Insurance Check In: Tips for Reviewing Existing Coverage

Well, welcome everyone, and thank you for joining us today for an insurance check-in, tips for reviewing existing coverages.

We’re gonna cover a lot of information today. We’re gonna go through homeowners insurance and considerations as property values have changed, maybe risks have changed. We’re gonna dig into life insurance reviews and how coverage needs can evolve over time. We’re gonna spend some time talking through long term care, rising natural disasters across the U.S.

We’re gonna spend a lot of time in property and casualty insurance, specifically umbrella policies, when they make sense, how to evaluate them. And then we’re also gonna dig into some really niche topics like, unique assets. You know, maybe it’s covering collections of art or cars. Or, you know, should we have a separate health insurance policy when we’re traveling abroad?

We’re also gonna talk about other health insurance related items like supplemental needs.

By way of introduction, I’m David Kerber, a managing partner here at Mercer Advisors, and I am pleased to be joined by Steve Scothorn and David Froscheiser.

Steve and David are both part of our insurance team here at Mercer Advisors. And together, they have nearly fifty years of combined experience in the insurance industry.

So excited to have them here today and to to steal a line from a a national carrier that does TV commercials.

They know a thing or two because they need a thing or two. And I’ll say as we work through the presentation today, of course, it’s important to note that everything we are presenting should be considered educational and informational in nature. And this is not direct or specific advice for your situation. If you do have specific questions or wanna talk through your specific situation, please reach out to your advisor, schedule some time, work with our internal insurance team here so we can help you find some solutions.

A little bit of housekeeping for today. Well, first and foremost, I want to thank all who provided questions in advance of the material today. It really informed the things that we’re gonna talk about. Additionally, we are going to have a question feature throughout. So please ask your questions during the presentation. I’ll be monitoring, that chat, and I will do my best to weave in your questions, throughout the presentation. And we will also leave a little time at the end for open questions and try to get to as many of those one off questions as we can.

Alright. So before I turn it over to Steve and David, I I did wanna highlight the importance of risk management.

I’m a managing partner, but I’m also one of our senior wealth advisors. And I’ve worked with clients for nearly twenty years on building, implementing, and monitoring financial plans.

And in that time, I found that most people, most advisors, and really our industry in general, is laser focused on the portfolio, asset allocation, and and the investment returns.

And I agree. Those are important. But when building a financial plan, risk management, I would argue, is potentially more critical. Right?

Major events like car accidents, incapacity, death. Right? If we don’t have the proper risk management or the proper insurance in place, those events can completely upend a financial plan far more than market corrections or volatility in the market. So I I’ll challenge everybody today to to really think about the content, think about your personal situation, and again, how Mercer can help as we build that family office around you, making sure that we’re we’re looking at that risk management.

So with that, I’m gonna turn it over to, Steve and David to go into the content today.

Oh, excellent. Appreciate that. Can you hear me, David Kerber? Just wanna make sure we’re good to go.

We got you.

Perfect. Perfect. I think that’s a great introduction. I think, you know, I’m before we jump in, I’m Steve Scothorn. I am the director of insurance here at Mercer. I sit just outside of Washington, D.C. in Northern Virginia, so I am very close to horse and wine country. Love them both.

And, you know, in as we we as we begin the presentation and answer some of the questions and and talk about what does all of this mean, David Kerber is a hundred percent correct.

It’s about protecting the beautiful wealth management and financial plans that we do here at Mercer. And internally, we, you know, we talk about torpedoes that can sink that financial plan. And what we’re looking at here on the screen are the five areas, and we will focus primarily on the far right three columns. The five areas that if they go unanswered, if they happen to go unquestioned, in a worst case scenario, can absolutely bamboozle that financial plan. It’s the safety net that protects why you’re a client or a prospective client of Mercer.

My disclosure, my disclaimer, we do not sell insurance here at Mercer.

We partner with the advisors as experts to be able to build relationships with our clients, to be able to educate, to be able to review, to be able to bring some things to the surface that we can talk about. Everybody in their kitchen or in their home office has that financial junk drawer. It’s full of stuff. We all have it. I know I’ve got some things, but I’m not sure is it what I’m supposed to have.

That’s what the advisor is here to be able to help uncover and then bring in the experts. So the five areas of risk management, before I turn it over to David Froscheiser, that we consider paramount here at Mercer are annuities, disability, life insurance, long term care, and property and casualty.

We’re going to focus on life insurance and property and casualty. We’re going to touch on long term care insurance and some of the other items that David Kerber had mentioned in his opening remarks. So thank you for being here. Thank you for allowing us the time to be able to have a conversation and answer some questions and have some back and forth. I’m gonna turn it over to David Froscheiser, who’s gonna start us with the life insurance into long term care, and then I will finish things up with the property and casualty. David, you’re up.

Thank you, Steve. Greetings, everyone. My name is David. I am located in Lincoln, Nebraska, just outside of there, right in the heartland. So it’s a pleasure to be with you today and look forward to interacting with you via some additional q and a beyond just our general comments that we’ve got prepared for today.

So first is life insurance, and we we aggregated some some common themes and questions and presented them here for this slide. But I think one of the the most the most common theme was all around need, discussing need. When do I need this? When do I need permanent versus term, etcetera?

So I thought it would be helpful to talk about scenarios within life insurance planning that are common, starting with the most common and then getting into a little bit more specific. And you can see how the need from, say, term to permanent can change and and also formulaic around amounts of insurance and things of that nature. So the most common need we see at Mercer is income replacement. Right?

Young younger couple typically, although that need for income replacement can go well into the fifties, but the need for income replacement for surviving spouse to maintain a standard of living. It’s very, very common and also to cover any outstanding debts, for instance, a mortgage.

And so term insurance is something that we talk about a lot here at Mercer. And so the amount, I like to say, is as much art as it is as it is science, but we do align the term of the insurance, with, obviously, the knee income need re the income replacement need for those specific clients. As far as the amount is concerned, that is something that’s much more individualized, so I’m not gonna go into it here. But from an industry standpoint, we look, we often look at amounts anywhere from ten to upwards of twenty times, someone’s someone’s gross earnings as far as income replacement.

So how about some other scenarios? We have going from term to permanent, we have solutions for high income earners that need alternative structures within life insurance planning and financial planning, generally speaking. And oftentimes, we can take advantage of the tax the the favorable tax nature of life insurance, generally, to accomplish additional needs and goals of the client, especially around those who are income, high income earners. Additionally, we do a lot of work within the estate planning and our estate planning team. Now granted with the estate exemption being as high as it is, that’s become a little more niche. But off oftentimes, I look at it not just as estate planning, but legacy planning. Right?

You have worked hard to build up your retirement assets and worked with Mercer to create a nest egg for you to live well into your retirement.

So some clients that I’ve had conversations with are like, well but I wanna make sure that I leave something for my children, for instance. So that would be a scenario under which we would formulate a permanent solution. And then guess what? We’ve got an asset that is going to the children, and the parents, the retirees no longer have to really worry about what they’re spending or not spending to ensure that legacy.

So, again, it’s just very nuanced as far as between term and permanent just to fit that need and the specific objectives of the of the client.

Lastly, I’ll talk quickly about business owners. So, obviously, a smaller a smaller, percentage of you perhaps out there, but business owners have a variety of needs for life insurance. It could be anything from by self funding, to key person, or even to retention strategies. And all of those different categories dependent upon, again, the needs and the objective of the client drive what type of policy we would look towards as far as this the ultimate solution is concerned.

Last last thing I’ll mention about life insurance insurance before we go into long term care is that there are hybrid life in hybrid, excuse me, life insurance policies that can serve a little bit of both function from a legacy perspective, asset protection, as well as provide as well as provide dollars for long term care claims should they arise.

David, we’ve got a couple of questions here. First question, how does a client’s age factor into the life insurance conversation?

Yeah. Sure. So that can one of the things there is that it’s driving whether or not we’re looking at term insurance or probably permanent insurance. Right? Again, it’s really driven by objective.

But age, we see most people because it’s a cash flow stamp. It’s a cash flow issue often with younger folks, and their primary objective is that income replacement. So you’re leaning towards term in the younger ages. But when you reach the fifties, late forties, fifties into your sixties, that’s when we see more permanent solutions for a couple of reasons.

One is that typically the objective is a permanent objective. Right? And it’s it’s a long term lifetime goal that they’re arranging or or preparing for. The other is that term insurance, when you get into those later years, becomes increasingly more expensive and can sometimes seem cost prohibitive if you if you’re spending all that money in those latter years and it’s not a permanent policy and you can potentially still outlive it.

Excellent. And and that actually connects to another question in the chat. It’s a little more specific, but like in this example, the the client had a term policy where it was nearing the end, but they had some health considerations there. And and and in this example, the wife was in poor health.

So I’ll just say I’ve I’ve seen that experience a lot, you know, with my clients, and I think that’s really a good opportunity to sit down with the advisor and kinda work through the plan to say, hey. Do we want to potentially extend this term policy and pay the necessary premium given the the health situation? Right? It becomes a little bit more of an internal rate of return calculation, which admittedly is not a fun calculation to make when we think somebody may pass.

But those are examples where, again, the advisor can really sit down and help clients think through it.

Yeah. Let me let me make one quick comment on that because it’s a great question and a and a very good very a very interesting scenario that you laid forth. And oftentimes so when you’re buying term insurance, you can often obtain term insurance with conversion rider on it for little to no extra premium. And that is a very good option, especially for younger individuals because they don’t know how their health may change, you know, through the next ten, especially when you’re buying twenty, thirty year term periods. Right? So health can take a dynamic shift during that time frame. But with a conversion option, at least what that allows you to do, again, a choice, right, to sit down with your advisor, with one of us, and to go through, you know, go through the options because you can convert part or all of that term policy to permanent to a permanent solution that if you are if you do have some, you know, meaningful health concerns, that’s a very viable option.

I think that’s I think that’s a I think that’s a great point to jump in here for a second. And, David, I have an additional question that oftentimes comes up, comes up, and I’m sure it has in both of our careers.

When we talk about life insurance, a lot of the conversations are around, you know, life events. And oftentimes, people put life events in a box.

Got married, got our first new home, we’ve we just had our first child, or we’ve got two children, and now we’ve got a a cute little puppy dog.

Life events are also planning events. And oftentimes, David Kerber, this is exactly where I think the question comes from is when aspects of our personal lives take a little bit of a shift, medical conditions, or, uh-oh, this this is now something I need to consider.

That’s a life event. That’s a planning event. That is exactly when, you know, we should be talking with our wealth advisors to say, I think some of our planning needs have shifted some. And even though this is what it looked like five years ago or ten years ago, now we’d like it to look like x. How do we do that? And David brings up a very good point of with the term insurance and the conversion rider, you have built in flexibility into that planning. That way, it allows you to be able to pivot really at a moment’s notice, with with this type of solution.

David, know, a lot of our clients are very very philanthropic, and they they enjoy charities. They enjoy enjoy charitable giving.

How is life insurance considered or positioned in an instant like that to where instead of taking assets under management to do this, is it possible to set up some kind of life insurance for that charitable giving?

You bet. And I won’t go into the weeds on that because they’re pretty thick weeds on the various ways that you can that you can establish that type of charitable charitable trust or charitable gift.

For instance, I’ve worked with universities in that respect where clients have either with in force or new policies.

They will gift an in force policy, for instance, to a university on their on their life. And, yes, you do get a tax deduction on on that gift.

Other ways to do that are is simply establish a policy with the university on your life, and you can give the premiums again, the tax deductible deal. But there’s a variety of ways from a legacy perspective that you can and I use the university as a quick example because I’m a University of Nebraska guy, so we we we have quite a few of those situations. But any charity that you would like to bequeath, you know, money to at the end of your life, life insurance is a a really efficient way to do that.

Excellent. Thank you.

David, one last question before we we jump topics here. But Sure. You know, Ken’s asking, how do you assess when to cash out or potentially exchange a universal life policy? And and I’ll maybe add a little bit there.

It’s it’s very common that we have, you know, clients that come to us who had a life have a life insurance policy that they maybe needed ten, fifteen years ago. But now at their stage of their life, they don’t need that anymore. We’ve identified that. So maybe you could just speak to a little bit, you know, what are the options when we’re evaluating those policies on either cashing them out, exchanging them?

What what does that look like?

Yeah. Sure. So let’s talk about cashing them out real quick, because there’s tax implication there. Right?

So, with with permanent life insurance, cash value life insurance, if you were to cash a policy out, the and, again, we don’t offer specific tax advice, but your basis or the premiums that you’ve paid into that policy are not taxed upon your your terminating or canceling the policy. Anything above that basis is is considered taxable income income tax levels. So dependent upon client situation and and the specific performance of the the permanent policy itself, there are you know, our recommendations can can change and vary quite widely. Right?

For instance, so if you write around your you write around the basis of your policy and you no longer have need for the the insurance, does cashing out make sense? Quite, you know, quite likely. That might be the situation. If you have a large gain and you’re still in your income you know, your your your your prime years of income where you’re in a higher tax bracket, we might look at an alternative either from, again, a legacy standing a legacy perspective where we might ten thirty five that into a policy that maximizes death benefit and is concerned less with cash value.

Or oftentimes, one of the things that we’re looking at is is is a potential hybrid. Right? A hybrid policy with the long term care component to it because a client doesn’t want to take the tax impact.

They also and I’ll talk about this net when while we’re on the slide, nearly everyone has to consider long term care costs. Nearly everybody.

So so hedging that risk with dollars that often are forgotten about. Right? I mean, if if you had if you bought a permanent insurance policy when you were thirty years old on yourself, maybe you bought it from one of the mutuals, you often just pay that premium pay that premium in and just depend upon your advisor. You may not you may not get an update. You may not know where you’re at from there. And so it almost becomes this idea of just this found money, these found dollars, working with the client specifically about that.

And so it becomes how can we repurpose the money, right, to to meet the new objective? And sometimes that’s cashing it out. Sometimes it’s ten thirty fiving, and sometimes it’s letting it ride. But great great question.

Thanks, David.

So onto that, and I will talk about hybrid policies again specifically with respect to the slide, but now is long term care. And I would encourage any of you to, you know, quickly kind of read through what’s up there. I’m going to talk about some other things and not read from the slide per se. But long term care costs are one of those critical and, like, David alluded to earlier, it’s one of those incidences that potentially worse than a market correction, worse than x, y, and z, a long term care event can truly impact your financial plan detrimentally. And it’s very difficult to because they vary by cost and by duration, it is a tough it is a tough thing to plan for naturally without any hedge against that risk. And so just to give you a few statistics, roughly on a national basis, the average annual long term care cost is about a hundred thousand dollars.

Unfortunately, these costs also are outpacing inflation current inflation. So with long term care, you’re looking at an average of around five to six percent. But for instance, nursing home is in that nine to ten percent. And so whether or not we’ll see a cooling in that in that inflationary rate for those services is an unknown factor. We can and try to plan, and I’ll, you know, give you a few ideas on how to plan for those for that type of inflation and how to hedge that risk.

The other thing to note, I think, that’s important is that the average claim for long term care is about four years.

Certain claims can last longer, specifically around mental, like dementia or Alzheimer’s. Often, those claims can extend for years and years and years, and many of you may may have a a parent or a family member out there who’s who’s who’s going through that. And on that point, that’s oftentimes, David Kerber, when we get involved is that a client has had an experience with a family member where they’ve seen what long term care in providing that care can do to the family if the family’s having to provide or if somebody’s in a facility.

You know, it’s really it’s a very difficult experience for the family to have to do that. I went through it with my own with my own parents.

It’s it’s just a challenge. And so so as a as a client, as as a a Mercer, as they experience these things, they often reach out to the advisor who then reaches out to me, and we begin the discussions around there. So there’s a few ways to look at paying for long term care. The first is self what we refer to all the time as self insuring. In other words, I’ve got enough assets that irrespective of long term care costs, I will be fine.

There is no magic number really on what that dollar amount is. It is a very individualized conversation. It’s also about risk tolerance for the client themselves. Right?

So I’ve worked with a client that has, you know, upwards of fifteen, twenty million dollars of overall net worth. They still wanted a long term care policy. They wanted a hybrid. So and I’ll explain why.

But so you’ve got self insuring. Then you’ve got long term traditional long term care insurance.

Long term care traditional long term care insurance has a couple of features. One, one of the things that we do is we we calculate the monthly benefit on, like, a national average. We actually have tools that we can look at, you know, your geographic location to find averages, and then we we calculate and build the plan around that.

We also put inflation riders, typically three to five percent on those. Unless we’re talking about somebody maybe in their seventies, then I wouldn’t necessarily recommend it because inflation there may not be that time for inflation really to outpace the policy and diminish the value of the policy itself.

The issue with long term care insurance traditional long term care insurance is that it is a use it or lose it proposition, and some clients are averse to that. Right? Which is why another avenue you can pursue is a hybrid policy.

Hybrid policies are built on oops. Sorry. Let me make one more comment about traditional long term care before I go into hybrids. There has been a there is a lot of conversation, and I do a lot of reviews around long term care insurance because of increases.

Right? There are, in particular, a couple of insurance companies that that undervalued from a premium standpoint their long term care policies in the past, and they continue to file increases. So I do it so everybody out there, we do that. We help you go through that conversation and that decision making process, and we can and we can assist.

So if you have any questions around that, please let us know.

The hybrid policy, which is built on a life insurance chassis, is is a pretty unique offering because it it offsets the traditional long term care use it or lose it proposition. And it does this because it is a life insurance policy in its pure form, and so you get a death benefit. So though it may not be to your direct benefit, your heirs will recoup the cost, typically, right around the cost of your premiums in the form of death benefit. So it’s not a true use it or lose it situation.

But, otherwise, it acts very much like a traditional long term care policy as far as benefit, duration, inflation. But it operates a little bit differently.

Since it’s a life insurance policy, it accelerates the death benefit dollar for dollar. So as you start as you go on claim and you start taking, let’s say, ten thousand dollars a month, your death benefit will drop by ten thousand dollars a month till it reaches they all they all guarantee some sort of minimum threshold death benefit, which is around, like, ten grand.

But even though you run out of death benefit, there’s an extended benefit rider. Not going into the details, but it does provide for three, five, six, eight years of extended benefit beyond that at the same monthly benefit that you provide that was provided originally. So it is a it is an area that we’re seeing a lot of interest, and it’s an area that I mentioned earlier, David Kerber, that if a if a client has a fair amount of gain within a traditional, you know, whole life, for instance, and doesn’t wanna recognize that tax impact by canceling the policy, now that they’ve gotten older, right, their objectives are changing. Right? And this might be a great way to utilize those dollars within that within that life insurance policy to hedge this significant risk for their retirement plan.

Thanks, David. Yeah. And we’re getting a number of questions on those who already have long term care policies and the rising, premiums that are associated with those. And as David mentioned, that is something that we sit down and look at with our clients. And I think it’s really important, right, to have our insurance team look at the carrier, kinda look at the industry as a whole, and then also have your advisor look at your personal situation and your ability to self insure or absorb or maybe the importance of keeping that policy intact. And so when it comes to evaluating existing policies or if there’s anything that we wanna be putting in place, having that advisor and that fiduciary, you know, working for you is really important.

Right? If you if you ask somebody with a hammer, right, everything’s a nail. Right? So if you talk to an insurance agent, they’re gonna say, you need more insurance. Right? So having that advisor to to to be there in the financial planning and incorporate the risk management is critical.

Indeed. And I think that I one quick comment because historically, you know, again, premiums have been increasing. I think newer coverages, I think there’s been a shift, in understanding in the insurance carriers that that I I don’t believe I’m reluctant to think that we will the kind of increases on a go forward basis that we’ve seen historically because they really underpriced the market. They really underpriced the expense of the care, and they really underestimated the duration of the events. And I think that in combination, one, it drove insurance carriers out of business and and diminished some some from a credit standpoint quite significantly. But I think now, I I I just think there’s a lot more knowledge and statistics and data around the cost, but we still have that inflationary factor, which which is very important to consider in your planning.

David, a few quick questions, just on long term care overall. How old is too old to purchase a long term care policy? That Susan asked that question.

Yeah. Yeah. That’s a great question. I would tell you I would tell you it gets very challenging late sixties into your seventies unless you’re in very good health.

We find I probably find most are in that, you know, the the fifties to early sixties. That’s when most of the conversations I’m having. I’ve seen as early as forty three recently.

But the other thing that I would say to that, because it is a very good question, have the conversation now before you have a health event because that is automatically going to nearly nine times out of ten, nine point nine times out of ten disqualify you immediately.

And that is often you’d be surprised, David, how many times I sit with somebody who has an interest in long term care, and then we get into some very basic field underwriting questions, which for field underwriting just mean I’m trying to understand your health a little bit so I can assess whether or not you’re insurable. And they’ve had a heart attack or were diagnosed with a condition.

It’s just it’s a nonstarter. So think about it before those events happen because we we can’t unfortunately, we can’t help you after those Yep. From an insurance standpoint. I mean, from a planning standpoint, obviously, we’ll assist.

But Absolutely.

So we’re getting a couple of questions about carriers, specifically Philip and John are asking about Genworth. Genworth? Kathleen has a question related. You know, the biggest concern she has with long term care is that the company’s gonna fail before she needs it. Like, are there any protections, you know, in place, in those situations?

Yeah. That’s a really great question. And Genworth was absolutely the one I had in mind, and I had a feeling would come up. Genworth was exactly one of those that underpriced the market, and that’s why you’re getting increases.

The good news is, although Genworth Genworth’s crediting is is has been on the decline, in many states, there is a guarantee so a guarantee association within the state that these insurance companies are funding that gives you protection against insolvency of of one of these insurance companies. And that’s for life, disability, health, and long term care. So it’s state specific about the amounts and if it’s offered, but it’s quite a few that that I know do for certain. I haven’t investigated every state, but that’s a very good question.

But know that there is something you could do a quick Google search, your state, insurance guarantee association, something to that effect, and it and it more likely than not will pull up. But we’re happy to research that for anybody out there as well.

But there is a so there is a backdrop. That’s the good news.

And Steve, maybe real quick, you know, if you could speak to, you know, we don’t sell insurance, but we obviously review and and and look at carriers. You know, what’s our process there?

Absolutely. So the and that’s a great question. No. We don’t sell. We’re here to to educate. We’re here to let folks know here here’s what you have and and what it can do for you.

So, you know, when it comes to how we approach these, it’s from that manner. It’s from an educational standpoint.

We obviously work with insurance carriers to be able to place a policy. That’s the that’s the solution.

And oftentimes, our industry unfortunately gets a black eye because people hear the word commission, people hear the word revenue, and think, oh, you’re just going to sell me the highest commission.

We’ve eliminated that here at Mercer. We have a best in class, our insurance advisory council that I chair. We audit the insurance carriers that we use quarterly, to make sure that they all that we have access to put the best interest of our clients in mind. So in any of these scenarios, and specifically life insurance long term care, as you work with your advisors, the process of working with us is it starts with the advisor.

The advisor comes to to our team, to David and I, and say, we we we’re putting our hand up here. Could we talk about a couple of these things? And that’s when David gets involved to understand current situation, what do you have, educate the client of what they have, and then ultimately either say, this is great. Stay where you are. Let’s revisit again, or, uh-oh, I see a couple of holes here we might need to take care of. So it is client first, client always, and it’s best in class insurance carriers that we bring to the table to make sure it handles the situation today and takes care of what we’re trying to plan for tomorrow.

Excellent. Thanks, Steve.

Sure.

One more thing before we pivot topics over to PNC.

David brought up a very good point. Long term care is very specific to someone’s certain situation.

David Froscheiser’s been through it. My mom spent three years in Findlay, Ohio, just off of Lake Erie, in a long term care facility, before her passing.

The three years for my mom in totality with medication care, and twenty four hour, seven day a week skilled nursing was six hundred thousand dollars a year.

Everybody’s situation is different. My parents were high school educators, and thank goodness they purchased long term care. And the reason they did it at such a young age is because the family history on my mom’s side got them to go to their advisor and say, family history of heart disease, heart attacks, strokes, diabetes. We don’t wanna put our kids, my brother and I, in the same situation that our parents put us in.

Can we look at this? And quite frankly, it it it saved our family from bankruptcy, from my parents just having that conversation before there was ever an issue. So, Dave Froscheiser, I can’t thank you enough for saying have it before something happens because that’s when it should take place.

David Kerber, do we want to pivot or we wanna hang on this topic for a little bit longer?

Let’s move on.

Let’s move on. So a lot of very, very, very good questions around PNC. We’re gonna hit a number of them from homeowners insurance to car insurance, a lot of umbrella insurance.

What do I do about my watches or my art or my car collection?

We’re gonna hit on those. However, where I do wanna start, and I’m cognizant of time here because I wanna make sure that we have enough for questions, an additional question and answer session.

Property and casualty, even though it’s specific to each of us individually, what takes place around the country affects all of us individually.

We hear about and I’ve got some statistics. I’m gonna show a map here on the next slide of what’s causing the rise in premiums. What’s causing insurance carriers to get out of a particular state?

Why are insurance carriers on the property and casualty side declining to even offer me some kind of quote?

A lot of that comes around from rising natural disasters. So even though situations that may only be applicable to East Coast or the Central or the West Coast, from an insurance carrier standpoint, it affects everybody.

And here’s why. This is a map from Climate Central.

I think it shows why some things are difficult as far as, like, insuring and some things may not be. It’s because everybody is affected.

So a couple of key statistics here before we jump into some, some of the questions.

From twenty eighteen through twenty twenty four, I’m gonna share with everyone some statistics of billion with a b as in boy, one billion dollars or more of a natural disaster happening in that time period.

There were ten flood event ten flood events, a billion dollars or more, eighty nine tornadoes, nineteen hurricanes, five tropical storms, seven winter storms, and seven wildfires that were a billion dollars or more in claims.

That is a is a punch in the stomach when it comes to why are insurance costs rising. It’s because of all of these types of things that take place throughout the course of the year that it doesn’t matter if you’re in the Gulf of Mexico or you’re in San Diego, California or in Kalamazoo, Michigan. It happens and it affects everyone.

A lot of questions come in and you we we field a lot, we answer a lot. So I I try to aggregate, some buckets to be able to to touch base on this. And one of the biggest questions, that happen to come around is umbrella insurance.

The pros, the cons, when do I need it, how much is too much, should it equal my net worth?

The answer is it depends on your particular situation. The whole idea of umbrella insurance is that is the overarching safety net or force field that protects you and your family from being sued.

The pros of having an umbrella insurance is statistically, it is the most inexpensive way to protect your life, your lifestyle. When I say life, I’m not referring to life insurance, but everything that your your family does, such as have the beautiful swimming pool, in the backyard, taking your dog to the dog park, driving your car home from Costco, and you’re not paying attention, and you’re texting, and you blow through the red light, and you smack into the back of somebody.

Yes. The auto insurance has some of that protection. However, in a situation like that, a swimming pool, the dog, the car, People aren’t necessarily suing you for what you have in this particular instance. They’re suing what you have taken away from them.

And it’s not taken away from them today.

It’s taking away from them of future jobs, increased earnings, additional bonuses, stock options.

Umbrella insurance touches every aspect. One of the questions was, I have a sixteen year old who’s now gonna be driving. Should should we increase our umbrella insurance? Well, if you drove like me when I was sixteen, the answer is yes. You definitely want to increase some of that umbrella insurance.

This is what is at risk from creditors. This is what it’s at risk from being sued.

And a lot of people don’t consider or haven’t been updated or educated that umbrella policies aren’t just for the slips and falls for some, you know, someone coming up and down your stairs on your own property, inside or outside. It is that dog, that swimming pool, that blowing through that red light. It is it it is the best way to protect all the work like David Kerber and his team do. To protect all the work that your advisor happens to put together and say, okay, how do we make sure that we’re protecting against this in a worst case scenario?

So calculating liability insurance, is indicative of each person’s lifestyle.

If you are a younger individual or a younger couple, and perhaps you don’t have a home yet, and you’ve got one car and you’re really just starting out in your, professional career, your level of liability coverage is gonna be less than someone who maybe has a home or several homes, several teenage drivers. Maybe they have a few rental homes that they rent rent out around the country, traveling abroad, which brings up another other couple other questions around, you know, travel insurance or medical insurance when I’m traveling. All great questions to make sure that you bring up to your advisor. So does it need to equal someone’s net worth? The answer is no.

Does there need to be a conversation with a property and casualty specialist about your lifestyle?

Yes. From there, that’s where the, decisions can be made about how much or how little one person should carry for, you know, their family or their particular situation.

When we think about, and David Kerber stopped me if there’s particular questions on this. However, when we think about that natural disaster map, one of the questions that comes up a lot in conversations that we’re a part of is homeowners insurance in the wooded areas or the wildfire zones.

Why why does my neighbor across the street have a particular insurance carrier that has refused to offer me quotes or offer me coverage?

This is this is where it’s about education.

And it’s about education around your home in general. If you are in a wildfire or a wooded area, how close is the underlying brush to your home?

Should the flower beds of bushes and trees, should that be stone? Should that be concrete? Should that just be dirt to create that buffer around? Is it a different kind of roof that should, you know, be on the home? So it’s it’s all of these kind of things that when you have a conversation with us, we think about, we ask questions, and then we’re able to say, based on this information, this carrier here and this carrier here perhaps are the appropriate ones for your particular situation.

A lot of questions come in around flood insurance. Do I need flood insurance if I’m not in a flood zone? The answer is you should consider it.

Forty seven percent, according to the Bureau of Labor and Statistics, forty seven percent of water damage is not because you’re in a flood zone.

It’s because the roof was off of your home because of a tornado, and then it rained, and then it flooded.

It’s because you are at the bottom of a hill, and there was a scenario or a situation up here at the top of the hill, and unfortunately, you were the negative benefactor of a lot of that water coming down to your home.

So it’s these kind of things that we want to be able to have clients think about, that it’s not just because the Gulf of Mexico. It’s not just because New Jersey. It’s because of your neighborhood and where you sit inside of your neighborhood. I’m gonna hit these last two, and then David, let’s go ahead. If you got some questions, we can, we can jump in, at that point.

Is it best to bundle homeowners, auto, and liability?

In my experience, the answer is yes, and here’s why.

In a worst case scenario, if you do not have it bundled and you have two, three, four insurance carriers, two, three, four insurance brokers, If there’s a fire in your garage and it hits your car, then the fire spreads to your home. If they’re not bundled, you now have two insurance agents and two insurance carriers having to come together to assist, having to come together to, work through the process of who’s paying for what.

At Mercer, we talk about peace of mind. We don’t want our clients to have to worry about money or even worry about something like this. If something like this happens, there’s no reason to add insult to injury in not having a very, very smooth process.

When it’s bundled, you have one agent, one insurance carrier, one process to navigate instead of two, three, four, five processes to navigate.

Lastly, with auto insurance, how can you save money on auto policies? Great question.

A conversation with the advisor, conversation with the insurance broker, Are the appropriate drivers named on those policies? That’s the number one area where we see, wait a second, you have someone named on these three vehicles, one that doesn’t even drive these two, but this one.

Or perhaps you have these vehicles and someone with the worst driving record when it should be in the name of someone with a better driving record.

There are areas that we can look at that a lot of people just don’t think about. And naming the appropriate person on a policy is the, for that particular vehicle, is the number one area that we see making a change can save on some of those auto premiums. That was a lot to cover, so I’m gonna step back and see what we have coming in, David.

Perfect. Yeah. I’ll I’ll I’ll ask a couple of questions specifically related to property and casualty. And then, again, David will hit on some of the health insurance conversations and questions.

Specifically with property and casualty insurance, have we talked about at a high level, like collections? Right? Art or cars? Like, what are some key considerations there for clients where they have these bigger collections?

That’s a great question.

Most people think, just commonly, that cars, watches, artwork, rugs are automatically covered on the homeowner’s insurance. They’re not.

They’re not.

They are separate coverages. So two two areas to think about.

One, you can have a collections coverage and then have it listed have the collections listed out. Or two, on the homeowner’s policy, can have endorsements and riders that include all of the items that you just you just meant.

Don’t automatically assume they’re covered because I have homeowners insurance. Yes, you do to cover the bulk of the home, but let’s consider the contents inside the home, the separate barn on your property out back, and the cars you may have stored two miles away. That’s not automatically covered. So we need to consider separate coverage to make sure we’ve handled that.

Yeah. I I would also make a quick comment on that in that they’re dependent upon the value of the art or the car collection, etcetera, etcetera. There are specialty insurance carriers that are very, very good at at those types of coverages, even even helping you evaluate the the value of of those art pieces or those or those vehicles. So there there are yeah. That’s that’s an area of specific conversation where, you know, even the insurance carrier recommendations would vary.

Yep. And and I’ll say I’ve just I’ve seen it firsthand with clients where they outgrow their existing carrier, especially when they have these collections. So that’s where it’s important for us to be able to come in and kinda provide that unbiased view to say, hey. We actually might wanna consider bringing in a specialty carrier for this given the collection. I know there was one, you know, question about an extensive line collection that the client has. Right? Like, that’s probably something we wanna look for some specialization on.

Absolutely. Our our partnership with Hub International, who is our dedicated resource for property and casualty, has a bench of insurance carriers that specialize in certain areas. And some can be homeowners, some can be the wine collection, David, you mentioned, some can be cars.

And we needed someone who could handle the vast differentiator of lifestyles of all of our clients around the country, and Hub International allows us to be able to have those conversations and come up with solutions when it’s appropriate.

Awesome. Alright. We have about five minutes left here. And and, David, I know that we wanted to hit on some health insurance. Right? Supplemental insurance and even specifically, you know, do I need a travel health insurance policy when I’m studying or studying or traveling abroad? If you can maybe hit on those here, that’d be great.

Yeah. Sure. So let let me say this first that if you have an employer sponsored health insurance pro plan, you’re gonna need to look at the specifics of that plan to see if there’s coverage for international travel.

Typically, what that won’t cost is, a medical evacuation need that could come that could arise out of that, but it it will I’ve actually gone to a hospital abroad.

It will cover a certain amount of cost. But I think more specifically to the audience, I’m gonna guess, is a concern around whether or not Medicare covers any of that.

And Medicare does not cover cover health costs abroad. So outside of the continent, you know, outs not continental. Outside of the fifty fifty states and a few ancillary, you know, areas. So I think specific specific to that group of individuals, travel insurance would be very important.

But you need to be very, very careful about what you’re purchasing. Right? So this isn’t the I’m on, you know, Delta Airlines, and I click travel insurance, you know, that at the at the bottom of my checkout. That is a completely different type of travel insurance.

That’s just about your flight, maybe some baggage coverage, etcetera. That’s not gonna get you any benefit once you’re actually traveling.

Typically, these policies are bought as standalones for the duration in the area that you’re traveling to.

So this, again, this could be where you would work with Hub or somebody that you trust who who does this insurance specifically because there are it is very nuanced. For instance, just to give you an an example, an international evacuation for for medical reasons could run you up to a quarter million dollars, right, or more just depending upon your region, the severity, and the situation around that. So short answer is yes. Investigate it.

Specifically, if you’re on Medicare, if you’ve got your own health plan still, look at what that health plan provides very specifically to international. And then when you go to purchase, make sure that you’re actually purchasing insurance that covers the the risk that you’re really concerned about. Not flight cancellation, probably, but evacuation costs, hospital care, inner you know, in an international circumstance. So just be cognizant of that.

Awesome.

Thanks, David.

Well, we’re gonna shift to, some open q and a session here. I do understand that, you know, some people will have to leave at the top of the hour. So for those that do, I I do wanna quick say thank you for joining us today.

And we will or are recording this session, and it will be posted to our insights tab at mercer advisors dot com. So you’ll be able to go there to rewatch or even better yet, share with loved ones who you know need this information. So, again, thank you for those of us, who need to drop. For those that can hang around, we do have a lot of questions here, and I’d encourage you to continue to send those questions in. But, David, I’m gonna start with you going all the way back to the insurance conversation. We were we were getting a lot of good momentum there, but a lot of questions were coming in around ten thirty five exchanges. And and maybe if you could just, you know, share with the group here exactly what is a ten thirty five exchange and, like, specifically, what does it look like if there is a loan on a policy that we’re looking to do a ten thirty five exchange?

Yeah. Sure. So a ten thirty five exchange is an allowance within the internal revenue code that says you can take a like to like transfer between life insurance policy to life insurance policy, transfer those cash values without having to recognize any taxable occurrence.

Specific to life to life, you can also do life to annuity. You cannot do annuity to life, so that’s a very important and it has to be in in from an insure insured perspective, it needs to be similar. So you if you know, David, you can ten thirty five your policy to a new policy on you. You can’t transfer it to anybody else, your spouse. Likewise, you can’t transfer your cash value into, like, a second to die policy for you and your spouse. So so, you know, there’s some specifics around the allowance, but you could also it’s akin to a ten thirty one exchange in real estate. This is just within the life insurance insurance realm.

With respect to the loan, that’s a very good question. So the loan there’s a couple of things that can happen. One, pay off the loan before you do the transfer, or two, the loan can carry over, and be recognized on the new policy. So, you know, that’s kind of a situation by situation scenario, but those are your two clearest options.

So yeah. And and so ten thirty fives are a very popular option for a lot of people that have outgrown the particular use that they’re using their insurance contracts.

Absolutely. They’re or they’re underperforming.

That’s another big one.

Yep. Yep. We see that a lot. With umbrella policies, you know, a few more questions on that. I’ll kinda open it up to either, yeah, David or Steve here.

Simple question. Are IRAs exempt? And I think the the question is directing it, like, from litigation or, you know, asset seizure.

Yep. So tip typically, the answer is yes. They are. However, it’s going to be state specific.

So broad brush, yes. They are.

But we’d have to see where what state that particular individual is in.

Yep. Yep. I’d say that’s where, again, it’s important to sit down again depending on where you’re living, depending on your plan, what’s exempt, what isn’t, what’s at risk, what’s your risk tolerance. Right?

And then, you know, what are the costs costs of these umbrella policies? You know, a lot of couple of questions in the chat. You know, it starts to get incrementally more expensive when you get to the five to ten million dollar amount. You know, I’d say that’s probably a big increase as a percentage of the premium, but overall, the premium is relatively low, I’d say, you know, when you’re looking at protecting your net worth.

But again, just like with long term care, an umbrella policy, it’s all a conversation around risk tolerance and what clients are willing to absorb themselves or what they want to transfer.

That is correct.

Hundred percent.

Excellent.

Excellent. Couple more questions here. Here’s maybe just a simple one with the umbrella, but I think it’s important to note. Somebody asked, if we’re retired, do we need to have an umbrella policy?

The answer is yes. Because just because you’re retired doesn’t mean that car accident, that fender bender, your pool, your dog retires at the same time. Those are still areas that oftentimes can cause that liability issue. So the answer is no. Please do not get rid of that umbrella policy just because one has retired.

Yeah. And and I would tell you from personal circumstances, the accidents on the road get, again, proportionally much more expensive, and and the severity and frequency as you age goes up. I’ve got circumstances, but we’re we’re running late on time already. But, yeah, it’s very important to maintain that.

Excellent. Well, thank you, David and Steve. Yeah. There’s a couple other questions here around trust, and and really say it kinda comes into estate planning.

The the specific questions around are trust exempt from liability risk? And and I’ll take that. Know, the short answer there is it depends. Revocable trust, which are just an extension of yourself, generally do not protect against the liability that we’re talking about here.

But there are various irrevocable trusts that we help our clients with that can protect against that liability. So I’d say that that’s probably a good way to to close here to say that, like, this is really complicated, and a lot of it is interconnected with estate planning and tax planning and your overall financial plan. And so, like, that’s why we at Mercer advisors, right, we wanna build this family office around you that includes this component of risk management.

So, as we come to our end here, I know we covered a lot, and hopefully, we answered most of your questions. I know that there’s a number of questions that went unanswered. Please reach out to your advisor. Right?

Reach out to us. Right? We’re here to help. Also, again, reiterate, we are recording this session, and it will post to our website in the insight section generally about forty eight hours, after we record.

So you’ll be able to go there, rewatch it, and as I mentioned, share with loved ones.

So finally, I just wanna thank everyone for spending their time with us today. I wanna thank our our panelists, Steve and David. Great content today. And everybody, please enjoy the rest of your day and the rest of your week.

Take care. Thanks, David.

Thanks, David. Appreciate it.