In our lifes, we are constantly marketed by insurance companies with all sorts of insurance. In the credit card world which I am acutely familiar with, I always get the “upsell” speech from telephone customer service asking me to enroll for a small “fee” in travel accident insurance. I get mails from the water company asking me to insurance in case the pipes burst. The truth is, we should self insure, as much as possible, small items and deductibles. However, the are several events that we should always insure against – life (obviously – especially if you are the sole breadwinner), auto insurance, health insurance.
One area which is often neglected is disability insurance and long term care insurance. I came across two incidents recently that made me realize the importance of both of these insurance.
I got to know someone who was in between jobs as his company got taken over. Hence, he had no disability insurance. Then, the unthinkable happened. This gentleman suffered a stroke. He had a successful operation and is now recovering. Though he had health insurance, he has no disability insurance. Hence, though his hospital costs are mostly covered, he will not get any monthly pay check for a while. Doctors say he may take as long as two years to get back into the workforce. In the meantime, his family has to pay for speech therapy and other therapy to get him back to his old self.
The second incident was about a person I knew who was in his forties. He was as strong as an ox and very active. However, a car accident resulted in some serious injuries (will not get into the details). But he needed to be in a nursing home for quite a bit (ten months to be precise). He could stay at home, but he needed help. Unfortunately for him, he had no long term care insurance. He had to dig into his emergency fund and part of his retirement savings. Fortunately, there is no 10% penalty when you withdraw funds from your qualified retirement plans for emergency medical payments.
These two incidents led me to reassess my “risk management” of my financial life. Though I had adequate life insurance, medical insurance, I was not too sure of my companies disability insurance coverage. I had to check. But I know many people, especially those of 1099 and self employed people who have no disability coverage.
Long term care insurance is another topic we ‘immortals’ think we will never need until we are in the 60s. The truth is that a major illness can strike at any time, which requires a lengthy stay at a nursing home or if you stay at home, you will require nursing help.
Yet, by not having insurance against these possible events, we are taking massive financial risks. All the retirement planning, automatic savings, the best asset allocation, the best funds and best returns will count for nothing if you have to invade your retirement savings before you actually retire. So before you worry about how your portfolio is doing, do the following :
1. Check if you already have disability insurance.
2. Even if you do, check the policy and see if you have enough coverage.
3. Seriously consider getting a long term care insurance even if you are “young” (ie in your forties). You do not need to be old to need long terms care. The problem many people have is that long term care can be more expensive than say disability insurance. Policies can range from $1000 to $4000 a year.
Look, doctors malpractive insurance, we all have auto insurance, fire insurance, home insurance and life insurance. Why? Because in the event that one of these happens, the cost is very high and we simply cannot accept that risk. Well, the same goes for disability and long term care insurance. If you do not have these, consider getting these insurance as part of your financial hedging strategy.