DeVol Insurance & Financial Services

Summer 2016

Introducing ... the Hybrid

One of the reasons folks don't like long term care insurance is because they fear paying in all that money over many years and then they die without needing care. They feel like they could be wasting the money. So insurance companies have come up with a couple of alternative approaches, called "hybrids."

Life Insurance / Long Term Care

How it works:

You buy a life insurance policy with a long term care benefit and put in, say $100K. If you need long term care, the policy pays $7K per month for a total of $400K in benefits. If you don't, it pays a $180K death benefit. So you can't lose. In fact, the $100K in the contract is "cash value" available to you for "loans." Loans are charged interest, which can be paid by cash values, and reduce the death benefit. It's all your money.

A Note About Premiums
One of the problems with traditional long term care insurance is that the premiums are not guaranteed. Insurance companies can and do raise the premiums as time goes by. Earlier policies were under-priced due to a number of factors, one of which is the lapse rate. That is, insurance companies expect a percentage of policyholders to stop paying premiums and let their policies lapse. In the case of long term care insurance, this happened less than they expected, hence they paid out more in claims. Apparently policyholders found the policy to be precious.

Pro:
Unlike traditional policies where the rates can rise, with the hybrid the premiums are guaranteed not to increase.
Another good feature is that the underwriting is a little easier.

Con:
You get less long term care benefit than you would from a traditional policy.
Also, the policyholder is spending extra premium dollars otherwise earmarked for retirement to buy benefits for the next generation -- in the form of a life insurance death benefit. My focus is on making sure folks have enough funds to last their whole lives. The benefit to the next generation is entirely secondary.

Fixed Annuity / Long Term Care Insurance

How it works:

Here you put in a sum of money and it grows tax-deferred just like an annuity. If you need long term care benefits, a rider kicks in and pays you up to a maximum sum per month (for example, $4K), for a maximum number of years (e.g. six). So, for example, if you put in $100K, you get back either 1) that money plus growth, or 2) $300K in long term care insurance benefits, using the agreed-upon rate and period. There is a charge for the rider, which is taken out of the cash on a monthly basis and thereby reduces the growth.

Pro:
Here the money is all for your retirement needs, either "in sickness or in health." Of course, when you die, the unused funds go to your beneficiary. But you are not paying for a death benefit that exceeds the amount of your premium, as in the life insurance hybrid.

Con:
A disadvantage is that, like the life insurance option, the long term care benefit is not as generous.

The Line of Insurability

So you say, "I'll think about it." Well, please consider the following. At some point in life we all cross the so-called "line of insurability" after which we are unable to buy the insurance. No one knows when that will happen, but it will happen -- absolutely. Recently that line has been moving closer to all of us. For whatever reason, insurance companies are finding it difficult to make a profit in this space and are either exiting the business or tightening underwriting standards. I am increasingly shocked by some of the folks who are being declined: for example, a 59-year old woman with a bad knee and no surgery planned.

It costs nothing to apply. If you don't have the insurance, unless you are sure you don't want it, you should apply and see what they say. Then at least you know what is available and you have conscientiously researched it. You owe it to yourself and your family.

Links to Good Stuff

Some put their kids' college over retirement

People who postpone retirement live longer

4% Rule limitations

Prominent journalist praises annuities

Workers need to save far less than some believe

Seven frequently asked question about annuities

Budgeting for retirement

Cultivating Your Retirement Lifestyle

Studies* show that retirees of all income levels are less satisfied with their life in retirement than they were fifteen or even five years ago. Most of the work preparing for retirement is spent on finances, but little on getting ready for the retirement experience.
Jean Risley, author of How to Decide What to Do Next When You're Retired writes about new tools for those who want to use their time and energy in retirement on the things that matter. Here's an extract from her book.

* Employee Benefits Research Institute (EBRI),

Insured Retirement Institute (IRI)

Thomas Phelps DeVol is the founder of DeVol Insurance & Financial Services. He enjoys helping people transform their hopes about the future into attainable retirement plans. His persistence, know-how and diligence are the keys to his success -- and that of his clients.

Tom has three children and lives with his wife, Connie, and their youngest child in Newton, Massachusetts. He enjoys gardening, tennis, jogging and opera.

Tom can be reached at 617-964-6404 or via email.

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Securities offered through Parkland Securities, LLC. Member FINRA/SIPC. Investment advisory services offered through Sigma Planning Corporation, a registered investment advisor. DeVol Insurance & Financial Services is independent of Parkland Securities, LLC and SPC.

PHOTO CREDITS: http://search.shelmerdine.com/11050002/Plant/2220/Matchsticks_Chrysanthemum; http://i.imgur.com/7SJrRJZ.jpg; http://thedowsersdaughter.blogspot.com/2010_11_01_archive.html; http://wshg.net/the-garden/2014-07-02/heavenly-scent-creating-paradise-with-lily-hybrids/