Insurance For Life's Unexpected Events

For protection from when life throws a curveball, we assist in the evaluation of coverage. If someone is financially dependent upon you, an understanding of the complex nuances of insurance is essential.

Before we start our conversation about life insurance, let’s review some interesting facts and stats:

Top Reasons for Buying Life Insurance in the U.S.

According to a 2019 report from trade research organization LIMRA and the non-profit organization Life Happens, these are the most common reasons Americans said they bought life insurance:

  • 37% Income replacement
  • 30% Burial/final expenses
  • 28% Wealth transfer
  • 27% Pay off mortgage
  • 19% Replaced a policy
  • 17% Tax advantaged save/invest
  • 14% Estate taxes/liquidity
  • 14% Funds for college education
  • 13% Charitable gift
  • 8% Supplement group coverage
  • 8% Business purposes

 

Facts About Life Insurance
  • 59% of Americans have life insurance but half of those are underinsured, with an average gap of $200,000 according to LIMRA.
  • 1 in 5 of those with life insurance say they do not have enough.
  • 9 million households just have group life insurance – insurance provided by employers, which is usually not enough and is rarely portable.
  • 10x to 12x – the multiples of your annual income that most financial advisors recommend you need when buying life insurance for income replacement.
    44% of Millennials overestimate the cost of life insurance at five times the actual amount.

Sources:

2019 Insurance Barometer Study, Life Happens and LIMRA

www.polcygenius.com

www.insure.com

www.iii.org

Some experts say you should have enough life insurance to cover 10 to 12 times your annual income (especially if you have a young family), but many times, that’s just a guess. The answer really depends on how much money your family and/or dependents will need after you’re gone. (Source: Policygenius data) To determine the most accurate amount, you have to crunch some numbers.

How Much is Enough?

This is probably the most frequently asked question we get when helping clients with their life insurance needs.

Some experts say you should have enough life insurance to cover five to 10 times your annual income (especially if you have a young family), but many times, that’s just a guess. The answer really depends on how much money your family and/or dependents will need after you’re gone. (Source: CNBC.com) To determine the most accurate amount, you have to crunch some numbers.

3 Key Steps to Determining How Much Life Insurance You Need

Evaluate your family’s needs

  • How much money does it take to run your household?
  • Do you have unpaid medical bills, a mortgage balance and outstanding debts?
  • Don’t forget to add funeral expenses and possible estate taxes.
  • Life insurance policies can pay immediate expenses, including medical costs, as well as funeral bills, taxes, mortgage payments and other debts.

The equivalent of all of that will get you close to the amount of life insurance you may need.

Determine future financial obligations

  • You should also have enough coverage to pay for future financial obligations.
  • If you intend to help pay for college for your kids, factor in pending tuition bills and fees.
  • Outline your family’s cash-flow needs as well as financial goals.
  • Add it all up to figure out the estimated amount of money that your survivors would need.

Total up the available resources

  • What is your spouse’s income?
  • Do you have long- and/or short-term savings?
  • Add up the balances in your 401(k)s, IRAs, 529 college savings plan, emergency reserves and estimated Social Security survivor benefits, as well as any existing life insurance policies (perhaps through your employer).
    The difference between your family’s financial needs and the available resources will tell you how much life insurance to get.

Source: CNBC.com

What Type of Policy is Best

It is usually best to begin by comparing different types of policies. Although nothing can replace the advice of a financial advisor when making the final decision, this table can be a helpful starting point.

Term Life Insurance

If you’re looking for protection during a specific time period at a reasonable price, consider term life insurance.
Protection is limited to a specified and finite period of time, usually between one and 30 years, depending on your age when the policy is purchased.
Death benefits are paid only if death occurs during the period covered by the policy.
Coverage ceases when premiums are not paid.
Policy costs less than other types of insurance, but provides equal protection.
It provides the largest immediate coverage per dollar since it lasts only for a specific period of time.
You may have two additional options available when purchasing term life insurance: renewable and convertible policies.
Renewable Term Life Insurance

Under this type of policy, the policy owner does not need to provide evidence of insurability to renew the policy. Premiums may increase, however, at time of renewal.

Convertible Term Life Insurance

Convertible term life policies can be exchanged for permanent life insurance policies. Policyholders do not need to provide evidence of insurability, but premiums will increase since you are moving from a term to a permanent policy.

Let’s Talk Long Term Care Insurance

Everyone Can Benefit

Many people often think of long-term care as something for “old people,” telling themselves, “We don’t need that now. We’ll consider that later when we’re older and get closer to needing it.”

Before saying “no thanks” to long-term care insurance, consider the following facts:
  • Long-term care insurance is NOT Health insurance
  • Long-term care insurance is NOT for “old people” – about 40% of people needing long-term care are adults ages 18-64!
  • Medicare typically doesn’t cover long-term care and doesn’t usually kick in until age 65
  • Medicaid might cover long-term care if you meet your state’s poverty criteria – which usually mean expending all but $2,000 of your assets and savings, except for maybe your house and car
  • 70% of people age 65 and over will need long-term care at some point in their lives
  • In 2014, the average annual cost of a semi-private room in a nursing home was $77,380
  • Source: Raymond James

 Long-term care is the kind of care you would need to help you perform daily activities if you had a chronic illness, disability or severe cognitive problem like Alzheimer’s disease. It includes help with eating, bathing and dressing, transferring from a bed to a chair,

toileting and continence. Long-term care can also include assistance with such tasks as shopping, transportation, housecleaning, or preparing meals. This type of care isn’t received in a hospital and isn’t intended to cure you – it’s not acute care. It’s chronic care that you might need for the rest of your life. Long-term care can take place in your home, at a nursing home or assisted living facility.

As mentioned, 40% of people needing long-term care are between the ages of 18-64. Their long-term care needs were created by accidents, strokes, brain injuries or tumors, mental conditions, AIDS, multiple sclerosis, muscular dystrophy, or even early onset of Alzheimer’s and Parkinson’s diseases. According to research firm LIMRA, the four primary reasons individuals have a long-term care event are Alzheimer’s disease and related dementia, stroke, injury and cancer.

When younger people need care, it is often truly financially devastating. For example, the average length of stay in a nursing home for a male younger than 59 is 3,840 days – that’s more than 10 years and far longer than the benefits provided by conventional group or individual health insurance, including HMOs. Source: Raymond James

More Long-Term Care Stats
  • 58% of Americans believed that they would never need long-term care – no nursing homes, no assisted living facilities, no adult day care or home care.
  • Almost 50% of us will spending time in a nursing home when we are older.
  • 72% of us will use home healthcare services.
  • 46% of those with health insurance incorrectly believe that their health insurance will cover the majority of their long-term care expenses.

Determining the Cost of Long-Term Care Insurance

The cost of long-term care depends on the type and duration of care you need, the provider you use, and where you live.

Below are the average costs during 2014 for various types of long-term care:

Source: Genworth 2014 Cost of Care Survey

Source: Prudential

Costs can be affected by certain factors, such as:

N

Time of day. Home health and home care services, provided in two-to-four-hour blocks of time referred to as “visits,” are generally more expensive in the evening, on weekends, and on holidays.

N

Extra charges for services provided beyond the basic room, food and housekeeping charges at facilities, although some may have “all inclusive” fees.

N

Variable rates in some community programs, such as adult day service, are provided at a per-day rate, but can be more based on extra events and activities.

Based on a previous example stating the average length of stay in a nursing home for a male younger than 59 is 3,840 days –more than 10 years, his cost for 10 years in a semi-private room in a nursing home would be the incredible amount of $773,800!! And, that’s assuming all costs stayed the same during those 10 years.

Receiving Long-Term Care Benefits

In order to receive benefits from your long-term care insurance policy you meet two criteria:

Benefit Trigger and the Elimination Period.

Benefit triggers are the criteria that an  insurance company will use to determine if you are eligible for benefits. Most companies use a specific assessment form that will be filled out by a nurse/social worker team.

Benefit triggers:

  • Are the criteria insurance policies use to determine if you are eligible for long-term care benefits
  • Are determined through a company sponsored nurse/social worker assessment of your condition.
  • Usually are defined in terms of Activities of Daily Living (ADLs) or cognitive impairments
  • Most policies pay benefits when you need help with two or more of six ADLs or when you have a cognitive impairment
  • Once you have been assessed, your care manager from the insurance company will approve a Plan of Care that outlines the benefits for which you are eligible.

Source:www.http://longtermcare.gov/

 

The “elimination period” is the amount of time that must pass after a benefit trigger occurs but before you start receiving payment for services.

An elimination period:

  • Is like the deductible you have on car insurance, except it is measured in time rather than by dollar amount
  • Most policies allow you to choose an elimination period of 30, 60, or 90 days at the time you purchased your policy
  • During the period, you must cover the cost of any services you receive
  • Some policies specify that in order to satisfy an elimination, you must receive paid care or pay for services during that time

Beginning Your Benefits

Once your benefits begin:

  • Most policies pay your costs up to a pre-set daily limit until the lifetime maximum is reached
  • Other policies pay a pre-set cash amount for each day that you meet the benefit trigger, whether you receive paid long on those days or not
  • These “cash disability” policies offer more flexibility but are potentially more expensive.   

Selecting A Policy

Remember – everyone can benefit from long-term care insurance. When considering the purchase of this insurance, keep in mind not all policies provide comprehensive benefits – covering all types of care, including at-home or adult day care or care in an assisted living facility or nursing home.

As with any type of insurance, the purpose of long-term care protection is to safeguard individuals and their assets against catastrophe. Therefore, while the average length of a stay in a nursing home is only almost two-and-a-half years, when we consider only those nursing home stays that are for chronic conditions – those lasting more than one year – then the average length of the stay is more than six years. That makes a policy with unlimited, lifetime benefits the most desirable.

Ask us about the right policy for you. Many companies are coming up with new ideas that can add long-term care insurance riders to products. Some life insurance products, and even annuities, have riders that could be beneficial and cost-effective to you.

Don’t Wait! Do Something NOW!

Give yourself one less thing to worry about by taking steps now to protect your hard-earned assets and your independence in the future. Don’t wait until you’re older to purchase long-term care insurance. If something happens, like a stroke or injury, you won’t be able to get long-term care insurance – it will be too late!

For more information about making long-term care insurance part of your comprehensive investment plan, please don’t hesitate to call us.

Guarantees are based on the claims paying ability of the issuing company. Long Term Care Insurance or Asset based Long Term Care Insurance Products may not be suitable for all investors. Surrender charges may apply for early withdrawals and, if made prior to age 59 ½, may be subject to a 10% federal tax penalty in addition to any gains being taxed as ordinary income. Any information is not a complete summary or statement of all available data necessary for making an decision and does not constitute a recommendation. Please consult with a licensed financial professional when considering your insurance options.

Sources:
San Diego Transcript
WAEPA Guide – 2015 Long-Term Care Insurance
Prudential

Variable Universal Life Insurance

Designed for growth, this policy allows you to invest the cash value of the policy into various investment alternatives. This affords cash value the potential to grow at a faster rate than it would in another type of life insurance plan.

 

  • The insurance amount is designed to be level or increase as the policy cash value increases.
  • Policy cash value fluctuates according to underlying investment performance.
  • Cash value may be invested in sub-accounts containing domestic or international stocks, bonds, real estate and other, more speculative investments.
  • Higher cash values and death benefits may be obtained or lost due to the financial climate and investment performance.
  • Investment earnings are income tax deferred.
  • Portions of the cash value, up to cost basis, may be withdrawn without paying income taxes, interest or surrendering the policy. Amounts over the cost basis may be borrowed from the policy similar to the whole life policy.

 

Let us help you determine what type of life insurance is appropriate for you and your family.

 

Investors should carefully consider the investment objectives, risks, charges and expenses of variable life insurance before purchasing. The prospectus contains this and other information about variable life insurance and its underlying funds. The prospectus is available from your financial advisor and should be read carefully before purchasing a variable universal life insurance policy.

 

There are fees and charges associated with variable life insurance policies. Charges vary based on the circumstances of the insured life. Surrender charges vary by issue age, risk class and gender. Loans and partial withdrawals will decrease the death benefit and cash value and may be subject to policy limitations and income tax. A 10% federal tax penalty may also apply if the loan or withdrawal is taken prior to age 59½ if the policy is a Modified Endowment Contract. All guarantees, including death benefits, are subject to the claims-paying ability of the issuing insurance company. An investment in variable life insurance involves risk, including possible loss of principal. Investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than the original investment. 

These policies have exclusions and/or limitations. The cost and availability of life insurance depend on factors such as age, health and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Guarantees are based on the claims paying ability of the insurance company. Any information is not a complete summary or statement of all available data necessary for making a decision and does not constitute a recommendation. Please consult with a licensed financial professional when considering your insurance options.

Key Person Insurance is Key

If you’re a business owner, we know you’ve put a lot of blood, sweat and tears into your business. You strive to hire highly skilled, invaluable associates to help run the company. Like most companies, there is probably at least one employee, or maybe a pair of business partners, that everyone agrees is “priceless.” It’s a common-sense business practice to consider where you or your company would be without your key employees.

Hopefully, you’ll never lose an invaluable associate. But if you do, having a key person life insurance policy can provide tremendous peace of mind. Key person insurance is for compensating the business for the financial loss resulting from a key person’s death, disability or trauma.

Should Your Company Consider a Key Person Life Insurance Policy?

Your company’s structure, current business plan and the potential financial hardship due to the death of a key employee should be analyzed. Working with IFS, we can help you create a business insurance strategy and determine if this coverage is right for your company.

When considering key person insurance, keep these typical situations in mind:

  • Loss of management skills and experience
  • Disruption in sales or business production
  • Weakening of your company’s credit rating
  • Expenses associated with recruiting and training a suitable replacement
  • Repayment of company indebtedness, if any

    Circumstances to Consider

    • Assess whether your company’s loan or line-of-credit payments would be sufficiently insured in the event your company experiences financial setbacks due to the untimely death of a key employee. This is especially true if you have co-signed.
    • Is your business-continuation plan thorough enough to maintain operations if your firm experiences a monetary or management hardship? Without a well-thought out continuation plan, your company may be in trouble even if it has sufficient capital and cash flow.

    If you’ve covered both of these concerns, but still feel you’d have asset flow problems without the key person, then you’re set to explore this insurance.

How it Works and the Advantages

Your business purchases a life insurance policy on a key employee’s life, equal to the indemnification amount the company has determined it needs for the loss of the key employee. The company pays the premiums – which vary depending on the key person’s age, physical condition and health history – and preserves all ownership rights to the policy. Any cash value accrues in a tax-deferred manner and may be accessed by the business, allowing your organization to redeem the cash values of the policy through policy withdrawals and income tax-free loans. 1

Upon the employee’s death, the proceeds are paid to the corporation – generally income tax-free. Now your firm can use the death proceeds to sustain operations during the transition between the executive’s death and the hiring and training of his or her eventual replacement.

Furthermore, because the policy is owned by the company, it may be continued even after the key person leaves. For instance, if your partner retires, your business may offer the employee the policy as part of his or her retirement package. Once the policy is in the employee’s name, he or she should designate a different beneficiary.

Disadvantages
  • Premium payments are not income tax deductible.
  • Corporate creditors can make claims against cash values of corporate-owned life insurance.
  • Death proceeds, although exempt from the ordinary income tax, may be subject to the corporate alternative minimum tax if the company is established as a C corporation.

How Much Key Person Insurance Should I Buy?

Some businesses use a general rule of thumb and buy anywhere from five to 10 times the key employee’s salary. The better alternative is to crunch the numbers and establish the economic value of your key employee. In other words, “What would be the financial impact to my company if something happened to this person?” The answer to that question determines how much key person life insurance you should buy.

Let us help you determine if key person insurance may be an appropriate precaution for your company.

For more information about selecting the right key person insurance for your business needs, please don’t hesitate to contact us.

1Potential tax-free income assumes (i) properly structured withdrawals to tax basis and policy loans thereafter, which will reduce policy values and death benefits, (ii) the policy is not a Modified Endowment Contract as defined in Internal Revenue Code Section 7702A, and (iii) the policy remains in force until death.

Sources:
NFIB – National Federation of Independent Business
Raymond James

These policies have exclusions and/or limitations. The cost and availability of life insurance depend on factors such as age, health and the type and amount of insurance
purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Guarantees are based on the claims paying ability of the insurance company. Any information is not a complete summary or statement of all available data necessary for making a decision and does not constitute a recommendation. Please consult with a licensed financial professional when considering your insurance options.