It’s that time of year again. If you’re one of the roughly 45 million Americans enrolled in Medicare, get ready for some year-end shopping. Medicare open enrollment for Medicare Supplement and Advantage plans and Medicare prescription drug plans runs from October 15th until December 7th. Open enrollment presents a great opportunity for seniors to manage their health care costs for the coming year. Continue reading
September is life insurance awareness month and serves as a good reminder that life insurance is an asset and, just like most any other investment, requires ongoing monitoring. Continue reading
It’s true: Original Medicare does cover most health care expenses, but it comes with significant deductibles and coinsurance payments that can quickly add up. As a result, many American seniors will opt to defray these costs with a Medicare Supplement Insurance (Medigap) or Medicare Advantage Policy.
In our most recent blog post- 2015 Medicare Open Enrollment Checklist– we discussed the services provided by Original Medicare and some important considerations for augmenting this coverage for the upcoming year. This week, we’ll compare Medigap and Medicare Advantage plans and review some important considerations that could make deciding between the plan types easier.
Medicare open enrollment for Medicare Advantage and Medicare prescription drug coverage runs from October 15th until December 7th, and presents a great opportunity for seniors to manage their health care costs for the coming year. On offer are prescription-drug and Medicare Advantage plans, as well as the opportunity to switch plan types.
“It’s like deja-vu, all over again”
Common Questions After An Auto Accident
Accidents happen, and even minor fender benders can be an unnerving experience. Advanced technology, including driverless cars, may eventually make accidents a thing of the past, but until that happens, we need to be prepared for when they do occur. This week’s blog post comes courtesy of our friends at Cook Maran & Associates, an insurance brokerage firm specializing in personal lines insurance. Personal Insurance Executive Director, Tim Brenneman, discusses what to do if you have been involved in an auto accident. Please click the link below to be directed to the original post.
Insurance planning is part and parcel with retirement planning. The ability to share common risks at a reasonable cost protects us from a truly catastrophic loss and can help to ensure the continuity of our financial and estate plan. Automobile insurance, mandatory in most states, plays a foundational role in asset protection planning, and is at the same time both widely utilized and overlooked. In this week’s blog post, we will review the most important provisions of a personal automobile insurance plan and provide simple tips to help you design a thorough and cost effective plan of coverage. Before we begin, it is important to note that insurance is regulated at the state level and provisions or policy definitions that apply in one state may be different in another. Thus, the coverage areas outlined are general in nature and based on those found in a typical New York policy.
Most people don’t have sufficient disability coverage.
Disability insurance is a contract between you and the insurance company that will replace your wages when you become sick or injured and cannot work for a long time.
According to the Social Security Administration, nearly 1 in 4 of today’s twenty year-olds will become disabled before age 67. Most people think that Social Security will provide the benefits that they need, but often that is not the case:
- Social Security does not provide a person’s full wages as benefits.
- Social Security has a very strict definition of what “disability” is and is not.
- Social Security has a 5-month waiting period before you can receive any of the benefits. Even in the face of medical costs that are associated with disability income, it means forgoing income for 5 months.
Social Security should only be used as a supplement to your own long-term disability policy.
Many employers offer disability coverage as an additional fringe benefit, but as we mentioned in Part 1 of our posts on the topic, employer coverage only covers you while you’re working there and become disabled while you’re working there. Additionally, most group plans do not typically cover more than 60% of your salary. It is not portable. If you lose your job, your next employer may or may not have a long-term disability plan. Unlike health insurance where you can get coverage under COBRA for a period of time, once you leave your employer’s plan, you no longer have any coverage as a safety net.
To the extent you have employer coverage, if you are applying for personal, the insurance company will take that into account and decrease your benefit accordingly.
Q: How much disability should you obtain?
A: At least 80% of your before tax earnings.
When choosing a long-term disability insurance plan, these are some aspects of the fine print about which to ask:
- Check the definition of ‘disability’ (there are 3 potential options)
- Own occupation: this is the best definition of disability because it is the most broad. Under this definition, an insured person is considered entirely disabled if he is unable to do any or every duty of his occupation. For example, if you can get a job in a different industry, you can still collect benefits under this policy.
- Any occupation: this is the strictest definition of disability. Under this definition, an insured person is considered disabled only when he is unable to do every duty for which he is trained.
- Split definition: frequently used by insurance companies, this is some sort of combination of the two previous definitions.
- Make sure that your contract is Non–Cancelable and Guaranteed Renewable. This guarantees that after you place a policy in-force that there will be no changes to your premium schedule, your monthly benefits, or your policy benefit. No one can guarantee that their incomes will never go down, under a Non-Cancelable policy even if your income goes down later in life, if you become totally disabled the insurance company will pay you the total disability benefit you originally placed in-force. Under a Non-Cancelable policy for example, if you changed jobs from being professional worker (a low-risk occupation) to a professional weight lifter the company could not change your benefits for the worse.
- Ensure that your monthly benefit coverage replaces between 50-80% of your pre-disability income.
- Make sure you get a cost of living rider, which is an inflation hedge for your benefits.
- Ask for a FIO (future increase option), which allows you to increase your insurance benefits as income rises, regardless of health. Without this rider, there is no way to protect your future earnings. A disability insurance policy by itself only protects the amount of income that you make at the time when you take out the policy. It does not grow automatically unless you have this.
- Check that the policy eliminates any requirement for you to pay any premium payments while you’re disabled.
- Ask about a residual benefits clause, which is a partial payout due to partial disability. For example, receiving partial benefits if you’re only able to work part-time.
- Evaluate and choosing the waiting period or elimination period as its sometimes known as. The elimination period is the period of time between the onset of a disability, and the time you are eligible for benefits. It is best thought of as a deductible period for your policy. The most common waiting period is 90 days, but it can be less or more time. Examples include 30, 60, 90, or 180 days to 1 year to 2 year waiting period.
- Length of time or Benefit period. Think of the benefit period as the period of time you are eligible to collect benefits while on a disability insurance claim. The shortest period of time is coverage for 2 years up to life time benefits.
The underwriting for disability insurance is significantly different than the underwriting for life insurance. As you get older, there is a higher probability of getting disabled and many people begin to develop ailments. Therefore, over time it becomes more challenging and difficult to obtain reasonably priced long-term disability coverage.
It will depend on your overall health and what your doctors have put in your files.
Note that many insurance companies exclude coverage for Mental & nervous disorders, alcohol & drug claims, acts of war, and payments of claims caused during a crime.
Lastly, there are tax consequences for long-term disability insurance.
- If you pay the premium as an individual with after-tax dollars: if/when you were collect insurance benefits, the benefits are tax-free.
- Benefits under an employer group plan are taxable if the employer paid the premium and the premiums were not taxable income to the employee.
If you’d like to set up an appointment to discuss your financial plan, we look forward to hearing from you.
If you had a machine in your basement that printed out $20 bills whenever you wanted, would you buy a warranty for the machine?
We recently had a meeting with a client that we’ve known for a long time. Despite an annual income of $500K+, we were concerned; his financial plan had a few major shortfalls, which put his family – his wife and two daughters – at risk.
Of note, his financial plan:
- Did not have enough liquidity
- Had no emergency account
- Did not have enough savings for retirement
- Had no personal disability insurance
The first few issues are ones we often encounter with new clients. These typical financial traps can be safely avoided with a good financial plan that re-allocates income and creates liquidity in savings.
The most worrisome part of this client’s financial plan is that he didn’t have personal long-term disability insurance.
Fifteen years ago, this client had bought life insurance, but declined purchasing long-term disability insurance. Why? His excuses are ones we hear far too often:
- “My company offers disability insurance” (only for as long as you’re working there)
- “It can’t happen to me” (unfortunately, it can’t until it does)
- “I don’t want to pay for it” (if you need to use it, the investment in the premium will pay off very quickly)
Fast-forward fifteen years to our meeting last week. This client, like many people we know, has been diagnosed with a degenerative disease (something similar to multiple sclerosis, or muscular dystrophy, Lou Gehrig’s disease, etc.). Like many of those diseases, there’s no known cure. Moreover, the disease will get progressively worse over time. If/when he becomes disabled, the insurance that he bought through work will not cover him long-term. If he was to lose his job, not only is he completely vulnerable, but so is his family – there is no coverage in place.
Think back on the money-printing machine we asked about at the top of the page. Would you insure it? Most people answer yes that they would get a warranty for the money-printer; however, most people don’t take the same warranty out on their ability to work, which is their greatest asset and source of future money.
The last few weeks, we have discussed the basics of long-term care insurance and taken a deeper dive into why everyone needs long-term care insurance. Now that you’re convinced of the necessity of long-term care insurance, the question is: what do you need to know when buying it?
The first question to answer in shopping for long-term care policies is: what type of policy should you buy? There are two types of policies one should evaluate:
1. Indemnity policy. An indemnity policy is a policy that will pay a predetermined amount for your cost of care regardless of the expenses you incur.
For example, if you have an indemnity policy that covers the predetermined amount of $300 per day, but you only incur $232 in costs, you still receive the full amount of $300 per day, despite the excess of $68 per day.
The benefit of an indemnity policy is that any excess payment you receive can be used to offset expenses that may not be otherwise covered under the policy.
2. Expense reimbursement policy. An expense reimbursement policy pays the actual long-term care expenses, up to the daily benefit amount.
For example, if your daily cost of care is $232, with an expense reimbursement policy, the policy will pay exactly $232.
The advantage of this plan is that excess benefits remain in the policy and extend the benefit period.
Once you have determined which type of policy will be best for you, there are several options that must be decided for each specific plan. When looking to purchase a policy, the key points to look for are:
1. The daily benefit amount. The daily benefit amount is the fixed dollar amount that is payable from a long-term care insurance policy. You want to make sure that you choose a sufficient daily benefit amount to protect yourself from spending down your assets if you need long-term care. Your cost of care range will be determined by where you live, which should be tied into evaluating how much of a daily benefit one should purchase.
- In New York, the annual cost for
- Private room in a nursing home: $125,732 (requiring $350 of benefit per day)
- Home health aid: $50,336 (requiring $140 of benefit per day)
- Compare this to the annual cost in the state of Alabama
- Private room in a nursing home: $69,543
- Home health aid: $36,608
2. Inflation protection. Most long-term care policies offer inflation protection, which is a valuable way to plan for the ever-increasing cost of long-term care. Inflation protection allows you to purchase premiums at a fixed cost; in other words, you can increase your coverage over time without increasing your premiums. Inflation protection gives you peace of mind tomorrow with prices today. The younger you are, the more important it is to have inflation protection.
For example, as noted above, the 2013 cost of a home health aid in New York was $50,336. Assuming a 5% rate of inflation, in 15 years, that same care now costs $144,575. With inflation, long-term care can become costly quickly; it is important to hedge against inflation.
There are several rider options for consumers including: no inflation, compound inflation, and simple inflation. Inflation protection is the costliest rider for long-term care policies.
3. The elimination period. The elimination period refers to the waiting period before the policy coverage kicks in. Some people view long-term care insurance as catastrophic coverage; therefore they purchase a long-term care policy with an elimination period. You can determine the appropriate length of an elimination period based on how much out-of-pocket cost you are willing to pay.
For example, if you put a 100 day elimination period into your policy, and something happens wherein you incur $300 a day in care costs, you will be liable for that $30,000 out-of-pocket until the elimination period ends (on day 101).
4. Length of coverage. To determine the length of coverage, many people look at the average stay in a nursing home. Determining the length of coverage on your policy – whether it’s 3 years, 5 years, or a lifetime benefit – is a function of how much money will be used up over what period of time. Of course, the longer the period of time, the more expensive the policy is. It is important to note that most long-term care premiums are not guaranteed; insurance companies generally can increase the cost of premiums.
For more information on long-term care policies and retirement planning, contact us.
What is Long-Term Care?
Long-term care is a form of healthcare that assists patients in carrying out necessary activities of daily living; among other activities, this includes bathing, dressing, transferring to a toilet, and eating.
Additionally, long-term care assists those who have suffered from severe cognitive impairments requiring substantial supervision such as Alzheimer’s disease or dementia.
Other examples of conditions that may require long-term care include: a fracture from a fall, arthritis, a stroke, cardio vascular disorder, severe diabetes, multiple sclerosis, or a car accident.
Commonly used long-term care facilities include: home health services, assisted living facilities, physical or occupational therapies, adult day care, and personal care.
Why Plan for It?
Clients often ask us when they should start planning for long-term care.
Here’s how we think about it:
- When you buy a car, you buy auto insurance
- When you buy a home, you buy home insurance
- When you plan for income replacement you buy disability insurance
And so the comparisons continue.
When you plan for retirement, you should start planning for long-term care insurance. Long-term care insurance is a critical part of retirement planning. Consider these statistics:
- Probability of loss from a fire: 0.0008 %
- Probability of a major auto accident: < 1%
- Probability of needing hospitalization in your lifetime: 10%
- Probability of developing Alzheimer’s: 11-15%
- Probability of needing long-term care: >75%
In fact, at age 65, there is a lifetime change of more than 40% of entering a nursing home (of which 10% of the population will stay longer than 5 years). At age 65, women have a 1 in 2 risk of entering a nursing home and men have a 1 in 3 risk.
Given those odds, failure to properly plan for long-term care can be a costly mistake. Think about the projected average costs of long-term care in New York City: a home health aid costs ~$150 per day and a good nursing home can cost upwards of $450 per day. When you multiply that out with a cost of living factor, it becomes very expensive very quickly.
Why plan for long-term care? There are both financial and non-financial reasons:
1. Protect your family from being the primary care givers.
2. Ensure that your family has enough income and can maintain their lifestyles without eroding it to pay for long-term care.
3. Protect financial assets and create a planned gift or legacy.
4. Pay for care with insurance money, not your own.
Who Will Pay for Long-Term Care if You Don’t?
- Private health insurance? No! Private health insurance is designed only for preventative and rehabilitative care, not long-term care.
- Medicaid? No! Medicaid is only a viable option after you have spent your income and assets down to the poverty level.
- Medicare? No! Medicare only pays for skilled care under specific conditions and under a limited basis (for only up to 100 days).
- So who does that leave to pay for it? You – or an insurance carrier!
Important Recent Changes
Change is coming. More and more companies are exiting the long-term care insurance marketplace. The importance of obtaining long-term care is more critical as one gets older. The longer you wait, the higher the probability of being denied coverage.
If you’d like to learn more about long-term care, contact us.