Should You Get Long Term Care Insurance?

Many of us Baby Boomers have had to take care of our parents and have seen the devastating financial and emotional effects our parents having to deplete a lifetime of saving and investing to pay for these very costly (and necessary) long term care expenses. Long term care insurance is a subject that should be examined as you plan for your retirement.

Many of us would like to avoid this topic, but Federal Government statistics show that almost seventy percent of us past the age of 65 will need some kind of long term care assistance. This is a hard fact!

The alarming monthly cost of long term care assistance doesn’t make it any easier: Basic assisted living – $1,800 per month. Nursing home – $5,833 per month. And full–time home care – $12,960 per month (source: “Financing Long Term Care for the Elderly,” a congressional budget office paper, April 2004).

Who should invest in long term care insurance? I would recommend that anyone with assets (excluding their home) of a $100,000 or more consider the benefits of a policy. This is usually best done with your financial advisor and his/her insurance consultant.

I would also recommend using information sources such as AARP to help you decide if a long term care policy would benefit you in your particular situation. Remember, this is not a one size fits all situation. There are many factors to consider such as availability and amount of liquid and non-liquid assets, health factors (can you qualify?) and very importantly, can you afford it?

In most cases, it is best to investigate long term care policies between the ages of 50 to 65. Premiums will go up based upon your current age and health history. Most of us develop health issues as we mature and many of these non-life threatening issues that will not disqualify us for a life insurance policy will disqualify us for a long term care policy.

Some of the main benefits of long term care insurance are that you spend money now to take care of potential costs at a later date. The dollar spent today will buy multiple dollars of coverage when the need arises.

The amount of these leveraged dollars depends of various factors such as your age, current health condition, and the policy features and riders. As an example, a healthy 65-year-old female who pre-pays a policy with a $100,000 one time premium payment would have up to $500,000 of coverage should the need arise (coverage will vary depending on companies and specific policy features).

Additional features on some policies are a death benefit or a return of premiums paid should the policy holder decide they no longer want the policy (various policy conditions may exist).

If you decide to investigate the benefits of a long term care policy and you and your financial/insurance advisors decide that this is the best course of action, there are still many decisions to be attended to such as: what is the best way to pay for the policy (single premium, monthly payments etc…) and where should the money come from or what are the sources of funds?

One of the strategies that is currently being looked at by some seniors is utilizing some of the equity in their homes to purchase a long term care policy. For example, if you are 62 years of age or older, own your home and have adequate equity, a reverse mortgage may be a viable alternative.

In this case, money can be accessed from the reverse mortgage (money that does not have to be paid back as long as the borrower lives in his/her home) that will enable the borrower to pay for his/her long term care policy and not have to pull money out of the current household budget.

I recommend a full investigation of the pros and cons of reverse mortgages. Remember, everyone’s situation is different and this may or may not be the best way for you. Another option is to reposition existing financial assets.

For example, if you have a $100,000 Certificate of Deposit that is being held for emergencies such as a long term care need, you might use that CD to pre-pay a long term care policy. That $100,000 may purchase many times this amount in long term care benefits. Again, these examples should be discussed with your financial advisor.

If you have sufficient assets to protect, there are only two types of insurance. One, you self insure and you pay for everything until you spend down most of your liquid assets – then you may be eligible for Medical. Two, you purchase long term care insurance.

These are only some of the many scenarios and you should always consult with your financial advisors before purchasing insurance or making long term financial decisions.

If you have any questions, please ask below!