A Closer Look at Long Term Care Insurance & Issues

Posted on | November 1, 2009 | No Comments

 

 

 

By Julie Hurst, MBA, CLTC, Consultant

Guest Blog Post

After age 65 Americans stand a 70% chance of needing some form of long-term health care. That means seven out of 10 Americans over 65 are likely to need care and only three out of 10 will not. Experts cite this consumer misperceptions as one of the top 10 threats that can hinder a comfortable retirement. 1

If you are like me I am hoping I end up with the three out of 10 group, but it would be foolhardy to ignore the reality of the risk. After working with thousands on long term care insurance options I’d like to have you consider what I see missing in the decision process.

Long term health care is a real and very likely scenario most will face to some degree in their lifetime. Long Term Care Insurance is NOT about coverage for the individual. It’s about support to a spouse and family. As with other mainstream products, people purchase long-term care insurance because they understand the consequences a need for care would have on those they love.

Long Term Care insurance is NOT about protecting assets. Clients work a lifetime to accumulate a portfolio that will generate sufficient income to maintain their standard of living during retirement. This includes keeping prior financial commitments. It is reasonable to assume that clients’ retirement income is matched with their retirement expenses. If nothing has been allocated to pay for additional care needs, the income must be reallocated. Where else can the money come from?

In its purest sense, long-term care insurance is no different than disability insurance — it provides a source of income. In this case, the income is used to pay for care. This allows the client’s retirement income to be used for its intended purpose, supporting lifestyle and keeping financial promises. Without this essential product, the family has few options, among them curtailing lifestyle, liquidating assets, or both.2

Long Term Care Insurance is about protecting the roles we live. Keeping a spouse a spouse not a fulltime caregiver; your son or daughter, your adult child, not a caregiver.

It’s NOT about keeping your wealth but buying time to later empower your spouse, kids or family to make good financial decisions after plan A, the insurance, runs out and we have to move to Plan B, utilizing wealth to pay for care. I very rarely meet a couple who is fully comfortable with the spouse or kids diving into the accumulated/invested wealth and making decisions under a stressful time regarding financial changes. Long term care insurance keeps the family out of the investments so they remain with your original goals.

If you pay for your own care you have to consider liquidating assets. That poses some serious issues:

• Is the portfolio liquid?
• Will there be tax consequences?
• What if the portfolio has to be sold in a bear market?
• Are there legacy assets? If so, which of them would be sold?
• Accelerating the draw down of qualified funds will shorten the payout.

Any one of these issues could threaten the financial viability of a surviving spouse or their children who may rely on an inheritance or goals you have for the grandchildren.

Long-term care insurance protects retirement income by providing an independent source of income which can be used to pay for care. By doing so it protects, not only lifestyle, but the financial integrity of the family.

 

 

The author, Julie Hurst, MBA, CLTC is a long term care insurance consultant in Indiana for over 15 years driven by her own personal experience with four relatives. She published her own book to help consumers: Long Term Care-Is your family protected? in 2007. Julie has spoken all over the U.S. to both consumers and financial advisors on the issues of long term care options and insurance. She can be contacted at 317-696-3050 or JulieHurst.LTC@gmail.com or visit WPSadvisor.com

1. LIMRA & Society of Actuaries, May 24, 2005

2. Long-term care insurance is for the wealthy

By Senior Market Advisor | Published August 25, 2008 From the Senior Market Advisor Extra Newsletter: August 26, 2008

The Truth About Business Insurance

Posted on | August 7, 2009 | No Comments

 

Business insurance is important.  But, can you trust an insurance company’s agent to devise an insurance program that truly protects your small business?

 

Can you trust your business insurance agent?  Your insurance company?

 

Nationwide tells you they are on your side.  State Farm is like your good neighbor.  Allstate has you in good hands.

 

Really?  Truly?

 

The truth is that insurance companies are businesses that sell financial protection against risk.  What you get is a promise of payment under the terms of the policy at some date in the future, if all the right conditions exist.  In the end, you have a contract and nothing else.

 

Do you know what your insurance contract actually says? 

 

Would you ever sign a contract without reading it first? 

 

Or without understanding what the contract provides to you?

 

Most business owners have no clue what their insurance policies say.  When you purchase or renew insurance, you should do at  least these five things:

1.  Meet with your business lawyer to determine your risks.

2.  Understand what coverages are available.

3.  Check the insurance company’s financial strength

4.  Check the claims history of the company.

5.  Document and photograph the assets you are covering with insurance.

 

And. . .read your policy!   Or, better yet, sit down with your business attorney and your agent and review the policy together.

 

If you make a claim on your own policy, you and your insurance company will be adversaries.  I recently fought an insurance company for five months to recover $400,000 of insurance, when my client’s losses exceeded $600,000.  Some insurance companies are notorious for paying claims slowly or fighting claims routinely.  Do not buy insurance from those companies.   Most importantly, buy the right type and amount of insurance, and prepare now to fight for coverage later, assuming that you will eventually have to make a claim.

 

Here’s another post on the topic of insurance- Is Your Insurance Agent Reassuring?

 

 

Matthew A. Griffith is an attorney, business performance coach, mentor and entrepreneur.  He coaches, advises and guides business owners, entrepreneurs, inventors, property managers, investors and real estate professionals.  Matt has nearly two decades of experience helping businesses grow.

Matt’s next class. . .

Posted on | July 16, 2009 | 2 Comments

August 28, 9:30 am:      Legal Landmines: Grow Your Business Without Stepping In It

Protecting a Business Owner’s Family

Posted on | June 14, 2009 | 1 Comment

 

A Question from one of Matt’s readers:

 

“Matt, should I buy some life insurance so my wife can pay off the bank loan I took out to buy my business?  I don’t want my wife to have to deal with the bank, if I die first.”

 

Matt’s Answer-

 

Probably, yes.  I’m glad to see my readers listening to my advice about the importance of insurance to business owners.

 

I’m not licensed to sell life insurance, but I am a big fan of insurance under the right circumstance.  Life insurance can be a great way to aid your widow to retire the business’ debt.  That would enable her to sell the business after your death and realize the full value of your company.  You might need some additional life insurance coverage to retire your home mortgage debt, car loans or other debt, and provide cash to support your family after they lose your income.

 

What about disability insurance?

 

You didn’t ask about disability insurance, but it might be even more important, given your circumstances.  You’re a young and physically active person.  And, your business is relatively small and cannot operate for long without you.  You’re more likely to suffer a disability in the next 20 to 30 years than to die.  So, I’d encourage you to discuss disability insurance with your agent.

 

Before you meet with your agent, please review this post-  Is Your Insurance Agent Reassuring.  In that post, teach you how to communicate with your agent in order to make the most of insurance purchase.

 

Remember this-  Your insurance agent is NOT YOUR agent.  Your agent actually represents the insurance company.  So, keep in mind that you always have the right to seek a second opinion from any professional advisor.  If you’re not comfortable with the advice you’re getting, seek a second opinion.  You might return to the original advisor, but you’ll have more information and possibly a higher level of faith and trust in the advice you’re getting.

Protecting Your Business From the Lowest Common Human Denominator

Posted on | May 6, 2009 | No Comments

 

Recently, I was helping a client write a User’s Manual for a new product it is going to manufacture.  I was writing warnings about injuries that could result from the misuse of the product.  Later, as I was explaining to the client why I included some fairly obvious warnings, it struck me how ridiculous the law has become and how businesses are constantly under threat from frivolous lawsuits.

 

Mind you that this post is not about dangerous products or unsafe stores.  Rather, this is about customers and clients blaming you and your business for obvious errors made by the client or things clearly beyond your control.  Let me give you some examples to illustrate my point.

 

In products liability cases, manufacturers have to tell a consumer how to use and how NOT to use a product.  Manufacturers must also warn consumers about the consequences of misusing a product.  It is not enough to assume that a consumer will use a product for its obvious and intended purpose.  Nor is it enough to assume, for example, that a consumer understands that lighting a charcoal grill in the living room might cause a house fire or dangerous fumes that might harm people’s lungs.  You have to assume, as another example, that a consumer might try to scrap paint off an old house using a weed wacker.  Sounds ridiculous, but that’s a fair view of how the law now works.

 

The law requires you to protect your business against the dumbest customers imaginable.  Assume that your customers will make the silliest mistakes.  Now guard against those risks.  Unfortunately, that’s how you must now operate.  You cannot assume that your customers are of average intelligence.

 

Please understand that there is a gap between what the law says and how it is actually applied.  The law does not actually require you to protect yourself from injuries or losses sustained as a result of a customer’s unreasonable errors in judgment, but judges and juries apply the law that way.  Bad facts, as we say, make bad law.  Sure, you can appeal.  But at what costs?

 

Most people have heard of the “reasonable man” or “reasonable person” standard.  That remains the law.  There is, however, the reality of what judges and juries do in actual cases.

 

The solution to these business risks is to prevent claims and lawsuits by assuming the worst.  Create systems, policies and procedures that guard against claims by your dumbest customers and clients.  Get insurance.  Work with a good attorney, and take my warnings seriously.  In short. . .

Hope for the Best, but Plan for the Worst. 

Stay Out of Court At (Nearly) All Costs

Posted on | March 30, 2009 | No Comments

  

Stay out of court, because courts often make bad decisions that can have enormous impact on your business, your personal life and your finances.  If you stay out of court, you increase your chances of controlling your own fate.  If you let a judge decide, you have no control.

 

One of my law partners has a great expression about clients who get themselves entangled in lawsuits:

 

“When a client has to file a lawsuit or gets sued, he has already lost.”

 

What’s that mean?

 

It means lawsuits cost.  They cost you or your business:

• Time spent in the courtroom, in depositions, reading documents, talking to your lawyer, in mediation, reading court documents, searching for evidence, etc.
• Money for attorneys’ fees, expert witness fees, photocopies, travel, etc.
• Opportunities to make money elsewhere doing other things, to grow your business, or to take personal time to be with family and friends.
• Your health.  Lawsuits are stressful.  The only thing more stressful than getting sued is having to file a lawsuit.  Lawsuits are fun for lawyers.  I love them, from a professional vantage point.  I get to exhibit and sharpen my advocacy and strategy skills, but lawsuits are no fun for my clients.
• Goodwill or reputation.  Getting sued can hurt the image people have of your business or you.  The newspapers rarely report stories accurately.  Allegations and even rumors are often reported as facts.  People who really, truly know you and your ethos will be unaffected.  Everyone else,  including your customers, vendors and potential customers, will develop doubt in you to some degree.

 

A good lawyer-friend of mine just got a horrible ruling from a judge in a divorce case.  The judge was wrong and should be appealed, but at what cost to the client?  The judge robbed a father of all time with his children in a visitation ruling.  The father in the case is not a bad guy at all, but the judge, for whatever reason, decided that the man should no longer see his own children. 

 

Amazing isn’t it?  How can one human being exercise that much power over another human being.  This father is dying inside, because he no longer can see the children he loves so much.  It’s very sad, and that judge should be ashamed of himself.

 

In a divorce case, there is not much you can do in advance to avoid a divorce lawsuit.  Save your marriage, if you can.  Or, don’t marry THAT woman in the first place.  Ladies, don’t marry THAT man!  That is the only lawsuit prevention available in a divorce context.

 

But what about your business affairs?

 

Do you take these preventative measures:

• Meet with your lawyer when you are unsure of your rights?
• Meet with your CPA, lawyer and insurance agent at least once every year?
• Have your lawyer draft or review all your contracts?
• Have your lawyer develop an asset protection plan?
• Use limited liability entities properly to create a “corporate shield?”
• Train your staff on a regular basis?
• Have processes and procedures developed into an operations manual?
• Properly use insurance to transfer liability risks away from you or your business?
• Etc.

 

If you answered “no” to any of these questions, then it’s time to go see your lawyer.

WARNING- Asset Protection Is NOT Done Off-Shore

Posted on | March 16, 2009 | No Comments

 

My blog just got spammed by some company trying to get people to invest in a corporation based on some Caribbean island.  The spam came across as an advertisement for “asset protection.”  I deleted the comment and will not be posting it on this site!  The spammer was trying to comment to my post Asset Protection-  “It’s As Easy As 1 – 2 – 3!”

 

So, I need a Caribbean trust or corporation to protect my assets?

 

Hogwash!

 

Asset protection is the lawful use of entities, contracts, business practices and other legal structures that are recognized and permitted under existing law.  Everything you need to protect your personal and business assets can be found right in your home state.  You do not need to go off-shore to protect your assets.  In fact, going off-shore raises another type of risk to your assets and can, therefore, be self-defeating.

 

Asset protection is NOT trying to hide assets in a Caribbean-based trust or corporation.  Nor do you need a Delaware corporation or a Nevada corporation, unless you live or operate your business in those states.  Nor do you lawfully protect assets by trying to hide them, by committing crimes or by engaging into fraudulent transfers.

 

The law provides ways to protect your assets!  You’ve just got to understand what your risks are and what lawful means are available to address those risks.  It’s really not that difficult.  And there is no trickery involved.  Trickery usually leads to other problems.

 

Do you know what a “legal witch doctor” is?  It’s a term I coined years ago to describe people who talk about the law and who practice law without a license but with a particular financial motive impacting their advice.  If a legal witch doctor tells you that off-shore trusts are the key to asset protection, you can bet that off-shore trusts are being sold to you.

 

Buyer beware!  Avoid legal witch doctors.  Go see your lawyer.

LLC’s, Charging Orders & Judgment Liens

Posted on | February 17, 2009 | No Comments

Question from one of Matt’s readers-
“A residential rental property is owned by a single member LLC. The tenant files a frivolous lawsuit and wins. The amount of damage awarded to the tenant exceeds the amount covered by the liability insurance on the property. What are all the possible ramifications to the property, the single member LLC that owns the property in question or the natural person who is the single member of the LLC? Charging order, lose ownership of the property, lose ownership of other assets owned by the LLC, etc.?
Thanks Matt”

Matt’s Answer-

What a great question. There are several issues here. I’ll take them in chunks.

FRIVOLOUS LAWSUIT

I’m going to assume that your case was in a small claims court, even though you didn’t say that. Crazy things happen in Small Claims Courts. The level of “lawyering” and judging is often not as high as it is in superior and circuit courts. There are exceptions, of course. But, your case shows why we have appellate courts to fix what lower courts screwed up.
Appeal!
In Marion County, Indiana, appeals from the Small Claims Courts go to the Superior or Circuit Courts. In Marion County, you get a fresh start. . . a new trial. The Small Claims Court judgment is vacated. You start over and get a chance to get the case determination right. So, my first response is: Appeal! That’s an easy solution to all your problems.

INSURANCE

Secondly, ask your insurance agent why you’re not fully insured! Should you be suing your insurance agent for malpractice? Maybe the insurance agent’s Errors & Omissions coverage is your solution.
On a side note, I’d encourage you to learn how to communicate properly with insurance agents. There are specific things you should do in order to develop the right Insurance Plan for your business, and I can share those techniques with you in another article or during a consultation.

JUDGMENT LIENS

When a judgment is entered by a court of record in an Indiana county, a lien is automatically created against any real property owned in the same county. If the judgment-defendant has real property in other counties, those properties are not impacted. However, a judgment in “County A” can be “recorded” in “County B.” At that point, the judgment is a lien on real property owned by the judgment-defendant in both counties.
Importantly, judgment liens apply not only to the subject property but to ANY real property owned by the judgment-defendant.

PERSONAL LIABILITY

If I understand your facts, there is no judgment against the LLC owner, just the LLC. In that case, there should be no collection efforts against the LLC owner. A plaintiff cannot collect a judgment issued against an LLC from the assets of the LLC’s owner. So, the owner (you) should not be concerned about a charging order. Actually, charging orders are a good thing, in a sense (read on).
Some of you might be asking: “What’s a charging order?”
A charging order only applies to LLC’s, not corporations. A charging order is an order that requires the LLC to pay to the plaintiff any monies that would be distributed from the LLC to the owner. There must be a judgment against the owner, before a charging order could be issued. Charging orders are the only remedy a plaintiff would have to collect from the ownership interests a judgment-defendant would have in an LLC. So, in other words, a plaintiff cannot acquire an owner’s ownership interests in an LLC. By contrast, a plaintiff can acquire a judgment-defendant’s stock in a corporation.
Why do the courts distinguish between corporations and LLC’s in this area of the law?
The rationale is that LLC’s are partnerships and that a plaintiff should not be permitted to become someone’s partner. So, if A and B are partners in an LLC, and C gets a judgment against B, C should not be able to enforce the judgment to become A’s partner. A has the right to chose his partners. He picked B, not C, to form a partnership. C could get a charging order against the LLC and collect any monies that would be distributed from the LLC to B. If A and B owned a corporation together, then C could acquire B’s stock and become a co-owner with B.
Back to your situation. . . the law concerning charging orders is irrelevant to your situation for the reasons I described above. What you have at risk is your equity in the LLC. You cannot do much about the equity you have in the LLC at this point, now that the judgment was entered. Any transfers of equity you were to make now could be considered “fraudulent transfers.” And that is an entirely separate topic for another article.

THE LESSON(S) HERE-

Call your attorney. You lost a lawsuit, and probably did not have a good attorney with you in court! You saved the cost of having an attorney in court, but at what greater cost? Was it worth it?
Appeal bad decisions.
Learn how to communicate with your insurance agent to develop the right Insurance Plan.
Plan. Planning is an activity that occurs in advance. I’m not sure from your short question what your Asset Protection Plan includes. Clearly, planning is important, as your situation reveals.

Is your insurance agent reassuring?

Posted on | January 28, 2009 | 33 Comments

How do you know if your insurance agent sold you the right insurance coverage?

You’ll never know for sure, unless you suffer a casualty, loss or judgment.  Or, you can follow the instructions in this blog!

I am a huge proponent of getting insurance to cover your personal and business risks.  But, the key to insurance is getting the right type and the right amount of coverage.

Let me illustrate these lessons with the story of two of my clients:  Fred and Bill.

THE STORY OF FRED –  BUYING THE WRONG COVERAGE.  Fred ran his business out of a spare bedroom in his house.  Twice each week, Fred had a few contractors come to his home for business meetings.  One winter day, Fred’s favorite contractor (Stanley) walked up Fred’s driveway, slipped on some ice and broke several bones.  Stanley had no disability or health insurance, and was out of work for weeks.  Stanley, being self-employed and thus unemployed, turned to Fred:  “Hey Fred, I got hurt because you didn’t clear your driveway of ice.  Can you pay me my lost income, while I heal?”  Fred calls his insurance agent and makes a claim.

BUT THERE’S NO COVERAGE FOR FRED!  Fred’s homeowner’s insurance doesn’t cover business risks.  Stanley is a business invitee.  There’s no coverage for a business invitee who gets hurt doing business at Fred’s home.

THE STORY OF  BILL- BUYING TOO LITTLE COVERAGE.  Bill owns a business- a restaurant.  One day, there is a grease fire in the restaurant and Bill loses $225,000 of equipment and tools (stoves, ovens, utencils, pots, pans, etc.) and $150,000 of leashold improvements (plumbing, carpet, walls, restrooms, etc.).  Bill calls his agent and makes an insurance claim.

Then Bill gets the bad news-   Bill has $200,000 of coverage on equipment.  He’s short  $25,000 of coverage.  But the insurance agent has some good news. . .  there’s $300,000 of coverage on the improvements.

What?

What?!

What?!!!!

Bill was UNDER-insured on equipment and OVER-insured on improvements.  What a waste.

Could Fred and Bill have done something differently?  Was this the agents’ fault?  Do these situations happen often?

Yes.  Maybe.  And yes.

There are solutions.  There is a better way to communicate with your insurance agent in developing a great business insurance plan.  Stay tuned to this blog.  I’ll cover these topics in future blogs.  For now, you should recognize the importance of buying the right TYPE and AMOUNT of coverage.

CHECK OUT OTHER ARTICLES I’VE WRITTEN ON IMPORTANT BUSINESS, REAL ESTATE AND LAW-RELATED MATTERS:   http://indiana-attorneys.com/articles_news/index.htm

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