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Insurance and Taxes

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What are my health insurance options under the Affordable Care Act?


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Under the Affordable Care Act (ACA), all Americans must have health care coverage or pay a penalty tax. Health insurance can be expensive, though, so you’re going to want to explore all of your options.


Medicaid

If your household income is at or below 138 percent of the Federal Poverty Level and you live in a state that has adopted Medicaid expansion, you qualify for free health insurance through Medicaid. If your state has not adopted the expansion, it does not mean that you do not qualify. It just means that eligibility guidelines may be more limiting.

Employer-Sponsored Insurance

If you work for a company with 50 or more full-time employees, your employer is required to provide employee-only insurance that meets minimum guidelines. Examine the plan offered, but keep in mind that you should not have to pay over 9.66 percent of your household income in premiums. If you don’t like the plan offered, you can turn to your state’s health insurance marketplace.

Marketplace Plans

Marketplace plans are available to you based on your area of residence. They must meet minimum essential coverage requirements. These plans are subsidized based on your income level. If your income increases or decreases throughout the year, you will want to update it in your marketplace profile so that you won’t owe the government any subsidy money next tax season.

Marketplace plans come in three tiers: bronze, silver and gold. Generally speaking, bronze plans offer the least coverage and the lowest premiums while gold plans provide the most coverage at the highest price. You can only enroll in a marketplace plan during a specified period during November through January of the following year unless a life event qualifies you for a Special Enrollment Period.

Are You Tax-Exempt?

If you are denied Medicaid coverage and cannot afford insurance through other avenues, you may be exempt from the tax. Additional exemptions apply to those who have undergone certain hardships, had a short lapse in coverage, are members of Native American nations, are living abroad or are members of a recognized health care sharing ministry. 

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Which type of life insurance should I purchase?


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It’s important to remember that salespeople receive commissions for the sale of financial products. Educate yourself so you’re ready to ask the hard questions before signing on the dotted line.


Whole Life Insurance Policies

Whole life policies tend to be more expensive than term insurance, but part of your premiums go into investments that will grow. Whole life policies do not go up in price, and you can pull money out of the investment part of your policy prior to your death. In many cases, this benefit is advertised as a way to combat medical expenses later in life.

If you withdraw money, you will not be taxed as long as you do not withdraw more than the premiums that you have paid into the policy, an amount known as your basis. However, if you withdraw more than the basis amount, you will owe income taxes on the amount that exceeds the basis.

Universal Life Insurance Policies

Universal life policies function in much the same way as whole life policies. Part of your premium goes toward the insurance, while part of it goes towards investments. After you make your first premium payment, though, you can pay your premiums at any time in any amount as you raise and lower your death benefit. Be sure to research all the differences between these two types of policies before making your final decision.

Term Life Insurance Policies

Term life insurance tends to be cheaper than whole life, especially if you are young and in good health. This policy will only last for a set number of years. When your policy expires, you’ll have to purchase a new one with a new premium.

Which one is best?

Insurance company representatives often argue for whole life or universal life policies, citing the fact that most Americans will not save the money they need later in life if left to their own devices.

Term life insurance policies tend to be lower-cost, so you could invest the difference in premiums into a Roth IRA, and possibly come out ahead. There is some solid math behind this argument.

Choosing the life insurance policy that is best for you comes down to your individual needs and behaviors. If you know you won’t save anything unless it’s wrapped up in a mandatory monthly bill, whole life may be for you. If you are motivated by numbers and will be disciplined enough to invest the difference, a term life policy with the amount not spent on insurance invested in a retirement account may help you sleep better at night.