I delivered a Long Term Care Insurance policy last week. My client waited until she was in her mid-sixties to take care of her insurance. The result was that her premiums are fairly high.
This Long Term Care Insurance policy was the last piece to her retirement insurance portfolio. It includes all of her Medicare, Medigap, Life Insurance and Long Term Care Insurance. When we looked at what she was paying for insurance each month it was quite pricey for her to have her present levels of coverage.
Unfortunately, there was an ignorant bookkeeper at the house at the same time I was there. She used a phrase that is one that pushes my buttons. She told my client that she was “Insurance Poor” since she was paying $700 a month for life, Major Medical and Long Term Care insurance. She does not understand that 3 years ago this client was paying over $1700 a month just for Major Medical insurance.
I wanted to ask her what my client should do. She could eliminate some insurance costs and assume the risk herself. But which should she eliminate.
My client is paying $105 a month for the part of Medicare that pays for doctor’s visits. Since she is diabetic, and has other health issues, she has to go to the doctor several times a year.
She could save the $105 each month for her Medicare B premiums and pay her doctor’s office visits and lab work out of her own pocket.
The problem with that option, however, is that statistics indicate that an individual, over the age of 65, will still have to pay over $240,000 in medical bills after Medicare B.
If she were to stop paying the $105 each month for Medicare B she would pay over a million dollars for medical expenses during her senior years.
Medicare does not pay for prescription drugs from the pharmacy. The only option for someone with Medicare to get any help with the costs of their prescriptions is Medicare D.
This client could save $45 each month if only she would be willing to pay full price for 8 prescriptions each month.
Medigap is also known as Medicare Supplement. She is paying $177 each month for Plan F. That is the plan that pays the portion of every medical bill that Medicare does not.
It is possible to get a less comprehensive Medigap plan. There are plans available that could save her as much as $50 each month.
The problem is that Plan F is the most popular Medigap plan in the nation. People who buy that plan do not want to deal with any insurance paper-work at all during their retirement years.
Since Medicare does not pay, on average $240,000 of medical bills during the average American’s “Golden Years,” $177 a month for a Medigap plan that will pay all of those expenses is actually a bargain.
Sure she could cancel that plan and save $177 a month. However, if she does, she will have to pay 20% of the costs for all of the doctor visits and outpatient treatments she gets for the rest of her life.
This particular client had over $300,000 of debt when we established her portfolio. We got her a $330,000 term life insurance policy.
If she died, all of her debt would be paid off and her estate would have enough money to pay for her final expenses.
I advised her that periodically, she should lower the amount of Life insurance she has, as she pays off her debt.
I am not one of those insurance agents who say, “Everybody should have Life insurance.” They are extremists in their zeal to sell. However, I am also not in the same camp as those “financial advisors” who say, “All Life insurance is a waste of money.”
If there is a genuine need for Life insurance during retirement, it belongs in your portfolio. However, if you have enough cash in your savings to pay for your final expenses, there is generally no need for life insurance during retirement.
I would rather see my clients spend their insurance dollars on insurance that will benefit them while they are still alive rather than only benefit heirs after they have died.
LONG TERM CARE INSURANCE
Thanks to medical breakthroughs, people are living longer than they used to. Our grandparents were lucky to live to see their 65th birthday. Today, baring an accident, the average American lives to see their 77th birthday, at least.
The problem is that while the doctors are able to keep us alive, the diseases and frailties of old age are more common. It is estimated that 7 out of every 10 people who reach their 65th birthday will need some sort of help.
In the past Americans would care for their aging parents as long as they could. However, when they could no longer care for mom, they would place her in an “old folks home.” (Today they are called the more politically correct, “nursing home”)
Fortunately, in the 1980s another option for healthy older Americans, became popular. Today, the “nursing home” is not the only option for a retire person. If they are mostly healthy, but just need a little help, there is an option for them. It is called Assisted Living.
With Assisted Living, retirees are allowed to keep their independence but live in a community apartment complex where they can easily get the non-medical help they require, when they need it. They are free to stay in their apartment and enjoy their privacy or mingle with the other residents and enjoy social interaction.
The most common option for retirees who have limitations, is to remain in their own homes, where everything is familiar, and just hire someone to come to the house to help them.
The problem is that all of these options cost money. In our area of TX, according to the Mutual of Omaha 2013 Cost of Care Survey the average annual cost is…
- Nursing Home – $ 52,925
- Assisted Living – $ 33,924
- Home Care – $ 40,896
Please keep in mind that these figures are only accurate for the area of TX in which I and my clients live. The costs in your area of the nation will be different. If you are curious how much you could be required to spend for help during your retirement, click on the link above for the Survey and find the costs in your area.
Her Long Term Care Insurance policy would give her the money to pay for all of these options, and more. Like all of the other insurances she has, it is pricey but the alternative is vastly more expensive.
However, there is a lesson that all of us can learn from her portfolio. There is not a great deal that she could have done about her Medicare and Medigap plans earlier in her life. Americans must wait until they are actually enrolled in Medicare to even get those programs.
However, if she had gotten her Life and Long Term Care insurance plans earlier in life, she could have saved herself $200-$250 a month in insurance premiums.
This experience proves to me that ignorance of how to use insurance is not unique to elected officials. Unfortunately, many Americans, who do not understand how to use insurance properly, use phrases like “Insurance Poor.”
Fortunately, at least in this case, my client is caring for her mother, who has had several strokes. She understands that the premium that she is spending each month, while expensive, is very little when compared with the costs of caring for someone during their senior years.
It is a shame that all people who claim to be “financial specialists” are not able to see past today’s costs to tomorrow’s expenses and plan accordingly. For an individual who has sufficient money in their savings to pay for everything in the future, insurance is a luxury.
However, for the average American who retires with less than $50,000 in savings, insurance is a necessity.
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