When Buying Life Insurance…

1.) Don’t be intimidated by the fee structure-

The fees associated with life insurance actually decrease over the long term, and can even be considerably less expensive than those charged by an advisor, or a mutual fund.  According to an article in Forbes, mutual funds are actually charging on average 2.75% because of trading costs, which don’t have to be reported.  In the article, “Busting the Biggest Myth of Modern Finance,” after 20 years, a dividend-paying whole life policy fees equated to what would be a mutual fund with annual fee of .50% in a side by side comparison.  As a matter of fact, a mutual fund with a “little” annual 1.5% fee could cost as much as 8 times more than a life insurance policy over time!  Don’t let the fees distract you from buying cash value life insurance.

2.)  Do consider the “living benefits”-

Many people don’t realize that life insurance can provide access to your death benefit to pay for heart attack, cancer, stroke, Alzheimer’s, and even long term care.  Almost 70% of bankruptcies and foreclosures are related to medical expenses.  Does your policy provide living benefits protection?

3.) Don’t undervalue yourself and your spouse-

What is your life really worth? Don’t underestimate the full potential of your earnings power.  If you have a life insurance policy worth $ 200k, then in essence you are saying that if I die my life was worth only $ 200k!  According to numerous statistics, over 58% of the people feel they are under-insured.  Furthermore, often there is insurance on the primary bread winner, but nothing on the stay-at-home spouse, who is working just as hard to take care of the family.  According to salary.com, the cost to replace someone to take care of child care and other house responsibilities would be over $ 100,000 per year.  Also, your spouse runs the same risks of needing “living benefits” protection as well.

4.) Don’t believe in buying term and “investing the rest”-

Mainly because you won’t!!  Research has shown that less than 1% of people actually end up investing the rest.

5.) Don’t buy life insurance over the internet-

Most people don’t realize that it doesn’t cost you any more commissions to work with an insurance specialist.  With all the products available, and numerous planning possibilities, why wouldn’t you work with someone to design an insurance program that is tailored to meet your specific needs?

6.) Do consider a cash value policy-

Guess who is the largest purchasers of cash value life insurance…banks and corporate America.  If it’s good enough for them, then it might be good enough for you to consider.  It’s not a short term play, but cash value insurance can increase dramatically over the longer term..10, 15, 20 years.  Historically, a equity index universal life policy has averaged as much as 8% a year. It tracks it’s performance against the S&P 500 index, which traditionally has been a good place to consider investing a portion of your money.  Also, because of the way the product is designed, it doesn’t lose money if the market goes down.  As a matter of fact, during the stock market correction in 2008, it didn’t lose anything!  Cash value life insurance can provide tremendous flexibility.  It can be used for numerous financial goals such as college planning, retirement, asset protection, and even tax reduction strategies.

Life insurance gets a bad rap, but it stems from a lack of education.  It can be a great way to cover a lot of financial bases, provide diversification, and protect you and your family.

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The Myths of Long-term Care

While I was on vacation recently, I received 2 panicky phone calls from clients that had to make arrangements for loved ones because of their inability to take care of themselves.  In both cases, the parent fell down, injured themselves, and were required to be in the hospital for a few days.  As a matter of fact, one of my client’s dad fell down again after only being home from the hospital for a few hours, requiring him to go back because of a possible head injury.  Fortunately, in both cases, I had done a little bit of planning so there was some help with the long term decisions that were going to have to be made.  However, the kids had really very little clue as to what to do, if their parents had enough money to get some help, or how to structure the finances.  What really surprised them was they thought that Medicare was going to help pay for most of this….NO!  So, I thought I would spend a few minutes preparing you to better handle a long term care situation.

1.)  What is meant by long term care?

The industry definition is the loss of one’s ability to perform the Activities of Daily Living, such as bathing, using the bathroom, eating, getting dressed, walking, doing household chores, etc.  It involves intimate aspects of people’s lives that allow them to take care of themselves, being able to take care of themselves.  Long term care is the loss of some capacity for self care.  A long care situation is usually associated with the loss of 2 Activities of Daily Living.

2).  It probably won’t happen to my parents-

Unfortunately, statistics tell a much different story.  I recently saw a Fidelity Investments study from 2012, that estimates a retiring couple should have some $ 240,000+ dollars earmarked for medical expenses, with the number rising substantially if a serious long term care event happens.  According to the Family Caregiver Alliance, they expect the number of people needing long term to double to over 13 million as our population continues to get older.  Medical science is also doing a very good job at keeping people alive longer, and the population segment over people turning 100 years of age is growing extremely fast.  According to an AARP study, people 65 years and older have a 68% chance of being cognitively impaired or will require some type of long term care assistance.

3.) Medicare will pay for it-

What Medicare covers and pays for is so misunderstood, and it was never designed to be a long term care program.  It was put together originally back in 1965, as a health insurance plan for Americans age 65 and older who had paid taxes for Medicare over 10 years, or could be covered if they paid a monthly premium.  It has a lot of pieces and parts, which is why I sometimes think it takes a PhD to understand the program.  Basically it consists of Part “A” & Part “B”.  Part “A”, which has been referred to as hospital care, does have some potential skilled nursing facility/home health care benefits. Medicare pays a limited number of days for “skilled” nursing home care up to 100 days provided it is nursing care on an inpatient basis such as intravenous drugs.  However, it doesn’t pay for care that doesn’t require medical knowledge, such as helping people with the daily activities of living! Furthermore, once you have exhausted your 100 days of “skilled” nursing home care, you have used up your Medicare benefits for that period.

4.) We will pay for it on our own or just take care of them-

The average costs for private long term care in Maricopa County is over $ 75,000 per year, with home health care costing as much as $ 40,000+.  According to a Fidelity Investment study from 2012, it estimates that retiring couples should have some $ 240,000+ earmarked for medical expenses.  Additionally, over 78% of the people needing long term care assistance depend solely on their family as their sole source of help.  NHPF estimates that families spent a staggering $ 200 billion+ dollars on long term care services, with the average family spending over 20 hours per week helping someone that needed long term care assistance.  The economic value of this care has been valued at over $ 450 billion dollars.  What is scary is that most research estimates that by 2030, unless we have a significant increase in savings rates for long term care, and strengthening of government programs, many retirees will face serious problems getting care.  According to the last census, over 50% of people have no plan to help pay for long term care, or increasing healthcare costs.  Will your family have enough time or money to help your loved ones?

5.) You need a plan!

People need to be considering all their options when planning for future medical expenses associated with long term care.

A.) Consult a long term care professional about purchasing long term care insurance.  You may want to include a daily benefit amount, like a $200 per day, and provides an inflation rider to increase as long term care costs rise, maybe a 3% increase rider.  Also, include a long enough benefit period as it is estimated that long term care situations last an average of 2 to 3 years, even out to 5 years+.  The policies can run around $ 3000 to $ 4000 for a 55 year old couple, but the younger and healthier you are, the less costly the policy and the easier it is to get it. In some cases, these premiums can be tax deductible so consult your tax professional.

B.)  If you have a cash value life insurance plan, consider transferring into a new plan that included a chronic illness/living benefits rider.  This will allow you to use a substantial portion of the death benefit while you are alive to help pay for the monthly costs of long term care.

C.)  Consider annuities that provide some look care benefits, or will help to offset the costs.

D.) You may want to meet with an estate planning attorney about different strategies to help with a long term care plan.  E.) You may want to start an additional savings plan that is specifically targeted to help pay for long term care/medical expenses, or work with an advisor to restructure your current income plan.  Also, dormant assets like unused IRA’s, C.D.’s, possible equity in your home, could be used to help address these needs.  However, you need to plan, and with Government resources stretched so thin already, having control over your destiny would seem to make the most sense.