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I'm glad I passed on that.

December 5th, 2006 at 05:39 pm

Actually there may come a time I regret passing on it, but I seroiusly doubt it. What is it? Amongst the numerous insurance I could sign up for (well until last Nov. 15 that is) was a group rate on Long Term Care insurance. As I was cleaning my desk today I came across the paperwork, and saw the numbers, and thought "would it have been worth it?"

*** Long winded math analysis ahead ***

Math nerd that I am, I decided to see if I could determine if it was a good buy. There were a number of plans, but to make it simple I went with the numbers from the $100/day benefit plan. I assumed a 10% return if I invested the money versus giving it to the insurance company. My idea was to input all the monthly payments into a spreadsheet, work the average interest and see when I would get to a point where the amount could give me a return of $100 / day.

As I did the numbers for my age, I came up with I would need to get to almost 100 before the premiums could earn that type of money, so I realized something was wrong. Insurance companies are in the business of making money, not giving it away.

Away I went back to the paperwork. Ah ha. Some very important points I missed.

#1) You need to be fully employed, or you are dropped from this plan (this means it won't help you in retirement - the most likely scenario for needing this).

#2) The max benefit was for three years, not unlimited. (That means $109,500 is the max) OK, back to the spreadsheet. Hmmmm, I didn't hit that total until I was 84. Again, while this seemed more realistic, I must be missing something.

#3) After a return to the paperwork, I noticed a very, very important piece of info. While the max benefit is for 3 years, that only holds true if you need it when you are under 62. Each year you get older, the period shrinks until you are 69, and you get only 12 months of payments. So that is I would get max of $36,500. When would I hit those payments & interest to the insurance company? About when I hit 69.

#4) There is more (no surprise). Payments are at most 60% of earnings (that wouldn't effect me much), payments will be reduced if you get workman's compensation, early employer retirement plans, ... (and the list goes on and on).

So would it be worth it? Certainly not if I was disabled after I was 69. Well, I could get hurt before then. What about that situation? I can see four most likely scenarios. Car accident (car insurance would give me more than $36K easily for a major injury), accident at home (health insurance will pay some, but I would be behind for a while), accident other locations (most places will have insurance or be liable), or illness (extremely unlikely if you keep yourself in shape).

Sorry to bore you with this, but unless you don't take care of yourself, have a known family problem, are reckless, or have a ton of people dependent on you, I don't see how this makes any sense. Yeah, you could need it, but the odds of it are so small, and insurance companies are so good at finding reasons not to pay in any case. My employer was making this out to be a great thing. I think not. I'll put the money into investments and self insure myself.

4 Responses to “I'm glad I passed on that.”

  1. sarah Says:

    I agree long term care insurance is usually not a good idea.

  2. fern Says:

    Why do they make these policies so complicated (all the ifs, ands and buts) to understand?

    Sounds more like disability insurance, in a way, if it's only good for pre-retirement benefits.

  3. Single Guy Says:

    They make the policies complicated because if they didn't they would actually have to pay out claims. As I explained to my father once when he was complaining about getting disability payments from his job... "Dad, they are in the business of collecting premiums, not paying claims. Paying claims is a nuisance to them." He gets money now, but it took over two years of war with the insurance company.

    Yeah, I thought this was disability insurance first, but then I realized the difference. With disability you get paid once you can't work. With this you don't get paid until you can't work and have to pay someone to take care of you. There's a much higher level of disability required to get payments with this insurance. Probably the premiums are less than with a disability insurance, but I wasn't going around checking rates so I can't say. Unless you're reckless or have a family preponderance to a severe disability, I don't see the advantage of this insurance. Of course if you don't take advantage of not spending that money and don't save it to your war chest to fall back on in case of major problems... I think you can see the problem.

  4. yummy64 Says:

    I work an insurance company and we are in the business of paying out claims that qualify. Definitely we are.

    Any insurance you can get (other than though you employer) that doesn't require evidence of good health is likely crap. Cause if you can buy it when you might be ill you do have to put in tons of small print in order to make sure there isn't a ton of antiselection.

    Best products are through your employer, then association and other "group" plans. Individual plans and anything mass marketed through the mail are likely crap.

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