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Consider Long-Term-Care Insurance
ife expectancies have increased significantly and are expected to continue to increase in the future. As people age, they are more likely to develop conditions that limit their ability to live independently. However, it is estimated that only 14% of households have purchased long-term-care insurance (Source: Long-Term Care Costs and the National Retirement Risk Index, March 2009). How likely is it that you’ll need long-term-care insurance? It is estimated that approximately one-third of individuals age 65 and older will require at least three months of nursing home care, 24% more than one year of care, and 9% more than five years (Source: What Is the Distribution of Lifetime Health Care Costs from Age 65?, March 2010). Those figures do not include individuals who require home care services. In 2008, the average annual cost of a nursing home was $71,000 (Source: What Is the Distribution of Lifetime Health Care Costs from Age 65?, March 2010). Who needs long-term-care insurance? If your assets, not including your home, equal at least $2 million, you can probably fund longterm-care costs with those assets, although you may not want to deplete your assets for this care. Those with very few assets will probably be covered by Medicaid. It is the people between these two extremes who should consider long-term-care insurance. This coverage may be espe-
cially important for women, who tend to outlive their husbands. If you’re considering long-termcare insurance, review these points: • Purchase the insurance at a relatively young age. You should probably purchase the insurance by the time you are in your 50s or early 60s. After that, the premiums become much more expensive. Also, if you develop a serious health condition, you may not be able to purchase the insurance. • Check for inflation provisions. Since you may not receive benefits for many years, and costs
for long-term care have been increasing significantly in recent years, check inflation protection in your policy. You can obtain simple or compound inflation protection. Simple protection increases the benefit amount by a specific percentage of the original benefit each year. Compound inflation increases the benefit on a compounded basis, so it provides substantially more protection. Another option is to make sure your policy contains an annual renewal option, so you can buy additional coverage in the future. Continued on page 2
Calculating Your Life Insurance Needs
hile life insurance can serve a variety of purposes, one of the most common is to maintain your family’s standard of living in case you die. Thus, you need to purchase an appropriate amount of insurance to ensure your family is adequately protected. Many rules of thumb exist, such as five to seven times your annual income, but don’t rely on rules of thumb to determine your coverage. These rules don’t take into account your individual circumstances, so they could leave you with an inadequate amount of insurance. Your insurance needs will probably change over time. When you are a young, single adult, you may have little reason to purchase life
insurance. As you start a family, your insurance needs will be greater, since other family members are depending on your income. As your children become independent, your insurance needs may decline. However, at that point, you may need life insurance for other purposes, such as to help fund estate taxes or for a business buyout. To determine how much insurance you need, consider these questions: What lifestyle do you want to provide for your spouse and dependents after your death? Review your needs in detail, taking a look at things like: • Do you want to provide the same Continued on page 3
Long-Term-Care Insurance Continued from page 1
• Obtain insurance from a stable insurance company. You want to obtain insurance from a company that is sure to be around for the long term. • Make sure the policy terms are reasonable. Many people choose a benefit period of three years to cover the average nursing home stay. However, due to the substantial costs associated with long-term care, you may want to select a longer period. Benefits should be paid in as many situations as possible, including skilled care, intermediate care, custodial care, home health care, and adult day care. Many people prefer to remain at home for as long as possible, so make sure that the policy covers a wide range of home services. Review the waiting period carefully to ensure a good balance between premium costs and out-of-pocket costs. • Review carefully the level of assistance needed to qualify for benefits. Typically, benefits are paid when you are unable to perform two of six activities of daily living, including bathing, eating, using the bathroom, moving back and forth from a chair to a bed, and remaining continent. Typically, benefits are also triggered when a cognitive impairment, such as Alzheimer’s disease, requires substantial supervision. • Determine how benefits are paid. Some policies pay a set daily amount, regardless of your actual costs. This may be a good alternative if you are staying at home and want to compensate a friend or family member for helping you. Other policies will only pay your actual out-ofpocket expenses up to a daily limit or may only pay reasonable and customary costs. Find out how you prove you’re entitled to benefits. Some plans require an in-house doctor to review your health, while other plans allow your own doctor’s review.
Reassess Your Insurance at Retirement
s retirement approaches, you should reevaluate your insurance coverage. This will ensure you are adequately protected in all areas, while making sure that your premium costs are minimized. Some points to consider include: Health insurance — Since Medicare coverage doesn’t begin until age 65, you’ll need to consider other coverage if you retire before that age. Even with Medicare, many costs aren’t covered, so you’ll want to consider supplemental coverage. With health insurance premiums so high, you might want to raise deductibles and copayments to lower premiums. Long-term-care insurance — This insurance covers the cost of nursing homes or home health care. If you have significant assets, you may prefer to pay any costs yourself rather than pay for insurance. If you have few assets, Medicaid is likely to pay most of the cost. Those in most need of this insurance are individuals
• Review new policy provisions. Long-term-care policies are relatively new, so policy riders are evolving. Make sure to check out new provisions, such as the ability to combine a life insurance and long-term-care policy, an accelerated premium provision that allows you to stop making premiums after a certain number of years, or a provision that returns premiums if you die without using benefits. Also look into partnership policies, which allow you to qualify for Medicaid after exhausting the policy’s benefit while keeping more assets than normally allowed by Medicaid. • Consider sharing a policy with your spouse. Some companies now offer policies that allow spouses to share the policy, which can operate in several ways. Spouses may take out separate
with moderate assets who don’t want to deplete those assets to pay for nursing home costs. Homeowners insurance — Make sure your coverage is sufficient to rebuild your home if it is destroyed. Keep your liability limits high to protect you in case you are sued. Liability insurance — Your auto and homeowners insurance should provide some coverage. If those limits don’t at least equal your net worth, obtain liability insurance to cover the difference. Life insurance — Whether you need life insurance will depend on your individual circumstances. You may not need life insurance if your children are grown and you have sufficient assets to support your spouse after your death. However, you may need life insurance to provide for a spouse or child or to provide for the payment of estate taxes. Before retiring, review all your insurance to determine if it is appropriate for your new circumstances. Please call if you’d like to review this in more detail. zxxx policies, with a rider allowing the spouses to use each other ’s unused benefits. Another alternative is to purchase one policy that both spouses can use. A third alternative gives each spouse a specified amount of benefits plus a third amount that can be drawn on by each spouse. • Check the policy’s tax status. A qualified policy allows you to deduct a certain percentage of the premium, depending on your age, as a medical expense on your tax return. Medical expenses are deductible to the extent they exceed 7.5% of your adjusted gross income. Also, payouts from qualified policies are received free from federal income taxes. Please call if you’d like to discuss your options for dealing with long-term-care costs. zxxx
Avoid These Life Insurance Mistakes
ife insurance can be used for a variety of personal and estate planning needs. To ensure your life insurance policy meets your needs, watch out for these common mistakes: • Not considering life insurance at all. Life insurance forces us to take a look at our own mortality, a subject most people would prefer to ignore. In fact, one third of all adults have no life insurance at all (Source: U.S. News & World Report, April 6, 2009). But without life insurance, you could be leaving your family in dire financial circumstances if you die. You should thoroughly assess your situation to see how much life insurance is needed. • Relying on rules of thumb. When deciding how much life insurance you need, avoid common rules of thumb, such as five to 10 times your annual salary. These are general guidelines and are not meant to be a
Life Insurance Needs Continued from page 1
standard of living, including things like vacations and club memberships? Will your spouse and children live in the same house? Will the family have to make different child care arrangements? Do you want to provide for college educations for your children? If your spouse doesn’t work, do you want that to continue or do you expect him/her to work after your death? If you expect your spouse to work, what is a reasonable amount of income to expect him/her to earn? Do you need to consider the support of elderly parents or other
definitive guide to the amount of coverage you need. See the article “Calculating Your Life Insurance Needs” for more details on this calculation. • Making your decisions based solely on the premium amount. You should base your policy selection on the amount of coverage it provides, rather than monthly or annual premiums. A wide variety of life insurance policies are available, many designed to meet specific needs. Understand the basics of each before deciding which type is most appropriate for your situation. • Not selecting appropriate beneficiaries. Estate and tax ramifications should be considered before selecting beneficiaries. For instance, naming your estate as beneficiary could cause the proceeds to be included in your taxable estate. Or, if your spouse owns the policy on your life with your children listed as relatives? • How long must your family live off the insurance proceeds? Will your current retirement fund provide enough income for your spouse to live on after retirement or do you need to provide income until his/her death? • Do you want to pay off a mortgage or other debt with insurance proceeds? • Do you have estate tax considerations you want to address with life insurance? How much will that lifestyle cost? Come up with an estimate of how much this lifestyle will cost. Include all of your current expenses that would remain the same, as well as any new expenses you have identified, such as for child care. Remember to factor in hidden costs,
beneficiaries, the policy proceeds may be considered a gift, subject to gift taxes. Be sure to name contingent beneficiaries in case your primary beneficiary dies before you do. • Replacing an existing policy without first evaluating it. Look at an in-force ledger statement to determine the policy’s current status and growth projections. If you need more insurance, you can always apply for another policy for the additional amount needed. A policy change may require a medical examination and may incur fees and costs. • Not evaluating your situation periodically. Your life insurance needs are likely to change over time, as your personal and family situations change. Thus, you should periodically review your needs to see if changes are warranted. zxxx
such as providing for health insurance that was paid for by your employer. For large debts, such as a mortgage, determine whether it makes sense to pay the loan off in full or to continue making monthly payments. How much life insurance do you need? First, consider what other income sources your spouse and/or dependents will have. This could include your spouse’s earnings, retirement plans, Social Security benefits, savings, and investments. Life insurance proceeds will be needed to provide the difference. Your life insurance needs will change over time, so you should periodically go through this analysis. Please call if you’d like help assessing your life insurance needs. zxxx
Copyright © Integrated Concepts 2010. Some information provided in this newsletter was prepared by Integrated Concepts. This newsletter intends to offer factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects. The appropriate professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.
News and Announcements From the Alexander Household Magical moments; you know, the ones that take your breath away, even momentarily, are among the amazing parts of life. I don’t know if there have been more lately in my life or if I’m just paying more attention, but either way I find I am more aware of them. Most of the recent events that come to mind involve family. Jackson and Luke’s delight when the car in Lyric’s performance of Chitty Chitty Bang Bang flies and then takes a bow during the curtain call, sitting on the front row of the RAIN Tribute to The Beatles with Kerry, Luke leaning over to kiss my shoulder during a movie, or finding Luke and Jackson reading a book to their toys that are lined up as if they are watching a drive-in movie; for me, it doesn’t get any better than that. Some of these events result from family traditions. My parents have had season tickets to Lyric Theatre since I was a child and Pollard Theatre for a couple of decades, and now I can share my love of the theatre with our children. Magical moments occur more than we realize…we just need to slow down enough to notice.
Carol Ringrose Alexander From the Rudy Household Although I’ve been with Retirement Investment Advisors in the Dallas office since last November, this is my first contribution to the monthly newsletter. I thought I’d share how my wife, Amy, daughters Kayla (8), Megan (6), and Tatum (3), and I came to live in our current city of Frisco, Texas. Fourteen years ago, Amy and I moved from Oklahoma City to Houston. With most of our family still living in Oklahoma, we always knew we wanted to move closer “someday.” Well, 12 years and three daughters later, we had made no progress toward our goal. In 2008, we decided to move to Frisco, which is the most northern Dallas
suburb and is considered “Oklahoma” by many in the Dallas area. We felt this was a great compromise, since it allowed us to move closer to our extended family yet remain close to the many friends we made in Texas. Being only three hours away rather than eight, has made family visits much easier and more frequent. In fact, we just returned from our most recent visit with family at Robbers Cave, a state park in eastern Oklahoma. We are already looking forward to our next visit.
Chad Rudy From the Thurman Household Levi is doing well and enjoying summer. He will enter the eighth grade and recently tested at the college level in reading and vocabulary. He gives me the word for the day. He is enjoying playing Ping-Pong with Dad but really likes a new game, a cross between Ping-Pong and Four Square called Poly Pong. A fun, fun game. I am continuing work on running and just had my entry accepted for the Boston HalfMarathon and looking forward to it. I just came back from the YMCA General Assembly in Salt Lake City. A four-day conference with great speakers. I have boiled down the speaker ’s notes to seven pages. If you would like a copy, give us a call or e-mail me. The end of the conference we had a 5k run up the side of a small canyon and back down. Tough, but fun course. Pati broke her elbow. Seems she couldn’t get her foot out of the bike pedal when she stopped. Fell on her elbow. Ouch! She is healing well but doesn’t like that Doc won’t let her bike until her elbow completely heals. Hope you have a super fantastic month!