Oct 21 2015

Life Insurance Coverage Isn’t Always The Wisest Policy

Q: I am a 59-year-old single female with no kids. I have a little over $1 million in certified and taxable accounts. Due to pre-existing conditions, I am unable to get long-term care insurance coverage. I was just recently toldoutlined a universal life insurance policy with an optional long-term care benefit rider. The minimum investment is $50,000 (advised amount is $100,000).

The benefits are ensured. The policy also guarantees a 2 percent credited interest rate. In addition, there is no deductible or removal duration to please for LTC. While I have no requirement for a life insurance coverage policy, this would supply me with the opportunity to get long-lasting care insurance coverage. Is this something I should think about? Or should I just put the moneythe cash into a balanced index fund and deal with that account as my long-lasting care “insurance”?– LH, by email

A: As a single female without children, you don’t require life insurance coverage. And with $1 million in monetary possessions, you most likely do not need long-lasting care insurance, although I such as the idea of no-deductible/no-waiting duration LTC extremely much.It’s likewise possible that your pre-existing conditions may work to (1) eliminate your access to having a life policy or (2) make the insurance coverage so costly, relative to the advantage, that it would be a bad choice.Remember, while the policy is ensured to credit money value at a 2 percent rate of interest, the very same universal life policy will be charging for the cost of life insurance and the expense of the long-lasting care rider. This could make your $50,000 payment disappear pretty quickly, compeling you to either add more money or enable the policy to lapse.Now let’s measure your possessions versus the cost of long-term care. According to Genworth

, a major company of LTC insurance, the existing yearly expense of nursing house care is$80,300 in a semi-private space(the annual cost of an assisted living center is$43,200, omitting up-charges). So your $1 million would last about 12.5 years in a nursing house and longer in assisted living.According to the American Association of Long Term Care Insurance, just 50 percent of those age 60 will need nursing care before they die, assuming coverage from the first day, without the typical 90-day removal period. (For those who buy typical LTC policies with 90-day elimination periods, the association site says, the possibility of use is 35 percent. )Naturally, if you remain in that 50 or 35 percent, the expense can be significant.But how terrific will it be? The association site likewise notes that 44.2 percent of all nursing house stays are YEAR or less. And 74 percent are under three years.

Just 12 percent are five years or more. So there is a 94 percent chance that your worst-case nursing care overall spending would be less than$ 401,500($80,300 times five years). This recommends it is unlikely you would exhaust your possessions in long-term care. My recommendation: stay calm, invest carefully and savor a long retirement.Q: I am nearly 70. I have been an investor in stocks for many years.

Throughout that time, I re-invested dividends to buy more shares. Now that I am really retiring, should I stop re-investing and receive them in moneymoney in my Individual retirement accounts? Does income become more essentialmore vital than accumulation of extra shares?Since the Federal Reserve continues to make it difficult for senior citizens to”clip vouchers,”we have had little option but to be active investors.What’s the finest path here?– DL, Houston, Texas A: The bigger concern is ease in making required minimum distributions. Taking dividends in cash is a great method to have a continuously restoring supply of cash to make those distributions. Sadly, they most likely won’t be enough.Your first RMD is 3.65 percent of the impressive account balance.

With common portfolios generating about 2 percent a year in dividends and interest(or just dividends if there are no bonds), it’s clear that collecting a year of profile income is simply a start. You’ll also require some amount of cash in low-risk investments(or money)so you can fulfill your distribution requirement without offering equities.Questions about individual financing and financial investments may be sent out by email to scott@scottburns.com.