Long Term Care Insurance: The Basics

Life expectancies have exploded over the last 50 years, and for most couples, at least one spouse will survive until age 90 or older. Yet along with age comes a variety of maladies — everything from diabetes and high blood pressure to broken hips or dementia. Oftentimes, these types of illnesses and accidents require health care expenses in addition to the expense of long-term assisted or living care, but how do you know whether you should purchase a long term care insurance (LTCI) plan to complement your retirement plan?
According to the National Association of Insurance Commissioners (NAIC), before making this decision, ask yourself these questions:


  • Do you have assets you’d like to protect?
  • Do you need to ensure your nest egg remains untouched and unbroken?

If you answered “yes” to these questions, then long term care insurance is worth discussing with your agent or advisor.


  • Is your Social Security your only source of income?
  • Will you soon or already be eligible for Medicaid?
  • Are your retirement assets negligent?

If you answered “yes” to these questions, then you probably won’t need long term care insurance, but you should discuss it with your agent anyway.
Before meeting with your insurance agent or advisor, it will be helpful to review the NAIC’s Ten Tips Regarding Long Term Care Insurance:


  1. First things first: Long term care is not ideal for everyone. As mentioned above, if you have little to no retirement savings and are currently receiving Social Security payments, you most likely could not afford the additional expense. For these reasons, you should qualify for state assistance, which supersedes the need for LTCI.


  3. Be certain you understand what is typically covered under an LTCI policy, and conversely, what is not covered with long term care insurance. Don’t ever hesitate to pose questions to your agent or advisor or to the carriers that offer this coverage.


  5. Ask for guidance from your retirement planner or insurance agent on determining if LTCI is appropriate for your individual situation. If he or she agrees, ask for help budgeting it in your lifestyle, and also ask them to provide you with a list of LTCI companies they work with so you can do some independent research.


  7. If you don’t want to become a burden to your loved ones (both from a financial and caregiving point of view), then LTCI is certainly worth investigating. This is also true if you’d like to have more control over which type of facility you’ll receive care.


  9. Check in with a variety of companies before committing to a sale. In addition to asking each carrier about their rate-raising history, the NAIC also recommends that you do a comparison that considers:

  • Benefits

  • Coverage limits

  • Covered facilities

  • Insurer ratings (from A.M. Best or Moody’s)

  • What is and what is not covered by your premium You’ll also want to investigate the strength and reputation of each company, and that they possess the correct licenses to offer this product. Contact your state insurance department to verify your findings or to dig deeper into a company about which you have questions.


  1. Learn to watch the rates. Start by checking with the state insurance department to see how your state regulates premium increases among LTCI providers, and then conduct a bit of research n the major carriers you’re considering and evaluate their respective histories of raising rates for this coverage.


  3. Try to avoid solely relying on Medicare or Medicaid to pick up the tab for you long term care. While Medicare pays for a small amount of certain nursing home costs, if you want to qualify for Medicaid — as Medicaid does cover long term care, albeit in a typically-less-than desirable home — you’ll need to spend down your assets until you reach the poverty line to qualify.


  5. Many long term care insurers, just as with medical insurers, will choose not to cover preexisting conditions. Before you begin developing the difficulties often associated with older age, it’s a good  idea to buy LTCI as young as possible, ideally around age 50. The NAIC also warns that many LTC insurers use age 60 as an automatic trigger to increase your rates, so be sure to check on those rules, too.


  7. Remember that if you purchase a qualified long term care insurance policy, your premiums will receive tax breaks, and furthermore, the benefit payments are also tax-free.


  9. When you purchase LTCI, the insuring company should send you your policy. Be sure to read this policy carefully and make certain you understand its contents in their entirety. You may also elect to add an inflation protection option to your policy. This option periodically increases your benefits levels without you having first to provide evidence of insurability.

The decision to purchase a long term care policy is one that should not be entered into lightly. This is why working with a reputable agent or advisor who represents quality insurance carriers is so important. But these tips offered by the NAIC should get you started thinking about your LTCI needs and desires — and whether it fits into your retirement plan. Read through all the above tips, give them some good thought, and then take this list with you when you meet with an advisor or agent.


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Prioritizing Your Retirement Needs, Part II

In the first part of this article, we discussed several elements that often comprise the shape and tone of a retirement picture, and stressed the importance and absolute need to put some serious thought into how important each element is to you if you want to achieve a picture-perfect retirement.


With the guidance of the Insured Retirement Institute’s (IRI) “Retirement Expectations Checklist,” we have already explored several needs you must weigh as you think about and ultimately set into motion a solid and realistic plan. But we also acknowledged that determining how much you would need to save — and later, to earn — to reach your retirement number, how old you wanted to be when you left the workforce, how you planned to treat investments and guarantees, and if annuities would  play a role in you plan were just the beginning of several considerations you must ponder. And just for perspective, we noted how the baby boomer generation weighed in on the importance of these topics. In keeping with that tradition, we’ll now list a few more issues for you to place in your retirement picture — you just need to determine how prominently featured they will be.


Your Debt Situation: The past several years have not been economically kind, and many Americans have been forced to incur more debt than they would like. In fact, for a whopping 48 percent of boomers, even the essentials, things such as food, medication, and gas, often had to go on the old credit card. Do you have any debt resultant from the recent economic strain or any other reason? No one wants to retire in debt, so start paying down what you can, and start now. You may find it helpful to ask an advisor to help develop a budget (that includes retirement savings) to which you could adhere until your debt is eliminated.


Leaving a Legacy: Have you given any thought to whether you’d like to bequeath any funds to your loved ones after you pass away? How important is that, and importantly, how much money would you like to leave behind? Many baby boomers (62 percent) feel that leaving an inheritance is either “very” or “somewhat important.” If you are of a similar mind, you would do well to mention that goal to your retirement planner.


Considering Long Term Care: To avoid burning through your savings or burdening one of your children should you become ill or somehow impaired, long term care insurance is one type of coverage worth exploring. The earlier you plan the better, since 47 percent of boomers worry they won’t have enough funds to cover the expenses associated with long term care. Talk to a professional agent or advisor to determine if long term care insurance will complement your plan.


To Work or Not to Work: When you reach retirement age, do you intend to leave the workforce for good and good riddance, or are you someone who would prefer to work part time for a while to keep yourself occupied? Neither situation is better than the other, especially if money is no object. But what if you must work during retirement? A full 57 percent of the baby boomer cohort anticipate that due either out to personal choice or need, they’ll need to work at least part time beyond age 65.


Preparing for retirement takes just that — preparation. Preparation, prioritization, and not a little bit of planning. Spend some time thinking about these plan elements, and then review your list with a financial professional to ensure your retirement picture is shaping up nicely and make adjustments where necessary.



Beating 401k, IRA Contribution Limits With Life Insurance


Both 401k plans and IRAs have contribution limits which set a cap on how much you can save using these retirement plans. If you have the income to save large amounts, or if you’re behind in your retirement planning and are trying to catch up, these limits can be a burden.


If you’re using a 401k plan to save for retirement and you’re under 50, your yearly contribution for 2012 is capped at $17,000. If you’re over the age of 50, your contribution is limited to $22,500. For savers using IRA accounts to save for retirement, your contribution limit is based on your overall earned income. For most people, the contribution limit is $5,000. Savers over the age of 50 can contribute $6,000.


While 401ks and IRAs allow savers to deduct their contribution from their federal income tax liability, in the long-run this may not be the wisest course as you will have to pay taxes on the eventual withdrawals you make once you retire. Often, people who have carefully saved for retirement for decades using IRAs or 401ks find that the savings they realized from taking tax deductions while they contributed to their retirement plans are wiped away within a few years once they retire and their withdrawals become taxable.


For workers who are late getting into the game of saving for retirement, the limits on contributions to IRAs and 401ks can pose a challenge to ensuring that they have sufficient retirement savings to maintain their lifestyles. There are alternatives that can be used to help supplement these plans, however.
If you’re saving for retirement, one way you can supplement your existing 401k plan or IRA is by purchasing life insurance products as retirement savings alternatives. There are a number of benefits to adding a life insurance retirement option to your existing retirement savings plans.
For starters, contributions are unlimited, and you can save as much as you like. Also, insurance savings plans have far more liberal early withdrawal rules than IRAs or 401k plan, making it easy for you to withdraw money from your plan or borrow against it to handle unexpected expenses during your working years.


Another key benefit of life insurance retirement vehicles is that they can be set up in a way that reduces your tax liability when you retire and begin making withdrawals from the plan. Properly used, the withdrawals can be tax free and some companies even guarantee the income for life.
Also, should you happen to die before you reach retirement age, the life insurance portion of the policy will ensure that your family is taken care of, and they’ll also have the retirement savings for themselves.


Any investor will tell you that diversification is a key to success. This same concept holds true for retirement investing. Why put all your eggs in just one basket? By diversifying your retirement savings vehicles, you can maximize the amount you have set aside for your golden years and have a good financial firewall against calamities during your working years.


To take advantage of cutting edge insurance products like equity-indexed policies, contact a financial advisor with experience in life insurance products and retirement planning. These experts can help you define savings goals, set monthly contributions and work to shelter your savings from tax liabilities.


Taxation Issues With 401K and IRA May Make Insurance A Better Bet


While many people will consider converting a 401k or IRA plan to a Roth IRA, this financial move can have some deleterious financial consequences. Looking at other investment options as a substitute or a supplement to 401k or Roth IRA plans may be a smart idea for many people saving for retirement.


In an uncertain world, having enough money to fund a comfortable retirement is an increasingly worrying issue for many Americans, even professionals who earn substantial salaries. Finding the most tax-efficient and profitable method of saving for retirement is vital to saving for your retirement years and providing help to your children as they go to college, begin families or start a business.


Lots of people use 401ks and IRAs to save for retirement and later convert them to Roth IRAs as circumstances may make it an advantageous or necessary move. Typically, people convert to Roth IRAs to allow their retirement savings to grow tax free instead of on a tax deferred basis. If you still have a substantial number of working years left before you retire, making a conversion may be the right move as it gives your money time to grow. However, if you’re on the verge of retirement and need to start tapping the Roth for income, a conversion may be a bad move when you consider the taxes involved.


The key downside of converting a 401k or IRA to a Roth IRA is that the amount you convert will be taxable at the time of conversion. This can push you up to an uncomfortably high tax rate when you convert, and take a chunk out of your savings or other income.


If you’re looking to avoid some of the tax hassles that come with traditional IRA and 401k plans, check out the recent innovations in life insurance that allow policy holders to save for retirement. A key benefit of these plans is a high ceiling on how much you can contribute.


Also, these life insurance retirement savings plans are designed to grow on a tax-deferred basis, and with careful planning you may be able to reap the values during retirement on a tax-free basis.


Equity indexed policies are a hot product in the insurance industry. They combine a guarantee of principal with a potential for returns tied to a market index like the S&P or DOW. The downside of this investment strategy is that you’re not able to deduct contributions to this plan from your current taxes.


There are a number of other benefits that make these contracts more flexible than 401Ks or IRAs. Unlike other retirement savings plans, an equity indexed policy will allow you to withdraw money from your account or borrow against it during the accumulation years. Also, if you become disabled, your premium payments for the insurance policy may be waived.


Life Insurance Ain’t What it Used to be

Life Insurance, like medicine and technology, has evolved to the extent that it hardly resembles what it looked like just a decade ago. The basics have remained, but what has dramatically changed is the way in which cash values earn return. The latest generation  policies combine the security of guaranteed cash values with interest linked to a stock market index. Let’s revisit the changes over the past decade.



The history of the change goes back into the mid 1990’s in the annuity industry. Prior to this time, investors interested in tax deferred annuities had two choices available. Fixed annuities offered a guaranteed principal with interest rates determined by the insurance companies. Variable annuities used market based sub accounts, similar to mutual funds which offered higher growth potential but no guarantees to the principal. The first Equity Indexed annuities (EIA) offered principal guarantees like fixed annuities while the return was tied to a market index like the S&P 500 or the Dow. The expectation was that over time, the indexed linked returns would out perform fixed rate annuities with no risk to losing principal.


The history of cash value life insurance policies has been quite similar to that of annuities. The original form of whole life insurance offered fixed premiums and guaranteed cash values which grew over time. In the 1980’s variable universal life policies were introduced that tied the growth of the cash values to mutual fund based sub accounts. Returns were potentially higher but without any guarantee of principal. Market downturns caused investors to be wary of losing the cash values of life insurance as this could put the death benefit at risk.


Like the evolving of the EIA, the Equity Indexed Universal Life (EIUL) offers unique advantages to the policyholder. Premiums are flexible which allow investors to increase deposits into the cash value side without increasing death benefits. Sophisticated market indexes credit higher returns than similar equity indexed annuities. Principal guarantees offer protection against market losses. Truly, this “state of the art” innovation has made life insurance the investment of choice for many accumulators.


Find all of this a bit confusing? That’s where an experienced professional can help you sort through all the complexity and guide you. Contact us today with your questions.


Is there a better retirement plan than your 401K?

The 401K. The grand daddy of all retirement plans.  Or is it? Sometimes exploring alternatives can exceed the benefits of going with a traditional retirement plan.


“Is there a better retirement plan than your 401K?”



Think Long Term


You know, many people, when they go to work and their company has a 401K, they automatically sign up and never think about the long term consequences of tax deferring so much of their money.


Well, at Barber & Associates, we’ve helped people for thirty eight years design tax efficient retirement plans using an investment that you probably would never understand would be so helpful in retirement, and that is life insurance.


Life Insurance can exceed your 401K return


You know, life insurance, typically, you think of as a type of investment that’s going to cover you. What happens if you die? But if used properly, the inside growth of a life insurance policy can be returned to you on a tax free basis at retirement; many times, exceeding what you would actually receive after tax from your 401K plan.


Now, I recognize this is probably starting information to some of you, but a wonderful idea for you to check into because there are alternatives to your 401K or your IRA plan that over time, may be far more efficient for you to consider.


Finding the answers


I created twenty videos responding to the most important questions that people ask me about their money, their financing, their investment, and their retirement plans.


If you’d like to know the answer to these questions, sign up and we will send you, as a free gift, these twenty videos responding to these most important questions.


Alternatives To 401ks: Life Insurance Retirement Savings

For years, the 401k plan has been the gold standard for retirement, being used by workers of all professions to save for their retirement.


But what if it isn’t the best game in town?


You’ve worked hard to achieve what you’ve accomplished in your career field. You deserve the opportunity to maximize your lifestyle in your retirement years and have the opportunity to travel or pursue the dreams you’ve had to defer in your work years.


To do that, you’re going to need money, and the best way to ensure you have the funds you need for retirement is to choose the retirement plan that has the best investment and long term tax advantages for you.


The 401k VS Life Insurance

401ks are great for a lot of people because their employers kick in money to the fund as well. Not every company does this however, particularly start-up firms. Also, if you’re self-employed, you’ve got no one else to rely upon but yourself for retirement savings.


Life insurance can be a great alternative savings vehicle for folks trying to save for retirement. Many life insurance policies have a cash value option that allows a portion of your monthly premium to be diverted into a growth fund that you can use to save for retirement.


One of the great things about saving for retirement this way is that should you die unexpectedly, your family will be taken care of. If you’re only saving for retirement, the only money your family will have access to in the event of your death are those retirement savings, which can be negligible if you’re still young. By coupling your insurance with your retirement savings, you plan for both the best and the worst – ensuring that you’ll have money to retire on, and that your family will be financially secure if you don’t live to retirement age.


If the first decades of the new millennium have taught us anything, it’s uncertainty. By using a life insurance policy to save for retirement, you hedge against two unknowns, what life will be like when you retire, and what your family would do if you die unexpectedly.


Tax And Other Advantages

Most 401k plans allow workers to make tax deductible contributions to the plan, however that money will be taxed when you withdraw it after you’ve reached retirement age. With a life insurance policy containing a retirement savings component, you pay taxes upfront, but avoid paying them when you withdraw the money – which has had decades to grow tax deferred and then withdrawn tax free. Bottom line: You end up giving Uncle Sam far less of your hard earned money.


Another key advantage using life insurance as a retirement savings vehicle has over 401k plans is the safety of your investment. Some life insurance retirement policies invest your money in guaranteed principal accounts such as equity indexed contracts, which provide customers with good growth rates and no risk of loss. On the other hand, the risk of non-guaranteed 401K options can wipe out a lifetime of savings.


Depending on your lifestyle and individual financial circumstances, using life insurance as a retirement savings vehicle can be a far more attractive alternative for entrepreneurs and other professionals than 401k plans.


The Tax Efficient Alternative to Your 401K

Many professionals sign up for their company’s 401K plan without giving it too much thought – and you may have done the same.  But being financially savvy includes considering the long-term tax consequences of the actions you take today – Or what they will cost you tomorrow.










Tax Deferment Truth


Some of the most knowledgeable people are often unaware of just how much of an effect deferring taxes has on their wallet in the long term.  Especially in light of huge government deficits and the certainity that tax rates will increase, a person’s tax situation is likely to be quite different around the time they are ready to retire.


Position is Power


Of course, properly positioning your money so that it provides you with tax efficient income is vital.  Through life insurance, you can often secure a powerful position with benefits that your 401K won’t be able to offer.


Erroneously thought of as something that’s only designed to cover your loved ones financial needs when you pass on, life insurance provides an investment alternative whose returns can come back to you on a tax free basis at retirement.  And many times it will actually exceed what you’d receive, after taxes, from your traditional 401K plan.


You Life Insurance Policy Isn’t in Kansas Anymore


Thanks to changes in the annuity industry since the mid-1990s, flexible premiums are now able to provide investors with the opportunity to increase the cash side of their policies without substantially  increasing their death benefits and policy costs.  These new policies provide the security of guaranteed cash values and interest that is linked to a stock market index. (For more information, see Life Insurance Ain’t What it Used to be.)


The key for any professional who is investing in his future is to begin thinking longer term.  Avoid the trap of thinking the traditional 401K is the only or best option.  Strongly consider not tax deferring so much of your hard-earned money. For many savers, finding the balance between tax deferral and tax free is well worth considering.


And be sure to contact an experienced professional like Barber & Associates who can help you sort through all the complexities of these issues for you.  For thirty-eight years, we’ve assisted people  in designing tax efficient retirement plans using life insurance to supplement 401Ks.