Life Insurance and Long Term Health Care: Luxury Items or Necessities?
By: Lorri Gifford
Luxury is not a necessity to me, but beautiful and good things are.
This month’s topic falls into the luxury category for some and the necessity category for others.
Sometimes what one person views as a luxury is what another may view as a necessity or visa versa. Let’s take a moment and explore the two concepts of luxury and necessity. For argument’s sake let’s define them as such:
Luxury: a service, object or something that contributes to resplendent or splendid living,
Necessity: something that is needed or essential
Now take a moment and write down or think of three luxury items that you currently own, are paying for or wish to have in your life. Next, write down or think of the things in your life that you consider necessities.
To move toward an abundance mentality or even build a better monthly budget, it is important to have a healthy understanding of these two concepts. When one lives in poverty mentality everything may seem like a luxury. In those moments simply taking ten deep breaths and smiling because you have that ability can be luxurious.
Month’s ago I had the pleasure of interviewing Boyd Phillips, of Phillips Financial Group in Marion North Carolina, and my journey through the art of Estate Planning began. When I originally interviewed Boyd my intention was to write an article about Life Insurance. After speaking with him, I saw that Life Insurance was just a small piece of an even bigger puzzle. (You can see all the articles on Estate Planning, beginning in April 2012, on wncwoman.com) It seemed appropriate that in writing the final piece on this topic I go back to the source that started me on this path and talk about my original question.
Boyd describes Life Insurance as the “last love letter you can ever send someone.” Purchasing Life Insurance is basically buying money at a discount. It is buying money in escrow, and not a dollar for dollar purchase. Often you can purchase a policy for pennies on the dollar. For example, it may only cost 15 cents to get one dollar’s worth of insurance.
Usually young families or single people between 35-45 years old will start to think about having some form of Life Insurance. There are several elements to consider, including type of policy and amount of coverage.
TERM Life Insurance:
When you purchase a Term Life Insurance Policy you must decide how long you are purchasing the policy for. It can be from one to five years or 20 to 30 years. For the term of your agreement you can lock in a specific rate but at the end of the agreement, if you decide to extend it, the rate may increase based on age (or other factors). The closer one is to their life expectancy the more expensive the rate.
Possible reasons for purchasing a TERM Life insurance policy:
You have little ones at home and want to save for their college. If an untimely death occurs this policy will insure that they have the proceeds to do this.
Someone with a 20-year mortgage sometimes gets a 20-year term insurance to protect his/her Estate and family if an untimely death occurs. This is the least expensive way to protect a mortgage.
WHOLE Life Insurance:
A WHOLE Life Insurance Policy it is designed to last your entire life regardless of how long you live. It is a permanent plan and the rates are locked in at the age you purchase it.
Purchasing a Whole Life insurance Plan is like buying a house. Each year you are building equity in the policy. There is cash value in plan. Although you won’t see this in the first three years, around years four and five you will start to see the value. If, after the 4th or 5th year, you decide to end the policy there is a cash value.
Purpose for purchasing WHOLE Life Insurance:
You wish to leave money to a specific organization or charity.
You wish to leave money to your children or grandchildren.
It gives you the option to use retirement money for yourself and still leave money for your family members.
It helps with estate equalization: if you are a business owner and have one child involved in the business and one that is not, you can leave the business to the one child and this Life Insurance policy to the other.
If your estate is large enough you can purchase this plan and use it to pay for outstanding taxes that may be due on the estate at your death.
UNIVERSAL Life Insurance:
The UNIVERSAL Life Insurance plan was formulated in the early 80’s for the person who wants to start with a life insurance plan but is tight financially at the time.
The premium for this plan is adjustable to fit the customer. This can benefit small business owners that have certain seasons where they are busy and others when they are slow. They have the flexibility to increase or decrease payments into the plan. It is also tied into current interest rates. This is a more high maintenance plan and needs to be consistently reviewed with your insurance planner. If a client neglects the plan this can be a detrimental.
Regardless of which plan that you choose it is important to review and look at your policies at least once a year. Make sure your beneficiaries are up to date. The beneficiary page on an IRA, 401k or Life Insurance trumps what is written in your will.
Life Insurance is a necessity not a luxury item. It is a financial back-up when times get tough. People will often spend more on their cable bill and cut their life insurance out and cable is a luxury item. ~Boyd Phillips
Another important component for an Estate Plan that can be addressed when purchasing Life Insurance is Long Term Health Care. Let’s say that someone is involved in an unexpected debilitating accident and they do not have a Long Term Health Care Plan. The line of defense to cover the costs for their care is typically: their savings, then their IRA, then their business interests, then their house or real estate.
How can they prevent this from happening? A Long Term Health Care Plan protects their estate and becomes the first line of defense.
Daily benefit (how much per day you want plan to pay)
Elimination period: 30 days? 360 days? (how long person pays out of pocket before plan kicks in)
Benefit period: (how long benefit lasts) 2 years? Unlimited?
The last three factors are those that you as the purchaser can determine. When purchasing a plan you can also build in a cushion for inflation. Let’s say someone has a plan that pays $200 per day when needed. With an inflation rider your plan will adjust based on whatever the inflation factor is. If prices have risen 5 percent your daily benefit would increase 5 percent.
You can decide to add an additional one to five percent onto the current consumer price index (CPI) as well. This is done because often times a traditional health care facility will have a higher inflation rate then the current CPI. It is up to you to decide whether or not you want to include that cushion.
Now that you have read the facts, it is up to you to decide. Are Life Insurance and Long Term Health Care luxury items or necessities?
An extravagance is something that your spirit thinks is a necessity. -Bern Williams
Lorri Gifford has been reading Tarot Cards since 1986. While living in California, she worked at The Chopra Center for Well-being as their Spa Director and a Lead Educator. Lorri enjoys writing, giving readings, coaching and helping others develop and deepen their intuition. She can be reached at www.readingswithlorri.com or 828.505.4485