8/9/2019

A disability event can be catastrophic to your financial well-being. Protecting your income should be a top priority. The Council of Disability Awareness states that at least 51 million working Americans are without disability insurance (DI) other than Social Security, which is often inadequate (more on this below).The reality is that a good chunk of us are not prepared for a disability event or even think that we can experience one.  However, it’s more common than we may realize. The Social Security Administration estimates that just over one in four of today’s 20-year-olds will become disabled before retirement.  This statistic is shocking because over the next decades 25% of us will experience some form of disability. Today, I want to share with you information about the most common types of disability claims, the types of DI, and taxability of DI benefits.

What Are The Common Types Of Disability Claims?

When we think of a disability event, the first thing that comes to mind is a catastrophic accident such as a car wreck that leaves us permanently disabled. Although that could happen to any of us, it’s not that common. Most long-term disability claims are due to musculoskeletal disorders (25%), cancer (15%), pregnancy (9.4%), depression and anxiety (9.1%). A disability event will most likely be an illness and not an accident.

How Do You Protect Yourself From Such Risks?

There are a few ways to protect yourself. The first is Social Security. Although available to most, it’s extremely difficult to qualify under Social Security because its definition of disability is restrictive. The second is group DI. Most employers provide DI as part of your benefits package, and it normally covers 50%-60% of your gross salary. You check a box when you’re electing your benefits, and you’re insured without any medical underwriting. The third option is a personal DI policy. You undergo medical underwriting, and you purchase DI from an insurance company. The individual policy is flexible and can be tailored to your needs.

Are The DI Benefits Taxable?

The taxability of benefits depends on who pays the premium of a disability policy. If your employer pays for the cost of your group DI, then the federal and state government will want a cut of your benefits check. Depending on your tax bracket and the state you live in, the 60% coverage begins to look more like 40-45% of your salary. If you thought it was difficult to live on 60% of your pay, 40-45% is nearly impossible with medical costs being higher and leaving you unable to save. If you’re not saving, then you’re not contributing to your 401(k), and if you’re not contributing to your 401(k), your employer is not matching. I could keep going but you can see how quickly things can turn dire if a disability occurs. Fortunately, you can minimize many of the above risks by purchasing individual DI to supplement your group coverage. Since you’ll be paying the premiums with after-tax dollars, you’ll receive the benefits tax free, and you may even be able to protect retirement contributions. The policy can’t make you whole again, but it can bring you back to 60% of your pay.

Consider doing a review of your current situation. A DI policy can provide you peace of mind that you’ll be okay financially so that you can focus on what matters the most to you.

By: Christen Tucker

08/02/2019

Summer is here! Barbecues. Fireworks. Vacations. Makes me think of….a review of homeowners and auto insurance coverage with your insurance agent! Not what you were thinking of? What if you are involved in a car accident on the way to the beach or an out-of-control barbecue chars your home! We hope that doesn’t happen, but are you covered if it did?

Many people view obtaining insurance coverage as a one-time task. Get it and forget it! However, that is not the case. Your old coverage may not suffice especially if you have recently renovated your home or purchased new furnishings, art, or other personal possessions. It is a good idea to make a home inventory and document the items you own. Gather receipts, bills, and brochures to help establish the price and age of everything that would need to be replaced or repaired. Photos and videos of the contents of your home are good documentation tools as well.

When you are ready to review your policy with your insurance agent, be sure to ask the following questions:

Is the coverage on your home and its contents adequate?

The home inventory will help with this. If you have any special items like art, jewelry, or collections (such as stamps or coins), mention them as well. These items may require special coverage.

Is your premium as low as you can expect it to be? Are there any additional discounts available? Can/Should you raise your deductible?

It is a good idea to consider raising your deductibles for losses you can afford to pay.

Are there any losses such as flood or earthquake that may be of concern and are not currently covered in your policy?

Neither flood nor earthquake are covered by standard homeowners policies.

Has anything changed in your coverage from last year?

Insurers may change policy terms at renewal, but they must notify you first. Ask your agent if there are any anticipated changes when the policy renews.

We also recommend that clients secure an umbrella policy to protect them from personal liability. If someone suffers a catastrophic injury on your property or your teenage driver rear-ends a school bus, you can be held liable for lost income, medical bills, and personal damages. While homeowners and auto policies include some coverage, an umbrella policy will protect you from having to sell your home or liquidate your savings if the unthinkable happens. Many insurance agents suggest that your umbrella coverage should roughly equal at least the same dollar amount as your net worth.

These things aren’t the fun part of summer, we know, but life may be a little less hectic this time of year, so it’s a good time to knock off a “need to do” task before you find out too late that your insurance isn’t what you thought.

Please let us know if you have any questions regarding your insurance policies.

07/26/2019

Life insurance is an important part of risk management in a financial plan, but it is not a product we typically like to think about. You may have bought a policy in the past and have not looked at it in years. It can be daunting to review your life insurance because there are a lot of moving parts, but here are four aspects to get you started.

1. Amount of Coverage:

Life insurance can have many living benefits, but its primary role should be to provide a benefit in the event of death. Because your needs and circumstances change over time, when reviewing your coverage, it is important to ask the question, “how much do I need and how long do I need it?” You can sit down with your financial advisor or use a life insurance calculator online to determine your need. If you find you have too much or too little coverage, speak with your advisor to help determine your best option.

2. Consider the Type of Policy:

Term Insurance:

Life insurance can generally be grouped into two categories: term and permanent.  Term insurance does not accumulate cash value but pays out a death benefit as long as coverage is in force and premiums are paid. If you have term, you do not have to worry about getting an in force illustration on your policy – as long as you pay the premiums then the policy is in force during the term. Employers often offer group term coverage, but keep in mind this is not always portable and can even be more expensive than getting your own individual coverage.

Permanent Insurance:

Permanent insurance policies build cash value over time. Three common types of permanent coverage include universal life (interest rate sensitive), variable universal life (returns based on market performance), and whole life (returns based on dividends paid by the insurance company). Interest rates change, markets fluctuate, and dividend payouts can vary, so it is important to review the policy value periodically.

3. Running an In Force Illustration:

Because universal life insurance cash value returns are based on interest rates, and interest rates are significantly lower than they were 15 years ago, your policy may now be paying a lower current rate. Lower rates on your policy mean it could be underfunded and in danger of lapsing prior to endowment.

You can request an in force illustration to ensure that your policy is adequately funded to meet your goals. This updated illustration will tell you how long the policy will last if you continue to pay the same premium. This illustration can also give you an idea of how much premium is necessary to keep the policy in force until age 100. Knowing this information helps you to evaluate your options and choose what is best for you. You may decide not to change anything, you could continue to own the same policy but change the premium amount paid, or you might look at replacing it with a new policy.

4. Get your Beneficiaries right:

When reviewing your life insurance, you should also make sure your beneficiary designations are done right. Here are a few suggestions:

Keep them up to date – If you have updated your estate plan with trusts or if you have been through a significant life change like a divorce, it is important to ensure that your beneficiaries are up to date.

Not a minor – Do not have your minor child listed as a beneficiary. Instead, set up a trust and make that trust the beneficiary. You can name a trustee to manage the assets for the benefit of the child, which will avoid potential delays and legal issues with getting the funds paid to support them.

Name Contingent Beneficiaries – If your primary beneficiary dies before you (or at the same time), and if no contingent beneficiary is named, the death benefit will then go through the probate process before going to your heirs. Having contingent beneficiaries named will avoid the probate process, potentially saving your heirs from fees and delays in payout.

07/19/2019

We are living in a world where health care costs are high and rising while an increasing population of aging adults is living far longer than prior generations. This situation naturally leads to more conversations about long-term care needs for individuals and/or for their aging relatives. Long-term care insurance is designed to offer financial support for medical and non-medical services for people who cannot complete the routine “activities of daily living” (ADLs). ADLs include using the bathroom, bathing, transferring and feeding, dressing, and personal grooming. Qualifications may vary by insurance company and policies, but generally needing assistance for two or more ADLs is the definition used for qualifying for long-term care that might be covered by insurance.

The cost of these services to help a person with their ADLs can create a financial problem for families that may have otherwise thought they were prepared for retirement. For some families facing this potential future financial burden, some form of long-term care insurance may be an effective strategy. Due to the higher likelihood of needing long-term care and the evolving insurance coverage options, it is more important now than ever to review legacy coverage and analyze potential new coverage options.

For years, separate traditional long-term care insurance policies were the industry norm. These policies offered a daily or monthly benefit maximum for a period of years (up to an unlimited amount over a lifetime) with an inflation protection option to cover the rising costs of care. Similarly to health insurance deductibles, such policies would typically have an elimination period (i.e. a waiting period of time before insurance coverage kicks in).

Given the rise in claims linked to people living longer, these policies and the industry landscape have evolved in recent years. The major change affecting legacy policies are large premium increases. Some policies have increased in cost by greater than 50% in one year even though increases typically must be approved by state regulators. Legacy policy holders may either accept the increased annual premium or choose a reduction in benefits to combat the higher premium expenses. The reality of the claims cost situation has led new traditional long-term care policies to become much less affordable for new insurance shoppers while putting a major strain on many existing policies and legacy insurers.

In response to the unaffordable costs of the traditional separate policies, insurance companies have pivoted to hybrid policies that add a layer of long-term care insurance to life insurance products. These policies essentially offer the option for policy owners to choose to use some of their life insurance benefit for long-term care needs instead of a death benefit. As with all insurance, the options and coverages can vary and require careful analysis to determine if they make sense for your family.

As insurance companies react to increasing life spans, rising costs of health care, and a sustained low interest rate environment making it harder for them to grow their balance sheets, we expect to see a rise in hybrid offerings and updates to the second generation of long term care insurance. We encourage families to understand all of their options, including simply building a financial plan to have higher reserves for these costs, before automatically assuming that a long-term care insurance policy is the right way to address their future concerns.