Reply #1 and #2: Post provides specific, constructive, and supportive feedback.
Reply #1: When critically assessing insurance needs, it is something that the world will only wait to figure out. People want to get life insurance, and then get diagnosed with an illness making them ineligible. You just got in that bad car accident that exceeded your liability limits and you wish you had an umbrella. The whole point of insurance is to plan for the things that could happen, so you will be covered when it does.
This is exactly why the talk of self insuring or going with long-term care insurance can be such a tough topic. Long-Term Care insurance begins to kick in when you need to be put into the hands of others as you can no longer live on your own. The biggest kicker with long-term care is that "The cost of long-term care can deplete even a well-funded retirement savings plan" (Stinson, 2021). Due to this finding, it then requires you to look at how well rounded your retirement plan is.
Take for example how much you would be saving if you began to invest in a Roth IRA with an average return of 8% starting when you were 25 with steady deposits of $4,400 each year. This would allow you to accumulate around $1,947,407 by the age of 65. Now if you were to be staying in a median cost skilled nursing home after the age of 65, you would only be able to stay in this nursing home for 18 years with a monthly rate of $8,800 according to the article. Along with other expenses, this would shorten down even more. What are you suppose to do after age 83?
This is exactly why long-term insurance is something that everyone should consider, not because they don't have enough money, but because it costs so much money. This is exactly what long-term care insurance takes care of. "A 55-year-old couple can expect to pay $2,100 a year for a typical policy with an initial benefit pool for each spouse of $165,000 to cover adult day care, home aide services, assisted living and nursing home costs" (Stinson, 2021). Think of it as an investment. You pay $2,100 per year starting at 55 and have to get put into long-term care at 75. You just paid $42,000 in benefits but now you are getting a payment of $165,000. The return on investment makes it worth it compared to trying and self-insuring.
Reply #2: Long-term care insurance helps individuals cover the cost of an assisted living facility, a nursing home, or home health services. There are various types of long-term care insurance. Some policies cover any care facilities, while others may exclude certain ones. “Some policies only cover the care you receive in a nursing home and exclude coverage provided in an assisted living facility” (Long-Term Care FAQs). Individuals must review the benefits choices before buying a policy.
According to the article, “The Financial Desirability of Long-Term Care Insurance Versus Self Insurance,” buying long-term care insurance is very desirable for women. Women do have a higher possibility of long-term care. The length of stay and age influences the suitability of long-term care. “If we use these higher LOS figures, LTC insurance appears to be desirable for all 40-55- and 65-year-old females requiring a return on investment of up to 10 percent” (Gold, n.d.). The decision to choose long-term care insurance can be complex. Individuals must consider the cost and the various risks associated.
The cost of long-term care insurance can be expensive. There are also risks associated with purchasing a long-term care insurance policy. These include rising premiums risks. Insurance premiums can increase every year. “If the insured does not accede to the rate increase, he/she can either forfeit the policy or accept a reduced benefit. That is not the deal an insured wants, despite all the acknowledgements that must accompany delivery of the policy” (Weston, 2012). It can be challenging to determine the cost of what an individual needs. For example, inflation and increased cost of care must be considered.
I believe that long-term care insurance can be beneficial depending on the monthly premium and benefits covered. Unfortunately, there is no way to know the exact level of care needed in the future, but individuals can forecast to get an idea of the costs. The article I read mentioned that the middle-class individuals may question if they have enough to pay for premiums throughout the years. “In contrast, the low-income person does not have to face the choice because Medicaid will cover the cost of long-term care under the present structure, and the high-income person has the economic resources to either buy sufficient insurance or self-insure” (Weston, 2012). Individuals should discuss with their financial planners before making decisions regarding long-term care insurance.
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Reply #3 #4 #5 and #6: Response is substantive, insightful, provokes further thought. ******* responses should be researched and must include a citation using APA format.********
Reply #3: The TED spread is the "difference between the three-month LIBOR and the three-month Treasury bill rate" (Chen 2020). This is used to measure credit risk. When there is an economic crisis, the TED Spread tends to widen since default risk is widening, and vice versa when there is less of a risk. When the Lehman Brothers collapsed, the TED Spread's basis points shot up to a very high number (450 bps). This number was way higher than the average number, which was 10 to 50. This was a huge turning point for commercial banks since this was nothing that they had ever seen before. The TED Spread indicates to commercial banks that there is a lack of sources of funds. This will increase credit risk and increase the chances of possibly defaulting on loans. The banks will be more cautious with lending and increase interest rates since there is a higher default risk between lenders. The condition of TED Spread leads banks not to trust the judgment of other banks and made interbank lending much harder. It gave indications that there was a lack of strong rules within the lending system, which caused banks to be cautious about trusting one another.
Reply #4: The TED spread is the difference between the three-month Treasury bill and the three-month LIBOR based on U.S. dollars. The TED spread is the difference between the interest rate on short-term U.S. government debt and the interest rate on interbank loans. Following the collapse of Lehman Brothers in 2008, the TED spread peaked at 450 basis points. A downturn in the economy indicated to banks that other banks may encounter solvency problems, leading banks to restrict interbank lending. In turn, this led to a wider TED spread and lower credit availability for individual and corporate borrowers in the economy. The TED spread measures credit risk, the LIBOR reflects the risk associated with lending to commercial banks. As the gap between the T-Bill rate and LIBOR increases, the TED spread will also increase. The TED spread cannot point to or identify any specific sources of funds for a bank. After the fall of Lehman Brothers, the TED spread jumpers up by 450 basis points, which was an all-high record. Lenders were reluctant to lend to other banks, fearing default, delinquency, and bankruptcy. There was a lack of confidence in the U.S. economy by bankers, even the banks themself were having little confidence in their own peers. The financial crisis impacted the confidence everyone had in the economy that lenders were concerned about bankruptcy.
Reply #5: The debate on whether the enactment of the 1999 Gramm-Leach-Bliley Act (GLBA) and the repeal of sections 20 and 32 of the Glass-Steagall Act (GSA) paved the way for the 2008 Financial Crisis remains a dispute to this day. The GSA separated commercial banks from investment banks by prohibiting commercial banks from engaging in buying or selling securities. The GLBA repealed this section, and many financial critics contribute this action as one of the major causes leading up to and enabling the credit crisis of 2008. However, I do not personally believe this to be true. I believe the financial crisis would have occurred despite the GLBAs enactment. The crisis was largely due to poor lending policies which boosted the subprime market. While it is true that banks were buying MBS, some may argue that under the GSA banks would still have been able to do so since MBS would have been recognized as securitized loans and therefore would not have been prohibited. Instead of blaming the GLBA, some argue that other factors are more responsible, such as low-interest rates, government housing policies, and pure greed. Furthermore, the GSA contained numerous exceptions in the regulations, leaving certain definitions and policies ambiguous and therefore susceptible to loopholes. For instance, in Section 16 of GSA, commercial banks were still allowed to underwrite certain types of securities as long as they were deemed “bank-eligible,” a definition that effectively loosened the ruling in Section 20. Following the years after the GSA and before the GLBA, these loopholes had already begun to be exploited. The main offenders of the financial crisis would have managed to partake in the same reckless financial activity one way or the other, the GLBA is simply a scapegoat.
Reply #6: Some individuals feel that the Gramm-Leach-Bliley Act contributed to the liquidity crisis, and others argue that it was not the case. The reality is it was somewhere in the middle. Those who feel that the Gramm-Leach-Bliley Act played a role in the liquidity crisis; claim that the Act abolished the Glass-Steagall Act as evidence for their argument. It was enacted in reaction to the view that commercial banks' involvement in securities trading was a key contributing cause to the stock market crisis of 1929, which occurred in the same year (Heakal, 2022).
The Gramm-Leach-Bliley Act essentially overturned the Glass-Steagall Act, and some argue that this fostered the conditions that led to the liquidity crisis in financial institutions (Chouliara, 2020). Many people argue that the Gramm-Leach-Bliley Act did not contribute to the liquidity crisis because it was approved in 1999, and the liquidity crisis did not develop until 2008. They also point out that the Gramm-Leach-Bliley Act did not eliminate all of the requirements of the Glass-Steagall Act, and those commercial banks were still subject to some level of oversight due to the Act's implementation.
I feel like the Gramm-Leach-Bliley Act contributed to the liquidity crisis in the financial markets. Eliminating the Glass-Steagall Act and establishing the environment for commercial banks to engage in hazardous activities played a role in the financial crisis.
