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  • Should You Buy Long Term Care Insurance and When?

    We’ve previously discussed what long term care insurance is – it generally covers the cost of home health aides, skilled nursing, assisted living, and nursing homes. These are expenses not covered by medical insurance policies and Medicare, so you basically have four choices if you need long term care: 1) buy a long term care insurance policy; 2) save for long term care; 3) rely on family and/or friends; or 4) rely on government assistance.

    The first question, of course, is whether you will actually need long term care – though common sense would seem to say that yes, unless you die a tragic and untimely death, you will at some point require assistance. As I get older, I see my grandparents’ generation requiring more and more assistance. In fact, my husband and I have four living grandparents between us, and all but one receive some form of long term care assistance. The one who doesn’t lives with an aunt, so there’s some assistance there, though not intensive when it comes to day to day life activities. There are all kinds of studies out there, and the lawyer in me tends to be skeptical of studies sponsored by insurance companies, but it’s not hard to believe statistics like at least 70 percent of people over age 65 will require some long-term care services at some point. It seems safe to assume that if we are able to grow old, we will eventually need assistance.

    So assuming we’ll need long term care, let’s also assume that we don’t want to rely on government assistance or impose on family and friends. That leaves us with an insurance policy or personal savings.

    The consensus seems to be that you’ll need to have at least one million dollars in assets (per person) to be able to afford retirement and long term care. If you think you’ll get there in retirement savings before you retire, then you may not need long term care insurance (but keep in mind that the younger you are now, the more you’ll need for retirement – more than one million if you’re quite young now).

    For those of us who are not (yet) that wealthy, long term care insurance may make the most sense. Unfortunately, long term care insurance is like life insurance, in that the cost of the policy goes up as you get older. But unlike life insurance, which you are more likely to need when you are younger because of dependents, you are more likely to need long term care insurance when you’re older. Also, you’ll need to buy the policy while you’re still healthy – so someone who tends to be ill more might want to buy a policy at a younger age than someone who rarely gets sick.

    The worst news is that long term care insurance costs are going up – a lot. Most states regulate the increase in insurance premiums so they likely won’t be allowed to skyrocket, but they can go up 15% per year or more. That means even if you can afford a policy right now, you’ll have to decide whether you can afford increased premiums in the years ahead.

    Thus, whether and when you should buy long term care insurance seems like a really tricky, really personal question. But based on the way premiums increase as you get older, it makes sense to evaluate your health and financial situation and whether to buy a policy in your late 40’s.

    If you are currently in the market for a policy, here are some tips for selecting a long term care insurance policy, as well as some strategies to consider if you can’t afford a full policy, such as choosing a catastrophic policy.

    I’m grateful that I’m too young to worry too much about long term care right now, but I think I might have a chat with my parents about what’s going on with them.

    This post is sponsored by Genworth Financial. All opinions are my own. Read the full CFO disclosure policy here.

    What is Long Term Care Insurance?

    Long term care insurance is exactly what it sounds like: Insurance that helps protect against the high cost of long-term care. Long term care insurance generally covers the cost of home health aides, skilled nursing, assisted living, and nursing homes.

    Long term care is most frequently required due to the normal aging process, after a stroke or vehicle accident, or due to conditions like Alzheimer’s disease, rheumatoid arthritis, multiple sclerosis or diabetes.

    In-home care can consist of:

    • Personal Care Assistants or Companions, who help with household tasks like cleaning, cooking, and running errands
    • Home Health Aides who help with personal care like bathing and dressing
    • Nurses, who help with IVs, medications, and more complex health issues

    Facility care can include:

    • Adult Day Health Care, which offers daytime social and therapeutic activities while still living at home
    • Assisted Living, which allows for independent living with on-site support for daily basics
    • Nursing Homes, which provide more skilled and intense care, supervision, medication, therapies, and rehabilitation

    According to one 2008 study, at least 70% of people over age 65 will require some long-term care and of those who need long-term care, 40% are under age 65. So it’s definitely something to think about getting before you need it, and I’ll discuss that further in an upcoming post.

    This post is sponsored by Genworth Financial. All opinions are my own. Read the full CFO disclosure policy here.

    Strategies for Paying for Life Insurance

    Life insurance can be expensive, and I even once had a friend with wealthy parents tell me that she and her husband didn’t have life insurance because if something happened to them, her parents would take care of their kids. I’ve always wondered if her husband would really be okay with being financially dependent on her parents if something happened to her and he was left to raise their kids alone. It’s not the path my husband and I want to take, so we’ve agreed that life insurance is worth paying for, even if does take a real chunk of money each year.

    There are two components to paying for a life insurance policy – the first is minimizing the cost, and the second is finding the money to pay for it. Here are some tips:

    Minimizing the Cost of Life Insurance

    1. Buy term. Term life insurance is much more affordable than a whole life policy (and I explain the difference here). Be sure to select a term that’s long or short enough to suit your needs. For example, if your child will be graduating from college in ten years, you don’t need a 20-year policy intended to help pay for college.

    2. Buy a group policy through your employer or union. Your employer or union may provide you with a policy, or offer a group policy at a discount. If this policy is only inexpensive up to a certain amount, you can combine it with other life insurance policies.

    3. Compare policies and rates. Different insurers charge different rates, so it’s worth shopping around. There are lots of comparison sites out there, and they tend to be affiliates in it for the referral link payout, so do be careful when using a web site.

    4. Take care of your health. The healthier you are, the more likely you’ll outlive your term policy, so the lower your rate will be.

    5. Don’t buy more coverage than you need. It can be tricky figuring out how much life insurance you need, but overpaying is like throwing money away, since hopefully you’ll outlive your policy.

    Paying for Life Insurance

    1. Pay your premium annually. Most insurers charge a convenience fee for allowing you to break your premium up into multiple payments. If you can afford to do so, pay your premium all at once to avoid paying extra fees.

    2. Use an Infrequent Bills Account to save up the annual premium. Back in 2007, I created an Infrequent Bills Account to hold money for annual and semi-annual bills. I deposit money for those bills into the account each month, and take money out when the bills are due. It makes paying those bills a lot easier when the money for them is already set aside.

    3. Use the Snowflake Method. Take all the little bits of savings here and there that you can find and save them up to pay for that life insurance premium. Or add up your coupon savings and set them aside. If you’ve decided you need a life insurance policy, the important thing is not to wait – you never know what’s going to happen or when.

    This post is sponsored by Genworth Financial. All opinions are my own. Read the full CFO disclosure policy here.

    When You Need (And Don’t Need) Life Insurance

    Most people know that life insurance is an important financial security tool, and for a good reason – it can save your family financially if tragedy strikes. Basically, you pay a set fee for an agreed-upon period of time, and if you die during that time, then the insurance company will give your family a set amount of money.

    But when you do need life insurance?

    The simple answer is that you should buy life insurance if the death of the insured would cause a financial hardship. Common trigger events for buying life insurance include buying a home with a mortgage or the birth of a child. In fact, when each of these events happened to my husband and me, we both acquired a new life insurance policy. With the home purchase, we wanted to ensure that the surviving spouse would be able to pay off the mortgage plus have some breathing room, and with the birth of each child, we wanted to ensure that the kids and surviving spouse would have enough money to pay off the mortgage, pay for educational expenses, and have additional funds for unforeseen expenses.

    Other times you might want life insurance include protecting a business partner who might need funds to keep the business going in the event of your death, if you acquire a dependent such as an aging parent or incompetent sibling, and so on. The question you need to ask is, “Would my death cause a financial hardship on someone I care about?” If the answer is yes, you should consider buying a life insurance policy to relieve that financial hardship.

    On the other hand, you don’t need life insurance if you don’t have any financial dependents. For instance, if you’re single and you buy a home with a mortgage, you don’t necessarily need to buy life insurance to pay it off in the event of your death. After all, these is no surviving spouse who might not be able to make the mortgage payment without the income of the deceased spouse. In the case of the unmarried homeowner, the estate can sell the property to pay off the mortgage, and any profit/equity will revert to the estate for distribution.

    *Previously: How much life insurance do you need?

    This post is sponsored by Genworth Financial. All opinions are my own. Read the full CFO disclosure policy here.

    What to expect from your insurance company after a car accident

    When we were rear-ended a couple of weeks ago, I really didn’t know what to expect in terms of our insurance claim because it had been over ten years since I’d been in an accident. Obviously, I’ve been paying for car insurance during all of those years, and I expected our insurance to cover most of the repair costs. But I was clueless when it came to details. Here’s what I’ve learned so far:

    You have the choice of proceeding through your own insurance company or working directly with the other party’s insurance company. Our insurance agent said that if the other company makes it easy, then it’s better to work directly with them – you’ll get the money sooner, and you won’t have to pay your deductible, then wait to get reimbursed.

    If you go through your own insurance company, you’ll have to pay your deductible. But you might get it back. It sounds like you get reimbursed for your deductible after your insurance company has received money from the other party’s insurance company – and apparently that takes months. In our case, we’re still not sure if the other party was actually covered at the time of the accident, and we’ve been told that we might get our deductible back if he turns out to be an uninsured motorist (apparently that’s a term of our policy).

    You’ll probably get the repairs done fastest if you go through your own insurance company. This is what we’re doing, because we didn’t want any delays in getting the car repaired. It would have taken at least one additional week, and probably more, if we’d tried to work things out with the other insurance company.

    In California, you have the right to choose the repair shop. In other words, your insurance company can’t make you use a certain shop, although you may have to pay the difference. In our case, we chose a body shop that’s not preapproved by our insurance company, but the body shop accepted the insurance company’s estimate without quibbling so we are only on the hook for our deductible. We’ve received notice from our insurance company that this is California law, but if you live in another state, you’ll have to check your own state law to see if that’s the case where you live as well.

    Your insurance company will handle all communication with other parties and their representatives. One of the nicest moments in this experience was being able to tell the insurance company for the driver of the car that we were pushed into to call our insurance company instead of talking to us directly.

    Your insurance company will reimburse you if you have to replace any car seats. I’m still deciding which seat to get, though.

    It’s good to have good insurance. This accident has served as an excellent illustration of why insurance is so important. As it turns out, the total cost of the repairs will be a few thousand dollars, an amount that we could have paid out of pocket if necessary. But what if the accident had resulted in greater damage or even injury? You never know when an accident is going to happen, and I know that we were lucky that no one was hurt. And that’s why we pay good money for insurance.

    All in all, this has been a relatively painless experience thus far. Hopefully, we’ll get the car back within two weeks, our deductible will be reimbursed without too much delay, and we can put this whole incident behind us.

    More on Social Security Disability

    When I was filling in for JLP at All Financial Matters last week, I discussed Social Security Disability benefits and they actually sounded pretty good. But it looks like they might be rather difficult to get. Beachgirl just shared that her dad, who hasn’t been able to work for some time now, was just denied disability benefits. And from what I can gather, he’s not able to work at all.

    It would be one thing if the Social Security Administration’s letter said that since he still has cognitive abilities, he could find a different job. But if I’m reading the portion she posted correctly, they’re saying that they think he could still do his job as a maintenance worker. Huh?

    Fortunately, her parents have consulted an attorney, who believes they have an excellent chance of winning an appeal. I hope he’s right!