At Creekmur Wealth Advisors, our job is to design unique strategies that help our clients reach their goals in the most efficient manner possible. However, despite our best efforts to plan for the future, sometimes life steps in and throws us a curveball. Experiencing a catastrophic life event could quickly derail an otherwise effective plan and leave us scrambling to pick up the pieces.
When you marry, you buy life insurance. Right? You buy it out of consideration for your spouse, and also realize that in the event of either your untimely death or your spouse’s untimely death, your household could be left with one income to shoulder expenses that may not lessen.
These days, people are marrying later in life. Take first marriages, for example. A recent study by the Pew Research Center says the median age for marriage in America is now 30 for men and 28 for women, compared to respective median ages of 23 and 21 in 1968. Today, 16% of us are waiting until at least our late forties to marry.1,2
A checklist of some of the first steps.
When you lose a spouse, partner, or parent, the grief can be overwhelming. In the midst of that grief, life goes on. There are arrangements to be made, things to be taken care of – and in recognition of this reality, here is a checklist that you may find useful at such a time.
First, gather documents. Ask for help from other family members if you need it. Start by gathering the following:
* A will, a trust, or other estate documents. If none of these exist, you could face a longer legal process when settling the person’s estate. If a trust exists, we would recommend contacting the professional or firm who helped set up the document. Depending upon how the estate is set up you may need to secure a Letter of Testamentary.
* A Social Security card/number. Generally, the person’s Social Security number will be retired shortly following the death.
Then, gather these additional highly important items.
Separating some eldercare facts from eldercare myths.
How much does eldercare cost, and how do you arrange it when it is needed? The average person might have difficulty answering those two questions, for the answers are not widely known. For clarification, here are some facts to dispel some myths.
True or false: Medicare will pay for your mom or dad’s nursing home care.
FALSE. Medicare is not extended care insurance.1
Medicare Part A will pay the bill for up to 20 days of skilled nursing facility (SNF) care, but after that, you or your parents may have to cover some costs out-of-pocket. After 100 days in a SNF, you will have to cover all costs out of pocket. The only way to “reset the clock” for Medicare coverage of these services is if
Does your credit history partly determine the cost of your life insurance? It may. The potential for such a relationship may surprise you – and the relationship is not without controversy.
Insurers think a good credit history implies several things. It signals a consumer who routinely lives up to financial responsibilities. It telegraphs maturity in a young adult. It may also be characteristic of good health and a long life.1
That last sentence may have you scratching your head. Weird as it may seem, some life insurance providers see an excellent borrowing history as a predictor of continuing healthiness and longevity. Following this train of thought a little further, a poor credit history may be judged to reflect either inattention to, or ignorance of, personal financial responsibility. The root causes of that inattention or ignorance might cause those consumers to die earlier than others.1
Last year, LIMRA (a noted life insurance industry research firm) examined what kind of data insurance companies were reviewing as they considered life insurance applications. Twenty-eight percent stated that they used a predictive model encompassing consumer credit histories – one created by LexisNexis Risk Solutions, an analytics firm. Eighteen percent simply looked at consumer credit records directly. Eight percent relied on a TransUnion score for life insurance applicants.1
In some states, credit history also influences auto and homeowners insurance rates. The better the behavior, the thinking goes, the less inclined that consumer will be to file a claim. (It is illegal to use credit history as a factor in setting auto insurance premiums in California, Hawaii, and Massachusetts.)1
Other types of data may also be evaluated. In addition to credit history, insurance companies may also look at a consumer’s driving record, criminal history, use of prescription medicines, and applications for life insurance coverage submitted in past years. All this may affect life insurance coverage and premiums.1
Why are life insurance providers interested in all this information? They want to make their business models more efficient.
Life insurance underwriting usually takes weeks or months and includes a medical exam. In this digital age, the whole process looks very analog. By streamlining it around predictive models and abandoning or softening the exam requirement, insurers remove a psychological hurdle that stands in the way of some policy sales. Data-based underwriting can take as little as 48 hours.2
A few realities that must be acknowledged.
Shopping for life insurance means paying attention to detail. In scrutinizing these details, however, some fundamental, big-picture truths may be ignored.
If you want to renew or upgrade coverage later in life, the terms could be less than ideal. You may be healthier than most of your peers, you may have the constitution of someone half your age, but insurers base policy premiums and terms of coverage on actuarial norms, not exceptions. Purchase a term life policy at age 50, and your premiums may be considerably more expensive than if you had bought the same coverage at age 30. This is the way of the insurance business.1
Have you had a serious illness? Have you been diagnosed with a medical condition, such as diabetes, sleep apnea, or high blood pressure? You are looking at higher life insurance premiums, and insurers may limit the amount of life insurance coverage you can buy.2
A guaranteed acceptance life insurance policy may be the answer, but even with one of these policies, you may have to live a certain number of years after buying the coverage for your heirs to receive a death benefit. Many times, if the insured dies within 2-3 years of the policy purchase, the named beneficiaries only receive an amount equivalent to the premiums that have been paid, plus interest.2
Your beneficiaries need to know that you own life insurance. Roughly $1 billion in life insurance payouts sit unclaimed in America. Why? The beneficiaries are unaware of them. Also, sometimes beneficiary designations are hazy; a “husband” is named as a primary beneficiary on a policy, but the insured has married more than once, so an ex-spouse contests the beneficiary form. Such legal challenges may generate court costs offsetting the financial value of the death benefit.3
While it seems obvious to inform heirs about a life insurance policy, some people never do – and this simple oversight continues to obstruct life insurance payouts.
You need to name a beneficiary in the first place. Some consumers fail to, however, and that can create problems. If you do not designate a beneficiary for your life insurance policy, its death benefit could be included in your estate, exposed to probate and creditors.4
You must also recognize that you could live much longer than you expect. Years ago, most life insurance policies were sold with the assumption that the insured party would die by age 100. If the policyholder lived beyond that maturity date, the insurer would simply pay out the cash value of the policy (or something similar) to the insured person at that time.5