Archive for the ‘Daily Living’ Category

Disability Insurance Isn’t Sexy!

Friday, May 18th, 2012

 

 

We are constantly bombarded with stats about dwindling Social Security funds; especially as they relate to retirement – but what about disability? Every bit as important, disability funding is more relevant for working people because it is a benefit that may help you now.

 

According to statistics sited in National Underwriter Magazine, the year end Federal Disability Trust Fund balance for 2011 was $154 billion in assets, down 15% from last year. Funded by a 1.51% payroll tax, the total amount generated in 2011 was $109 billion, which was down 19% from 2010.

 

These numbers suggest the fund may be depleted as early as 2016, two years earlier than previously projected. Adequate funding is anything but reliable in the long term.

 

More Hurdles to Consider

 

Funding issues aside, if you avoid insuring your family’s income because you can file for and receive benefits, think again.

 

Social Security Disability Insurance is a dicey issue at best. Only 35% of SSDI applicants are approved for benefits on their initial application and an additional 10% are approved after appeal. Translation: over half of all SSDI applicants are denied coverage.

 

Part of the reason for such a high denial rate is the SSDI definition of disability is often more stringent than that of a commercial insurance company. SSDI defines disability as the inability to perform a job due to a medical condition. Conversely, many commercial insurance contracts define disability as the inability to perform the job for which you have been trained or educated to perform.

 

Think about that a moment…

 

Take for example an electrician that is trained to work on business and/or residential electrical systems. If said electrician has a back injury that renders him incapable of physically demanding work that would be required of an electrician, he would most likely qualify for benefits under a commercial disability. That same electrician will most likely not qualify under SSDI if he would still be able to perform another type of work, such as answering telephones.

 

These defining terms can often be the difference between receiving benefits and not receiving them. Bearing this information in mind, it is scary to think of the ramifications attached to the dismissal of addressing these issues. Why then, do so many of us neglect to protect our family?

 

The Cost of Complacency

 

The lack of appropriate planning usually stems from several things. Exasperation at the thought of having to deal with yet another thing definitely plays into it. All we want to do when we get home from work is tune out and relax, right? The last thing on our minds is contemplating the pros and cons of disability insurance. Cost, like with anything else, plays a big role too. Yet cost, in this case, has to do with your family’s security.

 

The cost of protection may be more than you want to spend on the surface, but the cost of complacency in the event the unthinkable becomes reality, can be devastating. We all think it won’t happen to us, but the statistics tell a completely different story.

 

Here are some eye opening stats related to disability and the workforce:

 

1. A 35 year old has a 50% chance of a disability lasting 90 days or longer before turning 65.

 

2. Most people in the US are better prepared for death than a disability even though chances are 3 to 5 times greater that a disability will occur (based on age).

 

3. About 1 in 7 people between ages 35 and 65 can expect to be disabled for 5 years or longer.

 

4. About 110 million people have NO long term disability insurance.

 

5. Benefits from disability insurance from an employer sponsored plan are usually taxable while benefits from a privately purchased plan are tax free.

 

Take Away

 

What we spend our money on is a direct reflection of how we choose to allocate it. Cost, in reality, is truly not the deciding factor. Who isn’t a master at finding ways to buy things when you’ve got a big hankering for something?

 

Disability insurance isn’t sexy; it’s not something you’ll ever have a ‘hankering’ for, nor is it mandatory, like auto insurance. When it comes to spending money on things we can’t see, touch or feel immediately, our normal inclination is to back burner it.

 

When you move protecting your ability to earn income to the front burner, the good news is, cost is a very flexible thing. Personally tailored planning will provide you with protection conformed to budget.

 

Kurt Rusch CLU, ChFC

How to Interview a Planner

Wednesday, February 29th, 2012

 

Staying away from illegal interview questions is vital according to a recent CBS News blog. Do not screen people for: race, color, sex, religion, national origin, birthplace, age, marriage and disability status. You can, however, “re-work some legal alternatives”.

 

If you want to know how old someone is, ask them if they’re “over the age of 18”. If you want to know if they have kids, ask them if they’re “willing to travel”. That last one is interesting, because it naturally assumes people with kids don’t want to travel – who does, really? (For work, that is.)

 

Keeping these guidelines in mind, what should you ask the person you may ultimately entrust with your personal and confidential information?

 

Query Their Professional Age

 

You do want to know how long this person has been working in the business. Short of “carding” them, ask them to tell you about their work experience. How long have they worked with the carrier(s) and brokerage house(s) they represent? When did they get their accreditation(s) and how long have they held each of their industry licenses?

 

A word of caution: If you run into someone who advertises or speaks in terms of “big returns”, “no risk”, or “guaranteed appreciation”, run for the hills! The SEC and a slew of other governing agencies haven’t caught up with them yet.

 

The financial services industry is strictly regulated with regard to the way financial professionals are allowed to talk about their services. This pertains to anyone handling: stock/bond/commodity trades, life insurance, annuities, retirement accounts and the like.

 

Get a Complete Service List

 

When you hire a professional advisor, look for one who can shed light on your big picture. Those who handle life, health and property insurance, in addition to financial services will be able to serve your interests best with a complete profile in hand.

 

The key theme here is to avoid the pitfalls of mixing apples and oranges. The last thing you want to do is spend more than you have to with cross over coverage or waste money on products you don’t really need. Working your complete profile will also avoid the demise of ineffective protection and planning.

 

Fee or Free?

 

Many planners market themselves on the premise that charging fees guarantees honest service. They say this because charging you like an attorney demonstrates they are not beholden to any one service provider.

 

Working with a Planner/Advisor that is a Broker (who won’t charge you fees upfront) can also provide objective placement on your behalf. Professional planners who are brokers contract with multiple insurance carriers and investment houses that pay them commission on orders they place. (Keep that in mind if you opt to work with a fee based planner – use it to negotiate cheaper billing rates.)

 

On the opposite side of the spectrum are “captive agents” – those who work for (and are beholden to) a single carrier or investment house. While they do not charge fees for their services they are employees.

 

In recent years some insurance carriers such as, Allstate, have branched into financial product lines. To date, however, they do not provide one advisor to serve their customers’ multiple needs. In this scenario, finding the best advisor for your needs is left to chance.

 

Take Away

 

Look for someone with professional designations licensed in multiple product lines. Ask them to share their experience with you and request a complete list of services.

 

Work freely with a Broker Advisor. Planners who are brokers have access to numerous companies which gives them an edge on finding the best solutions for their clients.

 

If your Cousin Joey is a captive agent with State Farm, don’t shy away from working with a professional planner. Just make sure to let your advisor know about everything you have in place.

 

Kurt Rusch  CLU, ChFC

 

Follow Your Money For Answers

Monday, February 27th, 2012

 

 

According to the Bureau of Labor Statistics, more than half of the money we spend goes to housing and transportation. Reading about the breakdown of consumer spending, started me wondering…

 

1)      Why do we naturally bristle at the thought of saving money?

2)      Why does the discipline of wise money management overwhelm us?

3)      Why are we so great at finagling funds for fun, funky and frivolous stuff?

 

If you can relate (and honestly, who can’t?), you might be interested in knowing there is quite a plethora of documented theory that speaks to these questions and more published under “Behavioral Economics” and “Behavioral Finance”.  In simple terms, these theories address how social, cognitive and emotional factors affect our economic decisions. If you care to read historical timelines and academy, find them here: Wikipedia, AOBF and Neuroeconomics – yes, there is such a thing as Neuroeconomics – it is a focus for explaining “human decision making”.

 

 

Mental Accounting

 

Investopedia.com offers insights as to why we do and don’t spend certain resources under the auspice of, “Mental Accounting”. This concept suggests that much can be learned from the way we separate and allocate our money.

 

Mental Accounting is a subjective view of money. For example, when we earmark paychecks for monthly living expenses but think of “found” or unexpected money, such as tax refunds and lottery winnings, as money that can be freely spent, it is a subjective allocation.

 

Conversely, unemotional and logical money management does not recognize a difference between a $2,000 paycheck and a $2,000 winning lottery ticket – $2,000 dollars is $2,000 dollars regardless of source. (See the full tutorial here.)

 

Follow the Money

 

How can we nip Mental Accounting in the bud? Try following your money around for the next month in words – literally. If you’ve ever dieted, you know how helpful keeping a food diary is. No one likes doing them, but it is the most telling tool you can give yourself. Write down what you spend, allocate, and save every day – what, where, and why you spent it too. This includes the checks you write on your monthly bills.

 

At the end of the month you will be able to detect the way you think about money and possibly find some red flags you hadn’t seen (or thought of as such) before. For example, are you holding onto low interest bearing accounts and making high interest rate credit card payments? Could you pay off a small debt right away by using some of your ‘fun’ money? Are you keeping spare change in a can or buying dollar scratch offs?

 

Brace yourself, all those trips to Starbucks, Subway and Super K may just rise up and slap you silly across the face. Good luck.

 

Kurt Rusch  CLU,ChFC

 

Review, Retool & Renew

Wednesday, December 28th, 2011

 

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way- in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only. –Charles Dickens

 

Was 2011 the best of times or the worst of times? The answer to that depends upon whether your glass was half full or half empty.

 

Review

 

Don’t let frustration cloud the path of renewal. There’s nothing worse than basking in what you didn’t accomplish – look to what worked first.

 

Take out a sheet of paper and draw a big “T” across and down the page. Write WORKING on the left side  and list the things you have in place you’re happy with. Consider whether you want to build further on any of these and make a note to do so.

 

Retool

 

Now write NEEDS WORK on the right side of the paper and list any financial concerns/objectives you’d like to address/reach in the coming year. What simple steps can be taken to start working on these?

 

Savings and cash flow are priority objectives for most people. Here are some easy things to do to rev up for the New Year:

 

Kitty Jar – Throw $5 bucks into a jar each week. A year from now you’ll have an extra $250 to pay bills, invest, or splurge with.

 

Automated Savings Account – Consider opening an automated savings account. Most banks have programs where you can designate a certain amount of money to be automatically transferred from your checking account each month into a savings account.

 

“Keep the Change” accounts are also an easy way to save automatically through your debit card transactions. Every time you buy something, the change is rounded up to the next dollar with the difference automatically deposited into the separate account. An additional amount of money may be required for auto transfer each month too, usually a $25 minimum. If you use your debit card in lieu of cash or check, an account like this can easily add up to far more than you might think over the course of a year.

 

Invested Savings – Mutual fund accounts can be opened for as little as $25 per month and set up on an automated basis. Naturally, this type of account carries no guarantee for positive results but if investing is a goal you have yet to reach, small accounts like these may be the best thing to do to get started.

 

Boost Cash Flow – There are numerous things you can do to increase cash flow: pay down/off revolving debt with the highest billed interest rates first, shop wiser, bag your lunch, etc. Now is also definitely the time to revisit the U.S. tax code. Taking advantage of every exemption, credit and deduction available to you can save hundreds to thousands in taxes. Ear mark your refund (ahead of time) for something on your list this year.

 

Embrace Economic Trends – Economies void of high interest rates of return provide affordable opportunities. Make low interest rates work for you! If you haven’t refinanced you home, do so. Financed items are cheaper now.

 

Renew

 

Work both sides of your “T” sheet and take simple steps to welcome in the New Year, clarity and resilience are on your side.

 

What was and what wasn’t becomes what can and what will in one quick tick tock. It’s really magical when you think about it.

 

We wish you a very Healthy & Prosperous New Year!

 

Kurt Rusch  CLU, ChFC

 

 

Get a Competitve Edge on Auto Insurance

Wednesday, December 7th, 2011


I recently shared an article I read on “12 Tips to Saving Money on Auto Insurance” with my wife; her first response was, “How much can you save if you make these changes?” Half of any insurance equation is always cost; unfortunately, the answer is more convoluted.

 

Since there are so many factors affecting the pricing of each and every type of insurance, the cumulative effect on changing one or more of the rating factors will vary accordingly. Overall, there is no set formula or even “rule of thumb” that insurance companies have for setting rates based on different risk factors. Every company will assign rates based on actuarial analysis of their current policy holders.

 

There are numerous possible discounts credited by most if not all companies today. Because urban drivers typically pay higher premiums than rural drivers, cost savings will be easier to accumulate for an urban driver. Here are the top things to consider and/or modify when seeking lower premiums:

 

 

Vehicle Choice

 

A major factor in determining rates for auto insurance is the type of vehicle being insured.

 

Obviously, a high performance car will typically be more prohibitive to insure than a family sedan. You may also be surprised to know that some relatively inexpensive autos are much more costly to insure than one may think because their repair costs are relatively high.  If you are looking to buy a car and insurance premiums are a major concern, contact a broker to determine which vehicles will have a lower premium to insure.

 

Clean Record 

 

One of the most important insurance rating factors is your driving record including tickets, accidents and any other claims filed. In general, the less activity, the better the rates.

 

Miles & Usage

 

There are separate rating categories for usage and annual miles driven; if you use your vehicle for  business the premium will be more substantial than if it is being used to run errands on the weekend. The same holds true for the annual mileage driven. The more you drive, the higher the premium.

 

Raise the Roof

 

Consider raising your deductible (the amount you would pay before the insurance pays the balance of a claim). Doing this can be a huge money saving plan, however, review the savings potential before blindly implementing a change – often times raising a deductible by an additional $500 will result in a minute change in premium. Determine whether the cost savings warrants the increased exposure.

 

Good Credit

 

Your credit rating can affect your premium; this is a rating factor that is not typically known to insureds. Most companies are now using credit ratings as one of the determining factors in rating contracts.

 

Location, Location, Location

 

Are you geographically undesirable when it comes to auto insurance? Location plays a huge part when determining premiums for insurance. Actuarially, companies have found that the congestion in urban areas lead to a statistically higher probability of having a claim.

 

Drop the Baggage

 

Get rid of unnecessary coverage. A good example of this would be to drop coverage on an older vehicle. As your vehicle declines in value, the amount that an insurance company will give you in the event of a total loss will also decrease accordingly. At a certain point in time, it becomes illogical to retain comprehensive and collision coverage on the vehicle.  

 

Crime Busting

 

Install anti-theft devices; in some instances the savings in premium will validate the initial outlay of cash to install such a device. Even if this takes a couple of years, it may be a wise move financially.

 

Combine & Conquer

 

Insurance companies typically will reward you for loyalty. They will give discounts for insuring all of your vehicles on one policy. They will also offer discounts if you have other insurance with their company such as homeowners, umbrella, and/or life insurance coverage.

 

Other Considerations

 

There are many company-specific discounts that may also be available. Examples of these would be discounts for college-degreed individuals, good students, military, employees of specific companies, and specific occupations.

 

For Illinois Seniors, there is a defensive driving program called 55 and Alive which teaches aging drivers how to adjust their driving to compensate for slowing reaction times etc.  Many senior centers offer these programs and taking these courses can help senior rated drivers.

 

Wrap Up

 

There is no one size fits all in the auto insurance market. Due to the number of companies doing business in this market, it is a must to shop around. If nothing else, it gives you a chance to review whether your existing limits remain adequate or whether they should be adjusted to better protect you and your family.

 

Shopping around will also help you determine whether or not your current insurer is still providing a good value for you. Are you truly receiving great value for the premium dollars that are being expended?

 

Kurt Rusch  CLU, ChFC

 

New Medicaid Laws May Impact Families

Tuesday, November 1st, 2011

 

We just received confirmation from our Elder Care Attorney that the Illinois Medicaid Laws will change January 1, 2012.  Current and future planning needs are now at crucial issue.

 

Why should you care?

 

The current state laws are much more favorable to applicants and their families; the new laws will make it more difficult to receive Medicaid benefits.

 

This is extremely important news for all senior parents and adult children – those with current need and those who have yet to reach that advent.

 

Legislated changes such as these can severely impact assumed expectations. Assisted and higher level care can drain an average middle income estate very quickly; for those without long term care coverage, pre-planning for Medicaid in the event it may be needed should be of paramount consideration.

 

There are many changes to the Medicaid system which will take place in the coming year. These highlights examine the issues of timely application (all assets do not have to be spent down prior to filing a Medicaid application) and asset protection.

 

Applications Filed Prior to January 1, 2012 Will Fall Under Current Medicaid Laws

 

Under the current laws if a nursing home or supportive living resident applies for Medicaid benefits the applicant is required to provide three years for all financial records to verify their assets. This includes all bank, investment, pension and retirement account statements, life insurance policies, and tax returns.

 

Medicaid is particularly concerned with whether the applicant has given anything away during the three year “look back” period, such as a gift to help pay for a grandchild’s college tuition or to a son or daughter in need. The current laws allow any ineligibility created from the gifts to begin tolling immediately when the gift is given. This offers the Medicaid applicant an important advantage in avoiding any penalties which may result from the gift.

 

NOTE: For those who are planning to enter nursing home or supportive living facilities before January 1st,  it is essential to determine if Medicaid application should be filed before the implementation of the changes in Illinois law.

 

Applications Filed After January 1, 2012 Fall Under New Medicaid Laws

 

Applicants will be required to provide five years for all financial records to verify assets. More importantly, gifts will not begin to toll until the applicant is already spent down. This is a significant change between the old and new laws.

 

Under the new law, applicants will likely have to try to recoup any significant gifts that were made within five years of filing a Medicaid application. In the event that the applicant cannot recoup the funds that were given away, then they will have an opportunity to plead for a hardship waiver and hope that the waiver is granted in order to obtain Medicaid benefits. The criterion in which a hardship waiver will be granted is somewhat unclear at this time, but it is anticipated it will be a very difficult process.

 

The current laws allow the spouse (community spouse) of a Medicaid applicant to protect all the assets that the community spouse has held solely in their own name (for three years or more) prior to filing for Medicaid. Current laws also allow applicants and their spouse to divide their joint accounts in half, so that the community spouse can keep half of the joint accounts.

 

Under the new laws, joint accounts will not be permitted to be divided between spouses. The community spouse will be allowed to retain a specified amount of account funds (currently $109,560). This amount is also subject to change from year to year.

 

For many families, it may be extremely advantageous to file a Medicaid application prior to the law change from an asset protection planning standpoint. After January 1st, asset protection will become more difficult to navigate under the new rules.

 

Please consider these options now and do not hesitate to contact me if you are unsure of the timing regarding your family situation at hand.

 

Kurt Rusch CLU, ChFC

 

Many thanks to John Belconis, JD, for his help in sharing this information with us.

 


 

 

 

 

 

Static Planning: The Need for Review

Friday, October 21st, 2011

 

In a perfect world planning would be easy. You would figure out how much of a resource you would need at a specific time and allocate assets either in a lump sum or systematically over time until this goal was reached. The account would grow steadily over time until the mark was reached – perfect indeed and static.

 

Enter my ism for today: static planning.  Something static doesn’t move; static planning is planning that doesn’t take into consideration market gyrations and changes in business. Static scenarios and the real world do not resemble each other much. Reality dictates that different times call for different assumptions and actions.

 

Here are two real world situations which at different times would have greatly skewed static planning assumptions and results:

 

MORTGAGE LOANS

The average interest rate on a 30 year fixed rate mortgage on October 19, 1981 was 18.45%.  The interest rate on that same 30 year fixed rate mortgage on October 13, 2011 was 4.12%.

 

The difference in these two figures is staggering. Where it would have taken regular monthly mortgage payments of $1,544 to pay off the mortgage under the previous figures, that payment would only require principal and interest payments of $484 per month currently to retire the same $100,000 balance over thirty years. Staggering!

 

MARKET INVESTMENTS

 

Market investments are far from a steady growing figure. For example, so far in 2011, the first four months of the year saw the S & P 500 average increase by 9.1%. Subsequently, that same average fell 18.6% through October 3rd. In the following nine days, the market rallied to 11.5% providing a return total of -1.1% for the year as of 10/14/2011.

 

Volatility like this is certainly not for the faint of heart. That being said, short term bank interest rates of less than 1% hardly seem the place to park assets in hopes of reaching long term goals.

 

MORAL OF THE STORY

 

These are but two examples of the need to revisit plans to see if they are still living up to wants and needs. While everyone is bullish in a good market (just ask them) reality indicates that many people are not anywhere near the risk takers they thought they were. Typical investors have a difficult time allocating enough resources to meet long term goals utilizing low fixed rate products.

 

This is precisely why all types of financial considerations, mortgages, retirement plans, investment strategies and the like, should be regularly reviewed. Advisors are trained to assess different economic environments and tailor them to investor profiles. Can you walk the walk or do you have commitment issues? Matching goals with disposition and financial change requires trained and routine review.

 

Kurt Rusch  CLU,ChFC

What if you couldn’t work and pay bills?

Wednesday, September 21st, 2011

 

 

According to statistics provided by the Social Security Administration, 3 in 10 workers entering the workforce today will become disabled before they retire. If that stat isn’t staggering enough, consider the fact that 71% of Americans would find it very difficult or somewhat difficult to meet their current obligations if their paycheck was delayed by just one week. This is a potential recipe for disaster.

 

A full 64% of wage earners believe that they have a 2% or less chance of becoming disabled when the actual percentage is more like 30%. Another misconception is that Social Security will pay disability benefits. While this is possible, it is only true to a small extent; 65% of new disability claims with Social Security were denied in 2009. For the fortunate 35% who were able to receive benefits, the average monthly payment was $1065.

 

Consider further the fact that 90% of disabling events happen outside the workplace, where Workers’ Comp does not apply, and we are looking at major gaps in one’s financial plans. Bottom line? There is a gross underestimation of the chances of becoming disabled over one’s working lifetime.

 

Biggest challenge? Being able to initiate and continue funding a financial plan. In the event of a disability, you will potentially lose anywhere from a month to a lifetime of future income that will make funding any other hopes and dreams for your future difficult if not impossible.

 

Overcoming Obstacles & Putting the Pieces Together

 

The common argument against additional planning is that there is no money left after allocating standard premium dollars for car, house, health and life insurance. The good news is that often, by simply changing the terms of your current contracts, you can obtain protective coverage with little or no additional out of pocket expense. While statistics show this is too important to ignore, 67% of workers in the private sector still have no provisions for long term disability.

 

More than worthy of further investigation, there are numerous variables that will influence the amount premium paid for disability contracts. Firstly, your current health is a big factor to qualify for this contract. Influences include height/weight ratio, chronic conditions including not only medical issues but injury history as well. The usual readings for blood pressure, cholesterol and the like will also influence the situation.

 

Next is occupation. Since the likelihood of becoming disabled in a physical pursuit such as a mechanic is much more likely than it would be for an accountant, the rates will be reflected accordingly.

 

The monthly benefit amount received will be very important in determining the premium. Insurance companies will typically limit you to about 65% of your current income which approximately reflects your current take home pay. The reason for this is that the insurance company does not want you to be better off financially on disability than working nor support a financial disincentive to get back to work.

 

One key point to keep in mind when considering how much coverage you desire: personally paid for disability insurance benefits are not subject to Federal Income Taxes. That provides savings at a time when you will need it the most.

 

The benefit period you choose is also of paramount importance. You can select a 1 year policy all the way up to a lifetime policy which will typically pay your benefit until the time that you typically would be retiring from work.

 

Finally, the elimination period for disability insurance is like a deductible. This reflects the time after you are unable to work before you can begin to collect benefits. The longer you wait before you begin to collect benefits, the lower the premium.

 

Putting all these pieces together in a strategic manner should be your main objective. It is highly possible to customize a plan that will not only provide security to you and your family but also work within the parameters of your budget.

 

Kurt Rusch  CLU,ChFC