Insurance and Inheritance

Checkbook Troubles

If you need a good reason to buy insurance coverage, consider this: Having insurance can mean the difference between passing an inheritance on to the next generation or leaving them nothing at all.

There are all kinds of great reasons to buying health, life, home, auto and other insurance. Having good insurance insulates you against many of the risk factors that are inherent in our world. But say you’re not risk-averse. Maybe you’re a daredevil. Perhaps you like to live on the wild side. Do you still need insurance?

If you want to pass anything on to your children when you die, then you absolutely need insurance. For some people this is the most compelling reason of all to carry good coverage.

The Value of Inheritance

Inheritance is a powerful thing. It’s the way that we impart things from one life to the next, putting the best of ourselves into our children. Inheritance keeps societies moving in the right direction, generation after generation. Much of inheritance happens while we’re still alive — we impart things into the next generation every day by the way we live and the example that we set. But financial inheritance is different. In fact, it’s the one kind of inheritance that happens almost exclusively after death. So it requires special preparation.

Financial inheritance is a good thing — in fact, building an inheritance to leave for the next generation is part of God’s Master Plan for your finances. At the end of a long life of hard work, saving and wise investing, you’ll have some wealth to show for all of your financial diligence. When that wealth passes on to the next generation, it’s a great thing. It gives them a boost in their own hard work, and allows them to be more generous and to continue the financial legacy that you began. But if you don’t have good insurance, the unexpected disasters of life can steal that inheritance right out from under your children’s noses.

How does this happen? In all sorts of ways. One of the most insidious is end-of-life health care expenses. As we talked about in our post about the importance of long-term care insurance, the price of nursing home care is astronomical, and it isn’t covered by most medical insurance policies. If you have to spend a few years at the end of your life in a nursing home, the cost of that care can easily bleed you dry of all of the money that you’ve managed to save throughout your career, leaving your heirs with nothing when you pass on.

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Expenses Add Up

Medical care expenses can also ruin an inheritance in the case of an unexpected death. Nobody likes to talk about this, but a certain percentage of the population will die early from accidents or uncommon medical conditions or emergencies. There’s no guarantee that you won’t be among that unfortunate group. If you get a horrible cancer, or are involved in a terrible car accident, teams of doctors and hospital workers may work feverishly for a long time to try to save your life. If they succeed, you’re likely to have a long, expensive recovery in the hospital. And even if you don’t survive, your family will be billed for the medical care you received. If you don’t have health insurance, those bills can very easily add up to hundreds of thousands of dollars, bankrupting your family and leaving them both bereaved and financially desperate.

But what if you don’t die unexpectedly — is your inheritance protected then? Sadly, no. The truth is that smaller emergencies and expenses can do great damage to your net worth over time, greatly reducing the amount of wealth that you have to pass on at the end of your life. Perhaps you can absorb the cost of a few surgeries, a few totaled cars, and a few home repairs. In fact, if you have a good emergency fund, you probably can absorb some of those costs. But if you continue to have to dip into your cash reserves to cover big expenses like this, it’s going to significantly hamper your wealth-building potential. Even small expenses can add up to big totals over time.

Remember, disasters will happen in life. And you never know whether the next emergency is going to be a minor expense or a bankruptcy-causing catastrophe.

The point is this: Good insurance protects your wealth against the unfortunate events that befall us in life. Nobody likes buying insurance or thinking about the possibility of having to use it. But if you protect your wealth well, your financial legacy will continue far into the future, even if your own life does not.

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Photo by Betsssssy. Used under Creative Commons License.


  One thought on “Insurance and Inheritance

  1. Michael Rossine
    April 18, 2013 at 2:10 pm

    As someone who has personally been in this situation, I can’t agree more with what Brian is saying. My father was hospitalized six months ago for a stroke, and he has been in skilled nursing care since being discharged from the hospital. He has Medicare Parts A and B, but no supplemental or long-term care insurance. Under Medicare, you only get 100 days of nursing care paid at 80%, after which the patient is 100% responsible for the cost of care until the assets have been completely exhausted. As one can imagine, depending upon a person’s net worth, it doesn’t take very long to run dry. While we will do what we can to get the best care possible for my dad, our options will be limited once he is approved for Medicaid (the only option left once assets are totally gone) to which facilities accept Medicaid and what level of care Medicaid believes he needs.

    My advice is consistent with Brian’s: whether you’re 30 or 70, if you don’t have long-term care, you need to shop rates and decide. If you are already in a situation where a loved one needs care but has no insurance, seek a good lawyer who specializes in Medicare/Medicaid. Protect your family from the explosive bills that come with hospitalization and skilled nursing care, because the stress of worrying about you will be taxing enough without the added stress of whether or not, and how, your bills will get paid.

    • April 18, 2013 at 6:04 pm

      Michael, thanks for a compelling real-life account of this.

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