Articles

Finance 101: A Lesson in Helping your Student Pay for College

Finance 101: A Lesson in Helping your Student Pay for College

Jan 2021

You think back fondly on those halcyon collegiate days--studying in the quad, late-night pizza, tailgating for the big tailgating game, dorm living, tossing your graduation cap in the air...beyond the lifelong friends and the parties and fun, college helped you get to where you are today. Looking ahead, your student is planning on following in your footsteps and will be receiving that admissions letter of acceptance sooner than you think.

Unfortunately, it’s getting increasingly more difficult to afford college. Formal higher education is the institutional stamp of approval that will grant your child the entrance into the workforce, but that stamp comes at a steep cost that has increased more than 500 percent since 1985. The average cost of tuition and fees for the 2015-16 school year was $9,410 for state residents at public colleges, $23,893 for out-of-state residents attending public universities, and a $32,405 at private colleges. These average tuitions mark a 2.9% increase in tuition over the 2014-15 school year (before adjusting for inflation). Student loans end up being the solution for most college-bound students which come tied to their own set of issues; 43 million Americans hold student loan debt at a collective total of $1.26 trillion as of Q1 2016. Plus, approximately 43% of Americans who took out federal student loans are not making any payments.

There are scholarships and grants that lower the price tag of higher education, but they also make navigating the complicated world of financing college even more challenging.

Take these tips into consideration as you help your student apply and prepare to pay for college:

Know your budget.

Like purchasing many large, expensive items like a car or a house, it’s wise to know your budget going into the search for the right fit. If you don’t, you run the risk of test driving luxury cars out of your budget or touring houses outside of your price range and then what you can actually afford seems not good enough. The same goes for schools. If your family cannot realistically afford Harvey Mudd College (the most expensive college in the country as of tuition year 2015-16), then don’t tour the campus. And sure, a full ride scholarship would be great...but isn’t likely. Narrow down choices within a reasonable range (and with 4,726 degree-granting institutions in the U.S. there are indeed plenty of choices), and then help your student decipher what’s important to them in relation to what’s offered at the options from there.

Start acknowledging affordability by running the numbers through the Expected Family Contribution (EFC) calculator to learn what colleges are likely going to say your contribution should be. If you calculate a high EFC number (meaning you are wealthier), you still won’t want to pay full price for school. In that case look for schools that are generous with merit scholarships for students (regardless of financial need). If you calculate a low EFC rate, look for schools that have substantial financial aid.

Understand the financial breakdown.

Your student likely won’t be paying the total sticker price for a year’s tuition at college. That means you’re looking at the total net price (sticker price minus total aid). When your child receives the acceptance letter with the financial aid award breakdown (scholarships, grants, etc.), it can be difficult to decipher what means what. For example, the line item “financial aid” can be used in the place of what are actually loans. Then there’s often a question around how much Expected Family Contribution there is and how it can be applied to what--is it just tuition or does that include room and board? Avoid confusion preemptively with a secure online tool like College Abacus allows for the comparison of net price estimates, given your personal situation, before financial aid is actually determined.

Expand the search.

Don’t be afraid to expand the search parameters for colleges. Some colleges are so popular they see such high applicant numbers they can afford to be selective in who they accept and who they offer money to, resulting in less generous overall financial aid. Schools with lower application rates are usually small, lesser-known, private colleges who may have higher reserves of financial aid to grant.

Learn from an expert.

Make an appointment with the financial aid offices at the colleges your student is considering to gain a better understanding of they will calculate financial contribution. They’ll be able to tell you if elements like home equity will be factored in. (This is not information required for the FAFSA, but is required information at some private colleges.) They will also be able to answer any specific questions that apply to your situation that a general college financial FAQs webpage cannot answer. Additionally, a meeting with your financial advisor well before your student pays that first semester bill is wise to ensure you won’t be met with any surprises when taxes comes due.

  1. https://trends.collegeboard.org/college-pricing/figures-tables/tuition-and-fees-and-room-and-board-over-time-1
  2. http://www.bloomberg.com/news/articles/2013-08-26/college-costs-surge-500-in-u-s-since-1985-chart-of-the-day
  3. http://www.collegedata.com/cs/content/content_payarticle_tmpl.jhtml?articleId=10064
  4. http://www.collegedata.com/cs/content/content_payarticle_tmpl.jhtml?articleId=10064
  5. http://www.marketwatch.com/story/every-second-americans-get-buried-under-another-3055-in-student-loan-debt-2015-06-10

Tags: student loans, finance

Understanding Long-Term Care Insurance

Understanding Long-Term Care Insurance

Jan 2021

The phrase long-term care refers to the help that people with chronic illnesses, disabilities or other conditions need on a daily basis over an extended period of time. The type of help needed can range from assistance with simple activities (such as bathing, dressing and eating) to skilled care that's provided by nurses, therapists or other professionals.

Employer-based health coverage will not pay for daily, extended care services. Medicare will cover a short stay in a nursing home, or a limited amount of at-home care, but only under very strict conditions. To help cover potential long-term care expenses, some people choose to buy long-term care insurance.

Policies offer many different coverage options. Since you can't predict what your future longterm care needs will be, you may want to buy a policy with flexible options. Depending on the policy options you select, long-term care insurance can help you pay for the care you need, whether you are living at home or in an assisted living facility or nursing home. The insurance might also pay expenses for adult day care, care coordination and other services. Some policies will even help pay costs associated with modifying your home so you can keep living in it safely.

Factors to consider

Your age and health:Policies cost less if purchased when you're younger and in good health. If you're older or have a serious health condition, you may not be able to get coverage — and if you do, you may have to spend considerably more.

The premiums:Will you be able to pay the policy's premiums — now and in the future — without breaking your budget? Premiums often increase over time, and your income may go down. If you find yourself unable to afford the premiums, you could lose all the money you've invested in a policy.

Your income:If you have difficulty paying your bills now or are concerned about paying them in the years ahead, when you may have fewer assets, spending thousands of dollars a year for a long-term care policy might not make sense. If your income is low and you have few assets when you need care, you might quickly qualify for Medicaid. (Medicaid pays for nursing home care; in most states it will also cover a limited amount of at-home care.) Unfortunately, in order to qualify for Medicaid, you must first exhaust almost all your resources and meet Medicaid's other eligibility requirements.

Your support system: You may have family and friends who can provide some of your longterm care should you need it. Think about whether or not you would want their help and how much you can reasonably expect from them

Your savings and investments:A financial adviser — or a lawyer who specializes in elder law or estate planning — can advise you about ways to save for future long-term care expenses and the pros and cons of purchasing long-term care insurance.

Your taxes: The benefits paid out through a long-term care policy are generally not taxed as income. Also, most policies sold today are "tax-qualified" by federal standards. This means if you itemize deductions and have medical costs in excess of 7.5 percent of your adjusted gross income you can deduct the value of the premiums from your federal income taxes. The amount of the federal deduction depends on your age. Many states also offer limited tax deductions or credits.

Long-term care policy sources

Individual plans:

Most people buy long-term care policies through an insurance agent or broker. If you go this route, make sure the person you're working with has had additional training in long-term care insurance (many states require it) and check with your state's insurance department to confirm that the person is licensed to sell insurance in your state

Employer-sponsored plans

Some employers offer group long-term care policies or make individual policies available at discounted group rates. A number of group plans don't include underwriting, which means you may not have to meet medical requirements to qualify, at least initially. Benefits may also be available to family members, who must pay premiums and might need to pass medical screenings. In most cases, if you leave the employer or the employer stops providing the benefit, you'll be able to retain the policy or receive a similar offering if you continue to pay the premiums.

Plans offered by organizations:

A professional or service organization you belong to might offer group-rate long-term care insurance policies to its members. Just as with employersponsored coverage, study your options so you'll know what would happen if coverage were terminated or if you were to leave the organization.

State partnership programs:

If you purchase a long-term care insurance policy that qualifies for the State Partnership Program you can keep a specified amount of assets and still qualify for Medicaid. Most states have a State Partnership Program. Be sure to ask your insurance agent whether the policy you're considering qualifies under the State Partnership Program, how it works with Medicaid, and when and how you would qualify for Medicaid. If you have more questions about Medicaid and the partnership program in your state, check with your State Health Insurance Assistance Program.

Joint policies:

These plans let you buy a single policy that covers more than one person. The policy can be used by a husband and wife, two partners, or two related adults. However, there is usually a total or maximum benefit that applies to everyone insured under the policy. For instance, if a couple has a policy with a $100,000 maximum benefit and one person uses $40,000, the other person would have $60,000 left for his or her own services. With such a joint policy you run the risk of one person depleting funds that the other partner might need.

Long-term care policies and preexisting conditions

Insurers often turn down applicants due to preexisting conditions. If a company does sell a policy to someone with preexisting conditions, it often withholds payment for care related to those conditions for a specified period of time after the policy is sold. Make sure this period of withheld payments is reasonable for you. If you fail to notify a company of a previous condition, the company may not pay for care related to that condition.

Most companies will provide an informal review to determine whether you are eligible for the policy. This is helpful if you're likely to be denied coverage since another company may ask whether you've ever been turned down for coverage.

Covered services

Some insurance companies require you to use services from a certified home care agency or a licensed professional, while others allow you to hire independent or non-licensed providers or family members. Companies may place certain qualifications — such as licensure, if available in your state — or restrictions on facilities or programs used. Make sure you buy a policy that covers the types of facilities, programs and services you'll want and that are available where you live. (Moving to another area might make a difference in your coverage and the types of services available.)

Policies may cover the following care arrangements:

Nursing home:

A facility that provides a full range of skilled health care, rehabilitation care, personal care and daily activities in a 24/7 setting. Find out whether the policy covers more than room-and-board.

Assisted living:

A residence with apartment-style units that makes personal care and other individualized services (such as meal delivery) available when needed.

Adult day care services:

A program outside the home that provides health, social and other support services in a supervised setting for adults who need some degree of help during the day

Home care:

An agency or individual who performs services, such as bathing, grooming and help with chores and housework.

Home modification:

Adaptations, such as installing ramps or grab bars to make your home safer and more accessible.

Care coordination:

Services provided by a trained or licensed professional who assists with determining needs, locating services and arranging for care. The policy may also cover the monitoring of care providers.

Future service options:

If a new type of long-term care service is developed after you purchase the insurance, some policies have the flexibility to cover the new services. The 'future service' option may be available if the policy contains specific language about alternative options.

Policy coverage amounts and limits

Long-term care policies can pay different amounts for different services (such as $50 a day for home care and $100 a day for nursing home care), or they may pay one rate for any service. Most policies have some type of limit to the amount of benefits you can receive, such as a specific number of years or a total-dollar amount. When purchasing a policy you select the benefit amount and duration to fit your budget and anticipated needs.

'Pooled benefits' allow you to use a total-dollar amount of benefits for different types of services. With this coverage option you can combine services that meet your particular needs.

To determine how useful a policy will be to you, compare the amount of your policy's daily benefits with the average cost of care in your area and remember that you'll have to pay the difference. As the price of care increases over time, your benefit will start to erode unless you select inflation protection in your policy.

Qualifying for benefits

'Benefit triggers' are the conditions that must occur before you start receiving your benefits. Most companies look to your inability to perform certain 'activities of daily living' (ADLs) to figure out when you can start to receive benefits.

Generally, benefits begin when you need help with two or three ADLs. Requiring assistance with bathing, eating, dressing, using the toilet, walking and remaining continent are the most common ADLs used. You should be sure your policy includes bathing in the list of benefit triggers because this is often the first task that becomes impossible to do alone.

Pay close attention to what the policy uses as a trigger for paying benefits if you develop a cognitive impairment, such as Alzheimer's disease. This is because a person with Alzheimer's may be physically able to perform activities but is no longer capable of doing them without help. Mental-function tests are commonly substituted as benefit triggers for cognitive impairments. Ask whether you must require someone to perform the activity for you, rather than just stand by and supervise you, in order to trigger benefits.

Coverage exclusions

Pay close attention to what the policy uses as a trigger for paying benefits if you develop a cognitive impairment, such as Alzheimer's disease. This is because a person with Alzheimer's may be physically able to perform activities but is no longer capable of doing them without help. Mental-function tests are commonly substituted as benefit triggers for cognitive impairments. Ask whether you must require someone to perform the activity for you, rather than just stand by and supervise you, in order to trigger benefits.

Coverage exclusions for drug and alcohol abuse, mental disorders and self-inflicted injuries are common. Be sure that Alzheimer's disease and other common illnesses, such as heart disease, diabetes or certain forms of cancer, aren't mentioned as reasons not to pay benefits.

Waiting and elimination periods

Most policies include a waiting or elimination period before the insurance company begins to pay. This period is expressed in the number of days after you are certified as 'eligible for benefits,' once you can no longer perform the required number of ADLs. You can typically choose from zero up to 100 days. Carefully calculate how many days you can afford to pay on your own before coverage kicks in. (The shorter the period, the higher the price of the policy.)

Choose a policy that requires you to satisfy your elimination period only once during the life of the policy rather than a policy that makes you wait after each new illness or need for care.

Many policies allow you to stop paying your premium after you've started receiving benefits. Some companies waive premiums immediately while others waive them after a certain number of days.

Long-term care benefits and inflation

Since many people purchase long-term care insurance 10, 20 or 30 years before receiving benefits, inflation protection is an important option to consider. Indexing to inflation allows the daily benefit you choose to keep up with the rising cost of care.

You can increase your benefit by a given percent (5 percent is often recommended) with either compound or simple inflation protection. If you're under age 70 when you buy long-term care insurance, it's probably better to have automatic 'compound' inflation protection. This means that the amount of your daily benefit increase will be based on the higher amount of coverage at each anniversary date of the policy. 'Simple' inflation protection increases your daily benefit by a fixed percentage of the original benefit amount. Typically, the simple option won't keep pace with the price of services.

In lieu of automatic increases, some policies offer 'future-purchase options' or 'guaranteedpurchase options.' These policies often start out with more limited coverage and a corresponding lower premium. At a later, designated time, you have the option of increasing your coverage — albeit at a substantially increased premium.

If you turn down the option several times, you may lose the ability to increase the benefit in the future. Without increasing your coverage this option may leave you with a policy that covers only a fraction of your cost of care. The younger you are when you buy long-term care insurance, the more important it is to buy a policy with inflation protection.

Premium increases and policy cancellations

Companies can't single you out for a rate increase. However, they can increase rates on a class of similar policies in your state. Most premiums do increase over the life of the policy. The National Association of State Insurance Commissioners has established rate-setting standards and about half of the states, along with several of the large insurance companies, have adopted these measures.

Long-term care policies are 'guaranteed renewable,' which means that they cannot be canceled or terminated because of the policyholder's age, physical condition or mental health. This guarantee ensures that your policy won't expire unless you've used up your benefits or haven't made your premium payments.

Problems paying the premiums

If you stop paying your premium or drop your benefit, a 'nonforfeiture option' will allow you to receive a reduced amount of benefit based on the amount of money you've already paid. Some states require policies to offer nonforfeiture benefits, including benefit options with different premiums.

Since nonforfeiture provisions vary by location, check with your state's insurance department or your state's listing at the National State Health Insurance Assistance Program (SHIP)before dropping your policy. If your policy doesn't have a nonforfeiture option and you stop paying the premiums, you'll lose all the benefits for which you have paid.

Policy shopping

If you've determined which long-term care insurance options best meet your needs and you're ready to buy a policy, do the following:

  • Ask your state insurance department for a list of companies approved to sell long-term care insurance policies in your state. Find out whether there were complaints about any of the companies that sold them.
  • Check the stability of the company and be sure it has a long history with this type of insurance. You can check this information at websites for companies including Moody's Investors Service, Standard and Poor's and A.M. Best.
  • Compare information and costs from at least three major insurance companies. Find out how often and by how much the companies have increased their premiums.
  • Get a written copy of any policy you're considering. Review it carefully, perhaps with the assistance of your attorney or financial adviser. Write out your questions, and have a representative of the insurance company respond to your questions in writing.
  • Never pay any insurance premium in cash, and always make your check payable to the company and not an individual.
  • Nearly all states require insurance companies to give you 30 days to review your signed policy. During this time, you can return a policy for a full refund if you change your mind.
  • Still have questions or concerns? Contact the agency listed for your state at the State Health Insurance Assistance Program (SHIP).

Deciding whether long-term care insurance is right for you can take a significant amount of time and research, but making the effort will be time well spent.

https://www.aarp.org/health/health-insurance/info-06-2012/understanding-long-term-care-insurance.html

Tags: long term care, long term options

NFPR-2019-76 ACR#324829 08/19

Making the Long Term Care Decision That’s Right for You

Making the Long Term Care Decision That’s Right for You

Jan 2021

For most of us the conversation isn’t whether or not we’ll need long term care, but rather when. According to the U. S. Department of Health and Human Services as many as 70% of those turning 65 years of age are likely to require long-term care, meaning that it probably makes sense to start planning for this as an eventuality rather than a possibility.* Professional help with daily tasks like bathing and eating doesn’t come free, and knowing we are likely to need this level of assistance at some point in our lives doesn’t make it any easier to plan for

Paying for such ongoing medical and personal care out of pocket is often prohibitively expensive and current laws are written so that the state will usually only step in once you’ve exhausted the bulk of your assets. With no long-term care bailout on the horizon now is the time to make a plan for this important reality.

Can Long Term Care coverage wait until I retire?

Deciding that long term care coverage is necessary is an important first step, but it’s just as important to make sure to get the right amount of coverage at the right time.

Your personal characteristics, such as age, health and gender can influence available policies and premiums.

As a rule of thumb, buying when you are younger tends to result in much lower costs, both due to better overall health and a lower starting point for any future premium increases by insurers. It’s easy to imagine that a 65 year old in poor health will pay much higher premiums at the outset than a 50 year old with a clean bill of health.

How much coverage should I get?

This insurance is much like health insurance in that the benefit levels and policy costs can vary widely depending on the level of protection you are looking for.

Paying for such ongoing medical and personal care out of pocket is often prohibitively expensive and current laws are written so that the state will usually only step in once you’ve exhausted the bulk of your assets. With no long-term care bailout on the horizon now is the time to make a plan for this important reality

Can Long Term Care coverage wait until I retire?

Deciding that long term care coverage is necessary is an important first step, but it’s just as important to make sure to get the right amount of coverage at the right time.

Your personal characteristics, such as age, health and gender can influence available policies and premiums

As a rule of thumb, buying when you are younger tends to result in much lower costs, both due to better overall health and a lower starting point for any future premium increases by insurers. It’s easy to imagine that a 65 year old in poor health will pay much higher premiums at the outset than a 50 year old with a clean bill of health.

How much coverage should I get?

This insurance is much like health insurance in that the benefit levels and policy costs can vary widely depending on the level of protection you are looking for.

Desired benefit levels also make a significant difference on costs, meaning that high levels of coverage with generous daily payout levels don’t always come cheap. Other policy choices, such as provisions that help coverage levels keep up with inflation, are optional extras that oftentimes can be necessary to achieve protection for decades to come. Again, these options can add to the cost of the policy.

While the cost of a policy takes a few dollars per day out of the budget today it can be a financial parachute in the event of a catastrophic or ongoing infirmity. The specific dollar level of coverage that’s right for you will vary depending on your net worth, your long term goals, and other details like your health history and where you live.

Can I put something in place then change coverage later?

Maybe, but it’s probably best not to count on it. Unlike auto or homeowners insurance the ability to easily switch from one long term care coverage provider to another is usually limited. Most of these companies price new policies higher than older ones and price older clients higher than younger ones. This double-whammy means that switching to a new policy when we are older tends to be very costly. It can pay to take the time and consult with a long term care insurance professional today so that you end up with the right level of coverage and peace of mind to carry you forward for years to come.

*2015 Department of Health and human services

Long-term care insurance policies contain exclusions, limitations, reductions of benefits, and terms for keeping them in force. Your financial professional can provide you with costs and complete details.

All policy guarantees are based upon the claims paying ability of the issuer.

Tags: long term insurance, long term care, insurance

How to Make Your Retirement Savings Last

How to Make Your Retirement Savings Last

Jan 2021

At one time, employees worked until they reached their 60s and passed away not long after retirement. However, as life expectancies have reached the late 70s and early 80s, planning for a long retirement is an integral part of managing financial risk. Consumers must plan for longer golden years.

Set a Budget

When your income is reduced, the best way to combat the difference is to pull back on your spending. You already won’t have the expense of a daily work commute, so look for other ways to cut back as well. Set a monthly budget and stick to it, tracking expenses as you go and asking someone to hold you accountable. Over time, you’ll observe spending trends that will help you make reductions and save even more.

Continue Earning Income

One of the best ways to safeguard your retirement savings is to ease into retirement rather than quitting work cold turkey. This could mean going part time at your current workplace or retiring and starting a small job. Retirement is the perfect time to do what you’ve always wanted to do; if you love books, work in a bookstore; if you’ve always wanted to run your own business, consider becoming part of the sharing economy, driving for a ride-sharing service, or shopping for grocery delivery services.

Move

Retirement is a great time to change your location. Since you no longer need to live within a reasonable commute to a business, the world is wide open. Consider moving to a more remote area or another state where the cost of living is much more affordable, and you’ll be surprised by how far your dollar stretches.

Managing your financial risk means making sure you have enough money in the bank to keep you comfortable during retirement. With a little planning and some cutbacks, you can confidently enjoy your senior years.

Tags: help with budget, retirement planning, retirement

Smart Things to do BEFORE You Retire

Smart Things to do BEFORE You Retire

Jan 2021

A lot of people focus on things to do after they retire, but there are a number of things you should take care of before you hit that milestone. Retirement planning specialists can explain the steps that will help you better prepare for retirement and help make this transition successful.

Establish a Plan:

You need to know how much money you’ll have coming in during your retirement, and then balance that against your expenses. Start by creating a budget, listing all your sources of income, and all your likely expenses. You’ll need to make sure your income covers or exceeds your essential expenses. As part of your plan, create a schedule. You need to know when you’ll apply for Social Security and Medicare and when you’ll receive any pension benefits or distributions from your retirement plans. These rules are complex, so you may want to consult with a retirement planning expert at least a year before you retire.

Consider Your Health:

As part of your plan, you need to factor in any health considerations. A medical emergency or major illness can completely disrupt your retirement. People often assume Medicare covers “everything,” but that’s not true. In addition to Medicare, you will probably want to obtain supplemental medical insurance to protect your family and future from unforeseen medical expenses or accidents. You should also review any wills, powers of attorney, medical powers of attorney, and other estate documents to make sure they still represent your wishes. Finally, start focusing on your personal health NOW. Exercise, eat right, and start doing the things that will support your health in retirement.

Set Goals for Your Future:

What do you want your life to be in retirement? Often, people focus on financial planning but don’t actually think about what they will do after they retire. Strong social networks, family and personal relationships, and new opportunities to learn and grow are important components of a happy and successful retirement. The things you want to do will influence many of your financial decisions, so it’s a good idea to figure out what those goals are before you retire.

Tags: help with budget, retirement, retirement planning


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