As I outlined in an earlier post, I disagree with Dave Ramsey (and a lot of other people) when it comes to long term care insurance. Many people debate with their family, with "experts" and/or with themselves regarding whether or not to buy long term care insurance. However, I rarely hear anyone talk about a long term care PLAN, unless they are using it as a synonym for LTC insurance. Having no plan is a bad plan, no matter how good of insurance that someone might have, and some times having no insurance is the right plan.
So what's the difference between LTC insurance and a LTC plan? Maybe it will help to plug in "fire" for LTC to understand it better.
If your house is burning down, the most important thing is to have a plan of action, so everyone gets out safely. If everyone's dead, there's not point in having the insurance to replace your stuff that burns up. Even better than an escape plan, is a fire prevention plan. Almost all fires are preventable. If you never have a fire, your never hurt by not having fire insurance or having bad insurance. Also, once a fire starts, a good plan and things like fire extinguishers can minimize the damage, again making much less important to have good fire insurance.
Having a long term care PLAN starts with prevention. Many of the things that result in someone needing long term care are preventable. Most physical problems that result in people being unable to live on their own are caused by poor lifestyle choices. Heart attacks, strokes, broken hips, lung problems, etc. are mostly preventable. Making healthy choices dramatically reduces the odds of needing long term care. Insurance companies know that, so if you decide to buy LTC insurance, it will cost a lot less and be easier to get if you are healthy.
The next part of making a plan is to assess your current status and figure out what would happen if right now you were suddenly unable to care for yourself with little or no chance of recovery. What would happen? I always recommend taking a lot of time writing out the answer to this question. It's going to vary a lot from one person to another. For example, if a person were a grain farmer, someone would have to take over planting, harvesting, etc. pretty much immediately, but if someone is retired or one of many people performing the same basic job as several others within a company, the situation isn't as urgent. It would also look different for someone running a company where others were dependent on him or her for their employment. Family situations are another variable affecting things dramatically.
If you haven't already, now is the time to really think about this possibility, and get it down in black and white what you think would happen. That is the foundation of a long term care plan. We'll work on putting the rest of the building up soon.
Showing posts with label long term care. Show all posts
Showing posts with label long term care. Show all posts
Tuesday, December 15, 2015
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.
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.
Thursday, October 8, 2015
"How Much Did He Leave?" "All Of It" (Day 10)
Yesterday I wrote about what I see people do most often with retirement money, and said that instead of just complaining about their mistakes, I would offer some solutions. As I often say, this isn't insurance advice. Without sitting down with you and discussing the specifics of your situation, I can't make an informed recommendation. What I'm posting here is very general, something to use to open a discussion with me or another professional and figure out an action plan, not something to take action on right now.
People often tell me something along the lines of, "I want my money to run out the day I die, and the check to the funeral home to bounce". They understand the old saying of "You can't take it with you." However, they almost never actually spend their retirement money that way. Just like a business, 401 (k) and IRA plans should have an "exit strategy" from the beginning.
These are some possibilities that in many cases are better than holding on to tax-deferred money until it gets passed to beneficiaries or a nursing home.
People often tell me something along the lines of, "I want my money to run out the day I die, and the check to the funeral home to bounce". They understand the old saying of "You can't take it with you." However, they almost never actually spend their retirement money that way. Just like a business, 401 (k) and IRA plans should have an "exit strategy" from the beginning.
These are some possibilities that in many cases are better than holding on to tax-deferred money until it gets passed to beneficiaries or a nursing home.
- Start a guaranteed income stream from the retirement funds and use it to buy a life insurance policy. Often the best option is one that also provides a benefit if you need long term care. Advantages: Taxes on withdrawals are spread out over multiple years, and proceeds from life insurance to designated beneficiaries are not normally taxed. Depending on age, health, etc, life insurance benefit could be more than the value of the retirement savings, even not figuring in tax advantages. Depending on options chosen, beneficiaries may get both the life insurance benefit and more regular income. At least they won't get everything as taxable.
- Gradually convert to Roth IRA. You pay taxes on that part when you convert it, but it is later passed on without the taxes hitting all at once. With some planning, you can offset the amount you convert with other deductions so you pay little or no tax on the money. For example, I've had customers balance the Roth Conversion with deductions like large medical bills, HSA contributions, business losses/investments, work layoffs, etc. I haven't had anyone do it, but it would be ideal to take a year off work to travel, live off savings, and do a Roth Conversion to turn money that's never been taxed to money that will never be taxed. All without every paying any taxes on that money. Do this only AFTER consulting with a tax advisor. That's better than getting a surprise at tax time, and if the tax advisor is good, he or she often has ideas on how to do it even better than you and I think of doing it.
- Give it directly to a charity each year.
- Give a portion as gifts to family each year, paying a small amount of or no tax as you go. With both this and the charitable giving, you get to see the benefits of your gifts, which is a lot better than saving on taxes. They might even take you out fishing or water skiing on their new boat.
Tuesday, October 6, 2009
The Real Health Care Crisis
With all the hoopla about health insurance, lots of people ask me my opinion, which along with $1.85 with get you the best cup of coffee in Des Moines at Cup O' Kryptonite. My opinion: the current problems are only the tip of the iceberg.
The real crisis is about 10 to 20 years down the road. The Baby Boomers will be going to the nursing homes. Think about this. During the "Summer of Love" in 1968, the first Baby Boomers were 23 years old. If dementia and Alzheimer's are problems for our 70 and 80 year olds now, what do you think it will be like when the Boomers start seeing white rabbits again? Instead of streaking football games, they'll be streaking the hallways of long term care facilities. Instead of burning their draft cards and bras, they'll be burning down their kitchens because they forgot to turn off the frying pan. Instead of smoking pot they'll...never mind, they'll still be smoking pot. but they'll have long term memory loss in addition to the short term memory loss.
Where will their care come from? Who's going to pay for it? We don't have enough facilities or qualified workers to handle them all. And if science continues to reduce the mortality rate, more and more bodies with fried minds will live longer and longer. The "if it feels good, do it" generation hasn't saved their money like their parents did, and what they did save has been lost in the market downturns. They have fewer children, and most of their children have moved away.
The good news? Those of us with aging parents won't have to worry about being empty nesters. When the kids move out, the parents can move in. We won't be bored with no one to take care of.
Or maybe the Green Movement will become the Soylent Green Movement.
The real crisis is about 10 to 20 years down the road. The Baby Boomers will be going to the nursing homes. Think about this. During the "Summer of Love" in 1968, the first Baby Boomers were 23 years old. If dementia and Alzheimer's are problems for our 70 and 80 year olds now, what do you think it will be like when the Boomers start seeing white rabbits again? Instead of streaking football games, they'll be streaking the hallways of long term care facilities. Instead of burning their draft cards and bras, they'll be burning down their kitchens because they forgot to turn off the frying pan. Instead of smoking pot they'll...never mind, they'll still be smoking pot. but they'll have long term memory loss in addition to the short term memory loss.
Where will their care come from? Who's going to pay for it? We don't have enough facilities or qualified workers to handle them all. And if science continues to reduce the mortality rate, more and more bodies with fried minds will live longer and longer. The "if it feels good, do it" generation hasn't saved their money like their parents did, and what they did save has been lost in the market downturns. They have fewer children, and most of their children have moved away.
The good news? Those of us with aging parents won't have to worry about being empty nesters. When the kids move out, the parents can move in. We won't be bored with no one to take care of.
Or maybe the Green Movement will become the Soylent Green Movement.
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