Entitlements: A Hammock for the Lazy or a Safety Net for All of Us?

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HammockOver the past few months, America's social safety net -- also known as its "entitlement" programs -- has gotten a tough rap. Republican presidential candidates and congressmen have decried its cost, its supposed infantilization of the citizenry, and its long-term effect on the American dream.

Yes, this collection of programs and services has been described as "a dime bag" of drugs that will "hook" users, a threat to America's "merit-based society," and a socialist tool that will steal "America's soul." And the people who accept money from these programs? They are "passive," "lazy," "slothful," and are "systematically destroying" America's work ethic.

Viewed in these stark terms, entitlements seem terrifying -- but when you look at who is actually receiving them, the picture changes rapidly.

Let's examine the largest two slices of the entitlement pie first: According to a recent analysis by the nonprofit Center on Budget and Policy Priorities, 53% of entitlement spending goes to the elderly through Social Security and Medicare. And, as a study recently released by Wider Opportunities for Women suggested, these programs are hardly encouraging sloth: For many oldsters, they can mean the difference between economic viability and desperate poverty. Another 20% goes to the disabled, through programs like Supplemental Security Income and Medicaid.

Sure, But Aside from the Elderly and the Disabled ...

What about the remaining 27% of entitlement spending? Well, the CBPP found that 18% goes to working households, through entitlements like the school lunch program, the earned income tax credit, the child tax credit, and the children's health insurance program, which are designed to help provide a minimum standard of living for the working poor, a group that the Department of Labor conservatively estimates at 10 million.

After deducting the shares absorbed by the elderly, the disabled and the working poor, we're left with 9% of entitlement spending, about $176 billion a year. But even within that figure, the CBPP finds that only a small portion finances the slothful layabouts whom entitlement critics complain about. An estimated 7% goes to the "almost elderly," covering medical care, unemployment insurance, Social Security survivor benefits and Social Security benefits for those between the ages of 62 and 64.

And the remaining 2% of entitlement spending? That gets spent on what is generally temporary assistance for needy families, and other programs designed to help those who are sound of mind and body, but whose lives have been undermined by bad luck, job losses and the unsteady economy.

Divide and Conquer

Some critics have chosen to dive into the deep end of the entitlement fight, suggesting ways to cut Medicare and Social Security -- two of America's most popular government programs. But savvier critics of the social safety net have taken a divide-and-conquer approach, drawing a separation between spending on the elderly -- incidentally, one of the nation's most powerful voting blocs -- and other entitlements. One popular argument is that, because Social Security and Medicare are funded through specific, mandatory payroll taxes they should be thought of as distinct from other social programs.

If Social Security and Medicare benefits were channeled into -- and out of -- private savings accounts, this argument might hold some water, as it would suggest that the money that one pays in and the money that one gets out are the same. In reality, the amount of money that one gets out of these programs varies widely from what gets put in, depending on cost of living increases, mortality rates, and changes in coverage. For that matter, it's worth noting that other safety net programs -- like unemployment insurance -- are also partially funded through earmarked taxes.

We Have Met the Entitlement Slackers, and They Are Us

Here's another little-known fact: Far from funding some imagined underclass of nonworking slackers, entitlement spending is distributed fairly evenly across the economy. The CBPP estimates that 58% of entitlement spending goes to the middle 60% of households -- better known as the middle class. The richest 20% receive about 10% of these benefits, while the bottom 20% receive about 32%.

Another argument for slashing these programs, proposed earlier this year by Mitt Romney, is that entitlements aren't just funding a bloated underclass, but also a bloated federal bureaucracy. The math, though, doesn't back Mitt up. Administrative costs for federal entitlement programs eat up between 1% and 10% of their budgets; 90% to 99% goes to the intended recipients.

In the case of Medicare, administrative costs are estimated at between 3% and 4% of total spending, leaving 96% to 97% going toward medical care. By comparison, private insurers spend more than 17% of their revenues on administration and paying investors.

Whether by providing food to hungry children, economic security to the unemployed, or health care to the elderly, entitlements are a vital life preserver, helping keep the middle class afloat. As voters this year are asked to choose between strengthening the social safety net and making it smaller, it's worth taking a bit of time to recognize precisely who relies on these programs. Because the truth is, rather than providing a hammock for unmotivated slackers, entitlements are offering a safety net for most of the voting public.

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.



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Entitlements: A Hammock for the Lazy or a Safety Net for All of Us?

There's something about life insurance that just freaks some people out. For one thing, it forces them to confront the notion of dying. For another, it demands they think about tomorrow when they don't know what to do about today. So instead, they stick their heads in the sand.

It's not surprising then, that according to the Life and Health Insurance Foundation for Education, 40% of adults in the U.S. have no life insurance.

Lack of knowledge fuels myths that take on a life of their own. Here are an even dozen myths and truths about life insurance.



Truth: Having a life insurance policy through work is a great benefit, but it's also temporary coverage. If and when you leave that company, the coverage will end. So it makes sense to explore a life insurance policy that will stay with you no matter where you work, says Greg Blake, executive director of life insurance product management at USAA.

An employer-paid policy typically offers a coverage amount equal to one's annual salary or a modest flat amount, says Butch Britton, CEO, ING U.S. Insurance (ING). That may prove insufficient: In addition to medical and funeral bills, your loved ones may need to pay off debts such as a mortgage and provide for other basic financial needs for years to come.

A good rule of thumb is that you might need 10 to 20 times your annual salary, and group benefits just won't get you there, says Brian Ashe, past chairman of LIFE.

To figure out how much you need check out online calculators like this one.

Truth: In a study by LIFE and research and consulting firm LIMRA, 85% of participants said they thought coverage was too expensive. Not so, says Byron Udell, CEO of Accuquote.com, which helps people find affordable term insurance.

"The cost of simple level term insurance has come down by more than 60% in the past 16 years, so the prices today are so low, you can afford all you may ever need," says Udell.

In fact, a healthy 40-year-old nonsmoker can buy $500,000 dollars of life insurance coverage, with a premium guaranteed not to change for 20 years, for less than $31 a month (about a dollar a day). "So, forego the $5 coffee and other daily luxury purchases to have the funds to budget for the protection of your family's financial well being," suggests Udell.

Truth: Many life insurance companies are willing to sell policies to people with a range of common medical problems, says Udell.

In fact, some carriers even specialize in high-risk classes. Yes, the coverage will probably be more costly than it would be for someone in perfect health, but companies will work with you in order to accommodate your needs. "The key is to be truthful about your health upfront, says Udell.

Truth: Term policies, by definition, last for a certain period of time, so if you die after that period and don't renew your policy, it is not there anymore. The option that give the biggest bang for the buck is a combination of term and universal life, says Pete D'Arruda, founder of Capital Financial Advisory Group.

Term life insurance often gets more expensive as time goes on. Insurance companies make more money with term policies because most people don't die during the terms they are paying for, says D'Arruda. By contrast, he explains: "Universal life insurance is one investment in life that is guaranteed to pay off, and you always pay the same premium."

Term is perfect if one needs coverage for ten years or less, or when one has limited cash to dedicate to insurance. For estate planning, business planning or for longer term needs, one should consider cash value life insurance, says Bill Perryman, founder of Perryman Financial Advisory.

Know too, that the accumulated value in permanent life insurance grows tax-deferred. In other words, permanent life insurance protects your family in the event of your death, but it's much more than that: It's actually one of the most valuable assets in your financial portfolio, says Michael Ferik, senior vice president of individual life at Guardian Life Insurance, which offers its own take on insurance misconceptions at www.lifeinsurancemyths.com.

Glenn Stevick, assistant professor of insurance at The American College agrees, "Permanent insurance is not a ripoff."

Term insurance is less expensive than permanent insurance only when considering the out-of-pocket premium payments, says Mike Roscoe, senior vice president of innovation and actuary at The Hartford. For a long-term perspective, certain permanent insurance products can be much less expensive than term.

Truth: Even if you're not married and don't have children, you should still consider whether you need life insurance. Others may still depend on you, such as parents, and life insurance can cover expenses such as funeral arrangements and potential debts, explains Blake.

Truth: Lifestyle has a direct impact on life insurance premiums. Typically the healthiest individuals see the lowest premiums, but other factors that affect cost include lifestyle choices like smoking, as well as your occupation and hobbies, says Blake.

Truth: While insurance is a good idea for many people, those who have sizable assets and no debt or dependents may be better off self-insuring, says Frank Darras, a lawyer specializing in insurance.

Truth: The cost of personal life insurance is never deductible if you have an employer, says Darras. If the policyholder is self-employed and the coverage is used to insure the business, then the premiums are deductible on Schedule C of the Form 1040.

Truth: There's more to consider than a salary when it comes to determining how much insurance each spouse needs. Everything from housekeeping to extra-curricular activities would cost a family extra money if a non-employed parent was longer around to contribute.

"People don't realize is even if you're a stay-at-home mom or dad, you contribute to your family with the valuable services that you provide like cooking, cleaning and driving the kids around town. It all adds up! With more than one life insurance policy in place, your family would be protected if something devastating were to happen."

Just as important is the fact that often, the surviving spouse has a loss of income due after their partner's death. Parents often take time off work to be with their young children, which could negatively affect their careers. There is a financial cost, even if the deceased did not have any income.

Truth: You never know when your number will come up. When it does, you probably won't get a telegram warning you in advance, says Udell.

Life insurance, like all insurance, is the type of product you have to buy before you need it. That means the time to purchase life insurance is when you're young and healthy.

"If you wait, and you develop a serious medical problem, you may not be able to get the coverage you want. Further, even if you stay healthy, the rate for new life insurance is always based on your age ... even just one year older means higher rates," says Udell.

Truth: Permanent life insurance policies offer a number of "living benefits," including the ability to access the policy's cash value through withdrawals or tax-free loans for other needs, such as funding a child's education, a hard earned retirement or other lifelong savings need, says Ferik.

Truth: "You can't buy a policy and then just forget about it," says Dayle Axman, supervisor of life and health with the Department of Consumer Affairs in Colorado. "Things change. When you got the policy, maybe you had a young family. Twenty years later, your situation is likely very different. Review your policy periodically."

Know too, that positive changes in your health can sometimes lower your premiums, and policies with loans and withdrawals should be monitored, points out Ferik.

"Life happens -- a new family member, an inheritance, a promotion," says Ferik, "and you need to make sure your policy still fits."

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