Brian Gruss Licensed Insurance Planner

An Insurer’s Financial Rating Is a Clue to Its Longevity

You buy life insurance for the financial protection it offers. The proceeds from a life insurance policy can replace the income your family loses after you’re gone. When deciding on which policy to buy, it’s imperative that you choose an insurance company that will still be around after you’re gone.

The key to an insurance company’s longevity is its financial rating, which is represented by a letter grade. Insurers are graded by credit rating companies that have been designated as Nationally Recognized Statistical Rating Organizations (NRSRO) by the Securities and Exchange Commission (SEC). A credit rating company receives this designation if the SEC feels it has a reputation in the United States as an issuer of credible and reliable ratings by the majority of financial institutions that use its information.

After a credit rating company receives its NRSRO designation, it can then rate financial firms like insurance companies. There are specific criteria that an NRSRO uses when rating an insurer.  These criteria include:

• Potential for growth
• Diversification of the types of businesses it is involved in
• Earnings
• Profitability
• Management of operating expenses

After all of these factors are considered, the NRSRO assigns the insurance company a letter rating. Keep in mind that each NRSRO’s rating system is a little different; however, all of them use some form of an “A” rating for indicating a top rated company. Generally speaking, you want to purchase a policy from an A-rated company.

There are five main NRSROs that rate insurers:

• A.M. Best (http://www3.ambest.com/consumers/)
• Fitch (http://www.fitchratings.com/)
• Moody’s (www.moodys.com – requires free registration to access ratings)
• Standard & Poor’s (http://www2.standardandpoors.com/)
• Weiss Research (http://www.weissratings.com/HL_Life.asp)

After you have researched an insurer’s ratings, you should:

• Call their customer service line and ask for the company’s ratings from each of the ratings services. If the service representative refuses to tell you or lies about the ratings, don’t buy any products from that company.
• Ask the insurance company for copies of its ratings reports. If it complies with your request, it is a sign that the company is consumer-friendly.
• Ask your agent to explain each rating service report to you in simple terms. If the agent can’t explain the various ratios and terms, it is a sign that they have not been properly trained. That same lack of training may also manifest itself when you need your agent to handle a claim, evaluate future insurance needs, or recommend additional products.

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Retiring Boomers Need $250K to Cover Health Costs

Working people are well aware of the importance of their medical benefits. In fact, many employees will tell you that one of the reasons they chose their present job is that it provided good medical coverage for their family.

As important as medical coverage is to workers and their families, it’s just as important to retirees. According to Fidelity Investments latest health care cost estimate, a 65-year-old couple retiring in 2010 without employer-provided retiree health insurance would need about $250,000 to cover future medical expenses. Besides actual medical costs, this figure takes into account such healthcare related expenses as Medicare Part B and D premiums, Medicare cost-sharing provisions, co-payments, coinsurance, deductibles, excluded benefits and prescription drug out-of-pocket costs. It does not include other health expenses, such as over-the-counter medications, most dental services and long-term care needs.

The $250,000 represents a 4.2 percent increase from Fidelity’s estimate last year of the amount a typical U.S. couple would need during retirement to pay for health care. Since the estimate was first calculated in 2002, the number has risen a total of 56 percent.

The study found that health care costs average $535 a month per couple, the second largest expense compared to food costs, which average $659 a month. Furthermore, health care costs account for approximately one-fifth of an average couple’s total monthly expenses of $2,842.

These findings come on the heels of the current employer trend of getting rid of healthcare plans that supplement Medicare because of rising costs and making retirees directly responsible for paying their own health care expenses. Combine this phenomenon with health insurance premiums that are growing at a rate more than three times earnings growth and two-and-a-half times the rate of consumer inflation, and you have the beginning of a trend toward making individuals accountable for all or part of their own health care costs in retirement.

Fidelity offers the following six suggestions to help Americans better manage their retirement health care costs:

In preretirement:
1. Set aside money specifically for medical needs
Rather than saving generically for retirement, it may help to have a separate and distinct savings account specifically for medical expenses in retirement given their essential nature. To achieve the goal, individuals who are eligible could use a healthcare savings vehicle such as a health savings account (HSA) or earmark a portion of their retirement account for this purpose.

2. Investigate the cost of supplemental health insurance in various geographic locations
Supplemental insurance reimburses individuals over 65 years old for some or all of their cost-sharing, not covered by traditional Medicare. In addition to supplemental insurance, other coverage may also be available (e.g., Medicare HMO). Medicare’s official Web site (medicare.gov) as well as many state Web sites list the supplemental health plans available, including those for Medicare Part D. As individuals approach retirement, they should become familiar with their plan options, the costs, and how these vary by location.

3. Consider phased retirement as part of an overall strategic plan
Some employers offer part-time work with health care benefits. This type of employment can allow preretirees to avoid dipping into their savings accounts too soon for health care needs. By gradually entering retirement, these individuals will be protecting their savings for a longer period.

In retirement:
1. Be proactive in preventive care
There are simple ways to help contain health care costs. For example, get routine doctor-recommended screenings for diseases such as colon cancer. If an individual is otherwise healthy, it is still important to maintain recommended preventive care guidelines. Taking prescription medications according to schedule is another way to avoid complications.

2. Select quality providers
The U.S. Department of Health & Human Services Web site provides information on how well hospitals nationwide are caring for patients who have certain medical conditions or who have undergone various surgical procedures. Using a national database of hospitals, the Web site compares the quality of care of a given hospital and a given treatment/surgery. Patients at better-performing hospitals tend to have fewer complications, which reduces the risk of future additional medical expenses.

3. Always review health claims for accuracy
It is not uncommon for mistakes to happen in the claims payment process. The error could be in many forms, including charges for services not rendered or incorrect charges for a given service. When retirees receive medical bills, they should take the time to review them and follow up with their health care provider when they have questions or concerns about billing.

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Immediate Annuities Can Help You Secure Your Retirement Income

As you approach retirement, it’s natural to worry about your retirement portfolio. It is also natural to become frightened during a recession, such as the ongoing downturn that started in 2008. During tough times, your entire strategy can suddenly become worthless. The supply of cash that you have carefully built up over your working life is gone, vanished like so much dust. This is downright scary. What shall you do? Many individuals in this same situation end up taking part-time jobs in order to support themselves.

An immediate annuity can help you regain liquidity. Buying an annuity is like buying a monthly pension check. It is an insurance policy that pays you a lifelong income stream in exchange for a lump sum. There is no age limit for purchasing an immediate annuity; you can buy one at 80 or 90 if you want to. When the payments start is entirely up to you. Once you decide on a date, the payments are orderly and on time, appearing on that date every month for the rest of your life.

Consider several advantages to immediate annuities:

• Your insurance agent will be able to tell you what the monthly payment amount is based on your lump sum.
• The annuity is backed by the financial security and assets of an insurance company, so do your research before buying.
• This product affords you, the beneficiary immediate peace of mind since the payments start when you choose. You can rest completely assured of a secure, stable long-term monthly income. You can even add an inflation rider to the policy so that your income will not get eaten by inflationary pressures.
• Since immediate annuities are different from stocks and bonds, there is no worry about volatility or market fluctuations. The value of the annuity remains constant. You have the protection of knowing that every month, the money will be deposited into your bank account.
• There are no fees of any kind to be paid – no management fees, no setup or administrative fees, and no annual fees.
• Favorable tax treatment – Only a small portion of income generated from an immediate annuity funded with after-tax dollars would be taxable.  This is because part of every payment is considered a return of principal.

Is an immediate annuity right for you? That depends on your unique needs of course. For those seeking to secure a future income stream, immediate annuities are a perfect way of achieving a guaranteed monthly income which will not fluctuate due to external forces. The peace of mind possible with having an income stream one cannot outlive should not be ignored.

Liquidated earnings are subject to ordinary income tax, may be subject to surrender charges and, if taken prior to age 59 1⁄2, may be subject to a 10% federal income tax penalty.

Guarantees and payment of lifetime income are contingent on the claims paying ability of the issuing insurance company.

Tags: Financial Security, Immediate Annuities, Immediate Annuity, Income Stream, Inflationary Pressures, Insurance Agent, Insurance Company, Insurance Policy, Lifelong Income, Lump Sum, Market Fluctuations, Part Time Jobs, Peace Of Mind, Pension Check, Rest Of Your Life, Retirement Annuities, Retirement Income, Retirement Portfolio, Stocks And Bonds, Tough Times