While assisting new Relaxing Retirement members with their transition to Phase II of their financial lives (i.e. retirement) this past month, we were reviewing which group insurance coverages to continue when he fully retired from his company.
In addition to the obvious question about the best health insurance option to choose, the next question was “I assume we should also continue our dental insurance plan?”
By the nature of the question he asked, it appeared obvious to him to continue, and it may to you as well, but I recommend giving it some serious thought to make sure that it is “insurance” you’re buying. After all, his price tag was $120 per month!
If you’ve worked for a large company for some time and you are used to having dental coverage at little or no cost to you, you’ve become accustomed to having it. It’s usually cost effective under those circumstances and a nice fringe benefit.
However, when you have to foot the entire monthly premium by yourself during Phase II of your financial life, you have to really step back and take a good look at what you’re getting.
3 Questions You Must Ask and Evaluate About Any Insurance
When evaluating any form of insurance, you have to ask yourself three questions:
- “What is my potential financial loss if I don’t have this insurance?”
- “What is the probability that I’ll suffer this loss?”
- “Am I willing to risk absorbing this entire loss myself, or should I pass on some or all of the risk to an insurance company by paying a premium?”
As an example, when evaluating homeowner’s insurance, the obvious answer is, “I’ll lose my entire house in a fire and have to pay a large chunk of money out of my pocket to rebuild it!” Now that’s a financial loss worth insuring (at the right cost).
However, if the cost to rebuild your home in the event of a total loss is $350,000, but the homeowner’s insurance premium to insure against that loss is $350,000 per year, you wouldn’t run out to buy that policy!
There’s no insurance going on there. The insurance company has not absorbed any of the financial risk from you. All they’re doing is holding your $350,000 to give back to you in the event of a loss.
Is There Really Any “Insurance” Here?
In many instances, this is what’s going on with dental insurance. The typical policy pays for a couple of cleanings and a diagnostic exam each year (x-rays, etc.), and possibly a filling.
After that, the policy usually only pays about 50% of your cost for a comprehensive procedure such as a crown or a bridge.
If you stop and evaluate it, the financial loss of having to pay for cleanings, exams, and even a filling every year is minimal. That is typically not a financial risk worth insuring because all you’re doing is getting back the premium you’ve paid.
The real financial risk is the cost of the comprehensive procedure like two current members are dealing with right now where the cost is in excess of $25,000!
This is where you have to evaluate and speak with your dentist about not only the probability of your requiring a procedure like this, but what your dentist’s price would be to perform it.
Once you know those numbers, you can evaluate your downside financial risk and whether dental insurance makes sense for you.
The key, as with any form of insurance, is to insure against the “big loss”. In other words, insure against your house burning to the ground, not a broken window.
If you follow those parameters with all of your insurances, and increase your deductibles, you can save a good amount of money in premiums every year and free up money for things you’d rather spend it on, like going out to dinner!