Q&A: Long-term-care insurance

Dear Liz: I’d appreciate your thoughts about long-term-care insurance programs. Ours has just announced a 52% rate increase with a possible 25% increase next year. Although I realize that none of us can predict the future, are there any guidelines you can suggest for deciding whether, for example, an 80-year-old in good health needs the maximum 10-year coverage or can get by with a three-year coverage period?

Answer: Most people over 65 will need some kind of long-term care, but most need it for less than three years. You may want to err on the side of caution and opt for a longer coverage period if you have a family history of dementia.

Q&A: Getting sister’s house without a will

Dear Liz: When I retired in 2018, I rolled over my 403(b) teachers retirement account into a traditional IRA and made my sister sole beneficiary. I sent her a copy of that beneficiary statement showing her name, her percentage (100%), and my account number. My sister later told me in a phone call that she wished to bequeath me her house should she predecease me. She explained she didn’t have a will but she made her feelings known to our older brother. Even if I were on speaking terms with our older brother, I would find this arrangement naive. Knowing my sister, she actually believes this method is the right way to proceed with her wishes. I’m asking you to be Dear Abby, perhaps, but what do I do?

Answer: You can explain to her that if she doesn’t have a will, the laws of her state will determine who gets her house regardless of what she intended. If your sister does not have a spouse or children, and your parents are dead, you and your brother would probably inherit the home as well as the rest of her estate. You would have to negotiate what to do with the house, which could be difficult if you two still aren’t speaking.

If you can’t get her to write a will, there may be another option. Many states allow “transfer on death” deeds, which are forms that allow people to name a beneficiary for their home. This would ensure that the house is left to you and that it avoids probate, the court process that otherwise follows death.

Q&A: Rising insurance premiums

Dear Liz: I’m an insurance agent specializing in long-term-care policies and just read your advice to the woman who was upset about how much her premiums had risen. Her premiums were $2,400 annually starting when she was 55 but are $4,470 now that she’s 77. First, thank you for noting that these premium increases are because insurance companies didn’t expect people to live so long and nursing home rates to increase so much. Please also tell your reader that, at her age, her premium for the coverage she has now would be well over $12,000! She bought early and she’s definitely getting a ridiculously low premium for the coverage she has. I’m sorry that she’s on a fixed income, but ask her how she’ll pay for a $60,000-per-year stay in a nursing home. If she can’t afford her premium, she should reduce her amount of time covered, not the amount of dollars covered.

Answer: Let’s be clear about who’s at fault here. It’s not the people who bought long-term-care insurance policies and expected them to remain affordable.

Insurers are supposed to be experts at predicting risk, but they made incorrect assumptions about how many people would drop their policies (known as the lapse rate), how many would file claims and how long those claims would last. Insurers also overestimated the returns they could get on their bond investments, which also help determine premiums.

All these stumbles have led to repeated premium increases that have threatened to make coverage unaffordable right when people need their coverage the most.

This woman is well aware of the high costs of long-term care; that’s why she bought the policy in the first place and kept paying it all these years. Her premium might seem “ridiculously low” to you, but anyone with an ounce of empathy could understand that $4,470 is a huge chunk of change for most seniors.

Keeping her coverage means giving up some of the benefits she was promised and had been counting on. Reducing the number of years the policy protects her, for example, could make her premium more affordable but leave her exposed to devastating costs if she needs many years of care.

This is a crappy situation for people who were trying to do the right thing. They don’t deserve to be sneered at for being upset about it.

Q&A: High earners need to watch out for Medicare surcharge

Dear Liz: When I retired at age 70, I anticipated receiving the maximum available Social Security benefit payment because I had paid in the maximum tax for my entire career. I did not anticipate the heavy hit my spouse and I would take in monthly income-adjusted Medicare “premiums.” (I say “tax” is a more appropriate description.) We now pay over $500 per month each, or more than $12,000 per year! I know I am blessed to have the income I have in retirement, but that is because we were thrifty and worked hard and saved.

Answer: Many high-income retirees are unaware of “IRMAA,” or Medicare’s income-related monthly adjustment amounts, so they can come as a bit of a shock. These adjustments begin when modified adjusted gross income exceeds $85,000 for singles or $170,000 for couples. At that level, Medicare recipients pay an additional $53.50 for Part B, which covers doctor’s visits, and $13.30 extra for Part D prescription drug coverage, on top of their regular premiums. (Regular premiums for Part B are $134 a month, while premiums for Part D vary by the plan chosen.) The adjustments increase as income rises until they max out at $294.60 for Part B and $74.80 for Part D when modified adjusted gross income exceeds $160,000 for singles or $320,000 for couples.

Medicare Part A, which covers hospital visits, remains free for all Medicare beneficiaries.

That $12,000 a year may feel like a lot, but healthcare is expensive in the U.S. Annual premiums for employer-sponsored family health coverage reached $18,764 last year.

Q&A: How to find out if a car has flood damage

Dear Liz: You’ve been writing recently about how to find a good, cheap used car. Can you write about how to research whether a car has been damaged in a flood?

Answer: Carfax, which provides vehicle history reports, offers a free flood check in the “resources” section of the site’s press center.

Flood-damaged cars that have been totaled by insurance companies are typically sent to auto recyclers for dismantling but some wind up back on the market. These cars are supposed to have salvage titles that make clear their dubious histories, but it’s relatively easy for unscrupulous sellers to register the car in a different, more lenient state that obscures its past. This is known as “title washing.”

Carfax’s service can help you spot the damaged cars, as can your own senses. A car that smells like mold or strong cleaning solution (to cover up the mold) is a bad sign. Carpeting or upholstery that’s obviously newer than the car can indicate it’s been replaced after flood damage. Look in the glove box and under the seats for mud or silt. A sagging headliner on a newer car is another red flag.

A good mechanic can help you spot problems if you’re not sure. If the seller won’t let you take the car to your own mechanic for inspection, don’t buy it.

Q&A: The woes of this car-less worker can’t be fixed with junkers or leasing schemes

Dear Liz: My spouse and I are in Chapter 13 repayment bankruptcy and have a few more years to go. We’re obviously on a tight budget.

My spouse has the reliable car, but I’ve already paid $1,500 cash each for two junkers and it’s caused major stress. I know we can petition the court and be allowed to get financing, but we do not want to and can’t afford to on our budget.

I am, however, up for an evaluation and raise soon at the small, private company where I work.

I am thinking of asking that instead of a raise, they lease a vehicle for me. I do travel sometimes for business so it could be legitimized in that sense. If they leased a vehicle for, say, $200 a month, that would be close to the raise I’m expecting.

The real question is how to handle insurance and liability. Is it possible for my company to lease a vehicle but have the insurance liability fall on me, meaning would I be able to insure it under my own policy though the lease would be through the company?

Answer: Probably not.

A personal auto policy might not even cover your own car if it were used primarily for business. Personal policies typically wouldn’t cover a car owned or leased by your employer.

Also, businesses usually need more liability coverage than most individuals carry, since companies can be bigger lawsuit targets. You can ask for a leased car in lieu of a raise, but expect the cost of the insurance to be part of the calculation and be prepared for the company to decline.

It’s unfortunate you bought two junkers in a row, because the amount you ultimately spent could have bought you one decent car.

Car comparison site Edmunds has advice for finding reliable vehicles for $2,500, which it says is a reasonable budget for buying a solid car.

The vehicles are likely to be 10 to 15 years old and may have over 150,000 miles on the odometer, but if they’ve been well-maintained they can be reliable rides for several more years.

You’re likely to get the best deal via a private party sale, and you’ll want a good mechanic to check out any car before you buy. Your mechanic may even have a lead or two on cars that could be good candidates.

Your raise may allow you to revisit the idea of financing a car, albeit at a high interest rate.

As you know, you won’t be able to buy anything extravagant, and the purchase will have to be approved by both your trustee and the court. If the car is a necessity for you to get to work and you’ve been in your repayment plan at least two years, you have a good chance of being allowed to finance it.

If the car is not a necessity, you may have other options.

If you live in a city, a transit pass may get you to most of the places you need to go and you can rent a car or use a ride-sharing service when you need more custom transportation. Many people have discovered that cars are a costly hassle, and they live just fine without them.

Q&A: Getting cash to pay medical bills

Dear Liz: I am 63 and retired from my full-time job last year since I have bad health. I work part time now and have tons of medical bills because of stage one cancer. I need additional cash. Is there some way I can get an advance using my pension check as collateral? In addition, is there any way to get an advance from those insurance people who pay people who may die in less than five years? I can’t say when I’m going to kick the bucket but any suggestions you may have that will allow me to get some immediate financial assistance will be greatly appreciated.

Answer: Let’s reinforce what you just said: You don’t know when you’re going to die. A stage one cancer diagnosis is far from an immediate death sentence. You could live for decades, so the mistakes you make now could haunt you for a long time.

Yes, there are some companies that will give you a lump sum in exchange for the next five to 10 years of your pension payments. You should avoid them like the plague. The effective interest rates they charge can be astronomical and you’ll probably be much worse off. If you’re having a hard time making ends meet now, losing a source of income won’t help.

Even if you were going to die soon, no one would hand you money just because of that fact. Those “insurance people” are actually investors who buy cash-value life insurance policies, often from the terminally ill. If you had such a policy, you might be able to sell it for an amount somewhere between the surrender value (what you’d get from the insurer by cashing it in now) and the face value (the dollar amount for which you’re insured). These transactions are called life insurance settlements. If you did have such a policy, though, you probably would be better off just borrowing the amount you need from its cash value.

Consider consulting an experienced bankruptcy attorney if you have more bills than you can pay. Medical bills, along with credit card balances and other consumer debt, can be erased in a Chapter 7 bankruptcy filing. Once the debt is gone, you can start rebuilding your finances for what may be a longer life than you expect.

Q&A: Claiming an adult child as a dependent

Dear Liz: I am paying rent for my adult son in another state. He gets occasional help from various services, but if I don’t want him to sleep on the street, I have to pay his rent and send some emergency food. I don’t see this changing. Can I claim him as a dependent or would that make me responsible for his health insurance, which I cannot afford?

Answer: Yes, you would be responsible for your son’s health insurance coverage if you claimed him as a dependent, said Carolyn McClanahan, a certified financial planner with Life Planning Partners in Jacksonville, Fla. That would mean either paying for coverage or paying the fine for not having coverage. The fine for 2016 is $695 per adult or 2.5% of your household adjusted gross income, whichever is greater. The penalty is capped at $2,085, which is likely much more than what you’d save with an additional exemption. If you’re in the 25% tax bracket, a $4,050 personal exemption is worth a little over $1,000.

The IRS has many rules about dependents, and standards for claiming adult children are much higher when they’re over 19 (or over 24 for full-time students). To qualify, your son would have to earn less than the amount of the personal exemption ($4,050 in 2016) and you must have provided more than half of his support, among other rules. The IRS has an interactive tool to help people determine dependents’ eligibility at https://www.irs.gov/uac/who-can-i-claim-as-a-dependent.

Q&A: Life insurance for people over 65

Dear Liz: Can you give us some direction on how to get good term life insurance when you’re over 65? We had 25-year term policies and the premiums skyrocketed, so we are looking. Will getting a group plan (such as the one offered by AARP) help me? I’ve had two heart valve surgeries and knee and hip surgeries but don’t drink or smoke. We are concerned that we may not have enough saved. My wife is still working, but I have not been able to find employment since I lost my job due to a downsizing.

Answer: The options available to you are likely to be limited or expensive or both.

The life insurance program offered through AARP provides up to $100,000 in term coverage that ends at age 80 or $50,000 in permanent life insurance that can extend through your life. There’s no medical exam but you do have to provide health information.

Life insurance with higher limits may be available but you’re not going to like the price, said Delia Fernandez, a fee-only Certified Financial Planner in Los Alamitos. Life insurance after 65 is usually expensive in any case, but those heart valve surgeries could make it much more so, depending on how long ago you had them, how successful they were and what medications you’re on.

Fernandez recommends consulting with an independent life insurance agent so you can get a better idea of what’s available and what it will cost. Once you have an idea of the premiums, you’ll have to weigh whether you’d be better off investing that money instead.

As a general rule, you don’t want to be worth more dead than alive — and not just because you don’t want your spouse contemplating ways to collect. More importantly, insurance coverage that exceeds your income-generating capacity signals that you may be spending too much for insurance and need to consider alternatives.