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Long-Term Care Insurance Costs

March 29, 2011 | Filed Under Finance, Insurance | Comments Off

An analysis of more than 200,000 purchasers of partnership qualified Long-Term Care Insurance policies showed a misunderstanding among consumers on the actual cost of Long Term Care coverage.   There is a perception that the cost of coverage is a bit higher than the actual price.  The reason for this is that premium costs are reported often using averages. These averages include large numbers of older buyers and other factors that result in higher costs.

The American Association for Long-Term Care Insurance(AALTCI) reported that during the first half of 2010  “one-fourth, or 27.8 percent of individuals purchasing long-term care insurance who were under age 61 pay less than $1000 a year.”  In addition, 19.4% or nearly one in five who were under age 61 pay between $20 and $30 a week for new policies.  More than 28.9 percent in this age group pay between $1500 and $2500 a year with the remainder paying more.  Less than 6.8% pay $4000 or over.

Jesse Slome, the executive director of AALTCI, says, “Studies that report average premium costs regrettably mislead the public into the perception that long-term care insurance is expensive.”

In reality, it is far more expensive to self insure if a long term care situation arises.  Long term care planning is a critical component to a solid financial plan during retirement.

Good Performance Not Necessary for Federal Employees’ Pay Increases

March 26, 2011 | Filed Under Finance | Comments Off

Wouldn’t it be nice if you received a pay increase every year whether you performed well or not?  That is what approximately 20% of the federal workforce can expect.

Earlier this month, the Office of Personnel Management (“OPM”) gave their approval of continued automatic pay increases for federal employees. At a hearing on federal pay the Office of Personnel Management Director John Berry denied a request by Rep. Darrell Issa, R-Calif to temporarily halt the General Schedule employee step increase.  If approved, the request would save the government (aka taxpayers) $500 million by the end of the year, according to Representative Issa.

Although the OPM’s director believes that pay reform needs to happen within the federal system, he was unwilling at this time, to grant approval of the proposal to reduce spending. He argued that “within-grade step increases are important because they allow federal employees to advance in their careers, and help the government retain vital employees.”  However, just .06 percent of eligible federal workers were denied within-grade pay increases in fiscal 2009, according to OPM data.  Can we surmise then that 99.94% of eligible employees are vital to the functioning of our government?

Colleen M. Kelley, president of the National Treasury Employees Union, spoke against Rep. Issa’s amendment to the House budget bill. She stated that the amendment was unfairly targeting federal employees, would have little impact upon the deficit and would greatly limit the government’s ability to recruit and retain skilled workers.

Analysts at the Heritage Foundation estimate that federal employees ” earn 22% more on average than their private sector counterparts”.  In addition, poor performers are not held accountable, and thus are “rewarded” with automatic increases in their salary.

It is true that $500 million would not make much of an impact upon our federal debit, however while the private sector is seeing a decrease in employment and in pay, should government employees get pay raises?  Sounds a lot like what the government castigates Wall Street for when it raises salaries of corporate CEO’s, during a time of financial bailouts.



Annuities – Good For Your Portfolio

March 16, 2011 | Filed Under Finance, Insurance, Investment, Retirement Savings | Comments Off

“Retirees may get more financial security by combining insurance products and mutual funds, some analysts say”

This week in the Wall Street Journal, an article appeared entitled, “Making the Case to Buy an Annuity”.  The article addresses the importance of adding  annuities with lifetime-income guarantees to your retirement portfolio.

When the stock market makes a downturn during the early years of your retirement, you may face running out of money, if you are  invested in the markets.  Annuities with lifetime-income guarantees can offset that risk.

The importance of annuities and income riders was highlighted by Chief Investment Officer of Morningstar, who said, “”The longer we live, the greater stress that puts on our ability to pay for our retirement-income goal, an income stream that lasts as long as we do.  We need to go beyond the universe of mutual funds and ETFs and consider longevity-risk products.”

According to a researcher, “a typical 65-year old should have as much as 50% of their money in annuities, and the typical 75-year old should have about 65% invested through annuites. ”

There are two main types of annuites, variable and immediate, or indexed.   One important disadvantage to variable annuities is the typical high fees compared to the lower fees of an indexed annuity. Both, however, can provide life-time income.

For additional information on this topic, please contact me at Shari Mattingly-Bevan & Associates at (864) 283-6906.

To read the full article, go to    http://online.wsj.com/article/SB10001424052748703954004576089761660773344.html

Medicaid called a Humanitarian Catastrophe

March 11, 2011 | Filed Under Insurance | Comments Off

Interesting study by University of  Virginia exposes perhaps greatest danger to your health: Medicaid.

In a recent article on Forbes.com, Avik Roy draws attention to some alarming statistics regarding the quality of care Medicaid patients receive.

“We spend half a trillion dollars every year to provide the poor with worse care than is gained by the uninsured. How is this even possible? To get your mind around the problem, you need to understand one thing: access to health insurance is not the same thing as access to health care.”

“Patients on Medicare were 45% more likely to die than those with private insurance; the uninsured were 74% more likely; and Medicaid patients 93% more likely. That is to say, despite the fact that we will soon spend more than $500 billion a year on Medicaid, Medicaid beneficiaries, on average, fared worse than those with no insurance at all.”

The study conducted by the University of Virginia in 2010 is the main source of Mr. Roy’s assessment of Medicaid.

Mr. Roy concluded by  saying, “Private insurance outperforms Medicaid by a wide margin. Allowing the poor to control their own health dollars is the best way to help them lead longer, healthier lives….But anyone who genuinely cares about the welfare of the poor should help make it so.”

Please check out the full article at

http://blogs.forbes.com/aroy/2011/03/02/why-medicaid-is-a-humanitarian-catastrophe/

Tax Reformers Targeting Life Insurance

March 11, 2011 | Filed Under Insurance, Retirement Savings, Tax Articles | Comments Off

Is the cash value in your life insurance policy on its way out with tax reform?

In an attempt to tackle the federal deficit and increase revenue, Congressional members are tossing around ideas to alter the tax treatment in insurance policies and retirement plans.  House Budget Committee chairman and a leader of the tax reform effort, Republican Paul Ryan, R-Wisconsin., said in January to the National Press Club, that he would not rule out removing the tax treatment policyholders receive on the cash that is built up in their life insurance policies.

This comes in the wake of a Congressional defeat of similar proposals offered by the President’s National Commission on Fiscal Responsibility and Reform in December 2010.  Mr. Ryan voted against that commission’s proposals.  But a month later, in a response to questions regarding tax reform and the favorable tax treatments in insurance policies, Mr. Ryan said, “We’re looking out for the American people,”  “We’re looking out for the American economy. We’re not looking out for this narrow special interest that has a little piece of the tax code carved out which serves as a direct barrier to entry against….competitors.”  He stated, however, that it is too early to tell whether he and his GOP colleagues will eliminate the tax benefits in insurance policies through future tax reform.

In defense of it’s policyholders, the insurance industry will fight against any attack on the tax-deferred buildup of cash value in life insurance policies, and the tax-free death benefit.  Terry Headley, president of the National Association of Insurance and Financial Advisors, said “What we don’t want to do is for the American public to be disinclined to provide for their own financial security and, therefore, creating a greater dependence on government.”

Death and Inheritance Taxes

March 9, 2011 | Filed Under Insurance, Retirement Savings, Tax Articles | Comments Off

A lot of attention has been paid to the Federal Estate Tax, but there are 20 states in the Union, including D.C. that have their own Estate or Inheritance Tax. Two states, Maryland and New Jersey, have both!

Many people are unaware that they may be living in a State that has it’s own Estate or Inheritance Tax. According to Constance Fontaine, an Associate Professor of Taxation at American College, “People are writing checks in the thousands who didn’t expect to be.”

Exemption levels are often low, so many beneficiaries are surprised the estate they inherited qualifies to be taxed.  In Ohio, for example, the Estate Tax exemption level is only $338,333.  In New Jersey, the exemption level is $0.

Estate tax rates are typically in the teens, unless you live in Minnesota. The top estate tax rate there is a whopping 41 percent for estates totaling more than $1 million.  Inheritance tax rates are usually in the teens as well.  In Indiana, however, you will pay 20% of your inheritance back to the state, if you inherit more than $150.

Many people in these 20 states are affected more by these state taxes than they are of the federal taxes.

Life insurance policies can sometimes be used to pay for the expected taxes, since their benefits are exempt from these taxes in most states.  However, you have to be careful the insurance benefit goes to an individual and not to the estate or executor.

Estate Tax                                2011 Exemption                                  2011 Top Rate

  • Connecticut                             $3,500,000                                          12
  • Deleware                                 $5,000,000                                          16
  • District of Columbia                 $1,000,000                                          16
  • Hawaii                                     $3,600,000                                          16
  • Maine                                      $1,000,000                                          16
  • Massachusetts                        $1,000,000                                          16
  • Minnesota                               $1,000,000                                          41
  • New Jersey                             $   675,000                                          16
  • New York                                $1,000,000                                          16
  • North Carolina                        $5,000,000                                          16
  • Ohio                                        $   338,333                                           7
  • Oregon                                   $1,000,000                                          16
  • Rhode Island                          $   850,000                                          16
  • Vermont                                  $2,750,000                                          16
  • Washington                            $2,000,000                                          19

Inheritance Tax                        2011 Exemption                                 2011 Top Rate

  • Indiana                                    $100                                                  20
  • Iowa                                        $0                                                      15
  • Kentucky                                 $500                                                  16
  • Maryland                                 $150                                                  10
  • Nebraska                                 $10,000                                             18
  • New Jersey                              $0                                                      16
  • Pennsylvania                           $0                                                      15
  • Tennessee                                $1,000,000                                        9.5

Life Insurance Disclosure Requirements to Expand Your Options

March 8, 2011 | Filed Under Insurance | Comments Off

In today’s economy in particular, life insurance policyholders are looking to save money when they find they can no longer afford the premium.  The decision to keep paying the premium or to not pay the premium while the policy owners struggles to put food on the table tends to be an easy one.  Unfortunately, when they contact the insurance company they are frequently offered only three options: let the policy lapse, keep paying the premium or surrender it for its cash value.  Many times the cash value has been borrowed against either by the policyholder or reduced by the insurance company to pay premiums.

Now state lawmakers are meeting to establish a new disclosure, which would inform the public that their options aren’t so limited.  State legislatures will be introduced this year to the Life Insurance Consumer Disclosure Model Act, which would require life insurance companies to inform policyholders above the age of 60 or with a terminal or chronic condition that there are eight approved alternatives.

The law also stresses that “policy owners should contact their financial advisor, insurance producer, broker or attorney to obtain further advice and assistance.” Insurance companies may be subject to state penalties if they violate the law, which would be considered an unfair trade practice.

Some insurance companies, such as MetLife, Prudential and the American Council of Life Insurers (ACLI) have objected to the new disclosure requirement, on the premise that it would be too much information for their customers, leading only to confusion.  In addition, they announce that it would be too costly to send out the notices.  That claim is disputable, considering they would be sending out notices through existing mailings.  Perhaps, the companies’ main concern, although not publicized, is that some of the alternatives would not benefit them directly.

For consumers requiring long-term care, the additional options bring opportunities to utilize their life insurance policy’s death benefit while the consumers are still alive. Medicare and Medicaid cover some of the costs of long-term care for qualifying recipients, but for others who don’t qualify or already have a separate long-term care policy, they may opt into exchanging their current life insurance policy for a long-term care benefit plan.    Unlike an insurance policy, the benefit plan is not subject to the same limitations and wait periods as is a long-term care insurance policy. It is not issued by a carrier and isn’t restricted to policies that contain a conversion rider. The policy conversion can be done in less than a month and can be for any form of individual or group life insurance. This becomes in many cases an excellent means to provide for the cost of long-term care and/or senior housing.

The National Conference of Insurance Legislators which passed the Act in November 2010, sees the passage of the Life Insurance Consumer Disclosure Model Law as “a strong stand for life insurance policy owners and would empower consumers through education about their options.”
The additional options that would be required to be disclosed to policyholders are:

* Accelerated death benefit
* Assignment of policy as a gift
* Life Settlement
* Policy Replacement
* Maintenance pursuant to terms or riders
* Maintenance of policy through a loan
* Conversion from a term to a permanent policy
* Conversion to Long-Term Care Policy or a Long-Term Care Benefit Plan

For additional information on this topic, please contact Shari Mattingly-Bevan at Shari Mattingly-Bevan & Associates at (864) 283-6906.