The Ziff Agency Monthly
From the Desk of Larry Ziff The Ziff Agency, LLC
this issue The Underwriting Corner: Multiple Sclerosis [P.02] Life Settlements: An Often Overlooked Idea [P.02] More True Life Stories [P.03] What Families Wish They Had Done Differently [P.04]
Term or Permanent Life Insurance? Term insurance usually provides the largest amount of insurance protection at the lowest initial cost. For this reason, it's the type most people start out with. Because term policies end at a specific point—the end of the term—they are best for providing protection for large needs with specific end points. Some typical periods people might choose term to cover include the time: • remaining on their mortgage obligation. • they plan to continue to work and have others relying on them. Permanent insurance is designed to last as long as a person lives and typically makes a good supplement to term insurance. Most will likely still want insurance after their term coverage ends, either for life-long or unplanned needs, or for needs with an unpredictable or extended end date. Good reasons to have permanent insurance include helping to take care of: • the costs associated with their death, such as funeral costs, outstanding medical bills, and estate taxes. • someone who becomes or may still be dependent on them, such as children who are not yet independent. "Can't I just buy another term policy later?" For most people, buying a series of term policies throughout their lives as their situation changes is not the best strategy. Life insurance usually gets more and more expensive as they age. So, once they pass a certain age, the cost can become prohibitive. Also, if they develop a health condition, that increases the amount they have to pay for life insurance or makes them unable to qualify to buy life insurance. For these reasons, a permanent policy can help to protect or "lock in" their ability to qualify for life insurance (insurability). "Why shouldn't I just buy term and invest the difference?" You may have heard the statement "Buy term and invest the difference." In this scenario, the difference between the permanent life insurance premium and the traditional term life insurance premium is invested in a mutual fund, annuity, stocks, bonds, or other investment vehicle. The idea is that investing the difference would replace or exceed the cash value accumulation of permanent life insurance. When deciding if this strategy is right for them, they need to consider what best suits their personal objectives and circumstances. For example: • They may not have the discipline to actually invest the difference. • T hey need the discipline not only to invest the difference, but also to invest early while the difference between the amount of their term insurance premium and the amount of the premium for their permanent insurance is the greatest. They need to make up early for the dramatic increase in the cost of term insurance at later ages.
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• If they need to renew or reapply for their term policy, the cost may become prohibitive as they get older or if they develop health problems. • If health problems occur, they could become uninsurable and not even be able to purchase term insurance when it comes time to renew. • The investment they choose may not perform as hoped for. Carefully weigh knowledge about habits and self-discipline along with the benefits, risks, product features, and any current or future charges associated with any insurance and/or investment product before making a decision about how to address particular needs.
The Power of Choice When people are prepared for a wider range of events, they give themselves more options. By working with their family to think about life insurance now, they can make sure their family will feel financially secure when they are gone.
The Power to Protect: • Helps protect loved ones from the loss of income • Helps protect a family's current standard of living and ability to remain in their home • Helps protect a family from unexpected expenses caused by a loss of life
The Underwriting Corner Multiple Sclerosis Multiple Sclerosis (MS) is a chronic degenerative disease of the central nervous system where there is a loss of the protective covering of the nerve (called demyelination of the nerve). This condition causes the nervous system to "short circuit", which in turn causes an MS attack, which can last from 3-12 weeks before clearing. The symptoms of these attacks historically start with the optic nerve causing blurring and double vision. Other symptoms are weakness, numbness, light-headedness, and incontinence. Persistent symptoms are caused by the accumulated burden of multiple attacks. Two-thirds of cases diagnosed occur between the ages of 20-40, and is twice as common in women. The cause of MS is not known, but growing evidence suggests that it may be a result from a combination of genetic, environmental, and immunologic factors. First-degree relatives of someone with MS face a 3-5% risk of developing MS themselves, and it is shown to be likely that a viral infection initiates the MS process, followed by an autoimmune response in a genetically predisposed host. At this point, there is no cure for MS. Overall, MS is a progressive disorder 85% of the time. The remaining 15% have "benign MS" which is slowly progressive with no disability 10 years after diagnosis. The median survival rate is 35 years after diagnosis. For a good preliminary offer, underwriters will want to know several things: ■ W hen was it first diagnosed? ■ H ow many episodes (attacks) have occurred and what is the date of the last episode? ■ Is the client taking any medications? ■ W hat is the current neurologic status: normal, minimal residual impairment, moderate residual impairment,
or severe residual impairment? ■ H as the client smoked cigarettes in the last 12 months?
The Power to Comfort:
What offer can be expected?
• Makes it possible for loved ones to realize their dreams and fulfill the hopes of the one they lost • Provides financial comfort at one of the most critical moments in a family's life • Gives people confidence that they have planned well for their family's future
Assuming a diagnosis has been made, typically it is best to postpone underwriting within the first year of diagnosis. Generally, if the condition is slowly progressive with infrequent episodes, Table 6 range. A more progressive disease with frequent episodes (more than 2 per year), Table 8 range and up. A rapidly progressive disease is usually a decline.
The Power of Financial Stability: • Helps stabilize a family financially in case of the loss of a primary wage earner or stay-at-home parent • Helps cover unanticipated bills related to their estate, medical bills, and funeral expenses • Provides a death benefit that is almost never subject to federal taxes • In the case of permanent coverage, it can provide an early cash payout if and when emergencies arise
Life Settlements: An Often Overlooked Idea What is a Life Settlement? A life settlement is the sale of a life insurance policy to a third party called a life settlement provider. The owner of the life insurance policy sells the policy to the life settlement provider and receives an immediate payment in return. The life settlement provider becomes the new owner of the life insurance policy, pays any future premiums, and receives the death benefit when the person whose life is insured under the policy (the insured) dies. A Life Settlement can offer consumers an estate planning solution that may often be overlooked. The challenge is to know how to identify a potential case and what steps are necessary to generate an offer. When to consider a Life Settlement? • If you are over the age of 70 and are considering surrendering or cancelling a life insurance policy due to expensive premiums or being over insured. A Life Settlement can often times generate an offer 2-3 times the policy’s surrender value. • If you are over the age of 70 and are seeking liquidity for the purpose of funding charitable
initiatives, Long-Term Care Insurance or other investment opportunities. • If you are over the age of 70 and are considering a 1035 exchange, then you should consider a Life Settlement. One of the best times to identify if you can benefit from a Life Settlement is during an annual policy review. An annual review of a life insurance portfolio can often identify issues such as underfunded coverage, outdated coverage types, and/or insufficient coverage limits. Please call to discuss any potential opportunities. We can pre-qualify a policy to determine the possible value before any forms or applications are submitted.
More True Life Stories These true stories illustrate why it is so important for people to include insurance in their financial plans. None of these individuals could have anticipated the challenges they would face. In each case, however, smart insurance planning ensured that emotional struggles were not compounded by financial hardship. As much as we would all like to think that “it’ll never happen to me,” the reality is that none of us knows what the future holds. Think about how you and your family would manage financially if faced with similar challenges. Dan Claus – Insurance Allows Dad to be a Dad Peggy and Dan Claus always managed to make the best out of challenging situations. They found their first house, an abandoned century-old Victorian, in the path of a new highway. They paid to have it moved six miles away to a new lot, and with extensive renovations it became their dream home. When Peggy lost her job as a computer support specialist at a local bank, she started her own consulting firm and it quickly became a more rewarding career. One of Peggy’s clients was her friend, Paul Miller. She took care of his computers, and he vowed to always take care of her family. When Peggy’s business started to take off, Paul knew she needed more life insurance because her income had grown significantly. With Paul’s help, Peggy doubled her coverage. Two years later Peggy was diagnosed with breast cancer. To help pay her mounting medical costs, Peggy was able to borrow against the cash value of several permanent life insurance policies she had owned for almost twenty years. Sadly, after a three-year battle, Peggy died at age 48, leaving behind Dan and their four sons. Dan, 52, used the insurance benefits to repay the loans against her policies and other medical costs and debts that had accumulated during Peggy’s illness. He also paid off half their mortgage. More importantly, the insurance allowed Dan to accept a lower-paying job closer to home in northeast Iowa. Now instead of a 70-mile commute and having to work 12-hour shifts and every other weekend, Dan works weekdays until 3:30 p.m. That gives him the freedom to be there when the boys arrive home from school, attend all their activities, and fully participate in their lives. “That’s really important to me, and I know it would be important to Peg.” Clara Bix – The Greatest Gift Jim Bix was a newlywed when he was diagnosed with an incurable lung disease. While his health remained stable for two decades, his condition finally began to deteriorate, leaving him unable to work. With a wife and two daughters, Jim and his family relied on disability insurance he had through work to help pay for their daily living expenses, as well as the added medical bills. His health remained stable for two decades, so he was dismayed when his condition finally began to deteriorate. Now dependent on an oxygen tank to breathe,
Jim was no longer able to work as an electronics technician at Honeywell. Fortunately, he had disability insurance through work, which helped the Bixes pay for day-to-day living expenses, as well as the added medical bills. Just as Jim’s condition turned critical, his wife, Clara, learned that she needed surgery to remove a cancerous kidney tumor. The operation was a success and Jim literally sang with joy, relieved that his children would still have their mother. The songs were short-lived. Jim died three weeks later. It was the life insurance that Jim had through work that allowed Clara and the girls to carry on financially after his death. Jim had an employer-paid life insurance benefit and each year he paid extra to double the coverage amount. The life insurance proceeds allowed Clara to pay off debts, keep the girls in private school, and remain in the family’s home.
Famous Estate Planning Failures NAME: Barry White DIED: July 4, 2003 AGE: 58 CAUSE: Kidney Failure ESTATE MISTAKE: Everyone knows the smooth baritone Barry White was all about the love, but maybe not so much about the details. One of them was getting divorced, which
Brittany, now 21, was so moved by the far-reaching power that life insurance had on her family, that she is pursuing a college degree in insurance and has become a licensed agent. “Life insurance was the greatest gift my dad could give us,” says Brittany. “It has allowed us to live life the same way as when he was here with us.”
he didn't do from his wife
Connie Hobson – Insurance Preserves a Family’s Way of Life
squabbling between his ex-
Bill Hobson had always been active. He met his wife, Connie, at a softball game in 1986 when she went to watch a friend play, but ended up watching Bill instead. When Bill developed a weakness in his right hand in 2003, he and Connie thought it was a judo injury. It wasn’t, and his doctors delivered the devastating diagnosis: Lou Gehrig’s disease. Bill continued to work for several more years as a product demonstration specialist at AT&T, but eventually had to retire. The last year and a half of Bill’s life was especially difficult, as he lost much of his muscle function. Ultimately, he had difficulty breathing and could not feed himself. The Hobson family rallied. The couple’s daughters, Carleigh, Paige, and Cari, took turns caring for him between classes and work; Connie did the same during her lunch hour at a dentist’s office. Bill finally succumbed to the illness over Thanksgiving weekend of 2009. But Bill’s illness and passing didn’t devastate the family financially, thanks to insurance planning. Short- and longterm disability insurance benefits through AT&T helped the family make ends meet when Bill could no longer work. Through a group life insurance program, his company provided one times his annual salary in life insurance benefits, and Bill bought supplemental coverage to increase the benefit to three times his salary. He also had an individual life insurance policy that he purchased on his own. Connie was able to turn the death benefits from Bill’s various policies, and his pension and 401(k), into an income stream. It has helped Connie remain in the family home, and take an occasional vacation with the girls.
-As appeared in InsuranceNewsNet Magazine, June 2012
even though he was living with someone else. But of course the biggest detail was a will, which he overlooked, leading to years of wife, wife, and girlfriend.
Policy Review A policy review can help make sure a person's life insurance is up-to-date. Current coverage may not be enough if the person: • a dded a new member to the family. • r ecently made a big purchase (especially a new house). • c hanged jobs or received a promotion. • recently got married. • s tarted or continue to grow a small business. • have children in college. • h ave an elderly parent who is now dependent on you. • r ecently retired and want to plan your estate.
What Families Wish They Had Done Differently Often it is difficult to visualize or relate to something have not personally experienced, especially when believe it unlikely that the "something" will happen to in the foreseeable future. Sometimes, though, we learn a lot from the experience of others.
you you you can
Doing the homework
HERE’S A THOUGHT... “It had long since come to my attention that people rarely sat back and let things happen to them. They went out and happened to things.“ - Leonardo da Vinci
" The best thing we did was research all of the life insurance product choices and make choosing a policy a joint decision." - Teresa E. "My husband had handled everything, so when he died, I struggled just to find the paperwork, much less figure out what to do. I wish I had been more involved. It made everything so hard at a time that was already very tough." - Elizabeth H. Making good choices "Purchase the amount of life insurance you can afford and, if necessary, consider cutting back on non-essentials if you have to. You never know if and when something will happen to you and you never want to leave your family struggling to survive." - Sara T.
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Being Flexible " I am reminded that you can't plan for everything, but it still helps so much to have some sort of plan. Our life insurance used to be a very small portion of our retirement plan; but when my wife got sick, all of our retirement funds went to pay for her illness. After she died, our life insurance became a critical element of my retirement plan" - Steve B. Consulting a professional "I'm glad I already had an advisor I trusted. I can't imagine trying to find one while I was emotionally vulnerable." - Elena C. "The first year was really hard on me — I had to learn so much. Having the insurance money freed me from financial worry and helped me focus on moving forward." - Lucy R. 65% of those whose loved one had reviewed their policies annually with a financial professional were able to use the life insurance payout for immediate needs and long-term plans, such as college and retirement savings. - Genworth Life Insurance Beneficiary Study, 2010