John R. Bullis: Insurance is a transfer of risk

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There are many kinds of insurance policies available. Home insurance that transfers the risk of loss (fire, etc.) from the homeowner to the insurance company is an example. Vehicle insurance that provides the insurance company pays for the accident is another example. However, you know the insurance company policy also has a “deductible” amount that the owner must pay. That part of the risk is not transferred.

Long Term Care Insurance is another kind of policy. It transfers some of the risk (amount depends on the policy) from the individual to the insurance company for the cost of long-term care in the home or in a nursing home.

We like the policies that are now available that are basically a life insurance death benefit with a long-term care rider (additional coverage). If the long-term care portion is not used, then the death benefit is a larger amount. If the long-term care benefits are received, then the death benefit is reduced.

Recently someone asked if that policy would pay anything if the long-term care benefit was never used and the life insurance was no longer desired. Since that kind of policy is usually building a cash value, it could be the cash value could be received if the policy was canceled. Sometimes there is an old whole life insurance policy that has cash value that can be transferred to the new policy, tax free.

There is such a thing as too much insurance — or at least too much to pay in premiums versus the available income. Sometimes the answer is “not now” to insurance for disability benefits for example.

Some of the insurance policies you see advertised on TV or by mail that offer life insurance of small amounts may not be a good value. If the insurance company doesn’t seem to care if you are ill, or old then you might find the same coverage from a regular insurance company is a better deal.

Some of the special policies that only cover selected medical problems might also not be the best transfer of risk for the money. Why not ask your local insurance agent what is available and why.

If we think of insurance as a way to reduce our risk of loss, to transfer some of the risk to an insurance company for a premium, then it is easier to decide what types of insurance might be best for you at this time.

Did you hear? “Accept responsibility for your life. Know that it is you who will get you where you want to go, no one else,” by Les Brown.

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.


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