Long Term Care Insurance and Health Insurance – Not Your Average Topic
For those who are approaching the later stages of life, insurance is a big deal. And with politics endlessly in the news, politicians from all sides continue to debate what’s best for the “average American.”
Unfortunately, these discussions often lead to gridlock, fueled by competing perspectives, and a system riddled with flaws. While there may be no straightforward solutions to paying medical and health-related costs, one fundamental truth remains: long term care and health insurance aren’t designed for the ‘average.’ The primary purpose of any insurance isn’t to shield us from typical healthcare costs or average life events; insurance is designed to protect against the unexpected and non-average events we may face.
Let’s clarify this notion. Insurance, in essence, is meant to provide protection against extraordinary occurrences. For instance, life insurance may not offer significant benefits to those who live to average life expectancy. Similarly, long-term care (LTC) insurance often proves less valuable for individuals needing only an average duration of nursing facility care. Insurance is crafted to help those who encounter exceptional, often catastrophic events.
Consider homeowners insurance. If a homeowner experiences a minor claim, they’re typically advised against filing it. Why? Because filing a small claim can lead to increased premiums down the line, negating any benefits received from the payout. On the other hand, if a devastating fire occurs, resulting in extensive damage, that’s where insurance becomes crucial. A small claim merely returns the premiums paid over the years, essentially just a refund rather than true insurance. It’s a form of indemnification, not protection. A large claim, however, is a very different story.
The same logic applies to long term care (LTC) insurance. If you invest substantial amounts into a policy over the years and only need a year or two of care, you’re essentially getting your money back. Beyond being just a forced savings mechanism, the insurance policy only becomes financially advantageous if the need for care surpasses the average duration experienced by most claimants. Just like a catastrophic house fire, it’s only in the face of a significant event that the value of having insurance becomes clear.
This is a point of confusion in the healthcare debate. Most health claims often result in merely recouping the premiums paid over time. The conversation should shift to catastrophic events—those that could lead to financial ruin without insurance. The rising costs of healthcare mean that even benign health events can carry catastrophic price tags, complicating this issue further. Unfortunately, the true nature of insurance often gets obscured in the fray.
When planning for a financially secure retirement, insurance plays an essential role in ensuring that individuals can sustain their lifestyles long after they are able to care for themselves. This can encompass health insurance for severe medical conditions, LTC insurance for extended care needs, or guaranteed lifetime income products like annuities. These specialized financial tools act as the foundation of a comprehensive retirement plan.
Ideally, we would all enjoy healthy, fulfilling lives devoid of major medical or financial setbacks. However, when challenges arise, insurance provides a safety net that we’ve collectively contributed to, allowing some to reap the benefits. This shared system helps many maintain a semblance of ‘average’ rather than falling into catastrophic scenarios, a significant advancement compared to earlier times.
The debates surrounding insurance will undoubtedly continue, with no clear resolution in sight if we remain entrenched in opposing viewpoints. It’s crucial to understand insurance for what it truly is: a valuable financial instrument that directly benefits some but not all. By focusing on the collective advantages rather than framing it as a division between “us” and “them,” we can foster a more constructive dialogue.
As political arguments persist, our priority remains to devise strategies that provide the necessary protections within your financial plan. Insurance serves as an essential tool for navigating life’s uncertainties, and understanding its role can help you make informed decisions about your future. By recognizing its true purpose, we can better prepare ourselves for whatever lies ahead, ensuring a more secure and stable retirement.
