Objective information about financial planning, investments, and retirement plans

Life Insurance Over Age 50 – Approval and Savings Tips

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This is a guest post by Chris Huntley, President of Huntley Wealth & Insurance Services. All opinions and suggestions are his.

One of the most common misconceptions about life insurance is that you can no longer purchase it, or the premiums suddenly skyrocket, the day you hit 50 years old.

In many cases, the exact opposite is true!

In some instances, purchasing life insurance at certain “milestone ages” like 60, 65, or 70, can actually unlock huge savings for you!

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Having said that, purchasing life insurance over age 50 can be a bit of a balancing act, and you’ll need to understand some key factors about how age affects pricing and qualification.

Generally speaking, older age affects:

  • Your premium
  • The types of policies and term lengths you are eligible to buy
  • The health class you can qualify for

Let’s start with the obvious… How premiums increase as we age, and then move to savings opportunities.

The Cost of Waiting

Generally speaking, life insurance tends to become more expensive as you age.

As a rule of thumb, you will likely see the premium for a policy increase in the following increments:

  • Age 50 – 59 will see an increase of between 8 – 10% per year
  • Age 60 – 69 will see an increase of between 10 -12% per year
  • Age 70 – 79 will see an increase of between 12 -14% per year

So, if you are currently age 59 or 69, or approaching another birthday, you may not want to wait to apply for coverage.  Of course, you’ll also want to weigh that decision against the savings tips for waiting, which I’ll cover later.

Qualifying for Life Insurance Over Age 50

While in some ways, qualifying for life insurance over age 50 is easier, there are situations when it is more challenging.

For example, most life insurance policies require that you take a medical exam.

After 50 years of age, the medical exams become a bit more stringent. Your exam might include a resting EKG, even for a small amount of coverage.

If you’re over 70, you might also be required to take a “special senior” exam to test mental cognition.

I once had a 72-year-old declined for coverage because he couldn’t draw the face of a clock with the hands showing the time, 2:40.

The age when these and other tests apply vary, so if you are worried you might be disqualified, speak to an independent agent who can check the exam requirements by carrier, to find the carrier with the “easiest” medical exam requirements.

How Age Affects the Types of Policies Available

When it comes to term life insurance, and particularly the length of the term, those who are over age 50 should know that there are certain age cut-offs where certain terms are no longer available.

For example, in your 50’s, some companies may no longer allow you to buy a 30-year term.  Some carriers no longer offer it at age 50, while for others, the cut-off age could be age 55 or 57.

The same holds true for 20 and 25-year term.  As you get into your 60’s or 70’s you may not be able to buy 20 or 25-year term policies. The point to keep in mind is that ALL insurers have a cut-off point where they will no longer sell certain policies.

If you wait too long to buy your policy, you may no longer have access to the term length you desire and might have to opt for a much more expensive permanent policy, such as whole life or universal life instead.

Now that you understand how waiting to buy life insurance can affect the policies available to you and pricing, let’s discuss some savings opportunities for people over age 50.

How Key Birthdays Can Save You Money on Life Insurance

As stated previously, there are specific birthday milestones after age 50 that can end up saving you a lot of money on life insurance.

This can apply to individuals in a variety of scenarios such as:

  • “Big Boned” or Overweight Individuals
  • Individuals with High Blood Pressure and Cholesterol Levels
  • Individuals with History of Family Illness
  • And more

In all cases below, the savings come from being able to qualify for a better health rating.  As we age, many life insurance companies relax on some health and lifestyle concerns, giving us the opportunity to qualify for better health classes.

And since the name of the game in life insurance is getting the best health rate (better health rating = savings), you need to understand these tricks.

Life Insurance Savings Tips for “Big Boned” Individuals

Whether you’re a few lbs. overweight or more, this single tip can easily save you 25% to 50% on your life insurance premiums.

As it turns out, some companies offer more lenient height/weight guidelines to individuals as they get older, particularly for ages 60, 65, and 70.

For example, a 59-year-old male who is 5’9 and weighs 210 lbs. might qualify for an insurance carrier’s third best health rating.

However, if that same individual was 60 years old, he could qualify for the carrier’s best rating.

Since health classes increase premium by approximately 25% per class, the 59-year-old would have to pay about 50% more than the 60-year-old at the same weight!

If you’re overweight at all and over age 50, it would be worth your time to speak to a knowledgeable independent agent who can shop the market for the company that can offer you the best rate at your age, height, and weight.

Savings Tips for Individuals with High Blood Pressure/Cholesterol Levels

The same lenient guidelines over age 50 apply to those with higher blood pressure and cholesterol levels.For example, let’s use an actual chart from one life insurer for blood pressure. They will give the give the top health rating for:

  • Ages 0 – 60 for blood pressure: 140/85
  • Age 61+ for blood pressure: 150/85

If you are an individual who is age 55 and has a blood pressure reading of 145/83, you would not qualify for the top health rating. But the same individual, who is 61 with the same BP reading would qualify for the top health rating.

The same approach applies to cholesterol levels, and other lab levels.  You can even get more favorable underwriting over age 50 if you’ve had a history of cancer or heart disease in your family.

How to Find Affordable Life Insurance After Age 50

As you can see, every insurer has their own underwriting guidelines for those after age 50, and it’s a bit of balancing to determine when you should apply for coverage.

For example, if you are 58 years old and have a few health conditions, or are a bit overweight, you’ll probably pay more now to purchase life insurance than you will if you wait until you’re 60.

You might even be tempted to hold off any purchase until you hit that milestone age.

However, I never recommend that my clients wait.  A lot can happen if you “chance it”, and wait a year or two to buy coverage.  First of all, you could die without coverage!  Secondly, no one can predict your health down the line and whether you’ll still be insurable.

Best practice is to buy the coverage you need now, and then every year or two, check with your agent for savings opportunities.

Just be sure to use an independent life insurance agent.

Chris Huntley is President of Huntley Wealth & Insurance Services, a life insurance agency based in San Diego, CA, where he specializes in helping individuals with high risk medical issues.  He has been in business for 10 years and is licensed in 48 states.  He also owns eLifeTools, a site dedicated to online marketing for insurance agents.  Chris can be reached on Twitter: @mrchrishuntley

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out our resources page as well.

Discover the Secret to Living Tax-Free in Retirement

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On those rare occasions that I develop writer’s block in terms of what to write about here the financial services industry seems to bail me out. Case in point the invitation to a “Private Taxation Workshop” (versus just a plain old seminar) I recently received in the mail. The title of the seminar on the invitation was title I used for this article.

Think about the words “secret to living tax-free in retirement” and while doing so make sure you know where your wallet is.

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Look I’m not saying the accounting firm who is conducting the session in conjunction with a financial services firm is anything but above-board but when I hear words like living tax-free in retirement my first thought is that there will be someone telling you that purchasing the cash value life insurance policy or annuity product being peddled is the answer to your retirement anxiety.

To top this off the seminar is being held at a park district facility, not at a restaurant. In other words they aren’t even providing dinner. Those of you who are regular readers of The Chicago Financial Planner know that I do not hold the sponsors of these sessions in high regard. (Please read Investing Seminars – Should You Attend? and Should You Accept That Estate Planning Seminar Invitation? )

How to legally be in the 0% tax-bracket for any income level

This is one of the bullet points listed under the items they will be discussing at the session. Come on, really? If it were that easy wouldn’t everyone be doing it?

Again I’m guessing that there is some sort of life insurance or annuity product that will be promoted. Note nothing will be sold at the session (it says so right on the invitation) but you can be sure that if you schedule a follow-up session the hard-sell with be there right after the hand-shake. In fact you can count on being given the hard-sell to schedule a follow-up session.

The most overlooked strategy for creating tax-free income from your taxable investments

Another bullet point on topics that will be covered. This sounds great! Wow!

OK back to reality. Remember the adage if it sounds too good to be true it probably is? Well this sounds like it fits.

Again I have no idea what they will be saying but if this was some super-secret sophisticated tax strategy would they be sharing it with a group of non-screened attendees in a park district building for free?

The Bottom Line

I am not saying anyone is doing anything fraudulent, illegal or untoward. What I am saying is that this appears to be nothing but a thinly veiled sales pitch by an accounting firm and a financial services firm to pique your interest and to ultimately sell you some sort of life insurance policy, annuity or some other financial product with hefty commissions attached. I’m guessing the accounting firm has some arrangement to realize a portion of the product sales arising from session attendees.

I’m not against learning and improving your financial knowledge. In fact that’s why I started this blog and why I write for Investopedia, Go Banking Rates and elsewhere. If you go to one of these seminars go with a very skeptical attitude, listen hard and be non-committal about your interest when they urge you to schedule a follow-up meeting. Go home afterwards and at least research the ideas they are touting and the firms involved. Be a smart consumer of financial products and advice. That is the best way to protect yourself from financial fraud and from buying expensive financial products that serve someone else’s needs better than they serve yours.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out our resources page as well.

Buying Life Insurance – 5 Questions to Ask

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This is post was written by Ike Devji, a Phoenix, AZ-based asset protection attorney and one of my oldest online friends.  I have spoken with Ike many times for advice on client-related issues and had the pleasure of meeting him in person a couple of years ago when he spoke to my financial advisor study group during a meeting we held in Phoenix.  Here Ike offers some practical advice to anyone who is considering buying life insurance.

Knowing the right questions to ask before buying life insurance is a key issue for consumers, especially considering the significant investment often involved and the exit costs involved in buying the wrong policy.

Covering all the options and nuances available in the life insurance marketplace in anything less than book form is nearly impossible. Here are 5 questions to ask before buying life insurance.

What is my annual premium and can it change?

This is the amount the insurance will cost you every year. In some cases the premium is fixed and in other cases it can change based on variety of factors such as the performance of the stock market and other indices. Make sure you understand your obligations before buying life insurance.   What you will lose or be left with if you don’t make what the policy expected and what was actually illustrated?

What does the policy illustration tell me?

I see lots of bold promises and spit-ball estimations of future performance made by insurance agents. The policy illustration is all that matters, so any conversation about what could happen if the policy exceeds the expectation that the illustration creates is moot; don’t engage in it and instead ask about the “minimum guarantees” if one exists at all. That’s the minimum you’ll earn in the policy if the worst happens. Remember, the column on the far right in most illustrations is the “perfect world” scenario, so look at and have the others explained as well.  Be sure to challenge all assumptions made in the policy illustration, as the saying goes if it sounds too good to be true it just might be.

Does this policy have a cash value?

The cash value is the amount of premium that builds up inside the policy and that may be available to the policy owner in the future. Some policies, like term insurance, have no cash value, while others have it immediately and some build it up over time. Be clear if yours does and exactly when it will be available if you need it and under what terms.

Roger’s comment:  Note that term insurance may be the appropriate vehicle for your needs.  Every situation is different; make sure that you are clear as to your reasons for buying the policy.  Life insurance is often a poor performing, high cost investment or retirement savings vehicle.  It may behoove you to pay only for the death benefit that you need and use more traditional investment vehicles for your investing and retirement savings needs.

Is my policy protected from creditors?

Know what the laws in your state of residence are and if your policy and both the cash value and “death benefit” (dollar amount paid upon your death) is protected by law or not. Asset protection of liquid assets is always a key focus of my concern. If the law is not in your favor, some simple trust planning can often protect your policy from both estate taxes and more active threats.

How long will my policies last, what is my exit strategy?

Again, this goes back to the illustration and specifies how long the coverage will be in place at a specific cost and what the death benefit will be through the term of the illustration. In some cases, keeping the policy alive may have significant increased costs while in others you may be able to reduce the death benefit to keep the premiums level or to stretch the policy for a longer period of years. Find out how flexible your policy will be in the future and weigh that as part of your risk-and-liquidity analysis.

Find out what happens if you can’t or don’t want to continue to make premium payments. With term insurance you usually lose what you paid; that’s OK, think of it the way you might car insurance. Other policies that were structured to have a future cash value or that have a current cash value early on however may have significant “surrender penalties.” Know what happens if you walk away and what options the policy may provide, including the specific surrender penalties that may be imposed in the policy. Do you have a need for life insurance in retirement for example?  The carrier could, for instance, keep all the cash value you built up if you don’t keep it for a minimum number of years.

This list just scratches the surface and is deceptively simple. Our goal here was to introduce some of the key concepts and questions you must be familiar with, so you can do your own due diligence when buying life insurance, whether a simple term policy or a complex premium-financed strategy with a triple-reverse galactic split dollar that includes a trip to the Bahamas to read the policy.

Roger’s comment:  Life insurance is a versatile and often complex financial tool that can have uses in estate planning, asset protection, as a business succession tool, and it can provide a death benefit to your family.  Make sure you fully understand why you are buying life insurance, don’t just succumb to a slick sales pitch.

Attorney Ike Devji has a decade of practice devoted exclusively to Asset Protection and Wealth Preservation planning. He works with a national client base including 1000’s of physicians and business owners often through their local attorney, CPA or financial advisor. Together, he and his associates protect billions of dollars in personal assets for these clients. Ike also regularly writes, teaches and speaks on these issues to executives, physicians and other professionals nationally. See his work in WORTH, Advisor Today, Physician’s Practice and at www.ProAssetProtection.Com. 

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation.  

Please check out our Book Store for books on financial planning, retirement, and related topics as well as any Amazon shopping needs you may have (or just click on the link below).  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra. 

Dangerous Myths About Asset Protection

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This is post was written by Ike Devji, a Phoenix, AZ-based asset protection attorney and one of my oldest online friends.  I have spoken with Ike many times for advice on client asset protection issues and had the pleasure of meeting him in person a couple of years ago when he spoke to my financial advisor study group during a meeting we held in Phoenix.  Ike generally advises physicians and high income professionals, but these asset protection tips are relevant to all of us. 

I’ve spent the last eleven years of my practice helping successful Americans at all net worth levels protect and enjoy their hard earned wealth. A good part of that involves re-educating people about their money and their risks.  Below is a summary of the most common asset protection myths and mistakes top legal and financial planners want their clients to be concerned about.

Trumbull County Courthouse, Courthouse Square ...

I can do it later 

Asset Protection it best analogized to “net worth insurance” and like insurance you have the best, most effective and legally supportable options available to you when you implement the planning before a crisis exists. Transfer of assets into plans after you have specific exposures is costly, ineffective and some cases illegal (fraudulent conveyance). The best time to act is always now and every day that passes makes your planning stronger.

I’m not rich enough to worry about asset protection  

This is a sin I see committed on a weekly basis, often by professionals like lawyers, CPAs and financial advisors. These advisors often tell clients that they are not rich enough to do any planning and that that they should have a net worth north of five or even ten million dollars to consider it. Nothing could be further from the truth, especially if you are in the “Fall” of your earning career. Of course high net worth individuals must implement this kind of planning and always have, but all you have is important to you and there are precautions that can be taken at any net worth level. When should you start?

There are many simple ways to analyze this but here is an easy one, answer these questions: 

  • If you lost what you have today, or some significant portion of it, are you at an age, earning level and financial condition that will allow you to maintain your family’s goals and expenses?
  • Do you have assets that would be difficult or impossible to replace given your age, health and economic conditions?
  • Are you financially and legally prepared for a lawsuit that is either not covered by liability insurance or which often produces verdicts above the limit you are carrying?

No one can touch me because I have a “Trust”

Not a week passes when I don’t talk to someone who says, “I’ve got this covered, I think. I have my home, cars, and investments all titled in my Trust.” A little more probing on my part reveals what I expected, that the layperson I am speaking to feels that a transfer of these assets to a vehicle like an estate planning trust, commonly a Revocable Living Trust, is effective protection; it’s not. The first word in the trust is “revocable” and in most cases a judge will simply order you to revoke the trust and tender the assets for a judgment. I’m all in favor of estate planning, the huge new looming estate tax exposure is one of the issues on my client exposure checklist we address every day, but  that is death planning. What has been done about your life planning and the exposures you face every day practicing your profession, driving a car, having children (some driving your car), or having employees…?

I lease all my vehicles through my business and get an awesome tax deduction in addition to asset protection 

Similarly, we often see dangerous articles of personal property like your personal vehicles moved into this structure or others like an LLC or S-Corp that is your primary business, or equally dangerous, into an entity like an FLP that is holding safe and attractive assets like cash, stocks, bonds and other liquid assets. Think about it, if you lease or own your vehicle through your business, you have linked the most dangerous thing you likely do on a daily basis, drive a car, and linked it to either the source of your wealth, your business or in the case of your FLP, the place you keep your wealth. 

I don’t own anything – I gave it all to my wife and kids 

Transferring all of your assets to your spouse and/or children, especially after something has happened, will not protect your assets from a lawsuit. Even if it did protect you from your lawsuits, transferring your assets to your spouse and/or children opens up another Pandora’s Box. Keeping in mind that there are thousands of lawsuits filed daily due to employment grievances, “slip and fall” and auto accidents, consider this scenario:

Let’s suppose that you transfer all of your assets to your 18-year old son who causes an auto accident. Several other cars are involved in the accident and several injuries are incurred. Chances are high that the other parties will come looking for the driver with the deepest pockets. If your son “owns” your house and business, a sympathetic jury will undoubtedly take the possession away from your son in order to teach him a lesson for his reckless driving. The same holds true for spouses, parents and even friends. Also, gifting is limited to about $14K annually, per spouse, per donee. Gifts over that amount must be documented with a gift tax return. Failing to do so will result in you having to answer the question, “Are you lying now re: the date and validity of this transfer or did you cheat the IRS?” A bad place to be in a time of need.

I’m insured and have an umbrella

This is a reasonable and common question we get from clients and advisors alike. In the most egregious cases of arm-chair quarterback misinformation, we actually see uninformed advisors telling their clients that the only Asset Protection they need is a good umbrella policy – THIS IS FLAT OUT WRONG for the kind of successful people we protect. Why? Because they are successful, visible and typically have assets above and beyond just the insurance policy itself, they are good targets from a net-worth perspective.

Our position on Liability Insurance (as distinct from Life Insurance) is pretty simple: Buy as much liability insurance as you can afford, assume it won’t be adequate and have a plan B. Asset protection planning is about layers, redundancy and backstops.

What about my “umbrella” policy? – It is a great idea to have an umbrella policy, in fact, I insist on it for my clients as one of several layers.  You and your liability carrier have different ideas about what umbrella means. To you it means everything, to your carrier it means specific events in the base policy, covered to specific increased limits, and governed by a specific set of exclusions detailed in the fine print of your policy. Clearly two very different definitions. The lesson here is that there is no real way to insure yourself against a universe of possible exposures and have every single one covered to an unlimited dollar amount, nor is this reasonable to expect of your liability coverage.

Some real examples of the “impossible” that actually happened and resulted in large claims: 

  • Parents away for the weekend return to find that a teenager died at their home during a party their child had from the drugs he brought with him results in multi-million dollar wrongful death lawsuit;
  • Chiropractor adjusts a patient’s hip and the woman dies on table from cardiac arrest-he is sued for wrongful death;
  • Long time, most trusted employee of medical practice molests a minor female patient during treatment;
  • Employees of moving company get drunk and severely beat another employee and lock him in company truck in company yard over weekend;
  • LLC for real estate development is pierced and a passive member is held jointly and severally liable for the actions of the other members;
  • Dentist works on elderly patient who goes home and dies of unrelated heart attack hours later, dentist sued for wrongful death. 

SOLUTION – So how do we help make sure that the coverage is enough? Pretty simple – we buy all the insurance we can reasonably afford, make sure we have the appropriate riders and umbrellas in place then we present a hard, uncollectible target beyond the limits of the policy. Most, if not all, lawsuits are motivated by the potential financial gain to the plaintiff and their attorney. In most cases, plaintiffs and their attorneys don’t chase people beyond the limits of the policy if there is nothing else to take or if there is nothing that they can get their hands on with any reasonable certainty.

This article just scratches the surface of what you need to consider when evaluating your exposures, Asset Protection planning and the countless options available. I encourage you to act today, seek experienced counsel, and remember that information in forums like this is not specific to you, is written in the broadest terms and is never a substitute for consulting with an experienced professional.

Attorney Ike Devji has a decade of practice devoted exclusively to Asset Protection and Wealth Preservation planning. He works with a national client base including 1000’s of physicians and business owners often through their local attorney, CPA or financial advisor. Together, he and his associates protect billions of dollars in personal assets for these clients. Ike also regularly writes, teaches and speaks on these issues to executives, physicians and other professionals nationally. See his work in WORTH, Advisor Today, Physician’s Practice and at www.ProAssetProtection.Com.

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation. 

Please check out our Book Store for books on financial planning, retirement, and related topics as well as any Amazon shopping needs you may have (or just click on the link below).  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra. 

Photo credit:  Flickr

Do You Have a Back-Up Financial Plan?

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In a recent Monday Night Football game against the hated Bears, Green Bay Packer star Aaron Rodgers went down with down with a game ending injury.  The second-string quarterback was Seneca Wallace who was at best an NFL journeyman with at best a checkered career.  Needless to say the Packer’s high-octane offense came to a grinding halt and the Packers lost a key divisional game.

Seneca Wallace in this fan’s opinion was not a credible back-up plan, but rather a joke and an insult to loyal Packer fans everywhere.  Regular readers of this blog know that I stress financial planning as a starting point for almost every financial endeavor you might undertake.  Part of a sound financial plan involves planning for the curve balls that life sometimes throws at us.  Here are some components of a solid back-up financial plan.

An emergency fund 

This represents very liquid savings that are set-aside for emergencies such as job-loss, the need to replace your furnace on the coldest day of the year, unforeseen medical expenses, and other unexpected events that have a way of popping up in life.  This is not money that is invested in stocks or mutual funds, but rather in a money market fund or a similar vehicle.  Liquidity and little or no risk of loss are key.  For example a CD that ties up your money for a period of time and assesses a penalty if you need it early is not a good vehicle for this money.  The rule of thumb is 6-9 months of expenses, your actual need will vary and you should look at your own unique situation.  If you don’t have enough right off the bat for an adequate emergency fund, accumulating this money should be a top savings priority.

Insurance

Regular readers of this blog know that I have a healthy skeptiscm of many insurance and insurance-based financial products and many of the folks who sell them.  However insurance is a key component of a financial plan for most people.  The key is finding a competent financial professional who will assess your needs and sell you the insurance product that is right for the risk that you need to insure.  I assist my clients in finding and working with insurance professionals of this type.

Life insurance is a basic component of a financial plan for many folks.  Insurance replaces some or all of your future income for your family or other beneficiaries in the event of your death.  It can help pay off the mortgage, send your kids to college, or fund the retirement for a surviving spouse if you haven’t had time to accumulate sufficient assets.  Even in the case of a non-working spouse it can replace the “services” he or she provides in terms of child-care and the like.  Life insurance can also be used as an exit strategy for a closely-held business or to offset the impact of losing a key employee.  All too often life insurance is sold for purposes other than providing a death benefit.  This is often in the form of some sort of policy that builds cash-value and for uses such as a supplemental retirement vehicle.  For many folks inexpensive term insurance is the best deal, be very leery of a pitch for whole life, Variable Universal Life, and the myriad or other cash value policies out there.  These are very lucrative for the agent, not always so for you.

Disbility insurance is perhaps more important than life insurance in that it provides coverage for an event that is more likely to occur than death.  This is “lifestyle” insurance and I generally urge folks who have access to it via the workplace to buy as much Long-Term disability insurance as possible.  These policies are not always great in that their definition of disability and own occupation is often broad.  Private policies will often have a narrower definition of your own occupation for purposes of paying a benefit, but these policies can be expensive.  On the other hand I’ve seen several high earning professionals over the years become disabled and having proper disability insurance has been a financial life-saver for them and their families.

Property and casualty and liability insurance comes in various forms and can help insure against all sorts of events that can occur on your property or in the course of doing business.  These range from personal polcies such as umbrella coverage against the UPS guy falling and hurting himself while delivering a package to your home to having sufficient auto liability coverage for yourself and perhaps younger drivers using your vehicles.  Professionals such as doctors, financial advisors, and lawyers need professional liability insurance to protect them.  Details on these and other types of liability coverage (both personal and professional) are beyond the scope of this article, but they are none the less a key part of a back-up financial plan.  One successful judgement against you or your business can bring financial ruin without proper insurance and asset protection planning.

Long-Term care insurance provides coverage for long-term health problems that can plague us later in life.  This might include a nursing home stay or home health care.  This insurance is complicated and expensive.  Whether or not buy Long-Term Care insurance, which features to buy, and many other decisions requires research and perhaps professional guidance.  The reason to consider this type of coverage is that the cost of caring for a loved one with a long-term health situation can be staggering and can wipe out the finances of a family.

Estate Planning 

Estate planning is all about ensuring that your assets pass to your desired beneficiaries in the manner that you intend.  A will naming a guardian for minor children is a must for parents.  Retirement plans and insurance and annuity products are passed on via a beneficiary designation so make sure these are up to date.  A trust may or may not be in order depending upon your situation.  An often overlooked factor are items such as a medical power of attorney and other similar documents that designate who can handle your affairs and/or make decisions for you in the event that you are incapacited.  Few of us will have to worry about paying estate taxes, but these other issues can be huge and if not handled properly can cause major financial headaches for your family and loved ones.

Accumulate wealth and become financially independent 

This is along the lines of “… the best defense is a good offense…”  Saving and accumulating wealth and building financial independence represent the best financial contingency plan.

Contribute to your 401(k) or similar retirement plan.  Investing for retirement via salary deferral is painless and doesn’t require you to do anything except make an election to have the money withheld from you paycheck.  Obviously you will want to make good 401(k) investment choices and you will certainly want to make good decisions with your 401(k) account when leaving a job.

Starting a business or investing in one is another way to build wealth.  Business ownership if managed properly can be a great way to accumulate and pass on wealth to your heirs.

If you’ve saved and positioned yourself properly over the years you’ll be like several of my clients who couldn’t wait to receive a buyout offer from their employer so they could retire and/or otherwise move on with their lives.

The items listed above are not meant to be an exhaustive list, but they do represent a good starting point to help you prevent a potential financial catastrophe.  I want you to be better prepared then the Green Bay Packers were at quarterback.

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss all of your financial planning and investing questions including your financial back-up plan. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services.

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Asset Protection Tips for Real Estate Investors & Owners

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This is a guest post by Ike Devji, a Phoenix, AZ-based asset protection attorney and one of my oldest online friends.  I have spoken with Ike many times for advice on client asset protection issues and had the pleasure of meeting him in person a couple of years ago when he spoke to my financial advisor study group during a meeting we held in Phoenix.  Though Ike focuses on high net worth professionals and physicians as clients, his advice for “real estate owners, flippers, and developers” is applicable to anyone involved in the ownership of real estate.

Real estate management issues fall into several basic categories: debt, liability, and loss. We provide an introduction to these issues to help you get your house in order below. As many business owners and professionals also have investment in real estate outside their business itself, I’ve included issues of wide applicably.

Debt 

The nature of real estate debt and the significant guarantees that often accompany it can have grave consequences. We’ve covered some of these in detail including the effects of real-estate investments on financial solvency.

Make sure you clearly understand the limits and extents of the personal guarantees you sign. Many investors are signing as “jointly and severally liable” for 100 percent of the total debt when they only own 20 percent of the deal, as one example. Limit your liability share to your ownership share and understand if the loan you are signing for is a “non-recourse” loan or not.

Have your leases, indemnity agreements, and other legal docs drafted by a lawyer, or at least reviewed by a lawyer BEFORE you use them. Asking us what we think after the fact is useless. Always have these agreements reviewed by an experienced real estate attorney. Having your brother-in-law the DUI lawyer look at it could be the most expensive $500 you ever saved.

Don’t sign blanket personal guarantees, be specific in what you agree to collateralize as much as possible or the bank will value what you own at pennies on the dollar and try to take it all.

Get professional accounting help to maximize tax deductions. Use strategies like energy studies and cost segregation studies to reduce your fixed long term costs and maximize what you keep. Some real estate lawyers and accounting firms also offer “lease audits” these verify all the mysterious monthly expense add-ons you may face if you rent rather than own the building, the calculations are often wrong, and not in your favor.

Liability 

Protect yourself from your, clients or patients (or renters, their guests, and business invitees); you are liable for their health, welfare, and safety related to the property and conditions on it. Have specific leases, written policies on conduct and the use of the properties and penalties for violating them. Insure yourself to hilt against liability incurred on the property. You will almost always be more collectible and a better lawsuit target than your renters. That said, don’t ever forget that insurance alone is just one layer of defense and is not adequate protection.

Don’t put too many eggs in one basket. Divide properties based on use, equity, and danger or liability. If you have multiple pieces of property in a single LLC, for instance, remember that ALL of them are potentially at stake for an exposure at one property.

Implement personal asset protection planning and consult with legal counsel on how you are protected and which of your other personal assets are at risk and should be made legally distinct. If he or she says, “just by more insurance” fire them and get better help.

Loss 

Adequately insure yourself against loss and property damage, as distinct from liability. Use only top rated national carriers that you can sue for bad faith if they don’t pay under the policy as they should. Yes, this is common, “bad-faith” lawyers exist for a reason. Remember that vacant property is often not covered by general loss and liability insurance after as few as 30 days if you don’t let the insurance company know and pay them extra.

Get ALL the right insurance. If you are a owner/manager you need general liability, E&O (like professional malpractice), and potentially D&O insurance (directors and officers) if you are a director or officer of a company that may be personally named for professional acts or omissions, i.e. “I made the call that reinforcing the balcony railing was too expensive and not required at the property…”

As always, act today, anything you do after an exposure is more expensive and less likely to work. Be proactive and tactical in defending what you have earned.

Attorney Ike Devji has a decade of practice devoted exclusively to Asset Protection and Wealth Preservation planning. He works with a national client base including 1000’s of physicians and business owners often through their local attorney, CPA or financial advisor. Together, he and his associates protect billions of dollars in personal assets for these clients. Ike also regularly writes, teaches and speaks on these issues to executives, physicians and other professionals nationally. See his work in WORTH, Advisor Today, Physician’s Practice and at www.ProAssetProtection.Com

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation. 

Please feel free to contact me with your financial planning and investing questions. 

Please check out our Resources page for links to some additional tools and services that might be beneficial to you.

Photo Credit:  Wikipedia

 

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Life Insurance – You Probably Need It

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Jeff Rose, a fellow financial planner and blogger, has started another movement on his blog Good Financial Cents.  Jeff is committed to raising the awareness of the need for life insurance in general and especially among younger families.  Overall it is estimated that 35 million households don’t have any life insurance and another 58 million households that do have some coverage feel that they are underinsured.

As a financial planner I am convinced that life insurance coverage is a key element in the financial planning process.  Not all clients have a need for it, but it is always something that I look at.

You have young children and a non-working spouse.  I can’t tell you how many young professional couples that I have encountered who either have no life insurance or far too little insurance.  Often I will get a call from a high earning young professional who is eager for guidance on investing and perhaps in buying income property.  However when I ask them about the basics such as life insurance or a will the answer is all too predictable.  They haven’t paid any attention to these key protection elements.

In this case life insurance is an essential element of this family’s financial plan.  If the breadwinner spouse were to die, how would the mortgage be paid?  Assuming the non-working spouse needed to return to work how would childcare be paid?  How would the non-working spouse accumulate enough funds for both retirement and college?

Life insurance is an essential element in this family’s financial plan.  Life insurance can also be critical in a variety of situations.  Here are some examples from my experience in working with clients.

  • Life insurance allows the non-working spouse time to make decisions about the future.  While the death benefit might not last a lifetime it allows time to decide upon whether or not work, time for career training, what to do with the house, and other key decisions.
  • Life insurance is an easy, inexpensive way to build an estate.  Whether a younger family that has not had the time to accumulate assets or a mid-career person who has not been able to save, a life insurance policy can be an excellent way to fund expenses such as college, retirement for a spouse, or to simply provide a financial cushion for your survivors.
  • Life insurance can provide continuity for a business in the event of the death of one of the owners.  Life insurance is commonly used to fund a business buy-sell arrangement.  Under this type of arrangement, the proceeds of the policy are generally used to buy out the interest of the deceased owner and to provide a payout to their family.  This avoids the awkward situation of the remaining owners having to work with a surviving spouse who may have had no involvement in the business previously.

In buying life insurance I always advise clients to look at it for the death benefit first.  Some agents will tout various types of cash value policies as an investment tool or as a means to take money (the accumulated cash value) out of the policy tax-free in retirement.  In general I’ve found that life insurance is an expensive route to go if one is using it as an investment vehicle.

While these types of policies may have their uses, for most people term insurance is the way to go.  Term insurance will provide the least expensive death benefit.  There is no cash that accumulates in the policy and coverage will cease if you stop paying the premium.

For most folks that I encounter, however, buying the largest death benefit is the main reason to buy the insurance.  Two points about term insurance:

  • Term policies often come with a guaranteed level premium period.  This means that the premium remains fixed for a period of 10; 20; or 30 years.  For a younger family I would advise at least a 20 year level policy and perhaps a 30 year term.  Think through how long you might want to have insurance in place.  Also realize that your situation may change in the future and you may want a policy but be unable to obtain one due to changes in your health.
  • I work with clients to review their policies every few years.  Term rates change and we have been able to obtain policies with a larger death benefit in some cases without much increase in premium.

Life insurance often gets a bad rap.  It’s probably not so much that people perceive insurance as a bad product, but rather it’s the way it’s often sold.  If you work with a competent financial professional they can assist you in determining how large a death benefit to look at and other factors to consider.

Please feel free to contact me with your insurance and financial planning questions.

 

Photo credit: Christopher S. Penn

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