Insur­ance is used to min­i­mize the finan­cial impacts of unpleas­ant events that can occur in a family’s life, so it’s no sur­prise that some folks become guard­ed and ner­vous when it comes time to talk about it. The com­bi­na­tion of an unpleas­ant top­ic and an indus­try that is dom­i­nat­ed by com­mis­sioned sales­per­sons can right­ful­ly be unnerv­ing. That doesn’t mean that insur­ance doesn’t have a place, and hav­ing a finan­cial expert out­side the indus­try help you shop can be a way to be sure you get what you need. Life insur­ance is the most com­mon insur­ance we tend to think about, how­ev­er the odds of need­ing dis­abil­i­ty or long-term care insur­ance are actu­al­ly much greater. Don’t over­look these as pos­si­ble impor­tant pieces of your finan­cial planning.



Lack of dis­abil­i­ty insur­ance is the land mine that can destroy all your finan­cial plan­ning. Your biggest asset is your abil­i­ty to earn. Lose that and all your plan­ning can be for naught. Dis­abil­i­ty is not just los­ing an arm or a leg. More often, it involves can­cer, depres­sion, back pain, heart prob­lems and oth­er debil­i­tat­ing diseases.

Dis­abil­i­ty insur­ance is gen­er­al­ly cheap­er through work because the risk is spread out amongst all employ­ees. If you deduct your dis­abil­i­ty pay­ments from your pay­check, you will pay income tax­es on any pro­ceeds you col­lect. If you don’t take the deduc­tion, you don’t have to pay tax­es on the pro­ceeds. Most of the time, you’re bet­ter off tak­ing the deduc­tion now since your income would like­ly be low­er if you were tak­ing pro­ceeds instead of draw­ing salary.

Dis­abil­i­ty recommendations:

  • Have a min­i­mum of 120-day elim­i­na­tion peri­od. You can afford to self-cov­er dur­ing that peri­od and you will pay much less in premiums.
  • Keep your pol­i­cy only long enough to meet your needs. Don’t buy a life­time pol­i­cy if you only need cov­er­age until age 62. Once your income pro­duc­ing days are over, your need for dis­abil­i­ty insur­ance goes to nil.
  • Get a waiv­er of pre­mi­um, which means you quit pay­ing for the pre­mi­um if you get dis­abled. Also, get an infla­tion rid­er, which means your cov­er­age goes up with inflation.
  • The best solu­tion is to get dis­abil­i­ty insur­ance through work and aug­ment it if necessary.


Long-term Care

Long-term care pays for a nurs­ing home or in-home care. Many insur­ance com­pa­nies are drop­ping this type of cov­er­age because they are los­ing mon­ey on it. The aver­age annu­al cost of long-term care is $91,250 for a pri­vate room in a nurs­ing facil­i­ty, and goes up about 5% a year, high­er than inflation.

Beyond Life InsuranceThe emo­tion­al costs of long-term care are hor­ren­dous. Six­ty-five per­cent of peo­ple rely on their fam­i­lies to care for them in old age. Many peo­ple miss work and even quit jobs to help take care of their par­ents. In many cas­es, you will take care of your par­ents longer then they took care of you.

Pur­chase long-term care insur­ance only if self-insur­ing isn’t an option. How­ev­er, even if you’re finan­cial­ly inde­pen­dent, con­sid­er long-term care. For one, the mar­ket is so unpre­dictable. Two, it sends a mes­sage to your fam­i­ly that you don’t expect them to care for you. Per­sons with no desire to leave an estate may be alright to self-insure until the mon­ey runs out and then let Med­ic­aid pick up the rest. Long-term care insur­ance is not cheap so if leav­ing an estate is not your desire, you might think twice before mak­ing that year­ly pre­mi­um payment..

When con­sid­er­ing your pur­chase, be sure to look at whether you have indem­ni­ty ver­sus reim­burse­ment cov­er­age. With indem­ni­ty, the insur­ance com­pa­ny gives you pay­out cash and doesn’t care how you spend it. With reim­burse­ment, you sub­mit expens­es and get reim­bursed. Indem­ni­ty is gen­er­al­ly the more expen­sive of the two.

When pur­chas­ing long-term care insurance:

  • Buy only from A‑rated companies.
  • Look at the dai­ly ben­e­fit amount. You may be able to self-insure for part of it, so that it doesn’t cost so much.
  • Look for waiv­er of pre­mi­um and home care options.
  • Make sure the pay­out goes up to han­dle inflation.
  • Remem­ber most long-term care stays are less than 4 years, so don’t waste your mon­ey on lengthy or life­time care poli­cies. (The excep­tion may be those with his­to­ries of Alzheimer’s &/or dementia)

Long-term care is ful­ly deductible for C‑corporations, and you can dis­crim­i­nate. You don’t have to get it for any­one else.

Medicare pays only for some advanced, spe­cif­ic hos­pi­tal care for 100 days, not for long-term health care. Med­ic­aid pays long-term health care, but only for the impov­er­ished. When it comes to long-term care, you have three basic options

  • Go broke.
  • Insure for it.
  • Have enough mon­ey to pay for it.

Pay atten­tion to your par­ents. Unless you help them devel­op a plan, you are their long-term care plan.