Month: March 2012

Life Insurance has Two Purposes: To Either Create or Protect an Estate

Life insurance has two purposes: to either create or protect an estate.

Creating an Estate. This is what most people think of as the traditional use of insurance. If a family’s primary wage earner dies before the family has accumulated enough assets to survive, life insurance provides enough money to replace the income of the primary bread-winner.

Protecting an Estate. Estate taxes are somewhat in flux, but are certainly high, and we don’t think they’re going away.  Capital gains taxes must be paid.  Then there’s something called estate equalization.

Someone with a $10 million estate at their death will have to have to pay several million dollars to the government.  Rather than liquidate a family business or sell some possibly illiquid assets, like real estate, it’s usually much more efficient to purchase insurance– and the numbers bear out that it’s actually a good investment (even though it’s technically not one) and the returns are very worthwhile.

Paying estate taxes through the use of a number of specialty life insurance policies is much easier than having to worry about coming up with the cash to pay those taxes within nine months of the death of the person, which is when the estate tax is due.

LIFE INSURANCE YESTERDAY

For many, many years, life insurance came in just two flavors: term insurance and whole life, which we refer to as permanent insurance.

Term insurance is what people bought if they wanted coverage for a term of years; 10 years, 15 years, 20, and so on.

Whole life what you bought to have for the whole of your life.

The problem was up until four or five years ago, whole life was an interest-sensitive investment product. So, while the policyholder thought they knew what the premium was, if interest rates went down, the length of time it took to pay off the premium had to be extended. What you thought you’d pay in 10 or 12 years, could wind up instead being 15 or 20 years.

And term insurance had its own problem: after a while, it ran out.

LIFE INSURANCE TODAY

Today there are new products on the market that are a hybrid between term and permanent life insurance. We call this lifetime term insurance: a policy that stays in force for your entire life. It’s a guaranteed product with a fixed premium. And, like term insurance, it does not have a cash value, which keeps the premium nice and low.

Some hybrid policies do have a cash value, what we refer to as an exit strategy, so if times or circumstances change (i.e. you used to need a lot of insurance, but don’t need as much anymore) there are ways you can bail out and get some or all of your money back.

So, now you don’t have to make a choice between term and permanent life insurance. Lifetime term insurance gives you the best of both:

• You pay a fixed premium amount.
• A flexible exit strategy
• Lifetime coverage

Now for the bad news: we think these types of policies won’t be available for very long. In fact, within the next18 to 24 months we believe these products will start to go away. We’re seeing insurance companies already raise premiums or cut back on coverage. Therefore, we believe there is a great window now to get this coverage while you can. Anyone looking for the security of lifetime coverage should consider this.

Long Term Care Insurance

Long-term care insurance has come a long way in the nearly 30 years that it’s been available to the public.  Most people don’t realize long-term care policies have been around that long.  The earliest versions required someone be in a hospital first. Then came policies that provided coverage just in a nursing home. But those days–and policies– are gone now, replaced by policies that offer coverage in either a nursing home or for care at home. Most people would rather receive care in their own home for what’s now known as aging in place.

A COMBINATION LIFE & LONG-TERM CARE POLICY

Life insurance with long-term care benefits. 

There are five aspects to this type of policy that make it different from a simple life insurance or simply a long-term care policy.

• The policy will provide a death benefit at any time.
• It will provide long term care coverage and it’s appropriately priced for long-term care.
• You can get all your money back.
• The prices are fully guaranteed.
• Simplified, easy underwriting.

Fully refundable. This type of combination policy has quite a bit of long-term care benefit available to the individual.  If at any point the insured decides that they don’t want the policy any more, it can be surrendered for full return of premium, be it two months, two years, or twenty-two years, all you have to say is, “I’ve changed my mind” and you get your premium back.

Fully guaranteed price. In a traditional long-term care policy, insurance department regulations give carriers the right to change the premium if they find somewhere down the road that the policies are not supporting themselves enough. Many of today’s long-term care policies are underpriced and we think we will see more premium increases coming in the future.  With this product, once you make the payment, you’re done.  The company cannot come back and ask for more money.

Easy, fast underwriting. Often times we can get a decision within a week of having a telephone interview.  Often times we don’t even need doctors’ reports.

LONG-TERM CARE INSURANCE: WHEN’S THE BEST TIME TO BUY?

There’s no longer a magic break point in long-term care premium pricing.  A client of ours called a week before his fiftieth birthday, saying, “I must do it now because it’s going to be too expensive if I wait until I’m fifty!”

The answer is, a policy purchased at age 50 costs a little bit more than one bought at age 49 and a little bit less than age 52. There’s no sharp jump at any point. Later in life  policies do get very expensive. That’s why we’re seeing people write policies as young as their early thirties.

No matter your age, you’ll never buy a long-term care policy cheaper than you can buy it today because, as time goes on, chances are your health will decline (or at least stay the same). Few people get healthier as they get older. Plus, long-term care premiums have become more expensive in general as carriers come out with new products and new pricing.

So as soon as you think you’re ready, we can write a policy.

HOW LONG DO I HAVE TO PAY THE PREMIUM ON A LONG-TERM CARE POLICY?

If you’re young enough, you can write a policy that’s paid-in-full after 10 payments and guaranteed not to require any more premium.  If you start when you’re 47, for example, you’ll probably still be working so you don’t have to worry about having a large bill due but no revenue coming in. Your policy will be fully paid up prior to retirement.

THE CATCH-22 OF COST

The two primary reasons people give for not buying long-term care insurance are clear opposites of each other.

Older people often wish they had purchased it when they were younger, when the policies are more affordable. But younger people usually say, “it’s something I can deal with later because I’m not gonna need it for so long.”

So, people often avoid buying it in their 40’s and 50’s. Then, by the time they hit their 60’s and 70’s, they’re shocked at the cost of the policy and have to scramble to get coverage.

Our advice on when to buy long-term care insurance is always “the sooner, the better.”

WHEN DOES A LONG-TERM POLICY BEGIN TO PAY BENEFITS?

Two types of events trigger payment of Long-term care benefits.

Cognitive impairment. Most people think of this as Alzheimer’s disease, but it encompasses more than just Alzheimer’s. It’s a whole slew of organic brain conditions that lead to some form of dementia.

Assistance with Activities of Daily Living. Also called ADLs, the six Activities of Daily Living are standard across the industry and not to a particular insurance policy. They are standard in life. The six Activities of Daily Living are:

• Eating
• Bathing
• Dressing
• Toileting
• Transferring –the ability to get in and out of bed or in and out of a chair,
• Continence

If you need assistance in performing any two or more of these tasks and that assistance is expected to last for 90 days or more, then you qualify for benefits. It may not last that long but it’s expected to last 90 days or more, benefits will be paid.

These ADL’s are not just things affecting the elderly or those at the end of life.  If you break your leg skiing and it’s a bad break, you may need long-term assistance. If it’s not so serious, you may only need assistance for a few weeks or a month or two. All that’s required is that you expect to require assistance for 90 days or more.

Elimination Periods. All long-term care policies available today have a waiting period, or deductible, like disability insurance.  During the first 30-60 days, no benefits are paid and then, after the waiting period, the policy kicks in.  This elimination period requirement is only once a lifetime.

So, let’s go back to our skiing example. If you had that accident at age 48 and were laid up for 106 days–and your policy had a 100-day waiting period, you would have satisfied your criteria because you were expected to need care for 90 days or more, you met your 100 days and were paid for 6 days before you got better.

After your recovery, you put your long-term care policy back in a drawer.  Thirty years later or forty years later, if you begin to need assistance due to aging or dementia, or any other condition preventing you from handling two of the six ADL’s, you’ve already satisfied the policy’s waiting period, so you’ll start to receive benefits on day one.

Many of today’s policies have a zero elimination period for receiving care at home.  So the 60, 90 or 100 day waiting period is only for care in a nursing facility.

THE COST OF LONG-TERM CARE

Cost of care in a nursing home is expensive and rising. In New Jersey, semi-private rooms run up to $340 a day.  Nursing care at home can easily run $40-$50 an hour, making an eight-hour day about $400.  And these are the costs whether you have insurance or not. The natural reaction from most people is, “but I can’t afford a policy that will pay $350 a day.  The premium is just too high.”  Our answer is: “if you can’t afford to insure all of it, that doesn’t mean you should insure none of it.  If you can get part of the way, that’s that much more that you don’t have to pay out of pocket.” Many times our clients will write a policy that will pay 200 a day, leaving them only looking at an expense of $150 because the long-term care insurance covered the rest.

HOW DO I RECEIVE MY LONG-TERM CARE BENEFITS?

The benefits are paid directly to the policyholder on a reimbursement basis. At the end of each month, you would send in the bills for the qualifying expenses that you’ve incurred in the prior 30 days and the insurance company will send a check back, usually within a week or two.  All the preliminary claim work is done up front.
So, as an example, let’s assume there was a 90-day waiting period on your policy. During that 90 days you get all the documentation– the doctors’ reports and other information–everything in place so all you have to do is submit the receipts. That way the insurance company will pay very promptly.
We’ll help if the client allows us to, but the insurance companies, by law, can’t talk to us about the claim.  But, usually it takes seven to ten days to get a check, so it’s very quick.

DISABILITY VS LONG-TERM CARE INSURANCE

People often say, “I don’t need long term care. I’m still working. I need disability insurance.”  There’s a lot of truth to that. However, long-term care insurance can also be used from time to time as a substitute for disability insurance, such as when a person doesn’t qualify for disability through their employer. A long-term care policy can be thought of like a disability policy during your working years, even though disability insurance is fundamentally different.
Disability replaces your income, as opposed to long-term care, which pays the bills. One is income driven; the other expense driven.  In a disability policy, the claim trigger is the inability to perform your regular occupation while needing assistance in two out of six ADLs triggers the long-term care policy. But, chances are, if you can’t do two out of six ADLs, you can’t do your job either.  And if you can’t do your job, it’s because you need assistance with two out of six ADLs. In 89-90 percent of cases, if you qualify for a payout for one, you qualify for a payout for the other.

HOW WILL I KNOW MY LONG-TERM CARE INSURANCE WILL BE THERE FOR ME WHEN I NEED IT?

At Schechner-Lifson, we address the issue of a very long-lived contract by conducting a thorough examination of the financials.  We don’t pretend that we’re smarter than Moody’s, Standard & Poors or AM Best.  We rely on outside agencies such as these,  but we also keep a very careful eye on the insurance contracts that we sell and the carriers that we represent.  We are brokers, not agents.  Our business cards do not have the name of one particular insurance company on it and if a company starts to have issues we’ll abandon them in a heartbeat and move on to a stronger company.
But there are carriers that still have policies out there.  There are state guarantee funds, but people should not rely on those.  We advise all our clients to do a little bit of due diligence. Make sure the carrier has a good history, a good reputation, and is fairly priced.

Profits, prices and financial strength.

Several years ago, a client of ours was shopping for long-term care insurance. We looked at prices from about seven or eight different companies, picked one and showed the financials to the client.  He looked them over and saw the company had made 80 million dollars of profit the previous year and said “well, this company made an awful lot of money. Does that mean their prices are too high?”

Our agent’s response was probably a bit sarcastic: “well if you want, we find you a company that lost money last year.” He paused for a moment and said “no, no, no, that’s not what I meant!”

We then explained why he wanted a company that’s financially strong.  It may not always be the least expensive company but there are a lot of criteria to using when picking a carrier.  We look at more than just price. Ease of underwriting; financial stability and the quality of the product are just a few of the many factors we evaluate to find the best insurance solution for our clients.

Business Succession Planning

A business owner always denies the inevitable.

There’s no question that the owner is going to die, and yet they put off planning for how to pass their business to the next generation because it’s an unpleasant topic.

Of course, the bankers and the lawyers are happy to help you figure it out– right after the funeral—usually for a very large fee.

It is better for your family, your employees and your customers to start succession planning well ahead of time. And we know how to do it.

Business succession planning is one of Schechner Lifson’s special areas of expertise.  In fact, we’ve gone through the process ourselves, quite successfully transitioning the firm through four generations of family leadership.

The idea of passing a business from one generation to another is very important– and very hard. And family businesses are different from non-family business; as different as they are different from families without a business.

You may be born into a family, but you’re hired into a business, even one owned by your own family. In a family, seniority gets you a promotion and longevity gets you status.  In a business you’re promoted based on your skills.

And when the two overlap, it can be a lot of fun, or it can lead to very, very stressful Thanksgiving dinners.

It’s important to know where the family ends and the business begins, and it’s very hard to know that sometimes.

We often say that the entrepreneur is almost like a spider sitting in the middle of his web.  Over here is the accountant who knows some things, but not everything.  Over there is the lawyer, who also knows some things, but not everything.  And then you have the insurance the wife, the trusted employees, the son and daughter-in-law—all kinds of different people know different parts of the business.  The one and only person who knows it all is the one sitting in the middle of the web, the entrepreneur. He darts out here and there, and then comes back to the middle.

THE STAGES OF BUSINESS SUCCESSION

To put it another way, your business succession plan is like a car, and the money is the fuel. And if you have a plan with no fuel, it’s like an automobile that sits in the garage. It doesn’t go anywhere and you think you have something that’s very helpful, but it’s not.  Conversely, if you have the money in place, but no plan, it’s like a can of gas sitting in the garage.  You’ve got to be careful because it might blow up.  So you really need both to make it work. That’s where insurance comes in. It can be the fuel—the money you need to make your succession plan go.

More than just the death of an owner, passing a business from one generation to the next involves several different stages.

Willy Loman Syndrome is the difficult situation where a business owner doesn’t want to give up day-to-day control of the company. Just like in “Death of a Salesman,” they don’t know when to leave..

A Living buy-out is a way to arrange for an orderly transition of business during the owner’s life, while he or she is still there to give some advice and to help and let the owner phase out slowly and with dignity.

Take care of key employees because in most businesses they not only the ones with brains, they also have feet and can leave at any moment.  Locking in a key employee, whether it’s a family member or not, a family business or not, is very important. There are a number of techniques and plans to help that happen without costing the business or the business owner substantial amounts of money.

High Net Worth Insurance

High Net Worth insurance policies are, generally, focused on those homeowners whose properties are worth more than a million dollars. Typically, these clients face multiple risks connected to the properties they own, so their coverage usually includes inland marine insurance, a valuable articles policy in conjunction with their home, and access liability.  Typically, high net worth positions include professionals like physicians or people who acquire wealth over the course of their lifetime.

WHY DO HIGH NET WORTH PEOPLE NEED SPECIAL INSURANCE?

Simply put; greater assets equal a greater liability risk.

Liability is the risk someone has to lose their assets in a lawsuit. For instance, someone with wealth in excess of a million dollars is more susceptible to being sued for a higher amount of insurance in the event of an accident. Liability insurance covers the policyholder if they are ever sued for their wealth.

YOU MIGHT BE HIGH NET WORTH AND NOT REALIZE IT

We actually run into this more often than not.  Someone starts out with just an auto policy, because they don’t own a home. Then, over time, they acquire wealth and assets. Things add up quickly and, before they know it, their net worth is over $1 million, yet they are still purchasing insurance the same way they did when they bought that first auto policy.

At Schechner Lifson, we sit down with our clients every year to review everything that’s happening in their life—especially things that may have changed. Getting married, having children, buying a new home, starting a new business, all have a big impact on the level of your risk exposure. A good financial advisor will point you in the right direction, providing a plan for building a safety net for your wealth. The right insurance coverage makes you whole in the event the worst happens.

For example, there is a big difference between replacement cost coverage of your home, which is going to make you whole again in the event of a loss, and a market value coverage, which is as if you sold your home what it would sell for today.

Insurance carriers base replacement costs on the actual contractors rate for rebuilding your home.  So, if your home was built in 1926 and has plaster walls, it’s going to take a specialist to come in and rebuild those walls and would cost more to do that, compared to a home built in 2005 using sheetrock or drywall.

REALIZING THE NEED FOR BETTER COVERAGE

You bought a home thirty years ago and when you did, you also bought an insurance policy. Year after year, you renew that policy, until one day you think to yourself, “Hey, I think I’m paying too much!”  And that’s when we get a call.

When a Schechner Lifson advisor reviews the types of liability circumstances and different insurance options available, clients often realize their coverage isn’t sufficient for their current siuation.

Sometimes we use examples of our own life experiences and, many times, our clients are able to relate it to their own lives and say, “You know what, I think you’re right.  Even though it may cost us more money, it makes sense to go with the better insurance.”

WARNING SIGNS OF BEING UNDERINSURED

• Going more than two years without a complete insurance review. Whether you consider yourself high net worth or not.
• Your home is currently valued at $750,000.00 or more.
• If you have a collection of artwork or precious metals, passed down through the generations.  The rates of gold and the rates of platinum have gone up dramatically; you may not be aware of the value of their items.
• A child in your family is getting a driver’s license in the next year or two.
• Your financial planner advises you to protect certain assets.
• You don’t have a financial planner.
• If any of your assets are currently not protected
• If none of your assets are in a trust

Remember, an attorney can seek your future earnings if you are held liable in a motor vehicle accident, if somebody slips and falls outside of your apartment, or a party guest drinks in your home and then drives.

So, while you may be in an account management position now, in five years you may be promoted into a management position with a much larger salary.  When attorneys go to court, these are the kind of things they are going to look at. Having a greater amount of liability coverage now will protect those future earnings.

Speaking To An Insurance Agent: Why You Shouldn’t Be Afraid

Yes, indeed, we’ve heard all the stories and the jokes about never speaking to an insurance agent. We enjoy the jokes as much as anyone, but the truth is, speaking to an agent may be the most important conversation you have about protecting your financial assets.

All insurance carriers are not the same. They are rated in tiers. Many different aspects come into play when we quote insurance for a client. Some carriers provide better coverage than others in particular types of insurance. Someone buying renters insurance has different needs and priorities than someone needing a homeowners policy. Insuring your personal cars isn’t the same as insuring your corporate vehicles.

Schechner-Lifson agents are not only experienced at knowing the different types of coverages, but also which carriers do the best jobs in each coverage area. The more information clients provide, the better we’re able to assess the situation and advise them on the best way to protect their assets.

Insurance for Manufactured Housing and Mobile Home Park Owners

We offer a comprehensive property and casualty product, covering all aspects of the mobile home park owner’s responsibilities. The policy is designed to cover every aspect of coverage needed by the park owner.

PROPERTY COVERAGE

The property piece covers all of the park owner’s owned buildings and contents, loss of rental income due to catastrophic exposure, such as in case of a hurricane. The policy also covers contractors’ equipment and just about anything you could put into any kind of property policy.

SLIP & FALL LIABILITY COVERAGE

The second piece is the liability section, which provides coverage for any suit brought against the park owner for bodily injury or property damage. Slips and falls in these parks is the largest liability exposure.

OPEN LOT COVERAGE

We also write coverage for what’s known as open lot exposure, which covers new and used units held for sale, such as model homes, or homes the park owner has purchased from somebody in the community that are being renovated for resale. If that unit catches fire or is vandalized, open lot insurance will cover those risks.

Other coverage for park owners:

• Commercial Automobile
• Worker’s Compensation
• Umbrella Liability
• Bonds

PRICING

Many years ago liability insurance for mobile home park owners was rated on the basis of gross rental receipts, which vary from year to year. So, every time rents went up, so did the park’s insurance premium.
Mobile home parks and manufactured housing communities in New Jersey are also assessed a Pad fee, which is paid by the tenant but goes directly to the municipality where the park is located. Years ago, an insurance auditor would come to a community and audit the books. If a community began the year with $1 million in gross rents and ended with $1.2 million, the park owner paid premium on the extra $200,000 of rents, even though a portion of that rent included the pad fee to pay municipal taxes.

That’s when Schechner Lifson Vice-President Bruce Callen and his then-partner, Bill Blemmings, came up with a new way of rating mobile home parks based on a flat price per pad, with no audit.  “If a park has 250 units, for example,” says Bruce, “and they’re all tenant-owned units, they calculate a rate per tenant-owned unit, then multiplied it by the number of units in the community, resulting in the premium price.

Bruce was the principal architect of an association program approved for the New Jersey Manufactured Housing Association and is a long-time member of the association’s Board of Directors. “Most of the units in a community are owner-occupied,” says Callen. “They pay  a Lot Rental Fee to the landlord.  And most parks also own a few units in their communities and rent them out, just like an apartment. The flat price-per-unit premium easily covers both tenant-owned and park-owned properties.

Uniform Manufacturers

The National Association of Uniform Manufactures and Distributors is an international organization serving companies associated with the manufacturing and distribution of military, postal, governmental and public safety uniforms and their components (from shoes, to insignias and everything in between)

As an independent insurance agency, Schechner Lifson works with many different property and casualty insurance companies to find out what they like to do, what their area of expertise is and match them up with underserved industries in need of better coverage.

By concentrating on educating our carriers, we were able to bring four preferred companies into serving the uniform industry.  They attend trade shows, become involved in industry affairs and develop an understanding of the uniqueness of the uniform business. As such, they become comfortable with it and, as a result, do a better job of helping uniform manufacturers and their suppliers get the coverage they need.

WHY WORK WITH SCHECHNER LIFSON INSTEAD OF YOUR LOCAL INSURANCE AGENT

We know the carriers and we know your industry.

When a complex subject, like fireproofing or Kevlar vesting comes up, most local agents—and many insurance carriers—have difficulty providing coverage, because they don’t really understand the product and the risks associated with its use.

Schechner Lifson helps underwriters understand how uniform components relate to the overall potential risk for liability on the part of the manufacturer, making sure they recognize the difference between perceived versus actual risk. Educating carriers gives manufacturers more flexibility on how they promote and sell their products.

Schechner Lifson’s association and our relationship with the carriers allows us to get by that portion of it.  And it fits very nicely into the program that we’ve been using.

We make managing your insurance easier

Your business requires lots of different insurance coverage: property, liability, worker’s comp, auto and more. At Schechner Lifson, our team of experts will seamlessly work together to make sure you have the right coverage at the lowest overall price possible.  We can also provide personal lines of coverage and your employee benefits package as well, all under one roof, one phone call, one contact. We understand the uniform business.

IMPROVE YOUR CASH FLOW WITH OUR IMPROVED WORKER’S COMPENSATION PROGRAM

Recently, we’ve been able to offer our clients a pay-as-you-go worker’s comp program. Rather than paying your worker’s comp based on an estimated payroll with a year-end audit to make adjustments, this program allows you to make your actual worker’s comp when payroll hits.
Now you no longer have to lay the money out to the carrier and work it out at the end.  You can get the use of your cash throughout the year, manage your cash flow more and can keep your business growing.

CHALLENGES FACING UNIFORM MANUFACTURERS

The uniform industry, like all businesses, faces unique challenges. Since so much business is done with public entities–be it small townships, larger municipalities, police departments or government workers—budgets have been cut, in some cases drastically. Townships may only have enough budget to buy one uniform, where in the past they may have been able to get a winter uniform, summer uniform, formal uniforms, all with more options, and maybe even backups.

Now, purchasing additional uniforms winds up becoming the responsibility of the officers, who are forced to reach into their own pockets. Those officers are not able make up the income once provided by their departments, forcing manufacturers to figure out new ways to make up for the lost revenue.

Natural Stone Industry