Acturarial Studies and Long Term Care Insurance

If you didn’t already know, I am a firm believer in Long Term Care Insurance. I work in the industry as an actuary at a major insurance company and actuarial science is kind of a hobby of mine.  So today, let’s talk about a huge challenge to our industry: awareness.

Every person wants to believe that he’ll be able to take care of himself in the future. However, as you get old, it becomes difficult to take care of yourself. According to a recent study, there’s around 70% chance that you’ll need some sort of care once you turn 65. When you’re considering your future, Long Term Care Insurance becomes even more important. Thus, you should know how to buy long-term care insurance.

Contrary to the common notion, proper care is not only required by senior citizens, but also people who’ve been involved in an accident or affected by a debilitating illness. In fact, over 40% people who receive long term care are below the age of 65. On average, the need for care lasts for about 1,040 days. Unless you have purchased LTC or Long Term Care Insurance, you will have to pay the expenses. Here are 15 important things you need to know about LTC insurance.

Medicare Does Not Cover Expenses for Most Long Term Care

Most of the time, medicare just covers short term nursing care you may need after an accident or hospitalization. However, it won’t pay the bill for permanent assistance. Similarly, medicare will cover your nursing home care, but only for people with limited assets. Moreover, you won’t have much say in which facility you can visit.

Paying Out of Pocket for Long Term is Costlier than LTC Insurance

The average cost for a professional home health aide for about 8 hours everyday can be around $44,000. In fact, nursing home care in a private room can easily cost around $85,000. According to a study, some regions in the country are even more expensive. Overall, this amount proves to be way more than purchasing LTC insurance.

Better Coverage

Long Term Care Insurance coverage expands much wider than your initial expectations. Many different types of care are covered by LTC insurance. Every policy spells out the details. However, most cover assisted living, home health aides, nursing homes, adult day care and more.

The Policy Gets Expensive with Your Age

Just like Life Insurance, LTC insurance is cheaper when you’re younger. You may not consider buying a policy in your 20s or 30s. However, if you wait for too long, your health may be affected, and it could have a major impact on the cost of your Long Term Care Insurance. You may even become uninsurable.

Your Employer May Provide LTC Insurance at an Affordable Price

Although the employer may offer a better price, most policies are not portable. This means you can’t keep them once you’ve left the job. If you prefer a group rate, you should check with the alumni groups or professional associations to check what’s being offered.

Besides all the above mentioned things, it is extremely important to understand some industry terminologies. This information will help you understand what’s being offered.  To compare long term care insurance policies on the market, check out sites like CompareLongTermCare.org

Monthly or Daily Benefit Period

The monthly or daily benefit period is the amount of money your insurance policy will give per month or per day for care. It is very important to understand the lifetime cap on your insurance policy.

Inflation Rider

The inflation rider can increase the cost of your insurance policy. However, it is worth it. In simple terms, the inflation rider means the specific benefit you receive will increase the cost of living. You need to give importance to what care might cost in 20-30 years.

Elimination Period

This is the specific amount of time which must pass before your insurance policy pays the claim. With most Long Term Care Insurance policies, 90 days is common. In other words, you will have to pay for care for 90 days before you’re paid any claims. However, it is worth mentioning that when you choose a longer elimination period, it can lower the cost of your insurance policy.

Shared Benefits Rider

This insurance product has been specifically designed for couples. As the name suggests, it allows you to share the benefits with your partner. For instance, if your partner uses up all her benefits, she can dip into yours.

Paid Up Premiums

In case you have some spare money today, it will be easier to pay higher premiums for a specific time period like 10 years. At the end of this period, the insurance policy will be paid up, and you won’t owe anything else in your lifetime. In the insurance industry, it is also called Accelerated Premium Option.

Free Look Period

This is also considered to be your remorse clause. If you think you don’t want, like or need the insurance policy you purchased, you have 30 days to change your mind. During this period, you can ask for a full refund.

Non-forfeiture/Guaranteed Renewability

This provision can prove to be very helpful if your insurance company chooses to increase the cost of your insurance policy. It will allow you to keep the insurance policy in effect for a smaller benefit. Your insurance policy won’t be cancelled outright. An insurance policy which is deemed to have guaranteed renewability means the company can’t increase the premiums unless similar insurance policies in your state get an increase. They can’t even be cancelled.

Exclusions

Since nothing in life comes easy, some basic reasons for long term care may be excluded from your insurance policy. Alcohol, drug abuse, mental illnesses and self inflicted injuries can be excluded.

While Purchasing a Policy, You should Discuss with Your Spouse

If both of you choose the same insurance policy, you can save around 40% of your hard earned money.

Tax Incentives can Help You Save some Money

It is worth mentioning that there are partnerships between some private insurance companies and states. Therefore, you may be able to deduct insurance premiums as part of the medical expenses on Federal returns. In fact, some states also offer such incentives.

It is important to purchase your Long Term Care Insurance policy from a reputed and well established company. It should still be in business after 20-30 years when you might actually need care. It is important to conduct an extensive research to find a good insurance carrier. It will make sure you buy the best LTC insurance policy at a reasonable price. These days, you can easily look for lots of valuable information online. It can help you make a better choice.

5 Things I Wish I Knew When I Started My First Business

My dreams of having my own business started in college.

While my buddies were out getting drunk and trying to meet chicks, I often found myself at the library researching different business ideas. Although I try to meet up with my buddies from time to time, making money was the top priority for me. There was just something about having my own business, owning my own time, working on my own terms, and doing stuff I love that truly appealed to me.

My dream of business ownership remained a dream for a few years after I finished college. I went from one corporate job to another. None of the corporate management track jobs I got after college fit my own interests and fit the picture I had in my mind of the ‘ideal life.’ So I floated in my ‘career.’ A familiar pattern set in-I’d get promoted, I’d reach a certain level at a company and I’d find another company where I start a level that is a notch or two higher than my previous job. Rinse and repeat. It seemed pointless after a while.

I finally got the ‘Big Break’ I was looking for when the last company I worked for laid off 90% of its staff-including me-thanks to the Great Recession that started in 2008. I had enough money saved up, so I viewed my layoff as an opportunity to start my own business. Boy, has it been a ride. Here are the five key lessons I wish I learned before I started my business.

Lesson #1: Even if you won’t be approaching investors, you need a business plan

One of the biggest misconceptions about business plans is that you only need to put one together if you are going to be approaching people to invest in your company. My company didn’t have any outside investors nor does it have any investors now. Since I was going to completely bootstrap my company, I thought I didn’t have to hassle with putting together a business plan. Big mistake.

A business plan’s main benefit is that it forces business founders to get real. Seriously. Sure, your ideas will revolutionize the world. Sure, you think people will flock to your business’ doors immediately after you open. Sure, your idea is so hot it won’t fail. Well, guess what? If you think this way, you are thinking exactly like millions of other entrepreneurs before you. Everyone has a hot idea. The problem is that most of these ‘awesome’ ideas are often half-baked fantasies that have to go through an expensive trial-and-error process to build real companies around. I found this out the hard way.

My business actually went through several waves of service changes and service offerings until it hit its current suite of professional services. I wasted lots of time, money, and, most importantly, motivation and energy trying to throw everything at the wall and hoping something sticks. If I had only bothered to write a business plan before I started my business, I would have saved on all this lost time, effort, and money. The business plan writing process would have helped me identify my ideas’ weak spots and helped me identify alternatives and cost-efficient solutions.

Lesson #2: You have to take out insurance on key people in your company

Never build a company around the expertise of one or a few people-and NOT insure them. I learned the importance of ‘key man’ insurance policies the hard way when the Chief Technology Officer of my company passed away. A huge chunk of the company’s future direction died with him because he was the person with all the company’s software skills and expertise. If I had gotten key man insurance for him, I could have used the money to fund the purchase of software from an outsourced overseas company. Yes, he was that valuable-he was able to do a job you’d had to hire a whole outsource company to replace. He will be sorely missed.

Lesson #3: Don’t neglect general commercial liability insurance

The great thing about general commercial liability insurance (GCL) is that it protects you from threats within your company as well as from threats from outside your company. Early in my company’s life, we experienced a serious financial blow when a visitor to our office slipped and fell down the stairs. Since I leased the whole building and the lease had a provision where my company had to shoulder premises liability, I was on the hook for big dollars. If I had general commercial liability insurance, insurance would have covered the plaintiff’s damages.

Lesson #4: If you are going to retain inhouse counsel, make sure you get malpractice insurance

In one of the incarnations or evolutionary stages of my company (you pick whichever metaphor you like), we ventured into outsourced legal services. These services involved very sensitive information. I hired a buddy of mine who is a lawyer as inhouse counsel. He was the company’s attorney and the company was his client. Well, he screwed up on a couple of (admittedly) confusing issues, and my company was on the hook for lots of cash. I could have saved myself from the drama of falling out with my good friend and saved the company’s bottom line if I took out legal malpractice insurance. Maybe if I took out legal malpractice insurance for my ex-buddy, we’d still be friends. As you can probably tell he and I were not very happy during the legal ordeal my company had to go through over the course of several long grueling years.

Lesson #5: Focus on making a profit instead of staying busy

This is one lesson I am still learning. I get excited when my sales representatives and account executives bag ‘big’ contract. The problem is, when I analyze the foreseeable effects of some of these deals, they don’t really make me money. In fact, many of them set me back. Why do I keep falling for these time and time again? Easy-I prefer to have everyone in my company stay busy instead of focusing on ROI. Focusing on ROI (return on investment) ensures that I will make a profit. It’s a hard habit to break but I am working on it.

If you want to pursue your dream of business ownership the right way, learn from the mistakes I made. Read the lessons above and save yourself a lot of wasted time, effort, and drama.