Wealth Management Blog

Posts tagged Insurance

Long Term Care: Challenges & Opportunities

By JJ Burns

May 22, 2014

Long-term care insurance policies are a valuable resource for many people. They provide funds to pay for home care and nursing home expenses for an extended period of time.  As our baby boomer clients and their parents age, we have witnessed how the benefits have protected the assets and lifestyle of families.

In the last few years, insurance companies have been asking regulators to approve premium increases for older-issued (8 to 10 year old) policies.  Simply stated, the insurance companies are not collecting enough in premiums to cover their expected future liabilities to provide care.  As a result, an increasing number of policyholders are receiving notifications of significant premium rate increases.

The 3 main factors behind these premium increases:

  1. Insurers overestimated the number of policyholders that would drop their coverage
  2. Costs of home health care and nursing home care has significantly increased in recent years
  3. The low interest rate environment has reduced insurers’ ability to earn income on investments backing their policies

Your Options When Faced With A Premium Increase

Look for new coverage.  Your first reaction may be a desire to drop your coverage and try and find a new carrier.   However, often times it is unlikely that you will be able to purchase a new policy at a better rate, especially if you are much older or your health has deteriorated.  Additionally, new policies being issued today are being done so at much higher premium rates than they were even 5 years ago.

Change your coverage.  If you do not want to pay the increased premium cost, you may want to consider modifying your coverage by lowering your benefits, decreasing your inflation protection, or shortening the years of coverage.  It is important to note however, that once you reduce your benefits, you cannot re-establish the original benefit.

Pay the increase.  Depending on the size of premium increase and your ability to absorb the cost, it may be advisable to pay the new higher premium because the coverage is quite valuable.  This becomes an individual decision for each policy holder based upon current assets they have saved, income available to pay the additional cost and their current health.

Drop your coverage:  If your wealth has grown beyond the need for coverage, it may be time to eliminate the insurance.  It's important to determine if your assets can support a home or nursing care expense. 

Insuring Your Future

Planning for long term care involves more than just insurance.  I was recently interviewed for a segment of On The Money with Sharon Epperson of CNBC to discuss long term care insurance and whether the price is worth the protection.  Whether you’re faced with an increase in premium or evaluating the benefits and costs of long term care insurance for the first time, it is important to start by looking at your overall financial plan.  Once you understand all of the wealth management gaps in your life, you can then do a thorough analysis and make an informed decision.  How your assets are owned is a key component to planning and should always be part of the process.  The last thing you want to do is add an unnecessary expense without a thoughtful plan.

If you have any questions about the gaps in your wealth management plan, contact our office at 631-390-0500.

Find Extra Benefits in DI Insurance

By JJ Burns

April 1, 2013

The odds that you’ll suffer a disabling injury or illness are far greater than the likelihood of you dying prematurely. A disability income (DI) insurance policy, used to supplement life insurance coverage, could help protect you from loss of income if you’re unable to work. Indeed, a DI insurance policy might provide even more benefits than you expect.

Typically, a private DI insurance policy can pick up some of the slack if you’re disabled for an extended time. Should you no longer be able to work, you will begin receiving a monthly disability benefit. Normally, the benefit is a predetermined amount, unlike employer-provided coverage, in which the benefit equals a percentage of compensation.

As with life insurance, DI terms can vary widely from policy to policy. Some key variables include the amount of the benefits you’ll receive; the length of the coverage; the requirements for receiving full benefits; the definition of “disability”; the length of the waiting period before benefits begin; any cost-of-living adjustments; availability of partial benefits; and possible non-cancellation features. Naturally, the cost of the premiums also will vary, depending mainly on those variables.

But don’t assume that you must be bedridden to collect any benefits. Frequently, a DI insurance policy will provide “residual benefits” in the event you can work some of the time or if you’re slowly getting back on your feet. Some policies even offer benefits after you’ve returned to work if you are earning less than you did before your disability.

The residual benefits generally kick in when the loss of income is greater than 20% of previous earnings and the decline is due to the medical condition underlying the disability. This feature could be especially valuable to small business owners, including self-employed entrepreneurs, and professionals in fee-based practices, such as physicians, attorneys, and accountants.

For example, suppose a surgeon recovering from a severe illness returned to practice but was able to see fewer patients. If the surgeon’s income was reduced from $50,000 a month to $30,000, the residual benefit could restore income to 80% of the pre-disability level—in this case, $40,000 a month. Similarly, if the side effects of chemotherapy make it too hard for a litigator to appear in court or for a CPA to handle a company’s books, the residual benefits can soften the economic blow.

To see what your coverage may or may not include, take a close look at existing DI policies or any new policy you’re considering and have your insurance agent explain the residual benefits section. The policy might be more valuable than you imagined or the residual benefits may be too restrictive. Those provisions could be a key component of your DI insurance coverage.

Dust Off Life Insurance Policies

By JJ Burns

March 1, 2013

When was the last time you reviewed your life insurance policies? If you’re like most people, you’ve probably stashed your policies in a drawer, filing cabinet, or safe deposit box where they’ve been gathering dust. But you should review your policies periodically to see whether they still meet your needs. Depending on the outcome, you might adjust your coverage.

In particular, you should examine your policy if you’ve experienced one or more major “life events” during the past year. What sort of events are we talking about?

  • There may have been a birth, death, or disability in the family.
  • You got married, divorced, or separated.
  • You bought or sold a principal residence, vacation home, or other real estate property.
  • Your child completed college or graduate school.
  • You acquired property as a joint tenant.
  • You have switched jobs, retired, or started up a new business.
  • There was a significant economic change affecting your business operation.
  • You need to revise the beneficiaries of your insurance policies due to a change in circumstances.

Note that other changes that might trigger a life insurance review could be less obvious. For instance, you may need additional coverage if you’re now taking on financial responsibilities for an elderly or disabled relative. Conversely, your financial responsibilities may decrease somewhat if you have finished paying off a home.

Furthermore, you should try to view your family’s needs as if you were buying life insurance for the first time. It’s your current and future circumstances that are the critical factors—not how things were last year or several years before. And don’t forget to review all of your life insurance policies, including any group coverage that your employer (and your spouse’s employer) might be providing.

Needless to say, this is an on-going process. A main function of life insurance is to replace lost income that your family relies on if you should die prematurely. When your financial obligations are small, the amount of life insurance coverage you require is also small. However, as those obligations grow, so does your need to acquire more coverage.

Typically, your life insurance needs will be at their greatest when your children are relatively young and you’re in the midst of your career. Once your children have flown the coop, or you have retired, your insurance needs will likely not be as great.

Best approach: Assess your life insurance needs at regular intervals. You may want to do so at the start of a new year or on some other “anniversary” date. In any event, don’t let too much time go by without a regular check-up.

Getting a Life Insurance Check-Up

By JJ Burns

March 26, 2012

Do you need to update your life insurance protection? You may be surprised to learn that your existing policies are no longer sufficient to meet your needs.

If you’re like many people, you probably took care of your life insurance years ago. You bought as much coverage as you felt you needed, and then you stashed the contract in a drawer or safe somewhere and pretty much forgot about it. But it would be unusual if your family financial situation hadn’t changed significantly since then. For example, you might now have too little insurance if you’ve added another child or two to your brood. But it could also work the other way. If your children have left the family nest or you’ve retired, you may be able to cut the amount of your coverage.

Now is as good a time as any to dust off that old policy and review it. You may find it doesn’t reflect one or several major life events you’ve experienced since you acquired the coverage. Those might include:

  • You have married, divorced, or separated;
  • There has been a birth, death, disability, marriage, or divorce involving someone else in your family;
  • One or more of your children has completed college or graduate school;
  • You bought or sold your principal residence, a vacation home, or investment real estate;
  • You switched jobs, started your own business, or retired; or
  • There has been a big shift in your financial or business circumstances.

Other family changes could also have an impact. For instance, you may have taken on the care of an elderly or disabled relative, thus adding to your financial commitments and increasing the amount of replacement income that would be needed if you died. Meanwhile, if you’ve paid off your mortgage, you may be able to reduce your coverage.

When you review your policy, examine it as if you were buying life insurance for the first time. It’s your projections for the future that are the crucial factors—not the way things were a few years earlier. And don’t forget to review all of your life insurance policies, including any group coverage you get through your employer (or your spouse’s employer), taking into account recent estate tax law changes.

The amount of coverage you need is likely to drop as you get older, and you may eventually decide you can do without life insurance, though it could also play a role in your estate plan. Also, consider the return you may receive on cash value, especially with whole life policies. What’s certain is that your financial situation will continue to evolve, so it makes sense to make an insurance review a regular event—if you mark it on your calendar each year, you won't forget to conduct this important checkup.

Six Disability Facts to Consider

By JJ Burns

March 21, 2012

You probably already understand the importance of having life insurance. The proceeds from a life policy can help cover your family’s current expenses and may provide a cushion for the future if you die prematurely. But another kind of coverage—disability income (DI) insurance—is often ignored or neglected. And that’s a mistake, because DI insurance can be even more vital than life insurance in maintaining a family’s financial well-being. A new white paper from the Council for Disability Awareness, an independent nonprofit group, provides these six startling facts.

1. More than one in four of today’s 20-year-olds will become disabled before they retire. (Source: Social Security Administration, Fact Sheet, March 18, 2011)

2. Some 8.5 million disabled U.S. wage earners were receiving Social Security Disability Insurance (SSDI) benefits at the end of September 2011. (Source: Social Security Administration, Office of Disability and Income Security Programs)

3. Ninety percent of new long-term disability claims are the result of an illness, not an accident, and fewer than 5% of claims are work-related. (Source: 2011 Council for Disability Awareness Long-Term Disability Claims Study)

4. The average long-term disability claim lasts 31.2 months. (Source: 2010 GenRe Disability Fact Book)

5. New applications for Social Security Disability Insurance (SSDI) benefits increased 27% from 2008 to 2010. (Source: Social Security Administration, Office of Disability and Income Security Programs)

6. About 100 million workers lack private disability income insurance. (Source: Social Security Administration, Fact Sheet, March 18, 2011)

If you don’t have DI insurance, either through a policy from your employer or one you’ve bought on your own, you can choose from among a wide array of products whose costs and benefits vary widely. Here are several factors you’ll need to take into account.

  • How a policy defines “disability” is crucial. The best policies pay benefits if you can’t work in your chosen profession, and they don’t consider the nature of an injury.
  • DI insurance policies generally require a waiting period before paying benefits, and a shorter waiting period normally translates into higher premiums.
  • Typically, a policy will state how long and under what circumstances it will pay disability income benefits. It could, for example, provide benefits only until you qualify to receive Social Security retirement benefits.
  • If you opt for a noncancellable policy, the insurer can’t drop you off its rolls if your health declines.

Finally, don’t be seduced by the low costs of a fly-by-night operation. You’ll be better off opting for an experienced company with a good reputation.