Posts Tagged ‘insurance’

Long-Term Care Insurance: A 2013 Update

MARCH 16, 2013 VOLUME 20 NUMBER 11
A colleague recently asked if we knew why long-term care insurance premiums might be climbing significantly in the next month or so. We didn’t, but it got us thinking about how the industry has changed over the past few years. Is it still a good idea to purchase insurance to cover possible costs of institutional or home care in the future? If so, who should be considering such policies, and what should they expect to pay?

First, the cost figures. The American Association for Long-Term Care Insurance, an industry trade group, conducts a survey of prices every year. The AALTCI’s 2013 figures were released, as it happens, this month. The short version: long-term care insurance costs have risen significantly in the past year. They calculate, for instance, that a 55-year old buying a typical policy might expect to pay $2,065 per year in premiums; the same policy last year would have cost $1,720. That’s about a 20% increase in cost, during a year where the general cost of living increased at something more like 2%.

Of course, your mileage may vary. If you are older or younger, married rather than single, or purchase a “richer” policy or one with less coverage, you might see a greater or lesser increase. But there’s no doubt that the cost of long-term care insurance has increased in the past year, continuing a trend of the past several years. Jane Bryant Quinn, a leading columnist for AARP Magazine, last year reported that premiums were up as much as 50% over the preceding five-year period.

More significant, perhaps, is the problem of a contracting market. Both buyers and insurance companies are leaving the long-term care insurance marketplace (though the number of new policies has rebounded somewhat since the economic downturn of five years ago).

So what’s happening to the marketplace? Historically low interest rates have the perverse effect of increasing insurance costs (since insurance companies are investing your premium dollars in order to generate income to pay future claims, costs of administration and profits). Life expectancies continue to increase, and uncertainty about the length of a policy-holder’s life makes actuaries a little twitchy — and conservative. Medical advances introduce the possibility of cures for some of the diseases that cut life expectancies short — and create the paradoxical possibility of extended nursing home stays. And, surprisingly, existing policyholders are not dropping their policies at the rate predicted years ago — meaning that more claims are being made on older policies than insurance companies anticipated. While most insurance products experience a “lapse” rate of about 5%, the figure for long-term care insurance is more like 1%. In short, the long-term care insurance industry is in trouble.

That might mean that long-term care insurance is more expensive, or harder to locate, but it doesn’t necessarily mean that consumers should avoid the product. The cost of long-term care can easily exceed $100,000 per year in a nursing home or in home care (in fact, home care is often more expensive than institutional placement).

It is, of course, impossible to predict which potential buyers will need long-term care insurance. But there are some generalizations about the purchasers of LTCI policies that might give some guidance — if only on the theory that the marketplace is wiser than individual buyers. Here are some observations about typical buyers and policies, drawn from the American Association for Long-Term Care Insurance reports and financial writers over the past few years:

  • The average age of new LTCI policy purchasers is dropping. Twenty years ago it was almost 70. Today it is below 60 (it was 59 in 2010-2011, according to America’s Health Insurance Plans, an insurance industry trade group).
  • Not too surprisingly, wealthier people buy more policies. The AHIP study reports that more than half of policies are purchased by people with incomes over $75,000 per year; more than three-quarters of all policies are owned by people with liquid assets of more than $100,000.
  • There is a correlation between education levels and policy purchases. Nearly three-quarters of long-term care insurance buyers are college-educated. For comparison purposes: about a quarter of all those over age 50 have college degrees.
  • Women and men buy long-term care insurance policies at rates almost exactly equal to their respective shares of the over-50 population. Married people buy policies at a slightly higher rate than their representation in the age group, and divorced, separated and widowed seniors are much less likely to purchase policies.
  • One of the significant drivers of cost of a particular LTCI policy: inflation protection. About three-quarters of policies sold in  recent years include a provision for automatic increases in coverage — most of those provide for about a 3%/year increase, down from the 5%/year that was more common twenty years ago.
  • In 1990 nearly two-thirds of LTCI policies covered nursing home or institutional care only. Today almost all policies (95%) cover both nursing home and home care. But more than half of the more modern policies will still be exhausted if the buyer spends four years in a nursing home.

Does all this mean that you don’t have to worry about long-term care costs unless you are age 59, college-educated and earning an income of $75,000 or more? Of course not. In fact, it may be more important that you shop for insurance if you are younger and more solidly middle-class (as judged by your income and assets). You might have more to lose, and a harder time paying for nursing care you might end up needing. We urge you to talk with an insurance salesperson about long-term care coverage.

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Consumer Alert: Watch Out for Pitchmen — Come Hear Our Pitch

MARCH 28, 2011 VOLUME 18 NUMBER 11
Are we just too cynical? Is it possible that the flyer we received in the mail last week is genuinely valuable and the company upstanding? Could it be that it is not an annuity sales pitch aimed at seniors?

On one side we see a series of “Consumer Alerts.” They look serious, and they are even numbered. They caution readers to watch out for people holding themselves out as “senior advisor,” “senior consultant,” or similar designations. They even warn the reader that the National Association of Insurance Commissioners is on the watch for those designations, and has adopted a “model regulation” to discourage their use.

By the time you read to “Alert #2,” however, you begin to wonder. It warns you that if you have an annuity that is two years old or older “YOU MUST ATTEND” the seminar advertised on the reverse side of the flyer.

“Alert #3″ leaves you even more doubtful. It promises that a series of apparent luminaries will have “RECORDED MESSAGES” at the seminar.

Flip it over, and the flyer invites you to “Be Our Dinner Guest” at one of three high-end local restaurants. Dinner begins at 3:30PM in each case, so you might want to speculate on how that will work. Maybe you won’t have to speculate too much, however; in smaller print you see that dinner will be offered after “our acclaimed workshop.” You will also learn that you have to “qualify to attend,” and that “financial advisors, insurance agents, attorneys and accountants pay $1,000 attendance fee.” Apparently this is a pretty high-powered program!

Who are these people, and what are they up to?

The flyer lists an organization called Secured Financial Solutions, LLC, as sponsor. The principals in Secured Financial Solutions appear to be Anil Vazirani and Richard Radaelli; neither of their names appear anywhere on the flyer we received. Their names do appear in a 2008 article in Life Insurance Selling magazine, which indicates that they generated over $200 million in insurance premiums in the three years before the article — “most of it in fixed indexed annuities.”

Let’s go back to those “consumer alerts.” The first one, remember, identifies the National Association of Insurance Commissioners as being on the lookout for salesmen using designations like “Senior Advisor.” In fact, the NAIC is a very active organization and it does counsel caution in dealing with insurance, annuity and investment advisors. The (then) President-Elect of the NAIC even testified before Congress in 2007 about concerns for designations like “Certified Senior Adviser,” “Certified Retirement Financial Adviser,” “Chartered Senior Financial Planner,” and “Certified Financial Gerontologist.” Those designations, and others like them, falsely imply that their holders have specialized training and expertise. In fact, they tend to be marketing tools rather than meaningful designations, according to Ms. Praeger’s testimony.

A year later, as President of the NAIC, Ms. Praeger had more to say about investment scams targeting seniors. In a June, 2008, press release from the NAIC she gives good advice on how to deal with annuity salesmen. Two of her good ideas: “Beware of ‘free lunch’ investment seminars,” and “Never make a final decision at a seminar.” We think those are good pieces of advice.

In fact, the NAIC has plenty of suggestions for consumers — particularly seniors — to help protect themselves from unscrupulous financial advisers. A few of our favorites:

All right — maybe we’re too cynical. After all, the flyer includes apparent endorsements from a number of luminaries — like Ben Stein (a Fox News commentator who was once discharged by the New York Times over his activities as a pitchman for a questionable “free credit report” product), Charlie Gasparino (another Fox commentator, and author of “The Sellout: How Wall Street Greed and Government Mismanagement Destroyed America’s Global Financial System”) and Harry Dent, Jr. (a financial writer and author who in 2006 predicted the Dow would hit 40,000 by 2010 — it didn’t).

On top of all that, some portion of the enterprise described in the flyer (it is unclear exactly what) is part of “Arizona’s Best in Business — as seen in April 2009, March 2010 & February 2011 of Forbes Magazine.” OK, we’re cynical — we suspect that this refers to an advertisement placed by Secured Financial Solutions. But we’re prepared to be proven wrong and to confess our cynicism about annuity sales tactics and free-dinner workshops.

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Improving Communication Between You and Your Doctor

AUGUST 2, 2010 VOLUME 17 NUMBER 24
Your doctor is busy. She is seeing dozens of patients every day, and their insurance plans force her to get those patients taken care of and out the door quickly. By default, she may limit her contact to the minimum necessary to diagnose and treat.

But you want more. You want to know what is really going on. You want to know how you can help, and whether you should be adjusting your diet or your habits. You want to understand the interrelationship of different medications, and the side effects of each. You want to hear about alternative treatments, what the doctor is looking for, what you can expect.

How are you going to get that information from your smart, helpful, friendly but very busy doctor? By talking with her, of course.

Easier said than done. In a perfect world you would have all the tools you need — well, actually, in a perfect world you wouldn’t need a doctor at all, but we’re some distance from either level of perfection. But maybe a new publication from the National Institute on Aging can help.

Talking With Your Doctor: A Guide for Older People” is a practical pamphlet designed to give you some tips about how to communicate with your physician (or, for that matter, your physician’s assistant, nurse practitioner or other health professional). It comes complete with some worksheets and checklists to help you organize yourself for your initial or periodic doctor’s visit. Do you have your advance directives with you? Have you listed all the medications AND over-the-counter AND herbal remedies and supplements you take? Do you have your insurance card, the names and phone numbers of specialists or other doctors you see, your eyeglasses and hearing aids with you?

Some practical tips from the NIA publication:

  • “Consider bringing a family member or friend.” It might be easier to remember the important items on your list if you have organizational and moral support. A savvy assistant can help you remember what the doctor tells you, too.
  • Start by locating a doctor you can talk to. If you are uncomfortable about getting information from your current doctor, or unable to get her to understand how important it is to you to have a discussion rather than a lecture, consider changing doctors. Interview a prospective new doctor’s staff on the telephone — after all, they are the ones you will deal with most. Check your prospective doctor’s credentials and special training. Schedule a first meeting (you may have to pay for it if your insurance doesn’t cover it) and pay attention to how well the doctor works with you and how comfortable you feel about the exchange of information.
  • Share information about your habits, as well as your medical care and conditions. In order to understand what is going on with you, your doctor must know whether you smoke or drink, whether you engage in risky behaviors, how much you sleep each night, whether you have an active sex life. Be candid and forthcoming with your doctor; she will be better able to advise you if she knows what you are doing.
  • Perhaps you are helping care for (or are concerned about) an elderly family member or friend, or one with a disability. The NIA booklet can serve as a guide for you, as well. You can use the checklists and worksheets to collect and organize information, and to help you keep track of questions you need to address. The tips for communication with your doctor will work every bit as well when the patient is someone you are caring for, or care about.

    You can order printed copies of “Talking With Your Doctor” for free. You can also download it online and print out only those portions you need — like the worksheets, for instance. It could help you get a better handle on your medical treatment, or the treatment of someone you care for or about.

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    Non-Lawyer Trust Preparation Group Shut Down in Indiana

    MAY 3, 2010  VOLUME 17, NUMBER 15

    United Financial Systems Corporation looks like they can do it all. According to their website (which you will have to look up for yourself — we don’t want to point to it since it still includes information about how to sign up for the activities that have now been prohibited), they can tell you how to plan your estate, retirement, insurance needs, health care — even your funeral arrangements. There is a disclaimer that lets you know they do not practice law (and do not give investment advice). The Indiana Supreme Court begs to differ.

    In a disciplinary action three weeks ago, that state’s high court found that UFSC was “an insurance marketing agency,” and it was practicing law. The company was ordered to stop selling living trusts, to give every client a copy of the Court’s opinion, to offer refunds to all clients they had worked with in the past four years, and to pay the costs and some of the attorney’s fees associated with the proceeding. A handful of lawyers were included in the disciplinary process; most agreed to end their involvement with UFSC (and the practice of participating in non-lawyer legal work) and were dismissed from the case.

    What was UFSC doing? It had “Estate Planning Assistants” (non-lawyers) contact prospective customers to tell them about the importance of estate planning. If the customer signed up for the $2,695 living trust package, the salesperson collected $750 to $900 and helped the customer fill out a questionnaire.

    That questionnaire was then sent to one of several attorneys UFSC hired to prepare living trusts, wills and powers of attorney. The attorney would be paid $225, and would make one telephone call to the client to discuss the estate plan. Once a trust and supporting documents were prepared the signing was handled by another UFSC salesperson — for another $75 slice of the total fee.

    The person handling the signing, whose title was usually “Financial Planning Assistant,” also had access to the customer’s financial information (remember that questionnaire?) and could make recommendations about investment changes. One common proposal was to liquidate other investments in order to purchase an annuity — which, incidentally, would yield a significant commission for the Financial Planning Assistant and UFSC.

    The Indiana Supreme Court’s opinion details one extreme example of the effect of this marketing juggernaut. The 72-year-old woman was persuaded to liquidate $500,000 worth of Exxon Mobil stock — the bulk of her entire net worth — in order to purchase an annuity. The result: she incurred a $132,000 income tax liability and her salesperson received a $40,000 commission. State of Indiana ex rel. Indiana State Bar Association v. United Financial Systems Corporation, April 14, 2010.

    Would UFSC face the same result in Arizona? Probably not. While the unauthorized practice of law is prohibited by court rule, Arizona repealed its criminal statute decades ago. The Arizona Supreme Court has not been active in reviewing such cases, and indeed has even created a “certified document preparer” classification for non-lawyers who “assist” clients in creating wills and trusts.

    How can you avoid being taken advantage of by non-lawyer “estate planners” or “document prepapers”? Lawyers tend to think the best answer is the simplest one: hire a lawyer for your legal needs. If you are approached by a “finanical planning assistant” or something similar, you might want to ask “assistant to whom?”

    If the salesperson assures you that they have a crack team of estate planners, tax advisers and financial consultants, ask for a few names, titles and credentials. Above all, be very cautious of any person or group who also happens to sell annuities or other insurance products. Not all insurance salespersons are questionable, but practically all questionable non-lawyer “estate planners” sell insurance products.

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    Trust Salesmen Alleged To Have Pushed Seniors Into Annuities

    JULY 14, 2003 VOLUME 11, NUMBER 2

    Philip Klein thought he was getting estate planning advice. At first he probably didn’t realize he was also talking to an insurance agent. His children ended up suing the agent, the insurance company and the “estate planning services” firm employing the agent.

    Mr. Klein was 85 years old when he met with Brian Causey, an agent for American Estate Services Inc. (also operating as Advanced Legal Systems, Inc.). Mr. Causey prepared a living trust, a will, a living will and a power of attorney for Mr. Klein. Mr. Causey was not a lawyer; as it turned out, he was an insurance salesman.

    Mr. Causey persuaded Mr. Klein that he should liquidate his substantial stock holdings and invest in annuities with American Life and Casualty Company. In all, Mr. Klein ended up liquidating $840,000 in stock to buy the insurance products.

    At the beginning of the next year, Mr. Klein received a tax surprise. Because his stock had appreciated in value, he had a $38,000 federal income tax bill to pay. It was at this point that Mr. Klein’s two children even became aware that their father had completely changed his investment holdings.

    Mr. Klein died a little more than two years later. While going through his papers, his children learned the full extent of Mr. Causey’s abilities as a salesman. Not only had most of their father’s assets been liquidated to buy annuities, they included substantial penalties for withdrawals and, according to an attorney who reviewed them, were not good estate planning for Mr. Klein at the time.

    Mr. Klein’s children sued Mr. Causey, American Estate Services, Addison Insurance Marketing (the insurance firm Mr. Causey worked for), and American Life & Casualty Company. They argued that the defendants had put their own interests—in high commissions and fees—ahead of Mr. Klein’s needs.

    At first the Louisiana courts refused to allow Mr. Klein’s children to assert their claims, ruling that they should have acted within one year of first learning about the annuities. The Louisiana Court of Appeal, however, reversed that decision and permitted the case to go forward. Klein v. American Life & Casualty Company, June 27, 2003.

    As it turns out some of the defendants in the Klein case are well known across the country. Advanced Legal Systems and Addison Insurance Marketing or related individuals have been the subject of enforcement actions in at least Oregon (in 2001), Indiana (in 1999) and Kansas (in 2001). The Oregon Attorney General has provided a description online of how the companies pressure seniors into buying trusts and annuities. Fellow elder law attorney and friend Tim Takacs (from Tennessee) reported on how an attorney from Kansas got into trouble with the Bar disciplinary board of that state for dealing with Addison Insurance Marketing and a related organization, ALMS.

    [After this article appeared in 2003, Addison Insurance Marketing apparently continued to operate--and to get in trouble--in more states. The company and affiliates Gentry Group and American Equity Investment Life Insurance Company were the subjects of a "cease and desist" order from the California Department of Corporations in 2004.]

    Note: there is another, unrelated Advanced Legal Systems, Inc., a perfectly legitimate Portland, Oregon, company that provides web services to lawyers.

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    Living Trusts Are Valuable Tools Alright, But Watch That Pitch

    MARCH 1, 1999 VOLUME 6, NUMBER 35

    “Since the Revocable Living Trust avoids the expensive and lengthy legal process known as ‘probate’” proclaims a national insurance sales agency in its brochure, “it is fast replacing the Last Will and Testament as the preferred method for asset distribution.” Elsewhere, the same insurance agency promises that the “Living Trust avoids probate and is less expensive, quicker and private. The Living Trust completely eliminates the court process.”

    In their zeal to sell living trusts, many non-lawyer document preparers and not a few lawyers resort to half-truths and the occasional outright misrepresentation. A review of the literature handed to seniors at a recent Tucson “estate planning” seminar (really a pitch for living trusts, annuities and insurance) reveals some of the misinformation:

    The pitch– “Aren’t trusts only for the rich? No. Anyone with property or assets totalling more than $30,000 should consider a trust to avoid probate.”

    The truth–in Arizona, estates of up to $50,000 in personal property plus $50,000 in real estate can be transferred through a very simple affidavit process. But even more fundamentally, even larger estates seldom go through the probate process. Holding property in “joint tenancy with right of survivorship” is a popular way to avoid the probate process, particularly between spouses. Bank accounts, stock certificates, bonds, brokerage accounts, annuities, life insurance and many other assets can be titled as “POD–payable on death” (or “TOD–transfer on death”) to avoid the necessity of probate. The simple reality is that probate is initiated in a tiny minority of cases, and often only as to a fraction of the decedent’s assets.

    The pitch– “At your death, the court must first validify [sic] your will. This process is called probate. During probate not only is your estate tied up, it is also publicly recorded making your private information available for anyone, family friend, or stranger.” And elsewhere: “A recent survey indicated that it takes sixteen months for the average estate in America to clear probate.”

    The truth–the probate process is, indeed, the mechanism by which the court determines the validity of your will. In almost every case, that determination is simple and straightforward–will contests are extremely rare. More importantly, your estate will not be “tied up” during the probate process. Your personal representative will be authorized to liquidate assets as may be needed, pay your debts, distribute living expenses to your spouse and children, and even make distributions of some of your estate. Despite the common belief that estate information is publicly available, there is no requirement that an inventory or accounting be filed unless requested by one of the beneficiaries. And the typical probate process, at least in Arizona, takes about six months, with many probates being opened and closed virtually simultaneously.

    The pitch– “This [probate] is also the process that can cost your heirs up to 8% of your estate.” Another pamphlet trumpets that “Probate expenses…can cost between 3% to 12% of an estate’s gross value.”

    The truth–the cost of probate proceedings must (at least in Arizona) be based on the actual work required to administer the estate. If the personal representative chooses not to charge (which is usually the case, especially when the personal representative is also an heir), then the only costs will be legal fees. While those fees may be substantial, they are more likely to be 1% than 8% of the estate. Arizona law is more restrictive than some states, but even in those states which provide for a percentage fee for the attorney handling a probate, it is more likely to be 3% than 8%. Administering a living trust will also cost something, though likely not as much as a probate for a comparable estate.

    Living trusts are an important estate planning tool–and option– for many people. They may be particularly valuable for those who have real estate in more than one state, or disabled (or spendthrift) children, or large estates requiring careful tax planning. But living trusts are seriously oversold, and consultation with a competent estate planning attorney is the best way to make the necessary cost-benefit analysis. Be wary about getting legal advice from an insurance agent.

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