Category Archives: Insurance

Piracy risk

Image Credits: nautilusint.org

Most of us are aware of the risks we take every day, but we ran across an interesting article recently that involved a risk we had not considered: being captured by pirates.

Believe it or not, in certain parts of the world, it’s happening.

Impoverished areas dotting the coasts of Nigeria, Somalia, Malaysia, Indonesia and the Philippines have been virtual breeding grounds for partially-organized collections of criminals seeking to steal, hijack, kidnap and murder their way to fortune.

We have seen news reports of pirates attacking oil tankers and holding them for ransom.  The peak of this occurred in 2011.  Since then, shippers have improved security, hired armed escorts and received military assistance.

 This modern era of the 21st century pirate is being successfully stunted, yet maritime kidnappings for ransom are on the rise. Although the number of pirate attacks is decreasing throughout the world, the number of kidnappings taking place during those attacks is increasing. Internationally, pirates kidnapped 62 persons in 2016, all of whom were or are still being held for ransom.

Pirates realized that it’s easier to capture people and spirit them away that to deal with ships that can’t be hidden.  People are smaller and pound-for-pound a great deal more valuable.  So we now have a new growth industry: Kidnap and Ransom (K&R) Insurance. If you are planning to travel to the pirate infested waters of Southeast Asia or off the coast of Africa you may want to check out the rates for K&R insurance.  For a premium you’ll get unlimited funding for a crisis response team whose sole mission is to get you safely home.

If you plan to take your yacht through the South China Sea or the Malaccan Straights this is something you may want to consider.

Meanwhile, in this part of the world, we’ll keep an eye on the risks with which we are more familiar: market fluctuations, tax changes, interest rate increases, economic trends and even those things we can’t foresee known as Black Swans.   Stay safe.

Tagged , ,

New Years Resolutions for 2017

As another year winds to a close, we wanted to present you with some New Years resolutions designed to improve your financial health in the coming year.

  • Update your estate plan. Has there been a change in your family over the last year?  A marriage, a new baby, a death in the family?  If so, you need to update your estate plan, your insurance policies and your beneficiary designations.
  • Update your internet passwords. Are you using the internet to pay bills, shop, or access your investment accounts?  You will want to update your passwords and make them harder to guess.
  • Review your investments. Have you reviewed your portfolio recently?  Is it still aligned with your needs and goals?  If not, make some changes.
  • Get a personal “Risk Number.” Do you know how much risk you can take?  Most people don’t really know.  Resolve to get your personal “Risk Number“this year.  If you don’t know yours, click here to figure it out.
  • Get your portfolio’s “Risk Number.” Do you know how risky your investments are?  Most people don’t know how much risk they are taking.  Get your portfolio’s “Risk Number” and compare it to yours.  If it’s not the same, you need to consult your financial advisor.
  • Update your financial plan. If you don’t know where you’re going you probably won’t get there.  What’s your financial plan?  If you answered: “I don’t have one” resolve to get one this year.
  • Set your financial goals. Do you know how much you need to save to retire?  Here are some guidelines:

A 30-year-old can open a retirement account and make regular monthly contributions.  By investing properly and aiming for a modest 6% per year rate of return:

  • Saving just $200/month, by age 67 his account will have grown to nearly $350,000.
  • By saving $500 per month the account will be worth over $850,000.
  • Saving $1,000 per month will make our 30-year-old a millionaire by age 59.

 

If you have problems with any of these resolutions, you should definitely consider working with a financial advisor; someone who will be like a health coach for your personal finances.  Resolve to find one this year.

Think of the Advisor as your Sherpa, as it were, whose job it is to guide you amid the extreme altitudes and treacherous passes in investing’s hazardous terrain. That is to say, an Advisor is not someone you hire to beat the market for you, but rather someone who can help you achieve your personal financial objectives as “a facilitator, mentor, and market strategist” for those who, on their own, struggle to achieve their goals.

Tagged , ,

Exploding health care costs

Here are some scary projections about the cost of health care for retirees:

 The average lifetime retirement health care premium costs for a 65-year-old healthy couple retiring this year and covered by Medicare Parts B, D, and a supplemental insurance policy will be $266,589. (It is assumed in this report that Medicare subscribers paid Medicare taxes while employed, and therefore will not be responsible for Medicare Part A premiums.)

If we were to include the couple’s total health care (dental, vision, co-pays, and all out-of-pockets), their costs would rise to $394,954. For a 55-year-old couple retiring in 10 years, total lifetime health care costs would be $463,849.

These projections come from Health View Services.

“Obamacare” enrollment has just begun for the coming year and premiums are increasing an average of 22% even as deductibles have increased to $6,000 for the “Bronze” plan before insurance actually pays anything.   The number of companies offering health insurance to individuals is shrinking and some of the larger companies have stopped offering individual policies altogether.

Many people tell us that health care is one of their top concerns in retirement, right up there with running out of money.  Unfortunately the majority has not even begun to put money aside for retirement and those who have underestimate the cost of doctors, hospitals and drugs during their retirement years.

No matter where you are in your life cycle, you should take action now to get to know a knowledgeable financial advisor, preferable a fee-only Registered Investment Advisor (RIA) who specializes in retirement and who can provide guidance on these issues.

Tagged , , , , , ,

Buying insurance and annuities

Two kinds of insurance products are often sold as investments, and should not be:

  • Life insurance
  • Annuities

There may be a place for both of them in your financial plan.  But they are often bought for the wrong reason because they are often misrepresented by the agent or misunderstood by the buyer.

Insurance products are complex and difficult for a layman to understand.  Let’s first review the basic purpose of these products.

Life insurance – its primary purpose is to replace the income that is lost to a family because of the premature death of the primary earner.  A young family with one or more children should have a life insurance policy on the earners in the family.  Ideally the insurance is will allow the survivors to continue to live in their accustomed style and pay for children’s education.

This usually means that younger families need more insurance.  However, there will be a trade-off between what a young family needs and what they can afford.  To obtain the largest death benefit, I suggest using a “term” policy.   “Whole Life” policies which have some cash value generally do not provide nearly as much death benefit and are less than ideal as investment vehicles.  Whole life policies are often sold using illustrations showing the accumulation of cash value over time.  What most people don’t realize is that illustrations are based on assumptions that the insurance company is not committed to.  This is the point at which an advisor who’s not in the business of selling insurance can prevent people from making mistakes.

Life insurance can also be used for other purposes.  One popular reason was to pay for estate taxes.  However, changes in the estate tax exclusion amount have made this much less attractive except to the very wealthy.

Annuities – useful for providing an income stream that you cannot outlive.  Like life insurance, it comes in a dizzying array of options that the average layman has trouble understanding. It is also one of the most commonly misrepresented insurance products.

Some of the most heavily promoted annuities are sold as investments that allow you to get stock-market rates of return without risk.  That’s one of those “too good to be true” offers that some people simply can’t resist.  The problem is that few people either read, or understand the “small print.”  Insurance companies are really not in the business of giving you all the upside of the stock market and none of the downside.  If they did, they would quickly go out of business.

These products are popular with salespeople because they pay high commissions.  Unfortunately they also come with very high early redemption fees that often last from 7 years to as much as 16 years.

If you have been thinking about buying a life insurance policy or an annuity you should first get some unbiased advice on what to look for.  Most insurance agents are honest, but like most sales people they would like you to buy their product.  It would be wise to get advice from someone who is an expert, but who is not getting paid to sell you a product.  There are a number of financial advisors who will provide guidance.  At Korving & Company we are Certified Financial Planners™ (CFP®) and licensed insurance agents, but we do not sell insurance products.   Since we don’t get paid to sell insurance we can evaluate your situation, advise you, and if life insurance or an annuity is what you need we can refer you to a reputable agent who can get you what you need.

Tagged , , , ,

Questions to ask when interviewing a financial advisor

A previous post referred to an excellent article on CNBC about financial advisors .  You first have to consider what kind of financial advice you want or need.

Once you determine the kind of advice you’re looking for, here are some key questions to ask when interviewing the financial advisor.

  • What are the services I am hiring you to perform?

  • What are your conflicts of interest?

  • Identify for me all of the ways you or your firm are compensated by me or by any other party in connection with services rendered to me or my assets.

  • Do you have a fiduciary duty to act in my best interests?

  • Describe your insurance coverage.

We’ll add a few more of our own:

  • What is your investment philosophy?
  • Do you do your own investing or do you use outside firms?
  • What kind of experience do you have?
  • Are your other clients similar to me?

If you don’t get straight-forward answers to these questions, go on to your next candidate.

Feel free to ask us questions.

 

Who, exactly, are these financial advisors

There’s a really great article on the CNBC website that discusses the question of what financial advisors are.  There is a lot of confusion because people use the term “financial advisor” for a group of people who are really different.  There is less confusion in the medical field because we distinguish between various kinds of doctors.  When you have a medical problem you distinguish between a pediatrician, a heart surgeon, a dentist or a psychiatrist.   They’re all doctors but people know there’s a lot of difference between them.

The same thing is true of financial advisors.  They could be a stock broker, an insurance salesman, or a Registered Investment Advisor (RIA).

Here is one important difference between brokers (technically known as Registered Representatives) who work for investment firms like Merrill Lynch, Wells Fargo, UBS or other major firms and investment advisors.

Brokers can only offer you investment advice that is incidental to them buying or selling financial products, whereas investment advisors are professionals who are paid by you to give you advice — advice that is in your best interest. The latter is called a fiduciary responsibility.

Before engaging an advisor, Ask yourself these key questions:

  • Are you looking for advice on individual stocks or someone to manage a diversified portfolio for you?

  • Are you looking for a product to solve a problem or a long-term financial plan?

  • Are your assets straightforward, or will you need more coordination because of complex estate-planning issues?

  • Are you an employee of a company, or might you be dealing with potentially complex tax issues, like selling your business?

  • Are your issues acute and immediate, or will they be ongoing or recurring?

  • How much do you want to rely on the recommendations of your advisor, or do you want to be the ultimate arbiter of what’s best for you, whether to follow a recommendation or not?

  • Are you prepared to evaluate each recommendation to determine whether it’s aligned with your needs?

These questions will help you determine what kind of financial advisor you need.

Feel free to contact us to answer some of your questions.

Tagged , , , , , ,

Getting a bigger tax deduction for long term care insurance in 2016

The IRS is increasing the amount that can be deducted from tax returns in 2016 for Long Term Care insurance premiums.

Medical expenses for seniors keep rising and the cost of a long-term-care facility can reach $10,000 per month. At that rate a lifetime of savings can be depleted rapidly. As a result, many seniors have bought long term care policies.

For people between 50 and 60 years of age the deductible limit is $1,460.

For those older than 60 but under 70 the limit is $3,900.

For younger individuals the limits are lower:
• Under 40 years old it’s $390.
• From 40 to 50 it’s $730.

Keep in mind that the deductibles are classified as unreimbursed medical expenses and can only be deducted if they exceed 10% of your adjusted gross income. Premiums above the new limits are not considered a medical expense.

Tagged ,

The Real vs. the Ideal (Sometimes Life Happens)

The latest issue of Investment News reminded me of an article I saw recently about Marco Rubio, a Senator seeking the Republican Presidential nomination. It seems that he cashed in a 401k to buy a refrigerator, an air conditioner, pay some college costs for his children and cover some campaign expenses.

Financial planners always tell their clients that they need to put money aside for retirement and to never, ever take money out of retirement plans before age 59 ½ because the taxes and penalties can take nearly half of the money that you withdraw.

The article goes on to say that:

“Unfortunately, many middle-class Americans aren’t saving enough for retirement and some, like Mr. Rubio, even pull money out of their retirement plans prematurely.”

Our advice regarding the timing of withdrawals from retirement accounts is, of course, exactly right. And it will be followed if you are rich enough. Unfortunately, as John Lennon once said, “life is what happens when you’re making other plans.”

Most people have finite resources. Not everyone has the money to fully fund their IRA, 401k, 529 college savings plan, health savings account, life insurance and long-term care insurance policies. Life is about making choices between have-to-have and nice-to-have.

We realize that, and provide our clients with the trade-offs they often need to make. Some goals are achievable and others may not be. And sometimes it’s worthwhile cashing in a 401k if it means that later on you can become President.

Tagged , , , , , , , , , ,

Delaying Medicare Part B

When you turn 65 you become eligible for Medicare and are asked to sign up. Medicare has a number of parts.

Medicare Part A primarily covers hospital care as well as skilled nursing facilities, nursing homes, hospice and some other services. There is no cost to the individual for Part A.

Medicare Part B primarily covers services (like lab tests, surgeries, and doctor visits) and supplies (like wheelchairs and walkers) to treat a disease or condition. There is a monthly charge for Part B.

If people choose to continue working after age 65 and if they are covered by a group health plan they may not sign up for Part B.

If they do not sign up for Part B at age a 65, they may be subject to a “late enrollment penalty.” According to Medicare.gov

Your monthly premium for Part B may go up 10% for each full 12-month period that you could have had Part B, but didn’t sign up for it.”

However, this penalty does not apply of you can prove that you had medical insurance coverage for the time you declined the Part B.

Tagged , , ,

GE Retirees health insurance

GE is one of the companies that are working hard to reduce the amount it must spend on retiree health care. As people live longer, the cost of lifetime health care coverage for retired employees becomes a larger part of a company’s bottom line. GE recently offloaded the supplemental insurance coverage for salaried retirees to another company that specializes in employee benefits.

With that in mind, here is what a member of the GE employee family had to say about this. Even if you are not a GE retiree, the analysis is very worthwhile.  (edited)

When you turn 65, Medicare becomes your primary health insurance even (I think) if you are still working for GE, and definitely if you are retired from GE. … [But] one needs to sign up for Medicare within 3 months before or after their 65th birthday month, or face a lifetime late enrollment penalty.

You can either purchase a Medigap plan on the open market using Medicare.gov to search the available plans, or you can use OneExchange the same way. Or, if you’re feeling lucky/healthy, one can just use the 80% coverage of Medicare Part B and go without a Medigap plan – after all, Medicare Part B pays 80% of Dr. visits…The Medigap plans basically cover the 20% of OV’s that Medicare doesn’t – plus a few other things, but that’s their primary role. A person could do a simple break-even analysis and figure out how many OV’s they would have to have in a year to equate to the premiums they will pay for a Medigap plan. A healthy person would actually be better off financially (in the short term anyway) without a Medigap plan, as most people are paying at least $100 per month per person for that coverage, I believe. Of course, it is insurance, so what you really hope for is that you pay the premiums and don’t need it, right?

Since you also would be losing your GE drug coverage, you very much would want to enroll in Medicare Part D, drug coverage, or you will be paying the retail price for drugs, without the coverage of the Part D plan, and also without the negotiated drug prices the insurance carriers receive – a bad proposition all around. If one’s prescription drug needs are modest, there are very low-cost plans available like Humana/Walmart, which provide good protection at very low cost. If one’s prescription drug needs are a little more exotic, then it would pay to explore which plan would be best, using the plan selector engine at Medicare.gov or OneExchange. My experience using both plan selector engines was they came up with a very closely matching answer. In my case, even with one Tier 3 drug that costs $250 per month retail, Humana/Walmart was the least costly plan, but several others were very close.

Or, if this person was OK with using a managed care plan, there is also the option of going with a Medicare Advantage Plan, or a managed care plan, aka Medicare Part C. Those are the plans for which we get the flyers every Annual Enrollment period. I think generally these are very cost effective, often covering Medicare Parts A, B and D with a premium of zero dollars, but you have to be prepared for the restrictions on where you can go and who you can use, you generally need a visit with a Primary Care Physician (PCP) in the HMO before seeing a specialist, etc. My view on these plans is that you give up some choice and control in exchange for saving quite a bit of money on premiums. But watch out for the geographical and network restrictions.

Tagged , , , , , , , , , , ,
%d bloggers like this: