Posts Tagged ‘protection’

Online Auto Insurance

Thursday, September 15th, 2011

 

Do-It-Yourself is big online today. Consumers like to pick out what they want and get quotes from the anonymity of their own computers. Except, of course, for those annoying vendors who call incessantly once you hit “submit”, people can shop incognito most of the time.

 

The insurance industry offers equal accessibility. Who doesn’t like the thought of not having to talk to the Boogeyman (aka insurance agent) when looking for a good deal online? There is no doubt that D-I-Y is convenient, but getting a good deal does not translate to getting good coverage in the insurance biz. More often than not, it’s more like D-Y-I: Do Yourself In.

 

Cyber Gap

 

The most common insurance market being hawked online by companies today is automobile insurance. My personal observation: consumers really don’t understand what they are purchasing. For example, let’s take a look at Joe Blow. He has a $400,000 home and just switched his auto insurance (online) to save $400 a year keeping the same deductible.

 

Joe saved premium by dropping the liability coverage on his three vehicles from $250,000/$500,000/$100,000 to the state minimum: $20,000/$40,000/$15,000 (in Illinois). What Joe did in saving that extra $400 per year was expose himself, his paychecks, savings and home.

 

Many people don’t understand the significance of this switch. When Joe switched to minimum liability coverage, in reality he agreed to the following if at fault in an accident:

 

1. He will be personally responsible for any injuries caused over $20,000 per person.

 

2. He will be personally responsible for any personal injuries totaling over $40,000 for all passengers in the other vehicle.

 

3. He will be personally responsible for any property damage over $15,000.

 

The shortcomings here are obvious; medical costs are exorbitant and low end new cars are selling for more than $15,000 these days. That $400 a year won’t do much towards replacing property or paying doctors’ bills. Add to this what could happen to Joe in the worst case scenario: causing someone else’s death. A wrongful death lawsuit stemming from an auto accident could have you working for the decedent’s family for the rest of your life.

 

Lesson Learned

 

Simply put, when consumers opt for the lowest price with disregard for the very benefits they’re buying, they open themselves up to a plethora of problems down the road.

 

Tread very carefully before you cyber drive insurance. Be armed with the knowledge of what is and is not covered and do your homework before you make a decision – don’t jeopardize your lifestyle.

 

Alternatively, work with an insurance broker, (yes, I am one), who has access to numerous carriers to draw from in finding coverage appropriate to your cost and benefit standpoint.

 

Kurt Rusch  CLU, ChFC

The Most Costly Mistake

Thursday, May 12th, 2011

 

According to a new report, “The cost of long-term care services continues to rise”. I don’t think any of us would consider that to be a newsflash by any means; quite the contrary really. Rising healthcare costs are and have been a nationwide topic du jour for quite some time. Why would long term healthcare costs be any different?

 

This latest study, published by John Hancock, incorporated “11,000 U.S. providers, including nursing homes, assisted living facilities and home health care agencies” into the mix. It was the fourth such study done by Hancock in the years, 2002, 2005, 2008 and 2011. Using a 9 year average to produce this year’s reported cost figures, results provided the following:

 

Average cost for a home health aide ($20 hourly/$37,440 annually) has risen an average 1.3%  per year.

Average cost for a month in an assisted living facility ($3,270 a month/$39,240 annually) has risen an average 3.4% per year.

Average cost of a semi-private nursing home room ($207 a day/$75,555 annually) has risen an average 3.2% per year

Average cost of a private nursing home room ($235 a day/$85,775 annually) has risen an average 3.5% per year.

 

Just for kicks I searched for the 2008 study to see how the numbers flowed – I would have preferred looking at the ‘02 or ‘05 report, but Hancock’s website did not provide archives that far back. In the same categories, and true to form, here are the 2008 figures:

 

Average cost for a home health aide ($19/hourly) has risen an average of 1.4% per year since 2002

Average cost for a month in an assisted living facility ($2,962 a month/$35,544 annually) has risen an average of 4% per year since 2002

Average cost of a semi-private nursing home room ($183/day/$66,795 annually) has risen 2.7% per year since 2002

Average cost of a private nursing home room ($204/day /$74,460 annually) has risen an average of 3.2% per year since 2002.

 

What neither of these studies provide is the average cost of long term care premiums per annum or month. This is due to the fact that long term care policies are extremely customizable offering a robust benefit menu of options to pick and choose from. Most people are surprised to learn they can personalize cost effective plans to fit their needs. Think: Cadillac vs. Chevy vs. Used Car; that’s how diverse it is. When you factor in inflationary, actuarial and other industry factors, creating an average cost across any year cannot provide realistic comparatives.

 

To provide a better grasp for value, understanding how and when long term care comes into play is essential. The following scenarios will give you a feel for how long term care works using simple round numbers:

 

Jean buys a long term care policy at the age of 55. The annual premium is $3,500; she can pay the premium semi-annually, quarterly or monthly. At age 65, Jean suffers a physically disabling stroke and needs to bring daily help into her home to assist her with ADL’s (Activities of Daily Living). She exercises her policy benefits and meets her elected 90 day “elimination period”, (deductible requirements), to avoid using her monthly pension income to cover home care costs.


Up until this point, Jean has paid in a total of $38,500 in annual premiums; now is when she will begin to reap the benefits of her long term care investment by putting her premium dollars to work for her. She hires 4 hours of help 7 days a week at $20/hour for a cost of: $2,427 per mo / $29,120 annually. She will recoup 56% of what she paid in over 10 years within the first 12 months of care: $38,500 Total Premiums Paid for 10 years – $29,120 Total First Year of Home Help Cost – the 90 Day Deductible total of $7,281. By the end of the second year, the benefits paid out for home care will be higher than the total premiums she paid in.


NOTE: When long term care benefits are activated, premiums are no longer due. The amount of total benefit payout is chosen by the policyholder at the time of purchase between maximum and unlimited amounts.

 

The next scenario illustrates what Jean’s self care cost would be without long term care insurance:

 

Jean receives a monthly pension of $2,000 plus another $1,000 in social security income providing her a tidy sum of $3,000 per month / $36,000 per year. Her annual fixed costs are as follows: $6,000 Property Taxes (her home is paid for), $ 1,800 Supplemental Health Insurance, $600 Prescription Drug Coverage, $700 Auto/Home Insurance, $ 3,000 Estimated Tax Payments, for an annual total of $12,100 / $1,008 per month. Her monthly daily living expenses for food, gas, electric, entertainment, dental, clothing, gifts and miscellaneous is budgeted at $500. Her monthly retirement income minus her total monthly expense of $1,508 leaves her with $1,492 a month for home care expense. Given her monthly home care expense is $2,427, she will have to tap into her retirement savings to cover the $935 deficit each month, $11,220 annually, to keep up with her expenses.


Realizing she will have to begin to drain her assets to pay for home care, Jean looks for ways to tweak her budget. She can’t drive herself anymore, but she needs to keep her car for care-giving services. Selling her home and moving into a single bedroom condo could pay off but she hesitates to do so in the event she’ll need a second bedroom for live in care down the road; at 65, she knows she can easily live another 15-20 years. She decides to live frugally and hope for the best.


Does Jean have enough retirement savings to draw upon for the next 15-20 years? In just 10 years she will liquidate $112,200 of assets, paying out $73,700 more than if she had a long term care plan – just to cover part time help.

 

How will Jean cover her costs if she needs to up the amount of home care to 8 hours a day or more? She may not, and outlive her retirement savings. If that happens, she will then need to go on Medicaid, which means she will have to live in a nursing home because neither Medicaid, nor Medicare, as many people mistakenly think, do not pay for home care expenses in the long term.

 

Conversely, the most costly mistake people make about long term care insurance is the assumption that the money spent on long term care premiums won’t pay off unless they need long term care whether in a facility or at home. Why would you pay in $3,500 a year for 10 years or more for something if you never need the benefit?

 

The correct answer to this question is: leveraged amounts are an available contract option. Simply stated, people can tailor their policies to execute the following actions if they do not use their benefits: 1) The balance can be transferred as a tax free death benefit to their heirs. 2) The contract can be cancelled and most or all of the paid premium dollars are refunded. This is known as a “liquidity” feature.

 

Jean’s scenario succinctly demonstrates why long term care plans should be a part of planning for retirement. When care is needed, policy holders will not have to worry about tapping into, nor bleeding dry, their investment/retirement accounts to cover expensive care out of pocket. If care isn’t needed, optioned policy values can be transferred tax free to their heirs or recouped upon contract cancellation. For people with little or no retirement savings; long term care becomes a crucial planning tool.

 

Kurt Rusch, CLU,ChFC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Protection 101

Tuesday, February 15th, 2011

Today marks the first day of a new job duty for me, blogging. (In my wildest imagination never did I think I would become a blogger). Naturally, my first challenge was to decide what to write about. When it comes to basic financial planning, what has the most impact on most people?

The answer is property insurance. Glamorous, it’s not, but protection of our automobiles, homes (whether personal residence, seasonally lived in, or rented out), boats, recreational vehicles, and additional liability policies, such as umbrella policies, is a core element in having a financially secure foundation.

Premium vs. Protection When I review property protection policies with clients, it is acutely evident that most people have no idea what exactly is or is not covered by their policies. My observations are that people typically know their premium and deductible and that’s about it. While having a good grip on expense is good thing, a lack of understanding for proper coverage can actually put your financial future at risk for a couple of dollars in saved premium.

But here’s the good news, in many cases, rearranging where the premium dollars are allocated, can ensure more appropriate coverage for no additional premium outlay. This is why it is so important to  discuss what the best options are for you, your business and/or your family with a licensed professional. Steer clear of  do-it-yourself online issue and toll free numbers to save a buck; they are void of the personalization needed to get the best coverage at the best price.

Auto Liability Some of the most common misunderstood concepts relating to auto insurance are the liability amounts. What people should have to be well covered and what is mandated by the government are two drastically different amounts. The State of Illinois mandates minimum bodily injury liability coverage of $20,000 per person and $40,000 per accident, and $15,000 for property damage – this is where the problem starts.

Unfortunately, government mandated amounts such as these, won’t go very far in the real world. How many people have you known who were hospitalized that left with a bill of less than $20,000? How often do you think that totaled cars would be worth more than $15,000? Both of these situations illustrate why it is so important to really understand the coverage you pay for before you need it.

Consider further, what happens if you get into an at fault accident without proper liability coverage. The other party can come after you for the amount over and above the covered amount. If you don’t have the ability to pay, they can seize your home, other assets and/or have your wages garnished. Is this the type of exposure you really want to put yourself or your family through to save a few bucks?

Water Claims A common item neglected in the Chicago area has to do with homeowners insurance; specifically, water claims. There is a difference between flood insurance and water backup insurance. Flood insurance covers damage relating to a body of water leaving its banks and causing damage to your property. This is a separate policy that would be available for purchase if you live in a floodplain. Typically, if you have a mortgage and live in a floodplain, the mortgage company will require this coverage be in place.

In contrast, water backup coverage describes a claim arising from water backing up through the plumbing system in your home. This coverage typically comes in the form of a rider that can be added to an existing homeowner’s policy for an additional fee. In the absence of this optional rider, there is no coverage on a typical homeowner’s policy for any water claim. The exception to this statement is if the homeowner has purchased an all perils policy.

Premium costs, auto liability and water claims are just a couple examples of how underestimating and misunderstanding property coverage can send you into financial peril. Reviewing and weighing all the options available for each type of insurance you may need is imperative in choosing what coverage is appropriate for you and yours.

Kurt Rusch CLU, ChFC