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Four components to include in your business plan

By Wells Fargo | February 02, 2016 — 12:00 AM
A business plan is a roadmap for your business. It lays out the key milestones and routes to grow your business. Taking the time to chart a clear sense of direction will improve your prospects for success.

“We’re human, and one way we do better at complicated things like running a business is by writing things down, which helps us break complex tasks into multiple steps and components that we can track and manage,” says Tim Berry, author of Lean Business Planning: Get What You Want from Your Business. “Just like a GPS, it helps you keep track of your destination and adjust your route if you run into traffic on the way.”

Berry likens a business plan to a roadmap that helps you keep track of your destination.

“Taking the time to chart a clear sense of direction will improve your prospects for success.”

These four components are crucial to development of a business plan:

Section #1: Company operations

Think of the company operations section as the abbreviated version of your business plan. Encompassing the past, present, and future — where you are, where you’ve been, and where you want to go — it includes an executive summary of your company, including who’s running it, what you sell, and who you sell to. It includes strategic and financial highlights, such as growth history, revenue projections, and key differentiators.

This section of your business plan should answer the questions, “Who are you?” and “Why do you exist?” Important components include your company’s history, mission and vision, legal structure, leadership, and products or services. These latter two pieces are the most important and typically constitute their own sections in business plans targeting investors.

“Investors want to know who’s in charge, so the backgrounds of the management team and the founders are really important,” Berry says. “In terms of products, they want to know what you sell, how it’s sourced, what technology it uses, and who owns any associated patents.”

Section #2: Market analysis

The second section should comprise a market analysis, key components of which are:

A description and outlook outlining the size and growth rate of your industry

Information about your target market, such as its size and composition, including customer demographics and psychographics

A summary of your market share and geographic reach

A competitive analysis

A traditional SWOT analysis breaking down your strengths, weaknesses, opportunities, and threats
Section #3: Marketing plan

This section is where the rubber meets the road. Use it to present specific sales and marketing plans and strategies. A good place to start is your plans for advertising, digital marketing, and grass-roots marketing, including how you’re going to promote your business to prospects and customers. From there, detail your market penetration, pricing, growth, sales, and distribution strategies.

Section #4: Financials

A business plan is as much a health check as it is a growth plan, so a section dedicated to finances is critical. If you own an existing business, include three to five years worth of historical financial data, including income statements, balance sheets, and cash flow statements.

No matter how established your business, provide a five-year forecast that includes projected income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, projections should be monthly or quarterly. For years two through five, they can be quarterly or annual. Either way, charts and graphs can be stronger than words and phrases.

Don’t avoid creating a business plan because it seems like busy work. Treat it like a tool instead of a term paper, and you’ll find that it’s worth the effort.

“A business plan helps people who are starting or running a business focus on what they’re going to do and when they’re going to do it,” Berry says. “It helps you run your business better.”

If you’re ready to learn more about creating a business plan, check out our Business Plan Center or if you are ready to start drafting one, use our Business Plan Tool.
Information and views provided by Wells Fargo is general in nature for your consideration and are not legal, tax, or investment advice. Wells Fargo makes no warranties as to accuracy or completeness of information, including but not limited to information provided by third parties, does not endorse any non-Wells Fargo companies, products, or services described here, and takes no liability for your use of this information. Information and suggestions regarding business risk management and safeguards do not necessarily represent Wells Fargo’s business practices or experience. Please contact your own legal, tax, or financial advisors regarding your specific business needs before taking any action based upon this information.
Read more: Four components to include in your business plan

Three strategies to drive business growth

By Wells Fargo | June 30, 2016 — 11:58 PM

It’s a common scenario. Once you’ve been in business for a while, you notice your sales are flat. You need to grow in order to stay competitive, but it’s easy to get stuck if you don’t have a solid growth strategy in place.

Get on the path to growth with one of three tried-and-true strategies: You could provide new products or services to new customers, sell existing products in new markets, or offer new products to current customers.
“Using any or all of these three business growth strategies can help you breathe new excitement — not to mention revenue — into your business.”

Here’s what you should know about each approach to growing your business.

#1. Diversification: New products or services to new customers

Sometimes, there just isn’t enough demand among existing customers to grow your business. If that’s the case, your best bet might be selling something new to a new customer base.

For example, an accounting firm that specializes in tax preparation may seek to diversify by offering additional services, such as wealth management or estate planning. By expanding outside its core competency, it can reach new customers. Broader offerings allow for greater growth potential.

Still know that this approach isn’t without risks. “Diversification, as defined as introducing new products into new markets, is a risky strategy because you don’t know whether the new product or service you’re introducing and the new customers you’re pursuing will pay off,” says small business strategist Jackie Nagel, president of Synnovatia, a small business consultancy in San Pedro, California. “A strategy of diversification typically requires you to spend more on market research and product development. You’ve got to have the resources to be able to afford the risk.”

#2. Market development: Existing products or services to new customers

Alternatively, you may opt to enter a new market, which involves introducing your existing products or services to new customers. Those new customers could be in a different geographical area than you currently serve, or they could be a different demographic.

If you own a lawn care business that serves residential homeowners, for instance, you could start pitching your services to businesses or corporations. Customers need what you already offer, which may require an investment in sales and marketing, but not in product development. Your firm already has the equipment and trained staff, so your main hurdle would be getting your name out to prospective customers in the business world.

#3. Product or service development: New products or services to existing customers

Another strategy is product or service development. Instead of introducing existing products or services to new customers, you develop new products or services for existing customers.

Let’s say you own a small manufacturing firm that produces airplane components. Because you understand your customers — large aerospace companies — and their evolving needs, you are ideally positioned to expand your product line. Your insights into their supply chain, pain points, and preferences give you an important advantage over your competitors.

“For most businesses, product development is probably one of the best growth strategies because it doesn’t carry a lot of risk,” Nagel says. “You’re tapping into a marketplace that you already know, and that makes things a lot easier, especially from a sales and marketing standpoint.”

Using any or all of these three business growth strategies can help you breathe new excitement — not to mention revenue — into your business.

Leverage our business plan resources to help chart your path to growth.

Information and views provided by Wells Fargo is general in nature for your consideration and are not legal, tax, or investment advice. Wells Fargo makes no warranties as to accuracy or completeness of information, including but not limited to information provided by third parties, does not endorse any non-Wells Fargo companies, products, or services described here, and takes no liability for your use of this information. Information and suggestions regarding business risk management and safeguards do not necessarily represent Wells Fargo’s business practices or experience. Please contact your own legal, tax, or financial advisors regarding your specific business needs before taking any action based upon this information.
Read more: Three strategies to drive business growth

Why Your Family Business Needs a Succession Plan
By: Kathy Boyle  March 22, 2017
Succession is not the end.

Many business owners love what they do and cannot imagine a life without their enterprise intricately involved in their day to day cadence. Family businesses comprise two-thirds of global businesses, account for 70-90% of GDP, 50-80% of jobs, and 85% of start-ups are funded by family enterprises according to the Conway Center for Family Business. So family-owned businesses play a huge role in the fabric of our economies.

Almost 60% of all businesses have CEOs over the age of 55 and one-third are over 65. Surveys state that 51% expect to retire or hand over control over the next decade. About half expect to sell to a third party while half expect the next generation, employees or management, to succeed them.

In 2017, 40.3% of family business owners expect to retire or transition over the next few years, yet less than half have selected a successor. Estimates are that 43% have no succession plan in place. Approximately 70% would like the next generation to take over but they have no formal plan in place. All too often, not wanting to discuss mortality, fear of boredom after retiring and anxiety over familial issues are reasons for procrastination. (For related from this author, see: Successful Succession Plans Depend on Your Team.)
Shirt Sleeves to Shirt Sleeves

This is the proverb describing what happens to many family enterprises. In Japan, the expression goes “Rice paddies to rice paddies in three generations.” And the Scottish say, “The father buys, the son builds, the grandchild sells and his son begs.” So the issue of generational success is global.

Only 30% of businesses survive into the second generation and 12% into the third while 3% make it to the third and beyond. The founder often comes from a life of hardship and is determined to make something better for themselves and their family. They begin by rolling up their shirt sleeves and working hard to build an enterprise. The next generation typically is more educated, has grown up watching their parents work hard and while they now live more comfortably, they remember the struggle. This generation often introduces new markets, products or technology to the business and helps it grow. Very often the founder is still an active participant in the business. But this is where things go awry and there are many reasons for it. (For related reading from this author, see: Keep the Family Business Going With a Succession Plan.)

The third generation has no memory of hard work or struggle as they grew up affluent. All too often, this generation either lives a lavish lifestyle or attempts new ideas without risk management and squanders the wealth.

Studies show that the reasons for failure are concentrated. The number one reason for failure is lack of communication and trust. That factor alone accounts for 60% of failures according to research by Williams and Preisser in 2003. The same study states that another 25% of failures result from a lack of preparedness for the next generation to assume control. All the myriad other reasons such as poor planning, lack of good legal, tax or financial advice, etc. account for just 15% of failures. It would behoove any family to create a structure where communication and trust is developed and training takes place to allow the future leaders to be prepared.

An outside advisor can orchestrate the plan to help the current leaders communicate what they would like to have happen and implement structure to prepare the next generation for success. This is a process, and the earlier the business owner begins the easier it will be to address the necessary protocols and steps to help secure the family business. (For more from this author, see: Prenuptial Agreements and Family Businesses.)
Read more: Why Your Family Business Needs a Succession Plan | Investopedia

How and Why Businesses Should Insure Key Personnel

By:  Steve Kobrin, LUTCF  March 20, 2017
As any business owner knows, when it comes to running a company, everyone counts. You can’t bring in money without a sales force. You can’t count the money without an accounting department. You can’t run the computers without an IT specialist. You can’t secure the building without security personnel. And you can’t keep the floors clean without the maintenance staff.

The same goes for every clerk, administrator, secretary, supervisor, manager and executive. Your business runs on the shoulders of many people in a variety of positions. Have you made sure that the loss of a key player won’t harm your business? (For more, see: How to Use Life Insurance as an Executive Benefit.)
Why Insurance Coverage Is Needed

While everyone is integral, some people play principal roles. For example, revenue may suffer if you lose a top salesperson and investors and shareholders might get anxious if you lose a chief executive. Clients and vendors might get nervous if a key manager leaves, and future production may be jeopardized if you lose a key technician, inventor, scientist or idea person.

These situations show why businesses insure leading personnel. They take out life insurance to protect themselves against the loss of men and women whose death could impair the operation. The insurance benefit protects you by giving you the time needed to recruit the right replacement. In the meantime, client service continues, bills get paid and employees have reassurance that the show will go on. Business can take place as normal.

Here are three quick tips for business owners to make the right decisions when insuring key personnel. (For related reading, see Asset Protection for the Business Owner.)
1. Determine the Policy’s Face Amount

How do you value the services of primary employees? Your answer to that question will vary according to the role they play. The service of a key chief executive would be assessed differently than the service of a key technician. Your firm’s accountant or chief financial officer should consult with an insurance company advisor to calculate the appropriate insurance benefit for your situation.
2. Decide on a Time Period

Key person coverage came about at a time when the main employees tended to make long-term commitments to their employers. Today, many key men and women tend to switch jobs more frequently. If you think that is the case in your business, then term insurance might be more applicable than permanent insurance.
3. Establish Your Options

What should you do with the policy on a vital person if he or she does leave? You have a number of options to choose from. You could simply terminate the policy or, if it is a cash value policy, you might be able to surrender it for value. In some cases, the former employer keeps the policy in force and collects the benefit when the former employee passes away. The policy may also be sold for cash in a life settlement depending on the age, medical condition of the insured and other factors related to the policy. (For more from this author, see: Using Life Insurance as a Business Succession Plan.)
Read more: How and Why Businesses Should Insure Key Personnel | Investopedia

Using Life Insurance as a Business Succession Plan

By Steve Kobrin, LUTCF  February 10, 2017
It’s a common practice for business owners to take on partners. While there are many reasons why you may want to take this step, there are also some crucial things to consider when entering into a business partnership. What legal bases do you need to cover? How can life insurance protect you, your business and your family?
What a Business Partnership Looks Like

Some business owners enter a partnership because they need someone to complement their personal strengths. For example, one person could be an expert in operations, the other in sales and marketing. Sometimes professionals with the same area of specialization will join together to serve more clients. In other arrangements, one partner could be passive and responsible primarily for funding, while the other is the active manager of the enterprise.

The partnership could and should be a very structured relationship. A legal agreement should be formulated and should cover all the financial technicalities such as the percentage of ownership, tenure of the partnership, how and when the business is to be valued, etc. It should also plan for events that may dissolve the partnership, such as the death, disability, long-term sickness, or early retirement of a partner. (For related reading, see: 4 Business Partnership Mistakes to Avoid.)
How Life Insurance Can Help

Life insurance plays a key role in the funding of a partnership agreement. When a partner dies, that person’s spouse or estate will probably end up with his shares of the business. The surviving partners want those shares, but they need money to buy them. Life insurance can provide the exact amount of money to do that at the exact time it is needed. It is typically a much more economical way of taking care of things compared to other options such as taking cash out of the business, selling assets or borrowing from a bank.

What are some integral pieces to consider when using life insurance to fund your partnership agreement?
1. Finalize Your Partnership Agreement

Before you do anything else, get the arrangement finalized before you get approved for your policy. There is nothing worse than getting approved at a great rate, only to delay paying for the policy because the legal work has not been completed. Until it is, you won’t have coverage and something disastrous could happen that could either raise the price significantly or disqualify you altogether.
2. The Cost of Life Insurance Will Vary

Remember that not everybody qualifies for the same price. Each person represents a different risk profile to a life insurance underwriter. Age, gender, smoking status, health history and a multitude of other factors affect the rate. Don’t expect life insurance to cost the same for each partner.
3. Explore Your Policy Ownership Options

Research your options for policy ownership. In some instances, your business should be the owner and the beneficiary of the policies. In other cases, partners should own policies on one another. Talk this through with your business advisor to make sure your policies are issued correctly and fit your needs.

Life insurance is critical for business owners. It covers you, your business, your partner, and your families, and can be a game changer if the unexpected occurs. Don’t get caught without it.

(For more from this author, see: How to Use Life Insurance as an Executive Benefit.)
Read more: Using Life Insurance as a Business Succession Plan | Investopedia

How to Use Life Insurance as an Executive Benefit
By:  Steve Kobrin, LUTCF  February 6, 2017
As a business owner, you invest copious amounts of time, money and energy into your employees. Don’t you want your investment to pay off? Employee turnover can be extremely costly to your business, and this is especially true when it comes to key executives.
The Costs of Turnover for the Business

When you lose indispensable employees, money has to be reallocated to provide for recruiting, training, orientation and management of a new hire. It can also take a lot of time to ensure that you find someone who is the best fit for the role. The longer the recruitment process takes, the more the business is exposed to a setback. (For related reading, see: The Cost of Hiring a New Employee.)

This is why companies spend significant amounts of money on compensation packages for key executives. The longer they can get these men and women to stay in their employment, the better return they get on their investment in them. Employers are always looking for benefits that can be legitimately offered to selected personnel only. How does life insurance fit into this equation?
Life Insurance as a Benefit

Life insurance is frequently at the top of this select benefit list. If a number of factors fall into place, then the use of this product can be a big win for both the executive and the firm. Here are some factors that will ensure the success of life insurance for this purpose:
The executive should have a need for life insurance for personal reasons, such as family protection and retirement planning.
The executive qualifies for a policy that can provide both significant cash accumulation and a sufficient survivor benefit.
The executive is willing to let the firm control policy proceeds.

If your executives meet these criteria, what are some tips to take into consideration?
The Importance of Underwriting

The lower the cost of the insurance, the higher cash value and survivor benefit a policy will provide. If the executive qualifies for a comparatively low rate, then additional money can be paid into the policy for use in retirement, as well as for the protection of beneficiaries. If the executive has a chronic illness or another higher-risk factor that drives up the cost of coverage, a policy may still be a worthwhile bonus from the employer. Be sure to contact your life insurance provider to talk through any extenuating circumstances and how they could affect the policy. (For related reading, see: How Cash Value Builds in a Life Insurance Policy.)
Seek Advice on Premium Payments

The whole point of this benefit is for the employer to subsidize the cost of a life insurance policy that can have a major impact on the life of the executive. Because these policies can cost substantial amounts of money, the employer will take on a considerable expense in financing them. Make sure your financial experts talk to your insurance advisor about how to minimize the tax impact for both your firm and your executive. (For related reading, see: Understanding Taxes on Life Insurance Premiums.)
Implement Sensible Policy Controls

The primary purpose of providing this benefit is to lock executives into a commitment that protects the business. What kind of stipulations can be applied to ensure the benefit pays off? One option is to build controls into the executive’s contract that give access to increased policy benefits over time. Secondly, provisions can be made to reimburse the employer for the expense while still providing the executive with a lucrative cash account and survivor benefit. Speak to your business advisor to review your options in this regard.

You build your business to be successful and a major piece of that success is in holding onto key personnel. Don’t overlook the importance life insurance can play to ensure loyalty from your chief executives. (For more from this author, see: How to Buy Life Insurance With an Alcohol History.)
Read more: How to Use Life Insurance as an Executive Benefit | Investopedia

When and How to Insure Your Income

By Leslie Kramer | April 4, 2016 — 10:52 AM EDT
Life is full of calamities. That’s why insurance was invented — people buy life insurance, auto insurance, flood insurance. But what about the one asset you have that allows you to pay for all those insurance policies? That would be your income, which most people don’t think about insuring.

It’s understandable that most workers envision or at least hope that they will remain strong, healthy and able to continue working up until retirement. But unfortunately, that is not always the case. If misfortune does strike, a steady flow of income may be the only way to get through it financially.

Here are some things to think about when it comes to insuring your income. (For related reading, see: 7 Issues to Consider When Determining Life Insurance Coverage.)

Benefits of Disability Insurance

There are many types of income insurance; disability insurance is the most common as it provides a way for people to insure their income and protect their family’s assets if an illness does occur. Many people mistakenly believe that once they have purchased a life insurance policy, they have sufficiently protected their family financially in the case of an untimely death. That may be true, but what if that income earner becomes injured in a car accident or contracts a long or short-term illness and is unable to continue working? In this scenario, life insurance won’t be of much help.

That’s why more and more financial advisors are suggesting that their clients purchase disability income protection insurance, which will typically replace a portion of one’s income if the policyholder suddenly becomes unable to work due to an accident, illness or a disability. There are many different types of these policies available and while their terms may differ, most will continue to pay one’s salary until the policyholder can start working again or passes away.

Typically, there’s a waiting period before a disability policy kicks in, but it will usually start paying out immediately after any sick pay from an employer ends. The amount a policy pays out may decrease over time, but most will continue to cover the policyholder during the period of time that their illnesses leaves the policyholder unable to work. Some payouts may only continue until the policy expires, which may be at the end of a stated period, or when the person reaches retirement age. (For related reading, see: Understanding the Different Types of Life Insurance.)

In this way, disability income policies differ from critical illness insurance, which pays just a single lump-sum payment if the policyholder is impacted with a serious or life threatening disease. Short-term disability income protection insurance may also differ from a more standard plan in that it pays out a monthly sum in relation to one’s income for just a set or limited period of time.

High Costs of Being Sick

The high day-to-day costs of maintaining a household while out of work can be daunting, but many people are shocked to find out how much an illness can end up costing them in terms of medical bills — even if they have health insurance. There are often additional doctor bills and hospital costs that are not covered by insurance, and these costs can add up to the point of being overwhelming.

The various types of disability income insurance can help cover those costs and can help a family avoid going into bankruptcy in the most extreme cases.

Disability insurance is not the only type of insurance that can help protect one’s income during difficult times. There are also income insurance products that only kick in when someone becomes unemployed. Unemployment protection insurance, also referred to as redundancy insurance, protects policyholders’ incomes if a person suddenly loses their job for any variety of reasons; it pays out a monthly sum for a set period of time. These policies typically cover the portion of a person’s weekly salary that is not covered by government unemployment benefits. (For related reading, see: Choosing the Best Disability Insurance.)

Mortgage payment protection insurance is another type of insurance that can be extremely beneficial if a person loses his or her income. These policies protect policyholders by paying out the equivalent of their monthly mortgage payments during any period in which they become unable to work.

The Bottom Line

No one’s ability to keep producing income is guaranteed. That’s why purchasing income insurance may be the best way to protect one’s assets in the event of any type of devastating loss. (For related reading, see: Let Life Insurance Riders Drive Your Coverage.)
Read more: When and How to Insure Your Income | Investopedia

Facing scaled-back benefits and premium hikes, baby boomers can use several strategies to help cover future costs.

By Kimberly Lankford, From Kiplinger’s Retirement Report, March 2014
Baby boomers are facing a dilemma: At a time when long-term-care insurers are shrinking coverage, more boomers than ever are recognizing the need to protect their retirement savings from potentially devastating costs. Big players have withdrawn from the market, and those that remain are scaling back benefits, tightening eligibility and hiking premiums, especially for women.
Still, individuals in their fifties and sixties who want coverage do have some options. They can engage in strategies—from sharing benefits with spouses to reducing inflation protection—that can help them cover part of their costs in the future while keeping premiums manageable.

As boomers help their aging parents, many are experiencing firsthand the overwhelming costs of long-term care. And they want to protect their own children from these crushing responsibilities if they end up needing care themselves. “People who have had a personal experience either with a family member or a friend’s parent are saying this could be an issue down the road,” says Leonard Wright, a certified public accountant in San Diego, Cal.

Indeed, the costs can be exorbitant. The median rate for a private nursing-home room is $230 a day, or $84,000 a year, according to an annual report by insurer Genworth. (Find the cost of care in your community at The median cost of a home health aide is $19 an hour. A stay in an assisted-living facility costs a median $3,450 a month.

Stephanie Lee, a certified financial planner at East Rock Financial Services, in San Francisco, where the annual median cost of a private nursing-home room is more than $200,000, says she raises the issue with every client. She explains that they should either buy insurance or set aside savings to cover expenses.

Couples who do not want to pay premiums for care they may never need should reserve $200,000 to $400,000 or more to cover potential care, Lee says. The amount “depends on what return they can expect on their investments, the inflation rate of long-term care for the area, and the length, type and timing of care they anticipate.”

To decide on which route to take, Lee first looks at the amount of care that the couple wants to cover—say, three years in a nursing home. Then she looks at the amount of guaranteed income—Social Security and pension benefits—that could cover long-term-care costs as well as other expenses. The couple would either need enough savings or long-term-care insurance to fill in the gap. “They may decide that spending $2,500 per year on premiums for 30 years is preferable to setting aside $300,000 for care,” she says.

In her calculations, Lee usually assumes that the first spouse who becomes ill will need home health care for three years, while the other spouse will need nursing-home care for three years. She also discusses the possibility of moving to a less-expensive community.

Becky Snow, 58, of Las Vegas, has experience with the high cost of care. Her father was diagnosed with Alzheimer’s disease seven years ago. He lived with her for three months and then moved to a nursing home. “I took over everything because he couldn’t do any of that himself,” Snow says. “He was single, and I knew nothing about his financial situation.”

Her father’s pension didn’t cover the full nursing-home tab. “We had to gradually sell off everything he owned to pay for his care,” she says.

After he died two years ago, at 79, Snow started to think about what would happen if she needed care. She was divorced in 2012. She asked her 33-year-old daughter, a paramedic, to handle medical decisions if she needed help, and told her 27-year-old son that he would be in charge of her finances. “I wanted to make sure my son knew my financial situation so he could step in and not be in the dark like I was,” she says.

Snow bought a Northwestern Mutual long-term-care insurance policy in 2013 and used her father’s experience as a guide when choosing how much coverage to get. She calculated the income she’d get from Social Security and other sources and how much she could afford to pay from savings. She bought a policy that will pay a daily benefit large enough to cover the balance. Because her father, like many Alzheimer’s patients, needed care for five years, she bought a six-year benefit period as an extra cushion. “I hope I never have to use it, but I need to be prepared,” she says.

Buying a policy is an increasingly tough decision as insurers impose higher premiums, especially on women. Features once standard are now very expensive or have been replaced with skimpier alternatives.

Women pay more. Becky Snow bought her policy just before most insurers started to charge women higher premiums than men. Genworth, the largest long-term-care insurer, announced the change about a year ago, followed by big players John Hancock, Transamerica and Mutual of Omaha. Most other companies have already moved or are expected to move to gender-distinct pricing in the next year. The reason: Women generate more long-term-care claims than men, and their claims tend to be more expensive, says Beth Ludden, vice-president of long-term care at Genworth. They are often their husbands’ caregivers, but they may later need to pay for long-term care for themselves.

Many single women now pay about 50% more than single men, says Claude Thau, a long-term-care insurance consultant in Overland Park, Kan. Regulators in some states have not yet approved the changes for some insurers. (Genworth, for now, still offers unisex rates in California.) “I told my female clients that they should consider locking this in before [more insurers] switch to gender-based pricing,” Lee says.

Get price quotes from several insurers. Women should also check out any policies offered by their employer because they may still use unisex rates.

One way that a married woman can save money is to buy with a spouse. Most insurers offer discounts of about 30% to couples, Thau says. Genworth, for example, charges a 55-year-old man in the best health category $2,190 a year for a policy with a $150 daily benefit that rises 5% compounded per year, a 90-day waiting period and a three-year benefit period. That policy would cost a woman $2,966 a year. But with the discount, each spouse would pay $1,854.

Couples can hedge their bets with shared benefits. For example, if each spouse gets a three-year shared-benefit policy, they have six years in coverage between the two of them. Spouses can split the coverage any way they want. Sharing benefits tends to boost premiums by about 15%—but women could end up with more than half of the coverage if they provide caregiving to an ill husband.

Women also should consider hybrid policies. John Ryan, a Greenwood Village, Colo., specialist in long-term-care insurance, recommends that single women compare the cost of traditional long-term-care insurance with a policy that combines long-term care and life insurance. “I’ve never been a real fan of combo policies, but with the new higher rates for women, the combos are looking a little better for them,” Ryan says. Women tend to pay less than men for life insurance so that brings down the costs.

With a combination policy, you usually pay a lump sum. If you don’t need long-term care, your beneficiaries will receive a death benefit that is worth about 1.5 times your initial investment. If you need long-term care, the insurer will pay out about four times the initial investment. Any long-term-care benefits you use will reduce the death benefit.

For example, if a 60-year-old single woman invests $100,000 in a Lincoln Financial MoneyGuard combo policy, she would get $6,374 in monthly long-term-care benefits for six years, totaling $458,913. If she dies before needing care, her heirs would get $152,971.

This is not the type of policy to buy if you want to leave heirs a large death benefit. But unlike a traditional long-term-care policy, heirs do get some money if you never need care.

Eligibility tightens. Besides controlling risk by raising rates for women, insurers are rejecting more applicants who have medical conditions—both women and men. Lee says she recommends that her clients buy coverage “before they have any major health issues.” A study by the American Association for Long-Term Care Insurance found that 12% of applicants below age 50 were rejected, as were 17% of those 50 to 59; 25% of those 60 to 69; and 44% of those in their seventies.
Also, the older you are when you purchase a policy, the higher the premium. According to the association, a 55-year-old couple who buys a policy with a $150 daily benefit, three-year benefit period and a 3% compound inflation adjustment will pay an average annual premium of $3,275, while a 65-year-old couple will pay $5,940.

Health requirements vary by company, so it pays to shop around. Long-term-care insurance specialists can help. “They’ll know which insurer will give them the greatest opportunity to get a preferred or standard rate,” says Mike Skiens, president of Master Care Solutions, in Portland, Ore., who works with about eight long-term-care insurers. “We can do a prequalification of that person’s health and ask the insurer about the rating class” before a client applies.

You can find long-term-care specialists at You may also want to contact a few large insurers, such as Northwestern Mutual and New York Life, which only work with their own agents.

If you’ve been rejected in the past, you may be able to get coverage later if your health improves, even if you had something significant like cancer surgery. “After a couple of years, once they’ve been symptom free, we can often issue policies,” says Steve Sperka, vice-president of long-term care at Northwestern Mutual.
Benefits are cut. In the past, most policies boosted benefits by 5% compounded each year for inflation. But those promises turned out to be more expensive than insurers had expected. Now insurers are also offering cheaper policies that raise coverage by 3% a year or by changes in the consumer price index.

A healthy 55-year-old man who buys a Genworth policy with 5% compound inflation protection would pay $2,190 a year for a $150 daily benefit for three years. The same policy with a 3% adjustment would cost $1,267 a year.

Ask the insurer to compare the pools of money that would be available when you turn 85 under each policy. (The pool is the daily benefit amount times the benefit period.) With the Genworth policy, both policies start off with a pool of $164,250. In 30 years, the 85-year-old who bought the 5% policy would have a benefit pool of $676,075, compared with the $387,066 pool for the 3% policy. That means that the extra $27,690 in premiums that the policyholder paid for the 5% policy over 30 years leveraged $289,009 more in benefits than the 3% policy.

More insurers also are offering “future purchase options.” These policies charge a lower premium for a daily benefit but do not raise benefits automatically each year. Instead, you have the option to increase coverage every year or every few years by paying a higher premium, which would be based on your health when you bought the policy.

This option could be a good deal for buyers who can’t afford the bigger premiums for inflation protection early on—maybe you have several more years of mortgage payments. However, the premium increase will be based in part on your age when you add on the inflation protection—perhaps boosting your annual premium beyond what you would have paid if you locked in earlier.

You also could cut costs by cutting back on the benefit period. Most insurers eliminated lifetime benefits and hiked rates for a five- or six-year benefit period. But you can still cover most of the risk by buying a shorter benefit period. Northwestern Mutual’s Sperka says a three-year benefit period can cost about 30% less than a six-year period. Most long-term-care claims are for care that lasts fewer than three years.

Strategies to pay premiums. You can now pay premiums with tax-free rollovers from cash-value life insurance policies or deferred annuities. With life insurance, you can transfer dividends or part or all of the cash value. With a deferred annuity, you transfer cash that’s been built up, but the annuity can’t be in an IRA.

Another option: If you have a health savings account, you can use that money tax free for a portion of long-term-care premiums. The annual amount is based on your age ($1,400 from 50 to 60; $3,720 from 60 to 70; $4,660 if older than 70).

Most long-term-care insurers have raised rates at least once for current policyholders. Rate hikes announced by John Hancock and Genworth a few years ago are going into effect in some states (policyholders in most other states already pay the higher rates). New York Life recently announced that it will raise rates for some current policyholders for the first time in 25 years, with an average increase of 16% primarily for people with policies issued from 1997 to 2011.

You’re usually given several options if you can’t afford the new premiums. Ryan first recommends reducing your benefit period from ten years or lifetime down to five or seven years (or three years for men). His second choice is to lower the monthly benefit, and the third is to change the inflation adjustment from 5% down to 3% compounded.

Don’t drop the policy. You’ll lose the coverage you paid for, just as you’re getting closer to the age when you will need care. If you change your mind later, a new policy will cost a lot more than your current one, even if you’re still healthy.

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When to get it, how much you need and ways to cut the cost.

By Kimberly Lankford, Updated January 2015
Editor’s note: This article originally appeared in the November 2014 issue of Kiplinger’s Personal Finance.

Mackey McNeill, a CPA and personal financial specialist in Bellevue, Ky., talks with clients in their fifties and early sixties about protecting their retirement savings from potential long-term-care expenses—which currently average more than $85,000 a year for a private room in a nursing home. But when McNeill turned 58 and looked at long-term-care policies for herself and her husband, she balked at the premiums: more than $5,200 a year for two policies that would cover the average cost of care in her area. “I understand why clients resist it,” she says.
After she calculated how much extra money they’d need to save to cover the cost of care (and the risk to their portfolio if they didn’t) she decided to make the same compromise most of her clients do. “We’re buying policies that don’t cover everything but can cover about $4,000 a month,” she says. She gets a couples’ discount for buying with her husband. If the McNeills’ future care exceeds their coverage, they are confident they can make up the dif­ference with savings and retirement income.

Like McNeill, most financial advisers recommend buying long-term-care insurance in your fifties or early sixties. The younger you are when you buy a policy, the lower the annual premiums—but the longer you’ll have to pay those premiums. By the time you reach your mid sixties, however, you’re more likely to have a medical condition that makes you ineligible for a preferred-health discount or makes it tough to get coverage at all.

You’re also more likely to have the cash to pay premiums in your fifties or early sixties, especially if you’ve finished paying for college for the kids, or paid off the mortgage. And because you’re starting to form a better picture of your retirement budget, it’s a good time to factor the annual premiums into your long-term plan.

How much coverage to get

Start your calculations by looking at the cost of care in your area (see Then figure out how much you could cover with your retirement income and savings. The calculation may be very different for single people than for married couples, who often need to plan on spending more than singles to cover long-term-care bills for one spouse plus living expenses for the spouse who remains at home, says Donna Skeels Cygan, a certified financial planner in Albuquerque.

After you know the cost of long-term care and how much you can afford on your own, consider buying enough long-term-care coverage to fill the gap. The average length of care is about three years, but you may want a longer benefit period if you have a history of Alzheimer’s in your family. (The pool of benefits is calculated by multiplying your daily benefit by the benefit period, but you may be able to stretch your payouts if you use less than the daily maximum benefit.)

Kathy Kingston, an auctioneer in Hampton, N.H., bought long-term-care insurance last year, when she turned 60. “I’m healthy and active and independent,” she says. “I’m interested in setting myself up to have care at home.” Kingston has a pension from her years working as a public employee in Alaska that could cover some, but not all, of the costs. She bought a Genworth policy that currently provides $380,000 worth of coverage. The policy has 5% compound inflation protection, which means the benefit will grow to $1.5 million by the time she’s 85. It also has a zero-day waiting period for home care.

A good strategy for couples is to buy a shared-benefit policy that provides a pool of benefits either spouse can use—for example, two three-year policies form a pool of six years (and some policies add another three years to the pool). “I prefer the shared policies because the chances of both spouses needing long-term care are slim, but you don’t know which one will need it,” says Cygan. “It gives you a huge amount of flexibility.”

Shared-benefit policies tend to cost 12% to 20% more than two separate policies, says Brian Gordon, a long-term-care insurance specialist in Riverwoods, Ill. For example, if a healthy 55-year-old couple were to buy two Genworth policies, each with a $150 daily benefit for three years and 3% compound inflation protection, they would pay $1,359 a year for each policy. If they added a shared-benefit rider—giving them a pool of six years to split as needed—the annual cost would increase to $1,660 each. And if they waited ten years to buy? A healthy 65-year-old couple would pay $2,143 each for the same policies, or $2,664 with the shared benefits.

Calibrating the cost

The longer the waiting period before benefits kick in, the lower your premiums. But initially you’ll need to pay the costs out of your own pocket.

Make sure you understand how the waiting period is calculated. Gordon recommends a calendar-day waiting period, in which the clock starts ticking as soon as you need help with two out of six activities of daily living (such as bathing) or you provide evidence of cognitive impairment. A days-of-service waiting period only counts the days you get care. If you have a calendar-day policy with a 90-day waiting period and you need care in your home just three days a week, the policy will pay out after three months. But the same waiting period with a days-of-service policy would mean waiting more than seven months before benefits kick in.

Because you may not need care until 20 or 30 years from now, inflation protection is essential. Nursing-home and assisted-living costs have increased by about 4% per year over the past five years, and home-care costs have risen by 1.3%, although that may rise faster as baby boomers compete for caregivers.

Older policies tended to boost benefits by 5% compounded each year, but low interest rates made it expensive for insurers to offer that coverage to new buyers. Now, 3% per year is most common, and some insurers even offer 2% or less per year. Claude Thau, a long-term-care specialist in Overland Park, Kan., usually recommends 3% compound inflation protection. “The carriers have rejiggered their pricing so that 3% looks especially good compared with 5%,” he says.

If spouses who are both age 55 each start with a $175,000 pool of benefits, they would pay about $5,850 per year (combined) for two policies with 5% inflation protection, but just $3,000 per year for policies with 3% inflation protection and $2,450 for policies with 2%, says Jesse Slome, executive director of the American Association for Long-Term Care Insurance, a trade group.

Insurers have different sweet spots based on your age and health and their own claims experience. For example, Slome recently worked with a 65-year-old man and his 55-year-old wife, who received quotes for annual premiums from two insurers that were $1,200 apart.

Many long-term-care agents work primarily with Genworth, Mutual of Omaha, MassMutual, Transamerica and John Hancock (Northwestern Mutual and New York Life sell long-term-care insurance only through their own agents). Find a long-term-care specialist in your area at


If you don’t have adult children, look to extended family, friends, neighbors or trusted advisers to make health-care and financial decisions in case you become incapacitated.

By Kathryn A. Walson, February 11, 2010
EDITOR’S NOTE: This article was originally published in the December 2009 issue of Kiplinger’s Retirement Report.

For individuals and couples with children, some decisions are relatively easy. If they become ill, they can probably turn to the kids for help. And their offspring are likely to be the beneficiaries of their estate. Such choices are less obvious for childless seniors.

William and Judy Scheeren, both 62, named each other as their agents to make health-care and financial decisions in case one becomes incapacitated. In the event one of them dies or they both need help, the Scheerens have asked their siblings to step in.

William appointed his 56-year-old brother, who lives within a mile of the couple’s home in Greensburg, Pa. Judy named her 56-year-old sister, who lives less than three hours away. “We trust them, and they can be on the scene quickly if something happens,” William says. The couple gave their siblings copies of their advance-care directives.
The Scheerens are lucky that their siblings live close by and are willing to take on the tasks. In choosing a health-care agent in particular, a childless person may need to consider a list of prospects — nieces, nephews, neighbors, friends and even clergy.

Make sure the person you’d like is willing to take on the health-care role, which could be time-consuming. Your choice should be “someone who’s good at acting in a crisis situation, someone who accepts the responsibility, someone you feel would honor your wishes,” says Leanna Hamill, an estate-planning lawyer in Hingham, Mass.

Howard Witsma, 76, who is single and lives in St. Louis, named his stepmother’s niece as his health-care agent. Her husband is the successor agent, in case something happens to her. When Witsma was in the hospital for six months, they visited him every weekend. “They take the best care of me,” he says.

If you plan to remain at home for the long term, try to cobble together a network of friends who can help you down the road. You can give the list to your health-care proxy. “Some people may have a longtime neighbor who’s willing to look out for them,” says Henry Barron, a social worker in Charleston, S.C.

You could make arrangements now with a geriatric-care manager who can work with your agent if you ever need such assistance. A manager would supervise your care, helping with Medicare paperwork, monitoring your prescriptions and hiring a home-health aide.

The agent with financial power of attorney should have financial savvy and be beyond reproach. He or she would manage your investments and pay your bills. If you’d like, you can name several informal advisers who can work with the single agent you select.

Choose a trusted financial adviser or accountant if you don’t have a friend or relative to take over this role. Or you can create a revocable trust and hire a corporate trustee at a bank or trust company.

You could direct the corporate trustee to handle your financial matters immediately, after you become incapacitated or after you die. Interview several trust companies. “You want to be comfortable with the organization,” says Kevin Bartlett, president of Fidelity Personal Trust Company. “Ask: How long have they been in the business? How many families do they work with? How many families does each trust officer handle?” The cost is usually 1% of assets per year.

Pat Iezzi, an estate-planning lawyer in Greensburg, Pa., says the corporate trustee should “agree with your way of investing.” If you’re a conservative investor, he says, don’t choose someone who wants to put most of your money in stocks. If you want oversight, you can name a friend or relative as a co-trustee.

Your financial and health-care agents must work well together. If they decide you should move into assisted living, says Sally Hurme, senior project manager for AARP, “the financial agent needs to determine how your care is paid for, and the health-care agent would work with doctors and determine the best facility.”

You should appoint back-up agents. “You always want an alternate in case the person you name gets sick or they don’t want to serve in that role anymore,” says William Andersen, a lawyer in Fort Lauderdale, Fla.

Without an adult child to coordinate activities, it could make sense to ask someone, such as your estate-planning lawyer, to oversee everything. You should give your lawyer the names of your agents, close friends and other contacts. You’ll also need to spell out in your trust how it will be determined that you can no longer handle your finances, perhaps letters from two physicians, with confirmation from a family member.
Drawing Up an Estate Plan
Creating an estate plan can be tricky. Spouses typically designate each other as IRA beneficiaries and as heirs of other assets. They should also name contingent beneficiaries, who will get the assets if the primary heir dies first.

For couples with children, the contingent beneficiaries for both spouses will likely be their kids. But what if a childless husband names his favorite nephew as a contingent heir, while the wife names a beloved niece? If the husband dies first, the wife will inherit everything, and when she dies, the niece will get it all.

If this couple wants their beneficiaries to line up, the two could spell out in both wills and on all designation forms that the nephew and niece will each get half or some other percentage. The Scheerens named each other as primary beneficiaries. When the second spouse dies, they’ve directed that their assets be divided equally among their five siblings.

A court will track down your relatives if you don’t name beneficiaries. Marilyn McWilliams, a lawyer with Moye White in Denver, says one of her clients, an unmarried man, wanted his favorite niece to inherit all his money. But he never drew up a will. When he died, a detective was hired to find his 17 nieces and nephews. “His favorite niece got one-seventeenth of his money instead of all of it,” she says.

Childless seniors are more likely than others to leave money to charity after they die. If much of your estate will go to charity, ask a tax or estate-planning lawyer to draw up an arrangement to carry out your wishes.

Witsma transferred his assets to a revocable trust. Upon his death, the trust will give certain percentages to his cousin and to two families he is close with. The balance will go to a charitable foundation, which will disburse money to 15 to 20 charities, including the St. Louis Symphony Orchestra. “I give a good deal of money to charities now, and I’d like to continue to support those organizations,” he says.

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