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.
- 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 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.
The 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.