My wife and I never argue about money.
Well, almost never. The one thing we disagree on is insurance. I tend to be cautious and lean toward insuring everything, assuming disaster is right around the corner. She prefers to self-insure (which means don’t insure), putting the money that would be spent on premiums into investments that can pay for whatever catastrophe lurks.
We have life insurance (though not as much as I’d prefer). But two areas where I will not budge is long-term disability and long-term care insurance.
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Forgive me for being blunt, but if you’re still working and don’t have disability insurance, you’re nuts.
Disability insurance is essentially paycheck insurance.
Your ability to earn money is the most valuable asset your family has.
It’s an asset that at the very least should keep up with inflation, and will hopefully exceed it.
When we think of disability insurance, we think of the worst-case scenarios, such as a horrific accident that leaves you incapacitated.
But there are many more common injuries and illnesses that can impact your capacity to earn a living.
A fender bender could cause a bulging disc, making it impossible to sit at your desk. A fall could make manual labor too painful. Or a virus could leave you too tired to put in a full day.
These don’t have to be lifelong traumas. But sometimes these types of ailments can take a year or two to heal. Most families can’t go without a paycheck for that long.
Think it can’t happen to you?
Last year, 9 million people received Social Security Disability Insurance. But don’t expect Uncle Sam to take care of you. The average Social Security Disability payment in November of this year was $1,146. Not exactly enough to pay the mortgage and put food on the table.
The cheapest insurance option is likely through your employer. Because you can be placed in a pool with other workers, your rates will be less expensive. However, you can usually be insured for only a maximum of 60% of your base salary. So if you make $50,000 a year in salary and get $20,000 in bonuses or commissions, you can be insured for only $30,000 (60% of $50,000).
If your employer doesn’t offer disability, you can shop for it on your own. It will likely be more expensive than a group plan, but it still might be worth it, particularly if you’re the only earner in your household.
You can also get supplemental plans like AFLAC. Supplemental plans enable you to insure more than the 60% of your base salary. So in the example above, you may be able to insure the remaining $20,000 of your salary that is not covered by your employer’s disability plan.
Don’t Run Out of Money
It is estimated that one in three baby boomers will spend some time in a nursing home. Not only is that an unpleasant thought, but it is extremely expensive. The current average nursing home stay lasts over two years and costs about $200,000.
And 70% of seniors will need some sort of long-term care, according to researchers at Georgetown and Penn State universities.
Even a home healthcare aide will cost big bucks. At an average of $20 an hour, six hours a day, five days a week, you’re looking at over $31,000 a year. And that’s for basic care.
If you need a registered nurse to come in or need help more than six hours a day, the costs will rise substantially.
Oxford Club Pillar One Advisor and Certified Financial Planner Evan Belaga, who will be speaking at The Oxford Club’s sold-out Inaugural Beyond Wealth Retreat in Hawaii in February, says, “admission to a long-term care facility would decimate most retirees’ finances.”
In September, The Oxford Club’s Bond Strategist Steve McDonald showed Wealthy Retirement subscribers what a burden long-term healthcare is on the children of the patients.
Medicare doesn’t cover long-term care and you have to be destitute for Medicaid to pitch in.
You can offset some of those costs with long-term care insurance. Long-term care insurance policies can be complex, with all kinds of riders and options. Be sure to work with a qualified expert.
This insurance will pay for stays in a nursing home, assisted-living facility or home healthcare. However, these policies can be expensive. And the older you are when you start, the more expensive it will be.
According to Belaga, for example, a 55-year-old man who pays $1,570 for a policy will have paid $47,100 by the time he’s 85. But a man who starts his policy at age 70 will have to pay nearly three times that amount in annual premiums and, by age 85, will have paid $64,485.
One thing you can do to defray the costs is to buy enough coverage to pay for some, but not all of the cost of care. If you expect $8,000 per month in expenses, but can cover $4,000 per month yourself, you’ll save money by reducing your coverage to $4,000 instead of $8,000.
No one likes to think about injuries and illnesses that may affect us in the future. But not only can they alter our quality of life, they can ruin our finances and decades’ worth of hard work. Be sure you’re protected.
— Marc Lichtenfeld
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Source: Wealthy Retirement