Planning for retirement, buying Insurance or self-insure?

Long Term Care Insurance

Long Term Care Insurance

For younger people who are interested in planning for their old age, one of the big questions is how to deal with potential long term care requirements? It is entirely possible that you may require hospitalization or a home nurse when you are older and both of those prospects can be extremely expensive.

You can rely on long term care insurance, but there is always the risk that your claim may be denied. The other option is to self-insure, which involves building up a pool of funds over your lifetime to help cover those unexpected costs.

Some financial analysts suggest that instead of putting money into long-term-care premiums and you could invest the money in a low cost 60/40 balanced index fund, which creates that pool of funds for later in life.

Since insurance is all about calculating risk, what does this self-insured scenario look like? The chance that an individual who lives to 65 will need no long term care before dying is about one in three. One in five seniors will need long term care for five years or more, so that is the two ends of the spectrum.

Then you have to look at home health care costs versus nursing home care. A nursing home will cost between $70’000-90’000 per year while in home care is closer to $30’000. If you have a good relationship with your family, you would be more likely to have a good home environment to spend your old age in so that should also be considered.

A young person in their 30s can buy a long term policy for about $60 a month, which provides $200 per day in care costs. Now what would we end up with if we invested the $60 instead? A life long mutual fund that is split at 60/40 stocks to bonds would return anywhere between 6-8%. Yo will have about $220’000 in that account by the age 85. That amount of money could pay for perhaps 2-3 years of nursing home care or 7-8 years of in home care.

Additionally that $60 a month insurance premium would continue to rise in cost, so you would have to consider that the lump sum from investing the same amount in an investment account may be closer to $300’000. Some insurance companies also go broke! What happens when the Insurance company you have been investing in goes belly up before you receive your long term care, all of those premiums will be meaningless.

Additionally, your relatives get to keep any of the unused money from a long term health fund that you have set up. That might give them more incentive to keep you in their home instead of in an expensive nursing home. On first glance it seems that someone in their 30s would be best off building their own long term care fund.

However there are a few issues. You would have to continue adding to that account your entire life, without fail. What happens if you lose your job for a couple of years? You might be forced to dip into the fund and when it’s not building, risk is increasing. What if you decide to dip into it to pay for your children’s college? It takes discipline to save for decades.

Long term care costs could increase rapidly as well, so that fund may not cover much into the future. An insurance policy will adjust it’s payout total upwards as costs rise, but of course so will premiums. Insurance covers the cost of inflation, the self-insured person bares the cost of inflation against their savings.

There is also the small possibility that you will need longer term care, so what happens if you burn through your fund and have to rely upon your children? It could be very expensive for them and damage their future finances.

The last risk is that you may need long term care at a much younger age than expected. What if you have a serious illness that forces you to retire at age 50? You self-insured fund won’t be big enough yet to cover you for an extended period.

When all factors are considered, both self insurance and long term care insurance have negative and positive aspects. If you want to reduce risk, take a closer look at your finances, health, lifestyle and family. If you are well off financially, can commit to saving, and can see yourself living in a big house with loving children who can help care for you in your old age, there is less risk with self-insurance.

However if you think you won’t have the family network to help support you, or you are concerned about your health in old age, then insurance may be a better option. Either way it’s a difficult decision, but with some thought you can reduce risk and find the right solution for yourself.

Important Steps When Changing Car Insurance

Changing Car Insurance

Changing Car Insurance

Many people can be lazy when it comes to car insurance and simply pay the bill as it comes in without considering the possibility that other insurers may be offering better deals. Well the car insurance market is increasingly competitive and you might be able to save as much as 40% off of your current insurance bill by simply looking at competitors and negotiating a better premium.

Insurance experts say you should actually shop around for a better deal every couple of years because the car insurance market is increasingly competitive and premiums fluctuate greatly. Your trusty insurance provider may have slipped from providing the best value for money to providing the worst value for money in only a few short years.

Why throw money away?

Here are a couple of things to look out for when changing car insurance policies to make sure you really do improve the value for money you are receiving:

Checkout as many providers as you can

You only buy a car insurance policy once or twice a year and it is typically an expansive purchasing decision. So take your time and explore a number of options.

You should get quotes from at least 5 separate insurance companies before deciding on one, and typically, the more the better. Luckily, there are various websites on the Internet which allow you to do quick comparisons between insurance providers. At the very least, these websites can help you whittle down a large number of selections into a few front runners.

Also make sure you are comparing apples to apples. That is, make sure the policies offering the same or similar levels of liability protection and service. If you don’t have time to do the research yourself, you can always employ the services of an insurance agent!

Get in touch with your current Car Insurance Company

Many insurance companies don’t like letting go of their customers, so will fight for your business. It costs these companies a lot of money to obtain new customers, so they are willing to spend money to retain their existing customers as well.

A quick phone call or email to your current provider, in which you detail what the competitors are offering you and they may very well beat the other competitors! Also consider rolling your car insurance into other types of insurance you have if possible. Contact your home insurance company and see if they will give you a discount for getting your car insurance through them as well. That is called the multi-policy discount.

Make sure there are no penalties associated with switching

In some unusual cases insurance companies have fees attached to people who leave their current insurance coverage before completion of the agreement. So if you decide to end the 12 month insurance contact around month 8, there might be a fee attached.

Consider this fee, and make sure you time your purchase decision properly. It’s a rare case, but something to consider.

Investigate the new insurer before buying in

After getting some quotes, ensuring they all offer roughly the same level of service and narrowing it down to a top 2-3 providers – investigate the company.

Do they have a good reputation? Is it a large company? Do you know anyone who uses the company in question and have they had any problems? Where is the company based?

There are a number of websites where people share their experiences with various insurance companies so you can find out a lot with some quick searching on the Internet.

Having the lowest insurance premium is fantastic, but if the company has a horrible reputation and feedback on the Internet for the company is poor, then they may not be the right choice for you.

Check that the policy dates overlap or match

Double check the start and end dates on both your old policy and your new policy to ensure that there is no gap where you are not insured. Don’t cancel anything until the new insurance is up and running.

When you have canceled the old policy, make sure it is definitely canceled and there are no recurring fees.