The LPL Financial Insurance program offers a full range of insurance products and services including, Term and Permanent Life insurance and Long-Term Care insurance from a variety of carefully selected product providers. To learn more about the types of insurance products available through LPL Financial, contact a financial consultant.
Which life insurance is right for you?
Term life insurance is the most cost-effective form of life insurance and is generally used to provide basic protection for a specified period of time. While cost-effective, owners of term insurance accumulate no cash value in their policies.
If premiums are paid on time, these policies generally provide coverage for the insured’s entire life. The policy never expires or needs to be renewed. The death benefit goes to the beneficiaries upon death of the insured. Policies have cash value or a savings feature. Whole life, universal, and variable insurance are types of permanent life insurance.
In this type of permanent life insurance, the premium, death benefit, and cash value amounts quoted at the time of purchase remain the same throughout the policy’s life. The benefit: the cash value always stays intact and earns interest, and the death benefit will never decrease. The disadvantage: the carrier invests the premiums conservatively, typically generating less-than-competitive returns.
This product is a flexible version of whole life insurance in which premiums can be adjusted within predetermined boundaries. As a consequence, the death benefit can vary. The flexibility of premiums also means that the policy’s cash value, which is interest-sensitive, cannot be guaranteed. However, many new Universal Life products on the market offer a minimum guaranteed rate of return and death benefit guarantees.
This type of permanent coverage allows owners to choose the policy’s investments. This feature adds risk, as the policy’s cash value depends on investment performance. As a consequence, insurers don’t offer a minimum guarantee. Investments grow tax-deferred until the policy is redeemed.
Irrevocable Life Insurance Trust (ILIT)
An ILIT is a trust that owns a life insurance policy or policies and whose terms cannot be changed once created. The trust pays the policy premiums, collects the death benefits, and distributes the proceeds according to the trust’s terms. It is used to lower assets in an estate so as to minimize taxation.
Long-Term Care Insurance
What is Long-Term Care?
Long-term care is an array of medical and support services for people with degenerative conditions (e.g. Parkinson’s), prolonged illness (e.g. cancer), a cognitive disorder (e.g. Alzheimer’s), or who are unable to perform two to three activities of daily living (e.g. bathing, continence, dressing, eating, toileting, transferring). This assistance can be provided through a nursing home, home health care, an assisted living facility, or adult day care.
Who Might Want Long-Term Care Insurance?
Individuals ages 50-70 who are relatively healthy and have assets worth protecting might want to consider LTC insurance. Also, individuals who have a family history of Alzheimer’s, Parkinson’s, cancer, and even longevity might want to discuss this form of insurance with a financial consultant.
Why should you consider purchasing Long Term Care Insurance?
- Medicare covers a very small portion of nursing facility costs.
- The average annual cost of a nursing facility in Connecticut is more than $119,000.
- Medicaid requires individuals to spend down almost all their assets.
- There are strict rules and penalties for transferring assets to qualify for Medicaid, and these rules keep getting tighter.
- About one in three (31%) people entering Connecticut nursing facilities as private pay will eventually spend down their assets and qualify for Medicaid6.
- Everyone is at risk for needing long-term care and the risk is high.
6, C. Gruman and L. Curry, Spend-Down Patterns of Individuals Admitted to Nursing Homes in Connecticut, Discussion Paper #11-1999, Office of Policy and Management, February 1999.
What is the cost of long-term care?
Premiums can vary greatly across companies and within companies depending on what features are included in your policy. The following factors will have a direct impact on the amount of premium you will pay:
- Age: The single most important factor - the older you are, the more expensive your premium will be.
- Elimination Period (deductible): The shorter the elimination period, the more expensive your premium will be.
- Daily and Lifetime Benefit: The greater the benefit purchased, the more expensive the premium will be.
- Riders or Options: Additional features, such as a non-forfeiture benefit, will increase the premium.
- Spousal Discounts: Most companies will provide for some discount if both spouses purchase a policy from the same company.
- Group Discounts: Purchasing a policy through a group offering such as through your employer or an association could decrease the premium.
- Paid Up Options: Premiums can also be paid within a specified period (e.g. 10 or 20) as opposed to the lifetime payment option where you pay premiums until you need long-term care.
- Health Factors: Some companies offer lower premiums for applicants in very good health and higher premiums for applicants with particular health conditions.
The average private pay rate for a semi-private room in a Connecticut nursing facility in 2008 was $327 a day, or over $119,000 per year. The cost for a day in Connecticut nursing facility has increased approximately 6.0% a year over the last 20 years. The average length of stay in a nursing facility is 2 1/2 years, bringing the cost of an average stay to more than $298,000. The average policy premium for a 60 year old couple applying for a $200/day, three years of coverage, 90 day elimination period and compound inflation would be $3,100 each.
What to look for in a policy?
Financial Strength -- Most benefits are not needed from a policy for 10 to 20 years after issue, so you need a carrier that has the financial strength to be around in 20 years. Good questions to ask are how long have they been in the LTC business, what are their ratings, who are they endorsed by, and have they ever had a premium increase.
Adequate Daily Benefit -- Be aware of the cost of care in your area or the area where you plan to retire.
Inflation Protection -- Cost of care has been rising at an average rate of 5-6% a year.3 Make sure the benefit you buy will be sufficient when it is needed in 10 to 20 years by buying inflation protection. Suggestion: Try using compound inflation up to age 68, simple inflation from 69-74, and no inflation from 75+.
Comprehensive Coverage -- Make sure the policy provides coverage in the variety of settings in which you are interested (e.g. home care, adult day care, etc.). Also be sure that the benefit period is adequate; the average stay in a nursing home is two and a half years.
Stable premiums -- LTC carriers have the right to raise premiums. The policies are guaranteed renewable, which prevents a carrier from singling out individuals for rate increases, but they may raise premiums for a class of policyholders. Be careful of carriers that are priced substantially below the competition. Again, ask if the proposed carrier has ever increased in-force premiums.
1 Source: www.mrltc.com. 2 Source: MetLife Mature Market Institute, MetLife Market Survey of Nursing Home & Home Care Costs, September 2004. 3 Source: Marcell, Jacqueline. "Elder Rage: Why Long-Term Care Insurance is Important" www.consumeraffairs.com.
Disability Income Insurance
Most people insure their material possessions-their homes and cars, for example. But many of these same people don't insure what is probably their most valuable asset-their ability to work and earn income. If you become sick or are injured and can't work, will you be able to pay your bills and maintain you standard of living? If you depend on your income to pay the bills, you need to seriously consider buying disability income insurance. Disability income insurance can help you pay your bills by replacing a portion of your income. It can help you maintain your current lifestyle and help protect you and your family from going into serious debt.
What is the price of an individual disability insurance policy?
One can expect to pay between 1-3% of your annual income in disability premium. Their are many ways to increase or decrease the premium of a DI policy, ad 1-3% is a generalization. The best answer is, the premium depends upon how much coverage you want to have. You could buy a disability policy that only pays $400 a month, has a 2 year elimination, no optional riders, and has a 5 year benefit period. The policy would be dirt cheap and you would probably never collect on it, but you get the idea. Disability policies can be customized to fit your needs in every way.
Additional Features & Riders
Two features that may be part of disability income policies are important for you to understand: noncancelable protection and guaranteed renewable protection. An insurer cannot cancel or refuse to renew either type of policy, as long as premiums (i.e., price of insurance protection for a specified period) are paid on time. These features differ, though, in important ways.
- Noncancelable. The policy's premium can never be raised above the amount shown in the policy, and benefits may not be reduced-as long as premiums are paid on time.
- Guaranteed renewable. You have the right to renew the policy with the same benefits but the insurer can increase your premiums-as long as they are increased for all other policyholders in the same class (i.e., having the same characteristics).
Initial premiums for guaranteed renewable policies may be lower than for noncancelable policies, but the guaranteed renewable premiums can go up over time. Less expensive policies, but the guaranteed renewable premiums can go up over time.
Riders on Individual Disability Insurance Policies
Most insurers offer several optional benefits (called riders) to enhance disability income coverage. Common riders include:
Cost of Living Adjustments. COLA provide for an annual increase in benefits (generally after you have been disabled for a year), usually based on a Consumer Price Index or a predetermined percentage. This helps your benefits keep pace with inflation, and is particularly important if you are disabled for a long time.
Future Purchase Option (Guaranteed Insurability Option). This rider allows you to purchase additional disability income insurance as you income increases, without providing proof of medical insurability. Even if you develop a condition that would normally prevent you from obtaining additional coverage after you purchase your original policy, you could still increase your benefits.
Residual Benefits. This pays you a portion of your monthly disability if you have a drop income due to a disability (e.g., if you are working part time). In most cases you need to satisfy a minimum percentage loss in earning (e.g., a 20 percent loss) to qualify.
Social Security Rider. If you are disabled, these riders pay you additional benefits if you are not able to receive Social Security disability benefits because of the Social Security Administration's definition of disability. Usually, an individual disability policy with this rider will pay after the waiting period for the policy and during the five-month period (sometimes up to a year) while you are waiting for Social Security to kick in. If Social Security denies your claim, this rider will continue to pay benefits for the duration of the benefit period. Before purchasing a rider to your policy, ask yourself if you would be able to pay for the benefits provided by this rider out of your own pocket.
Securities offered through LPL Financial, member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. American Eagle Federal Credit Union and American Eagle Financial Services are not registered broker/dealers and are not affiliated with LPL Financial.
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*Investors should consider the investment objectives, risks, charges and expenses of the variable insurance contract and sub-accounts carefully before investing. The prospectus contains this and other information about the variable insurance contract and sub-accounts. You can obtain contract and underlying sub-account prospectuses from you financial representative. Read the prospectuses carefully before investing.