When an Insurance Company Fails
May 10, 2010 by Jean Keener, CRPC, CFDP · 1 Comment
Last week I attended the Financial Planning Association annual symposium in Dallas, and one of the speakers was Bart Boles, executive director for Texas’ insurance guaranty association. He shared the association’s processes when an insurance company fails, and how we as the consumer would likely be affected. Some of the exclusions and limits are important information to consider in your individual planning process. With this information, you can make smart insurance purchase decisions and avoid any surprises if the worst happens.
If your insurance company fails, here are the limits to what the association would cover.
Funds required for this coverage don’t come from tax payer dollars. They come from assessments of other insurance companies.
Health Insurance (all per individual per insolvent company)
- $500,000 for hospital, medical & surgical and major medical
- $300,000 disability and LTC insurance
- $200,000 all other health insurance
Life Insurance (all per insured life per insolvent company)
- $100,000 of cash surrender value
- $300,000 of death benefits
- $5 million per owner of multiple non-group policies
Annuities (all per insolvent company)
- $100,000 of the present value of annuity benefits per insured life (individual and allocated group annuities)
- $100,000 per payee for structured settlement immediate annuities
- $5 million per owner of unallocated group annuity
Aggregate Limit
- $300,000 of aggregate benefits for an individual per insolvent company (with the exception of the individual limits listed above exceeding this amount)
Exclusions
Some of the exclusions include:
- Insurance policies with insurance companies not licensed to do business in Texas
- Benefits of an insurance policy that are not guaranteed by the insurance company (such as the non-guaranteed portion of a variable life insurance or annuity contract)
- Benefits for which the policyholder bears the risk (such as certain variable or indexed annuities). Specifically, equity-indexed annuities are not covered.
- Interest rate yields that exceed an average rate set by the terms of the Texas Guaranty Association law. This can come into play with some annuities offering high guaranteed rates.
- Items not part of the specific written terms of the policy, such as claims based on marketing materials, side letters, riders not part of the approved policy form, misrepresentation, etc. For example, if the agent wrote a note on your application guaranteeing a benefit that’s not expressly in the contract, that’s not covered.
- PBGC protected annuities
- Property and casualty insurance policies (such as auto, homeowner’s, workers compensation, etc.). This is covered by a separate guaranty organization. Their website is: http://www.tpciga.org/
There are other exclusions as well. For more information on this, visit the FAQ section of the Texas Guaranty Assocation’s website.
In addition to the limits, being aware of the exclusions is also an important part of the insurance purchase process. If your policy is fully excluded, an extreme amount of due diligence needs to be done on the company prior to purchase. If a particular guarantee is a critical part of your purchase decision, you need to read the actual contract and make sure it’s clearly communicated in the contract and not just in the marketing materials. You should also verify that the guarantee falls within the limits of what’s covered. If it’s above the limits, consider the worst-case scenario and ask yourself if you could live with that outcome and if your purchase decision still makes sense given that possibility.
Texans’ Options with 529 Education Savings Plans
January 27, 2010 by Jean Keener, CRPC, CFDP · Leave a Comment
Many states provide an incentive for their residents to use their state’s 529 plan through use of a state income tax deduction. Because Texas doesn’t have a state income tax, your options are really completely open in terms of what state’s 529 savings plan you use. You can go shopping for the best options and lowest costs for your particular situation. You can also use any state’s plan regardless of where your child plans to attend school.
Understanding the pros and cons of 529 plans
529 plans represent a solid savings opportunity because of the opportunity for the money to grow tax-free over an extended time horizon. Funds are deposited after tax. Principal and earnings may be withdrawn for qualified educational expenses tax-free. The more time you have, the more beneficial the tax-free growth is. But even within a year or two of starting college, 529 plans can be helpful.
There are also drawbacks to 529 plans. You lose flexibility in how you use the funds — if you withdraw funds for non-qualified expenses, you will be subject to income taxes and a 10% penalty on the portion representing earnings. 529 plans also carry increased investment expenses and have fixed investment options.
Selecting the Right Plan for you
In determining which plan is right for you, there are some factors that matter to everyone and some unique to your situation. Everyone’s consideration should include review of:
- quality of investment options offered in the plan
- costs of the plan — both administrative fees and investing costs (these vary widely from state to state)
- ease of access in opening your account, recurring deposits, withdrawals, investment changes, and reviewing statements
Most states also offer a direct plan option and an advisor option. The direct option allows you to open an account directly with the state’s plan without paying any investment sales commissions. The advisor option generally results in you paying investment sales commissions up to 5.75% on all deposits into your 529 plan. These commissions can require you to save a lot more to reach your savings goals. You can still use the direct plans and receive advice from an advisor on college planning and investing even by working with a fee-only advisor.
Other factors that may be relevant to your particular situation:
- Specific plan rules around which relatives can be named as a beneficiary in the event you want to transfer your 529 account balance to a different beneficiary.
- Contribution maximums
- Time limits for using your 529 account balances
- Investment options that match your particular needs:
- for a child close to college a guaranteed principal plus interest option is a must
- for someone who doesn’t want to monitor and adjustment their investments on an ongoing basis, a target-date investment program may be attractive that gets more conservative as the child get closer to college (although you need to exercise caution in selecting these)
One of my favorite sites for comparing different option 529 savings plan options is www.savingforcollege.com. Providing recommendations on how much you need to contribute, how your contributions should be invested, and which plan offers the best balance of low fees, features, and investment options for your situation is also one of the services that Keener Financial Planning provides.
Texas Tomorrow Fund Deadline Rapidly Approaching
October 21, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
For participants in the Texas Guaranteed Tuition Plan (also known as the Texas Tomorrow Fund) an important refund deadline is approaching. Any refund requests received before November 30 will be processed according to the current rules. The current rules allow for a refund of the original contribution plus earnings based on the rate of tuition inflation for a child who is age 18 or older. For those under 18, an actuarial value is calculated based on the date you bought the contract, the number of years until your child graduates from high school or turns age 18, and the number of payments made compared to the total number of payments required. After November 30, the new rules allow for only a return of the contributions, less expenses. Big Difference!
If you bought into the Texas Tomorrow Fund and your child plans to attend an accredited school in Texas, this change likely doesn’t affect you. You still have their tuition costs locked in and you have a terrific guarantee that no matter how high tuition goes, the plan credits you purchased will cover the costs. So you really wouldn’t want a refund.
However, if your child plans to attend school out of state or not attend college at all, you may wish to consider taking action now. In this case, you have several options.
You can request a refund from the plan and do a roll-over to another 529 plan. This would be a good option if your child plans to attend college out of state and you want access to control the investments prior to your child’s college enrollment. If you complete the roll-over within 60 days, you will not be subject to any taxes or penalties.
If you decide to do a roll-over, here are a couple of pointers: You are not required to use the state’s 529 plan where your child plans to attend school. Texas has no state income tax, so there’s really no incentive for using the Texas plan over any other plan. You are truly free to comparison shop and use any state’s plan that offers the best options for you. www.SavingforCollege.com is a good resource to start your search.
Another option is to simply take a withdraw. This may be the best option if your child does not plan to attend college and you have no eligible alternate beneficiary you wish to change to. If you go with this option, you will be subject to income taxes and a 10% penalty on the gains (gains are any amounts refunded in excess of what you contributed).
The Texas Guaranteed Tuition Plan website has a lot of really good information about this change and options available to you. You can log in and see your estimated account value to aid in your decision.
The important thing is to review the refund option based on your specific situation, calculate all of your options in advance of the deadline, and make a decision most beneficial to your family. There’s not one right answer for everyone.
New Texas Teacher Long-Term Care Insurance Option
September 4, 2009 by Jean Keener, CRPC, CFDP · 1 Comment
Beginning on September 1 this year, the new long-term care insurance provider for the Texas Teacher Retirement System (TRS) switched from Aetna to Genworth. During open enrollment from September 15 – November 15 this year, teachers will have the option to sign up for this insurance. If you’re thinking about getting long-term care insurance anytime soon, now is the time to take action while you have the greatest number of options.
How do you know if the TRS Genworth group option is right for you?
The first thing to do is to get a quote for the TRS group policy through the Genworth website. To do this, go to www.genworth.com/groupltc For active employees, the group ID is TRS. For retirees, the group ID is TRSRetiree. The access code for both is groupltc.
After you’ve received your quote, you’ll want to go out and shop for individual quotes. Some of the companies in addition to Genworth offering long-term care insurance are John Hancock, MetLife, Prudential, Mass Mutual, Berkshire, and New York Life. You’ll want to make sure you’re comparing apples to apples, so print out the options you selected for the Genworth TRS policy to show to your insurance agent.
If you want an objective second opinion on when you should get long-term care insurance or the “right” amount of long-term care coverage to purchase for your situation, that’s something an independent financial planner like myself can help with.
If you find that the Genworth group TRS program is providing the best pricing and benefits for you, then it’s easy. You’ll want to go ahead and sign up if you’ve decided now is the right time for you to get long-term care insurance.
If you find an individual option could provide superior benefits at the same cost or comparable benefits at a lower cost, you’ll have some additional work to do. You need to go through under-writing and make sure you qualify. You will need to answer some health questions and possibly have an exam. This process can take some time, so you should start now. Only after you’ve been offered coverage through the other company can you really make a decision about which option to choose.
If you’re declined by the other company — good news — you still have the TRS group option. During the initial enrollment period, Genworth is providing a coverage guarantee to active employees. The coverage guarantee is why it’s so important to investigate this group option now if you have any health issues that may prevent coverage on an individual policy. According to the Genworth website, “During your enrollment period, if you are an actively at work employee on the day you apply, and on the day your coverage becomes effective, your coverage is guaranteed without answering any health questions. Also, during this time your spouse will have streamlined underwriting which limits the health questions they´ll have to answer. If you decide to apply after the enrollment period, you will be required to complete a full health questionnaire and go through underwriting. There is a chance that a health condition may prevent you from qualifying for coverage.”
Just to give you one example of this process, I compared the TRS group option for one couple. In this couple’s particular situation, the couple’s group coverage through TRS was going to cost slightly more than purchasing a comparable individual policy through Genworth directly, about the same as through MetLife, and a little less than through John Hancock.
Also of note, in the 3 individual quotes received, the prices were based on 100% of the maximum daily benefit being available for home healthcare vs. 75% for the Genworth group policy. 75% may be enough because home healthcare can be less costly than skilled nursing care. But if you can get 100% for the same or less premium — all other things being equal – it’s definitely the smart move.
In addition to price and features, it’s important to look at the ratings of the insurer, claims-paying experience of policyholders, and length of time the company has been in the long-term care arena. For this couple, it made more sense to go with one of the individual options. However, if they had health issues that would have kept them from qualifying for the individual policy, taking advantage of the TRS group policy during this initial enrollment period would have been a wonderful opportunity. It’s also important to note that everyone’s situation is different, so you need to complete this process for yourself.
Bottom line: if you’re thinking about getting long-term care insurance anytime soon, now is the time to take action while you have the greatest number of options.
For more information on making this decision, you can visit these links:
TRS long-term care information
U.S. Department of Health and Human Services site on long-term care information
Medicare’s site on long-term care
My blog post on 5 claims to watch out for in Long Term Care Insurance
My blog post Long Term Care is a Women’s Issue
Early Retirees & Health Insurance
July 17, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
Thinking about retiring early? As part of the decision, you’ve got to calculate whether you’ll have enough retirement income to meet your needs. While adding up the costs of customary living expenses, utilities, and an occasional vacation, don’t forget to include another important retirement expense: health insurance.
We’re living longer and health-care costs are surging. Unless you qualify for Medicare (you must be at least 65 for coverage) or you’re very wealthy, you probably can’t afford to go without health insurance. And, unless you’re lucky, you probably can’t rely on your former employer for coverage, since few companies offer retiree health-care benefits. Underestimating the impact of medical costs could significantly hamper your plans for a comfortable retirement.
Check out your working spouse’s insurance to see if you can be added to his or her policy. But adding you as an insured likely will increase the premium cost to your spouse.
Ask your employer if it’s possible to remain covered under its group plan. Usually, plans don’t extend coverage beyond active employees and their dependents. But, it’s sometimes possible to remain covered, though you’ll probably have to reimburse your employer for the cost to keep you on the plan.
COBRA may be another option allowing you to remain covered under your employer’s group health plan. If your retirement causes you to lose your health insurance, you can remain on your employer’s plan for a maximum of 18 months (with some exceptions). You’ll have to pay the entire premium amount, plus a possible 2% administrative fee. And keep in mind that employers with fewer than 20 employees don’t have to offer COBRA, so it might not be available.
Shop for individual coverage
If you’re going to buy an individual health insurance policy, you may find the premium cost to be quite steep, especially if you’re also insuring your spouse and dependents. And there’s no guarantee you’ll even receive coverage. In most states, insurance companies can examine your health history and medical records (called underwriting) in order to determine whether you qualify for insurance and at what cost.
Saving a few premium pennies
Here are a few suggestions that might help you lower the cost of individual health insurance. Group rates are usually less expensive, so look for health insurance plans offered by trade associations or churches. Be aware that while coverage might cost less, you may have to pay a membership or association fee to the group offering the coverage. Also, the plan may have high deductibles and co-payments, and the benefits and options, including your choice of physicians and medical facilities, may be limited.
Also, in states that allow underwriting (Texas is one of them), the cost of an individual policy of health insurance is based, in part, on your age and health. A preexisting medical condition could affect your premium or even cause you to be denied coverage. So before applying for new health insurance, consider getting in better shape, especially if you think you’re a little overweight. Smoking is also a ticket to a higher premium, so quit if you can. Since the insurance company will examine your medical records, review them first with your doctor to remove any inaccuracies, and to clarify the reasons for examinations or treatments.
Finally, if you’re denied coverage because of poor health, don’t despair; you may still be able to get insurance if your state sponsors a high risk pool (Texas does). However, this is truly the option of last resort because of the high costs. As an example, pricing for a 60-year-old non-smoking male in some of the NE Tarrant County zip codes is $894 per month as August 1 for a $2,500 deductible plan. To see all the Texas high risk pool premiums, go to the Texas Department of Insurance website.
Do you need disability insurance?
July 15, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
Lack of long-term disability insurance is one of the most common issues I see in my practice.
First, please note that I don’t sell disability insurance. I’m a fee only financial planner, so I don’t receive any commissions on insurance or other products I recommend. My interest is in helping my clients make the best financial decisions for their lives.
Second, I’m licensed to provide insurance advice and help people figure out what kind of policy they need in the state of Texas. So if you don’t live in Texas, this isn’t directed at you.
Why is disability insurance important?
For most of us our ability to earn an income is our single biggest asset. This remains true until late in our careers. But most of us are far more likely to have life insurance than adequate disability insurance — and the odds of needing disability insurance are far greater:
So, how do you know if you need disability insurance?
There are two kinds of disability insurance — short term and long term.
You need short-term disability if you don’t have an adequate emergency fund that would cover your expenses until long-term disability started paying. If you determine you need short-term disability, first look at your employer benefits. Your company may be providing it to you already, or you may have enough built-up vacation time that you don’t need any additional income during the first 3 to 6 months of a disability. If none of these are true, then you either need to build an emergency fund or get short-term disability. Check with your employer to see if it’s available through them before you look to purchase it privately because group policies are usually less expensive.
Once you’ve got the short-term question answered, then you need to look at long-term disability. This 
is the area I see most people lacking in. Long-term disability starts after a waiting period of usually 3 to 6 months and policies can provide benefits for as little as 2 years to as much as age 67.
To determine how much long-term disability coverage you need, you need to figure out how much of your income you or your family would still need in the event of your disability. If you have two earners in the household but only need one income for your ongoing expenses, you might decide to forego the expense of disability insurance. However, most people would need at least part of their income replaced to continue paying their bills.
After you’ve determined whether you need long-term disability, look at your options. Do you already have it through your employer? As with short-term, getting long-term disability through your employer will usually be less costly than purchasing it through a private insurer. And sometimes employers even provide it as a benefit at no cost to the employee.
If you already have it or have access to it, then assess whether it’s adequate for your needs. Insurance policies vary dramatically in terms of how they define disability, elmination periods, benefit periods, whether you can go back to work part-time and still receive partial benefits, and more. The benefits can also be taxable or tax-free depending on how the premiums were paid. So it’s important to look closely at what you have and really understand the level of coverage in relationship to your individual needs.
You should also be aware of some other benefits you may already have:
Social Security: Although you shouldn’t overlook the disability benefits you may be eligible to receive from Social Security, you shouldn’t rely on them exclusively, either. Social Security denies many claims, in part due to its strict definition of disability. Even if you are deemed eligible for benefits, you still won’t begin receiving them until at least six months after you become disabled because Social Security imposes a waiting period. In addition, your benefit may replace only a fraction of your predisability income.
Workers’ compensation: If you’re injured at work or get sick from job-related causes, you may receive some disability benefits from workers’ compensation insurance. When you review your disability income insurance needs, remember that workers’ compensation pays benefits only if your disability is work related, so it offers only limited disability protection. Also note: employers in Texas are not required to provide workers compensation insurance. For more information on Texas-specific workers compensation laws, visit the Texas Department of Insurance website.
Pension plans: Some government and private pension plans pay disability benefits. Often, these plans pay benefits based on total, permanent disability, or reduce your retirement benefit in proportion to what you have already received for a disability. In addition, remember that these benefits are usually integrated with Social Security or workers’ compensation, so your benefit may be less than you expect if you also receive disability income from these government sources.
To Will or Not to Will
April 6, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
Catchy title, isn’t it? To Will or Not to Will. I would love to take credit for it, but it all goes to the Texas Young Lawyers Association and the State Bar of Texas.
When you do as a resident of Texas, if you don’t have a will, the state of Texas has one for you. It’s possible that the state’s will matches perfectly with your wishes, but that’s not the case in most situations. Texas is a Community Property state, so it becomes especially unlikely when you’ve remarried and there are children from a previous marriage.
In any case, estate planning is an important part of financial planning. This can be as simple as making sure your will, beneficiary designations, and other documents are in order, or much more complex depending on your situation. It can make a huge difference to your heirs in the amount of hassle they have to go through after your death, taxes paid, and preservation of family relationships.
The State Bar Association does a great pamphlet on what happens in Texas if you don’t have a will. It’s called To Will or Not to Will. You should check it out.
Free Financial Advice Bus Tour in D-FW
February 6, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
Mark your calendars for February 23 from 11:30 to 1:30. The national Your Money Bus tour will be making a stop at a place near and dear to my heart – Southlake Central Market. Local financial advisors, including me, will be there to answer your financial questions at no charge.
We’re all keenly aware of the economic challenges our country and many individuals are facing right now. An unstable economy, rising unemployment rates and home foreclosures continue to impact residents throughout our area.
To help individuals address these issues, we’ll be delivering complimentary financial advice from independent registered investment advisors along with free educational materials focusing on savings and debt reduction.
Central Market has generously agreed to host the bus, and will be providing space in their cooking school for the complimentary financial sessions. It will be a great opportunity to get your questions answered in a fun, upbeat atmosphere. Thanks to Central Market’s Community Relations Manager Ren Knight for arranging the stop!
The bus tour itself is presented by the National Association of Personal Financial Advisors Foundation, Kiplingers, and TD Ameritrade. The bus will also be making stops at UT Arlington and in Dallas. Here’s the full schedule:
9:00 am to 11:00 am – Free advice event at the Center for Continuing Education and Workforce Development at the University of Texas at Arlington (140 W. Mitchell Street, Arlington, TX). Bring your financial questions and get them answered by a financial advisor.
11:30 am to 1:30 pm – Free advice event at the Central Market Southlake (1425 E. Southlake Blvd, Southlake, TX). Bring your financial questions and get them answered by a financial advisor.
2:00 pm to 5:00 pm – Free advice event at the J Erik Jonsson Central Library (1515 Young Street, Dallas, TX). Bring your financial questions and get them answered by a financial advisor.
Helpful Site Links
December 23, 2008 by Jean Keener, CRPC, CFDP · Leave a Comment
Following are links to some information sources and providers that you may find useful. We’re providing these links to help make your financial and life-planning choices easier, but we can’t be responsible for the content once you leave our site.
College and Financial Aid
Texas Guaranteed Tuition Plan: http://www.tgtp.org
Tomorrow’s College Investment Plan: http://www.enterprise529.com
Saving for College: http://www.savingforcollege.com
Estate Planning
nolo: http://www.nolo.com
Local estate planning attorney www.kellerlawyer.com
Financial Information
Yahoo Finance: http://finance.yahoo.com/
Quicken: http://www.quicken.com
The Motley Fool: http://www.fool.com
Morningstar: http://www.morningstar.com
Finance CCH: http://www.finance.cch.com/
Insurance
Quotesmith: http://www.quotesmith.com
Texas Department of Insurance: http://www.tdi.state.tx.us
Local individual health insurance agent www.tminsure.com
Local Long-term care insurance agent www.ltcplanningconsultants.com
Life Coaching
Local Life Coach http://www.brioleadership.com
Market News
CNBC: http://www.moneycentral.msn.com/investor/home.asp
Reuters: http://reuters.com
Senior Issues
American Association of Retired Persons: http://www.aarp.com
Medicare: http://www.medicare.gov
Social Security Administration: http://www.ssa.gov
Taxes
Internal Revenue Service: http://www.irs.gov
Local CPA www.mcilvainassociates.com
Financial Planning
Garrett Planning Network: http://www.garrettplanningnetwork.com
CFP Board of Standards: http://www.CFP.net
Financial Planning Association: http://www.fpanet.org
National Association of Personal Financial Advisors: http://www.napfa.com
KFP Ribbon Cutting last week
November 17, 2008 by Jean Keener, CRPC, CFDP · Leave a Comment
The Keller Chamber of Commerce held a ribbon cutting at my office on November 12. Much thanks to all of the Chamber members and others who attended. We had a lot of fun!
- members of the Chamber
Melynda Lilly, Ambit Energy