Wednesday, May 13, 2009

Disability, Critical Illness, and Long-Term Care Insurance Options – Protecting yourself is a must, but insurance may be a bit too expensive

My core belief about the concept of insurance is that its main purpose should be to protect the insured against a very highly unlikely event that, if it were to occur, would cause significant financial hardship to the insured or to his or her dependents.

If an event is highly likely to occur (if there is a good chance that it actually will happen), I do not believe that it can be economically insured against. The cost of insurance would be so high that individuals would be better off regularly setting aside savings and building up a personal financial reserve to fund these costs should they occur.

If an event is highly likely to happen, people must take personal responsibility to prepare for it. This is not the type of risk that can be economically offloaded onto someone else.

Therefore, I personally see the sobering statistics that the insurance industry provides that show the high probability of being disabled, critically ill, or eventually needing long-term care, as a strong counter-argument against the very insurance these statistics are meant to support.

If the likelihood of these events occurring is as high as the statistics seem to indicate, I believe that it is more prudent to set aside savings and establish your own personal emergency fund, so that when one of these events does happen, you’ll have the money you need to get you through it.

I have successfully completed all the exams required to sell Disability, Crititcal Illness, and Long-Term Disability Insurance (I was fully licensed to sell all these products when I worked for Dundee Wealth).

Consumer Reports - Do You Need Long-Term Care Insurance

Disability Insurance - A Broken Promise

I'm sure you could easily find a lot more information of this type on the internet if you just Googled it.

Although many advisors are being told that if a financial planner doesn't make their clients aware of the risk relating to Private Disability, Critical Illness, or Long-Term Care costs, they could be sued for negligence, I'm still not a big fan of these three insurance products.

It's not that I don't believe in the insurance itself per se, I'm just not convinced that these are cost-effective products for consumers. My concern is that the cost of these types of insurance is just too high compared to the probability of risk and the coverage provided.

I may be wrong, but I still get the feeling that these products were invented solely to increase insurance company bottom lines. The benefits (justification) to be pitched/sold to the potential buyers of these products, came a distant second.

Insurance salesmen will throw out a lot of numbers in an attempt to make a compelling case for these products, but nothing I have heard yet has quite convinced me that these products are a necessity.

Most people selling these types of products can make a very strong emotional case as to why these types of insurance are "critically" important.

They'll have you scratching your head wondering how people ever managed before these products were developed.

In regards to Disability Insurance: There's nothing wrong with it if your boss is footing the bill. But if someone wants to sell you a private policy, at least get an opposing opinion as to why it might not be right for you.

As for Critical Illness and Long-Term Care: I shake my head just thinking about them. I won't get into all the details here, but please, at least get an opposing opinion as to why it might not be right for you.

The reason I have a hard time supporting these products is that they just don't measure up to what I believe the concept of insurance is supposed to be all about. I just do not believe that one can economically insure against accidents that are presented as outcomes that are virtually certain to happen. This is just not a risk that can be reasonably transferred to someone else, by paying an insurance premium and still have it be a net benefit to the buyer of these products.

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