Friday, November 20, 2015

Dave Ramsey is Wrong--Part 2: Long Term Care Insurance

If you missed Part 1 regarding determining the right amount of life insurance to purchase, it gives a little background to this post.

Dave Ramsey's is wrong with many of his comments regarding long term care insurance.  Not completely wrong, but kind of like those true/false test questions, it only needs to have one little bit wrong to be "false".  And that one little false bit can really screw up a person's life.  Here's what he says on page 160 of Dave Ramsey's Complete Guide to Money.  "Statistically speaking, long-term care coverage is pretty much a complete waste of money--until you turn 60.  Then, something dramatic happens.  Long-term care coverage goes from being a waste to being an essential part of your insurance plan.  You don't need it when you're fifty-nine, but you need to be on the phone setting it up the day you turn sixty".  Huh?  The other things I disagree with him on, I can at least see why he thinks the way he does, even if I disagree with it. But this is completely illogical.  At 59 and 364 days LTC insurance is a waste of money, but the next day I absolutely have to have it?  But what if I was born 2 months premature?  What if they had to induce labor because I was 2 weeks overdue?  Do I adjust accordingly?   Why isn't he recommending that I buy it to be effective the day before I turn sixty and "waste" the premium on one day of coverage so that I pay a 59 year old rate instead of a 60 year old rate for the next 20 years or so?  That argument would at least make some sense to me. It would at least be a "smart" financial move.

His first mistake is his first word: "statistically".  Statistics are extremely important when it comes to insurance.  To the insurance company.  But they are absolutely meaningless to you as an individual.  It doesn't matter what the average length of time needing long term care is.  It doesn't matter what the average age of a person needing long term care is.  All that matters to YOU is when YOU need it, how long YOU need it, and when or if it happens to YOU.

You don't buy insurance to protect you and your family from something that happens when and how you expect it to, you buy the insurance to protect you in cases where you are NOT average.  For example, no one in their right mind says, "I'm not going to buy home insurance because most people's houses don't burn down.  It's a complete waste of money.  If it looks like my house is going to burn, then I'll buy home insurance."  We all know what would happen if a person did that, even if you aren't like me where every time there's a forest fire I get a barrage of emails saying that no one in that area can buy a new home insurance policy.   That's almost what he's saying to do when he says that you should wait until your 60th birthday to by LTC coverage because younger people rarely (according to statistics) need LTC coverage, but after 60 they are likely to have a claim.  Does he think the insurance companies are not aware of these statistics?  And that they don't factor that into their underwriting and rates?  They don't issue a single policy that the statistics tell them they will lose money on.

Are there 60 year-olds who are able to qualify for coverage?  Sure there are.  Also from page 160:  "According to the American Assciation Homes and Services for the Aging (AAHSA), 69 percent of those turning age sixty-five today will need some form of long-term care".   Translation:  31 percent of those turning age sixty-five today will NOT need some form of long-term care.  Who do you think the insurance companies want to sell their policies to?  The 31% or the 69%?  They aren't 100% right all the time, but they do a pretty good job of avoiding selling policies to 69%.

As I said, there are 60 year-olds who qualify for LTC insurance, but there are quite a few who don't.  People who would have qualified at age 50 or 55 or 59.  You can't just buy long term care insurance with money.  You have to be healthy.  If you've ever had a heart attack or stroke or cancer, you've got an uphill battle.  If it's been within the last few years, it's next to impossible to qualify.  Or if you've had back or joint surgery.  Or missed work because of a bad auto accident.  Or any other health issues.  Have you ever heard of anyone having any problems like that before they were 60?  Especially between 50 and 60?  If you haven't, then you haven't been paying attention.

That's only a small part of what's wrong with his views on long-term care insurance.  Looks like I'm going to have to have a Part 2-B at least.

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