EP:60 Plan For Life and Death

Plan for Both Life and Death, Because Both Have Expenses.

Alysia M. Hicks
Living Wills

On this week’s episode, an interview with Funeral Services Director Alysia M. Hicks.  We discuss the business of managing final arrangements, burials, becoming a mortician/ funeral director, rumors about the business and of course …how much does it cost to bury someone???  In this very straight forward conversation Alysia M. Hicks is able to give some true insight on a range of topics from what it takes to become a funeral director and the level of casket side manner required to be a “Doctor of Dead People”.

-Miles

 

Open for Enrollment

Open Enrollment Options.

Open Enrollment

Annual “Open Enrollment” selections, elections and options are typically around October and November of every year.  Most employees carryover the same options year after year, sometimes this is a big mistake, they’re leaving money on the table and that is not how the game is played.  Much like you would review every line of tax deductions for expenses and credits at tax time, the same should be done to ensure annual elections are “optimized”.  Everyone wants to get the most for their money, with that in mind making a decision for the entire year can be tricky.  It’s necessary to consider everything from frequency doctor visits, dental visits, eye care, prescriptions, relocating or even if you don’t go to the doctor much more than preventative care and checkups here and there.

Consider everything from possible savings by reducing coverage, adding life insurance amounts, and of course the possible tax advantages of an FSA or HSA to help offset those wonderful co-pays and deductibles.  I always wondered who came up with the “co-pay”, like really, a $10. co-pay?!?! Why? It’s always been a pain to make sure you have $10. or $15. in my pocket just for the co-pay!

-Miles.

 

Life Insurance, The Essentials Interview

Life Insurance, The Essentials Interview

Life Insurance Essential Interview with Kissy Ariza, Life Insurance Rep.

I met with Kissy Ariza, a very personable and knowledgeable, high energy local NY area life insurance representative to ask some popular questions about getting life insurance.  Many folks already understand the importance of having life insurance of some kind, somewhere with some company.  Most of us even remember the “insurance man” who used to come around from time to time, and our parents bought whatever policies they could afford.   Not so much in our busy lives today.  Hence, there are a lot of misgivings and out right un-truths out there about insurance.  One thing however is for sure, a good ironclad policy is a key part of any good personal financial planning.

Kissy Ariza was able to dispel some common misconceptions, verify some known truths and even offer some serious take away information.  In this interview she gave some invaluable points that make it easy to understand why life insurance is such a big deal and necessary part of your finance arsenal.

-Miles.

Life Insurance, That’s an Investment Too.

Insurance to Ensure an Investment

Take a good hard look at your circumstances to try to match your coverage.
Take a good hard look at your circumstances to try to match your coverage.

For most folks life insurance in general is a good idea, however it helps to have an idea of the various types and the goal of each type.  Options vary widely and depending on any given set of individual circumstances, no two may be alike as it relates to needs, goals and the formula to balance the two.  Life insurance is considered in folklore as “a bet on your life that you hope to never win”.  And much like any good bet, many things are taken into consideration that may hedge or offset the bet by increasing or decreasing the likelihood of something occurring.  The insurance carrier goes to great lengths in figuring out this “likelihood”.

Life Insurance, a.k.a. "A bet against your life"
Life Insurance, a.k.a.
“A bet against your life”

As it relates to life insurance in general it falls into two categories and then branches out in each of those categories from there, limited only to the imagination on the carrier.

The two categories are Term and Whole/Universal/Permanent

Term: Straight forward, this life insurance will cover you for a specific time period, let’s say 5, 10, 15 or 20 years. The premium (monthly cost) is fixed at a certain amount and is heavily based on  the benefit (payout).  Some other things that may affect the premium are age, medical history and occupation.  If you’re over 45, poor health history, smoker, and clean sky scraper windows for a living then your premiums are going to be higher than average.

Whole Life, Universal and Permanent:  These plans are intended to cover  you for your whole life, based on the time you get the plan your premiums will be set for life an typically you lock these costs in.  As long as you pay the premium you’re pretty much locked in.  There are many various options relative to upgrading your insurance by increasing it, backups to ensure premiums are paid in case you can’t pay it due to illness or injury, ability to build cash value, take loans and so on.

Term is by far the most popular and most aggressively marketed, although the majority of people want Whole Life insurance to cover them form the rest of their life.  Term is profitable and you had better believe the number crunching insurance industry has figured that out, that is what they do.  However, that doesn’t necessarily mean a bad deal for the insured.  It does mean that the public should take the time to figure out their needs more accurately when facing all sorts of appealing term rates that far outweigh rates for all other types in most cases.

Term Insurance covers the specified time and that's it. You usually can renew sometime ahead of the expiration.
Term Insurance covers the specified time and that’s it. You usually can renew sometime ahead of the expiration.

Considering your needs:  Ask the yourself a few honest questions:

  • #1 Why do you need insurance? Surprisingly, not everyone needs insurance.  Identifying why will go a long way in getting the right and affordable coverage. To replace income? To compliment other insurance? For liabilities after you may pass on? Or to set you kkids up for a windfall in case [of your untimely death?
  • What exactly is the insurance for, to do what specifically? There should be a specific calculated purpose. For example: to pay off the house and other major liabilities and not leave your family to pay it off or risk losing it, ensure tuition for child’s education, ensure you can continue to pay anything you wanted to keep paying although you have passed on or just to cover burial expenses.
  • Who is the insurance set to benefit?  Spouse, children, extended family, close friends, colleagues, business partners. You definitely have to name a beneficiary, however, you can change and update this as often as you’d think necessary.
  • How much coverage will you need?  This ties into the “What” above, figure that out and make adjustments accordingly.
  • When should you be covered?  Term can do for a lot of people if the focus is to cover certain liabilities while you have the responsibility.  How long will the children be “children”, when will you not have the mortgage note or loans to be concerned with anymore? If you can figure that out you can figure how long of a term you may need and build a strategy around that

And because this blog is about simple personal finance based on real everyday life, how we really manage our financial lives I want it be clear -I’m not selling life insurance.  I’m pushing the idea that you may need it.  Considering that,I think the first thing that comes up if can you afford it.  It’s an all important question:::: How much can of a premium can you afford -for the entire policy period no matter what??  That is one of the number one things that have people fall out of very good plans.  Many folk don’t have life insurance for two major reasons: #1 They just aren’t sure they can afford it. #2 They don’t understand the product enough to make the best decision.  Both reasons lead to all sorts of problems, whether you get insured or not.

Avoid common pitfalls:

  •   Buying when they are in very stable but less than normal situations, but NOT planning on how they’ll pay in difficult times.  When times are tough for whatever reason, life insurance often gets cut.  This is same mistake folks make when buying a new car, buying what the can afford in the moment but not based on their typical budget.  Avoiding making this decision with a pushy sales rep or with the beneficiaries around, or right after a family member or someone close has passed on can help keep the emotions down and let you make decent decisions.
  • Buying wayyyy too much coverage.  Using insurance to compensate for lack of current lifestyle for your children or loved ones might not be the best idea. Buying $500,000.00 and Million dollar policies, might not make the best sense regardless how good they sound. High dollar policies can be not so great if they become at risk of being dropped because it becomes too expensive over the years.
  • Buying what you don’t understand: Whole Life and Term policies are simple and straight forward, outside of a few child riders (adding children to your policy) keep it simple.  Most options to policies are available to you after you sign and you have time to learn and optimize you policy by making it fit your needs better.
  • Buying from a not-so-reputable insurer.  While that may be hard to imagine, there are still many companies that don’t mean well and will underwrite a policy that they cannot cover.  There are regulatory government agencies that stay on the lookout for such companies, but they still exist.  It is recommended to buy from a well known insurer with a good reputation and not some mail advertisement or email solicitation.  It may cost you a little more in order to cost you less.
  • Not Buying at all.  Even if it is to get term insurance and further refine your needs  stated above, get some insurance if you think you may need it.  A worse mistake than those above is not being insured to take care of the people and things that are important to you, not leaving them burdened, even if it’s just for burial expenses.
  • Job/Employer Insurance.  Your employer may offer a decent amount of insurance for both you and your spouse with child riders available for very low cost based on your salary.  However, don’t let that make you complacent and put your guard down.  If you leave your job via separation, firing, lay-off or even voluntarily where will you get insurance?  If some time has passed you may be in another bracket due to age, health history or other reasons and need to qualify all over again, but now with higher premiums.  Even getting a low cost plan that you can convert later helps you to avoid this potential situation.
Return of Premium Policies offer you all or most of your premiums at the end of the term.
Return of Premium Policies offer you all or most of your premiums at the end of the term.

THE WHOLE POINT OF THE POST: RETURN ON PREMIUM INSURANCE.                                  Another not so mentioned type of Term Life Insurance Policy is the “Return of Premium”.  Let’s say you paid $30.00 a month for 10 years, and you could get back almost all of it, let’s say 85% of it is returned back to you, that’s ((30×12)*15)*.85= $4,590.00 you would receive at the end of the policy period paid back to you.  If you outlive the policy, you probably could use a drop in the pocket of $4,590 .  Not many insurance carriers offer this variation of the Term Policy, so you may have to shop around a bit.  Once you do find it, you’ll see its a bit more expensive than the regular Term policies and basically, it’s because you can set to have most of the premiums you pay for the Term contract policy to be paid back to you in one lump sum. Wait, What?? Yes, your read that right get all or most of your premium back if you outlive the term of the policy.  Just imagine how many people outlive their policy, only to renew.

The "New" Cash Back Program. Cash back on your insurance policy
The “New” Cash Back Program. Cash back on your insurance policy

Basically you’ve lost the bet and didn’t die (good for you in 99.9999% of situations).  With ROP (Return of Premium), you’re betting you’ll live and having the policy ass a safety net just in case you’re wrong (also good for you in 99.9999% of situations).  Check out Return of Premium basics for more details and go shop around for a insurance carriers that offer it to check out rates, I’m sure they’ll probably have some carriers advertising right there on their site. Unfortunately, I don’t have any to recommend, but trust me there are plenty out there.
I make no recommendations other than to get some “needs based” insurance regardless of your budget, and be careful of the traps that make you either procrastinate, waste time, or overdo it, watch out for pushy salespeople and get a good company.

Then there’s some of the actual “actionable” things to think about.
Who will be in charge of the affairs, you know, taking care of the business of contacting the funeral home and all of those details? Who will be the executor to close bank accounts, pay bills, do transfers and have power of attorney?   Who will get what and take care of what?
How much does the important things cost?  Burial- do you own a plot? You can pay for or start making payments for burial expenses upfront.  You can also just buy a plot upfront if you have an idea where you want to be buried.

Speaking of preparedness, a will is great, as a matter of fact it’s super great.  Write your will today if you don’t have one. Write whatever you want, however you want things to be. Sign it and then have it notarized and sign it again.   Depending on what state you live in you may have to do a little more for it to be bullet proof official, but trust and believe a signed and notarized will is pretty strong for most situations.  So many people think they don’t need a will because they don’t have tons of money, to that I say stop watching TV.  Put your wishes on paper, people won’t need to fight over what they “think” you would have wanted even if you can’t afford it to pay for it.  How do you want your accounts or affairs handled, your remains, down to your jewelry, your special sports equipment, prized tools, old car you thought would be an antique one day, your photo albums, clothing, stereo equipment and electronics, shoe collections, surely if you don’t monetary riches these sorts of things will have high value to you.  Should you be dressed in a suit or dress and if so choose a color?  All of these things will need to be decided and you can decide now.  Put it to paper, don’t worry, you can always update and make changes.

Evidence of Insurability. Insurable or Nah?

Evidence of Insurability. Insurable or Nah?

Evidence of Insurance. Are you “Insurable”?

What it takes to be insured these days
What it takes to be insured these days

How things were…

There once was a time when acquiring insurance was a relatively uncomplicated event. There were companies making all sorts of offers to cover everything from health, life, well-being –long term well-being that is. In order to get signed on to these policies, it was fairly simple and straightforward, you could respond to a mailer solicitation form, answer the knock at your door from the local salesman or just call up one of the most well-known companies and get the process going. Typically you would identify a few key things relative to your general well-being, how much coverage you needed, the duration and what affordable premiums would be to you. During these times, people were even insuring other high risk activity family members just in case. There was no need to set up auto payments, check your credit, look up anything or wait for anything.

Well, things have changed drastically over the years and if you want to be insured for anything, you had better do your homework. Whether it’s homeowner’s insurance, car insurance, health, life, or anything that’s insurable you had better take the time to understand what will be required from you in order to be eligible, the costs and the fine print… the exclusions and disqualifiers. The insurance industry has taken a turn for becoming a behemoth sized profit machine. Through their lobbying arm, they use their collective might to persuade lawmakers to legislate in their favor, according to Opensecrets.org , they did this to the tune of over $40,000,000 so far in 2015. They are constantly refining policies to cover things that they are pretty darn sure will not cost them money, and if something does come along and have to be covered then you should expect higher rates somewhere down the line because you’ve just moved into the high risk category. Even calling your homeowner’s policy insurance representative to inquire about making a claim can be held against you! I’m going to stop here before going on some sort of rant, this post isn’t about how terrible insurance companies are, even though they are at times.

This post is however about understanding that it’s necessary to evaluate your current and future status, and planning accordingly in all financial matters relative to insurance. Insurance is a useful tool in the planning of your financial well-being and overall prosperity. That being said, knowing how to evaluate your needs properly is key alongside knowing the options available and how to effectively use them

Evidence of Insurability.

Life insurers may require a visit from a nurse.
Life insurers may require a visit from a nurse.

This is the term that will be thrown in conversation after you’ve sat with an agent representative and have gone over the details of a policy. After you have reviewed the costs, benefits, premiums, setup auto debit from your checking account, and finally decided that you’re making a good financial move. It also may come up after you’ve made elections during the “Open Enrollment” period at your job, when your make elections for the upcoming year for employer benefits and decide to “up” your life insurance. That’s when this pops up… “Evidence of Insurability”. Typically this means that the insurer is going to want you to do something that offers proof of your current state of health and well being at the time of the coverage. At the very least that your health and well-being is what you state it is on the application. Not that they don’t “Trust” you, but um… let’s say they are Reaganites who believe in the idea of “Trust but Verify”. So what this means for you is they may require one or more of a few things to prove your insurability such as:

  • Having you sign an affidavit stating your insurability according to your application, or they may
  • Sending a nurse to your home to take your vital signs, blood and even an EKG to be sure you are worthy of insuring
  • Having you sign a release document authorizing you medical records to be released to them from you doctor or any other medical institution for the purpose of underwriting insurance for you.

So, keeping healthy will literally cost you less money in the long run in medical bills, health insurance and life insurance too. And now more than ever, what the Doctor puts in your file regarding your blood pressure and medications (prescribed, whether you take them or not) make a big difference. Don’t worry though, they’ll still insure you if you’re voluntarily not in good health, you’ll just need a mortgage for the insurance that’s all.

Life Insurance:

Keep focused on the basic core values and go from there
Keep focused on the basic core values and go from there

This seems like the no brainer regardless where you fall on the economic ladder if you are concerned about any costs that will remain after you die, be it an untimely or expected death. The younger and healthier you are the more time you have to move through various life insurance options to fit your needs. First you want to consider what liabilities would remain that you would want to make sure are taken care after you die including any final plans for yourself. And that’s it. There is no need to use life insurance as a windfall option in case you die for anyone else to benefit from. This means focus on what’s important and unless you have million dollar liabilities you won’t need a million dollar policy, seriously. Here’s 5 top things what people need to consider covering with life insurance.

  • Burial costs
  • Income replacement for primary or secondary head of household
  • Education costs for growing children
  • Cost to cover outstanding debt such as car loan, mortgages, etc.

For example: If you have $150,000 left on the house, 2 school age children, 2 car notes totaling $35,000 left owed on the vehicles, “Your Own” final expenses, and a second mortgage for $10,000 . Assuming $50,00 per child for education (this is a wild card, because they can also go to community college, or get scholarships- you have to figure out what you’re working with). You’re definitely not looking at a million dollar policy to cover this scenario… If you currently earn a modest $60k to $90k a policy with a payout of $300,000 to $400,000 should cover those expenses plus by replacing 4 to 5 years of disposable income. Sure a $500,000 policy would be super sufficient, but that would be near the top end of the needs. I’m definitely no insurance broker or representative, however, this is good conversation to consider when calculating your needs at the time of buying a new policy. If your representative isn’t taking this approach with you, then get someone else.

Notice, there isn’t anything there about a new Lexus or a new house or super vacations. And, as you become older some of these things may even drop off. If the house is already paid off, you won’t be worried about leaving a spouse to pay for it. Same goes for children’s education and so on. So be wary of over purchasing life insurance that you may not be able to keep up with. You may end up losing the benefit that all of those premiums go to if you drop a policy that was too expensive in the first place.

One interesting option is “Return of Premium” (ROP), this policy offers a return of your accumulated premiums if you so happen to not die during the term of the policy, less whatever they work out to keep for themselves of course. The premiums are a bit higher, however it is definitely very worthwhile looking into. www.aig.com and www.statefarm.com both offer ROP policies and have extensive info on these type of policies including understanding the costs, future benefit calculations and comparisons to regular term policies.  It all comes down to future value which is easily explained by Investopedia.com at http://milesweekly.com/futurevalue

What if you just become ill or need care?

Long Term Care. Includes care In Home, Nursing Home care, etc.
Long Term Care. Includes In Home Care

LTC Insurance seems to be a well-kept secret, this sort of insurance plan offers to help pay the costs of any long term care should you become ill or injured and need long term care. This is something many people overlook for various reasons including believing that their health insurance is going to cover everything. However, health insurance doesn’t cover much related to “care” as it relates to someone helping you in your home if you’ve been released from the hospital and are in need of home health care. Many people end up leaning on their family members if they have a support system in place, others are weighed down with the guilt of burdening family members and can sometimes trigger depression as a result. LTC policies come in many types and sizes to fit different budgets and target various scenarios, however, in general the focus is on primary areas that health plans typically do not cover or cover very little of. 5 Key areas that Long Term Care policies cover:

  • Nursing Home Care
  • Home Health Care
  • Respite Care
  • Hospice Care
  • Personal Care in your home for thing like cooking meals, toileting and other personal issues.

When you consider how a lifetime of earnings, smart financial decisions and the resulting accumulated assets can be wiped out in your later years by the costs and needs for “care” due to illness or injury, it’s a smart move to add this to any plan for prosperity. www.Genworth.com , www.statefarm.com , and www.mutualofomaha.com offer LTC policies.  I don’t recommend these companies in particular, however, they offer great info, standard policies, are leaders in the market and a great place to start.

The Earning Years.

The Earnings Season.
The Earnings Season.

Typically for most of us the “Earnings Season” will be between 25 and 60, really hitting peaks at 35 to 50 give or take some years for some folks that are faster or slower. It’s actually a nice long time when you think about it, enough time to do extremely well even if you trip, have a slow start or need to restart. These are the years to build the nest egg, acquire whatever cultural standards and even enjoy the fruits of yous labor a bit too. This is also the time to plan, review, assess, execute… I could have made up some corny acronym, but simply put, these are the years to keep healthy place good odds on your health and life and then collect on them too. That 35 to 50 interval is critical, critical… There is still time to redirect, change course, update, step up, get things in order like your health and even buy insurance if you haven’t or recently lost it with your last job. You may even get a new job and start there if you have to, you’re in the zone, old enough to have some serious experience and young enough to execute with vigor.

Of course there’s more and more, plus some more to go over with insurance, everything from home to auto to pet care and even insurance to cover the other than angelic teens. But that’s all for another time, right now, being mindful of the term “Evidence of Insurability”, buying the appropriate amount of life insurance and considering the often overlooked Long Term Care insurance is where we are. These are pillars of your personal prosperity as it relates to being insured to protect yourself and your assets long after the home is sold or paid off, the car has been replaced, the kids grow up, and the pet is heartfelt memory.

-Miles.