It's amazing what I miss when I go away for a little while.
Gettingstarted, here's what you need to know.
In most cases the 10-pay does NOT make sense. When you consider the time value of money, it is a bad choice for most consumers.
It does make sense for people who own C-corps who can fully deduct the premium as a business expense. The added cost for the 10-pay rider is justified by the corporate tax savings.
In this woman's situation, you can shop around for her right now. There are A+ rated carriers that can give her much better benefits than she has, and still have a 10-pay, for less premium than she's paying.
But, unless she has a business that can deduct the premium, I think she's throwing her money away with the 10-pay.
The policy design of $100 DB, 5% simple, and Lifetime BP, sucks! Not only is she already co-insuring $25,000 per year, but within 20 years she'd have to co-insure over $50,000, probably more like $60 to $70,000 per year. If you show her how slowly the DB will grow and how costs are projected to grow, she will see the flaws in the policy design.
e.g., costs in TN right now are about $5,000 per month. Her policy is paying $3,000 per month right now. So, she's co-insuring $24,000+ per year if she were to need care right now.
If costs only doubled in the next 20 years (which assumes a 3.6% inflation rate), then 20 years from now, costs will be $10,000 per month and her policy, with the 5% simple inflation rider, will only be paying $6,000 per month. Hence, she'll be co-insuring at least $48,000 per year 20 years from now. (And that's assuming only a 3.6% inflation rate. If we assume a much higher rate, her co-insurance expenses go through the roof!)
I rarely replace policies. But, this policy should be replaced ASAP.
Gettingstarted, here's what you need to know.
In most cases the 10-pay does NOT make sense. When you consider the time value of money, it is a bad choice for most consumers.
It does make sense for people who own C-corps who can fully deduct the premium as a business expense. The added cost for the 10-pay rider is justified by the corporate tax savings.
In this woman's situation, you can shop around for her right now. There are A+ rated carriers that can give her much better benefits than she has, and still have a 10-pay, for less premium than she's paying.
But, unless she has a business that can deduct the premium, I think she's throwing her money away with the 10-pay.
The policy design of $100 DB, 5% simple, and Lifetime BP, sucks! Not only is she already co-insuring $25,000 per year, but within 20 years she'd have to co-insure over $50,000, probably more like $60 to $70,000 per year. If you show her how slowly the DB will grow and how costs are projected to grow, she will see the flaws in the policy design.
e.g., costs in TN right now are about $5,000 per month. Her policy is paying $3,000 per month right now. So, she's co-insuring $24,000+ per year if she were to need care right now.
If costs only doubled in the next 20 years (which assumes a 3.6% inflation rate), then 20 years from now, costs will be $10,000 per month and her policy, with the 5% simple inflation rider, will only be paying $6,000 per month. Hence, she'll be co-insuring at least $48,000 per year 20 years from now. (And that's assuming only a 3.6% inflation rate. If we assume a much higher rate, her co-insurance expenses go through the roof!)
I rarely replace policies. But, this policy should be replaced ASAP.
