Re-Examining the Role of Life Insurance as Part of a Sound Financial Strategy Provided by: Steve Way, CLU, ChFC, Northwestern Mutual Financial Network
"It’s Not Like Buying a Book Online or Using the Latest Technology Tool"
While the ‘90s were a time of economic prosperity and wealth accumulation for many, the 2000s have reminded people of the importance of diversification and protection. Certainly, economic and world events have caused many of us to refocus on a larger and more challenging financial picture.
For these reasons, it is more important to work with a qualified financial professional (Money Maladies Survey, Northwestern Mutual, 2000-2002). And, wisely, many financial professionals are preaching the need for diversification as a means of better managing risk. But how many of them are suggesting that their clients take a second look at an old reliable tool – life insurance – as an essential element for a sound financial strategy?
Arguably, the biggest issue with life insurance is the tendency to oversimplify the whole process of buying it. It’s either term or permanent, some “experts” will say. Furthermore, these same experts will often advise that term is the only way to go for everyone.
Truth is, buying life insurance cannot be reduced to a simple either/or decision. It is much more than a simple commodity; it’s not like buying a book online or using the latest technology tool. And it will depend upon each person’s circumstances. There are issues of:
How much insurance you need and how long you’ll need it
How the actual contract is designed: What types or combination of types are best for your needs, how your insurance needs might change over time, and the extent to which you are prepared to pay premiums over an extended period
Re-examining the Role of Life Insurance
It follows that the life insurance policy a person owns should reflect that individual’s unique needs – there are no one-size-fits-all solutions when preparing for financial security. For some this could mean term life insurance; for others, it could mean permanent life insurance. For others, still, it could mean a blended policy of both term and permanent insurance, or a combination of several types.
Whenever you get into the issue of term or permanent, it’s important to understand the fundamentals. With permanent insurance, the insurance proceeds are paid to your beneficiaries when you die, as long as the premiums continue to be paid. Permanent insurance has level premiums and a cash value that grows on a tax-deferred basis. Term insurance, on the other hand, provides a payout only if you die within a certain period of time. The premiums typically increase each time you renew your policy and it has no cash value. Initially, the premium for term insurance is considerably lower than that of a permanent policy. But, in the long-run, the net cost may eventually be lower with the permanent plan.
Life insurance should be considered the foundation and most conservative element of any personal plan – the money that absolutely has to be there, no matter what the economic cycle or climate. Furthermore, choosing the right amount of insurance is more important than finding the right kind. After that, the type you buy depends on your timetable and budget.
A good financial representative will make sure you consider life insurance as part of your overall financial strategy. This is someone who can help you understand your insurance needs and help identify which products offer innovative solutions in a particular situation. Rather than push a product, a good financial representative will do these things:
Ask questions about your goals and objectives and your long- and short-term needs
Analyze the information to determine the feasibility of these goals, objectives and needs
Make a recommendation to help meet your financial goals
Provide good service year after year, by letting you know how your plan is performing relative to your objectives – remember, it’s a long-term relationship
Article prepared by Northwestern Mutual with the cooperation of Steve Way, CLU, ChFC. Steve Way is a Financial Representative with Northwestern Mutual Financial Network, the marketing name for the sales & distribution arm of The Northwestern Mutual Life Insurance Company (NM), Milwaukee, Wisconsin, its affiliates & subsidiaries. Financial Representative is an agent of NM based in Walnut Creek, CA. To contact Steve, please call 925-930-6401, e-mail him at steveway@nmfn.com, or visit his Web site at www.steveway-nm.com. CA license number 0464438.
The Myths about Long-Term Care By: Ivette Santaella, New York Life Insurance Company
Long-term care has been in the news often these days. But there is also a lot of conflicting, and even mistaken, information. Misconceptions may have prevented you from including long-term care* planning into your retirement portfolio. But long-term care planning can be a critical component to any comprehensive retirement plan.
*Long-term care is substantial assistance form another individual to perform 2 or more activities of daily living such as bathing, eating, dressing, toileting, transferring and continence due to a loss of functional capacity expected to last at least 90 days or longer or substantial supervision due to a severe cognitive impairment such as Alzheimer’s disease.
Now is the time to dispel these myths...
Myth #1: I’ll never need long-term care. Sometimes people find it difficult to imagine themselves needing long-term care services. Living a long life may increase your risk of needing long-term care services in a home and/or community-based setting or the possibility of a nursing facility stay sometime during your lifetime. Isn’t it better to insure against what that risk may do to your family and your financial plans?
Myth #2: Long-term care is only for the elderly. The unexpected need for long-term care could arise at any age for any number of reasons, including illness or accident.
Myth #3: I’ll pay for my own long-term care. In 2008, nursing facility costs averaged over $76,400 a year nationally (New York Life Insurance Company, Survey of Nursing Home Costs, 2008)
. In California, nursing facility costs can average $94,900 in some areas (New York Life Insurance Company, Survey of Nursing Home Costs for San Diego area, 2008). How long can you pay for these expenses without jeopardizing your financial plan or exhausting your savings? It may make good sense to transfer a part of that financial risk. Even if you can afford to pay for long-term care services out of pocket, consider transferring a portion of the cost to an insurer for premiums that may total a fraction of the cost of care.
Myth #4: Medicare will cover my long-term care expenses. Medicare does pay for nursing facility care, but only for a maximum of 100 days and if the 3-day qualifying hospital stay requirement has been met. In addition, Medicare will only pay as long as you are showing progress towards recovery. Once your condition becomes stable, even if you are not fully well or back to a completely healthy state of being, Medicare rules indicate that benefits will stop. Also, Medicare does not pay for individuals to attend an adult day care or for the room & board expenses at a residential care facility.
Myth #5: Medi-Cal will cover my long-term care expenses. Medi-Cal focuses on helping people with limited or minimal income and assets, and in order to qualify for benefits, you have to demonstrate a financial need for help. Qualifying means spending nearly all of your own money on your own care before the government will step in to help.
Myth #6: My family will take care of me. The financial, physical and emotional stress that full-time care giving may place on families can be overwhelming. Many families have struggled to provide care for parents or siblings only to eventually realize that the care required is more than they can provide. Sometimes the best way for a family to take care of a loved one needing long-term care is to make sure that they have access to professional care. With the advances in home care services, many people needing long-term care are actually able to stay at home, with or near families, and still get the professional care they need.
Myth #7: Long-term care insurance covers only nursing homes. Everyone wants to stay at home. Long-Term Care Insurance can offer valuable benefits for eligible services that may keep you at home for as long as possible. Long-term care insurance can also help cover the cost of care in different care settings, such as adult day care centers, residential care facilities and nursing facilities.
With long life comes long-term planning. Make a plan for you and your family today.
Article prepared by Ivette M. Santaella, Agent, New York Life Insurance Company, CA license #0F96279 at 925-847-4659.
Downsizing:
A Smart Financial Move
As people move into their 50s and 60s, priorities change. The hours spent on home improvements and the sheer time necessary to maintain a full-sized home seem to be a little more of a burden. As kids move on, there’s all that unneeded space.
Men and women tend to turn on the gas in the last 15-20 years of their working lives to make sure their retirement savings will be adequate to their needs. That’s why the idea of downsizing is a good one to start early. It’s also a good time for a financial check-up as well.
What is the chief advantage to downsizing? Handled correctly, it can save a lot of money. Selling a larger home – possibly one that still has a mortgage – in favor of a smaller house or condo that’s completely paid off can save potentially tens of thousands of dollars in interest payments over time while still building equity. The earlier the process starts, the better.
Here’s a checklist of considerations in downsizing your life:
Get advice first:
As mentioned, downsizing should be a holistic process, a chance for a check-up of your overall finances while identifying things, expenses and habits in your life that you can jettison. Having a conversation with your Capital Advantage, Inc. financial advisor is a good start. We can help by asking important questions that will get you to a better place financially. It’s helpful to set up a plan to extinguish debt in all of its forms and move on to a check-up of savings, investments and estate matters.
Downsize potential health issues:
No matter what the final effect of health reform on pocketbook issues, your out-of-pocket and premium-based health costs over time will be cheaper if you take steps to better maintain your health. Make weight and other personal health maintenance issues a new priority as you move into your pre-retirement years.
Plan for a retire-career:
You might be working for a company or organization that has a mandatory retirement age or you have a year in mind when it might finally be time to pack up and go. And there’s nothing wrong with a retirement devoted to travel and leisure activities. But if you think you won’t be able to afford to quit working completely or if doing nothing will eventually drive you nuts, consider getting some career counseling, personality testing and do some research now that will help you train for a new full- or part-time career for after you retire from your present job.
Start thinking about real estate and new places to live:
Today’s retirees don’t necessarily have to move to predictable retirement destinations. Telecommuting allows many people to continue working lives and education from anywhere. For many people, the magic combination might involve cheaper real estate, desired weather and activities, travel options and access to good doctors and quality health care facilities. Decide what kind of home you could see yourself living comfortably in at age 70 or 80. This combination of factors might happen in a surprisingly large number of places based on individual preference. To get you thinking and hone your expectations, start with resources like U.S. News & World Report’s online “Best Places to Retire” selection tools.
Talk to your family:
It’s really important to discuss not only your expectations for later in life with your family members, but it’s important to get their feedback on what they consider good ideas for you. There may come a day when you need to rely on others for help, and it would be a good idea to identify how realistic that is. Also, if you’re talking about downsizing certain assets or property that might have been in your family a long time, it’s important to discuss that with others who might be affected by that decision.
Start weeding:
Physical downsizing isn’t something that’s done in a month. Give yourself a year to go through each room in your home and prioritize what you’re really going to need if you move to a smaller place. Make a list of what you hope to give to friends and family members and what you’ll donate or trash. Time will give you more opportunities to put good, usable items in the hands of people who could really use them. Develop a recordkeeping system that fits you so you won’t forget any decisions you’ve made along the way. Also, you might want to set up a separate area for family photos and other keepsakes that have high emotional value and set up a hopefully egalitarian system for who will get what either when you move or when you die.
Don’t start upsizing later:
When you do move, chances are you will need to invest in some new household items or possibly furniture to match new surroundings. Try to avoid going overboard with this – that’s why thoughtful downsizing should prevent a lot of spending for stuff you’ve already chucked. Oh, and make a permanent life decision if possible not to start re-using credit cards or mortgage debt if you can possibly avoid it in your later years.
Please call our office at (925) 299-1500 or toll free (888) 299-1500 if you are interested in scheduling a review of your investment strategy and/or financial plan. If you are not a client of Capital Advantage, Inc., we offer free no obligation consultations.
