Category Archives: Insurance

More reason to be careful in choosing to use a LTC (Long Term Care) Insurance Policy

Add together prolonged low interest rates to advances in both health care and life expectancy, sprinkle in spiraling costs of healthcare and you have a recipe for major change in the long-term care (LTC) insurance industry. These industry dynamics, as well as a few others, have many LTC insurance carriers rethinking how to balance consumer needs with achieving long-term profitability. Many carriers are beginning to make significant adjustments to their product offerings, increasing premiums, changing pricing strategies and reducing product benefits. Even more dramatic, some are exiting the long-term insurance business entirely.

While long-term care insurance (LTCi) isn’t for every client, preparing for long-term senior care is prudent and oftentimes pays off. As we progress through life and age into retirement, it is common to expect new health concerns to greet us. As such, clients may want to consider long-term care planning early because once certain health issues set in, LTC planning gets much trickier and much more costly. LTC insurance can pay for extended care needs that often result from normal aging, and help pay for quality long-term care services that are not covered by health insurance or Medicare.

LTCi is a relatively young industry with a shorter history when compared to other coverage such as life insurance. Although the first traditional LTCi policy was issued close to 40 years ago, actuarially speaking the application of mathematical and statistical evidence to assess risk in this industry is in its infancy. Actuaries across the board have admitted to missing the mark when initially pricing this new form of insurance. Short medical histories as related to activities of daily living, low interest rates and increasing payouts for claims means today’s LTC insurance products are not priced appropriately (i.e., not generating acceptable profit margins for insurance carriers).

Major insurance carriers have begun announcing significant changes to their LTC products and requirements. Just recently, Genworth instituted a new pricing strategy and underwriting practice to reduce risk and improve the sustainability of their LTC insurance portfolio.

While there have been several changes announced recently across the industry (reduced advisor commissions, suspension of new sales), two significant developments on the horizon and already with one major carrier are:

  • Gender-based pricing with premiums for females increasing across the spectrum, substantially in some cases
  • Expanded underwriting requirements for applicants such as paramed exams, and blood/urine samples

Though long-term care is a concern for both men and women, there is greater risk for women. Industry studies show up to two-thirds of new claims are for female policyholders. New policies in gender-based pricing translates into increased cost for future female policyholders anywhere from 15 to 50 percent, while for men it may decrease 15 to 20 percent.

In the U.S., women live longer than men (81 years on average versus 76 for men), according to data released in 2013 by the Institute for Health Metrics and Evaluation.¹ This longevity translates to potentially more unhealthy years on average for women — 11 years compared to 9.7 for men, according to² Women are also more likely to live alone in older age or to be a caregiver for their spouse. Women who need care themselves in old age are less likely to have a family caregiver, which may further increase their potential expense to an insurance company.

Thoughts on another advisor's advice

Suze Orman has been in the news recently and made me think of a number of things that Ms Orman suggests that don’t sound as if they should be put into practice.  Rather, they sound as if they were lobbied for by the banks.

Having an emergency fund is great.  The question is how many months of expenses should be in that bank account.  Six months expenses mighty be the right amount.  Further, if one is an “employee at will” for a company six months might be appropriate.  Who is an “employee at will”?  Someone who may be discharges for any reason or no reason without any recourse.  Of course that is not most people.  If one will receive a sum of money when they are fired (laid off, downsized, etc.) the amount of money that they will receive should reduce the six month figure.  So, if you will get two weeks notice you need five and one half months savings.  If you’ve been with the company for 10 years and will get one months salary for every year you’ve been there you need no money in the emergency fund.

Another bad idea is the savings account when you have debt.  When I was teaching a continuing ed course at NYU one of the first things I asked was how many of you have credit card debt.  A number of people raised their hands.  I then asked those who had hands up to keep them up if they had money in the bank.  A good percentage did.  When I asked why, they told me they were told to do that in case of an emergency.  So my next question was, “if you reduced the debt by the amount in the bank and you had an emergency couldn’t you the charge the money to the card?”  In the meantime they would not be paying 15 or 20 % on the debt and getting 1% minus taxes on that income.  WOW.

As long as we’re discussing her recommendations there is one I totally agree with.  If you need life insurance buy Term.  Insurance is risk transference.  If you do not have enough in wealth to permit those who depend on you to continue living in the lifestyle you have been providing they need extra money to invest to continue the lifestyle.  Term life insurance is the vehicle. Other types of life insurance are there to make the insurance company richer.


Barron’s recently did a rather comprehensive review of annuities. I’m going to discus two types.

The Variable Annuity. A variable annuity is basically a tax-deferred investment vehicle that comes with an insurance contract. Thanks to Congress, earnings inside the annuity grow tax-deferred, and the account isn’t subject to annual contribution limits like those on other tax-deferred vehicles like IRAs and 401(k)s. Typically you can choose from a menu of mutual funds, which in the variable annuity world are known as “subaccounts.” Withdrawals made after age 59 1/2 are taxed as income on the growth portion of the value. So, if you invested $50,000 and the value grew to $60,000 you would be liable for the tax on $10,000. Earlier withdrawals are subject to tax and a 10% penalty.

While these annuities are sold by insurance agents to unsuspecting individuals (the fees may be high) they are valuable to fairly high income individuals.

Who would be a good candidate? The individual (or couple) are living comfortably. They are saving money regularly. They have put as much money into their pre-tax retirement accounts as permitted. They have an account that they can draw from if an unexpected situation arises. Now they may put money into this tax deferred instrument.

Another annuity the article talks about is the immediate annuity. It is exactly what the name implies. You give the insurance company a sum of money and they GUARANTEE you a payout for the rest of your life. Some people worry about the fact that if they die the day after they gave the money to the insurance company the company has a windfall. Who cares? You’re dead. Your spouse continues to be covered (if that’s what you bought) and you already made provisions for the heirs (they will never get this money anyway). And if you live to 120, you’ll still receive the check each month.

There are two considerations to buying the immediate annuity. Strength of the insurance company (they need to bE there when you are 120 and the fees.

What is the difference between an advisor who charges a commission and one who doesn’t?

Barron’s ran a comparison of immediate payout annuities. One of the companies (first on the list) had an income by age 85 of $337,200. Using the same company (insurance companies are not licensed in all states) and going through HFH Planning Inc. your income by age 85 would be $348,660. That’s $11,460 more in your pocket. Of course we would suggest your payout be smaller at the start. Why? Because we would have you add a cost of living rider. If our suggestion were a 3% annual increase in the payout you can see the difference on the attached chart.

Annuity Payout Comparison