The “TINSTAAFL Theory”

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There is no such thing as a free lunch. We have all heard the saying, but somehow people think it doesn’t apply to them. Often people buy health or life insurance plans purely by lowest price. While low price seems good; “good value” is better. Read the following real examples:

Person buys a health insurance plan based on price only. When a major health condition is discovered it is found that the provider system needed is out of network and the cost for a needed surgery is tens of thousands of dollars greater than it would have been with a plan that cost $15 more a month.

Another person waives Medicare Part B for another type of plan to save money on premium (note: this person is a high earner and has an increased premium for Part B of Medicare). Her health changes and she finds that a surgeon will not do heart surgery until she guarantees him payment in full or has Medicare Part B coverage as her guarantee of coverage. She had to enroll in Medicare Part B during an “open enrollment period” (1/1 – 3/31) and then wait until July 1 to have Medicare Part B so she could have the surgery. Her total wait time was 10 months.

The next example is happening much too often and usually not discovered until it is too late. Gentleman buys life insurance for his business and family. The choices were a “term” life plan that only insures people for a specific term (e.g. 20 years), “whole life” and forms of “universal life” policies. This gentleman wanted and needed a plan that would pay $750,000 at his death. He decided to purchase a universal life policy due to the need for the death benefit to be payable whenever he should die. Universal life plans rely on projections of interest or return within the policy, which may not be the guarantees. So premiums are paid into the policy. That premium is split between a fund (within the policy growing at current interest rates) and the cost of the death benefit. Further, the plan was purchased in the 1990s when interest rates where high. He did not review his policy periodically. Interest rates dropped over a decade ago and now there is not enough cash in the policy to remain solvent. Therefore, he must allow the plan to lapse in several years if he continues to pay the same premium; or increase his payments by more than $12,000 a year, and/or reduce his amount of life insurance. He would not have this problem today if he spent a few hundred dollars a year more when he purchased his original policy.

In another case, a person wanted and needed life insurance to fund college for his two children if he should die prior to their graduation. At that time he was in preferred health and received the company’s best rating. He chose to save $10 a month and unknowingly selected a plan which allowed for conversion of the plan for only the first 10 years of the 30 year term. As life moves forward, needs change and many times increase. This is due to starting a business and/or increased earnings and large purchases such as a home.

This gentleman developed a serious he concern and is no longer insurable. Unfortunately, if the original plan he had purchased allowed for conversion through the entire term, he could have converted his term plan to a plan which would cover him for life. In addition, the insurance company would have extended the preferred health rating on the converted plan giving him a low premium.

So, always remember the “TINSTAAFL Theory”. There Is No Such Thing As A Free Lunch; look for value and get professional advice. Review your health and life insurance coverage at least every three years and upon major life changes. As always, feel free to contact our office if you have questions at 309-693-1060.

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Steven A. Buttice is the president of Medical Reimbursement & Management Services, Inc., a firm specializing in issues affecting seniors, including seminars and consultation on Medicare Plans, Long Term Care and other types of insurance, claims issues, and sales/service of insurance products since 1984.

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