Category Archives: Insure

How to Avoid Being Insurance Poor

‘Insurance poor’ was an expression from 30 years ago, that people would say when it seemed like too much of their money was being paid to insurance companies. What are the right kind of policies to buy? Outlined here are the 5 highest priority types, and the 5 other major types people consider.

If there is one general governing approach to one’s insurance portfolio; be smart with the amount and types of insurances that you purchase, you can’t insure against every kind of risk, and don’t spend an inordinate amount of your budget on insurance.

It is easy to feel insurance poor these days, even when you just have the three most common kinds of insurance: health, homeowner’s and auto. The insurance premiums from just these three can add up to thousands of dollars per year. However, if you take the Dave Ramsey Financial Peace University, or other financial education classes, you will learn all about other types of insurance too, like disability and cancer insurance. If that isn’t enough, you’ll learn about life, long-term-care and umbrella insurance. It is no wonder that we worry about not having insurance as well as spending too much on it.

From a priority standpoint, your first obligations are to those people who depend upon you because you are their provider earning a paycheck or stay-at-home parent. They usually are you and your spouse, and too employees if you are self-employed. Equal in priority, is the law (requires auto insurance), and responsibility to your community. Community responsibility is the risk you take to bodily injury and death every time you drive your car, you could cause hundreds of thousands, to millions of dollars of damage to people or property. The lack of insurance or under insurance, forces the debt to fall to society (government, non-profits and other social service organizations like church). A similar example is if you do not have enough life insurance, and you and/or your spouse die, then the cost of caring and raising them falls to society.

Starting with your family, the law and property, since they are intrinsically related, are the needs of health, home, auto, disability and life insurance. Therefore, these are top on financial planner’s recommend list. Medical bills (health insurance), income replacement if you are sick or injured or die (disability and life insurance), and vital personal belongings (homeowners or renters, and auto insurance). Lastly, insurance for big lawsuits (called umbrella or personal catastrophe liability insurance), or when you are old or severely disabled an unable to care for yourself (long-term-care insurance LTCi), are probably the next things in line to consider.

The following list is probably the best prioritization of the types of insurances that you need, based on what you can afford. The more you make, have to protect, the more you have at risk, and can afford them. Keep in mind, this is an article, to help guide you, and start the discussion with a professional insurance agent or planner. This article does not replace professionals, and is not insurance advice.

5 highest priority types of insurances

  1. Health Insurance is usually best if acquired through an employer. If you are self-employed, be sure to purchase the type that is required by law, with an amount you can afford. If you don’t have group health insurance, consider purchasing cost-sharing plans, as an alternative to health insurance, e.g., Medi-share.
  2. Auto Insurance if you own an automobile. My son lives in NYC, and can skip this, gladly. You can too, if you only commute via public transportation, and rent cars (buy the insurance if you do not have it) or take Lyft or Uber when needed. I recommend high limits of liability and around a $500 deductible. Some advisors recommend liability only (no coverage for your car replacement or repair if you are at fault) if you have an old car, but price the cost difference. Usually it is only a very small difference; if so keep ‘comprehensive’ too, if your car is worth a few thousand dollars and you do not have that in savings.
  3. Homeowner’s insurance if you rent or own a home. Make sure that your coverage is for replacement value of the structure if you own a home, and replacement cost of the content of your home too called personal property. This insures that you are protected at current replacement values, not at depreciated valuations. Check with your insurance carrier for other important riders, such as if you have a basement, for sewage backup or sump pump failure. Shoot a video and back up on the cloud, images of your belongings.
  4. Disability Insurance, if you are working, and your employer does not provide long-term disability insurance replacing 60% or more of your income, consider purchasing this. This is usually not cheap; however, your chance of becoming disabled versus dying is greater. This insurance is also more expensive related to the riskiness of your occupation. Insurance experts recommend this coverage before life insurance.
  5. Life insurance if you have dependents such as a spouse or minor children, to replace your income, repay debts, and fund college. Term insurance is usually the most affordable type for the vast majority of people’s budgets.

The following 5, are the optional types of insurance, and would be less important for most people than the 5 preceding types just outlined. These are highly dependent on one’s affordability, financial net worth, need and personal preference.

  1. Umbrella or personal catastrophe liability insurance covers you for extra personal liability above the limits on your homeowner’s and auto insurance. You can purchase several million dollars’ worth of coverage for only a few hundred dollars. Most financial planners recommend people have this, in our litigious world in which we live.
  2. Cancer or named-illness insurance provides lump sum benefits and or income, for specific diseases such as cancer or heart attack. These are usually offered through payroll deduction. Most experts advise against these, because the chance of benefiting from them is very low. However, a co-worker benefited greatly from it, as did my brother, when they both got cancers. In these days of high deductibles, sometimes this insurance is a low-cost substitute or addition to disability insurance. However, it falls short of that in many ways.
  3. Long-term-care insurance (LTCi) covers people if they cannot care for themselves and need to be cared for in a nursing facility, or at home by medical professionals, and caretakers. This usually comes into play in old age, but many times, people get afflicted at younger ages too, prior to age 65. I really struggle to recommend this kind of insurance in the last few years, unless it can be purchased through an employer, or if your family has a history of needing this kind of protection. The reason I hesitate, is that this coverage usually gets very expensive as you age, even if purchased when young. Secondly, many insurance companies are increasingly finding this coverage difficult to estimate claims, thus they do not know how to price it. Many insurance companies even have gotten out of the LTCi market entirely. I recommend that people consult professional advisors and long-term-care professional prior to purchasing it.
  4. Retirement income insurance is how income annuities are being marketed these days. Annuities can guarantee a stream of income, which cannot be outlived (as long as the insurance company remains solvent). Some people in their retirement years fear that a fluctuation in the bond or stock market could wipe out their savings, and since safe bank accounts only pay a few percentage points in interest, income annuities can be attractive. Income annuities are perfect for some people, for a portion of their investable assets, while others they consider their costs to be too high (fees). Consult several annuity, investment and financial advisors before purchasing, and only purchase from well-rated insurance companies. If putting a lot of money in annuities, consider using more than one insurance company.
  5. Extended warranty is insurance offered on cars, furniture, cell phones, electronics and Cell phones. Again, almost every advisor I have ever heard recommends against this kind of coverage. I too recommend against it, however it doesn’t hurt to price it, for things like lap top computers, expensive leather furniture (for example), and Cell phones for children who are prone to breaking things. If the coverage is cheap, and the items could easily be damaged, based on one’s lifestyle and family makeup, then it might be worth considering. I usually do not buy it, but a few times I did, I was glad so, but a few times I regretted it because it was never needed (e.g., from Costco on a TV).

Don’t forget, of vital importance is prayer and self-care!

In conclusion, carrying the right amounts and types of insurance that you can afford is wise Godly stewardship. In addition, two other areas are very important too. Prayer and personal responsibility. In this fallen world in which we live it, it is important to pray for good health, against accidents, sicknesses, diseases and death, along with praying for protection of our personal property. Lastly, as mature Christian stewards, we have a responsibility to be caring and careful. Caring for our bodies, by controlling our weight, eating, sleeping, working and drinking healthfully. Having manageable levels of stress and activity are as important. Driving safely is important too, being aware at all times (not looking at cell phones), helps to insure safety for everyone. The vast majority of accidents and health problems relate to our behavior. Monogamous faithful marriages eliminates the risk of STDs. Low weight, non-smoking, less stress, and avoiding sugar, lowers the risk of cancer, diabetes, and heart disease. Exercise helps with strength, balance, and well as mental and emotional health. Lastly, research indicates, that people who attend church are happier and more joy filled. Being in a growing relationship with Jesus helps us in every area of life, from decisions, to life management. All things that will contribute to a better life.

They Are Like Good Samaritans Clubs for Automobiles

Are Auto Club’s roadside assistance to replace Christians lending a hand to stranded travelers?

Isn’t it a terrible feeling when you car breaks down away from home? Have you ever been stranded on the side of the road, and someone stopped to help you replace a flat tire, or given you a ride to the next rest stop? Maybe you assisted someone else?  In Luke 10:25-37, we see the story of a Samaritan helping someone who was robbed, naked, and left bleeding nearly dead. Modern Bible expositors believe that not only did the Samaritan have the expense of lodging, bandages and clothing,  but inconvenience that occurred between people that looked down on each other.  Maybe in these days of Cell phones and auto clubs, and concern for personal safety, I would recommend my children and spouse to practice extreme caution and spiritual discernment in such situations.

However, several times over my life, I have helped someone with a short ride to the next exit, asked if they needed a jump-start or other assistance — but I was cautious, aware and prayerful. It is a great opportunity to bless other people. Likewise, I have been a benefactor too. In light of this I think there is solid merit for people to join Auto clubs like AAAMCA and Better World Club; they offer very useful benefits, such as roadside assistance and towing. Many of them today are offering much more, including car repairs.

In addition to clubs, other competitors have entered that market place, including credit-card issuers, insurance companies, car manufacturers, and oil companies. So before you buy, first check to see what benefits your auto insurance company and car manufacturer provide.

What I like about firms like AAA is the convenience during emergency situations. The last time my car broke down, I was in Michigan between Grand Rapids and East Lansing, on a business trip in the middle of nowhere. I had a company car and I am embarrassed to say I ran out of gas. It was very difficult to locate a towing or roadside assistance company, for I was not sure which small town I was near that might have such a firm. Secondly, a bad winter storm had just gone through the previous day, and I was low priority for the towing companies, since most with good-sized fleets were taking care of club customers. It is never convenient to need someone to bring you gas, tow your car to the closest good repair shop, give you a jump-start, or unlock your doors if you locked your keys inside. Club membership can help you avoid disaster on a pleasure or a business trip, and it can of save you many hours of trying to get help (and then perhaps getting it from someone who may not be reliable). Clubs have strict standards, so that added confidence helps a lot.

Auto Clubs offer this peace of mind, which is especially helpful with our 3-car family, with one at college. The mileage readings on our three well maintained vehicles are 298,000, 175,000, and 160,000, combined to more than 600,000 miles. This means a higher possibility of needing roadside assistance. I understand that we are not the exception. Avoiding car payments and owning cars is the way to go for those trying to be financially savvy.

Lastly, the local AAA Club in Columbus Ohio is offering something very intriguing right now for their auto service centers—a year-long discount program for maintenance. I was pretty much impressed with their program. For $100 members can get the following services within a year: 4 oil changes, a 39-point inspection with each oil change, 4 battery and starting/charging system checks, 2 tire rotations with balance, 1 air filter, 1 set of front wiper blades, 1 headlamp replacement, 1 A/C pressure check, and 12 monthly tire pressure checks. This would save the regular person about $300, or the partial do-it-yourselfer and deal finder about $200, I’d guess (probably paying for or exceeding the cost of the membership).  Peace of mind on maintenance and roadside assistance are nice things, especially valuable to those with older cars, lack of family close enough to call for help, or fear of being stranded in a dark place waiting for help to arrive.

In conclusion: I think we need to be wise with our auto insurance and maintenance budgets, while giving room to receive blessings from others, and to be a blessing to people too; therefore this is not an ‘either or’, but a ‘both and’ situation.

Also, rest assured I derived no financial benefit from highlighting these firms, and I don’t prefer them over others. If you are a club or a car repair firm and have an idea for an article and would like a mention, please contact me.

News Flash: 2014 Flexible Spending Accounts Have Option for $500 Rollover

Do you have a special tax-advantaged savings account for health care expenses? There are several types of them to which the federal government permits employees and employers to contribute: Flexible Spending Accounts (FSA), Health Savings Accounts (HSA), Medical Savings Accounts (MSA), and Health Reimbursement Arrangements (HRA).

HSAs are required to be offered in conjunction with High Deductible Heath Insurance Plans (HDHP); they can be funded by either/both, employer/employee contributions. For 2013, if you have self-only HDHP coverage, you can contribute pre-tax up to $3,300. If you have family HDHP coverage you can contribute up to $6,550. Contributions accumulate in an account at interest and the interest is not taxed. This double tax preference (pre-tax contributions and non-taxed growth or interest) allows participants to pay some qualifying health care expenses in a tax preferred manner. As we all know, with high deductible and high co-insurance amounts, and health insurance just not normally covering as much as it used to, accumulating funds for qualifying expenses is a great way to plan for unplanned expenses. Funds from HSAs can be used not only in the current year, but also in future years. Lastly, when the funds are used for qualified expenses (see IRS document 969 and 502), the funds are not taxed; however , if they are not used for those expenses, there are taxes and possibly penalties, so be careful.

FSAs seem to be more common with large employers, and they are funded by pre-tax contributions from the employee’s paycheck. One drawback or common complaint of FSA’s is that the funds must be used in the current year (“use it, or lose it”). This makes it difficult to plan if you don’t know what expenses are in store for you in the future! At one time, the benefit plan from my previous employer provided an FSA, and it was nice when we knew exactly how much our two children’s orthodontia costs were going to be; our FSA really helped us plan and afford orthodontia costs.

Good news–after a considerable amount of lobbying from the health insurance industry, Notice 2013-71 has been introduced to remedy the “Use-it-or-Lose-it” regulation, allowing up to $500 of unused balances to be paid or reimbursed to participants as long as their plans do not incorporate the “grace period” rule.

Choosing to provide the rollover option will be left up to the plan sponsor (the employer), so if you  have an FSA, check with your employer for more information. Also, be sure to connect with your tax advisor and group health benefits provider for questions about any information provided here. This is just an overview of information to make you more aware, and it is not to be relied upon for tax, financial or other information. Some of this information came from Victoria McCoy, RHU at  Crown Benefits in Columbus, Ohio. For more information, also check out Use-Or-Lose New Carryover Rule.

Layering Term Life Insurance, To Minimize Cost & Extend Coverage

Last week I wrote on reviewing your life insurance policies; today I describe a way to layer term life insurance to provide affordable life insurance protection for longer periods of time.

As a review, the most common forms of term life insurance are level term and annually renewable term. Both offer level death benefits:

  • Level term life insurance premiums remain level for the ‘term.’ These policies are issued usually in terms of 5-year increments: 5, 10, 15, 20, 25, 30 and longer years. During the term, the premium remains the same and is guaranteed not to increase. The longer the term, the higher the premium, so most people don’t opt for the longest term. However, the premium does increase when the term is up. For example, let’s say you bought a 15-level term policy for $500 per year. In the 16th year you can keep the coverage but the premium will dramatically increase to several thousand dollars per year.  Sometimes these policies allow you to apply for a lower premium, but the rate is dependent on your health. The new premium will be much higher because you will be 15 years older even if you are in excellent health. However, if you have some health history that precludes you from buying life insurance at standard rates, you may be rated to pay a higher premium. Many people will need life insurance after the term is up, so this big increase is a challenge.
  • Annually increasing premium term life insurance is sometimes called AYT (Annual Renewable Term). The premium goes up every year. In the earlier years while you are young, the premium increase is very slight. In the later years it is like a hockey stick. The cost becomes several thousand dollars per year, and by the time you are in your 90’s, the premium almost equals the death benefit.

Will you need life insurance when you are older?  Some advisers recommend that you purchase term insurance for the length of time you plan to need it. For example, if you are 40 and in 20 years your house will be paid off, children will have completed college, and the retirement fund will be well on the way to being fully funded, then you won’t need the insurance anymore–so 20-year term would be great here.

What if life changes?  For many people life doesn’t go according to plan. There could be job changes, divorces, or unexpected children, or your investments might not have performed well. You might need life insurance into your 60’s and 70’s, but if you just bought 20-year level or AYT term, you could be facing very high premiums at those ages.

Layering life insurance is a way to have life insurance when you are older while keeping the premium down somewhat. Let’s assume the life insurance buyer is a 40-year old named Tom, and he needs $500,000 of life insurance in addition to his group life his employer provides. He would like to buy 30-year level term to cover him until he is 70, but the cost is a little more than he wants to pay. Tom thinks he will probably only need insurance for 20 years; by then his kids will be out of college and his house will be paid for. However, he is unsure about his career, since a lot of people in his industry have been laid off and have gone into other lines of work, sometimes for much less pay. If this happened to Tom, he might not have the house paid off in 20 years, and he might not have saved as much money for retirement. If he died at age 60, his wife wouldn’t have enough money to pay off the house and help fund retirement without his income.

Tom decides to buy both a 20-year and a 30-year level term, each for $250,000. If he doesn’t need the 30-year term in 20 years, he can drop it; but if he continues to need it, he can keep it, and he doesn’t have to worry about being older (and perhaps not in as good health) and having to pay a much higher premium then. Tom likes diversifying his life insurance too, in case one of the insurance companies has financial difficulty. Also, say 10 years from now, when Tom reviews his insurance he decides he needs more coverage longer, he might decide to replace his 20-year term that has only 10 years left with a new 20-year term, giving him full coverage until he is 70. Having two policies like this gives him some nice options as he ages.

Can You Buy Life Insurance and Forget It?

Most people buy life insurance and seldom review it later. Here are 7 compelling reasons why a life insurance review is a great idea.

  1. Price:  If you own term insurance, you may want to check to see if you can buy a new policy for a lower overall cost.
  2. Length: If you purchased a level premium term life insurance policy, it may expire before you are willing to go without the coverage. Let’s say you purchased a 15 level premium term policy 10 years ago, and you still will need the protection when it expires or the premium increases substantially in 5 years. You might want to buy a new policy now, with a longer term than 5 years–one the matches the time period of your need. Also a new one will cost more in 5 years because you will be older and your insurability may change. If your insurablity changes because you develop some kind of health problem, you may be rated up or declined.
  3. Benefits:  Some policies have riders that cover their dependents, or they may offer some disability insurance–to mention a couple. However many people forget they have riders and you might be eligible for some cash benefits.
  4. Need:  If you have taken on more debt or your family size has increased, you might need more coverage. Conversely, if you have saved more money, eliminated debt and have fewer dependents, you might need less. Talk to a financial planner or insurance professional for a needs analysis. A good rule of thumb for the family’s breadwinner is 10 times income. Do you have that much now?  If not, it is a good idea to review your needs.
  5. Company. Are you sure your present life insurance company is financially strong? Most are, but as a consequence of the global economy your company might not be as strong today. A good agent can check that out for you, or you can research it online through AM Best, Duff and Phelps, Moody’s and others.
  6. Universal Life:  If you have one of these life insurance policies, it has a cash value that earns interest. With interest rates at the lowest in decades your policy may be under-performing. If this is the case, it may lapse or require a substantial increase in premium to keep it from lapsing. It is a good idea to examine it now, and to explore your alternatives before it is too late.
  7. Beneficiaries:  Your life insurance policy pays a benefit to the beneficiaries indicated in your policy. There are primary, secondary and tertiary beneficiaries; meaning primary’s get the money if they are still alive or, if they are deceased, the money goes to the secondary, and so on. Beneficiary arrangements can be quite complicated, and they may not be up-to-date as to how you want your death benefit to flow. Also, if you have written or changed your will or trust, it is usually good to change beneficiary arrangements to be consistent with all of your plans.

In summary, there are a lot of other reasons, just as important as these. It is always wise to review your coverage every year to two.

Annuity Guarantees and Trusting Insurance Companies

Hartford Financial is seeking ways to lower its exposure on some annuity contracts it sold. Stories like this make people wonder if they can trust insurance companies and believe the annuity guarantees. I believe most insurance companies are very trustworthy and the income guarantees are good, but consumers need to be careful.

Insurance is the bedrock of people’s financial plans; it helps to avoid financial disaster in car accidents, home damage or theft. Insurance companies are there if a family’s breadwinner dies or becomes disabled. These companies have done a great job of insuring business property and employee’s health. Policies help prevent financial disaster if businesses are interrupted because of fire, or the death of owners or key employees. With all of the bad press insurance companies get, in general they do a commendable job of pooling and transferring risk. However, when a few insurance companies do things that are disadvantageous to consumers, we should take notice and learn from it. Case in point–Hartford Financial, which I will discuss more later in this article.

When I sold insurance products for 12 years back in the 80’s and early 90’s, it was extremely difficult to combat competition. Why, you might ask, wasn’t I good at selling?  I never made million-dollar round table, the ultimate sign of success in the insurance business. However, we somehow managed to support a family of 4 in a nice neighborhood for a dozen years on straight commission. We were never late on mortgage payments, tithed 10%, and took some nice vacations.  We always employed a needs-based approach to selling insurance, annuities and mutual funds. Early in the morning I’d arrive to study for the professional designations I later earned: ChFC- Chartered Financial Consultant, and CLU- Chartered Life Underwriter, and I’d come home late at night after appointments. My knowledge and skills helped me have few complaints, and I was able to retain more than 90% of my clients.

Competition was fierce. I’d try to sell products to people who were shown something better from another company. It was very difficult to convince clients that my product was better even when mine paid an interest rate that was lower, had a higher premium, or did not have as fancy design features as others did. I told prospective clients that, yes, my product didn’t ‘look’ as good, but it was good and my company would be around. They didn’t understand when I explained that the other company was taking on more risk when it made bigger promises. As I look back, the companies I represented are still around, and many of the ones making big promises back then have folded, have been sold, or are now going through what Hartford Financial is. Hartford is now attempting to relieve itself from the risk it has from the annuity guarantees it can’t support any more in some of its annuities.

Don’t get me wrong, I like annuities, for the right person for the right reasons. They offer nice tax deferment, and some guarantees on income and death that mutual funds cannot. The charges can be expensive, but you get what you pay for if you value those things. On the other hand, you have to wonder if you can trust the insurance companies offering those guaranteed benefits, since purchasing an annuity is a long-term venture.

Times haven’t changed. About 10 years ago the universal life industry blew up, and many people ended up with worthless contracts or were forced to pay very high increased premiums. Some of the very companies I was trying to compete against experienced these problems. Today Hartford Financial is trying to get out of having to live up to the promises they made to customers. They sold annuities with really good guarantees, but now they are faced with the fact that they don’t have enough assets to remain as financially solid if they don’t come up with a way to lower their risk. Read the article in the Wall Street Journal. They are applying to regulators to be able to offer clients cash if they trade in their income guarantees.

It has been said that you never shop for the lowest-cost parachutes and surgery, so you shouldn’t shop for the lowest-cost insurance. When you buy a product of any type from an insurance company, you have to ask yourself if you can trust the company. Do the rating agencies like AM Best, Duff and Phelps, Moody’s, Fitch, and Standard & Poor’s rate them well for financial stability? When looking for insurance, price is surely important, but trust is also an important factor. Will the insurance company be able deliver on promises, including keeping the client’s cost down for the long haul? I ask myself if they are trying to attract me with the best features and lowest cost. Those are the ones I stay away from.  They can usually do that only if they are taking more than average risk, or if they are doing it at a disadvantage to existing policy owners.

When Hartford was selling these very competitive insurance and annuity contracts, they had a great story, great ratings, and well trained, great wholesalers. Often they led the industry on sales, partly because their contract designs were very aggressive, and at times their internal charges were very competitive. We can learn from this. If we are considering an insurance product, we have to ask how are they rated and whether they have a history of always treating both new and old customers well. Are they offering the best and most competitive contract features in the market, or are they too good to be true? These considerations should give you some clues about which companies you can trust.

Dave Ramsey’s FPU Class, Week 6 Lesson: Insurance

The Dave Ramsey Financial Peace University multi-week class has an entire lesson on insurance, or risk management. On the surface this subject doesn’t seem all that spiritual, but protecting our family and the property God has given us, using as few dollars as possible is very good stewardship. To underline a few items from this lesson, and a few things that need a little more information…

  • Evaluate your life insurance Amount: if you have minor children and a mortgage a good rule of thumb is 10 times income (an insurance expert or financial planner can help you calculate your amount). You can subtract from that number your group life amount and other insurance, savings and investments. If your spouse doesn’t work outside of the home, she probably needs it too.
  • Life Insurance Type: Most personal finance experts, and financial planners recommend term insurance since it is pretty inexpensive, and buy as long a term as you can afford usually, such as 10 – 25 year level term. The length of the term will depend upon your age, affordability and overall financial plan.
  • Permanent Life Insurance: Dave and other financial experts recommend against using permanent (also known as whole life, universal and variable life) as an investment vehicle. This is because the fees are high, the net overall rate of return is modest, and the need for permanent insurance declines as we get older, as well as your savings and investments build up. Sometimes life doesn’t always go according to a neat plan with careers, business or family (e.g., death, divorce, starting families when we are older, and step families). Also, the ‘buy term and invest the rest’ depends upon exhibiting great personal finance habits throughout life. Considering these last two points…
  • Replacing permanent insurance with term: If someone evaluates their financial plan, and decides to replace their existing permanent insurance with term, they should be careful.  First of all the new policy has a period of waiting for incontestability and suicide. Secondly, being able to switch to low cost term is dependent on one’s health- so before you switch, make sure that you are insurable and at a good rate, and the new policy is in force until you drop the old one. Lastly, especially if the permanent policy has been in force for a long time, it is good to consider its overall net cost (examine’s its dividends {that could pay the premium} and cash value annual increases. Obtain an inforce ledger first of the existing policy to examine, and get second or third opinions before dropping- you have incurred a lot of upfront cost in the permanent, so don’t be hasty to drop it too quickly.
  • Competitive casualty insurance: If you haven’t shopped your auto and homeowners insurance in a while, call some independent and captive agents for quotes for various deductibles, you may be able to save a goodly amount.  Be sure to have your policy’s declaration page or description of coverage handy to refer to.
  • Umbrella coverage: Talk to your agent about ‘personal catastrophe’ or ‘umbrella’ insurance to protect you from excess liability. A few million dollars of coverage costs less than $200 usually.
  • Replacement cost: Ask your agent about your homeowner’s ‘replacement cost’ coverage for dwelling and contents.
  • Riders: Look into riders for increased limits on certain kinds of property, collectibles, and jewellery, as well to be covered if a sump pump fails or sewage backs up.
  • Long term care insurance (LTCi): If you are in your 50’s it is okay to consider this coverage now before age 60. Dave recommends this age, since that is usually the best time statistically considering normal life plans, accomplishing the baby-steps, and premiums. Rates go up with age, and sometimes our health changes more as we age, so if your financial plan permits LTCi, before age 60, that is okay.
  • Disability Insurance: Review your short-term and long-term disability coverage at work, even if you have it, it may be a good idea to consider supplemental since group DI is usually taxable.
  • Estate Planning: Dave recommends good estate planning. Be sure to contact an attorney about having a will, power of attorney written for you. If you believe in end-of-life planning, ask about living wills and health care power of attorney. Trust planning makes good sense for asset protection, and to take care of minor children, not including privacy and tax and probate cost minimization.

Conclusion, we can have insurance to protect us financially from almost everything that can happen to us, however the most effective protection is prayer:

  • Matthew 6:9-13 “This, then, is how you should pray: “‘Our Father in heaven, hallowed be your name, your kingdom come, your will be done, on earth as it is in heaven. Give us today our daily bread. And forgive us our debts, as we also have forgiven our debtors. And lead us not into temptation,but deliver us from the evil one.
  • Ephesians 6:11-13 “Put on the full armor of God, that you may be able to stand firm against the schemes of the devil. For our struggle is not against flesh and blood, but against the rulers, against the powers, against the world forces of this darkness, against the spiritual forces of wickedness in the heavenly places. Therefore, take up the full armor of God, that you may be able to resist in the evil day, and having done everything, to stand firm.”
  • Psalm 27:1-3 “The LORD is my light and my salvation; Whom shall I fear? The LORD is the defense of my life; Whom shall I dread? When evildoers came upon me to devour my flesh, My adversaries and my enemies, they stumbled and fell. Though a host encamp against me, My heart will not fear; Though war arise against me, In spite of this I shall be confident.”

The Benefits and Costs of Obama Care

The key benefit of Obamacare, National Health Care, or Patient Protection and Affordable Care Act is providing care to those who are unable to purchase health insurance because it costs too much, or are uninsurable. Lack of adequate health coverage sometimes forces or keeps people in poverty, or causes the uninsured pain, suffering and death who go without needed treatment.

How much is this going to cost is a big unknown. A wide range of benefits are going to be offered, many of which are not clear yet. No one knows how many people are going to use the coverage and to what extent.

To pay for this in part is going to be through new taxes. The Supreme Court basically said that it is constitutional to mandate premiums because they are a tax, the same could be said for Social Security, Medicare, Medicaid, and Unemployment Taxes, so this shouldn’t really be a surprise, the precedent has been set in the growth of these programs for decades.

Here is a partial list of the new taxes:

The following will negatively affect the personal finances of upper income earners and retirees:

  • Addition of 0.9% to the 2.9% Medicare tax to 3.8% for singles who earn more than $200,000 and couples making more than $250,000, starting in 2013.
  • Medicare’s 3.8% payroll tax rate now applies to investment income, including dividends, interest income and capital gains.
The following will negatively affect the personal finances of everyone, since the costs will be passed on to the consumer:
  • 2.3% excise tax on medical device manufacturers and importers starting in 2013.
  • New annual fee on “branded” drug makers and importers, started this year.
  • Raising the floor on allowable medical deductions to 10% of adjusted gross income from 7.5%. This means that if you have medical expenses not covered by insurance, you will only be able to deduct only the amount that exceeds 10% of income.
  • New annual fee on health insurance providers starting in 2014.

Perhaps the biggest unknowns of this is the affect to our economy, national debt and business growth.

Life Insurance Essentials

Life Insurance Defined
Insurance providing for payment of a sum of money to a named beneficiary upon the death of the policyholder. In other words, it is insurance of a risk (death) to replace the financial loss suffered by those dependent on the deceased.

History of Life Insurance
Life insurance is nothing new, its history spans back several hundred years. The original policies were simple term insurance policies. The contract was for the term of one year. Each year it renewed, with an increased premium because the person was a year older, and presumably closer to death.

To address this increasing premium dilemma—the older you became the more difficult it was to pay the premiums. About 100 years ago, insurance companies issued policies that insured for entire lifetimes (hence the term “whole-life”) with a level premium, which means the premium payments did not change. These whole-life policies have a cash value that provides the ability to borrow or access cash values.

Historically, life insurance existed to pay the cost of the funeral and last expenses, such as debt. Most people could not afford to purchase a policy that provided for much more. Neighbors and relatives pitched in to help after a death. Churches, Widow and Orphan Societies, and Fraternal Organizations were social service organizations that also helped.

The later part of the last century witnessed an explosive evolution in the life insurance industry. The reason is simple: The rapidly evolving post WWII society. Life insurance rode the wave of the biggest population growth ever seen. Our society has changed from agricultural to industrial and white-collar. People are living longer with vastly larger incomes and savings. Life insurance has evolved to keep pace with the ever-changing needs driven by all of this change.

The Special Treatment of Life Insurance
Life insurance is not only unique because it provides a sum of money when you die; it receives special treatment by the tax code and regulatory agencies. This has provided opportunities for insurance companies to provide a wide array of options. These diverse options confuse many consumers.

Tax Code: Life insurance has historically been an “insurance” product. Meaning it existed for safety and security. Therefore, the insurance industry has always been successful at maintaining favorable tax status, meaning they could lobby for continued favorable tax treatment. They have found it easy to appeal to legislators in Washington DC to keep life insurance from being threatened by tax law changes.

Life Insurance’s favorable tax status includes a tax-free death benefit, tax-deferred cash value accumulation, and tax-free borrowing of cash value (as long as the policy is not a modified endowment contract that remains in force until death).

Regulatory Agencies: The insurance and securities regulatory agencies provide life insurance companies an advantage over providers of other investments: Insurance companies can provide sales literature with futuristic computer illustrations of cash values.

Types of Life Insurance: An Overview
The simplest way to illustrate the different types of life insurance is to compare them on a grid.

Insurance Brief Description Advantages Disadvantages Other
Term Lowest initial premium. Most financial experts and commentators recommend term as the best alternative for most people. Low initial cost leaves more cash flow available for other financial planning needs. No cash value buildup. If someone wants to continue it for a long period of time, the cost will be high. Premium can go up annually or be guaranteed level for 5, 10, 15 and 20 years or longer to match the length of time you need the protection.
Universal Life Can provide protection for a longer period of time than term, and build up cash value. Not as expensive as variable universal and whole life, but may provide life insurance for a longer period of time than term and provide cash value for borrowing (or if surrendered). Higher initial cost than term insurance. Cash value accumulation may not be a good investment. There are many variations of universal life available today. For example, some have a low premium for a long period of time but with little cash value, while others are designed for cash value growth.
Variable Universal Life Same as universal life except that it allows for the cash value to accumulate in separate sub-accounts. In addition to the features mentioned for regular universal life, it also allows for accumulation of cash value growth potentially higher due to sub-account options. Cash value may have fewer guarantees than universal life and whole life. The policy’s internal charges can be quite high. Some proponents of this insurance promote the tax advantage opportunities for growth and income.
Whole Life Highest premium life insurance available, most types provide guaranteed protection for lifetime and cash value buildup. Maximum guarantees. High premium not affordable to many. High net-worth people sometimes utilize whole life insurance to help pay for their estate taxes. Universal and Variable universal are also used for this purpose.
This is a very brief synopsis to aid in your insurance education. There may be exceptions to some of these generalizations due to state regulations and insurance company policy design.

Summary

  1. Evaluate Life Insurance Needs: Only purchase additional life insurance if you have a need for it. First examine the amount of life insurance that you need to provide for those financially dependent on you. A later blog will discuss various means for calculating your needs, younger families often use the rule of thumb of the death benefit should equal 10 times income, but you should talk to a financial planner, or an insurance professional to help you arrive at the right amount for you.
  2. Purchase Life Insurance for Protection: The first priority for purchasing insurance should be for protection. It is most important that people, who need insurance purchase it and start their coverage without delay. At the very least, procure term life insurance with an appropriate death benefit, and term period, at a competitive premium. Term insurance provides the most economical decision for most middle-income people today. Most financial experts and commentators recommend term insurance for most people since it provides the most amount of protection at the lowest cost, enabling you to save and invest.
  3. Purchasing Cash Value Life Insurance: The decision to purchase cash value life insurance should be made in tandem with the outcome of your financial plan. Most people’s first priorities are the proper funding of their retirement and other plans. After people have implemented the proper action steps in their financial plan, they may want to consider cash value life insurance for longer term needs. Seek advice from a trusted financial professional to help evaluate the appropriate options. A close examination of a contract should include not only attractive illustrations and sales literature, but a thorough analysis of their prospectuses and fully disclosed information. Insurance agents should provide best, good and worst case illustrations. Remember insurance agents are paid vastly more commission for permanent cash value insurance, so some may feel pressure to sell this.
  4. Life Insurance as an Estate Planning Vehicle: People with large net worth may want to consider life insurance as a viable legacy planning tool to aid in liquidity and estate and tax planning. They should consult their estate planning attorneys and financial planners for direction.

Retiree Health Care Costs Increasing

According to a study by Fidelity Investments a couple retiring this year will incur $250,000 in costs not covered by Medicare Parts A and B. Those with medi-gap or employer based retiree health insurance will have less expenses. Many companies today either do not provide or are cutting back on retiree health care, so they probably should include high estimates when calculating their financial needs during retirement.

Assisted Living Costs

Insurance policies to help offset the cost of living in an assisted living facility, are priced based upon the amount of benefit that one feels they need or can afford. People in their 50’s and 60’s often consider this insurance, but it isn’t cheap, neither is the cost of living in a facility.  The costs of care are often paid from a combination of an individual’s insurance (either a long-term care policy or a rider on a life insurance policy or annuity), investments, sale of property such as their home, social security income and Medicaid. Seniors are often shocked by the cost of long-term care:

  • 50,000 assisted-living units were surveyed, and found the medium cost is $3,700 per month
  • According to the National Association of Insurance Commissioners 44% of people reaching age 65 are expected to enter a nursing home
  • 53%will stay for one year or more
  • 63% are persons aged 65 and older, 37% are 64 years of age or younger
  • The average length of stay is 2.5 years

Insurers are finding this insurance difficult to market and price, in part due to the unpredictable nature of this industry. Some companies are getting out of the business all together, like when Prudential recently announced they are no longer issuing policies, or raising premiums dramatically like John Hancock did last year. People considering purchasing this type of coverage should get quotes from several companies from a long-term care insurance specialist, they might also want to consider what discounts might be available from an association they are a member of, or through their own or their children’s group health insurance at work.

Care for the elderly or disabled can be provided by:

  • Family: either the senior moves into someone’s home or receive care at home
  • Assisted living at home, with a home health care provider helping with some of their needs
  • Combination of home based care and a facility, using an adult day care facility, or overnight care in a nursing home to provide respite care for the care giver

There are several types of facilities that provide care,  from Family Care Givers Online:

Smaller and less expensive, often in traditional homes in residential neighborhoods with shared bathrooms and bedrooms:
• Personal Care Homes
• Sheltered Housing
• Homes for Adults
• Board and Care
• Domiciliary Care
• Adult Foster Care
• Senior Group Homes  

Larger more expensive complexes, with an emphasis on independence and privacy. Most offer private rooms or apartments along with large common areas for activities and meals:

• Residential Care Facilities
• Assisted Living Facilities

Large complexes providing a variety of options ranging from independent living to skilled-nursing home care within one community:

  • Adult Congregate Living
  • Continuing Care Retirement Communities 
  • Life Care Facilities   

The Health Insurance Gap for Millions

The health insurance debate is far from over. You are going to hear a lot more about it in the next few years; during the presidential debate, as cases work there ways through the courts and the Supreme Court, and as more major provisions become effective that aren’t now.

I’ve listened to much of the rhetoric from both sides and actually sympathize with all of them.  One of the things that I have heard is that there are options for the uninsured, but on the other hand, I have heard that there are not. Truth is both are right. A few days ago I worked with someone who had a health condition, but not many viable options. Helping her explore them was revealing to me about this issue, and might be to you too. The purpose of this article is to illustrate the gap, to help you explore options if you are in the same gap, and for you to respond if you know of other options. The following is our discussion, changing some of the facts to protect confidentially.

Question #1: My doctor says that it is necessary to have surgery that will cost $20,000, and we don’t have health insurance, how do I pay for the surgery if I can’t afford it? With the debate about National Health Care, I’ve heard that hospitals can’t refuse to cover me.

Answer: Those without health insurance must pay for the surgery with their own money, either by saving it, borrowing, or asking friends and relatives for help. There are instances that Hospital’s can’t turn you away, for example if you were in critical condition following an accident, or your go to the emergency room because you are very ill.

Question #2: What are our options to purchase health insurance?

Answer: Personal health insurance can be purchased, however if you do so by regular means, the health insurance company will underwrite you, so you could be rejected for your health condition, rated a high premium (rates will be high at your age anyway), the condition may be excluded entirely or only covered after a pre-existing condition period has expired (this varies by state).

Question #3: The premium and underwriting seem like barriers for us to acquire personal health insurance, are there any other health insurance options?

Answer: Most states offer some type of guaranteed issue program, or uninsurable pool however rates may still be prohibitively high for many people.

Question #4: In the case of an emergency or being in need of immediate care to relieve considerable pain, for saving of one’s life, or if very sick the hospital must provide some care for me, but how would the medical bills be paid?

Answer: The medical bills can be paid for after care, either with money you have saved, or by working out a payment plan with the hospital. If you contact the hospital right away they are usually very good at working out a payment plan that you can afford. In addition, on the back of most hospital bills, is hardship form you can fill out. If you qualify you may get a reduction, sometimes small other times large, of the bill.

Question #5: My condition is medically necessary, but not an emergency and my doctor feels that if untreated the condition could cause other problems. However care isn’t required today to save my life or relieve considerable pain, so how can I schedule the surgery if I don’t have the means (income or savings) to pay for it?

Answer: There may be several options for people to receive financial help with your health condition:

  • Medicare may help, one of the conditions of qualifying for care prior to the age of 65 is being disabled, coverage usually can begin in 29 months from the date of Social Security Disability
  • Medicaid provides coverage for some people below the poverty guidelines, in your instance, a family of two, your income must fall below $15,130.
  • The Hospital Care Assurance Program (HCAP) is Ohio’s version of the federally required Disproportionate Share Hospital program. According to the Ohio Revised Code 5101:3-2-07.17, to those who are “not a recipient of the Medicaid program and whose income is at or below the federal poverty line.” The income is calculated using the preceding three and twelve months of income. This plan will be different for you state, including poverty guidelines.

Question #6: Our incomes exceed $15,130 using both calculation methods in the Code. These numbers seem very low, if you consider if the minimum wage is $7.50 in my state and if both of us worked minimum wage jobs, our total household income would be $31,200. Without health insurance it looks like we would never qualify for Medicaid or HCAP.  What other options do we have?

Answer: In some states, a person’s actual income may be a few times the poverty guidelines, so you should check that out first. Secondly, if you income has dramatically dropped, don’t just look at last year’s, but in some states you will be allowed to use a the last three months of income. If you still don’t qualify, you can request assistance from friends or relatives, your place of worship, and ask your doctor for a discount. Any one of them separate or combined may provide the help you need.

Question #7: We have not been attending a church regularly lately so we may not qualify, and our friends and relatives are tapped out, so those may not be options for us. In addition, due to slow work and mounting debt, we have very little money for car, mortgage, gasoline, utilities, auto insurance payment and food, let alone to save up for the surgery. So are we out of options?

Answer: I am not sure, but one possibility may be for your husband to seek full-time employment from an employer that provides health insurance. The wage may be modest, you may have to wait 90 days or so for the health insurance to start, and there may be a pre-existing condition clause, but you may still qualify for medical treatment in this situation, but medical bills not covered may be handled other ways, see Question #4.

Question #8: I recently lost my job and wonder about continuing my group health insurance through my employer

Answer: If you worked for a company that employed 20 or more people, they must offer you COBRA continuation of coverage, under Federal regulations. This can usually cover you for up to 18 months, and longer for example if you are disabled. You are required to pay 102% of the premium, and pre-existing conditions are covered. Group insurance isn’t cheap, but for those with health history it may be the best option. You have a 60 day window from the day you were given notice that you were COBRA eligible for you to accept, reject, or change your mind. You then have 45 days to pay the premium. This intended loophole of 105 days allows you to evaluate your options, and perhaps allow enough time for a new employer to provide coverage. Careful planning is required, so contact your human resources department for more information. If you work for a company that employs fewer than 20 employees, your state may provide similar continuation of coverage regulations.

Question #9: You are a financial guy, are you versed in all of the options, and do you have any other suggestions?

Answer: I am far from being an expert in this area. In Ohio I recently heard about UHCAN 614-456-0060 ext. 233, www.uhcanohio.org, you should call them and see if there are additional options for you. For people with severe financial difficulty that you may be facing, one option may be to delay making payments on your debt, including your mortgage. Through full-time employment plus side self-employment work, looking at your budget you may be able to save enough money for the surgery, either in part or through payments with a down payment may be enough. Lenders may work with you through special payments, deferment or some other means.  When the surgery is complete, you can resume payments, or explore other re-payment options. Bankruptcy is also an option. Whatever way you go, please get a lot of prayer for the tumor to be healed or paid for miraculously, and to seek the advice of many counselors.

I hope this information is helpful. Please send me other options that you know about to continue this discussion

Medicare Premiums Increasing in 2014 247%?

There is an email circulating that claims Medicare Part B premiums will increase 247% in 2014 to $247 from the present rate of $99.90. According to the AARP website and others, this is a myth that has been circulating since 2010.

A little background: Medicare is federal health insurance for those age 65 and older (and others with certain health conditions), and consists of 2 main parts A & B, in addition to C (gap coverage) and D (prescription coverage).

  • Medicare Part A considered hospital coverage, covers  such things as (with deductibles, co-insurance and limits) blood, home, health care, hospice care, hospital stay, and skilled nursing facility. Part A is paid for through payroll deductions from employees and contributions by employers during working years. Individuals who pay into Medicare Part A for a full 40 quarters requires no payments during retirement, however if they haven’t paid into for 40 quarters, it can be purchased by paying a premium that varies depending on how many quarters of Medicare taxes were paid. For example, in 2012 those with 30 – 39 quarters of Medicare-covered employment the premium is $248 or $451.00 for those who are not otherwise eligible and have less than 30 quarters of Medicare-covered employment.
  • Medicare Part B is to pay for medically necessary physician’s charges, outpatient hospital care, preventative care, and some other medical services not covered by Part A. Part B is offered to those who have Part A. The cost is paid for by tax revenues and by the Medicare Beneficiary and is generally deducted from Social Security checks. The premium the Beneficiary pays depends upon a persons income, for example it is $99.90 for individual tax filers making $85,000 or less on the low-end, and on the high-end for is $319.70 for those with incomes above $214,000.

The premiums mentioned above sometimes increase with inflation, but what that will be for 2014 no one knows at this point. Checking this rumor out with AARP and HealthCare.gov this appears to be a myth.

Health Insurance Issues for the Elderly

Why this topic is so important. For individuals in the later years of life, health insurance and health related costs are often one of the largest expenses. It is critical that you consider and plan for these expenses and that you become aware of the details of your options. In addition, as a voter you should be aware of how the system works, since national health care is one of the top five political issues. How changes affect Medicare (costs and benefits) may affect you or your friends and family. On average, most of your health care costs will be during the last 20–40 years of life, as your body ages.

It all centers around Medicare. All health insurance decisions for people 65 or older are centered around Medicare, working in the private sector, since in essence it is the core health insurance coverage. Individuals may be covered by other types of coverage after that age. For example, if they are still working they may be covered by group insurance. However, you need to consider all coverage decisions in light of Medicare options and benefits to avoid increased costs or gaps in coverage.

Additionally, if you are retiring before you are 65, remember that many companies do not provide retiree health insurance. Since Medicare also provides no coverage for early retirees, your plans should take into consideration the cost of individual coverage and your insurability.

What is Medicare? Medicare is a Federal health insurance program for people age 65 or older (or for younger people with certain conditions or disabilities). Covered persons are called ‘Beneficiaries.’ Medicare coverage is provided by different ‘Parts:’ Part A: Hospital related costs, and Part B: Doctor related costs.

Parts A and B do not cover all costs; they have deductibles and co-insurances. To help fill in these gaps of coverage, insurance companies market Medi-Gap or Medicare Supplemental (Med-Sup), and Medicare Select policies (managed care). Medicare working with private insurers provides two other options: Part C combines Parts A & B and provides Managed Care type of coverage and treatment (also called Medicare Advantage plans), and Part D is Prescription drug coverage.

Not to be confused with Medicaid. Medicaid is a welfare-type of coverage that is not related to Medicare. It helps provide health and long-term-care benefits to financially needy people of any age with low/no income or assets. Medicaid is funded by Federal, State and Local governments; coverage varies by state. Medicaid will not be addressed here; additional information is available from agencies in your state and at www.cms.hhs.gov/home/medicaid.asp.

When to sign up for Medicare Part B, C, D and supplemental plans? This answer to this question can be complex, but mainly centers around whether you are working after age 65 and eligible for group health insurance, and when that work will end. It is extremely important to be aware of guaranteed enrollment guidelines if you decline any of these plans at age 65, which can be complex. But suffice to say if you don’t take advantage of the normal guaranteed open enrollment around the age of 65, then you might have to wait before being covered by these plans, this is especially important if you have health problems and want to buy a supplemental plan, or have big health expenses during a gap in coverage. It is worth the investment in time to investigate your options at age 65 so that you are not caught without coverage.

Long Term Care Planning

The odds of a person needing long-term care when they are older depends upon a number of factors, some reports say that the odds of someone needing nursing home care are over 50% for those 65 or older. A 2007 USA Today article said that 7.4% of Americans aged 75 and older are in nursing homes in 2006.  Long-term care assistance comes into play when people are unable to care for themselves because of cognitive impairments (e.g., Alzheimers) or physical impairments. The key determinant for physical impairments is the ability to perform the Activities of Daily Living (ADL) to a specified level of proficiency. The Six ADLs are: 1. Bathing; 2. Eating; 3. Toileting; 4. Transporting; 5. Incontinence; and 6. Dressing.

There are several types of care: Skilled Care – daily 24 hour nursing care, Intermediate Care – occasional nursing care, and Custodial Care – providing assistance with the ADLs.

Care can be provided in the Home (Home Health Care) by a friend, relative or professional, or at a Nursing Home, Adult Day Care, or Assisted Living facility. LTC assistance can also entail Hospice care provided in someone’s home or in a hospice facility. Many nursing homes today provide several levels of care within one facility. People with diminishing health and spouses who may require different levels of care find these multi-level care facilities to be a good fit for their changing needs. Many nursing homes today provide nice home environments that are not institutional, making the change from independent living much more comfortable.

The average cost for LTC today for a private room in a nursing home is over $6,000 per month, according to AARP. The average stay can easily be 2–3 years, at a cost of more than $225,000. What are the options to pay this? Private major medical health insurance (group or individual) provides little to no benefits. Medicare health insurance for people over 65, or for anyone with certain disabilities, provides for care in a skilled nursing facility for 100 days following a 3-day stay in a hospital. After 100 days there is no coverage. Medicaid welfare-type benefit for those with a very low-income or little to no assets. Veteran’s Affairs provides for service-related disabilities or for certain eligible veterans. These are not viable options for a lot of people, therefore Long Term Care insurance is often worthy of consideration.

Individual Long-Term Care Insurance policies are available to provide various levels of care up to benefit limits. Group Long-Term Care Insurance can be provided through employers, funded with group rates and through payroll deduction. Qualified LTC Insurance may provide tax advantages on the premium and tax-free benefits. Some states offer “Partnership Policies” that shelter some of your assets should you require some assistance from Medicaid. Obtain several quotes from different insurance companies, and evaluate their history of rate increases, benefits, features, and company ratings (the agent should be able to provide this information); purchase only what you can afford. Consider various riders, including Cost of Living Adjustment (COLA), which increases your benefit each year prior to claiming benefits. Some life and annuity insurance policies also have various riders on life insurance policies may provide funds for long-term care.

Without insurance, savings and investments until depleted are used to pay the costs, then Medicaid pays. Home equity can fund LTC through sale of the home or by the use of a Reverse Mortgage. Financial planning should take into consideration one’s potential need for long-term care assistance. 

Many people ask about Medicaid Planning. Government (e.g., Medicaid) has limited resources to meet the growing demand of our aging population. Qualification requires that individuals spend down their assets to $1,500 and have limited amounts of income. Married couples have different limits; they should seek qualified counsel if either spouse is applying for Medicaid-paid long-term care assistance. Change in the law makes it much more difficult to transfer assets in order to qualify for Medicaid.

As with all planning, seek the assistance of qualified professional trusted advisors prior to making decisions and implementing your financial plans.

Stranger Owned Life Insurance

The Wall Street Journal reported yesterday, that a Federal judge has ruled for Prudential Financial Inc. allowing them to void a $10,000,000 Stranger Owned Life Insurance policy. Surprisingly Prudential is also allowed to keep over $600,000 in premiums. This is huge blow to investors, because many sellers of these products believed that if cases like this were lost, at the very least premiums would be returned, providing them with some expectation of downside risk for the investors.

Stranger Owned Life Insurance is also known as STOLI is when investors purchase life insurance usually on an elderly person. Many states regulate or restrict STOLI and insurance industry associations and experts have also come out against it.  They cite  various reasons; it violates the intent of insurance to provide protection, possibly creates a market where there might be a lot of fraud, and whenever someone’s death is tied to investors making money there are moral implications to say the least.   STOLI policies are often for many millions of dollars, often pay the person being insured, may involve financing of large premiums, the commissions can be hundreds of thousands of dollars, and the insurance companies are not always notified when the application is submitted.

This latest case is another blow against the STOLI industry. Investors, insureds, and their family and advisors should be more cautious than ever, including for-profit and non-profit entities that are sometimes pitched STOLI programs.

Variable Annuity Guaranteed Income Benefit Risks

Interesting Article in the Wall Street Journal today about Variable Annuity’s Guaranteed Benefits. Variable annuities provide nice tax deferred growth, their rates of return aren’t bad if they have great sub-accounts, which are accounts similar to mutual funds. Variable annuities don’t guarantee rates of return, nor do they guarantee the principle unless the annuity holder chooses the fixed or money market account, values totally rely on performance (this is unlike fixed annuities which do). However, many variable annuities offer future guarantees to provide income even if the underlying performance is poor. Many older variable annuity owners wishing to use their variable annuities for retirement income, find that their values are low, will instead choose to take their money by using the income options such as annuitization or a guaranteed income benefit, they might be called GIB or GWB for guaranteed withdrawal benefit. The income might range somewhere between 4% – 7%.  Considering how low-interest rates have been on savings and bonds, and low returns of stocks, this income might be very attractive to variable annuity holders.

How are insurance companies financially able to make their income promises? The companies offering these products invest the fees they charge and purchase hedging instruments, such as stock options, and have reserves to help them pay these guarantees. The companies reserve’s investments and the variable annuity sub-account performance also play a role. Lastly, if the company is publicly traded, the stock price may also affect their ability to meet the promises. The article cited above raises concerns about ING, since their stock value has decreased 4.7%, and it is expected that more variable annuity holders will choose to take their money in income, for the reasons stated in the previous paragraph.

Purchasers of annuity products may be wise to consider the financial strength of the insurance company by looking at rating from multiple rating agencies such as A.M. Best, Fitch, Moody’s and Standard & Poor’s, and do other research. In addition it may be wise to purchase annuities from more than one company, this is especially true if investing a large amount.

If an insurance company becomes insolvent, is there a government agency that guarantees principle?  There is no federal guarantee like FDIC, but most states have set up agencies to protect policy holders (within limits), however there is one big hitch, they don’t back variable annuities.