The question of whether or not long term care insurance is appropriate for you, is one you should probably ask yourself long before retirement. Looking at long term care insurance pros and cons is a helpful exercise for everyone. The reason for this is that premiums increase as we get older, and the coverage options available may be limited as we age.
What is Long Term Care Insurance?
Long Term Care Insurance policies provide coverage that pay out money to help cover the costs of nursing home care, an assisted-living facility or at-home assistance, if you are no longer able to take care of yourself. These types of care option are quite expensive, and there is peace of mind knowing that your retirement nest egg won’t be totally exhausted if the need arises for you and/or your spouse, if covered by this type of insurance, should need this type of care later on in retirement.
Don’t count on Medicare because Medicare doesn’t offer extended long-term care coverage. If you are very low-income, you may be eligible for Medicaid, but there are limitations to that coverage as well.
How much will Long Term Care Insurance cost me?
The answer to this question depends on the benefits you choose and the level of coverage you want. Like choosing a vehicle, there are different makes and models, some with bells and whistles and some just the bare bones model. In general terms, Long-term care insurance is very expensive, and the annual premium can easily be $2,500 or more a year. Be sure to investigate the cost of long term care insurance carefully. Long term care insurance rates can change and be affected by several factors; so getting the information sooner rather than later is a good idea. There are certainly affordable long term care insurance options available depending on your situation.
Depending on when you begin making these payments, you will pay those premiums for quite some time. Much like you have insured your vehicle over time, you are now insuring your way of life. It could easily be 30 years before you begin drawing on your policy benefits. Keep in mind that you will need to continue to pay the premiums after retirement to keep the policy in place, so that becomes the motivation to insure early to keep those premiums workable within your retirement budget. The National Association of Insurance Commissioners (NAIC) suggests that you spend no more than 7% of your income on premiums.
Do I ever stop making premium payments?
Typically, once you being drawing on your benefits, you are no longer required to continue paying your premium. But if you then stop receiving those benefits – say, you needed nursing-home care for just a few months, after an illness – you’ll need to resume making premium payments once you are no longer drawing the benefit. Long term care insurance costs are definitely something you should plan and budget for.
Why do I need this Long Term Care Insurance?
The short answer here is for your financial security in retirement. Imagine yourself so frail and vulnerable, needing to live in an institution, relying on the help of others. If family members are not able (or willing) to take you in and care for you, you may have no other choice than a nursing home or other facility. What’s important now, while you’re still young and healthy, is that you focus on the potential for financial need. Be informed.
Meet with an insurance professional who can show you the benefits of this type of insurance. For example, you want to be able to protect assets while in the nursing home. Too many times, people with great assets end up in nursing home care and their assets are eaten up by the huge expense of this type of long-term care. Medicaid cannot kick in until such time all assets are depleted. So look at the assets you may be wanting to protect for your loved ones when making this decision. The long term care insurance cost will likely be nominal in comparison to what benefit you receive when you begin using it.
If you are already in retirement or close to it, ask yourself whether you have enough assets to bother protecting and/or enough to live on during retirement. If you are scraping by, you may be so pinched that you’ll have to drop a long-term care policy before you need to use it.
What should I look for and/or avoid in a Long Term Care policy?
Again, work with a professional to help you compare several policies for coverage options and price. Your decision may be impacted differently depending on whether you are considering for yourself only or insuring a spouse as well. Figure out which each policy allows and if there are any requirements or limitations. For instance…
- Do you have to use an agency provider or can you hire a independent caregiver, a friend perhaps?
- Or, if you are wanting a policy that covers assisted living, ask the question of whether it covers both housing and care or just care?
- Also ask if the policy has any limitations on the services or facilities you do choose.
As when making any big life decision, do your due diligence in looking at customer reviews, complaints, etc. You can contact your state insurance department for more information if interested. As part of this research, you may want to ask about premium increases and whether or not you will have a fixed amount over time. Have you ever heard of this company before? You might ask your agent to give you the firm’s latest financial strength grade from a major rating service, such as Moody’s Investor’s Service or Standard & Poor’s. An A rating from Standard & Poor’s or an AA ranking or better from Moody’s is a good strength indicator.
What about inflation?
You should protect yourself and pay the extra for inflation protection. This is a key in determining the best long term care insurance. It is crucially important that you make sure your policy includes an annual inflation adjustment rider. What this means for you is that if your policy covers $180 per day, in today’s market, for long term care, but in twenty years when the time comes for you to use the policy, let’s say the cost rises to $400 per day, you want to make sure you have protected yourself so that you don’t have to come up with the $220/day difference between the daily rates. When looking at inflation protection, remember that inflation grows at a compounded rate, not “simple” interest.
The question of whether or not Long Term Care Insurance is right for you is dependent on many things, particularly your health, expected life expectancy, assets, and family situation. As with all retirement planning, this is definitely a discussion that should be had with your advisor. Having reliable long term care information will give you a peace of mind now and for years to come.
I appreciate everyone who enters this discussion by sharing your own experiences, questions, or ideas. Please feel free to comment; I read and respond to them all.