In the financial services industry, it seems like you can always find an âexpertâ that shares your view regarding the marketâs direction. If you think the market is going to soar, there are plenty of experts that reinforce your instincts.
Conversely, if you believe the financial markets will collapse, you donât have to look far to find plenty of pundits with charts and graphs that point to doom and gloom.
But where do financial experts turn to help price their financial products and programs? Just as insurance companies do, investment firms rely on actuaries for pricing guidelines.
Years ago, utilizing actuarial projections, insurance companies established premiums for long-term care insurance policies. In hindsight, those policies were substantially underpriced. And itâs the policyholders who are paying for it.
Theyâre facing either steep increases in policy premiums or a severe reduction in benefits. Not a great choice. But there are a number of reasons why actuariesâ projections were so far off.
Iâve often mentioned increased longevity in this column. One consequence is that, as people live longer, the insurance companies have to pay benefits for additional years.
And while lifespans were increasing, interest rates decreased, so insurance companies earned less on their deposits. Add rapidly rising medical costs into the equation and youâve got insurance companies wishing they had never entered the long-term care marketplace.
In 2000 there were 700,000 long-term care policies issued. Last year there were fewer than 70,000 new policies, and todayâs premiums are significantly higher than they were years ago.
Traditional long-term care policies are becoming a rarity. In an attempt to be affordable, insurance firms are developing new, cost efficient hybrid policies that combine life insurance and long-term care benefits.
Another kind of insurance thatâs often overlooked is travel insurance.
Because retirees are living longer, more vibrant retirements, traveling has become a very popular activity. I think thatâs great, but a word of caution.
If youâre planning on traveling outside of the United States, a travel insurance policy that includes medical benefits is a good idea.
Even the most comprehensive Medicare F program has very limited overseas medical coverage. Most Medicare programs simply do not have any coverage while youâre abroad. Youâre just one illness or injury away from a financial disaster. This is why I strongly encourage you to purchase travel insurance.
While most worry about losing their luggage or missing a flight connection, I worry about the financial impact if you were to suffer a severe illness or injury while overseas.
Years ago, a friend of mine was in a minor accident while traveling abroad. As an American, he was not allowed to leave the country until everything was paid for. And the police determined what the price of freedom would be.
Naturally, he paid up, but I often wonder what would happen if someone were to have a really serious medical issue with a significant bill attached. Would that person be allowed to leave the country with an unpaid bill?
I see no reason to turn a vacation into a financial nightmare. In my mind, if you can find the money to travel, you can find the money to insure both your trip and yourself.
Itâs great that people are active in retirement, but you must maintain financial awareness no matter the circumstances.
E-mail your questions to [email protected]. Ken is a Registered Representative of LPL Financial. Ken is Vice-President of the Society for Lifetime Planning. All opinions expressed are those of Ken Morris. LPL and Society for Lifetime Planning are independent companies. Securities offered through LPL Financial, Member FINRA/SIPC. Investing involves risk including loss of principal. No strategy assures success or protects against loss.