A quick look at the different types of policies.

When it comes to life insurance, there are many choices. Whole life. Variable universal life. Term. What do these descriptions really mean?

All life insurance policies have two things in common. They guarantee to pay a death benefit to a designated beneficiary after a policyholder dies (although, the guarantee may be waived if the death is a suicide occurring within two years of the policy purchase). All require recurring payments (premiums) to keep the policy in force. Beyond those basics, the differences begin.1

Some life insurance coverage is permanent, some not. Permanent life insurance is designed to cover you for your entire life (not just a portion or “term” of it), and it can become an important element in your retirement planning. Whole life insurance is its most common form.2

Whole life policies accumulate cash value. How does that happen? An insurer directs some of your premium payments into a reserve account and puts those dollars into investments (typically conservative ones). The return on the investments influences the growth of the cash value, which builds up according to a formula the insurer sets.3

A whole life policy’s cash value grows with taxes deferred. After a while, you gain the ability to borrow against that cash value. You can even cancel the policy and receive a surrender value. Premiums on whole life policies, though, are usually higher than premiums on term life policies, and they may rise with time. Also, beneficiaries only receive a death benefit (not the policy’s cash value) when a whole life policyholder dies.2,4

Universal life insurance is whole life insurance with a key difference. Universal life policies also build cash value with taxes deferred, but there is the chance to eventually pay the monthly premiums out of the policy’s investment portion.5

Month by month, some of your premium on a universal life policy gets credited to the cash reserve of the policy. Sooner or later, you may elect to pay premiums out of the cash reserve – so, the policy essentially begins to “pay for itself.” If all goes well, a universal life policy may have a lower net cost than a whole life policy. If the investments chosen by the insurer severely underperform, that can mean a dilemma: the cash reserve of your policy may dwindle and be insufficient to keep paying the premiums. That could mean cancellation of the policy.5

What about variable life (and variable universal life) policies? Variable life policies are basically whole life or universal life policies with a riskier investment component. In VL and VUL policies, you may direct percentages of the cash reserve into investment sub-accounts managed by the insurer. Assets allocated to the sub-accounts may be put into equity investments of your choice as well as fixed-income investments. If you choose equity investments, you (and the insurer) assume greater risk in exchange for the possibility of greater reward. The performance of the subaccounts cannot be guaranteed. As an effect of this risk exposure, a VUL policy usually has a higher annual cost than a comparable UL policy.6

The performance of the stock market may heavily affect the performance of the subaccounts and the policy premiums. A bull market may mean better growth for the policy’s cash value and lower premiums. A bear market may mean reduced cash value and higher monthly payments to keep the policy going. In the worst-case scenario, the cash value plummets, the insurer hikes the premiums in order to provide the guaranteed death benefit, the premiums become too expensive to pay, and the policy lapses.6

Term life insurance is life insurance that you “rent” rather than own. It provides coverage for a set period (usually 10-30 years). Should you die within that period, your beneficiary will get a death benefit. Typically, the premium payments and death benefit on a term policy are fixed from the start, and the premiums are much lower than those of permanent life policies. When the term of coverage ends, you may be offered the option to renew the coverage for another term or to convert the policy to a form of permanent life insurance.2,7

Term life is cheap, but the tradeoff comes when the term is up. Just as you cannot build up home equity by renting, you cannot build up cash value by “renting” life insurance. When the term of coverage is over, you usually walk away with nothing for the premiums you have paid.7

Which coverage is right for you? Many factors may come into play when deciding which type of life insurance will suit your needs. The best thing to do is to speak with a qualified insurance professional who can help you examine these factors, so you can determine which type of coverage may be appropriate.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – thebalance.com/does-a-life-insurance-policy-cover-suicide-2645609 [6/5/18]
2 – fool.com/retirement/2017/07/20/term-vs-whole-life-insurance-which-is-best-for-y-2.aspx [7/20/17]
3 – investopedia.com/articles/personal-finance/082114/how-cash-value-builds-life-insurance-policy.asp [4/30/18]
4 – insure.com/life-insurance/cash-value.html [12/12/17]
5 – thebalance.com/what-you-need-to-know-about-universal-life-insurance-2645831 [5/8/18]
6 – insuranceandestates.com/top-10-pros-cons-variable-universal-life-insurance/ [9/1/17]
7 – consumerreports.org/life-insurance/how-to-choose-the-right-amount-of-life-insurance/ [3/30/18]

A way for businesses – especially niche businesses – to address a major risk. 

Who are the people most crucial to your business? Have you taken steps to insure them?

At every company, there are certain people whose absence would cause day-to-day operations to grind to a halt. If they die or become disabled, the future of the company may be jeopardized.

Key person insurance is designed to help businesses deal with this kind of major disruption. Its payout can offer some monetary relief so that operations can continue running smoothly.

Small & large businesses choose key person insurance for a variety of reasons. The insurance benefit can be used to settle outstanding loans, and to fund the recruitment and training of a new hire. Key person insurance benefits may also help in an ownership transition, and become a component in an executive compensation plan. If a key person dies, the business owner(s) may want to provide his or her spouse or family with the equivalent of their salary for a time.

How easy it is to arrange this type of insurance? In a word, very. As private insurance, it requires no IRS filings or disclosures. In the case of key person life insurance, both permanent life and term life options may be explored. Typically, term coverage is the choice.1,2

Key person disability insurance amounts to an insurance contract, whereby the policy provides coverage up to a certain age or a certain date – for example, the end of the period in which monthly cash benefits are paid to the disabled employee, or the retirement date of the employee.

The payout from a key person insurance policy is tax-free. As a tradeoff for that, the premium payments are not tax-deductible. Typically, the company owns the policy, pays the premiums and is listed as policy beneficiary.2,3

This is the kind of perk that can help you attract & keep good employees. The knowledge that a manager or executive can count on some financial support in the event of a health crisis, the understanding that his or her family could receive insurance benefits in the event of a tragedy – this may make a job offer that much more compelling.

Key person insurance can even be continued after the key employee retires or transfers his or her ownership interest – a nice addition to that person’s retirement package.

Key person insurance can also boost your standing as you seek financing. It can give your business added financial stability that might help its loan prospects and credit position. If you apply for a business loan, the question of whether you have key person insurance will come up quickly. If your company lacks key person coverage, the loan may not be forthcoming. If you intend to apply for a loan guaranteed through the Small Business Administration, key person insurance is often a prerequisite.4

Niche businesses arguably need this coverage the most. A software development firm, a biomedical company, any kind of business where the owner or employees must have “expert” knowledge of a discipline or an industry … these businesses may be most at risk if a key employee dies or is left disabled.

Does your company lack key person insurance? Too many businesses do. While insuring a company’s information, equipment and inventory against loss is par for the course, insuring a business against the loss of human and creative capital is not. A loss of knowledge and mastery can spell the end for a business that has transitioned from survival to success, and even for an established sole proprietorship or partnership. Look into this today, for you never know what tomorrow may hold.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – rbcinsurance.com/business/small-business/key-person-insurance.html [11/9/15]
2 – smallbusiness.com/manage/why-you-need-key-person-insurance/ [11/9/15]
3 – raymondjames.com/small_business_key.htm [11/9/15]
4 – sba.gov/offices/headquarters/oca/resources/4950 [11/9/15]

Separating some eldercare facts from some eldercare myths.

How much does eldercare cost, and how do you arrange it when it is needed? The average person might have difficulty answering those two questions, for the answers are not widely known. For clarification, here are some facts to dispel some myths.

True or false: Medicare will pay for your mom or dad’s nursing home care.

FALSE, because Medicare is not long-term care insurance.1

Part A of Medicare will pay the bill for up to 20 days of skilled nursing facility care – but after that, you or your parents may have to pay some costs out-of-pocket. After 100 days, Medicare will not pay a penny of nursing home costs – it will all have to be paid out-of-pocket, unless the patient can somehow go without skilled nursing care for 60 days or 30 days including a 3-day hospital stay. In those instances, Medicare’s “clock” resets.2

True or false: a semi-private room in a nursing home costs about $35,000 a year.

FALSE. According to Genworth Financial’s most recent Cost of Care Survey, the median cost is now $85,775. A semi-private room in an assisted living facility has a median annual cost of $45,000 annually. A home health aide? $49,192 yearly. Even if you just need someone to help mom or dad with eating, bathing, or getting dressed, the median hourly expense is not cheap: non-medical home aides, according to Genworth, run about $21 per hour, which at 10 hours a week means nearly $11,000 a year.3,4

True or false: about 40% of today’s 65-year-olds will eventually need long-term care.

FALSE. The Department of Health and Human Services estimates that close to 70% will. About a third of 65-year-olds may never need such care, but one-fifth are projected to require it for more than five years.5

True or false: the earlier you buy long-term care insurance, the less expensive it is.

TRUE. As with life insurance, younger policyholders pay lower premiums. Premiums climb notably for those who wait until their mid-sixties to buy coverage. The American Association for Long-Term Care Insurance’s 2018 price index notes that a 60-year-old couple will pay an average of $3,490 a year for a policy with an initial daily benefit of $150 for up to three years and a 90-day elimination period. A 65-year-old couple pays an average of $4,675 annually for the same coverage. This is a 34% difference.6

True or false: Medicaid can pay nursing home costs.

TRUE. The question is, do you really want that to happen? While Medicaid rules vary per state, in most instances a person may only qualify for Medicaid if they have no more than $2,000 in “countable” assets ($3,000 for a couple). Countable assets include bank accounts, equity investments, certificates of deposit, rental or vacation homes, investment real estate, and even second cars owned by a household (assets held within certain trusts may be exempt). A homeowner can even be disqualified from Medicaid for having too much home equity. A primary residence, a primary motor vehicle, personal property and household items, burial funds of less than $1,500, and tiny life insurance policies with face value of less than $1,500 are not countable. So yes, at the brink of poverty, Medicaid may end up paying long-term care expenses.4,7

Sadly, many Americans seem to think that the government will ride to the rescue when they or their loved ones need nursing home care or assisted living. Two-thirds of people polled in another Genworth Financial survey about eldercare held this expectation.4

In reality, government programs do not help the average household pay for any sustained eldercare expenses. The financial responsibility largely falls on you.

A little planning now could make a big difference in the years to come. Call or email an insurance professional today to learn more about ways to pay for long-term care and to discuss your options. You may want to find a way to address this concern, as it could seriously threaten your net worth and your retirement savings.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – medicare.gov/coverage/long-term-care.html [6/5/18]
2 – medicare.gov/coverage/long-term-care.html [6/5/18]
3 – fool.com/retirement/2018/05/24/the-1-retirement-expense-were-still-not-preparing.aspx [5/24/18]
4 – forbes.com/sites/nextavenue/2017/09/26/the-staggering-prices-of-long-term-care-2017/ [9/26/17]
5 – longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html [10/10/17]
6 – fool.com/retirement/2018/02/02/your-2018-guide-to-long-term-care-insurance.aspx [2/2/18]
7 – longtermcare.acl.gov/medicare-medicaid-more/medicaid/medicaid-eligibility/financial-requirements-assets.html [10/10/17]

You may be surprised to learn what is and is not covered.

If you have a homeowners insurance policy, you should be aware of what the insurance does and does not cover. These policies have their limitations as well as their underrecognized perks.

Some policies insure actual cash value (ACV). ACV factors depreciation into an item’s worth. If someone makes off with your expensive camera that you bought five years ago, a homeowners policy that reimburses you for ACV would only pay for part of the cost of an equivalent camera bought new today.1

Other policies insure replacement cash value (RCV). That means 100% of the cost of an equivalent item today, at least in the insurer’s view.1

Insurers cap losses on certain types of items. If you lose an insured 42” flat-screen TV to a burglar, the insurer could reimburse you for the RCV, which is probably around $300. An insurance carrier can handle a loss like that. If a thief takes an official American League baseball from the 1930s signed by Babe Ruth out of your home, the insurer would probably not reimburse you for 100% of its ACV. It might only pay out $2,000 or so, nowhere near what such a piece of sports memorabilia would be worth. Because of these coverage caps, some homeowners opt for personal floaters – additional riders on their policies to appropriately insure collectibles and other big-ticket items.1

Did you know that losses away from home may be covered? Say you have your PC with you on a business trip. Your rental car is broken into and your PC is taken. In such an instance, a homeowners policy frequently will cover a percentage of the loss above the deductible – perhaps closer to 10% or 20% of the value above the deductible rather than 100%, but still something. An insurance company might put a $200 or $250 limit on cash stolen away from home.1

Where you live can affect coverage as well as rates. If you reside in a community with rampant property crime, your insurance carrier might cap its reimbursements on some forms of personal property losses lower than you would like. (The insurer might even refrain from covering certain types of losses in your geographic area.)1

Now, do you have a home-based business? If you do, you should know that homeowners insurance will not cover damage and losses to your residence resulting from or linked to business activity. (The same holds true for a personal umbrella liability policy.)2

Having a separate, discrete business insurance policy to protect your home-based company is important. Without such a policy, you have inadequate coverage for your business – and could you imagine losing your home from being uninsured against a visiting client’s bodily injury claim or a workers’ comp claim if employees work at your residence and hurt themselves?2

Reading the fine print on your homeowners insurance policy can be worthwhile. Recognizing the basic limitations of homeowners insurance coverage is critical. You should know what is and is not covered – and if you see any weak spots, you should address them.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – nasdaq.com/article/3-caveats-about-your-homeowners-insurance-cm771517 [4/10/17]
2 – washingtonpost.com/lifestyle/home/if-you-work-from-home-and-dont-have-this-insurance-you-could-be-at-risk/2018/02/23/23a4a42a-1754-11e8-92c9-376b4fe57ff7_story.html [2/23/18]

Last year, after finishing with college tuition for their three children, Jessica Galligan Goldsmith and her husband, James, treated themselves to something she had long wanted: long-term-care insurance.

It hasn’t been cheap. The couple, both lawyers in their mid-50s, will shell out more than $320,000 between them over a decade. For that, they will be able to tap into benefits topping $1 million apiece by the time they are in their 80s, the age when many Americans suffer from dementia or other illnesses that require full-time care.

Plus, the policies pay out death benefits if long-term care isn’t ultimately needed, and most provide 10% to 20% of the original death benefit even if the long-term-care proceeds are fully tapped.

Such policies that combine long-term-care coverage with a potential life-insurance benefit are called “hybrids,” and they are reshaping the long-term-care niche of the U.S. insurance industry just as it had appeared headed for obsolescence, financial advisers say. The Goldsmiths were among 260,000 purchasers last year nationwide of these hybrids, according to industry-funded research firm LIMRA, far outpacing the 66,000 traditional long-term-care policies sold in 2017.

When long-term-care insurance took off in the 1990s, insurers aimed for the broad middle class of America. The pitch was that policies would save ordinary families from entirely draining their savings, leaning on children or enrolling in the federal-state Medicaid program for the poor. (Medicare pays for nursing-home stays only in limited circumstances.)

Now, many insurers are finding their best sales opportunity with wealthy Americans. Many of these people may be able to afford costly care later in their lives, but they are buying the contracts to protect large estates, advisers say. ​​

Ms. Goldsmith wanted long-term-care coverage partly because her legal specialty is trusts and estates and she has seen families whose seven-figure investment portfolios were devastated by years of care for spouses.

“What felt like a good nest egg” can be hit by “astronomical expenses,” says Ms. Goldsmith, of Westchester County outside New York City. Their policies are from a unit of Nationwide Mutual Insurance Co.

According to federal-government projections, about a quarter of Americans turning 65 between 2015 and 2019 will need up to two years of long-term care. Twelve percent will need two to five years, and 14% will need more than five years. At $15 an hour, around-the-clock aides run $131,400 a year, while private rooms in nursing homes top $100,000 in many places.

Hybrids can cost even more than traditional standalone products because they typically include extra features. There is wide variation across the hybrid category and the type the Goldsmiths bought (known as “asset-based long-term-care”) includes a particularly valuable feature: a guarantee that premium rates won’t increase.

Traditional long-term care policies fell from favor in the mid-2000s after many insurers obtained approval from state regulators for steep rate increases—some totaling more than 100%—due to serious pricing errors. In May, Massachusetts Mutual Life Insurance Co. began applying for average increases of about 77% that would apply to about 54,000 of its 72,000 LTC policyholders. Until this move, MassMutual hadn’t previously asked longtime policyholders to kick in more to better cover expected payouts.

Affluent buyers also can afford to pay for their hybrid policies within 10 years, as many insurers require. However at least one big carrier, Lincoln National Corp. , has begun allowing people in their 40s and early 50s to spread payments over more years, provided they fully pay by age 65.

Besides the death benefit—which is as much as $432,000 on a combined basis for the Goldsmiths—hybrids also include a “return of premium” feature. This allows buyers to recoup much of their money if they want out of the transaction, albeit without interest.

“We call these ‘live, die, change your mind’ policies,” says Natalie Karp, the Goldsmiths’ agent and co-founder of Karp Loshak LTC Insurance Solutions, a brokerage in Roslyn, N.Y.

About a dozen insurers still offer traditional long-term-care policies that typically lack those features. They charge more and provide shorter benefit periods than they did in the past. But Tim Cope, a financial adviser in South Burlington, Vt., for insurance brokerage NFP, says the good news is that “policies continue to pay for much-needed care, and changes in their policy design, pricing and underwriting are an effort to minimize premium increases on recently issued and new policies.”

Many advisers favor standalone and hybrid offerings of three of the nation’s largest and financially strongest insurers: MassMutual, New York Life Insurance Co. and Northwestern Mutual Life Insurance Co.

Ms. Goldsmith says she was attracted to the Nationwide hybrid because it doesn’t require submission of receipts to obtain the long-term-care proceeds. Benefits are payable in cash when a physician certifies a severe cognitive impairment or inability to perform basic activities, such as bathing, eating and dressing. Payments are capped at specified monthly amounts. For the Goldsmiths, the monthly benefit starts at $9,000 per spouse and grows with an inflation adjustment to more than $15,000 in their 80s.

“Receipts are very hard for older people to deal with, especially when stressed by caring for a disabled spouse or being disabled themselves,” Ms. Goldsmith says.

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This article was prepared by a third party for information purposes only. It is not intended to provide specific advice or recommendations for any individual. It contains references to individuals or entities that are not affiliated with Cornerstone Wealth Management, Inc. or LPL Financial.
All illustrations are hypothetical and are not representative of any specific investment.

Riders are additional guarantee options that are available to an annuity or life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions and the policy holder should review their contract carefully before purchasing. Guarantees are based on the claims paying ability of the issuing insurance company.
If you need more information or would like personal advice you should consult an insurance professional.

Are they worthwhile alternatives to traditional LTC policies?

The price of long-term care insurance has really gone up. If you are a baby boomer and you have kept your eye on it for a few years, chances are you have noticed this. Last year, the American Association for Long-Term Care Insurance (AALTCI) noted that a 60-year-old couple would pay an average of $3,490 a year in premiums for a standalone LTC policy.1

Changing demographics and low interest rates have prompted major insurance carriers to stop offering standalone LTC coverage. As Forbes recently noted, about 750,000 consumers purchased long-term care policies in 2002; just 89,000 bought an LTC policy in 2016. The demand for the coverage remains, however – and in response, insurers have introduced new options.2

Recently, hybrid LTC products have outsold traditional LTC policies. Some insurers now offer “cash rich” whole life insurance policies with an option to add long-term care benefits. Other insurance products feature similar riders.2

As these insurance products are doing “double duty” (i.e., one policy or product offering the potential for two kinds of coverage), their premiums are costlier than that of a standalone LTC policy. On the other hand, you can get what you want from one insurance product rather than having to pay for two.3

Hybrid LTC policies provide a death benefit, a percentage of which will go to your heirs. If you end up not needing long-term care, you will still be able to justify the premiums you paid. You can also often add a rider to adjust the LTC benefits of the policy in view of inflation.4,5

The basics of securing LTC coverage applies to these policies. The earlier in life you arrange the coverage – and the healthier you are – the lower the premiums will likely be. If you are not healthy enough to qualify for a standalone LTC insurance policy, you still might qualify for a hybrid policy – sometimes no medical exam by a nurse is necessary.1,3

Hybrid policies have critics as well as fans. Their detractors point out the characteristic that puts off potential policyholders the most: lump sums are commonly required to fund them. An up-front payment in the range of $75,000-$100,000 is typical.4

Funding the whole policy with one huge premium payment has both an upside and a downside. You will not contend with potential premium increases over time, as owners of stock LTC policies often do. (Many retirees wish they could lock in the monthly or quarterly premiums on their traditional LTC policies.) On the other hand, the return on the insurance product may be locked into interest rates lower than you would prefer.4

Since the focus of a hybrid LTC policy is on long-term care coverage, the death benefit may be relatively small compared with that of a pure life insurance policy. Also, the premiums paid on hybrid policies are not tax deductible; premiums paid on conventional LTC policies are.4,5

Another reality is that many seniors have little or no need to buy life insurance. Their heirs will not face inheritance taxes, since their estates will not exceed estate tax thresholds. Moreover, their adult children may be financially stable. Providing a lump sum to these heirs is a nice financial gesture, but the opportunity cost of paying life insurance premiums may be significant.

Life insurance can play a crucial role in estate planning, however – and if a policy manages to combine life insurance and long-term care coverage feature, it may prove useful in multiple ways.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – fool.com/retirement/2018/02/02/your-2018-guide-to-long-term-care-insurance.aspx [2/2/18]
2 – forbes.com/sites/howardgleckman/2017/09/08/the-traditional-long-term-care-insurance-market-crumbles/ [9/8/17]
3 – tinyurl.com/y94mm59c [3/16/18]
4 – consumerreports.org/long-term-care-insurance/long-term-care-insurance-gets-a-makeover/ [8/31/17]
5 – tinyurl.com/y7gbhr7u [10/9/17]

The premiums and coverages vary, and you must realize the differences.

Medicare takes a little time to understand. As you approach age 65, familiarize yourself with its coverage options and their costs and limitations.

Certain features of Medicare can affect health care costs and coverage. Some retirees may do okay with original Medicare (Parts A and B), others might find it lacking and decide to supplement original Medicare with Part C, Part D, or Medigap coverage. In some cases, that may mean paying more for senior health care per month than you initially figured.

How much do Medicare Part A and Part B cost, and what do they cover? Part A is usually free; Part B is not. Part A is hospital insurance and covers up to 100 days of hospital care, home health care, nursing home care, and hospice care. Part B covers doctor visits, outpatient procedures, and lab work. You pay for Part B with monthly premiums, and your Part B premium is based on your income. In 2018, the basic monthly Part B premium is $134; higher-earning Medicare recipients pay more per month. You also typically shoulder 20% of Part B costs after paying the yearly deductible, which is $183 in 2018.1

The copays and deductibles linked to original Medicare can take a bite out of retirement income. In addition, original Medicare does not cover dental, vision, or hearing care, or prescription medicines, or health care services outside the U.S. It pays for no more than 100 consecutive days of skilled nursing home care. These out-of-pocket costs may lead you to look for supplemental Medicare coverage and to plan other ways of paying for long-term care.1,2

Medigap policies help Medicare recipients with some of these copays and deductibles. Sold by private companies, these health care policies will pay a share of certain out-of-pocket medical costs (i.e., costs greater than what original Medicare covers for you). You must have original Medicare coverage in place to purchase one. The Medigap policies being sold today do not offer prescription drug coverage. A monthly premium on a Medigap policy for a 65-year-old man may run from $150-250, so keep that cost range in mind if you are considering Medigap coverage.2,3

In 2020, the two most popular kinds of Medigap plans – Medigap C and Medigap F – will vanish. These plans pay the Medicare Part B deductible, and Medigap policies of that type are being phased out due to the Medicare Access and CHIP Reauthorization Act. Come 2019, you will no longer be able to enroll in them.4

Part D plans cover some (certainly not all) prescription drug expenses. Monthly premiums are averaging $33.50 this year for these standalone plans, which are offered by private insurers. Part D plans currently have yearly deductibles of less than $500.2,5

Some people choose a Part C (Medicare Advantage) plan over original Medicare. These plans, offered by private insurers and approved by Medicare, combine Part A, Part B, and usually Part D coverage and often some vision, dental, and hearing benefits. You pay an additional, minor monthly premium besides your standard Medicare premium for Part C coverage. Some Medicare Advantage plans are health maintenance organizations (HMOs); others, preferred provider organizations (PPOs).6

If you want a Part C plan, should you select an HMO or PPO? About two-thirds of Part C plan enrollees choose HMOs. There is a cost difference. In 2017, the average HMO monthly premium was $29. The average regional PPO monthly premium was $35, while the mean premium for a local PPO was $62.6

HMO plans usually restrict you to doctors within the plan network. If you are a snowbird who travels frequently, you may be out of the Part C plan’s network area for weeks or months and risk paying out-of-network medical expenses from your savings. With PPO plans, you can see out-of-network providers and see specialists without referrals from primary care physicians.6

Now, what if you retire before age 65? COBRA aside, you are looking at either arranging private health insurance coverage or going uninsured until you become eligible for Medicare. You must also factor this possible cost into your retirement planning. The earliest possible date you can arrange Medicare coverage is the first day of the month in which your birthday occurs.5

Medicare planning is integral to your retirement planning. Should you try original Medicare for a while? Should you enroll in a Part C HMO with the goal of keeping your overall out-of-pocket health care expenses lower? There is also the matter of eldercare and the potential need for interim coverage (which will not be cheap) if you retire prior to 65. Discuss these matters with the financial professional you know and trust in your next conversation.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html [5/21/18]
2 – cnbc.com/2018/05/03/medicare-doesnt-cover-everything-heres-how-to-avoid-surprises.html [5/3/18]
3 – medicare.gov/supplement-other-insurance/medigap/whats-medigap.html [5/21/18]
4 – fool.com/retirement/2018/02/05/heads-up-the-most-popular-medigap-plans-are-disapp.aspx [2/5/18]
5 – money.usnews.com/money/retirement/medicare/articles/your-guide-to-medicare-coverage [5/2/18]
6 – cnbc.com/2017/10/18/heres-how-to-snag-the-best-medicare-advantage-plan.html [10/18/17]

Breaking down the basics & what each part covers.

Whether your 65th birthday is on the horizon or decades away, you should understand the parts of Medicare – what they cover and where they come from.

Parts A & B: Original Medicare. America created a national health insurance program for seniors in 1965 with two components. Part A is hospital insurance. It provides coverage for inpatient stays at medical facilities. It can also help cover the costs of hospice care, home health care, and nursing home care – but not for long and only under certain parameters.1

Seniors are frequently warned that Medicare will only pay for a maximum of 100 days of nursing home care (provided certain conditions are met). Part A is the part that does so. Under current rules, you pay $0 for days 1-20 of skilled nursing facility (SNF) care under Part A. During days 21-100, a $167.50 daily coinsurance payment may be required of you.2

If you stop receiving SNF care for more than 30 days, you need a new 3-day hospital stay to qualify for further nursing home care under Part A. If you can go 60 days in a row without SNF care, the clock resets: you are once again eligible for up to 100 days of SNF benefits via Part A.2

Part B is medical insurance and can help pick up some of the tab for physical therapy, physician services, expenses for durable medical equipment (scooters, wheelchairs), and other medical services such as lab tests and varieties of health screenings.1

Part B isn’t free. You pay monthly premiums to get it and a yearly deductible (plus 20% of costs). The premiums vary according to the Medicare recipient’s income level. The standard monthly premium amount is $134 this year, but some people who receive Social Security benefits are paying lower Part B premiums (on average, $130). The current yearly deductible is $183. (Some people automatically receive Part B coverage, but others must sign up for it.)3

Part C: Medicare Advantage plans. Insurance companies offer these Medicare-approved plans. Part C plans offer seniors all the benefits of Part A and Part B and more: many feature prescription drug coverage as well as vision and dental benefits. To enroll in a Part C plan, you need have Part A and Part B coverage in place. To keep up your Part C coverage, you must keep up your payment of Part B premiums as well as your Part C premiums.4

To say not all Part C plans are alike is an understatement. Provider networks, premiums, copays, coinsurance, and out-of-pocket spending limits can all vary widely, so shopping around is wise. During Medicare’s annual Open Enrollment Period (October 15 – December 7), seniors can choose to switch out of Original Medicare to a Part C plan or vice versa; although any such move is much wiser with a Medigap policy already in place.5

How does a Medigap plan differ from a Part C plan? Medigap plans (also called Medicare Supplement plans) emerged to address the gaps in Part A and Part B coverage. If you have Part A and Part B already in place, a Medigap policy can pick up some copayments, coinsurance, and deductibles for you. Some Medigap policies can even help you pay for medical care outside the United States. You pay Part B premiums in addition to Medigap plan premiums to keep a Medigap policy in effect. These plans no longer offer prescription drug coverage; in fact, they have been sold without drug coverage since 2006.6

Part D: prescription drug plans. While Part C plans commonly offer prescription drug coverage, insurers also sell Part D plans as a standalone product to those with Original Medicare. As per Medigap and Part C coverage, you need to keep paying Part B premiums in addition to premiums for the drug plan to keep Part D coverage going.7

Every Part D plan has a formulary, a list of medications covered under the plan. Most Part D plans rank approved drugs into tiers by cost. The good news is that Medicare’s website will determine the best Part D plan for you. Go to medicare.gov/find-a-plan to start your search; enter your medications and the website will do the legwork for you.8

Part C & Part D plans are assigned ratings. Medicare annually rates these plans (one star being worst; five stars being best) according to member satisfaction, provider network(s), and quality of coverage. As you search for a plan at medicare.gov, you also have a chance to check out the rankings.9

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – mymedicarematters.org/coverage/parts-a-b/whats-covered/ [5/8/18]
2 – medicare.gov/coverage/skilled-nursing-facility-care.html [5/8/18]
3 – medicare.gov/your-medicare-costs/part-b-costs/part-b-costs.html [5/8/18]
4 – medicareinteractive.org/get-answers/medicare-health-coverage-options/medicare-advantage-plan-overview/medicare-advantage-basics [5/8/18]
5 – medicare.gov/sign-up-change-plans/when-can-i-join-a-health-or-drug-plan/when-can-i-join-a-health-or-drug-plan.html [5/8/18]
6 – medicare.gov/supplement-other-insurance/medigap/whats-medigap.html [5/8/18]
7 – ehealthinsurance.com/medicare/part-d-cost [5/8/18]
8 – medicare.gov/part-d/coverage/part-d-coverage.html [5/8/18]
9 – medicare.gov/sign-up-change-plans/when-can-i-join-a-health-or-drug-plan/five-star-enrollment/5-star-enrollment-period.html [5/8/18]

The transfer of assets when a spouse dies can be fairly simple—if you learn from my mistakes.

I pride myself on keeping meticulous financial records. But since my wife died on Jan. 1, I discovered I had made some real rookie mistakes that led to hours of extra work and substantial fees. The transfer of assets between spouses can be fairly simple—if you learn from my mistakes.

Dr. Lisa Jane Krenzel and I shared everything throughout our marriage. Like many couples, we split responsibilities. I paid the bills and made investments. She took care of our health insurance, plus the house. We maintained individual checking and savings accounts, as well as separate retirement accounts from various jobs throughout our careers. What went wrong?

  • Issue One:When we opened those checking and savings accounts, we never named beneficiaries. I had assumed, incorrectly, that our accounts would simply transfer to the other in case of death. The banker who opened the accounts never suggested otherwise. With a named beneficiary, her accounts would have simply been folded into mine. Instead, I had to hire a lawyer—at $465 an hour—to petition the court to name me as the executor of her estate. I needed this power to transfer her accounts. Filing costs in New York City for the necessary document was $1,286. The running bill for the lawyer stands at $7,402.00, and I expect it to rise.

I also needed the documents for the companies that managed her retirement accounts and a mutual fund, because, as at the bank, we never named a beneficiary. By the way, this paperwork also required signature guarantees or a notary seal, which can take up an afternoon.

  • Issue Two: The highly charged question of funeral and burial. Last summer, when I was told Lisa would not survive this illness, I tried to raise the issue of burial with her. She refused to have the conversation, but I quietly went ahead and purchased a plot of graves in the cemetery in Wisconsin where my parents, grandparents and great-grandparents are buried. This was something I actually did right.

We had to employ two funeral homes—one in New York and one in Wisconsin—and her body had to make the journey out there. All told, I spent $46,359 to cover funeral expenses, graves, transportation, a headstone and a basic casket.

I noticed something interesting in this process. All of my fellow baby boomer friends I have since asked have so far refused to deal with the issue. They wince when I even raise the question. Hear me: You don’t want to have to make this decision at the time someone close to you dies. You simply are not thinking straight.

  • Issue Three: Our health insurance plan covered the long hospital stays and doctors’ visits. However, shortly after Lisa died, I still received bills, even though our deductibles and copays had long since been covered. I paid them immediately, which was a mistake. I was incorrectly billed and I have been fighting the hospitals and insurance company since January to get a refund, even though everyone agrees the bills were incorrect. Before you pay any medical bills, make a simple call and determine their legitimacy. Mistakes are constant: The systems are so complicated, even people in these offices don’t always understand the intricacies.
  • Issue Four:Lisa had two life-insurance policies—one through her work and the other we purchased privately. The former was handled quickly and efficiently by her job and a check arrived almost immediately. Although the insurance company sent me a check for her private policy soon after her death, it took three months of constant calls and emails to determine a refund of the premium I had already paid for three months past her death. I kept getting wrong information from the company, because the people I dealt with didn’t understand it themselves.
  • Issue Five: Over the course of Lisa’s working life—from her first job at a fast-food restaurant to medicine—she paid more than $100,000 to Social Security. Since she died at 60, and our 19-year-old daughter is one year past the age of receiving a monthly benefit, all this money has simply disappeared into the lockbox in Washington. Nothing you can do about this one.

Finally, there is the major psychological trauma of grief. I think most people believe death will never intrude on their lives and when it does, we will be so old and decrepit that it won’t much matter. Trust me on this—even when it’s been expected for a while, it still shocks deeply. There is absolutely no way you can prepare yourself for the shattering heartbreak of loss. When it did come to me, I found the support of friends, family and faith to be invaluable. Amazingly, that cost nothing.

Mr. Kozak is the author of “LeMay: The Life and Wars of General Curtis LeMay” (Regnery, 2009). Appeared in the April 28, 2018, print edition.

Rich Arzaga, CFP® & David Winkler
Cornerstone Wealth Management, Inc.
info@cornerstonewmi.com

2400 Camino Ramon, Suite 175
San Ramon, CA 94583
925-824-2880

CA Insurance Lic# 0D92796 & Lic# 0G10586. Rich Arzaga and David Winkler are registered representative with, and Securities and Advisory services offered through, LPL Financial, a registered investment advisor, Member FINRA/SIPC. Financial planning is offered through Cornerstone Wealth Management, Inc. a registered investment advisor and a separate entity from LPL Financial. The information contained in this e-mail message is being transmitted to and is intended for the use of only the individual(s) to whom it is addressed. If the reader of this message is not the intended recipient, you are hereby advised that any dissemination, distribution or copying of this message is strictly prohibited. If you have received this message in error, please immediately delete.

This article was prepared by a third party for information purposes only. It is not intended to provide specific advice or recommendations for any individual.

LPL Tracking 1-728789

Where Retirees Underestimate Spending         

Underestimating how much you’ll spend can be costly, so it’s key to know the common pitfalls

 

Navigating retirement can be difficult for lots of reasons. One of the biggest is that it forces people to make plans based on spending assumptions that won’t become a reality for decades.

Guessing wrong can be the difference between a comfortable retirement and one that is a struggle.

“It’s a lot more difficult to recover in retirement,” says Adam Van Wie, a financial planner in Jacksonville Beach, Fla. “You can try to find another job, but that’s not an option for everyone.”

We spoke to financial advisers about some of the most frequent mistakes people make when it comes to estimating how much they’ll spend in retirement.

Helping family. You may be willing to slash your own expenses in retirement if times get tough. What will you do if your children, or grandchildren, get in a bind? Saying no is much harder.

  • In Defense of thsy Retirement

But saying yes can imperil your own retirement. A number of parents who guaranteed their children’s school loans have seen their own finances ruined when the child defaulted on the loan.

Mark McCarron, a financial planner in Charlottesville, Va., is working with a retired couple who paid for the wedding of one daughter, and expect to pay shortly for the wedding of their other daughter as well.

They have the cash, says Mr. McCarron. The rub is that they just hadn’t planned on paying for weddings when they retired, and it reduces the funds they can draw upon for other purposes.

Big-ticket periodic items. Would-be retirees often meticulously estimate day-to-day expenses, but forget to factor in more periodic, and mostly predictable, expenses like a new car or a new roof. And those big-ticket items inevitably blow holes in their budgets.

Dana Anspach, a financial planner in Scottsdale, Ariz., recommends that clients set aside 3% of the value of their house each year for maintenance—as well as plan on setting aside money for the periodic new car.

One caveat: Beware of taking big chunks of money out of a 401(k) or other tax-deferred accounts, Ms. Anspach says. Such withdrawals are treated as taxable income and can push retirees into a higher tax bracket. A better approach is to withdraw the money gradually over a two- or three-year period for an expected expense.

Belinda Ellison of Greenville, S.C., who recently retired as a lawyer, sets aside money for unforeseen landscaping expenses. So she was ready when she had to spend $10,000 recently to remove a huge tree on her property. Ms. Ellison owns a 100-year-old home, and has another fund set up for renovation expenses.

It’s not so with everybody she knows. “I have friends who have trouble when they need a new set of tires,” Ms. Ellison says.

Entertainment. Many retirees are surprised at how much their entertainment costs rise when they stop working, says Neil A. Brown, a financial adviser in West Columbia, S.C. Instead of working five or six days a week and playing one, it can be the opposite. “You’ve got five or six days to play,” Mr. Brown says.

Americans age 65 to 74 spent an average $5,832 on entertainment in 2015, according to a study from the Employment Benefit Research Institute, based in Washington, D.C. Entertainment spending declines with age; people 85 and over in the study spent $2,232 on average.

Health care. Even Medicare recipients are frequently shocked by the cost of health care, says Joan Cox, a financial planner in Covington, La. Ms. Cox says a married couple in their late 60s can expect to spend close to $13,000 a year in medical expenses. That assumes $8,000 in Medicare premiums and supplemental insurance premiums, $1,200 for drug coverage, and $3,700 in out-of-pocket expenses.

 

“I’ll do their financial plan, and it looks like they have plenty of assets” for retirement, she says. “Then I’ll put in health-care costs, and all of sudden their plan doesn’t work.”

Drugs costs, in particular, surprise retirees, says David Armes, a financial planner in Long Beach, Calif., who specializes in helping clients evaluate Medicare options. “Many of these cost drivers cannot be accurately predicted when you’re in your 60s,” he says. “There’s no way for 65-year-olds to know, for instance, whether they will need to take expensive brand-name drugs when they reach their 80s.”

For affluent retirees, there can be another surprise with Medicare. Couples whose modified adjusted gross income exceeds $170,000 a year must pay higher premiums. To lessen those expenses, a couple might try shifting income to one year so that they will avoid higher Medicare premiums in other years, says Mr. Armes.

Long-term care. The need for long-term care is perhaps the most costly unexpected expense in retirement.

 

About 15% of retirees will spend more than $250,000 on such care, according to a research report to be released this spring by Vanguard Group The problem is it is impossible to know who will be part of that 15%. Some 50% of retirees won’t spend anything at all, and 25% will spend less than $100,000, the Vanguard report says.

“It’s hard to plan for,” says Colleen Jaconetti, a senior investment analyst with Vanguard.

For years, financial planners urged people to buy long-term care insurance. But that market has shrunk dramatically in recent years after insurers underestimated costs and were forced to jack up premiums or withdraw from new sales. Some insurers now offer hybrid policies that combine life insurance and long-term-care insurance. These policies allow consumers to tap their death benefits early to pay for costs such as help with feeding, bathing and other personal needs.

Living a long life. One of the biggest mistakes people make in estimating retirement expenses is underestimating how long they will live.

The average 65-year-old in the U.S., for example, is likely to live an additional 19.4 years, according to data from the National Center for Health Statistics.

Obviously, the longer the life, the more the spending. It can be a good problem to have—but one that surprises too many people.

“Everybody worries about dying young,” says Prof. David Littell of the American College of Financial Services. “People should be more worried about living too long.”

Mr. Templin is a writer in New Jersey. He can be reached at reports@wsj.com.

Appeared in the April 23, 2018, print edition.

 

This article was prepared by a third party for information purposes only. It is not intended to provide specific advice or recommendations for any individual. It contains references to individuals or entities that are not affiliated with Cornerstone wealth Management, Inc. or LPL Financial. LPL Tracking# 1-723395