Our normal anxieties in dealing with insurance companies are based on the concern that we won’t be sufficiently compensated.

However, not everyone fits this mold.  This post is based on an email from one of my clients (I will call her Carol) who, because she had been injured in an auto accident, is in the process of hiring an attorney to represent her in dealing with the insurance company. Although she was hospitalized, missed work and could have ongoing medical issues, Carol is struggling with the morality of “going after” the insurance company. Because of the trauma of the accident, she doesn’t clearly remember it, which creates some guilt issues. Carol is also concerned about the possible “greed” mentality many lawyers seem to have.

Here is a clip of her email:

“You helped with this when we talked, but I think I’m blanking on it and churning. Will you give me perspective on the accident claim again according to biblical teaching? I’m still struggling with what God really wants of us in this financial circumstance.”

This is my reply to Carol:

I wish I had great biblical passages to share with you about insurance. The best I can come up with is Exodus 21: 12-36, a section of the bible which tells us that those who are harmed should be compensated. The gist of this passage is just that: God expects people to be compensated for harm done to them. This is why you have insurance and why the other person in the accident has insurance. If the other person was harmed, I am sure you would be glad that you had insurance so she could be compensated. Just because the shoe is on the other foot (being you are the one harmed) does not make it any less right that you should be compensated. You are concerned about how this will affect the other person. This is something you have no control over, but she SHOULD be glad that her insurance is going to take good care of you. If she isn’t, that is her problem, not yours.

The issue of how much the claim should be…again, ask yourself, “What if the other person had to go through what I have been through?” Wouldn’t you want her to receive payment for her medical care AND for lost income AND for possible future medical care? Of course you would. It is only right. I agree with your attorney. This is not about greed. It is about an injured person being compensated for the harm done.

Another thought is this: we are commanded in Romans 13:1 to be subject to the governing authorities. I am not sure about Missouri, but I know Illinois requires auto insurance (liability as a minimum). In keeping with the laws of the land and Romans 13:1, you have auto insurance. The very legal system that requires you to have insurance will also have a judge who makes a determination as to the award of the case. As long as you aren’t doing anything un-Godly to tweak the system (which you aren’t), then I would say that God is using that judge to make a proper and fair determination. In reality, the attorneys for the insurance companies might settle out of court, but the point is that God requires insurance, so trust Him to see to the details.

One more thought. You have debt and you have been harmed financially by this accident, meaning you have not been able to work as much physically or emotionally. This is not your fault and you should not feel guilty about what you can’t control. But if you were to somehow sabotage this settlement, you might be turning away money that could go toward those you owe. I know this is a stretch, but allowing the process to play itself out could help some creditors get the money owed to them. I can’t see that is a bad thing. Without the accident, you might have been able to gain enough traction to start making some major payments through your income stream. But the accident DID occur, so you don’t really know what might have happened in your career if it hadn’t. All of this is part of compensating a harmed party (back to Exodus 21).

In the end, I think you should trust the process, trust your attorney (or find one you can trust) and trust God. That is the best way I know to put it in God’s hands. When you do so, you can feel good about the outcome whether it goes very well or very poorly.

I hope this helps.

Joe

Carol’s response:

“I won’t be able to tell you how much it means to have your counsel and how thankful I am….I’m breathing easier today because you took the time to think on this for me. I’m so thankful”

Readers: have you ever struggled with guilt or the feeling of greed when negotiating an insurance settlement? How did you handle it? What would you add or change in my response to Carol?

photo credit: Chasqui

Some background

The year before I turned 60, I started researching Long Term Care Insurance. I read brochures; I asked questions; I solicited quotes and I asked questions about those quotes. Long Term Care Insurance, in case you don’t know, has many nuances and is quite complicated. Because I assumed that Janice would agree that we need this insurance, I wanted to make sure I clearly understood how it worked.

Did you get that word, “assumed”? With all of the grace of a bulldozer I laid my bulging LTCI file on the dining room table and commenced explaining how it worked and why we needed it and how much it would cost. Janice listened thoughtfully and then said, “No one in either of our families has ever needed nursing home care. I think it is a waste of money.”

“But…but…”, I stammered. “A prolonged nursing home stay will wipe out whatever nest egg we have. Is that OK with you?” As I listened to myself talk I realized that I sounded strangely like an insurance representative.

“Well, no.” Jan replied. “That is not OK. But it is worth the risk to me. I would rather hang on to that premium money than spend it year in and year out for the rest of our lives.”

Janice and I have an agreement: we don’t spend money on anything over $100 without both of us agreeing. In this case, we both didn’t agree so we didn’t spend the money.

Still, I was plotting to not give up easily.  I remember thinking,  “We don’t have to buy the long term care insurance right now. I will wait until before my 61st birthday and bring it up again.”

The Years Pass

I kept my word to myself. I brought up the issue before my 61st birthday, before my 62nd birthday and before my 63rd birthday. Each time Janice politely explained her views. Finally, in our most recent discussion, Janice’s voice had an edge to it, “I thought we had already settled this discussion. I understand our decision. I am willing to take the risk. I just don’t think we need to be spending that premium money for insurance that I don’t think we will ever use.”

We Negotiate

“OK Jan.” I countered, “I respect  your judgment, so let’s discuss a compromise. Would you agree to increase our investments? Realistically, we will never create a big enough nest egg to be self insured, but we could earmark the nest egg for Long Term Care and it would surely help if we need it. If not, then we still have our money.”

“Sure. We could do that.” she said.

So we agreed, once and for all, that we will not buy Long Term Care Insurance and that we will beef up our investments instead.

What is the Point?

You might not agree with our decision. That is OK. But even though I didn’t get what I wanted, I harbor no ill will about it. The point is that with this issue, as with any issue, we have a process: we talk it out and respect each other enough to listen and negotiate and come to an agreement. My wife is a wise woman, one I have great respect for. Someday, I suppose, we will learn which one of us was right. But there will be no “I told you so’s” – no matter what. WE talked and WE made a decision and WE are both on board.

In my mind, that is what a great marriage is all about. The best long term marriage insurance I can think of is a healthy process of talking things through, coming to an agreement and living with that agreement.

Even if things don’t work out the way we want, we will manage. We are a team. We do things together. We will figure it out. Together. That is the point.

Readers: How do you resolve money issues in your family setting? Which ones have been particularly difficult? What have you done right?

photo credit: Candida.Performa

photo credit: Brett L.

Allow me to preface this post by referring you to some other great posts on the health care legislation.  The Amateur Financier gives a balanced look at the legislation and what it means to us.  Other bloggers who have weighed in are Financial Samurai who is in favor,  Darwin of Darwin’s Finance who is convinced that we will have buyer’s remorse, Kevin of 20s Money who is certain (based on government’s history of underestimating projected costs) that it will be way more expensive than expected and Evan of My Journey to Millions who digs into whether the bill is even constitutional.

If you want a great summary of what the bill covers and which provisions kick in when, I highly recommend jumping over to this article provided by Health Insurance Providers.

What do I think?

Did we need health care reform?  I think everyone agrees that we did.  Me too.  But I also believe that this bill will ultimately result in poorer quality of health care for all of us.

Let me explain:

What will happen to Health Insurance Companies?

Imagine the following conversations:

Homeowner, “I need to purchase some homeowner insurance.”

Insurance Agent, “Tell me where you live so we can drive by and look your home over.”

Homeowner, “My address is 100 Main St, but my house burned to the ground yesterday.”

Or…

Woman, “I would like to purchase some term life insurance for my husband.”

Agent, “I will need to ask some questions.  How old is your husband?”

Woman, “He died yesterday.”

“Ridiculous!” you say.  “No insurance company is going to issue insurance against an event after the event has already happened.”  Right.  But, starting this year, the new health care bill requires insurance companies to extend coverage to children with pre-existing conditions.  By 2014, all pre-existing conditions must be covered for all ages and (get this), higher health insurance rates cannot be levied because of health, gender, etc.

“But…but…shouldn’t everyone have health insurance regardless of their circumstances?”

Good question.  One I don’t have an answer to.  But here is my question:  How can insurance companies stay in business if they are forced to insure all pre-existing conditions and not allowed to raise their rates?  Well, they can and will pass those increased costs on to other policy holders, but my prediction is that within five years all health insurance companies will have closed their doors, forcing the single payer government health insurance to be the only insurance in town (or in the nation).

What will happen to doctors?

Our government has promised to trim heath care costs and help save money on health insurance premiums.  While I haven’t read anything specific about the new bill monitoring pay for medical treatment, they will have to find ways to hold down health care costs if we default to the public option plan.  I envision them setting limited payments per procedure, effectively stifling doctors’ incomes.  With less income incentive, current doctors are going to start leaving the system and prospective doctors will think twice before spending $250,000 and 8-10 years of their lives for the privilege of working for a capped salary.

By 2014, the new bill forces all U. S. citizens to have health insurance or else pay a fine.  In effect, the 30,000,000 who are currently uninsured will then be insured.  Even if we keep the same number of doctors, each doctor will be seeing more patients thus reducing the quality of care.  If my theory is true about fewer doctors in the future, each doctor will be seeing even more patients,  further diminishing the quality of care per patient.

What will happen to pharmaceutical companies?

Pharmaceutical companies invest hundreds of millions of dollars in research to discover new cures for our health issues.  They must recoup these investments within the patent time period in order to justify future research.  Why?  Because once the patent has expired, any and every drug company will start selling the generic version for practically nothing.  For example, I pay only $10 for three months supply of the generic blood pressure medication.

The new Health Care Reform bill requires that, starting in 2011, seniors enrolled in Medicare Advantage or the Prescription Drug Plan will receive a 50% discount on brand name drugs immediately with additional prescription drug discounts to follow.  Now…ask yourself what will happen if the Pharmaceutical companies are not allowed to recoup their research investments because they are restricted in what they can charge.  Right.  They will simply stop doing the research.  We won’t notice for years, but, without the research, no new drug discoveries will be made.

Summary

I hope I am wrong, but it seems to me that the health care bill we passed is going to lower the quality of health care for all of us.   When the insurance companies close their doors, we will all have government run health care.  Because of our nation’s debt problems, restrictions could be capped on rates health care providers charge, which would discourage prospective doctors from entering the medical field.   The equation of fewer doctors and more patients equals metered care for all.  If pharmaceutical companies cannot profit from new medicinal discoveries, there will be no new discoveries.

An ironic silver lining: if the quality of health care is lessened, we might start taking better care of ourselves.  That would definitely be a good thing.

Please jump in and share your thoughts on the new Health Care Bill.   Do you agree that it will lower our quality of health care?  If so, is insuring the uninsured worth it?

This post has been included in the following carnivals:

Yakezie Carnival #6 hosted by Canadian Finance Blog

Baby Boomers Blog Carnival hosted by Baby Boomers US

Carnival of Financial Planning hosted by The Skilled Investor

Carnival of Financial Planning hosted by Green Panda Tree House

Long Term Care Insurance

When I say very, very wealthy, I am talking about anyone who can handle $1 million or more out of pocket without blinking. Where do I get the $1 million number? A little math: the projected nursing care cost 10 years from now is $175,000 annually. That cost of care for six years is just over $1 million. As you might expect, Long Term Care Insurance is not inexpensive. Nor is it simple.

The following ten tips are meant to help you understand Long Term Care Insurance better and make a knowledgeable decision that is best for you when purchasing it:

1. Wait to buy long term care insurance

The younger you are when you take out the policy, the lower your premium will be. However, it is very rare for anyone under 60 to need nursing home care, so don’t pay for coverage you don’t need. On the other hand, the longer you wait, the higher your premium will be so don’t procrastinate once you reach 60.

2. Purchase the inflation rider.

Yes, your premium will increase substantially, but the coverage you buy today may not be needed for years. Assuming 5% inflation, today’s monthly care expense of $4500 will escalate to over $12,000 in twenty years. Inflation is reality. Plan for it.

3. Save by increasing the elimination period.

With LTCI, your deductible (called elimination period) is defined as the number of days you pay out of pocket before the policy starts paying. Longer elimination period means lower premium, so keep a big emergency fund, opt for longer elimination period and save on your premiums.

4. Shop around.

In most cases, you will be paying annual insurance premiums for the rest of your life, so don’t accept the first long term care insurance quote you hear. Let your agents know that you are shopping so they will work harder at getting you the best coverage for the least cost.

5. Don’t agree on more than two “triggering events”.

Your LTCI will kick in when the insured is unable to perform a certain number of Activities of Daily Living (ADLs). Common ADLs are bathing, continence, dressing, eating, toileting and transferring. The fewer of these that are required to trigger the insurance, the better for you. Therefore, make sure that all six of these ADLs are listed in your policy and no more than two are required to trigger your benefits.

6. Insist on dementia coverage.

Many who suffer with dementia can perform all of the ADLs, but nevertheless need nursing home care. Most LTCI policies automatically cover dementia, but double check just to make sure.

7. Check the financial stability of the company you’re thinking about buying from.

LTCI is a product you are going to have for a long time, so you need to check on the company’s stability before giving them your money. Several insurer rating services analyze the financial strength of insurance companies. Standard & Poor’s Insurance Rating Services, for example, is free but requires that you register. Once registered, you simply type in the name of the company you are inquiring about in order to get ratings, credit watch/outlook and recent articles about the company.

8. If married, consider a rider allowing you to share years with your spouse.

In general it works like this: suppose you buy a policy that covers three years of long term care for each of you. If one spouse needs the care for more than three years, the policy would continue covering this spouse for up to six years by applying unused years from the spouse who has not needed the care.

9. Understand what you are buying.

Ask questions…lots of them. Never buy anything you don’t understand. Because LTCI has so many variables and options, it is not easily understood. If the agent does not clearly explain the policy and take time to answer ALL of your questions, walk out.

10. Take advantage of the free-look period.

Most states give you 30 days to cancel the policy if, after purchasing, you decide you don’t want it. However, this “free-look” period changes from state to state, so you need to check with your state insurance department to learn how long it is in your state. The point is that you should scrutinize your policy after you buy it and, if you discover any discrepancies between what you were told and what you now own, cancel the policy.

I sincerely hope that you will never, ever need to use your Long Term Care Insurance, but having it will give you great peace of mind.  You are not only protecting your assets; you may also be protecting your children from the emotional trauma of determing how best to care for you.  If that time comes, they will greatly appreciate your foresight.

photo credit: simaje

photo credit: Mike Thoma

Welcome to our two part series on life insurance. As indicated in part one, my purpose is not to give an all inclusive explanation of life insurance but a primer which should help you better understand what you have and what you need.

In our previous post we covered the following topics:

• What are the different types of life insurance?
• What is the purpose of life insurance?
• Does everyone need life insurance?
• How much insurance is enough to buy?

Now…on to part two:

What is the best kind of Life Insurance?

In order to address this question, I am going to compare Whole Life vs Term Life, assuming the insured is a 30 year old male in good health. Dave Ramsey’s organization solicited actual Whole Life quotes from the five largest insurance companies for this fictional 30 year old. Averaging the quotes (which were very close), they discovered that a $125,000 policy would require a premium of $145 a month. A 30 year Term Life Insurance policy for $125,000 would cost $15 a month premium.

But, remembering that $125,000 is not nearly enough insurance to replace the lost income, let us assume a $50,000 annual salary and thus a $500,000 Term policy. The premium now becomes $35 a month. So what happens to the difference in premium? Remember that the Whole Life policy builds a cash value. In this case, the cash value will be $27,000 after 20 years and $66,000 after 40 years. Sounds pretty good until you figure what a conservative investment would bring if this 30 year old bought the term and invested his savings in premium through an investment brokerage. If he only averaged an 8% return on this $110 a month ($145 – $35), he would have a nest egg of $65,000 after 20 years and $384,000 after 40 years. The following table shows this comparison:

*based on earning an 8% return by investing the difference in premium.

These numbers convincingly tell us that Term Life is a better buy for the money than Whole Life. One more detail about the Whole Life: when the insured person dies, the payoff from the insurance company is the face value of the policy only ($125,000 in the above example). What happens to the “cash value”? The insurance company keeps it.

What if you purchased a term policy but, because of health reasons, do not qualify to renew the policy after it expires?

Yes, it is possible that after the 30 year term, the insured person may have health difficulties that would make it very difficult to buy more life insurance. This contingency should motivate this person to work hard during these 30 years to be self insured. He should strive to be debt free and have a paid for house at this point in his life, and will not likely have dependent children. Besides, he will have the peace of mind during those 30 years of knowing that he has provided enough coverage to serve his family if needed.

What about Universal and Variable Life?

Universal and Variable are forms of permanent life insurance that correct some of the shortcomings of Whole life by offering options that allows for better investment returns and can include the cash value with the face value in the death benefit. Because the investment options are tied to money markets (Universal) or to stocks, bonds or mutual funds (Variable), the returns are not guaranteed. And inclusion of the cash value benefit will cost more in higher premiums. This being said, if permanent insurance is important to you, the Universal or Variable should be considered, making the same comparisons with

Term as in the chart above.

What life insurance do you have?

That is a fair question. I cashed out my Whole Life Policy over 20 years ago and used the payout to purchase IRA’s for myself and my wife. We have used Term life ever since and have never regretted it. At 63 years old, I am three years from the end of a 10 year $500,000 term policy with a $78/month premium. We have no debt, a paid for house, an untapped IRA and three monthly pension checks for life. One of these has a 100% survivor benefit; the other two have 50% survivor benefits. We are close to being self insured, but we will weigh our options (whether to renew our policy and for how much) in three years when our current term policy expires.

Conclusion

My conclusion is that, with the affordable rates of term life insurance, there is absolutely no excuse for anyone who needs life insurance to not have it. By buying a cheap term life insurance policy, you will be buying your insurance from an insurance agency while making your investments through an investment brokerage; this is a clean and healthy distinction.

photo credit: tinou bao

If your response, when asked what kind of life insurance you have, is “The kind Snoopy likes”, then you need to read this article. While not intended as an all inclusive explanation of life insurance, it will serve as a primer to help you better understand what you have and what you need. We will follow a question-answer format.

What are the different kinds of life insurance?

Life insurance is categorized as “Permanent” and “Temporary”.

Permanent insurance remains in effect until needed unless the owner defaults by failing to pay the premiums when due. Permanent life insurance (Whole, Universal or Variable) builds cash value.

Temporary insurance is always called “Term” because it is purchased for a specific time period. Term insurance is also referred to “pure” insurance because the owner pays for insurance only, with no cash value accumulation.

What is the purpose of life insurance?

Life insurance is for one purpose: to replace lost income due to death.

Does everyone need life insurance?

No. If the lost income would have little or no negative effects on the live of the survivors, then there is no need for life insurance. Some examples would be:

• A dependent child. There is no lost income and therefore no need for life insurance. However, the parents may need to place a rider on their policies to cover burial.
• A single adult with no children. No one else depends on the income, thus no need for life insurance. However, a small burial policy may be needed.
• Anyone who is self insured. What do I mean by self-insured? Those who have done so well managing their finances that their survivors will do fine without needing a life insurance payout. These people would have paid for houses, no debt and a healthy retirement and investment portfolio. This, by the way, should be everyone’s goal.

How much insurance is enough?

Deciding how much life insurance you need to buy is a common dilemma. Enough to replace the income which would be lost due to death. How is this done? One needs a nest egg large enough, when invested, to be able to generate this lost income. If, for example, one could earn a 10% return, he would need a policy which pays 10 times the lost income. I realize 10% is optimistic, so I consider this factor of 10 a minimum amount of life insurance you need.

Stay tuned for Part Two

In our next post we will discuss:

• What is the best kind of life insurance?
• What if, after buying term life insurance, you do not qualify for another term?
• What about Universal and Variable?
• Should you buy whole life insurance?
• What kind of Life Insurance do I have?
• Is the best term life insurance?
• Should you buy return of premium rider on life insurance?
• Should you purchase mortgage life insurance protection?
• Conclusion