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Personal Finance from the Broke Perspective

Reasons Not to Buy Long-Term Care Insurance

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Reasons Not to Get Long-Term Care Insurance

My uncle and aunt, who are in their 80s, recently moved to a long-term care facility. The cost for two people is expensive, but they’re paying a reasonable $3,000 a month thanks to a long-term care policy my uncle bought years ago. My husband and I aren’t yet at the age where we need to buy such a policy, but we did start to research them. However, there are several reasons why we’ve decided not to buy long-term care insurance.

Why We’re Not Going to Buy Long-Term Care Insurance

We’re not buying long-term care insurance because of these drawbacks:

Premium Prices Aren’t Fixed

Rising premium costs are one of the biggest issues for us. You may buy a long-term care policy with an affordable monthly payment when you’re in your 50s. However, that payment is not fixed; over time the monthly payment will continue to increase, eventually outpricing some people’s budgets. If you can no longer afford your monthly premium before you need the care, you have lost all of the money you previously invested into long-term care insurance.

Insurance Companies Sometimes Won’t Pay

Long-term care insurance policies often have many hoops you must jump through before they will pay. Others don’t pay for the first 90 days. Or they will only cover one to three years in a long-term care facility. If you need care for a longer duration, your policy won’t cover that time.

May Never Need the Policy

After paying decade after decade for a long-term care policy, you may never need it. You may remain in good health and able to take care of yourself, or you may die suddenly in a car accident or from a heart attack. Think of the many other ways that money could have been used.

I know, I know, not needing the policy is a risk for any insurance coverage, and we still purchase them. However, consider the tens of thousands of dollars that you’ll pay for a policy you may not need. Buying such a policy often doesn’t make financial sense.

What We’re Doing Instead

Reasons Not to Get Long-Term Care Insurance
Photo by Olga Kononenko on Unsplash

We used a calculator to determine how much long-term care insurance would cost for us to purchase in our early 50s. Instead of investing in long-term care insurance, we’re investing that money in our retirement accounts (in addition to what we’re already regularly investing for retirement) so it can grow thanks to compound interest. The plan is to make our retirement fund as large as possible so we won’t need long-term care insurance. We’ll also be able to sell our house and have it for equity.

In this sense, we’re planning to self-insure so we can get quality care if needed without paying for a long-term care insurance policy for years.

Final Thoughts

Some people swear by long-term care insurance. The policy is doing its job for my aunt and uncle. However, after my husband and I looked at the price and compared it with all of the potential policy exclusions, we’ve decided there are several reasons not to buy long-term care insurance. Instead, we will be working to save and invest enough money to self-insure.

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How to Use Retroactive COBRA Insurance

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Retroactive Cobra Insurance

When my husband quit his job in Illinois to pursue a new job in Arizona, we were shocked that our coverage in Arizona wouldn’t start until a month after his official start date.  Since we moved to Arizona a month before his job started, we were without employer-sponsored health insurance for two months.  What I wish I would have known then is that you can apply for COBRA insurance retroactively.

What is COBRA Insurance

When you leave a job or lose a job or lose insurance because of a reduction in hours, you can apply for COBRA insurance.  If you were enrolled in employer-sponsored insurance and your employer has 20 or more employees, you’re eligible for COBRA insurance.  COBRA will give you the exact same insurance coverage you had with your employer.  The difference is that you must pay the entire premium yourself.

When you get employer-sponsored insurance, you typically pay only 20 to 30 percent of the total cost of the premium.  Your employer pays the rest.  With COBRA, you assume the entire amount, which isn’t cheap.  We did opt for COBRA insurance when my husband left his job, so we paid $1,200 a month for coverage for our family of five.  What I didn’t know then is that I could have utilized retroactive COBRA insurance.

What Is Retroactive COBRA Insurance?

You can choose not to buy COBRA insurance.  In our case, we had COBRA insurance for the two months we were between employer-sponsored insurance, but we never used it.  We paid $2,400 total over the two months for insurance we didn’t even need.

Retroactive Cobra Insurance
Photo by Olga Guryanova on Unsplash

Another option is to forego COBRA and go without insurance during this time.  If you end up having a medical need, you can still sign up for COBRA because COBRA is retroactive from the time you left your job or lost your insurance.  For instance, one woman and her husband opted not to get COBRA when they lost insurance benefits.  Within a month, her husband had to have an emergency appendectomy.  They were facing tens of thousands of dollars in medical bills.  The couple completed the forms for COBRA, and the insurance paid the bills for the appendectomy.  They ended up paying just $42 out of pocket for the surgery (plus the cost of COBRA).

An Important Caveat

You only have 60 days to decide whether to enroll in COBRA or not.  If you opt out of COBRA coverage and need surgery on day 65, you won’t be covered if you try to retroactively apply.

Also, when you retroactively apply, the insurance benefits begin the day after you lose your benefits with your employer, but you also have to pay from that time, too.  So, if you sign up for COBRA on day 58, you also have to retroactively pay for days one through 58 of coverage.

Final Thoughts

COBRA coverage can be an important insurance bridge when you’re between jobs.  If you want to initially forego COBRA insurance, you can.  If a medical need comes up, you can always apply retroactively.  But remember, this only applies for the first 60 days you’re without insurance.

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Are Insurance Companies Just Big Ponzi Schemes?

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Are Insurance Companies Just Big Ponzi Schemes?

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It struck me the other night, as I was reading a book and came upon a section on Ponzi schemes, that insurance companies are borderline Ponzi’s themselves.

Ponzi Schemes

What Is a Ponzi Scheme?

The definition of a Ponzi scheme is when the broker/banker/agent takes money and promises an unusually high return and then pays said return from the incoming money from other investors.  Eventually, when the incoming investors dry up, the agent can no longer pay the returns and the scheme comes crashing down.

Ponzi schemes are named after Charles Ponzi, an Italian immigrant who was the original Ponzi schemer.  In recent years, the most famous (and longest lasting) Ponzi scheme is attributed to Bernie Madoff.  Madoff’s Ponzi scheme is thought to have begun in the late 1980s or early 1990s and didn’t end until 2008 when he was arrested.  This Ponzi scheme cheated nearly 5,000 customers out of $60+ billion dollars.

Insurance Companies Are Set Up Like Ponzi Schemes

Now, let’s look at insurance companies.  We, as the insured, pay the insurance company our premiums in return for insurance against some sort of event.

With health insurance it’s against some sort of health event.  With car insurance, it’s against some sort of accident.

In any case, it’s a payment.  Or a return on the premium.  Very seldom will you actually come out with your entire investment.  And, unfortunately, you often have to fight for the payment.  Health care coverage may be denied if the health insurance company doesn’t find the treatment worthy of the expense or if they deem it experimental.  Likewise, if you file a home insurance claim too many times, the insurance company can choose to drop you as a customer.

Ponzi schemes
Photo by Daniel Tausis on Unsplash

For the most part, insurance companies are in charge and decide when to cut customers.  But what would happen if the premium payers dried up?  It would certainly get more difficult for the insurance companies to pay any claims.

How Insurance Companies Are Different from Ponzi Schemes

Where the key difference lies is that if you stop paying your premiums, the insurance company stops paying any claims for you.  Also, as a premium payer, you never really expect your money back unless you have a claim.  You’re paying for the “in case”–if it were to happen.

In a Ponzi, you’re investing your money specifically for the return.  You’re not going to stop investing as long as the returns are stable.  And a Ponzi only really dies when the new investors stop coming.  If new insured stopped coming to the insurance company, they would still have their current insured to collect premiums from.  However, as the years go on with no new insured clients and the current clients age, the insurance company could have difficulty paying claims.

Final Thoughts

Even though insurance companies seem to fit many of the criteria for a Ponzi scheme, no.  insurance companies are not Ponzi Schemes.  But, it sure feels that way sometimes.

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