Plan first, tools second, revisit often.

This adage applies to life insurance probably more than any other tool in your financial planning toolbox.  In most cases, you bought it with the intention of keeping it for 20 years or more.  A lot of life happens in five to 10 years, let alone 20.  One of the biggest changes during that time is your own maturity – your thoughts and values change, your needs change, and your desire for security changes.  What made perfect sense and what got your attention 5, 10, or 20 years ago is probably quite different than what you would notice and pay attention to today.  And while you’re going about your life, the insurance industry has probably introduced new products and stopped selling others.

Remember to go back to your plan and then look at the tools (products) you’re using to make those plans happen.  Evaluate whether a particular financial tool is still a viable part of that plan or no longer serving you.  A life insurance review would be valuable.  Most life insurance agents will do these for “free” as a way to sell you something else.  Find an ethical one who will give you an honest answer, even if it means losing a commission.  For life insurance, consider these questions:

• What might I need life insurance for?
• Do I have people who are financial dependent on me?  For how much longer?
• Does the policy I have any cash value?
• How is my health?
• How much do I need?
• How might I use life insurance to meet multiple financial planning needs?  (long-term care, cash reserves, retirement income supplementation, college education funding, etc.)
• How might I use pre-tax dollars to meet those premiums?
• What is the value of my estate and how much might my heirs have to pay in estate taxes?

Once you’ve explored some of these questions in present time, your answers from years ago may have changed.  If so, time to choose a new tool.

Good Tidbits to Know About LTC Insurance

Long-term care insurance is not my specialty, and while I might be able to sell it, I don’t.  I do recommend that clients integrate it into their financial plans when it makes sense (and it almost always does).  Some good tidbits for you:

1. LTC insurance is designed to protect your assets (your nest egg).  It can help cover the cost of care you receive at home from nurses’ aides, home health aides, and therapists, and can help cover the cost of assisted living facilities and nursing home expenses.
    
2. In CA in 2010, the median annual care cost for a private room in a nursing home was $87,000.  For a semi-private room, about $73,000.  The increase in cost outpaces the inflation rate.
    
3. At least 70% of people over age 65 will require some long-term care services at some point and 40% will need care in a nursing home.
    
4. Elderly women are most likely to utilize the service because they live longer, healthier lives.
    
5. Health insurance and Medicare cover almost none of the cost of nursing homes, assisted-living facilities or in-home care.
    
6. To qualify for Medicaid, people have to pay out of pocket until they are practically destitute (particularly if proper planning hasn’t happened ahead of time).
    
7. Better to obtain insurance when you’re younger and healthier and it’s cheaper.  Not to mention that you’re in a healthier state of mind (not in crisis) and can plan.
    
8. Long-term care insurance can be used to cover the care of someone with Alzheimer’s, an affliction that can last for many years and deplete a family financially.
    
9. LTC premiums can be paid with Heath Savings Account (HSA) monies.
    
10. If you’re self-employed, a portion of your premium may be deductible as health insurance.
     
11. Anyone can pay the premiums on the policy.  Children can pay for LTC insurance to protect against the family vacation home (or any other asset) being sold to meet long-term care costs.
     
12. Remember, your children might be picking your nursing home.  How many choices do you want them to have?

If you need a referral to a long-term care specialist, please let me know.  I can help you figure out whether LTC insurance makes sense in your overall plan.  A specialist can tell you what to look features to look for, what to consider when buying a policy, what riders are worth it, which company to choose, and how much to pay.

Discovering what’s missing and out-of-date

I spent the weekend before my summer vacation fast and furiously finishing all those projects I’ve procrastinated on for the last eight months.  I don’t know what it is about vacation that makes me do this, but there’s nothing like a deadline to get things done, so I did.  They included:

1. Updating my earthquake kit.  Important, right?  The food, water, and medicines had expired.  The batteries needed replacing.  One of the crank flashlights no longer worked.  The light sticks were outdated (do they expire?).  Not good.  All fixed now.
    
2. Reviewing my “master binder” of financial, health, and personal documents.  This is a binder with copies of all my important documents in one place.  I agree that the medium is a bit outdated, but so are my husband’s technological skills.  This is the go-to binder for my sister and best friend when they fly in from the East Coast after my death to my distraught family to “take care of my affairs.”  Important, right?  I discovered that two of my life insurance policies had been sold to other companies, so I updated that information with the new companies.  The kids’ information was outdated and their passports expired.  We don’t have an original birth certificate at home just in case.  Not good.  All fixed now.
    
3. Visiting my safe deposit box.  Now where did I put that key again?  I went to visit, cleaned out old documents, put in new ones, revised my list of contents and updated that for my master binder.  I’m reminded that I need to do a better job protecting my originals from fire and theft.  Not good.  All fixed now.

These things are a pain.  But it feels so good to get them done, whether you are the “financial master” of the household or the one who would need the most hand-holding in case of death or disability of one’s spouse.  The kids got a kick out of tearing open the water packets from the earthquake kit and watering the plants, tasting the outdated “food” (it wasn’t that old, and I’m not sure it’s food), and talking about being prepared in an emergency.  Oh yeah, I guess we should review those fire and earthquake drills, too.

Reasons to Use an HSA

While it takes a bit of time to get the hang of how to use the plan, once you understand it, it’s not a big deal.  Complain, consternate, and confabulate all you want about national health care and the lack thereof.  In the meantime, if you’re self-employed, consider an HSA.  Look at these statistics, as provided by my account holder:

• People enrolled in HSA-type plans spend 5% to 10% more on preventive care, have 5% to 10% lower emergency room utilization, experience 10% lower medical costs, and are much more likely to use online health tools.  (Source:  Aetna national survey, April 2010)

• In a study of 2 million members enrolled in HSA-type plans, Cigna found that members used more generic drugs and that medication compliance improved while costs decreased. They also received recommended care at similar or better compliance rates. Members with chronic diseases such as hypertension, joint disease and diabetes experienced between 15% to 27% reduction in medical costs. (Source:  Cigna study, January 2010)

HSA-type plan enrollment has increase 25% from January 2009 to 2010, and most of the enrollment was through employer-sponsored plans.  Why?  Because they’re cheaper for the employer, they give the employees more flexibility (which is seen as a huge benefit), and employees are healthier and at work as a result.

If you want to explore how an HSA might work for you and need a referral, give me a call or send an email. I’m happy to help.

When a life insurance death benefit comes in handy

I sell quite a bit of life insurance, but rarely for death benefit purposes.  Which may sound strange to some of you because isn’t that what life insurance is for—when someone dies?  Well, yes.  I just happen to use other features of the product to create “life benefits” as well.

In presenting my “life benefit” plan to use life insurance, I often say, “and the death benefit just comes along for the ride.”  Ultimately, clients are paying for the death benefit even if that’s not their focus.  Sometimes it’s nice to have that passenger on bus.  Because when the unexpected or the untimely happens, the death benefit is nice to have.  It’s the difference between scrambling for donations from family and friends and knowing that you have money to take time off to grieve, to support your loved ones and business partners once you’re gone.

As many of you  know, I’m adamant about my clients getting their estate planning done.  It is a great act of love to make sure your affairs are handled and your family and friends know what your wishes are after your death.  I come from a long line of dead people, so trust me when I say that there is no worse combination on this place than death, family and money.  The second thing you need to do is get your life insurance in place early and often.  Get it when you’re young and healthy.  It’s one of those things that you’d rather have and not need than to need and not have.

For whatever it’s worth, I’m not a big fan of life insurance on kids, but if you can get a cheap rider on your own policy, it might be worth having.  I can’t imagine anything worse than the loss of a child.  Having time to take off work potentially without pay and grieve is huge.

Here’s what I do think is important:  Tell your family and friends when you’re alive how much you love them and what you respect and appreciate about them.  Record it, at least your voice, so they can hear it in the future.  Those of us left behind often forget the sound of our loved ones’ voices, and to have them for hard times is a beautiful gift.

Since when did life insurance get so sexy?

The problem is that people often think of life insurance as another one of those things that you have to buy when you become a grown up, get married and have children.  It is yet another annual expense that seemingly has no value at all unless one dies.  Then to add insult to injury, the dead person doesn’t even get to use the death benefit proceeds.  It’s no wonder that people joke that life insurance is designed to keep you broke while you’re alive so you can die rich.

If this is your belief system, you might need to get your mind right.  In all honesty, there’s some truth to the above statement.  If you have young children, business partners, or dependents, you do need life insurance so that if you die, there are assets available to support them.  Or, if you stand to die with more than $1 million, then you might want the money to pay estate taxes.  In any event, you’re buying the policy for death benefit purposes.

But you can buy life insurance for life benefit purposes, and this is where people are missing the opportunity.  The article quoted a planner saying that “There are people who are making at least $250,000 a year and who will be targeted for higher taxes….  Cash value insurance is a Roth IRA for rich people, and they can tap that money judiciously.”  This is a true statement.  Cash value life insurance contracts are one place where you can grow money tax-free (well, tax-deferred if you want to get technical) and access it tax-free (if the contract is created and funded properly).  I spend my days showing people how to create tax-free retirement income, create buckets of money to meet education funding goals and disability income supplementation, and how to create “Roth IRAs on steroids” for employees who can’t put enough money away in their company’s retirement plans or business owners who have not adequately saved for retirement.  I show people how to keep their social security benefits from being taxed.  I show people how not to outlive their money.  Life insurance, believe it or not, can play a huge role in making that plan work.

Redefining financial security and other out-of-date financial terms

As many of you know, I don’t approach financial planning from a traditional prospective because we don’t live in a traditional world.  Please consider adopting the following definitions:

“Financial security”:  The ability to weather any financial storm and to take advantage of any financial opportunities.  Notice this has nothing to do with whether you own your home outright.  If you cannot pay your bills if you’re out of work for a year, if you cannot help out your family when they are out of work for a year, when you can’t buy things that are on sale (e.g., income taxes right now when you convert your traditional IRA to a Roth or purchasing investment property), you are not in a financially secure place.  Get your safety net in place, which includes reserve accounts and insurances.  Then go pay off your house.

“Retirement”:  The ability to work for no money and still support one’s health and well-being.  Notice this has nothing to do with whether you own your home outright.  People are living longer and want to contribute to society with their gifts and energy into late adulthood.   They want to try new things.  If you have your house paid off, but no other sources of income to help you make ends meet, you cannot work for no money and pursue those late adulthood activities.  Go get your retirement income accounts in place and then go pay off your house.

“Debt-free”:  When your assets (after liquidation, taxes and penalties) exceed your debts.  Notice this has nothing to do with owning your home outright.  Once you have accumulated assets and can wake up one morning and say, “Hey, you know, today I think I will pay off my house and all my debts,” you are debt-free.  Just because you can do this doesn’t mean that you should.  In many cases, it makes sense to take debt even into retirement.  Go get your assets working for you, use debt intelligently and safely, and someday go pay off your house.  If that’s what you want to do.

What are your options?

     The stock market is not inherently a bad place to be.  Like every investment, it has a risk-reward trade-off.  You must decide how much risk you’re willing to take.  In the last several years, many people have re-evaluated for themselves what that means.  First things first:  figure out what kind of investor you are.

     Then, consider other options besides the stock market if you can.  If the better part of your savings is in your 401k at your employer, you’re most likely stuck with those investment options.  But if you have cash on the sidelines or you have IRA monies from previous employers, you have more options.  People think of the stock market because it’s what most publicized and most accessible online.  However, there are other pretty interesting and pretty great options in the insurance and real estate worlds where your returns might be greater and your risk perhaps lower.  You might consider these other opportunities.