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Monday, December 29, 2014

I Understand Mass Media

The truth is, I surely don't understand mass media.
For example, in all the years since I've been publishing this blog, the only post that generated hate mail- and also the highest number of page views -was my post "Myth- Studded Snow Tires Are the Safest".  Based on personal experience as well as lots of research, my opinion hasn't changed.  The preponderance of the evidence tells me the safest Winter tire for Oregon weather is the studless tire, such as Blizzak or Ice-x.   I drove up to Timberline lodge on fresh unsanded black ice with a Subaru & Blizzaks.  It was like driving on dry pavement.  I was actually disappointed at the lack of Winter driving skill required.  I have no idea why this post would generate the most interest and vitriol.

The next most frequently read posts involved Wall Street "guru" Ken Fisher, most notably "Ken Fisher Part II, Debunking 'Debunkery'"  a critique of his massive tome by that name.  I suspect most of the readers work for- or are considering working for -Fisher Investments.  The upshot is that the book is a dangerous blend of truth and falsehood (and I'm not saying the former is accidental nor that the latter is intentional).

Fisher's most glaring error is his claim that the subaccounts in Variable Annuities are only as sound as the financial strength of the annuity company.  Not true.  That's why those accounts are called "subaccounts" or "separate accounts".  This is not the only case of conflation of expensive, risky variable annuities with other safer varieties.

Wednesday, December 17, 2014

"Ten Things Life Insurance Agents Won't Say"- Thing #10: "Our Long Term Care Coverage Isn't So Great (for you or us)"


I guess Mr. Goldstein ran out of fabrications for life insurance agents & is shifting to long term care insurance (LTCi) agents.  And "shifting" is the key word:  remember thing #1, Americans are buying too much life insurance?  Now we shift to the exact opposite criticism, the supposed rotten thing about LTCi is that Americans aren't buying enough of it.  Why would that be?

I suspect it is not being properly structured by the agent.  In the old days I always recommended lifetime coverage because of the utterly financially devastating possibility of being on claim for 20 years.  Now, lifetime coverage is literally unaffordable in most budgets.  Plus, the average nursing home stay has fallen dramatically from 3.5 years to 13 months.  (Key caveat:  "Average" applies to no one.)  Here are the most important pieces to build an adequate, affordable LTCi plan:
  • Compliance with your State's Partnership Program, the two main features of which are:
    • Inflation protection is required (depending on age group)
    • Enhanced asset protection- in a nutshell, to the extent you collect benefits from private LTCi, your asset thresholds to qualify for Medicaid, and for exemption from Medicaid recovery after you die, are increased.
  • Partner or Spousal discounts.  Companies recognize that insureds who don't live alone will need less care.
  • No more than a 5 year benefit period.  This will cover the Medicaid look-back period for transfer of assets.
  • At least a 90-day Elimination period, the length of time you must wait- after going on claim -for benefits to begin.  If you can't afford to fund your first 90 days of expenses then you probably can't afford LTCi.
  • A Cash benefit.  Most LTCi policies are indemnity plans;  they reimburse you for expenses incurred.  Cash benefits, on the other hand, are triggered by your poor health, whether you've incurred expenses or not.  This is a welcome benefit to help you through the 90-day elimination and to pay for excluded expenses.
  • Finally, if you can afford it, a "limited pay" policy, which is paid up in 10 years or less.  An endangered species, limited pay LTCi is really expensive.  But it's bulletproof protection from future rate increases.  Because of the cost, hardly anyone does this outside of an executive benefits package.
If LTCi still has no room in your budget, there are great asset-based alternatives that don't impact your budget at all. 

Tuesday, December 9, 2014

"Ten Things Life Insurance Agents Won't Say"- Thing #9, "If you die we'll pay your boss".

#9:  "If you die we'll pay your boss" is next in my series of responses to "10 Things Life Insurance Agents Won't Say" by Daniel Goldstein "Personal Finance Reporter" for MarketWatch.

I know it's probably difficult to come up with ten facts that life insurance agents try to hide from their clients because most of us go to great lengths to disclose everything.  So this one is totally ridiculous:  If you are paying for a life insurance policy on yourself it is virtually impossible that the beneficiary designations would be a surprise to you.

The so-called "dead peasant policy" practices of large companies- being both distasteful and morally decrepit -nevertheless are evidence of life insurance's tremendous leverage.  Insuring key employees still makes sense as long as it is protection against the loss of their irreplaceable financial value to a company.  It should not be used simply as a way to boost the bottom line.  Most insurers no longer issue such policies.  Good.

In addition to Key Person insurance, there may be contractual reasons for a company to insure an employee or partner (depending on legal structure).  For example, if upon her death a partnership agreement gives a partner's family ownership and control of her shares, the remaining partners may prefer to buy out the heirs without having to borrow money or come up with a bundle of cash all at once.  A life insurance policy can provide those funds.

The takeaway:  "If you die we'll pay your boss" is less likely than being struck by lightening.