I was taught not to generalize. It is not right to say, “all women are bad drivers,” “all African-Americans are superior athletes” or “all Hispanics are illegal aliens.” Each person deserves to be judged individually.
It is unfair for me to think that all women are bad drivers based on my wife’s driving habits. It is wrong for me to assume that all African-American men are excellent basketball players. It is incorrect, on my part, to believe that just because one Hispanic landscaper is undocumented, all of them are.
I hear, “all insurance is a scam.” That statement is just as prejudiced and bigoted as the ones I mention. Insurance is nothing more than a financial tool. It allows you to pay a little now so that you do not have to pay a lot if you suffer from the insured hazard.
One of the object lessons I give when I speak to groups is designed to show them what not having the right insurance portfolio can cost them during retirement.
I start by giving each table the equivalent of $200,000 in chocolate. The chocolate represents their life’s savings. Actually, $200,000 is a bit more than the average American has access to during retirement.
The most recent figures that I have seen show that the average American will spend about $240,000 on health care during retirement. If those costs are paid by Medicare B, only 80% of those expenses will be paid by Medicare. Individual Retirees will need to spend almost $48,000 from their savings on health care during retirement. I have people give me back $48,000 worth of chocolate.
The loss of 1/4 of their stash is quite impressive but I am not finished.
I know that 70% of people who retire will need some form of Long Term Care. Hopefully, that will just mean someone to help out with the chores around the house.
According to the Genworth Cost of Long Term Care survey, the average annual cost to hire an unskilled Home Care aide, in my state, is $39,000. The average American who needs Long Term Care will use it for 3 years. I take an additional $117,000 in chocolate.
That leaves people with $35,000 in chocolate. They are free to eat it or give it to their kids. Heaven knows, I do not need more chocolate temptations in my house. I am fat enough already.
WHICH IS BETTER?
I then lay out $165,000 of chocolate while I explain that what they have left is only 17.5% of what they started with. I ask them to consider whether they would rather have the pile that is before them or the pile that is in front of me.
Even if they paid 17.5% their lifetime savings for Medigap, Advantage, Medicare D and Long Term Care insurance, they would still be able to enjoy 82.5% of their life’s savings during retirement since insurance would pay those bills on their behalf.
I can understand why many people think that “insurance is a scam.” It can easily be used by unscrupulous insurance agents to scam people. However, most insurance professionals are not looking to scam anyone. The odds tell us that, when insurance is used correctly, it allows people to retain more of their life’s savings.
Before you make a hasty generalization that “all insurance is a scam,” take the time to calculate how much of your life’s savings you would have to hand over to doctor’s, hospitals and care givers. You may find that insurance is not as big a scam as you thought.