Long Term Care Insurance – The Devil is in the Details

November is Long Term Care Awareness Month and it is a great time to consider solutions for one of the most pressing needs of baby boomers. This group (born between 1946 and 1964) is beginning to retire and are challenged with planning for future health care costs. While Medicare provides most retirees with health insurance, it pays only a fraction (if any) on long term care costs.

Long term care insurance policies are available to address this concern. Over the last 20 years, we have seen much volatility in products and carriers in this market. The “dust has settled” and the three basic product types are: Stand alone, Hybrid and Life Insurance with LTC riders.

Stand-alone products are like term life insurance. You pay your premium each year and if you have a claim, the benefits begin. The main advantage of this approach is the flexibility in design. Disadvantages include premium increases and there is no value if the benefit is never used.

Hybrids products (combination of life insurance and long term care) have become popular as they provide a life insurance benefit and a long term care benefit. They also provide a premium refund feature so there will always be a benefit to the insured or their family.

Life insurance with long-term care riders have also become increasingly popular. For those who have a life insurance need, it is an inexpensive way of providing LTC benefits. And like the Hybrid products, a benefit (either life insurance, LTC or a combination of both) will be paid.

The way LTC riders work in a life insurance policy is that if the insured needs home or nursing home care, the policy allows for an “advance” of the death benefit to be used for the care. These riders do not significantly increase the cost of the policy as the insurance company has to pay the benefit either way.

However, there is a big difference in the riders. Not all long term care riders are created equally. Some are called long term care (LTC) riders and some are called critical illness (CI) riders. What is the difference?

LTC riders are very similar to LTC insurance when it comes to triggering the benefit. If the insured needs assistance with 2 out of 6 activities of daily living (ADL’s) or suffers from cognitive impairment, the benefits begin. If the client gets better, the benefits stop and the unused benefit can be used later. With CI riders, benefits are only payable if the condition is expected to be terminal. This could severely impact the insured and their understanding of their policy. Recently, some companies have removed the “terminal” requirement in order to trigger benefits, so it is very important for the insured to understand what he/she is buying. Another concern with CI riders is the waiver of premium provisions and how they affect the policy after a claim.

Long term care insurance is very complicated, especially when dealing with combination products. At Greenberg, Wexler and Eig, we can educate you on options and assist you through the entire process. This material is provided for informational purposes and should not be construed as a recommendation, legal or tax advice. You should consult with a financial professional before making and decisions.

1795-2016

Estate Planning and Life Insurance

A good estate plan is like a three legged stool. Each leg is constructed and positioned in such a way to give the stool stability and function. The three legs of any estate plan are the dispositional plan, the tax plan and the liquidity plan. This is true irrespective of the size of the estate.

The dispositional plan documents who gets what and when and who makes a decision when you cannot. The tax plan engages strategies and documents that can reduce any estate tax exposure through discounts, appreciation shifting or charitable planning. The liquidity plan directs how resources will be used to provide survivor income to families, finance education for children and grandchildren, pay off debts, finance Federal and State Estate taxes, provide for charitable dispositions, and fund the succession of an interest in a business.

The development of a liquidity plan involves the assessment of the objectives for all of the above, an examination of the resources and techniques that will finance these objectives and then determine any surplus or deficit. If a deficit is discovered, it can be made up with life insurance. The art of using life insurance as part of the liquidity plan is determining the right amount, determining the right duration and determining the right ownership and beneficiary arrangement. Further, if the right ownership and beneficiary arrangements are funded by annual or lifetime gifts and the gifts are insufficient to fund the life insurance needed for the liquidity plan, additional creativity will be warranted to find the resources to fund the fund the liquidity plan.

The hallmark of a good estate plan is the stability it creates for the family and other survivors combined with the resources to accomplish its function. A liquidity plan deficit that is financed with life insurance is often the best resource to create the liquidity needed and balance the estate plan, no matter the size of the estate.

What You Need to Know About Money Market Reform

 

MONEY MARKET REFORM IS HERE! WERE YOU READY?

Money Market Reform went into effect on October 14, 2016. Do you know if your plan or your investments are affected?

 

WHAT IS MONEY MARKET REFORM?

Money market funds are open-ended mutual funds that invest in short-term debt securities such as US Treasury bills and commercial paper. They are widely accepted as a “safe investment” and are highly liquid investments. Money market funds seek a stable net asset value (NAV) of $1.00.

Money Market Reform, formally known as Rule 2a-7, is a law created by The Securities and Exchange Commission (SEC). These changes were enacted to protect money market funds from a “run” if there’s another crisis like we saw in 2008.

 

WHAT CHANGES WERE MADE?

The SEC’s amendments address three major topics:

  1. Categorizing money market funds
  2. Requiring a floating Net Asset Value (NAV) for institutional money market funds
  3. Allowing the imposition of liquidity fees and redemption gates in certain circumstances

 

CATEGORIZING MONEY MARKET FUNDS

 The SEC broke down money market funds into three categories.

 

Retail money market funds:

 These are funds with policies reasonably designed to limit its investors solely to “natural persons” or individuals.

 

Institutional money market funds:

 These are funds designed for beneficial owners who are not “natural persons” or individuals, but entities such as corporations, partnerships, governments, or fiduciaries. These funds require high minimum investments.

 

Government money market funds:

 These are funds with 99.5% of its assets invested in cash, US government securities, and/or repurchase agreements that are “collateralized fully” by cash or US government securities.

 

REQUIRING A FLOATING NAV FOR INSTITUTIONAL MONEY MARKET FUNDS

Retail and government money market funds can use the amortized cost method or penny-rounding method when calculating the money market fund NAV.

Non-retail money market funds are now required to use a four-decimal NAV. The non-retail funds will float based on the four decimal NAV.

 

ALLOWING THE IMPOSITION OF LIQUIDITY FEES AND REDEMPTION GATES

Money market funds are now required to maintain 30% of their total assets in weekly liquid assets. This means that 30% of the assets must be in investments that can be converted into cash within five business days.

Liquidity fees are an additional expense when taking money out of the money market fund. There are two reasons why a liquidity fee can be imposed.

  1. If the fund does not meet the 30% mark, the mutual fund board can impose a liquidity fee of up to 2% if it’s in the best interest for the fund.
  2. If weekly liquid assets are less than 10% of the fund’s total assets, an automatic liquidity fee of 1% is imposed, though it can be up to 2% max. The board can lift this at any time and will automatically stop when the fund reaches the mandated 30% mark.

Redemption gates are temporary suspensions on redemptions from the fund. A redemption gate can be triggered if the fund does not meet the 30% mark. There are two limitations to redemption gates:

  1. This gate can only be imposed for the shorter of 10 days or until the weekly liquid asset level returns to at least 30%
  2. Can only be used for up to 10 days during any rolling 90 day period

Redemption gates can be lifted by the mutual fund board at any time.

 

ARE YOU USING MONEY MARKET FUNDS?

If you have not reviewed your plan or your investments for money market funds yet, now is the time to do it. Be aware of the investments on your plan or your portfolio. If you have any questions, be sure to contact the advisor on your retirement plan. If you want to know more about money market reform, contact us!

Family Business Forum’s Inaugural Event

Today, in front of a packed audience, Sheila Johnson kicked off the inaugural event for the DC Family Business Forum with a spectacular story about her life. Ms. Johnson shared her remarkable journey that began as a child who moved 13 times during her formative years, growing up to become the successful entrepreneur she is today. Sheila walked the audience through her life as a violin teacher, a high school orchestra conductor, a co-Founder of BET Networks, and then her journey as the Founder and CEO of Salamander Resorts. Ms. Johnson captivated everyone in attendance by highlighting many of the struggles and prejudices she experienced throughout the past 40 years and how she triumphed through perseverance and gut instinct. She is now headed back to Middleburg, VA to attend the Middleburg Film Festival, a project that she founded in 2013 – at the suggestion of friend and colleague Robert Redford – and is considered one of the top five independent film festivals in the country. The event takes place October 20-23, 2016.

Under the direction of Scott Greenberg, Greenberg, Wexler & Eig is proud to be a founding partner of the DC Family Business Forum along with sponsors Baker Tilly, Cardinal Bank, J.P. Morgan, and Reed Smith. The mission of the Forum is to promote and foster the growth and ongoing success of family businesses through learning, sharing, and creating solutions for the critical issues and challenges confronting family businesses in the Washington, DC metropolitan region. Additional information regarding future programs and featured speakers can be found at www.dcfamilybusinessforum.com.

Saving for Retirement

Let’s start with a couple of trick questions: What is the difference between a 1% return on one thousand dollars and a 1,000% return on one dollar? Nothing. Next, does it matter? Yes. And, who has more money in ten years: you or someone who invests $10,000 in the stock market today? No one knows. Finally, what is Autophagy and does it have anything to do with your retirement? Autophagy is how cells recycle damaged, diseased, or worn-out bits of microscopic machinery into new, fully functional organic stuff, see 2016 Nobel prize for Physiology or Medicine, and no it does not affect your retirement. Yet.

What does all that have to do with me you may be asking. If this discussion is framed in a retirement conversation, then these are all important questions. The likelihood that you will receive a 1,000% on anything is extremely rare, but a 1% return is much more likely although not as exciting. What is a more reasonable return? If you were to invest part or most of your retirement savings in the stock market, the average annual return since its inception is about 10% when we adjust for inflation over that time period this brings the return down to 7%. At that rate, your investment nearly doubles every ten years! Before you say the stock market is too risky, remember that stable value funds are only found in retirement plans. These are relatively conservative investments backed by a ‘wrap,’ or an insurance contract, that backs a stated positive return which are subject to the financial strength and claims paying ability of the issuer, usually an insurance company. This gives you a very valuable, relatively safe option that is not available outside a retirement plan.

If you don’t save anything or you save very little, returns don’t matter. The biggest determinant of your retirement account balance is simply how much you contribute. You cannot invest your way to retiring without putting in a substantial amount of your own money. So, how much should you contribute? That varies depending on the person. Why not do it now and adjust it as you calculate your needs? Most retirement plans are very flexible and allow for regular increases or decreases.

One rule of thumb is 10% of your pre-tax income. There are many reasons this may be a good starting point. One reason is that this may help you replace approximately 50% of your pre-retirement income if you start early enough (20’s or early 30’s) and earn about 3 – 4% per year – a reasonable return according to many investment providers when reviewing past market performance. Social Security may replace about a third of your income and the remainder would either be a reduction in your income or made up from other savings or investments.

As an advisor for over seventeen years I have heard many excuses for not saving, some bragging about investment returns, good & bad investment ideas, a variety of strategies and other interesting points, but I have never heard anyone say they have too much money!

So why not start paying yourself today by contributing to your own retirement?

Breast Cancer and Life Insurance

October is Breast Cancer Awareness Month, which is an annual campaign to increase awareness of the disease. It’s a great reminder to encourage people to take the steps needed to detect cancer in its earliest stages. Every October, many breast cancer charities try their best to bring attention to the disease and raise funds for future research.

You can work to prevent breast cancer by getting regular screenings, but also by making some lifestyle changes. These changes include watching your weight, eating vegetables, watching your alcohol intake, and also knowing your family history. However, breast cancer can affect anyone, male or female, and it’s helpful that there are so many resources and medical advances available.

A history of breast cancer doesn’t make getting life insurance impossible. Many companies are able to offer life insurance to those who are just a few years from recovery. The main factors to consider when determining if a cancer survivor is insurable for life insurance is the stage/grade of the cancer, the date of diagnosis and recovery, and the type of treatment. When underwriting a life insurance policy for any female, it is great to see that routine mammograms have been completed.

Join the fight against breast cancer and help raise awareness and encourage regular check-ups to help reduce the risk of cancer. Also, know that life insurance can be very affordable for breast cancer survivors!