There would seem to be nothing in common between long-term care and climate change. But there is. Insurance companies cannot properly price it. This is evident to anyone who has seen their long-term care insurance or homeowner's insurance costs continue to increase. If insurance companies are stumped, how do we plan for ourselves? Let's take each issue separately.
Rather than go into the types of long-term care policies, let's simply think about whether you need the insurance. I am generally ambivalent about the coverage because it is unclear whether it provides any real financial advantages. Here are some reasons it may make sense to own it.
Long-term care insurance is useful if you are unable to ask others for help. Many of our clients find themselves caring for their partner at great expense to their own health. It is harder for them to bring in care because ultimately it may conflict with their opinion of their duties as a spouse. Owning the insurance makes it easier for them because the coverage was typically bought together with the expressed intent of ultimately using it.
Insurance is also helpful if you are a "should" person when it comes to money. If you don't spend money because you think you "should" do the care yourself, then insurance gives you permission to bring in help.
Another reason insurance makes sense is if owning it gives you peace of mind to spend money while you can enjoy it, rather than holding onto it in case you may need it someday. I am amazed at how owning a long-term care policy has shifted some of our clients' thinking about being able to enjoy their lives today.
The strategy around factoring in climate change is a bit different, because owning property insurance is generally not a choice. The strategy, though, is around what to own and how to own it.
The purpose of insurance is to protect against catastrophes, not against the smaller things that you can afford to pay for yourself. This means that you are better off having more comprehensive coverage and saving through higher deductibles. For example, as storms get heavier, the likelihood of hail damage increases so this insurance makes sense.
Also, consider whether owning property is the best strategy. This is especially true for second homes, where the availability of rentals is ever expanding.
Insurers are telling us it is difficult to prepare for long-term care and climate change. Listen to what they are saying and plan around it.
Spend your life wisely.
Ross Levin is the chief executive and founder of Accredited Investors Wealth Management in Edina.
