At some point in our lives the question arises as to whether or not it makes sense to keep some of the insurance we have. Please understand that this post is not about encouraging the reader to drop any insurance coverage, but perhaps give some perspective on whether or not it makes sense to do so.
Consider the case of life insurance. Generally, the younger we are the more life insurance makes sense. When we’re young we have many years until retirement and have high human capital; the ability to earn great amount over our working lifetime. Our financial capital is very small; we haven’t accumulated any assets such as retirement savings. As we age, our human capital decreases. Our financial capital increases and is high when we retire. Thus the need for life insurance diminishes.
It’s at this point that an individual can consider letting their term insurance policy expire after the term is up such as 30 years. The individual can consider if there’s really a need to replace the human capital they were protecting throughout their working life. At this point, many individuals choose to self-insure. That is, they elect to pay for expenses at death such as funeral, burial, etc., with the financial capital they’ve accumulated.
A similar consideration can be applied to long term care. With premiums increasing and underwriting getting more stringent an individual or couple may decide that it’s more cost effective to pay for their long term care, if needed, out of their financial capital.
There are plenty of points to think about in favor of keeping the insurance. For example, if an individual has a desire to leave a gift or substantial sum of money to charity or heirs, they may choose to keep their life insurance. They may also purchase life insurance at a later age to leverage the gift.
With long term care insurance, they may choose to purchase a policy in order to protect the assets they’ve accumulated. Additionally, they may purchase the long term care insurance in order to alleviate the burden their care may be on family if they didn’t have the insurance.
These are just some idea to consider. As always, don’t hesitate to ask a professional and get specific advice for your situation.
Sterling Raskie, MSFS, CFP®, ChFC®
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Long term care insurance can ameliorate a certain perceived
family member conflict of interest. Imagine that Bob, the person
under discussion, is unable to manage his affairs. His closest
relative, estranged daughter Alice, is doing that for him. She
is also his sole heir.
Alice has to decide whether to get Bob some very expensive
treatment. Bob will probably die in a year anyway, but this may
make him happier. Or, it may be a waste. There are
experts (doctors, priests) on both sides of the question.
Every dollar that Alice spends comes out of her inheritance.
Distant relatives are second guessing everything she does.
If Bob had bought long term care insurance, Alice wouldn’t be in
this uncomfortable position.
P.s. My post was based a real experience.
It’s also somewhat similar to the story of millionairess Brooke Astor (q.v.).
The theme is that it can be good for Bob to make decisions in advance so Alice doesn’t have to.
With long term care insurance, they may choose to purchase a policy in order to protect the assets they’ve accumulated. Additionally, they may purchase the long term care insurance in order to alleviate the burden their care may be on family if they didn’t have the insurance.
I would be interested in learning more about “long term care insurance”. thanks!.