Don’t Drop that Long Term Care Insurance Policy!

Eighty million Baby Boomers are headed for the retirement exits and many will face a significant rise in medical costs during their retirement years.  Your choices include self-insuring these potential expenses or hedging your bets by purchasing long-term care insurance.  We had one case where both the husband and wife required around-the-clock nursing care at an annual tab of $200,000.  As you might imagine, this level of expense could quickly devastate one’s personal finances.  Many people choose to buy insurance to help cover these risks.  Long-term care insurance is a type of disability income policy whereby the contract states that if you are unable to perform two of the six activities of daily living, the insurance company will cover medical costs up to a stated amount per day for a given period of time.  The six activities of daily living include eating, bathing, dressing, mobility, grooming, and toileting/continence.  For example, you decide to purchase a $150 per day benefit payable for five years using a 90-day waiting period.  If due to an accident or illness you couldn’t walk and bath yourself, after ninety days, the insurance company would reimburse your medical expenses up to $150 per day for up to five years for a total potential benefit of $273,750.

The history of long-term care insurance dates back to the 1970’s but did not become popular until the 1990’s.  Since then millions of consumers have purchased this product and the insurance companies now have decades of experience in handling claims.  The results have not been pretty.  The insurance companies have woefully underestimated both the rising cost of healthcare as well as volume of claims.  In 2010, fifteen insurance companies accounted for 85%-90% of the business written for LTC policies.  Last year they took in an estimated $11 billion in premiums against an estimated $70 billion in liabilities.  Several years of historically low interest rates have decimated insurance company investment returns, further exasperating these insurance companies’ problems. As a result many insurance companies are either getting out of this business or scaling back sales of LTC policies including Lincoln Benefit Life, Metlife, Inc., Prudential Financial Inc., Unum Group, CNO Financial Group Inc. and John Hancock Life Insurance Company.

If you own a LTC policy, what does all of this mean to you?

  • First, you’ll probably want to keep it.  If you were to drop your policy, it’s highly unlikely you could now purchase one with the same benefits and premium.  A new policy would likely be more restrictive with a much higher premium.
  • Second, expect your premiums to rise.  The insurance companies are taking a financial beating on these products.  Unfortunately for consumers, in most policies, the insurance companies have the right to raise premiums but only with the permission of the state insurance commissioners.  While it’s been frustrating for policy owners to get notices of rising premiums, it’s my opinion that premiums are rising much slower than claims…meaning the policies still represent a good deal for the consumer.  It appears that the state commissioners are becoming increasing uncomfortable with continuing to allow insurance companies to raise premiums on seniors.

In a world where it’s estimated that two-thirds of seniors will eventually meet the LTC insurance company test of being unable to perform two of the six activities of daily living, paying for healthcare for the onslaught of the Baby Boomer generation will be an escalating problem.  If you are age fifty or older, consider your options for handling this financial issue.  If you already own LTC coverage, consider yourself lucky and think long and hard before deciding to drop the coverage.  A lot of people have purchased LTC insurance through their employer.  If you leave that employment, you’ll want to strongly consider taking that policy with you.

“Today the insurance companies have shifted focus to hybrid policies that offer life insurance with a LTC rider whereby if you qualify for LTC benefits, those benefits will be paid as a deduction against the death benefit.  If you never use LTC benefits, the full amount of death benefit is paid at your death”, says Babs Hart of Hart Insurance Group

Financial Strategies for Natural Disasters

Thousands of families are still recovering from the series of tornados that ripped through the southeast as well as other parts of the country. The financial and emotional devastation has been cataclysmic. As bad as this has been we all know that natural disasters are a part of life and will recur ad infinitum in the future. The only question is, “Who will be the next victims?” Unless you somehow know you’ll always be spared, it makes sense to take basic precautions to defend yourself, financially speaking. Here are 5 basic strategies that will help you survive the financial fallout should you become a victim of a natural disaster:
  • Emergency reserves. The recent tornadoes left hundreds of families homeless while they waited on overloaded insurance companies to respond to their financial needs. Make certain that you maintain three to six months of living expenses in an easy access money market account to cover unexpected expenses.
  • Adequate insurance coverage. Many homeowners found out too late that their insurance coverage was less than adequate. On at least a biannual basis you should have your insurance agent review your coverage to make certain it is appropriate. Consider ‘replacement value’ coverage versus ‘cash value’ coverage. The former provides funds to fully rebuild your home whereas the latter reimburses based on the insurance adjusters estimate of the value of your home. If you live in earthquake or flood prone areas, you’ll want to consider special coverage for these disasters.
  • Video your stuff. In hundreds of cases, nothing remained where a home once stood. How would you ever recall all of the items in your home? Note that the insurance company depends on you to list what was lost or destroyed before they can reimburse you. Use a video camera to video all of your belongings. This will take you less than two hours and could mean thousands of dollars of reimbursement should disaster strike.
  • Document storage. Consider using new technology such as ‘cloud storage’ to keep a back-up record of your most important documents such as your wills, insurance policies, medical and dental cards, passports, credit cards, birth certificates, marriage license, medical prescriptions, deeds, driver’s license, family photos, as well as back-ups of your financial records. Cloud storage is a way to copy and store ‘paperlessly’ your documents. Visit Apple’s www.iCloud.comfor more information. In the aftermath of Katrina, one of our clients lost everything to the flood. Fortunately, we had electronic back-ups of all of her important documents and were able to assist her insurance agent with the claims reporting he needed to get her immediate assistance.
  • Keep some cash on hand. In the case of a wide-spread disaster, access to banks and bank ATMs might not be possible so consider keeping enough cash on hand to get you through a couple of days.
While it’s impossible to fully prepare yourself against a natural disaster, by taking these simple steps, you’ll be in the best position to weather the storm. By the way, each of these steps is a smart financial strategy if you never become victim of a natural disaster!


Long Term Care Insurance – The Anti-Nursing Home Solution – Part II

Last week, we began our discussion of long-term care insurance as an important part of any Baby Boomer’s retirement planning.  This week, I’ll focus on key elements that should be considered when buying a policy.  Long-term care insurance is a specialized form of disability income insurance.  Typically, you can buy a daily benefit ranging from $50 to $400. Before deciding how much coverage to purchase, first determine the level of services you want; how long you want benefits to be paid; and the current cost of those services locally.  While most insurers offer plans that pay benefits ranging from two years to lifetime coverage, the average nursing home stay is less than three years.  Often, people will choose to self-insure a portion of the expected costs of long-term care.  According to Babs Hart, long-term care insurance specialist and Founder of The Hart Group in Tuscaloosa, Alabama, “The coverage you purchase should be designed as a safety net considering other assets that could be used to contribute to providing care”. 

Insurance companies pay benefits under one of three methods:

  • The reimbursement plan pays the actual cost incurred and will not reimburse for services by non-licensed caregivers.
  • The indemnity plan pays the full daily benefit regardless of actual expenses, and again, the care provider must be licensed.
  • The cash benefit plan pays the full daily benefit regardless of actual expenses and whether the caregiver is licensed.  This plan allows you to receive cash benefits even if your caregiver is a family member.  

According to Mrs. Hart, “The advantage of the indemnity plan is the record keeping is minimal and, in some cases, the daily benefit received is greater than the costs of services which means there’s extra money for other needs such as prescriptions.”

You must also decide how soon you want to begin receiving your benefits (the elimination period). Most companies offer elimination periods that range from 30 to 360 days.  To reduce your premiums, choose the longest elimination period that you can afford to cover yourself.

Here are a few of the most important policy optional coverage for you to consider:

  • Inflation Protection Rider will cause your daily benefit to rise each year based on your choice of either simple or compound inflation factor.   With healthcare costs rising steadily, this option is very useful. 
  • Future Purchase Option Rider offers policyholders the ability to purchase additional insurance in later years if they feel it is necessary. This is a safeguard but the major disadvantage is that the premiums of the new insurance are based on your current age, making the policy quite expensive. 
  • Shared Care Rider Option Rider offers policyholders the ability to borrow from their spouse’s policy once their policy is exhausted. 
  • Survivorship Rider provides a paid up policy for a surviving spouse once a policy has been in-force for a certain number of years. This is appropriate where the death of one spouse causes family income to drop to a point where it would be difficult for the surviving spouse to continue to pay premiums.

Long-term care insurance is complex coverage.  To help select the policy that fits your particular needs, contact your financial advisor or a long-term care insurance specialist. To find a specialist near you, log onto or call 1- 877-771-2582.

Stewart H. Welch, III, CFP, AEP, has been recognized by Money, Worth, Mutual Funds Magazine and Medical Economics as one of the top financial advisors in the country.  He is the co-author of The Complete Idiot’s Guide to Getting Rich (Alpha Books) and J.K. Lasser’s New Rules for Estate and Tax Planning (John Wiley & Sons, Inc.).  Consult your financial advisor before acting on this advice.

Long-Term Care Insurance – The Anti-Nursing Home Solution – Part I

Many of the 80 million Baby Boomers heading toward retirement now see long-term care insurance as an integral part of their core financial plan. More than 9 million people will use long-term care services this year and this number is estimated to increase to more than 12 million by 2020. Meanwhile, the cost of medical care continues to rise, mostly driven by advanced medical technology and pharmaceuticals.

Our government recognizes the potential for a healthcare crisis and is encouraging people to purchase long-term care insurance by offering financial incentives including tax-free receipt up to $260 per day of benefits from long-term care policies. Also, premiums paid by individuals are deductible as medical expenses for itemized deduction purposes and the amount you can deduct is age bracketed. As with other unreimbursed medical expenses, long-term care expenses exceeding 7 ½% of adjusted gross income are deductible. “The most significant tax advantage is for business owners. Businesses that are organized as an LLC, Sub-chapter S or Partnership can deduct long term care premiums for the business owner up to a certain limit that is determined by the owner’s age. Businesses that are organized as a C-corporation can take a full deduction of the premium irrespective of the owner’s age,” says Babs Hart, a long-term care specialist and owner of The Hart Group based in Tuscaloosa, Alabama. Employer payments for group premiums are tax deductible to the employer and not taxable income to the employee.

What does long-term care insurance cover? Long term care insurance covers nursing and non-medical care for people who have a chronic illness or disability. This care is generally related to assisting people with “custodial care” which includes daily living activities like dressing, bathing, toileting and eating. “In addition, long-term care insurance covers severe cognitive impairment such as dementia or Alzheimer’s disease, which is separate from the activities of daily living”, says Ms. Hart. Health insurance covers short-term illnesses and doesn’t pay for extended care. Medicare covers only a limited amount of post-hospital care and does not pay for any custodial care. Medicaid is a state and federal government program that provides extended care benefits, but only to low income individuals with very limited assets.

The average cost of long-term care services exceeds $58,000 per year and costs are expected to continue rising. That’s why long term care planning needs to be included as part of everyone’s retirement planning. Long term care insurance policies allow you to customize your benefits based on your needs and desires, whether you choose services at an assisted living facility or at in-home services.

I used to advise our clients who had a net worth exceeding $2 million to ‘self insure’. But what I have found is that people, particularly people of wealth, are adamant that they remain in their homes rather than enter a nursing home facility. This means 24-7 nursing at astronomical cost. In one recent case, both the husband and wife required round-the-clock professional care by two separate teams which cost a whopping $180,000 annually! In fact, long term care insurance is often called “anti-nursing home insurance.”

Stewart H. Welch, III, CFP, AEP, has been recognized by Money, Worth, Mutual Funds Magazine and Medical Economics as one of the top financial advisors in the country. He is the co-author of The Complete Idiot’s Guide to Getting Rich (Alpha Books) and J.K. Lasser’s New Rules for Estate and Tax Planning (John Wiley & Sons, Inc.). Consult your financial advisor before acting on this advice.

Personal Umbrella Insurance – Bullet Proofing Your Assets

Over the past few weeks, I have discussed the importance of having adequate homeowner’s and auto insurance. However, even the maximum coverage under each policy may not be sufficient if you get involved in a serious liability case. Fortunately, there is an excellent and inexpensive solution to this problem. A Personal Umbrella policy is designed to pick up where your homeowner’s and auto polices leave off and increases your protection by $1,000,000 or more. Here’s how it works.

The Personal Umbrella policy has a very large deductible, often $300,000 or $500,000. To satisfy this large deductible, you must raise the underlying limits of both your homeowner’s and auto coverage. For example, if your homeowner’s and auto coverage both had $100,000 limits for liability, and the umbrella policy had a $500,000 deductible, you must raise your homeowner’s and auto liability limits to $500,000. Let’s say you are at fault in a car accident that severely injures another person and that person is awarded a $1.2 million judgment. Your basic auto policy would cover the first $500,000 while your umbrella policy would cover the remaining $700,000. In fact, you now have $1,500,000 of total coverage: $500,000 of basic coverage plus $1,000,000 of umbrella coverage.

The cost for this coverage is very affordable, given the peace of mind it provides. A $1,000,000 umbrella policy can cost as little as $150 per year. “Factors influencing the premiums include number of cars, homes, youthful operators, pools, ATV’s, boats and the driving record of the operators,” says Ben Jackson of Sevier, Fowlkes & Jackson Insurance, a division of Compass Insurance Agency, Inc.

Many people erroneously believe that they are ‘suit-proof’ because they have few assets. In fact some newly-minted physicians take this position because their student loans place them squarely in negative net worth territory. However, a judgment can be held until you become successful or your future earnings could be garnished. Therefore, unless you are committed to a life of financial destitution, you should consider having an umbrella policy.

How much coverage should you have? Most people should have at least the minimum $1,000,000 umbrella policy. For our clients who have begun to accumulate considerable assets, we quickly increase the coverage to a range from $2 million to $5 million. The cost of higher coverage runs less than $1,000 per year.

A real life example: A good friend and client’s car hit a patch of ice and slid into the oncoming lane causing a head-on collision. Two passengers in the other car were not wearing seatbelts; both went through the windshield, receiving severe facial lacerations requiring extensive plastic surgery. They sued and received a mid six-figure settlement. Fortunately, my client had an umbrella policy which covered the settlement. Otherwise, his personal assets would have been at risk.

Finally, it’s worth remembering that a personal umbrella policy insures many situations that are not covered under the typical homeowner’s and auto policy including extended coverage for defense costs, slander, rental cars, play-toy rentals such as jet skis and boats, non-profit work and pollution. Also, I recommend buying your umbrella policy from the same company as your homeowners and auto policy to make certain there is no gap in coverage.

Stewart H. Welch, III, CFP, AEP, has been recognized by Money, Worth, Mutual Funds Magazine and Medical Economics as one of the top financial advisors in the country. He is the co-author of The Complete Idiot’s Guide to Getting Rich (Alpha Books) and J.K. Lasser’s New Rules for Estate and Tax Planning (John Wiley & Sons, Inc.). Consult your financial advisor before acting on this advice.