By Dr. James M. Dahle, WCI Founder
I am often accused of being anti-financial advisor and anti-insurance agent. While I think any physician with a reasonable amount of interest and discipline can learn enough to be her own financial advisor, I certainly don't see the role for a financial advisor giving good advice at a fair price disappearing. My best estimate is no matter how many people read this site, at least 80% of doctors will want and need a good financial advisor, and I don't have a problem with that.
When it comes to insurance agents, however, just about every doctor is going to need to buy some policies through an independent insurance agent several times during life. Without serious structural and legal changes (you're basically not legally allowed to buy a life or disability insurance policy without some agent somewhere getting a commission on it) that fact isn't going to change any time soon.
However, there are a lot of insurance agents out there doing a serious disservice to their clients. In this post, I'm going to illustrate what I see as the six greatest of their sins.
#1 Underselling Term Life Insurance
Most of my readers might have assumed that my biggest beef with insurance agents is selling whole life insurance. Nope. The biggest problem I see is that far too many doctors and other high-income professionals don't have adequate term life insurance. I'm not sure if that is because doctors don't understand the importance of term life insurance, if agents make the process too confusing, if agents simply don't understand what people really need, or if they are simply blinded by the huge commissions available on expensive cash value policies. But it is true. There are lots of examples of this.
I see doctors who are sold a 5-year term policy at age 30. That's dumb. Your term ought to be long enough to get you to your likely date of financial independence unless you want to do the annually renewable term thing. Maybe the agent is thinking he can sell the doc another policy in 5 years and get another commission. Or maybe the agent actually thinks it is a good idea to convert that policy to a cash value policy in 5 years (it isn't.)
I see doctors who are sold a $350K policy. Give me a break. The likelihood of that being the right amount of insurance for an attending physician is very low. It's like agents following these rules of thumb like “Buy 10 times your annual income in insurance.” So all of a sudden a graduating resident goes from needing $500K to $3 Million? And a doctor who is financially independent but making $500K needs $5M? I hardly think so.
Figure out what you want insurance to do if you die (pay off mortgage, start a college fund, provide for spouse from now until death at a 3-4% withdrawal rate), add it all up, and round up to the nearest million. It's not that complicated, but if you're reading this site, the face value on your term insurance should almost surely be a seven-figure amount.
#2 Selling Whole Life Insurance
All smiles before ascending Texas Pass
You knew this one was coming. Whole life insurance (and its cousins universal life, variable life, variable universal life, and index universal life) is one of the most oversold products in the entire financial services industry. I can think of a few good niche reasons to buy it, but that certainly doesn't explain why nearly every doctor has been pitched whole life at some point in his career and I would guess 1/3-1/2 have actually purchased a cash value policy of some type. Then (hopefully) at some point they become financially educated and have to decide whether or not to keep it.
Insurance agents — Stop selling whole life insurance! There aren't enough people out there who actually need it (or want it once they understand how it works) for you to stay in business selling it. There should only be a few agents in any metropolitan area who become experts in it and then sell this stuff and you can just refer the rare client who needs it to them. Otherwise, you're going to get to the end of your career, realize what you've done, and be embarrassed about your life's work. Sell people the life insurance policy they need the first time — a big fat term policy that will last until they're financially independent.
#3 Selling Insurance on Children
I did a whole post on this one. There is simply little excuse to sell someone a life insurance policy on their children. I mean, I guess I could justify a $10K “burial” policy for a family for whom $10K would be a huge financial burden, but even that is a stretch. With most companies, not only do kids not get the best health class for insurance on them until they reach adulthood, but you can't even buy a term policy on them until they're 20.
Some agents may push the idea that “you're locking in insurability” in their youth and buying a policy “when it's cheapest to do so.” But the fact is you're buying them a whole life policy (which they don't even need) when you should be funding a Roth IRA (earned income), a 529 (college savings), or an UGMA (everything else.)
Even if your goal were to lock in insurability, this isn't a great way to do that unless the policy has a rider allowing you to buy a 7 figure amount of insurance later. Now, if the policy gave the kid $10K of insurance now, and the right to buy $1 Million at age 25 no matter what health he was in, I could understand how some people might want to buy it. But that isn't usually what you get.
What the parents are suckered into buying is a $50-100K whole life policy, which is totally inadequate as compared to that kid's future adult insurance needs. I guess it's “better than nothing,” but not by much. Your widow and orphans need $2 Million and you've left $50K. Nice job buddy.
And this nonsense about saving for college in a whole life policy is even dumber. These tiny policies are lucky to break even in the 18 years you have to save for college. If you're buying life insurance from the same company you buy baby food from, you're probably doing it wrong.
#4 Trying to Be a Financial Advisor
I don't know if they teach this in that week-long insurance agent school, but trying to sell yourself as a financial advisor when you are a commissioned insurance salesman is a huge sin in my book. Being an insurance agent is a noble career, all by itself. You are providing for widows, widowers, and orphans. You are allowing people to take risks with their lives that they otherwise would not be able to take, benefiting them in the long run and boosting the economy. What's wrong with just being an insurance agent? Nothing at all.
Now, is it impossible to be an insurance agent AND a financial advisor? Probably not. But if you want to be a financial advisor too, at least do a few things before doing so.
First, get some outside education. If all of your education is provided by an insurance company, how good of an advisor do you think you can really be?
Second, get a real financial advisor credential. For an agent, that means a ChFC or better yet, a CFP (see the theme? — Get an education from outside the insurance industry.)
Third, don't use the same fee structure you use for insurance for financial advice. When you sell insurance, you get paid a commission. But you can sell a top-notch insurance policy and still make a good commission. You can't actually sell a top-notch investment and make a good commission, because top-notch investments don't have to pay commissions to get investors.
In fact, in order to get sold, the WORST investments pay the HIGHEST commissions. I don't care how good of a person you are, that's a tough conflict of interest to fight against every day for your entire career. So you need to do financial planning and investment management on a fee-only basis. I prefer a retainer or an hourly rate, but even an asset under management fee is okay if it isn't too high and if it drops rapidly as assets climb.
#5 Selling Long Term Care Insurance to the Wrong Crowd
Long term care insurance has issues. It really isn't ready for primetime. That said, a reasonable case can still be made for it for a certain segment of society. That segment is for couples with a six figure portfolio. For example, if you are retiring on Social Security and a $200K nest egg, and one of the partners ends up in long-term care for 5 or 10 years, that could deplete the entire portfolio and at death not only does the Social Security income decrease for the remaining partner, but the nest egg is also gone. Even with a $600-800K portfolio, that's a possibility. But for those with a 5 figure or 7 figure portfolio, it is probably better to avoid purchasing long-term care insurance.
The 5 figure portfolio folks are going to be better off saving the premiums. They've probably got a better use for their money, and if someone goes into a long-term care situation, they can simply spend down to Medicaid levels.
The 7 figure portfolio folks can self-insure against this stuff. The average cost of long term care is around $50K a year. Look up your state averages here. The average nursing home stay is 2-3 years. So even if you end up spending more than average for 2 or 3 times as long as average, you can probably still self-insure this risk without leaving your spouse impoverished.
Everybody doesn't need long term care insurance. Stop trying to sell it to everyone.
#6 Not Being an Independent Agent
Why would any single company be the best company for every type of insurance for every person? It doesn't make any sense. Yet many agents are “captive” and sell insurance from only one company. That means that a significant percentage of the time they either have to send the client away and not make a commission or worse, sell them a policy that isn't the best policy for them.
Again, do you want to get to the end of your career and think about how many people you've hosed for a living? Of course not. Do the right thing and go independent. If you're not good enough to make a living as an independent agent, you probably don't belong in the insurance business anyway, so do the rest of the agents in the world a favor and get out so they can make a decent living.
There you go. The six greatest sins of insurance agents. If you're an agent, stop committing them. If you're a client, don't associate with agents who do. Run those guys out of business so the good guys can make a living and the rest of us can get all the insurance we need and none of the insurance we don't.
What do you think? Agree? Disagree? What else would you add to the list? What sins have agents committed against you? How do you feel about that? Comment below!
You didn’t even touch disability insurance! Do those agents get their own sin list??
I see a lot fewer sins with disability. If you see an independent agent and already know how much you want to buy, you’re going to do okay and can’t get ripped off much.
Right now I have principal disability insurance. The language states that in the event a claim is made, 12 months will be paid out. But if I can be employed in another job given my education, etc then the payment stops after 12 months. This is bad right? To switch to guardian disability insurance for the same amount of payout but without the 12 month contingency I would be paying at least twice what I’m paying now. Should I make the switch?
You get what you pay for. It sounds like your Principal policy has a relatively weak definition of disability. Principal does have policies with a strong definition. Sounds to me like you need to meet with an independent disability insurance agent to go over what you have and make a decision about whether to change. Obviously don’t cancel what you have until you have a new policy.
https://www.whitecoatinvestor.com/how-to-buy-disability-insurance/
Disability policies are “built”. If you don’t check a box to add the Regular Occupation/Own Occ Rider with Principal then you get an inferior design.
I wouldn’t just jump to Guardian. Sounds like you need to get competing quotes from all carriers and they need to be built in the proper manner.
Don’t give up on Principal just because someone might have sold you the wrong design. Not yet at least.
When you get the quotes you might even see that Ameritas or Standard beat them all.
That’s your next step. After you sort it all out then decide what to do.
Don’t cancel that Principal plan until the new plan is in place. You just never know what might happen to your health so you should not allow a break in coverage.
Great post. Love it.
1. The average policy size for us jumped when we rolled out our instant term life insurance quote tool with apply now. If consumers are not able to shop on their own and figure out the amount they want on their own, insurance agents just get in the way. That’s my opinion. There’s just too much sales bias to have it any other way.
2. We will not sell whole life. Have not sold it in 6 years now. Never again. There are of course situations were somebody might come to us that is 70 years old and says they want life insurance and they want whole life but other than that it’s not happening. This never happens by the way. All term all day.
3. If an agent proposes that you buy life insurance on your children just hang up the phone or leave their office or do what you have to do two separate from them.
4. We believe that people should use websites like this and services like Vanguard to manage their investments and to get advice for financial planning. Talk to a friend or chat with your accountant or other trusted professional. I believe that if somebody is charging 1% every year on your money when you don’t have gigantic sums of it but they are just looking to make a buck off of you. They know that they are not going to look at that portfolio very often and that you could just pick an index fund or that Vanguard’s tools choose a portfolio for you. Most financial planners are awful marketers. They need to sell more products and to do that they need to claim to do more advanced planning. I recently allowed all of my investment licenses to go nonrenewed. I have my financial planning credentials but I will not offer financial planning advice on a professional level. We direct people to Vanguard and to this website and we help answer general questions but recommend that people figure it out for themselves before another financial person takes more money from their money. If you want term life insurance or disability insurance we can help. This is why we have decided to focus on other entrepreneurial ventures outside of helping people with life and disability. If we want to make more money why not work in other areas? Web development and consulting is much more fulfilling anyway. Think about what your advisor would do if they only sold term life and Disability.
5. We list long-term care insurance at our website but literally don’t sell it because nobody wants it after they see the premiums and find out the premiums kids to increase. We can of course prepare quotes for all carriers for offering. We believe in presenting options and allowing people to decide.
6. Ding ding ding. This is critical. Many of the agents on this website and around you in hospitals are not independent. They claim to be but they are not. Problem with this is when there is a situation where we see two carriers that are close in pricing or value they automatically lean toward the one that is their home company. It’s burned into their brain. They get benefits from one and not the other and they sit in trainings and go to “sales leader” meetings with other people that have the same story. Everybody knows that independent is the way to go. Why don’t these agents go independent?
Keep up the great work!
#7: Risking friendships to make a buck.
I was pitched whole life and its variant cousins by a couple of friends from high school when they were launching their sales careers and I was in residency. Fortunately, I knew enough to politely decline, citing articles and facts, and they knew me well enough to understand I wouldn’t be easily swayed. A “hard sell” would have put a strain on our friendship. If I had taken the bait, I would most likely be quite sour years later when realizing I was sold an unfit policy.
I’m sure their bosses encouraged them to start with circles of friends and family, particularly any with MD behind their name, but I won’t easily forget being made a target by my buddies.
For many the brainwashing goes so deep that they genuinely feel like it is their life’s mission to “save” their family and friends with Whole Life insurance. Good move dodging that meeting. Gross. Puke. Vomit.
The day that this site (and your site, PoF) took footing I knew there was hope. We were excited because we started an online “shop for term” and “get DI quotes” business. We dumped our investment licenses. We broke away from the big mutual companies that wanted nothing but whole life sales. We did not believe in offering it and they tried to give us reason after reason to finally “get it”. We shifted from meeting people at the hospital to working from behind our computers. The idea of being licensed in all 50 states was just an idea but it ended up being reality.
In response to starting insuringincome.com, one office manager said “Ha. It will never work. I tried it before (only selling term and DI) and it won’t work.” They said “Website? Why do you need a website? This will always be a belly to belly business where you sit with people over their dining room table.” Helping people to buy term and get high quality DI is something that we love to do. It is a joint effort to get the best deal. When you do “financial planning” (more times than not just a marketing name for “I want to sell this person every financial product that I can possibly think of”) and you present other products it is absolutely more of an adversarial relationship. Someone wants to convince you to move their money to them and then they get paid 1% of your money when the market drops 12% for the year?? How does that make any sense? The advisor is like a leech at this point. They stress how it is all about the “process”. The process of paying ridiculous fees for no added value. Nope, not for us.
We laughed and we still laugh when they said that a web based term life and DI business would not work. Actually it makes us sick more times than not because we hear from people all the time that have lost in this equation because they were sold something by a family member or friend.
These sites and the internet in general have made it possible for people to get what they know is best and to avoid the awkward relationship changing meeting/sales pitch and even worse, the impact of putting tens of thousands of dollars into something that they eventually will dump later.
WCI has changed the game by putting the consumer in the driver’s seat. The insurance and financial planning business has forever been changed as a result. It is awesome to see this. Transparency puts the snake oil salesman out of business. Look at what truecar did to most dealerships. Now they have to talk about how transparent they are – if it was up to most they would make 10k commission from each car sale. Those days are gone.
Let’s keep pushing. Please keep sharing your stories and asking questions.
I whole heartedly agree. The entire time I shopped for my current term life insurance my broker was either trying to sell me on whole life insurance or some sort of insurance that pays off your mortgage if you die. So I guess I’ll add the mortgage insurance folks. Not the PMI but the mortgage life insurance bunch. Someone with a six figure portfolio is not going to insure the payoff of their mortgage. Even someone with a smaller account is better off with term.
Oh yea, mortgage insurance. Ranks right up there with fantasy football insurance and cancer insurance.
I would just caution anyone to prepare for a higher nursing home cost. If you click on that link, most nursing home costs are more than $50,000 and when you see the projection 20 years out it is much greater. Furthermore, if you want the “better” nursing home you are going to pay more. I am a geriatrician and I see a wide range at the nursing homes and assisted livings I work at. The best nursing facility in our town is $120,000/year and you can see a HUGE difference compared to the cheaper one.
I am not saying people should buy long term care insurance because interestingly LTC insurance often find a reason not to cover you. I have written many letters to explain why a patient now needs their long term care insurance benefits to have them denied. I had a patient with a recent stroke, hemiparesis, cognitive impairment, requiring a walker, and cancer on palliative chemo who I could not get his long term care benefits to kick in and pay for his assisted living. What I do recommend (to friends and family not patients because this would be rude) is for children to NOT expect any inheritance from their parents. If their parents need a nursing facility for three years and it takes a large chunk from the inheritance, well that is why they saved for their whole life. I have seen families take their loved ones out of great nursing homes once the long term care insurance runs out because they do not want to deplete the inheritance they will get. Personally, my grandmother has been in a nursing home for seven years and is spending down her nest egg, so my mother will not get much of an inheritance but that is why my grandparents saved their whole life.
I agree that money should be spent on Grandma. However, it’s only fair to acknowledge that many elderly actually choose to “martyr” themselves a bit because leaving money behind is so important to them. “Johnny needs it more than I do.” You don’t stop sacrificing to give your kids a better life, even when you’re 90. I think it’s important to frequently remind our parents that they should spend their money on themselves guilt-free and that we’ll be just fine without it.
These things are never going to change.
Now with LTCi, I’m willing to give the agents a break about older policies. It was hard to predict. Unfortunately the current trend is to sell permanent insurance or annuities with riders and that’s typically even worse than the current ltci policies.
Great post! With regard to the term vs whole life thing, the problem will never go away until the enormous difference between the two commissions is ended. Human bias is such that it is almost impossible for the insurance agent to do the right thing. They will rationalise it until they truly believe that whole life is better. I’ve seen it with an agent with whom I had a term life policy that he fought tooth and nail with me to try and get me to convert to a universal life policy. It was truly amazing. He really believed he was doing the right thing.
I agree. Due to lack of training and education (or purposeful brainwashing from the higher ups) most insurance agents pushing whole life to the masses really, truly believe they are doing the right thing. That’s why they’re so convincing!
The problem does go away if the agent embraces the scale of the web. Term is easier in the sense that you don’t need to fight people to buy it. It is like saying to someone “Hey, I have a good idea. You should pay your income taxes”.
If the goal is to look to write more and more policies instead of writing the same number but looking to increase premiums by selling larger premiums, it works. We write about 500-600 policies each year but the goal is to do a lot more. The problem is also solved if the insurance agent is a web developer/web company. Once the term life (and DI) tool is cranking you just continue to use your coding skills to make it more and more efficient and transparent. You find other agents that can push people into the sales funnel that is a system that provides instant quotes without agent interaction and allows people to start the application process right away. Then you just provide advice where people ask and you focus on getting approvals for people (never trying to up-sell to other products). If the coding skills are there then there is a lot of other work that can be done to create new online marketplaces and to help clients build what they need. That is what we do at Insuring Income/Webier Consulting and there is an obviousness to this. Get the term and DI taken care of and then send people on their way. We are done at that point. Advisors are never “done”. They are always looking to schedule that next “review” because they are always trying to find the next product or the newest company offering to offer to their existing “book of business”.
I will give someone $200 if they ever hear me tell them to buy whole life, universal life, or variable life. Not going to happen. This means that the focus stays on finding the absolute lowest priced term plan. Health issues can mean that there is just one company out of 60 that offer Preferred. You either find that offer or you don’t. It won’t find you unless someone turns over every stone.
Actually, one exception to the never offer permanent products. Protective Life uses a Universal product instead of term. Weird but that would be the technicality. Zero cash value and prices in the same range as 10 year, 20, year, 30 year term from other companies.
You have all opened your eyes and you see it clear as day. The human bias that you mentioned is the primary problem and is the explanation for why so many people buy the “wrong thing”.
Get the agent out of the analysis. Families know what they need and can use calculators on non-insurance websites to help shape their decision. Then find an agent that can battle the companies to get the best deal and can help you to steer the ship if your desired face amount is totally out of line.
I always push DI carriers to let us make an instant DI quote tool and the primary reason is so consumers can figure this stuff out for themselves. We don’t need agent bias – it is everywhere and you cannot get around it. If in doing so I make myself obsolete then so be it – embracing technological change is what we all do and it has changed the world we live in. Those that fight the technological change end up losing in the end.
Might seem odd but selling insurance in 2017 has become a computer programming job. The data is fixed. There are no surprises with rates. Think about it. Insurance agent + web development = Transparent and unbiased decisions.
Amazon is a tech company (obvious statement of the day). Who thought that they would essentially eliminate bookstores and then many other traditional brick and mortar storefront businesses (Although going into Barnes and Noble is prob one of my favorite things to do, especially with the kiddos)?
Uber is tech company.
Truecar is a tech company.
blueapron.com is a tech company.
SaaS (Software as a service) platforms are everywhere for accounting, sales, proposal creation, etc.
We have started to see robo-advisors for managing money in betterment.com, wealthfront.com, personalcapital.com
Banking and lending has gone the way of automated tech platforms – rocketmortgage.com, robinhood.com, etc, etc
The customer experience is infinitely better with these platforms because the wasted time and biases from sales people are partially or totally eliminated.
Life and DI are heading there. Embrace it today and recommend to a colleague that they get on whitecoatinvestor.com to prevent the next mistake that they could make.
Those just aren’t related. We have had this discussion before. I wish you luck but try to be less self advertising with your posts.
Frankly permanent insurance would disappear without the sales force to push it.
The fact that a product might disappear because people are out selling it says a lot about a product.
In reality the product would need to be changed so that it would sell.
I really can’t think of another product that exists anywhere either as a physical product or a service related product that would not exist if people weren’t out trying to sell it.
Seriously, what is an example?
Girl Scout cookies? Nope. Def not them.
That has to mean something.
I’m really hoping you don’t become an excessive spammer….
there are lots of products that sell themselves to some extent. Sorry you can’t think of any.
I think he’s saying he can’t think of another product except whole life that requires a sales force in order to get sold at all. Same thing you’re saying.
He does get pretty wordy and excited about term life and his company, doesn’t he. Gotta admire the enthusiasm though. Wish all agents were as excited about term life!
It’s a fine line to walk when commenting as a financial professional on the site. If the main purpose of your comment is to advertise your firm (rather than provide useful information to readers) you’ve crossed that line. You’re getting pretty close to the line Joe given that the total word count of your last few comments is now probably three times the length of the original post!
Sorry guys. I start typing and then I submit. I will dial it back. I do get excited – true.
Sorry Rex. Sorry Jim.
This one came in via email:
Look at Partnership plans in the Long Term Insurance market. They are not perfect by any means. They were designed to avoid the manipulations involved in spending down to medicaid. You do have to pay the interest on investment income after you reach policy limits. You are correct in thinking that high net worth individuals will throw off enough interest to self insure so why buy it. End of life care is very complicated. You want to make it easy for people to care for you should you need to be taken care of. You could imagine that your children would want to save as much of their inheritance as possible. They may come up with a schedule to look in on mom and dad. This would quickly become burdensome for your children and the parents would be uncomfortable with the situation. If you have a policy then you have paid for a care giver to look after you. You are in control. Your heirs are not spending their inheritance. Is my logic flawed? I do think partnership plans should be part of estate planning in certain situations. Most estate planners where I live do not advocate for them. I did the research on my own. I am interested in your feedback.
Well that’s pretty cool. This is the first I’ve heard of Partnership plans.
http://www.aaltci.org/long-term-care-insurance/learning-center/long-term-care-insurance-partnership-plans.php
Not available in my state unfortunately.
My thoughts? If you are in the asset range where it makes sense to buy LTCI (or possibly now below it), then try to get a partnership plan. But I wouldn’t buy one if I was above that range and could otherwise self-insure. Just because an industry develops a product, doesn’t mean it makes sense to buy. You can insure against lots of things. Doesn’t mean you should if you can self-insure that cost.
What is your take on return of premium riders for disability policies?
In general not a fan.
https://www.whitecoatinvestor.com/return-of-premium-term-life-insurance-friday-qa-series/
The problem with these return of premium policies is that you are prevented from moving to a new policy as you get further into the plan because you don’t want to give up on receiving a check in a few years.
Worked with a physician last year that really wanted to reduce his cost of his existing MetLife return of premium disability policy.
He also wanted to remove the return of premium rider from his policy because he figured out that the rate of return was terrible.
So we got the price for his MetLife policy without the rider and then we ran quotes from all other carriers in the market without the rider as well. When we ran the quotes Principal had a fantastic premium rate for him and he wanted it.
The thing is that he gets a check every five years from MetLife if he doesn’t file a claim. He was in his second year. Because the check was so large he was prevented from moving to the more efficient Principal policy.
His plan is to remove the waiver of premium rider the day after he gets his next return of premium check and then wants new quotes but the problem is that he plans to take a job where his income will be lower and he knows that when he replaces the MetLife policy that he will most likely need to accept a lower monthly benefit. Having that rider has handicapped him.
Since the check comes every five years it is a carrot that is dangled out in front of him. We had another person years back that had what he thought was a small claim but he decided not to file it and get money from the policy because he wanted to get his return of premium check. Terrible situation to be in.
WCI you would be appalled at how hard whole life was pushed on residents by visiting speakers who billed themselves as financial advisors. Every couple of months a group selling this product came through out residency program offering a 10 minute talk about how they can help you get rich. At the end was a strong push for whole life insurance.
I also agree with underselling term life insurance. I was just offered via my group term insurance that maxes out at $400k. Most of the people in my group have 1-3 kids. Lets be real, $400,000 wont go very far at all for those individuals. Some people with my group are making that per year.
While appalled, I wouldn’t be surprised. I’ve been there, remember?
Hey White Coat – I have a LTC Partnership policy going on 7 years now. Calif/Genworth. While I am worth a lot, on the off-chance I do live to see 85/90+ like the rest of my family, I am at high risk now for a longer stay in a facility as my bones are osteoporetic and one fall can do me in. In the last few years the loss of bone has accelerated, sad to say. My brain? Still like Albert Einstein.
California nursing homes that are half decent run $100,000+ per year and mostly more than $120,000. No kids to take care of me. It’s possible I will outlive everyone I know. I am in perfect health (except the spine.)
Partnership plans are necessary. You are protected from having to spend down your assets. The states that have them have the right idea.
I’m glad you’re happy with your plan. What I’m not understanding, however, is why you wouldn’t spend your own money (since you have no heirs) on long term care. If you’re worth a lot, can’t you self-insure this risk?
The other thing that is crazy is the regional difference in this cost. Yet another reason to leave California! LTC is half the price one state away.
http://www.dibbern.com/nursing_home_costs/cost_for_california_nursing_homes.htm
https://www.seniorhomes.com/s/utah/nursing-homes/
RetiredPhysicianThankYou! – If you are truly thinking you may need a nursing home in the future and do not have much family support, then consider the following while your “brain is still like Albert Einstein”. As a geriatrician who works in skilled nursing facilities (SNFs) and assisted living facilities, I would recommend looking at the nursing facilities in your area to see what you do or do not want. Ask about costs and what services are provided. If you do not know the difference between an assisted living and a nursing facility, start doing some research in your area. Some assisted living facilities can provide nursing facility care but others simply provide a meal three times a day. Find out which physician groups provide services to those facilities and how often the physicians are available. If you are interested in the option to have 24/7 home care, do those agencies exist in your area? I had a very wealthy patient living in a rural area who wanted to pay for 24/7 care (about $200,000/year) but it was not an option in his rural area forcing him to stay in a nursing facility. Therefore, for wealthy individuals without much family support I recommend doing more research on your area while you can.
That process has got to be more depressing than buying life insurance. “Hey honey, let’s check out nursing homes this weekend!”
Great post. Thanks for confirming my thoughts about long term care Insurance.
Hey .. I am worth a lot, but I didn’t say how much that a lot is. Today a good nursing home is $120,000 a year in my area in So Cal. In ten – twenty years, I would double that cost at the least. I don’t want to spend $240,000 a year if it comes to this especially if it does come down to me needing to move and spend that for 20+ years.
We have two new assisted living developments that just opened in the area. They are lovely. They are also twice the cost of what I could sell my home for today. And today, I don’t qualify medically not to mention, there are 150 names on the wait list to get a home or condo in the place.
I am getting concerned when I read endless obits about people living close to 100 .. or over. Having a good chunk of money today, that’s nice, but what if I needed a place for ten, fifteen years or more? There are people today living to 103, 105, even 108 where I live. I would go broke spending not only $1.5M+ to buy a place there AND also needing to add a personal caregiver or two.
I have options with the LTC policy. First I don’t have to move if I don’t want. I can bring somebody into my home here, a one story home designed for me to live forever, while not having to go buy a place at either of the new places and pay twice what my home is worth today. I would rather lay out my $2900/year premium to preserve my options now than lay out over a million bucks, maybe two million bucks, to do that plan. Cuz you see, there are no guarantees in life. I just might live another 40 years or more.
And I did not say I didn’t have kids/heirs. I said I had no kids to take care of me. My kids would never be bothered. And honestly, I don’t want them to move back to my sleepy town here where they will have no life. This is an aging town. I want them in a vibrant city, working and married hopefully and creating lives that bring them happiness.
My concern is that if I live another 40 years, I will spend all the money I have. I would not do that. So I bought a Calif partnership LTC policy. Even if doubles or triples in premium over X amount of time, it is still a bargain. I got one of the last few Lifetime Benefits that Genworth sold back in 2010. They don’t sell them anymore. Honestly, what is $2900 to me once a year when my money is being preserved and I don’t have to spend it down. I just might want, in the next few years, to take a few around-the-world cruises while I can.
Always good to read about the few or the exceptions that don’t think or do what the masses do. Somebody once said that it takes all kinds of people to make the world go ’round.
I like the Protective policies as U mentioned.
Question: how do you feel about Whole Life if we are in a structural low-return environment like many predict (i’m thinking of Grantham Mayo in partiuclar…they’ve been spot-on over long time frames). Let’s say something like 2%+inflation for equities over the next 20 years, and 2.5% for govt bonds. Before you say this is inconsistent with history, I’d like to point out that is only true for the US and it’s entirely possible we are about to embark on similar challenges that Japan has had for example (demographics, indebtedness, etc).
Thanks.
I’ve written about that:
https://www.whitecoatinvestor.com/making-different-choices-due-to-low-expected-returns/
Yes, lower expected returns from other assets make investing in whole life relatively more attractive than it was before. I mean, how exciting is it to buy a whole life policy that guarantees 2% and might give you 4-5% if a money market fund offers 5%? Not very exciting. But when the MMF offers 0.5% and you think you’re only going to get 6-7% out of stocks….WL starts looking a lot better.
Bear in mind, however, that insurance companies basically invest in the same stuff you do-treasuries, corporate bonds, some stocks, some real estate etc.
Thanks. Any idea what percent of the insurance company returns are from income sources other than investments (policy lapses, new premiums, etc)? That and the tax-status would be the only “free lunches,” correct? (which would have to be weighed against the costs of course).
No. It’s basically a black box. No one publishes that sort of thing.
Remember the only tax benefits are the tax-protected growth and the fact that the death benefit is tax-free. Being able to borrow money tax-free is not unique to life insurance. There is no upfront tax deduction.
My contention (a small one) is with #1. If you are the sole breadwinner on your home then yes a seven figure term policy makes sense. But more and more households are dual income households and many on this site are dual physician. In that case the surviving spouse can still work.
Thus enough term to cover mortgage, school expenses and maybe 6mos to 1 yr living expenses while not working and getting life in order. For most that would maybe be mid to high six figure policy for maybe 20 years. Just another opinion
Nothing wrong with that.
Any thoughts on critical illness insurance? My reasoning was to cover myself in case of malignancy and acquired brain injury from an MVC and have the return of premium on expiry (@65yo) so if I never make a claim, at least I get my premiums refunded. Premiums are much higher than term life but that is if you are lucky enough to die from an MVC rather than becoming physically and mentally handicapped, which I see more and more. (Yes I also have DI)
Hilarious. I think. Tone is a little hard to judge on the interwebs.
Very interesting comments by geriatrician MrsIMDoc. We have a family history of Alzheimer’s, and I wish LTCi made more sense for me. Most current policies seem to be for 3 to 5 years, which is a drop in the bucket in our family (my mother had Alzheimer’s for 20 years). Plus I’m single and childless, and suspect that with no close relative to advocate for me, the insurance company wouldn’t pay up.
The LTCi product that might work for me doesn’t seem to exist. I’d like a lifetime care policy with a long elimination period, like three years. I could afford to self-insure for that long, because I’m not trying to leave an inheritance. And since most people use LTCi for less than three years, that should help keep premiums down.
Do you guys thing such a policy will ever exist? With the prevalence of Alzheimer’s in an ageing population, I can’t be the only one who would like a catastrophic insurance option. And there are probably a lot more of us who fear we’ll live many years with Alzheimer’s than actually will, so that should help make it profitable for the insurance cos.