Paul Ferraresi

Like many aspects of life, most people close the barn door after the horse has left. The same thing takes place with Long-Term Care planning. All statistics show that one out of two people (50 percent) will need some Long-Term care, yet most people want to buy the insurance moments before entering the assisted living facility. At that point, it is too late and too expensive. Funny, you have less than ¼ of 1 percent chance your house will burn down, but you buy fire insurance coverage. Long-Term care can average $72,000 to $100,000 per year and you have a 50 percent chance of needing it; yet, very few people protect against this risk.

One way to minimize the costs is by setting up a side business as a “C” corporation. The C corporation can establish a long-term care benefit plan for the owners and chosen employees. Due to the government’s interest in having people covered privately for long-term care needs, the normal rules that prevent discrimination in benefit plans have been waived. This means that the business owner can provide a long-term care benefit for himself and his family (who are either employees or directors of the company), and deduct the entire premium for the long-term care policy without regard to the IRS discrimination rules.

Obtaining a tax deduction on the long-term care premium lowers the cost of having this coverage, thus making the choice of acquiring long-term care insurance that much more attractive.

Most people think that Long Term Care Insurance (LTCi) is needed for senior citizens, or, very elderly grandparents. Not true.

A recent study by Unum, which provides 75% of group long term policies, found that almost half (46%) of group policy owner claimants in 2007 were under 65.

So, if you are under 65, then one out of every two people in your office will have a long term insurance claim. That is a 1 chance in 2. Yet, people are afraid of dying in a plane crash – the odds of the plane crash death are I in 25 million.

In our above examples keep in mind that one is death (plane crash) and the other can be a living death (long term care needs).

• The study also found the average claim for LTC was for 31 months. Since you will not be working if you are under long term care, do you have money to replace your salary, AND, pay for the care which average $2,000 to $15,000 per month? Remember your disability coverage does not cover this.
• The average age of claimants under 65 was age 53. While 6 % of UNUM group claimants were under 45.
• Two thirds of LTC claims were for care at home.
• The leading claim was for brain and nervous system injuries.

So, I hope you finally see with a 50% chance of needing this coverage and with high costs of coverage it is time to get serious about this coverage.

Contact me if you need ideas or have questions in this area at (713) 871-5919 or email: Darlyn@fgmci.com.

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With all the turmoil in the financial markets many people have voiced their concern about insurance companies. People wonder if insurance companies have similar problems. The truth is that Insurance companies are regulated and backed in a stronger manner than banks. Here is a great article from TheStreet.com written in September. It will educate you and bring some peace to your mind.

After the sudden fall of American International Group (AIG Quote – Cramer on AIG – Stock Picks), policyholders everywhere are asking the same question: How safe is my insurance company?

We all depend on insurance, from health coverage, life insurance, protection for our house and car, to our annuity in retirement. Every facet of our lives involves insurance, and we pay a large amount to make sure we will receive help when we need it.

How can you be sure your insurer is able to meet its claims? If you live in Texas and were affected by Hurricane Ike, aside from the desperate worry over the damage to your property, the news last week about AIG will not have helped.

There are two positive things about insurers. First, they are strictly regulated to ensure companies maintain the ability to meet claims, and this regulation is overseen by state insurance commissioners. Second, in the event an insurer is unable to meet its claims, states have a guaranty arrangement where all insurers would be required to contribute funds. When there is a multi-state life and health-company failure, the National Organization of Life and Health Insurance Guaranty Associations, or NOLHGA, coordinates claims. Similar guaranty associations exist for all insurance types.

So what is different about an insurance company that provides additional comfort? After all, banks are regulated by the FDIC and they fail, and AIG has failed too?

It is important to realize that AIG’s insurance companies are continuing to operate as normal. The insurance companies did not fail; the problems are with the holding company. The insurance companies are considered by the National Association of Insurance Commissioners, or NAIC, to have sufficient liquidity to meet all claims. In fact, the NAIC has set up a special committee of commissioners overseeing AIG to ensure normal operations. Additionally, the NAIC will oversee any sale of an insurance company.

“It will likely be the insurance subsidiaries or their valuable blocks of business and high-quality assets that will be sold in an attempt to return the AIG parent company to a more stable financial position,” NAIC President and Kansas Insurance Commissioner Sandy Praeger said.

The NAIC outlines the regulatory position as operating under conservative accounting rules and mandatory annual CPA audits. Insurers must follow investment regulations and limitations, and there are minimum capital surplus requirements. From a risk perspective, state insurance regulations give insurers the ability to continue to operate normally with greater losses than other parts of the financial sector in down-market cycles. State regulators also perform ongoing financial analysis of insurers and on-site examinations.

According to the NAIC, the entire solvency framework and safety net for policyholders is uniform in every state as evaluated by its Financial Regulation and Accreditation Program. Rating downgrades and drops in share prices do not change an insurer’s ability to pay claims. Ratings issued by TheStreet.com are intended to provide exactly that comfort with the financial-strength rating of the insurance company representing the ability to meet a policyholder’s claim considering various indicators covering capital, reserves, profitability, investments, liquidity and stability.

If an insurance commissioner believes an insurance company is at risk, steps can be taken to protect policyholders. A company can be placed under supervision, a step intended to monitor the company and give it specific targets to meet before the company can continue to operate without oversight. An alternative, in the event of imminent failure, would be to seek a court order to place the company under the control of the commissioner, in which case a manager would normally be appointed to run the company.

There are strict financial guidelines in place to provide policyholders the comfort that insurance companies are acting prudently, state regulators are monitoring the companies to make sure that insurers follow the regulations, and there are actions that a regulator can take to protect the policyholder.

During a disaster like a hurricane, the guaranty funds can kick in if a company fails. NOLHGA President Peter Gallanis said the group has acted in over 60 multi-state insolvencies over the past 25 years, assessing over $4.4 billion on its members to meet policyholder claims. “Current assessments are averaging $25 million per year, a relatively low level considering that we have the capacity for $8 billion,” he said. Policyholders have a preferred status over general creditors, he said.

TheStreet.com Ratings issues financial strength ratings for 4,000 life, health, annuity, and property/casualty insurers. They are available on the Insurers & HMOs Screener. In addition, the Financial Strength Ratings on each of the nation’s 8,600 banks and savings and loans are available at no charge on the Banks & Thrifts Screener.

Gavin Magor
09/23/08 – 10:49 AM EDT

Hi all you bloggers out there, here is a little update on Long Term Care from Jenna Kozel with Edelman.

The new survey data shows that:

One in four Baby Boomers erroneously believe that they have coverage for long-term care expenses. According to the National Association of Insurance Commissioners, only about 5.2 million Americans have long-term care insurance – at most about 5 percent of Baby Boomers.

54 percent of Baby Boomers think Medicare will pay for long-term care services. Forty-four percent believe “other health insurance” will pay. Even half of those who say they have long-term care insurance believe Medicare will pay for the care. Medicare does not, in fact, cover long-term care indefinitely. Medicaid will cover these services, but only after requiring individuals to spend down nearly all of their assets to qualify for assistance.

Even among Baby Boomers nearing or at the age of 60 – when concerns about the potential impact of long-term care on retirement savings might be most prominent in their minds – only one in four say they are “very familiar” with long-term care insurance. In addition, 41 percent say they have not had any discussion about long-term care in the past twelve months.

Full survey data can be found here: http://www.ahip.org/content/default.aspx?docid=21352

ANB updated

If you keep a detailed list of personal property it will be easier to claim a deduction on your taxes in the event of casualty or theft losses. In addition, you will need this detailed information to file with your insurance company.

Losses can come about because of burglaries and vandalism. In addition, losses from fires, floods, tornados, terrorist attacks and tsunamis more than meet the criteria.

Unfortunately, the IRS imposes several convoluted restrictions on the allowable amounts for theft and casualty losses. Moreover it knows that many taxpayers misunderstand the complex rules and overstate their deductions.

IRS examiners learned long ago that most people are unable to substantiate their loss deductions because they neglected to keep adequate records. So, the usual response of the Feds is to throw out or trim unsupported estimates. This is a strict approach that has been sustained by the courts in countless decisions.

The IRS agency offers a free guide, Publication 2194, Disaster Losses Kit for Individuals, available at www.irs.gov or (800) TAX-FORM (829-3676).Publication 2194 includes a handy workbook with schedules for listing clothing, jewelry and a residence’s contents on a room-by-room basis. Schedules for rooms have separates sheets for the entrance hall, living room, dining room, kitchen, bedrooms, garage and other sections.

Alongside each property item are seven columns in which to record details: the number of items; date acquired; cost; loss; decrease in value; and amount deductible as a loss.

Publication 2194’s workbook will help you inventory household goods and personal property. That list can prove indispensable when, for instance, you want to reconsider inadequacy of your insurance coverage, file insurance claims, plan to move – or even create a household inventory for heirs.

Still, creating a list in advance is incomparably easier than trying to remember all those details after property is stolen or destroyed. It is prudent to keep a copy outside the home in a secure location.

Following are highlights of some of the confusing restrictions on who can claim casualty and theft losses and what and how much is allowable.

File claims and account for settlements. The IRS requires itemizers to reduce their losses by insurance settlements or other reimbursements they received or expect to receive. They also may not receive deductions if they fail to file claims.

Subtract $100 per loss. The IRS usually mandates another subtraction of $100 for each loss. But it orders only one $100 reduction when the same event damages several items, say, the same flood damages a person’s home and detached garage or a year-round home and a summer cottage.

Make sure losses exceed 10% of AGI. The big hurdle is that losses are deductible only to the extent that their total exceeds 10% of adjusted gross income. AGI is gross income reduced by specific outlays, such as alimony payments and contributions to retirement plans, and before itemizing or using the standard deduction and claiming dependency exemptions.

Claim losses in the year they are discovered. Casualty and theft losses can be claimed only on the 1040 for the year in which casualties occurred or thefts are discovered.

MORE COMPLEX CASES

Wait, it gets more complicated. The IRS routinely requires you to prove that deductions take into account what missing or damaged items originally cost and what they were worth before and after the incident. In the case of theft, count the value of stolen property as zero.

Do the listing now. In addition, take photos and/or videos to further back up your claim. Remember, the insurance company will demand you “prove” to them that you owned it.