The stories you want. The opinions that matter.
No, thanks
Tag: life insurance
If You Become Incapacitated, Will Your Family Know What to Do?

If You Become Incapacitated, Will Your Family Know What to Do?

Dear Carrie: My friend’s 90-year-old mother was just diagnosed with early stage dementia. Unfortunately, she never provided any written or verbal guidance about her wishes for care, so my friend finds herself in a very tough spot. I want to make sure this never happens to me or to my loved ones. What do we need to do to prepare? — A Reader

Dear Reader: Contemplating the possibility of dementia is tough, whether you’re talking about yourself or a loved one. We want to think that it only happens to the very elderly, someone in their 90s such as your friend’s mother. And so we put it off. But according to the “2014 Alzheimer’s Disease Facts and Figures, Alzheimer’s & Dementia” report by the Alzheimer’s Association, one in nine Americans age 65 or older have some form of dementia. And the annual number of new cases of Alzheimer’s and other dementias is projected to double by 2050. It’s scary. It’s sobering. And to me, it means there’s a real need to confront this possibility — and prepare for it — when we’re young and clear-headed enough to look at financial and healthcare decisions from a practical as well as an emotional perspective.

Your friend’s situation is a heartbreaking example, and you’re very wise to take steps now to prevent this from happening to you and your family. But no matter how forward-thinking you are, it won’t be easy. You may be willing to face the possibility of incapacity, but others may not be so comfortable with the idea, either for you or for themselves. So you may have to tread gently. Here are some thoughts on how to go about it.

Think Realistically About Care Options

Exploring care options for someone with dementia is more of a challenge than with other diseases. That’s because, while there is certainly the need for doctor’s visits and medications covered by insurance, a lot of the care required by people with Alzheimer’s or other forms of dementia involve more personal care, called the activities of daily living (ADLs). Where do you turn for help with eating, bathing, dressing or just making sure you don’t injure yourself? These things aren’t generally covered by health insurance.

Again, according to the report from the Alzheimer’s Association, unpaid caregivers such as family members provide billions of hours of care. Professional care is available, such as assisted living, in-home care or adult daycare centers, but the costs can be a challenge. For instance, basic assisted living services average about $42,000 per year according to alz.org as of 2015. And that’s just the estimated average. I recently spoke with someone who was paying $12,000 a month to have both parents in assisted living with full care.

Your own family and financial circumstances may well determine what care might be available to you or to a loved one. But whether you’ll have to rely on professional assistance or you have a supportive family network that can provide help, be aware that you’ll be dealing with potentially significant emotional as well as financial costs.

Plan for the Financial Side

There’s a whole list of costs you may have to deal with from ongoing medical care, to home safety related expenses to full residential care.

Most insurance policies don’t cover nursing home care or help with ADLs. And while Medicare covers some skilled home health care such as skilled nursing care, long-term care isn’t covered. Medicaid is a possible solution, but it’s only available when an individual has depleted most of their personal assets.

Unless your family has significant assets to self-insure, you may want to look into long-term care insurance. Here, too, you have to be cautious. Not every LTC policy covers Alzheimer’s. And you want to make certain that a policy covers things like assisted living, skilled nursing home care and licensed home care.

There are, of course, other financial options. People with a lot of equity in their homes may see that as a potential source of funds. Others may max out a health savings account (HSA) every year and keep it in reserve for this type of care. Your retirement funds can also be a significant resource.

Talk to Your Family About the Emotional Side

Once you’ve thought through potential practical solutions, talk to your family. Be upfront about why you’re bringing up the subject. Your friend’s story could be a good starting point.

If you’re talking to your parents, they may welcome the chance to discuss their own fears and desires. Your children may be more resistant, but make it clear that you’re not being morbid, just realistic. And no matter what response you get, be willing to listen to everyone’s concerns.

Put Your Paperwork in Place

Basic paperwork includes an advance healthcare directive, power of attorney for healthcare, a will and/or trust, and a durable power of attorney for finances. You’ll find more specific information on legal documents for someone who’s incapacitated at alz.org.

There’s no one solution for every family. But thinking about it and planning ahead is something everyone should do. It also would be a good idea to consult with your financial advisor about the best way to prepare financially given your personal circumstances. I applaud you for being willing to tackle this very difficult subject.

Carrie Schwab-Pomerantz, Certified Financial Planner, is president of the Charles Schwab Foundation and author of “The Charles Schwab Guide to Finances After Fifty,” available in bookstores nationwide. Read more at http://schwab.com/book. You can email Carrie at askcarrie@schwab.com. This column is no substitute for individualized tax, legal or investment advice. Where specific advice is necessary or appropriate, consult with a qualified tax adviser, CPA, financial planner or investment manager. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com. COPYRIGHT 2015 CHARLES SCHWAB & CO., INC. MEMBER SIPC. DIST BY CREATORS SYNDICATE, INC. (1215-7257)

Photo:: MoneyBlogNewz via Flickr

What’s The Best Life Insurance Policy For A Young Family?

What’s The Best Life Insurance Policy For A Young Family?

Dear Carrie: My husband and I are in our thirties and have a three-year-old. I’m thinking that we should have a life insurance policy, but the choices are overwhelming! How can I figure this out? — A Reader

Dear Reader: This is the perfect time to be asking this question. You and your husband not only have each other to protect, but perhaps even more importantly, your three-year-old child. While no one likes to think about an early demise, if you have dependents that rely on your income for support — and you don’t have a big chunk of money set aside — you should probably have some type of life insurance coverage.

And you’re right: wading through the policy choices can be a chore. But it doesn’t have to be. For instance, term insurance is a relatively straightforward and low-cost type of life insurance.

However, before you jump into a term policy, you should at least understand a bit about the other choices so you can feel confident in your decision. After that, it’s a question of determining how much insurance you need and doing some comparison-shopping.

Understand the Difference Between Term and Permanent Insurance

There are two basic types of insurance: term (or temporary) and permanent (or cash value). Here are the main differences:

  • Term insurance is pure insurance. You purchase a policy for a set length of time (the term) at a pre-established premium. Unless you renew when the term is over, you’ll no longer have coverage when the policy expires. Term insurance is by far the least expensive choice. However, you need to realize that there’s only a payout if the insured dies during the term. The policy doesn’t have any monetary value itself.
  • Permanent insurance gives you coverage for life as long as you pay the premiums on time. It’s generally much more expensive than term insurance, partly because a portion of your premium goes toward building cash value, but also because of embedded commissions and fees. Traditional permanent insurance builds up cash value on a tax-deferred basis. Depending on the policy, you may be able to borrow against the cash value or apply it to future premiums. In addition, you can even surrender the policy for its cash value (less any surrender charges) if you find you no longer need the coverage.

You may also hear references to whole life (permanent insurance with a level premium, guaranteed death benefit, and guaranteed rate of return on the cash value), variable life (permanent insurance with a fixed premium but a variable rate of return depending on the investment options you choose), or universal life (with adjustable premiums and a flexible death benefit). Unlike term insurance policies, which are fairly straight-forward, these types of permanent policies can be very complicated and difficult to evaluate. If you decide to go this route, make sure you do your homework!

Choose Between the Two

For many young families, a term policy is often the way to go. For one thing, it’s more affordable. And for another, you can choose the term — say 10 or 20 years — depending on the age of your children and the length of time you want to provide them with financial help. Once the kids are independent, you likely won’t need to continue coverage.

There are a couple of instances where permanent insurance can make sense. For example, if you have dependents with special needs that will need financial assistance indefinitely, permanent insurance might be the best option. Or in the rare case where someone’s estate is large enough to have to deal with estate taxes, permanent insurance can help handle some of that tax burden. But in general, I’d start with a term policy. You might then consider using the difference between your term life premium and what you would have paid for a permanent life policy, to invest in low-cost, tax-efficient mutual funds or ETFs. You may actually be able to achieve a better return on those funds as your investment performance will not be reduced by mortality and expense charges, administrative fees, and other insurance based charges.

Some food for thought: for both types of insurance, premiums are generally lower when you’re young and go up with age. Factor that in when choosing an initial term or in deciding if permanent coverage is the better initial choice.

Figure Out How Much You Need

An industry rule of thumb says you should have life insurance equal to six to eight times your annual salary, but I think it’s smarter to make a calculation based on your individual needs. For instance, do you want to cover only daily living expenses for a certain number of years? Or are there other big-ticket items such as a mortgage or college tuition that you want to include?

The amount you need also depends on your savings and any other income sources your family might have, as well as whether you have coverage through your employer (which you may or may not be able to keep if you change jobs). There are a number of online calculators that can also help you factor in things like the projected growth of current assets, future college costs, inflation, and more to give you a realistic figure.

Comparison Shop

Be sure to compare several different companies for the best cost and coverage. As an example, a $500,000 policy for a 20-year term could range between $25 and $35 per month for a 35-year-old nonsmoking male in excellent health, yet be less for a female. Standard provisions can also vary. Again, there are a number of online tools available where you can enter your zip code and answer a few questions to get a quote.

Talk to a Professional

I don’t mean to make life insurance sound simple; it isn’t. So the next step is to talk to a reputable insurance professional that can walk you through your choices in greater detail. But don’t let yourself be pressured into something you don’t need or want. With this basic understanding and a clearer idea of what you’re looking for, you should be able to get the type and amount of coverage that’s right for your family.

—
Carrie Schwab-Pomerantz, Certified Financial Planner, is president of the Charles Schwab Foundation and author of “The Charles Schwab Guide to Finances After Fifty,” available in bookstores nationwide. Read more at http://schwab.com/book. You can email Carrie at askcarrie@schwab.com. This column is no substitute for individualized tax, legal or investment advice. Where specific advice is necessary or appropriate, consult with a qualified tax adviser, CPA, financial planner or investment manager. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com. COPYRIGHT 2015 CHARLES SCHWAB & CO. INC., MEMBER SIPC. DISTRIBUTED BY CREATORS.COM

Photo credit: Got Credit