Today, Rick Bloom is joined by Mark Orechkin of the Orechkin Insurance Agency in Southfield, Michigan. With many people losing their jobs in 2020, we have a lot to cover.
We start with health insurance options when you lose or change jobs, including COBRA, short term medical policies, Medicare, qualifying events, and what changed with the Affordable Care Act.
Next, Rick and Mark discuss life insurance - and why it's important to not rely solely on what's provided by your employer. They also cover permanent and term policies.
Mark explains why you should never lie when applying for insurance.
We also cover disability insurance and the many forms it can take.
Finally, as always, Rick answers your emails. Today we cover questions regarding inherited Roth IRAs, using a bond or money market fund as an emergency fund, and the rules around required minimum distributions, or RMDs.
Orechkin Insurance Agency Website: https://www.orechkininsuranceagency.com/
Orechkin Insurance Agency Phone Number: (248) 356-8820
If you have a question for Rick Bloom, you can email him at Rick@RickBloomTalksMoney.com
Bloom Asset Management website: http://www.bloomassetmanagement.com/
Let's Talk About Insurance
Rick: Hello and welcome. I'm Rick Bloom. Welcome to Rick Bloom Talks Money. I'm a certified public accountant, attorney at law, and financial advisor. The goal of our podcast is real simple. It's to make sure you make better decisions with your money because I believe money looks better in your pocket than it does anywhere else.
Independent financial advice. That's what you're going to get from this podcast all the time. And on every podcast we're going to take your questions at the end. So if you've got questions, Rick@rickbloomtalksmoney.com is our email. That email again is Rick@rickbloomtalksmoney.com.
As you know, the purpose of this show is to help you make better decisions with your money. And unfortunately, we've had 5 million -- over 5 million Americans have lost their healthcare because of the COVID-19 and it's a problem. And not only are people losing their healthcare, but also potentially any life insurance that they have with their company, disability. So I thought it's important to go through what your rights are and what you should be doing. And as far as I'm concerned, no better person to talk to than an old friend of mine, Mark from the Orechkin Agency out of Southfield. I've known Mark for over 50 years. He's been in the business for over 40 years, so he's seen just about everything.
Mark, good afternoon and thanks so much for joining us today.
Mark: Hi Rick. Thanks for having me. It's just like old times.
Rick: It is just like old times on the radio. When I had my money talk show, Mark was a guest many times.
Mark, healthcare has changed a lot in your 40 years, and so the real issue for someone that loses their healthcare today is what should they be doing? What's the first step when they lose their healthcare?
Mark: You know, they should check with their employer first because if the group is larger than 20, they'd be able to go on COBRA. That's where they continue with the health insurance, through their employer.
Rick: Let me just make sure people understand what COBRA is. COBRA is a federal law, it's been around for about 35 years and as Mark said, if you work for a company with 20 or more people, your employer has to offer you the right to pay for your own coverage. A lot of people will complain that COBRA gets to be expensive because they're just not paying their share, they're also paying the employer share. But COBRA is a right if you work in a company with more than 20 people.
Mark: Exactly, Rick. It's the same benefits that your employer was offering. Like you just said, not only are you paying your portion, but you're also paying what the employer paid. And the employer also can charge -- I think it's like 2% premium to administer the COBRA.
You have rights. So even if you’ve lost your job, you could qualify for an individual health insurance.You know, due the Affordable Care Act you can only apply for insurance during open enrollment. The important thing to remember is this is called a qualifying event when you lose your job. So you'd still be able to get insurance, even though it's not during open enrollment.
Rick: So Mark, why wouldn't someone automatically say I'll just take COBRA, and COBRA gives you 18 months? Why wouldn't someone just say take COBRA?
Mark: I mean, that would be the easy way, but it could be a lot more expensive. Due to the Affordable Care Act you can go on to healthcare.gov and if you don't have an income, you might qualify for a supplement. So you might be getting some help from the government to help cover the health insurance premiums.
Rick: Mark, what about if someone has a spouse that's working and they did have family coverage, but it wasn't elected because you had a job where you were getting healthcare coverage on your own; can people go back to the spouse’s employer and add themselves on now?
Mark: I believe they can, again, that's called a qualifying event. So if the spouse lost their job, they can go on to their other spouse’s policy.
Rick: One other thing about COBRA that's important, you have two months, so you don't really have a lot of time. So Mark, if someone's going to say that they're going to get an individual policy. What's the process of getting an individual policy?
Mark: Let me just stop right there? Also, if they're in between jobs, let's say they lost their job and they know that they're going to be starting another job; they really don't want to apply for a full health insurance policy. They could do a short-term medical policy. And those are available and they're a lot less expensive than if you were to apply for a health insurance policy like Blue Cross or United Healthcare or something like Priority Health. Those are just to name a few.
Rick: And is that because there's a waiting period between different -- if you start a new policy, there's a waiting period before you can get the coverage.
Mark: Yes, most employers have you wait. I mean, as a general rule, it's usually 90 days. So you’re without coverage for that 90 days. And it'd be ridiculous to apply for a regular health insurance policy when you could do a short-term medical and pay a lot less premium for it.
Rick: When someone gets a new policy, they don't have to worry about preexisting conditions anymore; do they?
Mark: No. That's the whole purpose of the Affordable Care Act. There is no preexisting conditions.And especially if there's a qualifying event, it's just like they're healthy, no big deal. But for a short-term medical, yes. You have to be in good health to apply for that.
Rick: So short-term medical, there still is preexisting conditions where long-term there is not.
Mark: Absolutely not. Right.
Rick: So right now when someone loses their job, is it easy to find another policy or is it going to be more difficult? Is there any underwriting involved?
Mark: No, there's no underwriting. As long as you can prove that you have a qualifying event, you can do it online, you can call us, we do it for you and it's very simple.
Rick: So, if someone called the Orechkin Agency and said, you know, I lost my healthcare now I want new coverage, how long is it going to take them to get approved and get coverage?
Mark: It'll go into effect the day after they lost their job. I mean, it might take a couple of days to get it through the process, but after that, it's pretty easy to go through.
Rick: And I think the key is for people to be proactive. I mean, it's always a kick in the gut when you lose your job. But you really have to find out what's going to happen with your healthcare and not delay too long, especially if you have a company with less than 20 people, if you don't get COBRA, you could lose your healthcare pretty immediately; can't you?
Mark: Exactly. I mean, it's usually it stops the day that you were terminated, or you lost your job or whatever, but COBRA can go for 18 months if they decide to elect COBRA.
Rick: What about someone that is in their early sixties and they're not eligible for Medicare yet. How long can you get a short-term policy until you're eligible for Medicare?
Mark: Short-term medical are usually only for six months. So that's not the purpose of a short-term medical. It's usually when you're between jobs and you have the waiting period on your new position, not sure if you're going to go back to work, it just gives you some time. You could keep it up to six months.
Rick: It would seem to me that if someone loses their healthcare through work, they should talk to their employer, find out about COBRA, and then they should talk to someone like you to get a bid, to see what an individual policy is because there may be substantial savings there.
Mark: Absolutely. Absolutely. And you'd be amazed for example, Blue Cross. I mean, they have a ton of different plans to fit everybody's budget.
Rick: And I think that’s the key -- don't believe everything you read, there are different types of policies available. It depends upon your individual situation.
Mark: Everybody's different, Rick. Everybody's different.
Rick: And that is true. You know, Mark, healthcare obviously is a as a major issue, but what also is a major issue is people will have, let's say a lot of their life insurance through work. A lot of employers provide some sort of benefit for life insurance and then you could buy, you know, additional coverage, which so many people do. The problem is when you lose your job or you leave a company, most of the insurance is not portable. You can't take it with you, you lose it.
Mark: So group, life and group disability are different than health insurance. The employer, when he puts the policy into force has to elect if he wants the coverage to be portable. It costs the employer more to make it portable. So you find that most employers say, why would I, I want to pay more money to make the policy portable if an employee leaves, resigns or gets terminated. So as a whole, most policies are not portable when it comes to life or disability insurance. I always tell people by individual policies on top of the group, because you never ever know. The employer might at some point, just cancel the group coverage. You know, he might say, I'm not offering group insurance anymore.
Rick: Particularly, it would seem to me for someone in pretty good health, they're going to be able to get a very competitive policy, maybe even at a lower rate than they're getting through their employer.
Mark: Rick, you just hit the nail on the head. Group insurance is based on your age and it goes up each and every year or every five years; it depends on the plan design. With individual policies, if you're buying a term policy, you can actually lock in term insurance as long as 40 years now and never worry about the price going up, and it gets locked in. And if you're young and you're healthy, you'll be amazed how cheap term insurance is.
Rick: And when you talk about 40 year, you can get term insurance for five years, 10 years, 20 years, 30 years, you could match the term that you need insurance for.
Mark: No doubt. And if it's done right, if you need insurance for longer, and there are some situations where people have to have insurance for longer, you can actually design a permanent policy to mimic a term policy so it doesn't have any type of cash value accumulation. You're only buying it for longevity, and it will do exactly what a term policy will do. As long as you pay your premiums, you're covered, and you don't have to worry about any type of extra costs to going into cash values or anything like that.
Rick: You know, Mark, unlike in a healthcare situation, with preexisting conditions your health does affect your premiums with life insurance. And so one of the issues that people should look at when they start a company and they say, I'm going to get my insurance through that company, is that if their health changes over the years and then they lose their job, it may become more difficult to get life insurance and certainly more expensive.
Mark: Again, Rick, remember you do have to qualify for the life insurance. If your health has changed-- let's say you had to leave your position because you did have a health issue. It's going to be very difficult to get you a good rate, especially if you have some type of major medical problem. So it's, again, I always tell people to have it alongside the group policy. The group policy is gravy, the individual policy is a lot more flexible. So if you need it longer, we can make it go longer by converting it to a permanent policy. And if you don't need it anymore, you can stop paying and the policy is no longer in effect. You know, as we get older, we don't need as much coverage. So let's say you're young and you're part of a larger policy because you have a family, you might not need as much when you turn 60 and you might need to reduce it. You could also do that with a lot of policies.
Rick: Mark, let's talk about term insurance and you see a lot of ads on TV for term insurance. What's the difference between using an agent like you to buy term insurance versus going on the internet and buy it?
Mark: You know, my agency actually represents around 60 companies that includes life, health, disability, and annuities. So we have a wide range of companies that we represent. What we do is after we talk to the person as far as their health family history, driving record past medical, you know, there's just a wide range of questions we need to ask. And then we decide which company we will take that client to that will best suit their needs. You call a lot of these online places and they only represent a handful of companies and they pick the one that usually pays them the highest commission. We don't do that here. We do what's best for the client. So we look around, we shop it around. We actually-- we have a software system that gets updated every morning and it updates and tells us the lowest cost term policies in the country every day. So I know based on the information the person tells me-- you know, of course I can't look inside their body so if they don't know they have a health issue or they don't tell me, I can't help them with that. But if they tell me the information, I can come pretty close and get the class and the costs for the person based on the information, they told me.
Rick: So if somebody loses their job, they lose their healthcare, they lose their life insurance, they really don't have a lot of good options on life insurance other than to get new. What factors enter into the equation, Mark, in how premiums are priced with life insurance? It's not only based upon your age it's also based upon your health.
Mark: Your health, if you smoke, family history, driving record. There's a multitude of questions that we need to ask. Yes. But health is a major issue. If you use drugs.
Rick: Someone I was talking to about, insurance and they said to me, well, just lie on your application; they're never going to find out. And I always tell people do not lie when you're filling out an insurance application. And you know you're dealing with a not very good agent if your agent tells you to lie, you have to be honest on those things.
Mark: You know, I could write a book on stories of people lying. We find out. Number one, I don't personally do it, but we're going to have your blood and urine drawn and nicotine shows up. I can't tell you how many people tell us they're non-smokers and it shows up in your urine. The insurance companies are smart. They go and get attending physician statements. They can get prescription records based on your social security number. Absolutely do not lie because in the state of Michigan, there's a two-year contestability period, which means if you commit fraud and you die, the insurance company can contest paying off the claim. So absolutely-- I tell people, I ask every single question. And I hope people tell me the truth, but so many times – I can't even tell you how many. I had one guy come to my office one time and told me he was a non-smoker and he had cigarettes in his shirt pocket.
Rick: And Mark, if your agent tells you it's okay to fudge on the applications, you know, you're dealing with the wrong guy; isn't that true?
Mark: Exactly, Rick. Listen, if I asked you if you smoke and you said to me, you know, I tried a cigarette one time when I was 16 years old and I hated it. I haven't had a cigarette ever since you're not a smoker. You just, you tried it that's it. But if you're having a cigarette every day, a couple of cigarettes, you're considered a smoker.
Rick: And I can't stress that enough, be honest because the problem is when you go to collect the benefit sometime, if it turns out that you weren't honest, it could really impact you getting your benefits.
Mark: And underwriters don't like surprises. When they classify, when they're doing their underwriting and you tell the truth, they're more apt to give you a better classification if you told the truth. If they have to find out for themselves and they send it back to the agent to re-ask the question, it's not good.
Rick: And Mark, when someone comes to see you and they apply for a term insurance, from the time they come in to apply, how long does it take to get approved for a policy?
Mark: It all depends on how long it takes for them to get the exam. We order the exam. Also, we have to order what are called APS; they’re called the attending physician exams.Depending on how long the doctor takes-- and the doctors don’t-- we actually pay the doctors to send them and they hire copy services to do this. I would say from the time that they originally took the application, you're looking at 30 to 60 days.
Rick: So it's a relatively quick process.
Rick: Mark, I want to switch gears one last time and talk about disability. And it's a coverage that most people don't think about. A lot of people have a coverage through work, and then they leave their job, they don't have disability, but a lot of people also, they go on their own and all of a sudden they start their own business and they say, well, I really don't need disability. I think it's important first to understand what disability insurance is. Disability insurance, what it really does is replace your income if you are unable to work because of all sorts of -- it could be a mental or physical impairment.
Mark: Exactly. It replaces your income if you're unable to work due to a sickness or an accident.
Rick: Someone's going to say, well, Mark, isn't that what a social security disability does. So why do I need another policy when I have social security disability?
Mark: Because social security coverage only covers you up to a certain amount. Especially higher income people definitely need to have an individual disability policy.
Rick: And also something you've taught me over the years. The definition of disability is different with social security than it may be with other policies. And you have to be careful with that.
Mark: Believe it or not, the definition of disability with individual life insurance companies are usually more lenient than social security. You could actually be collecting on an individual policy through an insurance company where you were denied through social security.
Rick: Now, that doesn't surprise me. And it's possible Mark, that you collect on social security, but you also are collecting on an individual policy that you may have; you can collect on both.
Mark: There's different ways of designing it. Some people like to coordinate the benefits to keep the premiums down. Some people like to have it on top of social security, so you can collect on both. Again, it depends on the individual and the costs, what they're willing to spend on that cost of the product.
Rick: So when someone loses their job and disability is based upon your income, so if you get a new job and it doesn't have disability coverage, you may want to get a private policy. They get expensive, don't they?
Mark: They do get expensive, but the younger you are the better off you are. And then you can get them to go all the way. Today you can get them to go to age 67.
Rick: Until social security.
Mark: You know, make sure that-- if you become disabled, the insurance company's not going to make you go do another job before you could collect. Make sure it's got an own-Occ definition. That's very, very important.
Rick: And Mark, would you explain what own-Occ means?
Mark: Own-OCC means if you cannot do the substantial and material duties of your regular occupation, you will collect from the insurance company. So if you were--to give you an example, if you're a doctor, a specialist, let's say an anesthesiologist, but you can't do that anymore. But you can be a different type of doctor; you could teach at the university; you're going to collect full benefits. If you don't have own act and you take a different job, the policy becomes what's called a residual contract. And what that does is it pays you the difference. They look at what you were making before, and they look what you were making after, and it's a percentage of loss. And then they pay you a residual benefit. You usually have to show at least a 20% loss of income.
Rick: When somebody is starting their own business and they've left the company, how important is it to have disability insurance? I mean, would you say it's more important than life insurance or how do you judge that, Mark?
Mark: That's a very difficult question, Rick. I would never pick life insurance over disability insurance. In my case, when I went on my own, I couldn't sleep nights until I got my own disability policy because of family history. So I think disability, and I was very active in the disability market early on in my careerwhen a lot of agents didn't touch it for a couple of reasons. It's probably one of the most difficult to understand. It's the hardest to underwrite. It's a lot harder than life insurance and agents don't like to sell it because they get paid a lot less. So it's just a conglomerate of different reasons why a lot of agents won't sell disability. And it's important to make sure you get a policy that is right for your occupation. Now, if somebody is just starting a job, remember disability is highly regulated. You can't go out and buy as much as you want. So you have to have some type of income, show some type of income prior to applying for disability insurance.
Rick: The bottom line is, if you're looking at protecting your cash flow from your job, disability insurance is that vehicle to do it. And particularly, I always tell people when they start a business, that's the cost of doing business. You have to cover your backside because if you cannot work, your business is going to go under.
Mark: And very important, on top of disability there's what's called business overhead which means if you become disabled, you take out a disability policy to cover your overhead until you can get back to work.
Rick: These are important issues and especially when you're losing your employment, you lost your healthcare, you do have to look at your life insurance, your disability needs at the same time. It's not fair, but it's the reality of the situation.
Mark, I want to thank you so much for taking time out of your schedule to join us. For people that want to pursue whether it's a term policy or need to look at healthcare, how do they get ahold of you, Mark?
Mark: I can be reached at either my office at 248-356-8820.That’s 248-356-8820. Or I can be reached anytime on my cell phone. I accept phone calls on my cell phone at 248-909-8931.
Rick: And there is no charge just to consult, to get a competitive bid on a policy or something of that nature.
Mark: Absolutely no charge. And even if somebody has an existing policy, it would be very important to shop it around because term insurance is so much different between companies. You'd be amazed how many times we get calls that somebody is paying a certain amount and they bought from their regular auto insurance agent, and it's half the price if you buy it from a life insurance company.
Rick: Just like people should refinance their mortgages, you could refinance your term insurance policy without any problem. If you could save money, why not? Because the goal of this podcast is always to make sure you have more money in your pocket because it looks better in your pocket than it does anywhere else.
Rick: Mark, as always thanks so much for taking time to join us.
Mark: Thank you for having me, Rick.
Rick: Mark Orechkin from the Orechkin Agency out of Southfield. As with all our podcasts, we're going to take your questions at the end of the podcast. So I'm going to take a few of your questions.
First is from a George.
Question: A person inherits a Roth IRA, waits 10 years to cashed in. Is it all tax free or taxed on the 10-year increase?
Answer: George, the good news --it is entirely tax free and that's one of the benefits of using a Roth IRA. Not only is the person who set up the Roth have all the tax-free benefits, but when someone inherits the money, they also inherit it income tax free. And under the Secure Act, you have 10 years, up to 10 years to withdraw money from an inherited IRA, and that also applies to a Roth inherited IRA. And my view is why not let it stay in that Roth IRA for as long as you can, because it grows tax free. And that's one of the nice things.
Don't forget for those of you that are still working, look at contributing into a Roth IRA. For those of you retired, look at converting existing IRA money into a Roth IRA. Roth IRAs are not subject to minimum required distributions and you can let them grow tax free for as long as you choose.
The next question is from Claire.
Question: Can a bond fund or a money market fund be used as my emergency fund? I hate seeing $30,000 sit in my bank account, earning little interest.
Answer: Well, Claire, I agree with you. It is frustrating to see that. So I have no problem using short-term bond funds as a substitute for an emergency fund.I would still want to keep money in the bank for emergency. In your situation, maybe keep $5,000 to $10,000 and then move the rest into a short-term bond fund. The key is a short-term bond fund. You don't want to go intermediate term, a little too volatile. And one of the keys with bond funds is always to look at the expenses. You want to go into bond funds with low expenses. One fund I would tell you to look at is Vanguard. Vanguard has a short-term bond fund. It's a very good bond fund. It pays a pretty decent rate of return, much greater than you get in a money market account and it has very low costs. Particularly with bond funds you have to focus on the cost. Low cost is the key. Fidelity has some, Schwab has a good low-cost bond fund. But if you want to take money from your emergency fund and put it into a short-term bond fund, I don't have a problem with that.
Our next question is from Mary.
Question: Hello, Rick. I have two qualified accounts that I must begin drawing from in 2021 for my RMD.I will turn 72 in December, 2020. Chase tells me that I can use my traditional IRA to satisfy the entire amount by drawing from my IRA with them. Voya tells me that I must draw from my 401k with Voya in order to satisfy the IRS requirement. Even if I decide to draw from the IRA with Chase, which one is correct?
Answer: Well, Chase is wrong. The way the law reads is when you have a 401k and an IRA, you have to take your minimum required distribution out of both of them, because the laws are two separate things. So if you had multiple IRAs, you don't have to take a distribution from each of the IRAs. But that's not the case when it comes to 401k plan.So, Mary, yes, you do have to take a distribution from Voya; their minimum required distribution and, at the same time, from Chase. Now, the one thing you could also consider doing is you can move your 401k into an IRA. You could do a direct transfer and then you would have it in one account and then you can take a distribution from there. And when you do that, you know, it’s something you may want to do if you’re leaving your money at Chase is to shop around and look at getting a better rates of return and lower cost. I'm always a big believer that low costs equal high returns. Both Voya and Chase tend to have higher fees. Higher fees, equal, lower return so you may want to combine the IRA, move the 401k into the IRA, and look at a different IRA where you can get better rates of return.
As always, I want to thank you so much for the company. I enjoyed it. Hope you did too. I want to remind you our email at the show is Rick@rickbloomtalksmoney.com. Thanks so much for joining me and we'll see you all soon. Bye now.
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