TAKING STOCK: Long term health care

Dear Mr. Berko:

Back in 1992, when my husband and I were 63, we bought long term care policies that our agent said had all the "care comfort needs for our future years." Our combined premiums were $3,000 in 1992 and easy to afford. And we believed the premiums, like on our life insurance policies, would never increase. In 1995, the premiums began to rise a few hundred dollars a year and they are now over $2,000 a month or $24,000 a year. Why has this increased so much? We're still healthy but can hardly afford those premiums from cash flow and are scared to cancel the policy. And we have no children to rely on for care. My husband sold his solo accounting practice 10 years ago because it became too much for him. Now we must again sell some low dividend stocks from our dwindling portfolio because the premiums are going to be due in July. We would sell either Macy's, Nordstrom or JC Penny. Please tell us which one of the three you would sell. As you can see from our enclosed list of assets the cost basis on these three is nearly zero.

BR in Springfield, Ill.

Dear BR:

You folks have a nice portfolio of income stocks that has supported you well during the past dozen years. And I'm delighted that you, contrary to Wall Street's advice a decade ago, purchased some excellent pipeline MLPs. Their price appreciation and dividend growth has been sensational. However, do you know Wall Street has strong buy ratings on Macy's (M-$37), Nordstrom (JWN-$51) and JC Penny (JCP-$34)? Though you only wish to sell one of these issues, the only JNE is worth a tinker's damn. Macy's moderately floats my boat but JCP definitely sinks my ship.

JCP's revenues and earnings have been in a funk since 2004. In spite of Herculean efforts to "ritz-up" the ambiance and dispose of unprofitable divisions, JCP is still having indigestion problems. JCP company needs an industrial sized enema. Internet sales are disappointing, catalogue sales are problematic, stores are cavernous, same store revenues are down, store space is cluttered, net profit margins are falling, sales assistance is non-existent and earnings are lousy. This may be the future of the Big Box store. Now JCP is laying of 13 percent of its headquarters staff , closing its huge customer call center in Pittsburg and looking for ways to reinvent itself. Perhaps JCP should merge Sears Holdings. Sell it.

Long Term Care Policies (LTCP) were sold as level premium plans, and consumers depended on that promise when they purchased their policy. But since there is no wording in a LTCP contract prohibiting the insurer from raising rates, your choice now is: lump it or like it!

Insurers originally priced their LTCP low and hooked a large number of eager buyers. Then years later, when aging buyers were trapped between a rock and a hard place, insurers boldly raised premiums when they needed additional cash to meet policy demands. And state insurance commissioners who depended upon the industry for re-election funds, realized they needed to grant increases.

Several years ago, the insurance industry could rely on earning a safe 4 percent or 5 percent return on their trillions of dollars of reserves, and those earnings were used to pay policy claims. But the FED, to save Wall Street and the banking, mortgage and housing industries from their excesses, lowered rates to nearly zero. Now, your higher premiums are paying for those excesses.

Another reason for higher rates is, unlike life insurance policies, the industry didn't realize that LTCP holders wouldn't allow their policies to lapse, and lapsed premiums translated to higher profit via fewer claims. And lastly, whenever Washington becomes involved in the financing, staffing and policy decisions of any public endeavor, costs will rocket.

Finally, I noticed you have two life insurance policies with substantial cash values. There's enough cash value in those policies to make over 9 years of premium payments. Ring that insurer, cancel your life policies and you won't have to sell a single share of stock.

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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

© 2012 Creators Syndicate Inc.

Published: Fri, May 25, 2012

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