Is It Ever a Good Idea to Throw Money at Insurance Companies?

MAKING SENSE -- July 27, 2012 at 9:07 AM EDT

Is It Ever a Good Idea to Throw Money at Insurance Companies?

Registered nurse Susan Eager discusses medication with patient Helen Ricci, 96 during a house call in Denver, Colo. Photo by John Moore/Getty Images.

The NewsHour has partnered with NextAvenue, a new PBS website that offers articles, blogs and other critical information for adults over 50.

Friday's question is another from our baby boom finance friends at PBS's NextAvenue.

I'm struggling with the question of long term insurance. I've received a lot of advice, all contradictory. I know it depends on the individuals in question, but is it ever a good idea to throw money at an insurance company, with all the attending exemptions and exclusions, that you are not likely to benefit from?
-- Suzanne Gore Reynolds

Paul Solman: Sometimes. I myself have had a term life insurance policy for many years. So far, the insurance companies have won the bet, praise the lord. But it bought valuable peace of mind for decades.

If you're talking about long-term care insurance, however, I'll repeat a version of what I wrote here in May:

I'm wary of it, and have never bought any for my wife or myself.

Here's my reasoning: We're in our late 60s, just a hair ahead of the Baby Boom. If we live a long time, so will tens of millions of our contemporaries, I'm guessing. If we need long-term care, they probably will, too. But if insurance companies are flooded with claimants, they figure to be strained to honor their obligations. That suggests, at least to me, that they will be forced to stint on payments, impose all sorts of restrictions, or maybe fail to pay entirely.

My choice, then, has been to self insure. My wife and I have saved since the 1970s for the purpose of financing our old age. And since our four parents lived to an average age of 89, and two of them needed long-term care, we've saved assiduously.

In general, my answer to a question like yours would depend upon your age and your savings. Given your situation, I would ask your attorney to review the terms of any long-term care policy and the financial health of the company that issued it.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions.

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