs advisors to many businesses, we are frequently addressed with the following common questions regarding health and medical insurance for employees.
▼ Are there different types of medical plans for employees?

There are two options: a fee-for-service plan, or a pre-paid plan (commonly referred to as a Health Maintenance Organization, or HMO).

An indemnity plan or insurance permits each employee to decide their own doctor. The employee will pay for the medical care and then file a claim with the insurance company for reimbursement. There are deductibles and coinsurance as well. Deductibles vary from $100 to $1000 a year.

With coinsurance, a percentage of the medical expenses are paid by the employee and the remaining are covered by the plan. 20 percent is the normal coinsurance amount to be paid by the employee – the remaining 80 percent is paid by the plan.

There are three common indemnity plans that give health care to groups of employees: 1) a basic health insurance plan that will cover hospitalization and surgery as well as physician’s care in the hospital; 2) an insurance plan that will supplement the basic plan by reimbursing the charges not paid by that plan; and 3) a comprehensive plan that (with one common deductible and coinsurance features) will cover both hospital and medical care.

▼ What is a preferred provider organization (PPO)?

A network of doctors and/or hospitals that has contracts with a particular health insurer or employer that will give health care to employees at lower than the market rate. This offers a broad range of health care providers.

PPOs can be more expensive than HMOs due to the broader range of providers. There are no obligations to use the PPO providers, but there are strong financial incentives. PPOs often have less comprehensive benefits when compared to HMOs. The PPO providers normally receive payment from the insurers directly.

▼ What is a health maintenance organization (HMO)?

Health care that is provided through a network of hospitals and doctors is a health maintenance organization (HMO). The benefits usually include preventative care, such as physical examinations, weight control and stop-smoking programs, baby care and immunizations. The most common characteristic of HMOs is that the primary care provider is limited to only one doctor within a network, although there is usually a variety to choose from.

Outside of the network of hospitals and doctors of the HMO, there is no coverage. Due to the limited choices, the costs are lower. The payment for the HMO premiums are fixed and per employee. A small co-pay is due for the medical services, and no reimbursement is necessary.

▼ What are the typical disability benefits provided to employees?

If an employee cannot work due to illness or accident, the disability plan gives him/her income replacement. These defer from worker’s compensation as they pay benefits for non-work related illness and injury, and can be either short-term or long-term.

Short-term disability (STD) is used if the employee is unable to perform the normal duties of his/her occupation. The benefits are typically paid for a maximum of 26 weeks and begin on either the first or the eighth day of disability. The benefit level is dependent upon the employee’s salary and will range from 60 to 80 percent.

Long-term disability (LTD) commences after the conclusion of the short-term benefits. LTD benefits then continue for the entire length of the disability or until the date of normal retirement. This is also a percentage of the employee’s salary, typically between 60 and 80 percent. Social Security disability normally offsets these benefits – if an employee qualifies for the Social Security disability benefits, they will be subtracted from what the employer has paid.

Our Scarsdale tax preparers are here to help you with all your personal finance needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves White Plains NY, Mamaroneck NY, Larchmont NY, Purchase NY, Rye NY, Scarsdale NY and beyond.

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Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.