Life Line

Vice President of Communications, LIFE Foundation

ABC News continued a series about medical care for the elderly on its June 26 evening news broadcast. The report focused on long-term care and left viewers with important things to think about when planning for their retirement. It emphasized the high cost of long-term care and the growing need for long-term care insurance, or LTCi. A health insurance expert interviewed for the segment said rightly, “I think long-term care insurance is extremely useful, becoming much more important than it was 10 or 15 years ago because people are living longer . . .”

As we live longer, the need for long-term care rises. There’s about a 50-percent chance you’ll need some type of long-term care after age 65. Your standard health insurance won’t cover long-term care expenses. And chances are good the assistance you need won’t be picked up by the government program, Medicaid, either. Medicaid is designed for low-income Americans and only kicks in after your assets are significantly depleted.

Just how significant can those long-term care costs be? Substantial. To its credit, ABC dramatized the point well. Consider these figures: To have a home health aide visit just three days a week can cost more than $20,000 annually. Full-time nursing home care, the most expensive type of care, can average more than $60,000 per year. In some regions of the country, like the Northeast, the cost may be twice that amount.

LTCi then is the most reliable way to cover the potential costs of long-term care while protecting your savings. While the cost for the insurance can be (but doesn’t have to be) expensive, it’s likely you can’t afford to do without it.

That brings me to my gripe with ABC News. It suggested the companies that issue the policies can’t be trusted to make good on payment. The denial of LTCi claims is not the problem ABC News, the New York Times or even Congress have made it out to be. These reports irk me as it does MANY insurance professionals and happy policyholders. In reality, the number of complaints is small compared to the thousands of satisfied customers whose families are eternally grateful that their loved ones had the foresight to plan ahead.

Let me tell you about one of those satisfied customers. Debra Newman, a long-term care advisor and a member of the LIFE Foundation board, said she advised a client to purchase a LTCi policy 10 years ago at the same time the client’s financial advisor was advising him not to—the advisor told him he had a lot of money and didn’t need it. The client got the LTCi policy and today he is glad he did. His wife has been on claim for five years, and the company has already paid out $200,000 in long-term care expenses—with no end to its financial support in sight. (By the way, the financial advisor who recommended he not get the LTCi policy is no longer in the business!) Deb points out that nearly all companies are close to paying 99 percent of their claims. Two companies with a lower rate—and used in a recent New York Times article to demonstrate a supposed “problem” in payment claims—still boast over a 90-percent rate.

So if you are considering purchasing a LTCi policy, do as the expert on the ABC News segment recommends: read the fine print. Know exactly what the policy covers. To best understand the features in a policy and your options, talk to an insurance professional who specializes in long-term care. The agent can help you compare policy features such as the services covered; how much the policy pays per day; if it has a maximum lifetime benefit; the point at which pre-existing conditions are covered; and when the benefits begin.

Getting the expert advice is my advice. Talk to a Deb Newman in your community. With the chances of your needing the insurance likely, the LTCi policy might be one of the most important buying decisions you make.

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By David F. Woods, CLU, ChFC, President of the LIFE Foundation

Something comes along to rattle your cage and make you rethink what you thought you had already settled. I've covered this subject before, but I'm always surprised that it keeps coming up one way or another. The issue is consumer attitudes toward permanent life insurance and the "AHA!" consumers experience when they realize permanent insurance may be a good thing after all - that maybe Suze Orman et.al. and their "term insurance and invest the difference" is not the only or even the best answer. Here are 6 rather basic reasons why permanent life insurance is a terrific and very underated product:

1) Term insurance "term"inates at a specific point in the future, usually before you die. Experience and simple logic tell us that insurance that we pay for and then don't have when we need it is a pretty bad idea. I'm not suggesting term insurance is not a good product or even that people shouldn't buy it. For very temporary needs and/or limited budgets term insurance is an ideal product. The important thing is to have enough, regardless of the kind. But if you absolutely want insurance when you die, the odds of term insurance filling the bill are slim. Only permanent insurance can guaranty to be there at your death, assuming you have kept up the premium payments. And under certain circumstances you don't even have to come up with the cash to pay the premiums.

2) Permanent insurance costs more at the outset and should only be purchased when your needs are covered and your budget permits you to pay a higher premium. But once begun permanent insurance premiums never increase while term insurance premiums will increase periodically, eventually becoming virtually unaffordable as you reach the older ages. This means that you will very likely drop the policy as you approach the ages at which death will most likely occur. Permanent insurance premiums remain level for life and in many cases can be paid from earnings in the policy as you get older. This means that when your income drops because of retirement you may well be able to cease paying your permanent premiums in cash and the policy will continue on until your death. It's an important aspect of sound retirement planning.

3) Likewise, if you have an economic reversal or crisis, the cash surrender values of a permanent policy can be used to pay the premiums and also to provide some cash to get you over the financial hump.

4) Permanent life insurance builds savings values over time. The earnings on those savings (interest and dividends) are sheltered from income tax during the accumulation period and perhaps forever if handled properly. Those values are available to you either through a loan against the policy or upon surrender of the policy. You do not need to "qualify" for the loan. Nor do you ever need to pay it back. The loan balance plus any accrued interest will simply be subtracted from the amount of insurance payable at your death. I have used those values to help pay for my kids' college, to help finance home improvements, buy a car, etc. In all cases, I have paid the loans back and now the cash surrender values are at full strength and fully available to supplement my retirement income, to cover a need for emergency cash, to pay for a retirement vacation for my wife and me, to help pay for long-term care or other emergencies, or simply help to increase the value of my assets at my death for my wife's, my children's or my grandchildren's use.

5) I have owned lots of term insurance and I now own lots of permanent life insurance. But no matter which kind I bought I have always added the waiver of premium provision. This provision guarantees that if I became disabled and could not pay the premiums, the company will pay the premiums for me. In my permanent policies that means not only will the death benefit continue, but the cash surrender values will continue to grow just as though I was paying the premiums. And when I go back to work I don't owe any money for back premiums.

6) The idea of "buying term and investing the difference" has superficial appeal. However, the reality is that if we are honest with ourselves, we have to admit that most of us are not disciplined savers or investors. Certainly the negative U.S. savings rate will demonstrate that notion. And what we do save is too often spent before it has much of a chance to build. And, finally, if we do invest the difference, far too often either we are way too conservative and lose money to inflation and lost growth opportunities or we are too aggressive and lose money as amateurs in a highly sophisticated field.

Permanent life insurance has been a vital part of my overall financial plan for 40 years or more. It gives me the peace of mind as I approach retirement that because I have it I have flexibility and the option to choose how to handle my financial affairs and, therefore, my life. It was, is and will be the foundation of all my financial planning. Just as term insurance is not the only answer for everyone all the time, so permanent insurance is not. But for long-term financial security, solid and relatively safe tax-favored long-term returns and maximum flexibility, permanent life insurance is almost unbeatable.

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By Jon Dressner, Senior Vice President of the LIFE Foundation

That’s right. If you pick the right 6 numbers, you could win $45 million today! Your family could face the future knowing that money would never be a concern again. So what are your odds of winning? About 1 in 175 million. Not very good odds, but that won’t stop millions of Americans from running to their local convenience store on Tuesdays and Fridays for a chance to become the next mega millionaire.

Now let me share with you a different set of odds. 1 in 21….5 percent of 35-year-old men won’t live to see their 50th birthday. In actual numbers, that means that around 100,000 35-year-old men won’t be around 15 years from now. What will become of the families that these 100,000 men leave behind?

Financially, their lives will take one of two paths. If dad had adequate life insurance coverage, things should be ok financially for mom and the kids. If dad didn’t have enough life insurance or didn’t have any, life will be much harder than it has to be. Maybe the family will have to move out of the town they live in and the home they love. Perhaps family members and friends will have to chip in to help support the family for a period of time. Maybe college plans will have to be put on hold for awhile or maybe forever. Not a pretty picture.

So the next time you’ve go the itch to buy a Mega Millions lottery ticket, take a moment to consider the odds.

I know….it’s not particularly pleasant to think about your mortality. “What if I were to die tomorrow? What would happen to my family?” If the answer is, “They’d be fine, I’ve got plenty of life insurance,” then by all means buy that Mega Millions ticket and let your mind wander. Your own island in the Caribbean…a brand new fire-engine-red Ferrari…a cruise around the world.

But if you don’t have a plan in place to provide for your family in the event of your premature death, then take the $4 or $5 you spend on Mega Millions tickets each week and get yourself some life insurance. Just $10 or $20 a month could buy you hundreds of thousands of dollars of coverage. But unlike the lottery ticket, the payout for your family will be guaranteed if the life insurance is in force when you die. That’s what I call good odds.

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By David F. Woods, CLU, ChFC, president of the LIFE Foundation

This being Disability Insurance Awareness Month, it’s appropriate that considerable attention is being paid to disability income insurance. Too few Americans own it and those who do, too often own too little. But there's another kind of disability insurance which is little known, little appreciated and of potentially great value. I'm talking about something with the legalistic name of "Waiver of Premium".

Waiver of Premium is something for which you can usually pay a little extra to attach to a life insurance policy. It provides for the forgiveness of premium payment obligations during a time of your inability to perform the duties of your occupation as a result of an injury or sickness. Generally speaking, the waiver of premiums would begin after a 6 month period of disability, but very often the contract provides for the repayment to you of any premiums that came due and were paid during that period.

This "rider", as it is called, can generally be attached to any permanent or term insurance policy at time of issue. In the event of your disability, the premiums paid by the company on your behalf are not a loan or an advance. So when you are no longer disabled you simply pick up the payments where the company left off. In the meantime, if you died, your beneficiary would receive the full death benefit under the policy. If your policy is a permanent policy, the cash surrender values would continue to grow just as they would if you were paying the premiums. The long term savings values in your policy would continue to grow uninterrupted with the same tax deferred advantages as if you were paying the premiums.

Furthermore, many insurance companies offer a provision on their permanent policies that allows you to increase your coverage by a prescribed amount at certain future dates without having to prove that you are insurable. In most companies, if your policy also contains the Waiver of Premium provision and is paying the premiums because of your disability, the increases would be exercised automatically as they became due, the premiums would be waived, the increased tax free death benefit would be paid at your death and the cash values of the additional policy would grow just as they would if you were paying the premiums.

And all of this would be in addition to the income you would be receiving from any disability income policies you might own. In short, the insurance industry is able to provide you with a financial security package that would keep your family in their home and way of life at your death. If you became disabled, your insurance company would pay you an income, guaranty the payment of your life insurance and disability income insurance premiums, guaranty the exercise of any life insurance increases contained in your policy and guaranty the continuation of your long term savings plans if you own a permanent insurance policy.

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By David F. Woods, CLU, ChFC, president of the LIFE Foundation

Nor is he a BIG BROTHER or a SOB SISTER.

The Federal Government does its best to take care of our neediest citizens, but despite cries of “welfare state,” it really provides only a basic safety net for the most urgent needs of the American people.

Providing income in the event of disability is an example. Many people are not aware that the Social Security Administration may provide an income to qualified beneficiaries if they are unable to work and earn an income. The good news is that it may. The bad news is that it probably won’t. Here’s what the law says:

Under the Social Security Act, "disability" means "inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or has lasted or can be expected to last for a continuous period of not less than 12 months."

Statistically fewer that 4 in 10 people who apply for Social Security Disability payments actually receive any. Those are pretty poor odds with which to gamble your future income.

According to actuarial data, nearly one out of three of us will be disabled for 90 days or longer before we reach age 65. And that disability will last an average of 2 years! Without proper planning, not only would you lose your income, but you would almost certainly go through your savings, your 401(k), etc. You might even have to sell your house, your car, etc.

Is that what you want?

May is Disability Insurance Awareness Month. It’s a good time to contact an insurance professional who is knowledgeable about all forms of disability insurance – government, employer provided and private. By understanding what you would get from all three and under what circumstances, you can create a safety net that will guaranty your income will continue no matter what happens to you.

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Special guest post from Brad Elman, CLU

Your employer provides good benefits – right? Maybe, maybe not. Let’s say you’re sick or hurt and out of work for a year or so. How will you fare?

Well, most employer-sponsored disability plans pay between to 60% to 66.67% of your income if you are totally disabled. And that money is usually taxable. So you might wind up with take-home pay that’s 30% – 40% less than when you were working.

How would that impact you financially? Could you make it? If you are not sure, look at your budget starting with fixed expenses like rent or mortgage, car payments, student loans, child care, etc. Then add in non-optional but variable expenses like utilities, phone, food, etc. Lastly, add in the rest of the items that you spend money on to see what your minimum monthly expenses are. It is helpful to have several month's credit card statements, check book registers, and bank statements handy when doing this exercise. If your monthly expenses exceed your disability benefits, then you should purchase a supplemental disability insurance policy.

You will probably not be able to purchase the entire 40% shortfall, but with a good supplemental policy and a good group policy, you can sometimes get up to the equivalent of about 70% – 80% of your after-tax income.

A good insurance professional is the best person to help you fill in the gap.

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