Thought for the day:

“I think it is just terrible and disgusting how everyone has treated Lance Armstrong, especially after what he achieved, winning seven Tour de France races while on drugs.  When I was on drugs, I couldn’t even find my bike”….  Willie Nelson

 

If you will read no further:

We talk a lot in these weekly presentations about the importance of providing retirees with a dependable retirement paycheck in the form of a life annuity that places a monthly income directly into their bank accounts.  There are many reasons for including an annuity in the portfolio including the high rate of tax free income and the peace of mind one gets from knowing it will last as long as they do, regardless of market conditions or world events. 

But here is one very important feature of a SPIA that hasn’t occurred to me in years.  SPIA income provides maximum protection from fraud, financial abuse by children, friends or relatives and from other financial choices gone wrong. 

The 83 year old lady whose son keeps asking her for $100,000 to start his business would be much better off if she had a SPIA that paid her a lifetime monthly income that prevented her from making an unwise investment decision and moving money into the “dark whole” in the first place.

 

Interesting Stats:

A recent poll of financial planners and clients rated the top four risks in retirement.  They were:

            Planners                       Clients

1. Longevity                      Healthcare
2. Volatility                       Inflation
3. Healthcare                    Volatility
4. Inflation                        Longevity

…which bears out our experience talking with clients about long-term care planning and the reactions to our workshops on LTCi and linked-benefit plans.  Eventually all clients want to talk about how to get an insurance company to pay their long-term care bills.  The conversation will be worthwhile only if it occurs before they get too old or too sick.

Then there are the claim numbers.  In 2013, over $7.5billion in long-term care claims were paid to over 273,000 individuals, according to the AALTCI.  But we have another indicator of the scope of this issue.  The number of calls we receive from advisors trying to get insurance for their clients who have serious health issues and are facing a long-term care event is rising significantly.  Many of these are from advisors who have ignored the issue, believing the client could pay the cost themselves.  But when the time comes to face these costs, everyone wants to have them paid by an insurance company.

 

Thought for the week:

My associates are telling me that I have failed to emphasize enough, the availability of Annuity Care from State life.  While I believe a life insurance based long-term care strategy is the best way to go for folks who have sufficient resources to commit to it, the annuity-based version is simple and easy to understand.  It’s just an interest baring account that does as well as a CD but much better when the time comes to pay for long-term care.

You have clients with money in banks or money market accounts that clearly would be the first resource their family would turn to if they need to pay long-term care bills.  Their money is safe and available and they are earning a modest taxable rate of interest.  What if you could tell them that account could double or triple instantly if they ever needed to tap it for long-term care?  Using Annuity Care from State Life, they can continue to hold the money in a safe depository that pays a modest interest rate.  But now, they will no longer receive that pesky 1099 on that pitiful amount of interest and if they need care, they will have access to as much as two or three times the account value.  Call us at (800) 238-8144 and tell Peggy you want to talk to someone about Annuity Care.  She will put you on the right track.

Thought for the day:

Some of the world’s greatest feats were accomplished by people not smart enough to know they were impossible.                                                              Doug Larson

If you will read no further:

From Harvard Professor Dan Gilbert:

As Retirees age, those with annuitized income are more satisfied then others living exclusively off Social Security and their financial portfolio.  Retirees who rely solely on a defined contribution plan to fund retirement are significantly less satisfied with retirement. The importance of automatic retirement income is consistent with my own studies on declining cognitive abilities in advanced age as well as the simple intuition that managing an investment portfolio and deriving an appropriate income takes work that might be better delegated to a pension manager or automated through the purchase of an annuity.

Read his entire paper, “What Makes A Successful Retirement”  here.

Important Trivia:

Bernie Madoff’s victims are beginning to receive reimbursements for their losses from the Madoff Victim Fund which, in addition to liability settlements from major investment banks, includes funds from auctioning off Madoff belongings such as luxury homes, boats and 14 pairs of boxer shorts. Madoff’s underwear fetched $200.

Thought for the week:

For the past week now I have been participating in a discussion on a LinkedIn interest group on the legitimacy of suggesting that a client purchase life insurance on his/her parents so that when they die, the client will receive a huge lump sum that can go far in enhancing their own retirement. Many of the participants expressed disapproval of someone actively attempting to benefit from their parents demise. I have my thoughts on that, but am not interested in discussing the morality of it.

What does interest me however, is the planning sense that is made out of insuring ones parents. Look at any insurance illustration and you can see the predictable rate of return generated by “investing” in premiums for a policy on a healthy senior’s life. The only unknown is when the person will die so that the actual ROR can be calculated. Click here to see illustration. No one objects to receiving an inheritance. No one objects to parents investing money to grow that inheritance. Investing in insurance that grows the inheritance definitely has merit. And for sure, it is a good idea to protect the inheritance by using life insurance to pay for long-term care costs or for estate transfer costs.

I have had a large insurance policy on my mother for many years. It can be tapped to pay long-term care cost if she needs it, or it will pay a respectable return to me if she doesn’t. The bottom line, my sister and I have not had to worry about paying to take care of Mom should the worst happen. Mom is 91 now and each year she lives is a joy. The fact that my rate of return on her policy is going down is a small price to pay for having her with us that much longer. Another example of how life insurance is a win-win.

 

And finally:

The “January Predictor” says, how stocks finish in January determines how the market will finish the year. Well, the Dow ended 5.3% lower than it was at year-end and the other major indices were also down, so 2014 will end on a down note…or will it? In the last 115 years the Dow finished up 74% of the time when January was up, but it also finished up 52% of the time when January finished down. It appears the January Predictor is no better than a coin flip, so we need to use science.

The “Super Bowl Indicator” says when the NFC team wins, the market will be up and if the AFC team wins the market will be down. Football science says since Seattle won the market will go up. However, this indicator has more loopholes than a Congressional budget bill. Indeed, when the Rams beat the Titans in 2000 the Dow lost 6%; even though the Giants won in 2008 the Dow dropped 34%.

Maybe you should buy an index annuity and wait for baseball?

Thought for the day:

We hang the petty thieves and appoint the great ones to public office    ~Aesop~

If you will read no further:

Each month we seem to get more and more calls for SPIAs and index annuities.  We have been talking of the need for these guaranteed, predictable instruments in a retiree’s portfolio for several years.  It appears that people may actually be listening.  Either that or more people are getting nervous about when then next market drop will occur; or maybe they have figured out that having a secure predictable base income in a retirement portfolio just makes good sense.  In any event, Westland is definitely a great place to get competent access to the annuity marketplace.

For an interesting article in Forbes Magazine on the importance of having income annuities in the retirement portfolio, click here 

Thought for the week:

I received two calls last week from clients and advisors regarding life insurance policies that are “crashing”.  One client is a 92 year old lady whose advisor died a while back so she gets me.  Her policy is about to lapse and after spending many $thousands in premiums over many years, she must now make a decision about spending more premiums to keep it in force until she dies or needs long-term care.

I explained to her that if she pays the required premiums (even though they are quite steep) she can guarantee that someone will get the benefit, which will be measurably greater.  When we looked at the numbers she said, “That’s a lot of money to pay, but the return to my sons, or to me if I go into a nursing home, is quite good.  This is more like an investment than just higher insurance premiums.”  She says she can’t afford the premiums from cash flow, but she can move some money from some sucky bank accounts and will end up with a better return.  I was really excited because she totally gets it.

The other call was from an 83 year old insured who has been ignoring notices from the insurance company for several years and now has a lapse pending notice.  He wants the insurance but it is very costly. He hasn’t had the epiphany yet; so it remains to be seen if he will see it as a guaranteed investment or just “too much to pay for the insurance”.

The point here is that in neither of these cases did anyone in the past 20 years suggest, encourage, demand, cajole or in any way motivate these folks to have a life insurance review.  If they had, they could have foreseen this situation well in advance and made some adjustments that would have made it much easier now to keep the insurance in force which they both want to do.  Because everyone wants to keep their life insurance when they know they are terminal.  And the older we get, the more “terminal” we get.

Call Peggy (800)238-8144 and ask for Nancy or Randy and they can help you with providing policy review for your clients.  At the very least your clients should be made aware of the new provisions that allow them to access their death benefit for Chronic or Critical care without having to die first.

 

Things that make you say, “Oh wow!”

A recent study by Glasgow University in the U.K. found that bottled water, although it is substantially more expensive, is actually more likely to be contaminated than water from your faucet because it is less well-regulated.  Bottled water and tap water typically come from the same sources — natural springs, lakes, and aquifers. While public water supplies are tested for contaminants every day, makers of bottled water are only required to test for specific contaminants every week, month, or year.

And……………………

Recent health studies have linked caffeinated coffee to a lower risk of type 2 diabetes, Parkinson’s disease, liver cancer, and even suicide.  So now the ideal long-term care planning strategy is to drink lots of coffee and (in case the studies are wrong) put a chunk of money into MoneyGuard and you don’t have to worry about needing nursing care.

Thought for the day:

For Denver Fans….

There’s nothing that cleanses your soul like getting the hell kicked out of you.  Woody Hayes/ Ohio State

 

 

If you will read no further:

Heads-up information to help some of your clients:

There are over 2.6 million group long-term care, or LTCi certificate holders in the U.S.  Many of those insured believe that they have comprehensive LTC coverage that covers many types of long-term health care costs. If some of these are your clients, you need to advise them properly or they could be out thousands of dollars.   Read more

Thought for the week:

I just got off the phone with an advisor who advised a client to move $100k into TLC (linked-benefit Life policy) last November.  She had attended one of our webinars a while before and decided she should pay more attention to long-term care planning, so this was her first ever transaction on behalf of one of her clients.  She called to tell me how happy she was that she did the transaction because the way the market has been acting lately, her client (a 67yr. old widow) is showing signs of getting a little nervous.  When the advisor showed her how with the cash in the insurance policy the effects of the market decline on her portfolio were not all that negative….plus with her own strategic actions, the volatility was even less.  The advisor and the client are both happy; and the client also knows that if long-term care is in her future, her portfolio will instantly gain about $300k to pay for her care as needed.

I’m Happy too.

Also:

One of our readers just reminded me that I have not mentioned Variable Universal Life (VUL) lately.  I have never been much of a fan because most of the products and promotion of them has focused on the high potential cash value when illustrated with a high average accumulation rate which does not take into consideration the markets up and down results. And with the expenses involved in these contracts, much of the presentation material is misleading.  I used to feel that VUL was only a great product when you invest large premiums into contracts with minimum required face value for tax free CV growth and tax free retirement income.  That was until Equity Index UL products came out and demonstrated their ability to consistently out-perform VUL.

HOWEVER, the newer versions of VUL products are focusing on providing guaranteed lifetime coverage at a low premium.  So now, when matching against fixed UL, when looking for a premium that will guarantee coverage to age 100 or 120, the VUL will often win out.  As it happens, we offer several of the best carriers with the most competitive products.

You should call Randy Masciarelli or Nancy Woo, our outstanding life insurance advisors for information and assistance with VUL whenever you have a life insurance need to address.  You may be surprised at what a great value there is in these products.

Thought for the day:

“Clothes make the man.  Naked people have little or no influence on society.”

Mark Twain

 

If you will read no further:

The Aged Based Limits chart for deducting Long-term Care premiums for 2014 is now available.  Every year, the amounts increase per age band due to inflation. Individuals can deduct LTCi premiums if they itemize more than 10% of their AGI in medical expenses (for age 65 and over, it’s 7.5%).  Also use the chart when an entity pays the LTCi premiums on behalf of employees….C Corps, S Corps, Partnership, and LLC. 

 

Thought for the week:

I recently received the following from a financial planner who has been selling linked-benefit products for several years.  The thoughts he has expressed certainly resonated with me.  Thought you might think so too.

“I believe that LTC should be viewed as an integral part of the retirement income plan.  One hundred percent of retirees will need to have resources to support their lifestyle, some for as long as 30 years. Have you ever heard anyone refuse a plan that would give them more?

Over half of our clients will have to increase that income by $thousands each month for some period of time to pay for the services from a professional caregiver. It only makes sense to acknowledge this and incorporate a strategy in the retirement plan. 

Every purchase/investment is an emotional one on some level. Whether they choose to purchase conventional LTCi insurance or not is largely based on their personal experience or attitude about insurance in general. They say they won’t need it, but that is the excuse they use because they don’t want it. Linked-benefit products allow them to incorporate an “investment” strategy that will predictably increase their income by several thousand dollars a month to help pay the added cost of someone taking care of them. Those with sufficient assets can embrace this approach with more enthusiasm because they won’t be purchasing insurance all the while hoping it will be a waste of money. 

I advise all of my clients to acknowledge that the second most significant financial issue after securing enough income to enjoy life is to arrange for the additional income that is likely to be needed for care down the line. (I always show them what I have done in my own planning for long-term care.)  Once the 100% need and the 50% need are addressed, then we can get on with legacy planning.  LTCi planning, regardless of the approach/product, will help assure the size and predictability of that legacy. “ SRC

 

What to do with the RMD:

It didn’t seem like so long ago, I sold life insurance to you young parents and the most important part of the transaction was to convince them that it was needed.  Most were sure they were going to live for a very long time. 

Now I find myself talking about the value of life insurance to people over the age of 65.  You would think that “a very long time” to 70 year old is about 15 years, since that is what the mortality tables tell us.  It has always made me wonder why someone would want to get rid of life insurance just as they are getting closer to making a claim on it.  But that is what some advisors suggest. “You don’t need it anymore.  Take the money and invest it.”  Rarely do they say, “Take the money and spend it.”   We recently presented a $250k life insurance policy to a 70yr. old client who was beginning to take Required Minimum Distributions from his IRA.  He was in average health and his first withdrawal was going to be about $11,000.  He didn’t need the money; would rather not take it; was looking for options of what to do with it.  He didn’t need any life insurance…but then he didn’t need to put the money into his investment account either.  Bottom line, he already had a substantial managed account with his advisor, but he didn’t have any life insurance.  We showed him that he could put the $8000 per year that would be left after paying the tax on his RMD into a $250k life insurance policy.  If he died a little past life expectancy at age 85 (a 32% chance that year) the tax-free annual rate of return would be 8.77%.  But if he was unfortunate and died at age 80 it would be 20.12%.  Comparing that with some other investments in his portfolio and considering the insurance provided a guaranteed result; he thought it a wise investment to put the money in the life insurance policy.  This was a good choice for all involved.

Thought for the day:

Confidence is contagious.  So is lack of confidence.        -Vince Lombardi

 

 

IMPORTANT ANNOUNCMENT:

Westland Financial Appoints Tim Morton CEO

Tim Morton has been appointed Chief Executive Officer of San Diego based Westland Financial Services (WFS), Founder and President Gene Pastula CFP® announced today.

Mr. Morton has been an integral part of Westland for the past six years with an ever expanding role.  An active member in the broker/dealer community, Mr. Morton was recently elected to FINRA’s (Financial Industry Regulatory Authority) Small Firm Advisory Board (FSAB) and is a member of the Board of Directors for the National Association of Independent Broker/Dealers (NAIBD).  Mr. Morton’s 33 years of success in the financial services industry and his previous senior managerial roles, makes him uniquely qualified to lead Westland to its next level of success, Pastula said.

Established in 1974 and headquartered in San Diego, CA, Westland Financial Services, is a national insurance consultancy serving the financial planning and investment advisory community. WFS has been instrumental in the development and marketing of new generation insurance products that are uniquely designed for use by financial advisors to expand their value and provide stability and predictability in client portfolios.

 

 

If you will read no further:

Should all of a client’s retirement income be derived from the “I’ll do my best to get you 4-5% with just a little volatility and not too much risk” kind of planning?

Fixed Index Annuities set sales records in 2013; and SPIAs (we think of them as personal pension plans) are increasingly becoming an important tool for planners advising their clients on how to take income from their qualified and non-qualified portfolio.  We have all the top carriers and (most importantly) the expertise to properly incorporate these into your clients’ retirement income plan.

Become an expert in 2014:  Call Josh Ver Hoeve (800-238-8144) every time you have a client who wants income from their portfolio.  Get his recommendation to compare with your (annuity deprived) plan.  If you choose not to recommend Josh’s approach, it won’t be because you never considered it or new nothing about the option.  By this time next year you will know more about annuity planning than 80% of the financial planners and investment advisors out there.

 

 

Thought for the week:

The story of Fred and Alice

About 14 years ago, Fred and Alice began their retirement years.  They had been using a financial planner friend of ours for many years before so had been successful in building a retirement portfolio capable of providing a comfortable lifestyle.  The only thing that had not been considered to that point was what to do about long-term care planning.  Alice was in favor but Fred…well Fred was Fred.  And Fred could not see spending money on some insurance that he knew they would never use.  But Alice convinced him to at least consider it and their planner surprised them by suggesting that rather than purchase a conventional LTCi policy (since they have a substantial portfolio) why not simply “invest” some of their savings into a linked-benefit product.  That way, if LTCi were ever needed there would be extra money to pay the bills and if not; the money wouldn’t be wasted since it would continue to be part of the estate.

Last year, at the age of 83, Fred suffered a serious stroke.   So now Fred and Alice have a caregiver in their home 12 hours a day to take care of Fred.  The linked-benefit plan doesn’t pay all the bills, but it does provide over $5300 a month tax free and will continue to do so for a total of six years if necessary.  Can you imagine the peace-of-mind that gives Alice?

She tells her friends about this policy but unfortunately many of them are already too old or too sick for the idea to do much good.  Their advisors should have told them about it years ago.

You know? The interesting thing about including insurance products in the plan vs. just investments; when things go wrong, the insurance products truly become stars.  And when things go right, they just become part of the planned-for results….all up-side and no down-side.

You need to tell your clients that….before they get too old or too sick.   

Thought for the Year:

All of us at Westland Financial wish you and yours a very Happy Christmas; and Peace, Health and Success in the New Year. We thank you for your business and appreciate the opportunity to have you as a client.

The story of Rudolph the Red Nosed Reindeer

Rudolph came to life in 1939 when the Chicago-based Montgomery Ward company asked one of their copywriters, to come up with a Christmas story they could give away in booklet form to shoppers as a promotional gimmick.  Robert May, who had a penchant for writing children’s stories and limericks, was tapped to create the booklet.

May, drawing in part on the tale of The Ugly Duckling and his own background (he was often taunted as a child for being shy, small, and slight), settled on the idea of an underdog ostracized by the reindeer community because of his physical abnormality: a glowing red nose.

May wrote Rudolph’s story in verse as a series of rhyming couplets, testing it out on his 4-year-old daughter, Barbara, as he went along.  Barbara was thrilled with Rudolph’s story, and once approved by May’s superiors, Montgomery Ward distributed 2.4 million copies of the Rudolph booklet in 1939 alone; and although wartime paper shortages curtailed printing for the next several years, a total of 6 million  copies had been distributed by the end of 1946.

The post-war demand for licensing the Rudolph character was tremendous, but since May had created the story on a “work made for hire” basis as an employee, Montgomery Ward held the copyright to Rudolph, and May received no royalties for his creation. Deeply in debt from the medical bills resulting from his wife’s terminal illness (she died about the time May created Rudolph), May persuaded Montgomery Ward’s corporate president, Sewell Avery, to turn the copyright over to him in January 1947, and with the rights to his creation in hand, May’s financial security was assured.
“Rudolph the Red-Nosed Reindeer” was reprinted commercially beginning in 1947 and shown in theaters as a nine-minute cartoon the following year, but the Rudolph phenomenon really took off when May’s brother-in-law, songwriter Johnny Marks, developed the lyrics and melody for a Rudolph song. Marks’ musical version of “Rudolph the Red-Nosed Reindeer” (turned down by such popular vocalists as Bing Crosby and Dinah Shore) was recorded by cowboy crooner Gene Autry in 1949, sold two million copies that year, and went on to become one of the best-selling songs of all time (second only to “White Christmas”). A stop-action television special about Rudolph produced by Rankin/Bass and narrated by Burl Ives was first aired in 1964 and remains a popular perennial holiday favorite in the U.S.

May quit his copywriting job in 1951 and spent seven years managing the Rudolph franchise his creation had spawned before returning to Montgomery Ward, where he worked until his retirement in 1971. May died in 1976, comfortable in the life his reindeer creation had provided for him.

The story of Rudolph is primarily known to us through the lyrics of Johnny Marks’ song (which provides only the barest outlines of Rudolph’s story) and the 1964 television special. The story Robert May wrote is substantially different from both of them in a number of ways.

Rudolph was neither one of Santa’s reindeer nor the offspring of one of Santa’s reindeer, and he did not live at the North Pole. Rudolph dwelled in an “ordinary” reindeer village elsewhere, and although he was taunted and laughed at for having a shiny red nose, he was not regarded by his parents as a shameful embarrassment; Rudolph was brought up in a loving household and was a responsible reindeer with a good self-image and sense of worth. Moreover, Rudolph also did not rise to fame when Santa picked him out from a reindeer herd because of his shiny nose; instead, Santa discovered the red-nosed reindeer quite by accident, when he noticed the glow emanating from Rudolph’s room while he was delivering presents to Rudolph’s house. Worried that the thickening fog that night (already the cause of several accidents and delays) would keep him from completing his Christmas Eve rounds, Santa tapped Rudolph to lead his team, which the young reindeer agreed to do, after first stopping to complete one last task: leaving behind a note for his mother and father.

Thought for the day:

“Do, or do not.  There is no try”                

Yoda

 

If you will read no further:

Next year PEARLS will be a biweekly publication with broader array of financial planning topics that will include additional creative uses for insurance and annuity products as well as timely information around retirement planning. You can receive notice of this BLOG as well as access to prior issues by subscribing now below.  You will also be encouraged to weigh in with your own reaction and ideas about the topics that we all must address as we help our clients navigate through the issues facing them in preparing for, and living through their financial lives.

 

Thought for the week:

We are receiving a growing number of calls from advisors trying to find long-term care policies for their aging clients who are coming to accept the elevated chance that they will need long-term care someday.  This usually occurs as they are experiencing some chronic illness that convinces them of their own mortality and the likely need to pay for the expensive care that often precedes death.  Now they would like to have insurance; but they are too old and/or too sick to get it. 

Some planners are seeing the light and using this situation as an opportunity to help others, specifically the heirs of these clients.

Dorothy is an 84 year old client who has inquired to her advisor about long-term care insurance.  Unfortunately, her arthritis has become more serious and because of that and her advanced age, LTCi is not possible.  Fortunately, she has enough money to pay for her care; it’s just that it will put a significant dent in her estate.  She was disappointed we could not help her; but she understood.

We suggested to her advisor that this might be a good opportunity to do something to preclude this from happening to her son and his wife.  Since she was now aware of what the financial impact can be on one’s wealth, we suggested that Dorothy help her son and his wife prepare for long-term care by purchasing a joint linked-benefit life insurance policy on them.  He’s 59 and she is 55.  Both are in good health. 

Dorothy will not be giving away her money to do this.  But she sees the value in moving $150,000 from a couple of bank accounts into the joint policy on the “kids”.  She will be the owner of the policy and they are the insureds.  So she continues to control the money and will have easy access to it if she needs it for her own care…or anything else for that matter.  If not, the ownership of the policy will pass to the kids when she dies; and just as important…they will have significant long-term care protection so that when they are in their 80’s and become sensitive to the issue, they will not have to be concerned about the source of income to pay for it like their mom.  In the meantime, she still owns and controls the money; it is just safely tucked away in the insurance policy securing significant benefits for the parents of her grandchildren.

This is just one example of the many ways to use life insurance to add guarantees and predictability to the portfolio to benefit your clients and their families.  We believe the more you understand the many applications of insurance in a financial planning context, the more your clients will benefit.  Call us with questions and cases with which we may be of assistance.

Thought for the Day:

Thanksgiving dinners take eighteen hours to prepare.  They are consumed in twelve minutes.  Half-times take twelve minutes.  This is not a coincidence.                       Erma Bombeck

 

If you will read no Further:

In honor of the final week of LTCi Awareness Month (aren’t you glad I spared you the other three?) we present our partners Tom Rieske Jr. and Steve Cain in a special webcast titled “Top 10 Things We’ve Learned From Industry Meetings This Year”.  One item you might find most interesting is that among affluent investors, being able to afford health care (including long-term care) is the issue that concerns them the most. 

Unfortunately, experience tells us they will seldom bring it up until they are faced with a serious health event that puts the issue front and center for them.  And that is when it is probably too late for you to help them do some serious planning.  Experience also tells us that if you bring up the subject seriously as part of their retirement planning; and you do a credible job of framing the issue with planning options, they gladly consider your recommendations and usually accept them.

Contact us about doing client workshops to explain their options and possible solutions.  To view Tom and Steve’s entire presentation go to http://www.screencast.com/t/lUD17DFdbL

 

Thought for the week:

Insurance is a complex product, not because of what it does, but for how it must be contractually formed to protect the client’s rights to benefits and protect the company from abuse.  Combine the legalese of the contract with the salesperson’s attempt to explain the benefits and confusion is sure to reign. Now add the distastefulness of the subject matter,( death, disability, illness, long-term care) and it is no surprise that most clients are woefully underinsured.  How can you expect insurance to be purchased when neither the client nor the advisor is interested in discussing it.  Yet incurring a huge loss when you could have/should have purchased insurance, costs even more money and makes one feel stupid.

When it comes to life insurance, most advisors younger clients have life insurance equal to less than half the value of their potential lost future income. A head of household who earns $150k per year is insured for a $million or less when clearly his future earning expectancy is will over $3million.  They would not think of insuring their home for 1/3 it value.

Planners take great pains to manage a retiree’s portfolio against losses in down markets by investing some of the money in safer assets that will not appreciate as much, but will be less likely to go down as well.  We know that if we ignore that strategy, the downturns and recessions that we experience every 6 to 10 years can destroy much of what we have achieved in the interim.  Yet what is the difference if we ignore a 60% risk of paying up to $1/4million or more for nursing care?  Either way, the money is lost to the client and the estate.   That is exactly why we developed linked-benefit life.  We created a place to safely store some of the portfolio wealth in a liquid cash value account to minimize volatility and reduce portfolio risk while leveraging its value 3 to 5 times if the client ever needs to pay for long-term care. 

Financial Planners and Investment Advisors, who excel at leading their clients thru the maze of options to grow their wealth, must not keep insurance as secondary in importance.  When the client is unlucky and under-insured the results can be devastating to the spouse and family; and no amount of investment expertise can make up for it.

The cost of insurance can seem excessive.  The cost of not having it can be devastating.

Thought for the day:

The first person to live to age 150 has already been born.   Dr. Aubry de Grey

 

If you will read no further:

LTCi RATE INCREASES EXPLAINED

From Chris Ridd, Westland LTCi guru:

Insurance companies conduct comprehensive claims studies every three years to examine the usage trends for each LTCi block of business.  John Hancock has recently received permission from the states for a third rate increase since 2008.  Not all blocks of business are affected. In order for a carrier to increase rates on existing LTCi policies, they have to request it from each state insurance dept. on a certain policy form and/or a “block” of business.  (For example:  policy form XYZ in the state of CA sold between 2001 & 2003)  They can never single someone out because they are older and are paying a low premium for their age.

The state can either accept the percentage increase requested, a lesser percentage or deny the request altogether.  Usually the LTC Company has enough data to back up their original request….even for “rate stabilized” states, like California.  Long-term Care insurance companies collect data constantly to sure their policies are priced correctly.  In addition to the current low interest rates they are finding that people keep their policies (instead of lapsing a certain percentage), live longer, and claims are lasting longer. All this means that there will be more claims then anticipated in the future.

For outstanding insights into the world of long-term care planning, go here http://goo.gl/aCGnnL and consider attending the LTCi Summit next May.  There is still time to get in on the $69 pre-registration.

Our own Gene Pastula, CFP will be a featured speaker.

Thought for the week:

Contrary to common belief, preparing for long-term care or guaranteeing income for life cost nothing if done correctly.  But it can be financially devastating if it is not done at all.

Stretch or no stretch that is the question:

I see it every time I do a client seminar on long term care. A third of the audience raises their hands when I ask “who has to take required minimum distributions from their qualified plan that they don’t need and would rather leave behind?”

There is an app for that….available from the insurance carriers.

1. The Straight Forward Stretch IRA.

• Put the amount of money you want to stretch in an annuity inside the IRA.  (a separate annuity for each beneficiary)
• Take only the RMDs as required leaving the rest to grow in the Annuities.
• Sign forms with each beneficiary acknowledging that they will receive their share of the IRA remaining at your death through annual payments for the rest of their lives.  At death, each beneficiary will commence receiving annual taxable income for life. Any remaining funds will go to their heirs.

• 2. More clever way to stretch the IRA

• Use the RMD to purchase one or more life insurance policies for the benefit of the heirs.
• The death benefit can be accessed, tax-free by the insured, if needed for long-term care.
• At death the heirs will receive any undistributed death benefit, free of income tax, allowing them to “recapture” much or all of the taxes paid on the RMDs.
• This can be done in tandem with the Straight Forward Stretch.

The point here is to assist the client who wants to leave a greater after-tax legacy for his/her heirs with assurances that it will all work out as planned regardless of the uncertainty in the economy, the political climate or even the need to pay for long-term care.