Are you wondering when to buy long-term care insurance?
It seems like a no-brainer…People live longer nowadays and we’ll all probably need long-term care at some point. Buying a long-term care policy sounds like the responsible thing to do. According to a study revised in 2016 by the Urban Institute and US Department of Health and Human Services, about half of today’s 65-year-olds will develop a disability and require some long-term care services. But before you decide to move forward, there are a few things to consider.
Long-term care (LTC) insurance can help protect your savings and afford a higher standard of care than might otherwise be possible. But there are disadvantages, too.
These policies are expensive, may not cover all your costs, and premiums can increase dramatically as you grow older. The benefits can be difficult to access, and it is possible you may not even need long-term care.
Like all insurance, LTC insurance is a gamble. My parents purchased LTC policies 20 years ago so as not to burden their children with their future LTC costs. After paying tens of thousands of dollars in ever-increasing premiums, my father’s illness took him so quickly that he never used long-term care services. However, my brother’s mother-in-law has used all five years of her long-term care benefits so that proved to be a worthwhile investment for her.
How do you make a smart decision about if and when to buy long-term care insurance without knowing what the future holds?
Here are some considerations as you plan for your potential long-term care needs:
Long-term care insurance is more expensive the older and less healthy you are.
Most people start looking to purchase LTC insurance in their 50s or 60s and most people who file claims are in their 70s. This is generally a reasonable timeline to follow, because you don’t want to buy too early and pay for insurance you don’t need, but you also don’t want to wait so long that you can’t qualify for a policy.
Insurance premiums go up as you get older and these increases can be significant.
For example, at age 77, my mother’s annual LTC premium increased 44% to almost $4,300! The carrier has already said there will be another premium increase next year of about 30%. This is a lot to manage on a fixed income. There are options for reducing the premium such as reducing benefit payments or the inflation assumption, implementing cost sharing, etc. All these options mean less money for care than you originally planned or very expensive premiums, so you’ll want to consult with your wealth advisor for help weighing your options.
Based on your family medical history, how likely do you think you are to develop a condition requiring long-term care?
If you have conditions like Alzheimer’s, dementia, or even strokes and heart attacks in your family, long-term care insurance could be a good decision. If you do not have inheritable medical conditions in your family that result in long-term care needs, you may decide it is not worth purchasing a policy. A lot of this comes down to assessing probabilities, weighing your options and finding peace of mind.
What kind of long-term care would you like to have? This question is worth thinking about whether or not you decide to buy LTC insurance.
Depending on your needs, there may be options for home health care as opposed to moving into a facility. Home health care is less expensive than facility-based care and can help your benefit payments and savings go further.
Understand how long-term care insurance works.
There is a sort of deductible called an “elimination period” which is the number of days of long-term care services you must pay for out of pocket before your benefit payments start. You typically must submit invoices showing you incurred and paid for these expenses for the appropriate number of days. Some elimination periods are short–30 or 60 days–but others can be much longer. My father’s elimination period was 100 days, and he didn’t live long enough for his benefit payments to start.
Could you self-insure to meet your long-term care needs? What if you saved and invested the funds you would have paid in LTC insurance premiums?
This approach requires discipline to implement and manage but provides flexibility not possible with an insurance policy. Access to your funds is completely unrestricted, there are no claims forms to file, no home visits to assess whether your claim is valid, no payment reconciliation, no time spent on hold with customer service at the carrier. And if you don’t end up needing long-term care, you can use those savings to go on vacation or fly your grandchildren in to see you!
I cannot say if this would have been the best option for my parents, but I wish they had considered it. They bought their policies out of fear rather than as part of a larger financial plan. Working with a financial planner can help you understand all your options and why it’s worth considering one option over another – And the Department of Health and Human Services has a wealth of information for understanding the potential costs and options for paying for them.
Are you going to lie awake all night for the next 20 years worrying that you should have bought long-term care insurance after all?
If the answer is Yes, do your research, get the best professional advice in moving forward, understand every aspect of the policy, budget the annual insurance costs–and get yourself a policy. Sleeping well is good for your health!
So, do you need long-term care insurance? And when should you get it?
There’s no answer that is right for everyone. The goal is to build a sense of security, not so much being able to predict the future, but to have a solid plan in place to make choices without being hamstrung by fear, uncertainty, and doubt. Consult a certified financial planner to help you build that plan and make a long-term care decision that’s right for you.
