Increasing Your Return on Life.®

Frank Talk - 4th Quarter Newsletter (2016)

Published: 12/07/2016

Table of Contents


Written by: Frank Fantozzi

As the holiday season approaches, our thoughts naturally turn to the people, relationships, causes, and activities that provide the most meaning in our lives. This year, reflecting on what we’re thankful for is especially important after months of a brutal and often ugly political race for the White House, marked by negativity and divisiveness. Yet, no matter our individual political beliefs, as Americans, we come together and remain one people bound by a common goal: to thrive in a democracy that provides the freedom to pursue the lifestyle we desire for ourselves, our families, and our businesses.

At Planned Financial Services, we remain grateful for the opportunity to serve you and your family in pursuit of the individual Return on Life® you seek by providing relevant, unbiased, and actionable advice. And effective January 1, 2017, we look forward to providing even greater flexibility in serving your needs as we complete our transition to a full-service Registered Investment Advisor (RIA). Below we discuss what this means to you and your family or business, and provide an update on team happenings, year-end tax deadlines, and our expectations for the post-election markets and economy.

PFS Transitions to Full-Service RIA in January 2017
Effective January 1, 2017, Planned Financial Services will transition from its current dual Registered Investment Advisor (RIA) registration with LPL Financial to serve as a full-service SEC-registered RIA. This business structure will enable us to unify trading and registered investment advisory fees, ensuring that clients who joined us as a result of a past acquisition, as well as new clients joining us in the future, enjoy the same high level of service, access, and advice from our award-winning team. Please note that LPL will remain the current custodian for your account assets, and there will be no change to your current advisory account number(s). 

Recently, we provided all advisory services clients with new account agreements reflecting our new business structure as well as all required disclosure forms. We want to thank each of you for your part in helping us update these agreements in an expeditious manner. We’re very excited about how our transition to a full-service RIA will benefit you and your family by providing:

  • Greater flexibility in serving your needs, including the ability to custody assets at multiple custodians, as necessary, and based on your needs and circumstances
  • The ability to invest more in our business and technology capabilities over time, and gain increased flexibility with regard to how we report on your investments and financial planning goals
  • Access to a broader range of investment options

PFS Recognition
In recent months, your PFS team has been recognized by several organizations for customer service, retirement planning expertise, and business growth.

  • Smart Business 2016 Customer Service Awards - Planned Financial Services (PFS) was selected as an honoree for The 2016 Customer Service Awards and was recognized amongst its peers at the Power Players of Cleveland luncheon on November 3, 2016. Presented by Smart Business magazine, The 2016 Customer Service Awards recognizes 25 organizations in the Cleveland area that have demonstrated their commitment to delivering world-class customer service – both internally and externally. The program serves to raise awareness of the importance of customer service in the business world and to share best practices from those who strive to do it best.
  • 401 Top Retirement Plan Advisers - Frank Fantozzi was recently named among the 401 Top Retirement Plan Advisers. The list, produced by financial services publication Financial Times in collaboration with Ignites Research, recognizes the top financial advisors who specialize in serving defined contribution (DC) retirement plans. Advisors were chosen based on several criteria, including the amount of DC plan assets under advisement, and growth and specialization in DC plan business, among other factors.
  •  The Weatherhead 100 - For the fifth time, Planned Financial Services was named a Weatherhead 100 Upstart company, which recognizes the 100 fastest-growing companies in Northeast Ohio. The Weatherhead 100 was established to celebrate the strength and spirit of entrepreneurship and to recognize the elite companies headquartered in the region. This year’s winners were evaluated on revenue growth from 2011 to 2015 and were listed in a special issue of Community Leader Magazine. PFS will be honored among its peers and other professionals at the Weatherhead 100 awards ceremony on Thursday, December 1, 2016 in Cleveland.

Please visit our online Newsroom to learn more about these and other recent PFS awards.

The Alzheimer’s Tsunami: Preparing for the Worst
On November 9, 2016, we hosted a complimentary educational seminar: The Alzheimer’s Tsunami: Preparing for the Worst, for clients, friends, and their guests at Corporate College East in Warrensville Heights, Ohio. Those attending gained a better understanding of how to prepare physically, emotionally, and financially should a loved one be diagnosed with Alzheimer’s or a related form of dementia. 

If you were unable to join us, but have questions or concerns about the financial implications of Alzheimer’s and related forms of dementia on your family and loved ones, please don’t hesitate to reach out to us. This is an area we’re very passionate about. For more than 22 years, we’ve helped families grappling with the worry, stress, and often difficult decisions that accompany a dementia diagnosis. Our goal is to replace worry with confidence through proactive planning in these and other important areas: 

  • Review your estate planning documents to ensure all necessary legal documents are in place, including estate planning and powers of attorney
  • Develop strategies to help protect your (or your loved one’s) income and financial assets
  • Develop a long-term care strategy aligned with your (or your loved one’s) care goals and lifestyle preferences
  • Test multiple financial scenarios using sophisticated planning and risk analysis software, enabling confident decisions about the future you desire
  • Coordinate our advice with your legal advisors

Reminder: Year-end Tax Deadlines
As year-end quickly approaches, so do important 2016 tax planning deadlines. The following checklist can help you simplify and manage these critical deadlines.

December 31st marks the deadline for:  

Gifts and Charitable Contributions:

  • Making tax-year 2016 charitable contributions (cash and non-cash)
  • Gifting to family members (up to $14,000 per individual free of gift or estate tax)
  • Making an IRA Qualified Charitable Distribution (QCD); taxpayers must be age 70 ½ or older

Investments and Retirement Accounts:

  • Tax harvesting: selling stocks or listed options to realize a gain or loss
  • Contributing the maximum to qualified retirement accounts (401(k), 403(b), etc.)
  • Completing a Roth conversion
  • Taking Required Minimum Distributions (RMDs) if you are age 70 ½ or over

Employment and Medical Expenses:

  • Deferring bonuses or self-employment income into 2017
  • Rolling over FSA balances in employer-sponsored plans
  • “Bunching” qualified out-of-pocket health care services, medical procedures, or equipment for itemizing 2016 medical expenses (qualified expenses must exceed 10% of AGI for taxpayers under age 65; 7.5% for taxpayers age 65+)
  • Avoiding tax penalties by adjusting withholding or estimated tax payments to make up for any shortfall

Given President-elect Trump’s goal to lower income taxes, especially targeting capital gains and the Obamacare surtax, any opportunity you have to defer taxable income into 2017, and accelerate deductions into 2016, should be considered in light of the possible fruition of these events. Your PFS team is always available to provide guidance on these and other tax and investment planning considerations, or answer questions you may have about strategies appropriate for your needs and situation.

Post-election Economic Outlook 2016
**Donald Trump, the winner of a recent hotly contested presidential campaign will be inaugurated as the 45th president of the United States on Friday, January 20, 2017. The transition to a Republican presidency and Trump’s rejection of politics as usual, which drew so many voters, naturally lead to questions about his impact on the economy and markets. The following is a high-level overview of our thoughts on how a Trump presidency may impact the economy and financial markets in the coming months.

  •  ECONOMY - While the election results have not changed our long-term outlook for the U.S. economy. We will continue to monitor many important economic indicators, including the Five Forecasters, the Current Conditions Index, as well as the Recession Watch Dashboard, and will keep you updated in the event of any changes to our views. It’s important to understand that elections do not in and of themselves cause recessions. Policies can, however, and we need to wait to see which policies Trump moves forward with and the details of those policies. Our Recession Watch Dashboard continues to point to an overall low risk of recession within the next year.

    Trade has been a major theme in this election, yet a president’s ability to impact trade directly and immediately is somewhat limited. Trump has been outspoken in favor renegotiating NAFTA terms and has been opposed to the TransPacific Partnership (TPP), which has little chance of passing. The Trump victory raises some concern across foreign markets about U.S. trade.

  • FED - We do not believe the election results have changed the Fed’s outlook. Furthermore, we believe the Fed is much less sensitive to financial markets than most people think. As it stands, we believe the Fed is on course to increase rates at its December meeting, with another 2-3 increases in 2017. It would take a major market disruption or a change in the economic fundamentals for the Fed to alter this course.

  • EQUITIES & FIXED INCOME - Just as an election does not cause a recession, it does not cause a bear (or bull) market. Government policies alone do not change the market’s long-term trend, although they are a factor. Shorter term, elections are rarely a harbinger for a sell-off, and when they have been, the election has not been the primary cause. In election years since 1952, the S&P 500 has returned an average of 2.5% in November and December and has been higher 75% of the time. From Election Day until Inauguration Day, the S&P 500 has averaged a gain of 1.0% and has been higher 69% of the time. The median return jumps to 3.0% because of a nearly 20% drop in 2008 that skews the average return, but 2008 returns were fundamentally driven by the recession, not Obama’s election. The bottom line is some near-term volatility is likely, but a massive sell-off absent an economic recession has never happened in the period between the election and inauguration.

    There doesn’t appear to be much of a difference in equity performance over the short term. Since the election in 1952, the final two months of the year have returned 2.6% when a Republican wins and 2.4% when a Democrat wins. Looking at the largest drops the final two months of an election year in 2000 (Republican victory) and 2008 (Democratic victory) stand out, as the S&P 500 dropped 7.6% and 6.8%, respectively. Both times the economy was either in a recession (2008) or about to fall into a recession (2000) – which greatly contributed to the equity weakness. With the end of the earnings recession, improving consumer confidence, and the best quarterly GDP print in two years – we presently have an improving economic backdrop, which should help contain any large downside moves in equities for the rest of 2016.

    We believe the following sectors would likely benefit under a Trump administration:

    • Biotech and Pharmaceuticals - Although Trump has stated his desire to repeal the ACA and has favored drug re-importation from other countries, controlling drug prices is unlikely to be as high of a priority for him as it would have been for Clinton. As a result, biotech and pharmaceutical companies may get a bump. We believe the market may have overreacted to perceived policy risk and we continue to favor the healthcare sector, which has historically performed well after elections.
    •  Energy - Trump is likely to be positive for fossil fuels. He has promised less regulation on drilling, along with expansion of drilling areas. The segment of the industrials sector that services the energy sector may also benefit.

    • Financials - The Trump administration is likely to be easier on financial regulation than Clinton would have been. Trump has indicated he would like to roll back financial regulations, including the Dodd-Frank legislation enacted as a result of the financial crisis. Trump has also suggested bringing back Glass-Steagall, which would separate traditional banking from investment banking, a move we see as very unlikely.

  •  THE DOLLAR, BONDS, AND DEBT - Trump’s policies are likely to be relatively negative for the U.S. dollar. His comments on renegotiating U.S. debt held by foreigners may limit the attractiveness of bonds to foreign investors. We saw an initial Treasury rally as stocks sold off overnight on November 9, 2016, but yields have since moved higher. We expect there may continue to be additional volatility as markets digest the news, but we broadly believe markets may be pricing in a rise in deficit spending, which is pushing yields higher; though continuation of low rates overseas is an offsetting factor, potentially keeping rates somewhat range bound over the near-term.

    Trump had mentioned last spring the possibility of renegotiating our debt and paying back less than the full amount if the economy were to falter. This idea, if implemented, would almost certainly lead to a debt downgrade.  However, he backed away from this idea a few days after he floated it. More realistically, Trump has signaled higher deficit spending.  While deficit spending was a contributing factor to the U.S. debt downgrade by S&P in August of 2011, it wasn’t the only reason. The main driver of the downgrade was the debt ceiling crisis, as Republicans demanded a deficit reduction package before they were willing to join Democrats in raising the debt ceiling. Divided government and partisan politics led to months of debate and an eleventh-hour deal that avoided a default. With Republicans keeping control of the Senate and the House, a fight over the debt ceiling that could threaten the U.S. credit rating is unlikely.

  •  COMMODITIES - Gold can thrive in chaotic environments and the uncertainty surrounding Trump’s policies could offer some support to the commodity. When discussing oil, it is important to remember that oil stocks and crude oil can have very different performance, even though investors often expect similar returns. Trump’s victory is likely a positive for oil stocks, especially in the short run. He has promised reduced regulations on oil and gas production, which would improve profitability of existing projects and may result in a very marginal increase in U.S. production. Note, this may be a negative for energy prices.

  • VOLATILITY - We expect that market volatility will likely increase. Equity markets have experienced abnormally low volatility recently, in part because of central bank intervention. As those interventions decrease, volatility should increase. However, we view that increase as a healthy aspect of equity markets. The degree to which the election results impact volatility will depend a great deal on which policies are actually enacted as a result of the changes in Washington.

Closing Remarks
Your team at Planned Financial Services will continue to provide you with relevant market and economic insights as the presidential transition progresses. While change can be unsettling, it’s also inevitable. That’s why a well-formulated plan and a long-term focus is so critical to not only weathering varying market cycles, conditions, and challenges, but avoiding the temptation to adopt a herd mentality or make decisions based on emotions—both of which can easily derail your strategy as you pursue your life plans. Your Return on Life® is always our top priority and we remain committed to providing you with the education, advice, and insight required to retain a long-term perspective and focus on your individual goals.

We wish you and your family very Happy Holidays! and thank you for your continued trust in your dedicated PFS team. If you need additional help or someone you know needs our advice, remember, we’re only a phone call away at 440.740.0130. We are always honored to help our clients’ friends and business associates take greater control of their future with the guidance from the PFS team. We welcome and are grateful for the many introductions our clients continue to provide.

Real People. Real Answers

Health, Happiness, and Good Fortune,

Frank Fantozzi
President & Founder


The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results.

All indices are unmanaged and cannot be invested into directly. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. 

Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

 Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, geopolitical events, and regulatory developments. Because of its narrow focus, investing in a single sector, such as energy or manufacturing, will be subject to greater volatility than investing more broadly across many sectors and companies.

 The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

**Research source: LPL Financial November 2016.

 The articles in this publication were developed by a third-party publisher.

Self-Directed IRAs: Watch Out for These 3 Tax Traps

Written by: Cynthia Yang

Self-directed IRAs: Watch out for these 3 tax traps

If you have substantial savings set aside in one or more individual retirement accounts (IRAs), you may want to consider a “self-directed” IRA. These IRAs, offered by some financial institutions, allow you to invest in nontraditional assets such as real estate, closely held stocks and investment partnerships.

Self-directed IRAs can offer certain benefits, but they also present some significant risks. If not handled carefully, nontraditional investments may cause some or all of an IRA’s earnings to be taxable, thus reducing or eliminating its tax benefits. So watch out for:

  1. Unrelated business taxable income (UBTI). Tax-exempt entities, including IRAs, are subject to tax on their UBTI, which is income generated by a business unrelated to an entity’s tax-exempt purpose (in the case of an IRA, saving for retirement). For example, an IRA that owns an operating company — either directly or through a pass-through entity such as a partnership or LLC — might have UBTI. Generally, UBTI isn’t triggered by an IRA-owned C corporation or rental real estate.

  2. Unrelated debt-financed income (UDFI). If you use your IRA to purchase property financed by debt, a portion of its income — generally, the ratio of average indebtedness to the property’s value — is taxable UDFI. There’s no prohibition against investing IRA funds in an unrelated business or debt-financed property, but it’s important to evaluate the impact of any UBTI or UDFI on an IRA’s tax benefits.

  3. Prohibited transactions. These rules prohibit dealings between an IRA and certain “disqualified persons,” including you, certain family members and businesses your family or you control. For example, a disqualified person can’t sell property to or buy property from the IRA, make or guarantee a loan to the IRA, or provide goods or services to the IRA (including taking a salary from an IRA-owned business). The penalty for prohibited transactions is harsh. The IRA is disqualified and its owner is subject to tax on all of its assets as if they had been distributed. Given these restrictions, it’s difficult if not impossible to manage a business owned by an IRA.

Unless you’re prepared to adhere to all restrictions, a self-directed IRA may not be the right investment tool for you. Before opening one, consult your tax advisor to ensure that it isn’t prohibited and that it’s structured in a way that preserves the IRA’s tax advantages. Also review this choice with your investment advisor to help ensure you understand both the potential rewards and risks.

© 2016

Falling Markets, Though Inevitable, Provide Opportunities

Written by: Elisabeth Plax

Experienced investors know that patiently accepting periodic losses is a necessary part of participating in the stock market. Yet even when market volatility is beyond your control, you don’t just have to be a bystander. Here’s how to make the best out of a potentially negative situation.

Keep perspective
Although overall stock prices have historically risen over time, the long-term upward trend has been interrupted many times by shorter-term drops. This combination of a generally rising market and short-term volatility is what makes stocks well suited for many long-term investing goals but not advisable for imminent financial needs.

If your portfolio is already broadly diversified and you’re investing for long-term goals as part of a larger financial plan, you can probably ignore day-to-day market fluctuations. That’s because a good investment strategy will apply regardless of market conditions. Indeed, paying too much attention to daily swings in stock values can be a recipe for making emotional investment decisions that may actually move you further away from your goals. For example, you may sell a depressed stock at a loss only to watch it subsequently run up — without you.

Spread the risk
Diversification and asset allocation are especially critical when market conditions are declining. When your money is spread across multiple asset classes with performance that isn’t tightly correlated, you reduce the potential negative impact any one sector or security has on your portfolio. In other words, when your stocks are performing poorly, your fixed-income, cash or alternative investments may be performing better and thus cushion the blow of stock losses.

That’s the ideal, of course, not a guarantee. Sometimes, even historically uncorrelated asset classes can move in tandem. Following 2008’s financial meltdown, for example, many investment types experienced significant losses — including traditional portfolio diversifiers such as real estate investment trusts (REITs).

Regularly rebalancing your portfolio so that your investments match your target asset allocation (for example, 50% stocks, 45% bonds and 5% cash) can also help protect you from market volatility. If you neglect to rebalance your portfolio, you may get too much exposure to securities that have run up and, therefore, are currently overpriced. Such investments may be more vulnerable to a price correction in the event of a market downturn.

Embrace volatility
Market declines aren’t purely negative events. They can provide opportunities to invest in stocks that would have been more expensive a month or a year ago. Taking advantage of such buying opportunities may position you for better future performance — sometimes dramatically so.

This isn’t to say that you’ll be able to figure out exactly the right time to buy in. Not even investing professionals can reliably time the markets. Also, some stocks that have declined will continue to do so, so it’s important to thoroughly research any potential investments. However, the fact remains that purchase price matters when it comes to investment returns. It’s better to buy a good company when its stock is cheap than when its stock is expensive. Volatility can provide you with the opportunity to do that.

Take tax losses
Volatility can also provide tax benefits. If falling markets cause some of your holdings to lose value, you may decide to sell them to realize losses that can be applied against future capital gains.

This is a particularly useful strategy if you have investments that you were thinking of selling anyway. Remember that you can always buy stock shares back after 30 full days have passed since you sold them and recognize the tax loss — an IRS requirement known as the “wash sale” rule. But before you sell, you should discuss your plans with your tax advisor.

Survive short-term bumps
The best time to reassess your financial plan and your asset allocation is before a market downturn happens. If it’s too late for that, the next best time is now. Your financial advisor can be an essential resource as you weigh alternatives and opportunities. Once you have a plan that puts you on a path toward your goals, stick to it and consider ignoring the market’s day-to-day movements — however dramatic they might be.

© 2016

When Should You Pull the Trigger on Social Security Benefits?

Written by: Jeremy Bok

If you’re approaching retirement age, you may have wondered when it makes sense to start collecting Social Security benefits. The right strategy for you depends on your particular circumstances, including the amount of your benefits, your other assets and your marital status.

For most people not already eligible, full retirement age (FRA) — the age they become eligible for full Social Security benefits — is between 66 and 67. (See “What’s your full retirement age?”) With that in mind, ask the following questions.

How much are your benefits?
In 2016, the maximum monthly benefit is $2,639 if you retire at FRA. The size of your benefit, which is available from the Social Security Administration (, depends on your earnings history and your age when you start receiving benefits.

You can begin collecting benefits as early as age 62 or as late as age 70. If you take “early retirement,” your monthly benefit will be reduced by as much as 30%. If you delay benefits past your FRA, your monthly benefit will be increased by 8% per year (up to 32% total).

Much depends on whether you can live without the money. To maximize your monthly benefit, you can wait until age 70 to start collecting. But if you think you’ll need the income sooner to meet your financial needs, you may need to take early benefits at a lower rate.

What’s your life expectancy?
Social Security is designed to provide you with roughly the same total benefit (based on government life expectancy tables) regardless of when you begin collecting. Once you pull the trigger, benefits continue at the same rate for the rest of your life. If you take benefits early, you’ll receive a smaller amount over a longer period, and if you delay benefits you’ll receive a larger amount over a shorter period.

You may believe you will outlive your statistical life expectancy — based on your health or family history, for example. If that’s the case, you may be able to maximize your lifetime benefits by waiting until age 70 and receiving a higher monthly benefit.

When do you plan to retire?
If you plan to continue working after you become eligible for Social Security, be sure to consider the impact of your earnings on your benefits. Unless you need the money sooner, it’s best to wait at least until you reach your FRA.

If you’re working and you start collecting benefits before your FRA, they’ll be reduced by $1 for every $2 you earn above a specified threshold (currently, $15,720). And in the year you reach your FRA they’ll be reduced by $1 for every $3 you earn above a higher threshold (currently, $41,880).

Here’s an example. Suppose you reach age 62 in 2016 and decide to take early Social Security benefits. If your benefit is $2,000 per month ($24,000 per year), it will be eliminated if your annual earnings exceed $63,720.

What are your other income sources?
View the timing of Social Security benefits as an investment decision. Delaying benefits beyond your FRA is, essentially, an investment with an 8% return. How does that compare with your returns on other retirement savings vehicles, such as IRAs, 401(k)s or other investments?

You may be better off tapping these other income sources and allowing your Social Security benefits to grow.

Are you married?
If you’re married and your spouse is also eligible for Social Security, there are a few strategies you can use to coordinate and maximize your combined benefits. Here’s one example, known as the “restricted application” strategy:

Suppose you and your spouse were born in 1950, which means that you’ll each reach your FRA of 66 in 2016. Also assume that your full benefit is $2,500 per month and your spouse’s full benefit is $1,500 per month. If you both start collecting benefits right away, you’ll receive a combined $4,000 per month. Another option is for your spouse to begin collecting $1,500 per month and for you to file a restricted application for a 50% spousal benefit of $750 per month, for a combined benefit of $2,250 per month. When you reach age 70, you’ll switch to your regular benefit, which will have grown to $3,300 — increasing your combined benefit to $4,800.

Note one caveat: The restricted application strategy isn’t available to people who reach age 62 after January 1, 2016.

It’s complicated
As you can see, determining the ideal time to begin collecting Social Security benefits can be complicated, especially for married couples. Your financial advisor can help you analyze your situation and develop a strategy that meets your retirement needs.

What’s your full retirement age?

Year of Birth Full Retirement Age Benefit Reduction at age 62
1943-1954 66 25.00%
1955 66 and 2 mos. 25.83%
1956 66 and 4 mos. 26.67%
1957 66 and 6 mos. 27.50%
1958 66 and 8 mos. 28.33%
1959 66 and 10 mos. 29.17%
1960 and later 66 and 10 mos. 30.00%

Source: U.S. Social Security Administration

© 2016

Weighing the Pros and Cons of LTC Insurance

Written by: Frank Fantozzi

It’s no secret that long-term care (LTC) insurance — which can help pay for nursing care or assistance with activities of daily living (ADLs) — can be expensive. But health insurance policies and Medicare generally don’t cover long-term nursing, assisted living or in-home care, and paying such costs out of pocket can quickly devour your nest egg.

This makes the decision to buy LTC insurance a tough one. So it’s important to learn how these policies work.

Two types 
There are generally two types of LTC policies: reimbursement and indemnity. With a reimbursement policy (the most common type), you’re paid for the costs you incur up to a set daily or weekly limit. The policy may require that care be provided in a licensed facility.

Under an indemnity policy, you receive a set amount of money to use against your expenses, even if your bill is less than the amount allowed in the policy. So, if your caregiver sends you a bill for $150, but your policy is for $200, you would receive the full $200. Not surprisingly, indemnity policies tend to be more expensive.

Speaking the language
When reading LTC literature, you may come across some unfamiliar terms that are, nevertheless, critical to understand if you’re to make an informed decision. For example, a benefit trigger is the criteria an insurer uses to determine when your need for LTC begins. Examples include cognitive impairment or the inability to perform several ADLs on your own.

Here are a few others:

Elimination period. This is the period of time between the start of the benefit trigger and the time that the policy begins paying benefits. This often ranges from 30 days to several months. Not surprisingly, the longer the elimination period, the less expensive premiums typically are.

Benefit period. This is the period of time over which the policy pays for care. The period can range from a year or two to an unlimited amount of time.

Inflation protection. Health care costs typically rise over time and inflation protection boosts the dollar value of your benefit for each year of the policy. This option becomes more important if it’s likely you won’t begin to receive benefits for a decade or more.

Exclusions. These are conditions not covered by an LTC policy. For example, some policies exclude treatment for addictions or self-inflicted injuries.

Early planning helps save
LTC premiums can run several thousand dollars annually and renewals often push premiums up substantially. But the younger you are when you purchase a policy, the lower your annual premiums typically will be. You’ll pay much less for LTC insurance you buy at age 55 than at 70.

Moreover, the chance of being declined for a policy increases with age. Having certain health conditions, such as Parkinson’s disease or metastatic cancer, can also make it more difficult, perhaps even impossible, for you to obtain an LTC policy. If you can still get coverage, it likely will be much more expensive.

Not for everyone
LTC insurance can help protect your assets in the event you need to pay for in-home, assisted living or nursing-home care on a continuing basis. But it’s not for everyone. Those with substantial wealth may be better off paying such costs out of their own pockets. Other options include using home equity or even a Health Savings Account to pay for care-related costs. Also, hybrid policies that combine long-term care funding with life insurance or an annuity have recently become available.

© 2016

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