Life Insurance
Needs Assessment
How Much Life Insurance Do I Need?
The most common question that we hear is “how much life insurance do you recommend we carry?” There is no magic formula for determining what is appropriate. We like to say you should have enough insurance so that coupled with your existing assets your family’s world is not “turned upside down” at your death … from a financial perspective that is. Having said that, we have never had a beneficiary say they were paid too much.
Since no one knows how long they will live, an easy approach is to consider the worst case scenario … say for example, if you were to die today! You first need to calculate immediate cash needs for such expenses as paying off a mortgage, college costs and estate taxes, etc. You should be able arrive at a number fairly easily. The more difficult calculation is how much capital your family would need in order to replace all or a portion of your income? Does your spouse work? Will he/she continue to work after your death? Is there enough savings coupled with your spouse’s income to cover expenses? What is a realistic rate of return on assets? How long will your family need income? What other sources of income might they receive? How does inflation factor into the calculations? We can guide you through this process and help you arrive at an appropriate amount of life insurance that will make up for any deficiencies that might result from a premature death.
What type of life insurance policy should I purchase?
This can be an overwhelming decision considering the vast number of different contracts available in the market. As an independent brokerage agency we are not tied to any one insurance company. This gives us the unique capability to help you choose the most appropriate product for you but also the most competitive carrier.
Level Premium Term
Characteristics: Level premium, level coverage, no cash value.
Typically used for financial obligations which remain constant for a short or intermediate period. Example: Income during a minor’s dependency.
Universal Life
Characteristics: Level or adjustable premium and coverage, cash values
Cash values may increase based on the performance of certain assets held in the company’s general account. Used for long term obligations or sinking-fund needs: estate growth, estate liquidity, death taxes, funding retirement needs, etc.
Whole Life
Characteristics: Level premium level coverage, cash values
Cash value typically increases based on insurance company’s general asset account portfolio performance. Used for long-term obligations: surviving spouse lifetime income needs, estate liquidity, death taxes, funding retirement needs, etc.
Variable Life and Variable Universal Life
Characteristics: Level or adjustable premium, level coverage, cash values.
Used for long-term obligations, typically for individuals who are more active investors, for estate growth, and death tax liquidity. The death benefit may increase or decrease depending on investment performance. The policy owner directs cash values to a choice of investment accounts (bond, stock, money market, etc.). Cash values are not guaranteed.
Indexed Universal Life
Characteristics: Level or adjustable premium and coverage, cash values
Cash values may increase based on the performance of an underlying stock or bond “index.” The death benefit may increase or decrease (but not below a guaranteed minimum) depending on investment performance. Used for long-term obligations or sinking fund needs, estate growth, estate liquidity, paying death taxes, funding retirement needs, etc.
Survivorship Life (“Second-to-Die”)
Characteristics: Level or adjustable premium and coverage, cash values
Unlike traditional life insurance which provides protection on the life of a single individual, survivorship life covers two lives with the proceeds payable at the second death. As such, it is perfectly suited for married couples with substantial wealth if estate taxes might be due after the death of the second person.
Disability Income
Needs Assessment
Comprehensive disability income needs analysis
The purpose of disability income insurance is to partially and sometimes totally replace your income if you are unable to work because of a sickness or accident. In terms of the financial effect on the family, a long term disability is more severe than death. In both cases, incomes stop. In the case of a long term disability expenses may actually increase due to the cost of providing extended care.
Do you still rely on your earned income to pay your bills? If so, are you adequately insured? When was the last time you reviewed your coverage? How much income could you expect to receive from your disability insurance if you were disabled and for how long would benefits be paid? Do you have coverage through your employer and is it sufficient to pay your bills? Do you need to consider supplemental coverage? How severe does your disability need to be in order to collect benefits? Do you have the most liberally worded contract for your occupation/profession? Are your benefits taxable? These questions and more are addressed in a comprehensive disability income needs analysis. We will guide you through the process of assessing your needs, exploring all available income replacement options and will make the appropriate recommendations.
Medical Insurance
A Preferred Provider Organization, is a health care plan that provides covered services at a discounted cost for subscribers who use network health care providers. PPO’s also provide coverage for services rendered by health care providers who are not part of the PPO network; the subscriber generally pays a greater portion of the cost for these services. Usually, a PPO will pay a greater percentage of the cost for a preferred provider, and less for a non-preferred provider.
A Health Maintenance Organization is a type of managed care plan that provides a form of coverage that is fulfilled through hospitals, doctors, and other providers with which the HMO has a contract. Under this model, providers contract with an HMO to receive more patients and in return usually agree to provide services at a discount. This arrangement allows the HMO to have lower deductibles, copayments and often times premiums, which is an advantage over the PPO, provided that members abide by the additional plan restrictions.
A Health Savings Account (H S A) is a tax-favored* account set up exclusively to pay certain medical expenses of the account owner, spouse, and dependents. Health insurance coverage must be provided under a high-deductible health plan. Qualified contributions by the account owner are deductible from gross income and growth inside the account is not taxed. Distributions to pay for qualified medical expenses are received income tax-free. Funds not used during one year can be held and used to pay qualified medical expenses in a later year even if no further contributions are permitted.
• The rules discussed here concern federal income tax law. State or local law may differ.
Medigap Policies are supplemental health insurance policies sold by private insurers, designed to fill some of the “gaps” in health coverage provided by Medicare. Although Medicare covers many health care costs, you still have to pay certain coinsurance and deductible amounts, as well as paying for services that Medicare does not cover.
Generally, you must be enrolled in the original Medicare Parts A and B before you need to purchase a Medigap insurance policy. Other types of health insurance coverage, such as Medicare Advantage, other Medicare health plans, Medicaid, or employer-provided health insurance, do not work with Medigap policies.
Under federal regulations, private insurers can only sell “standardized” Medigap policies. Through May 31, 2010, there were 12 standardized Medigap policies, termed plans A, B C, D, E, F, G, H, I, J, K and L. Effective June 1, 2010, plans E, H, I and J could no longer be sold, and plans M and N were added. Individuals who purchased a plan E, H, I or J before June 1, 2010 may keep those plans.
Long-Term Care (LTC) is the term used to describe a variety of services in the area of health, personal care, and social needs of persons who are chronically disabled, ill or infirm. Depending on the needs of the individual, long-term care may include services such as nursing home care, assisted living, home health care, or adult day care.
The need for long-term care is generally defined by an individual’s inability to perform the normal activities of daily living (ADL) such as bathing, dressing, eating, toileting, continence, and moving around. Conditions such as AIDS, spinal cord or head injuries, stroke, mental illness, Alzheimer’s disease or other forms of dementia, or physical weakness and frailty due to advancing age can all result in the need for long-term care.
Assessing the need for lLTC insurance is an important part of any risk management program. The heavy economic burden of paying for such care should be considered against your available resources. If you need LTC for even a short period of time, what effect will that have on your estate and any legacy you may wish to leave to your heirs? The decision to purchase LTC insurance, either individually or under a group plan, generally must be made while you are still healthy. Once a disabling condition occurs, it is too late to act.
Annuities
An annuity is a contract in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums you have paid. Annuities are most often bought for future retirement income. Only an annuity can pay an income that can be guaranteed to last as long as you live.
An annuity is neither life insurance nor a health insurance policy. It’s not a savings account or a savings certificate. You shouldn’t buy an annuity to reach short –term financial goals.
Your value in an annuity contract is the premiums you’ve paid, less any applicable charges, plus interest credited. The insurance company uses the value to determine the amount of benefits you will receive from the contract.
• Immediate Annuity: Income payments start no later than one year after you pay the premium. You usually pay for an immediate annuity with one payment.
• Deferred Annuity: has two parts or periods. During the accumulation period, the money you put into the annuity, less any applicable charges, earns interest. The earnings grow tax-deferred as long as you leave them in the annuity. During the second period, called the payout period, the company pays income to you or to someone you choose.
• Fixed: During the accumulation period, your money (less any charges) earns interest at rates set by the insurance company or in a way spelled out in the annuity contract. The company guarantees that it will pay no less than a minimum rate of interest. During the payout period, the amount of each income payment to you is generally set when the payments start and will not change.
• Variable: During the accumulation period the insurance company puts your premiums (less any charges) into a separate account. You decide how the company will invest those premiums, depending on how much risk you want to take. You may put your premium into a stock, bond or other account, with no guarantees, or into a fixed account, with a minimum guaranteed interest. During the payout period, the amount of each income payment to you may be fixed (set at the beginning) or variable (changing with the value of the investments in the separate account.)
NOTE: Investors should consider the investment objectives of the variable annuity carefully before investing. An investment in a variable annuity involves investment risk, including possible loss of principal. Variable annuities are designed for long-term investing. The contract, when redeemed, may be worth more or less than the total amount invested. Variable annuities are subject to insurance related charges including mortality and expense charges, administrative fees, and the expenses associated with the underlying funds. There is a surrender charge imposed generally during the first 5 to seven years you own the contract. Withdrawals prior to age 59 1/2 may result in a 10% tax penalty. The guarantee of the annuity is backed by the financial strength of the underlying insurance company. Investment sub-account value will fluctuate with changes in market conditions. The prospectus contains this and other information about the variable annuity.