LONG TERM CARE INSURANCE: PROS & CONS

By | November 13, 2015

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 Assisted Livingtake 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.Long term care

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, Protect Your Assetspeople 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 At-Home Careincludes 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.

8 thoughts on “LONG TERM CARE INSURANCE: PROS & CONS

  1. Andrew Breidenbaugh

    Since you had just re-posted this on Twitter, I thought I would share a few items.
    If you are looking for a long term care policy, also look for other products that have long term care benefits.
    Life insurance and annuities both have options for long term care riders. That is something to think about if you never need the LTC benefits.

    Reply
  2. Christine

    Hi, Thanks for the article. I didn’t even know there was long term care insurance. You really got me thinking about what I am going to do.
    Do you know if there is a cut off age that you can get this type of insurance? Are you ever to old?
    Thanks,
    Christine

    Reply
    1. David Hagstrom

      Christine, it’s most commonly recommended that you purchase long term care insurance in your 50s. I don’t know of a hard and fast cut off age. However, the older you are when you purchase a policy the more it will cost. And you may develop a health condition that will disqualify you for long term care insurance. The percentage of applicants declined for health reasons definitely goes up with age.

  3. Brandon

    I am currently 29 years of age. You got me thinking here because I know one day I will grow old…well hopefully. When I do get to that age were I am not able to take care of myself which is hard to think about I know I wouldn’t want my kids or any of my family to do it. So I think this is a great idea that I need to consider down the line, because before we know all of sudden we might be in the position…time flies.

    Reply
    1. David Hagstrom

      Thanks, Brandon. It’s good to think about long term care insurance long before you need it. Over half of the claims are for home care, such as any of us might need after an accident or surgery. It’s definitely not ‘just for old people.’

  4. Scott A. Olson

    To help the middle-class plan for long-term care, 43 states have passed special legislation creating a “public-private” partnership. These “Long-Term Care Partnership Programs” encourage the middle-class to purchase long-term care insurance policies with benefits equal to their net worth. If their long-term care insurance policy runs out of benefits they can apply for Medicaid to pay for their care and all of their assets will be protected from Medicaid “spend down” and Medicaid “estate recovery”.

    For example, a healthy, married couple, both age 61, could share $300,000 of long-term care insurance benefits for about $110 per month per spouse. If they used all $300,000 of benefits, they would be able to apply for Medicaid benefits and still protect $300,000 of their countable assets from Medicaid. Everyone can buy more or less coverage. You should buy a coverage amount that is equal to the amount of assets you want to protect.

    It is true that most of the older long-term care insurance policies have had large premium increases. To protect consumers purchasing policies today, 41 states have passed strict pricing regulations. Consumers purchasing policies today are protected from the pricing mistakes of older policies.

    Scott

    Reply
    1. David Hagstrom

      Thank you, Scott. I appreciate you sharing your expertise to enhance our explanation. You also gave a great down to earth example of just how long term care insurance works to protect assets!

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