Self-Insuring the Potential Need forLong-Term Care: Concept vs. Reality
by Claude Thau
Insurance is an expense. So, why spend money on insurance if you can afford to cover the risk with your assets and income? If you buy insurance, some of your money goes to insurer administrative costs and expense, agent or broker commissions and government taxes. Isn’t it more efficient to self-insure?
As a [cheap] actuary in the home office of an insurance company, I was paid to make logical decisions. Part of my logical analysis was that affluent people would not buy long-term care insurance if they could afford to self-insure.
When I got into the “real” world, I learned that I was wrong. I also learned that there is a BIG difference between concept and reality. The concept of self-insurance makes a lot of sense, but in practice it often does not work.
People who self-insure often do NOT get
• the carethey need, or
• the care which would be most comfortable for them
Why don’t they get the care? Because they are unwilling to spend their money on such care.
When I speak to audiences about this issue, I use a “Family Feud” approach: What are the top three reasons people don’t get the care they would like to have, even though they can afford it?
Reason #1: As we get older, we fear out living our assets. We are living off our assets with no fresh income. Whether it is logical or not, we tend to become more conservative as we age and many of us become fearful of outliving our assets.
One time, I was sitting at a table with a friend of mine. When I mentioned that, because they aren’t willing to spend the money, people sometimes don’t get care that would benefit them, my friend shot out of his chair like one of those clowns shot from a cannon at the circus. All in one movement, he was suddenly on his feet, pounding his fist on the table to accentuate his words. I wish there was a camera there to record the look on my face. He’d been sitting at my side and his fist was whizzing by my head repeatedly as he kept pounding the table in frustration. I thought he was going to either break his fist or break the table, as he related his story to me.
That’s exactly what happened to my mother (fist)! My mother was married twice (fist). She was widowed twice (fist). Each of her husbands (fist) left her enough money (fist) to last the rest of her life (fist)! I can’t tell you how many times (fist) I’ve shown her (fist) that she could get the care (fist) that she needs (fist) and after 30 years, she’d have the same amount of money that she has now (fist). But she won’t do it!
Another time I mentioned my theory on the phone to a financial planner in GA. He responded by telling me:
“My sisters and I all live in different cities, away from our mother. We used to beg Mom to come to visit us, so she could see her grandchildren and be part of their lives as they grew up. But she wouldn’t come. We each tried every way to convince her, but nothing worked! We tried separately and it did notwork. We tried having a conference call amongst ourselves to develop ideas we could try. No luck. We got Mom on the phone with all of us at the same time. We could not convince her.
Then, after many years of such failure, somebody sold her a LTCi policy. It costs her about $1600/year, but it was magic! As soon as she bought that insurance, she started to visit us all regularly! She even went on a cruise, too!
I wish we’d been smart enough to encourage Mom to buy LTCi sooner. We did not understand that she was so fearful of needing care and so determined not to have to rely on us, that she would not spend the money for a plane ticket! If we’d understood that, she could have enjoyed her grandkids more and they would have benefited from knowing her better.”
Reason #2: Some of us begin to consider our assets as our children’s inheritance and we don’t want to spend our children’s money. Why spend money on someone who is near the end of life, when that money can do so much good for a young family? People tell me that our parents’ generation had this attitude but our generation doesn’t. I respond that our generation may never match our parents’ generation in this regard, but give us 20 years and we’ll be a lot closer to them.
Reason #3: Depending on your age, imagine having this conversation with your mother or grand-father. “Mom (or “Grandpa”), we can bring in a nice young person to help you dress and eat in the morning and it’s only going to cost $25/hour.”
What will she/he say? Something like: “What! It ain’t worth more than $5!” That’s because we all form our impression of the value of a dollar at a young age. We remember when things were a lot less expensive and today’s prices don’t seem reasonable to us. 
Return to Ingram's September 2008
Claude Thau,Target InsuranceServices.
P | 913.403.5824
E | cthau@targetins.com