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Health Savings Account Plans Individuals Question & Answers

2013 December 16
by Sarah Fields

Lizzie asks…

What do you think about the Gerber life grow up plan?

I would like to know some experiences with the Gerber life plan, what amount of insurance would you recommend if any, in your opinion how would it benefit my child in the future. I have a 4 month old son and plan on having more kids later on down the road. Please help need opinions. Thank you.

Sarah Fields answers:

Basically its a whole life policy where your premiums are paid for two things: The insurance and the cash value. While premiums may seem very low (about $216/year for $25,000 coverage), a 35 year old man that is healthy can purchase a 20 year term policy with $250,000 for about the same price! In the first 2 years of the policy, no cash value is accumulated. After that, you will get 1 to 3% interest on the cash value. I’m not sure how they determine how much of your premiums goes into the cash value. At age 18, the coverage doubles and premiums stay the same. So that means you were paying lots of premiums before the coverage doubled. When your child reach age 21, ownership of the policy is transferred from you to your child and your child can get ten times the coverage.

If you (or your child at age 21 or older) wanted take money out of the policy, you can borrow from the cash value. You will be charged 8% annual interest. When you pay this loan back, the interest goes to the insurance company. It’s similar to you withdrawing money from your savings account, but the bank giong to charge you daily interest until you put the money back. If you or your child cancels the policy while there’s a loan balance due, you will be responsible for income tax on the loan balance if the child is under 21. If the child is 21 years old or older, your child will be responsible for income tax on the loan balance. Surrender charge will apply on the cash value if you or your child cancels the policy. If the child dies and there is a loan balance, this amount plus interest plus missed premiums will be deducted from the face amount of the policy. All the cash value is kept by the insurance company.

In summary:
1) Its very expensive.
2) It gets a very low rate of return
3) No withdrawals allowed. You either borrow and pay 8% interest OR cancel the policy and pay surrender charges.
4) Lose cash value upon death of the child, but at least they pay the death benefit to you.
5) One policy per child

My recommendation:
Get a term policy on yourself. Most people only need 20 years. Some need 10 or 30 years. Financial experts say you should get coverage of ten times of your gross income. But every situation is different, so I would go with a company that can find the exact amount of coverage you really need or determine the amount of coverage you need by yourself. A good start would add all your debts. If you have $300,000 in total debts, then you going to need at least $300,000 in coverage. A 35 year old who is healthy and gets a 20 year level term with $300,000 coverage will cost about $20 to $25 per month. I used to own a 20 year level term with $250,000 coverage at age 23 and pay about $18/month. I now own a 30 year level term with $500k coverage at age 30 and pay $475/year for it.

If you are married, add a spouse rider to your policy. If you really want to put coverage on your child, you can add a child rider with a minimum of $5000 coverage to a maximum of $25,000 coverage. A child rider covers all children from 14 days old to age 25. At age 25, the child can get his or her own life insurance, regardless of health status. By adding these riders, your entire family can be protected in one life insurance policy. If you were to get individual life insurance policy for each member of your household, it will cost you lots of money.

I don’t know your other goals, but I’m guessing retirement and funding your child’s higher education (college) are 2 of the things you want to accomplish. Its kind of impossible for me to tell how much you need to save every month to accomplish both these goals. But I can give you some pointers. For retirement, you want to open a Roth IRA. You want to invest in mutual funds because mutual funds has historically out-perform the stock market in the long run. I invest $400/month in 4 different mutual funds. If the average annual return on my investment is 10%, in 20 years I will have about $306,000 saved. I would be 43 years old and plan to retire at age 60. So at age 60, I will have about $1.8 million. I’m being conservative with 10% because the mutual funds I have done 14% average annual return from 1980 to 2009.

I don’t have any kids, but if I did, I would open a 529 plan for my child to fund his or her higher education. There are other plans that can accomplish this goal such as Coverdell and UGMA/UTMA accounts. A Roth or Traditional IRA can even fund for your child’s higher education, but I would only use an IRA for retirement.

Carol asks…

Whose better suited to make your healthcare decisions; You, or the State?

Since unlimited “perfect” healthcare is prohibitively expensive, even for the world’s richest people, any healthcare, public, private, or self financed will inherently have to be rationed in some way.

The question is; who do you want making those rationing decisions for you?

This question becomes even more important when you realize that these rationing decisions apply not just to the standard of care but also to behavior.

Regardless of which system you use, risky behavior (and all behavior involves risk) will have to be weighed, by the entity controlling the healthcare funds, against the ability to pay for the potential injuries that might result.

It is important to keep in mind that the entity controlling the funds (the money is the one that gets to make these decisions.

When healthcare is self financed, the individual pays for their own healthcare “out-of-pocket,” likely from a savings account set aside for this purpose. This system grants the individual the most freedom, but also the most responsibility as it will be entirely up to them to decide how much money to appropriate for healthcare, which conditions to see a doctor about (as opposed to treat at home), and what behaviors to engage in.

On the other hand, private health care removes some of the responsibility and much of the decision making from the individual. While participation in these programs is usually voluntary, once someone has joined such a plan they will be required to abide by the requirements of the plan which include how much money will minimally be set aside for healthcare through the plan, what standard of care is available through the plan, and what forms of risky behavior are permissible (for example, some plans will not admit smokers and will penalize/cancel people for smoking). While these plans do restrict an individual’s behavior, enforce certain payment schedules, and pre-determine the standard of care an individual receives, all of this is known to the individual before they join, the individual joins out of free will, there are contractual requirements placed upon the insurer as well, and there are many plans to choose from, granting individuals to ability to find one that best fits their individual needs.

Finally, public, State controlled healthcare places total control in the hands of the State. Since the money will be taken from you through taxes, you have no control over the amount of money allocated for healthcare or even if you wish to join the State controlled plan. Unlike private plans which will merely cancel your coverage if you choose not to pay, the state can arrest and imprison you for refusal to pay your healthcare taxes. Also, under a state plan, the payer looses the ability to choose a plan that best fits their needs, as only one plan will be available. Also, whereas a private plan can only cancel your coverage if you engage in behavior forbidden under the plan, the State can use the cost of healthcare to criminalize these behaviors and arrest you for them. Under such a system, the State will determine the standard of care provided for each ailment, forcing subjects to hope that the lobby for their ailment is stronger then the lobbies of other ailments competing for the same funding. Finally, unlike private healthcare which is bound by contract, the state is under no such obligation and can “alter the deal” whenever they so choose.

This brings us back to our question, who do you want making your health care decisions, you or the State. Or to simplify the question, would you rather be a free person, making your own decisions, or a subject of the State, subject to its whims…

To those who say:

“You still have the right to take out private health care” under a State run system…

How are you going to afford private healthcare after the State has already forcibly taken all the money you would otherwise have spent on YOUR healthcare to pay for ITS “System”???

Sarah Fields answers:

If I was a liberal, I would say, I would like to take the money someone else worked for in order to fund my health and also, I would rather not think for myself.

Since I am a republican, I would rather work hard and make up my own mind about things.

Steven asks…

Would you be ok with a Health Care plan that Unions and Fed gov employees are exempt from?

Just curious that if / when these bill are finalized, and we find out the Federal Government employees and those in labor unions have a different plan…

Would you be ok with that?

Sarah Fields answers:


Making Healthcare Safe and Affordable

As recently as the 1960s, low-cost health insurance was available to virtually everyone in America – including people with existing medical problems. Doctors made house calls. A hospital stay cost only a few days’ pay. Charity hospitals were available to take care of families who could not afford to pay for healthcare.

Since then the federal government has increasingly intervened through Medicare, Medicaid, the HMO Act and tens of thousands of regulations on doctors, hospitals and health-insurance companies.

1. Establish Medical Saving Accounts.
Under this program, you could deposit tax-free money into a Medical Savings Account (MSA). Whenever you need the money to pay medical bills, you will be able to withdraw it. For individuals without an MSA, the Libertarian Party will work to make all healthcare expenditures 100 percent tax deductible.

2. Deregulate the healthcare industry.
We should repeal all government policies that increase health costs and decrease the availability of medical services. For example, every state has laws that mandate coverage of specific disabilities and diseases. These laws reduce consumer choice and increase the cost of health insurance. By making insurance more expensive, mandated benefits increase the number of uninsured American workers.

3. Remove barriers to safe, affordable medicines.
We should replace harmful government agencies like the Food & Drug Administration (FDA) with more agile, free-market alternatives. The mission of the FDA is to protect us from unsafe medicines. In fact, the FDA has driven up healthcare costs and deprived millions of Americans of much-needed treatments. For example, during a 10-year delay in approving Propanolol Propranolol (a heart medication for treating angina and hypertension), approximately 100,000 people died who could have been treated with this lifesaving drug. Bureaucratic roadblocks kill sick Americans.

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