Introduction: Last week I got together with an old college friend. We hadn’t seen each other for years. Eventually we started discussing each other’s parents and how they were doing. His Dad had died a few years earlier. After spending his career as a department head at a large University, he had suffered several strokes starting a few years before his death. Significant in home care was required during those final years.
Long Term Care Insurance Did Not Pay: My friend related his displeasure with the Long Term Care (LTC) Insurance his parents had purchased and paid for over a number of years. Apparently the insurance had not paid very much for the care involved. The insurance had been obtained through the University’s group plan. Since it was University endorsed everyone thought it should be good.
Saving Money with Long Term Care Insurance: Obviously, this was a sad story. But it reminded me of when my wife and I had first acquired our LTC Insurance a number of years ago. Like anyone else, I like to save money. When I had decided that this was a product that we should purchase, the first thing I did was contact the insurance brokers for the various professional organizations to which I belonged. I figured they would offer discount rates. I inquired of each what LTC Insurance they had available. Of course, each was a group policy with lower group premiums. All good so far.
Becoming Overwhelmed: All of the brokers sent me glossy brochures and information. I have a pretty good background with insurance. Not only am I involved as a lawyer on a day to day basis with long term care issues (mostly how will the cost of care be paid and can we get government benefits to pick up the tab), am certified as a specialist in Estate Planning, Trust and Probate Law by an arm of the State Bar of California, and hold a Masters degree in Estate Planning, but I also went through the Certified Financial Planner course of study in the mid-80’s. (Yes, I actually held the CFP designation for a few years until the licensing agency started charging an annual fee and I found the designation was confusing to my clients—-many started asking me for investment advice.) One of those CFP courses was on insurance and one of the segments was on LTC Insurance.
I thought that I should be able to roll through the brochures and information and make an intelligent choice fairly easily. Not so! What should be the dollar amount of coverage per day, how long should the waiting period be (essentially the deductible), what about a premium refund, how long should the payout period be (3 years, 5 years, lifetime), what of the annual inflation coverage, should I have a future purchase option, etc? I was so confused and overwhelmed, so underwater that I could barely see daylight. And the group insurance brokers were of no value. They were not going to sit down with me (or by telephone) and guide me through this maze.
My Solution–an Individual Broker: I decided that getting the correct product and the correct configuration for me was far more important than saving money–a savings that would be forfeited as soon as I needed to make a claim on the policy and found out that I had the wrong (or inadequate) coverage. So I contacted an insurance broker that I knew who dealt with this product and taught other agents about it. Yes, he too had glossy brochures; but he sat down with me and told me what was important and what was not (i.e. what were the moving parts to which I needed to pay attention and which ones I could safely ignore). He discussed which companies were better and which not so good; which ones had a history of increasing premiums and which did not. Fortunately, we haven’t had to make use of the policies yet. Although that is really the only time one knows for sure whether one has made the proper choice, with the Broker’s help my wife and I made what, to this day, I still believe were the appropriate choices for us.
The Moral of the Story: Group insurance is great for saving money; but what you are giving up is that the Broker is putting less effort and money into marketing the product on an individual basis. And marketing includes explaining and assisting the client in understanding and purchasing the correct product. So you either are going to save money up front and, on complicated and complex products, probably wind up with the wrong thing that will cost you money later or you are going to pay more up front and have a much higher probability of winding up with the right thing.