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Is Long-Term-Care Insurance Right for Me?

Guys Stick TogetherMost of us will reach a point in our lives where we can no longer care for ourselves. Dementia, chronic illness or an injury may result in the need for long-term care (LTC). With some exceptions, LTC insurance pays for health-care costs not covered by regular health insurance or Medicare, such as in-home, assisted-living facility and nursing-home care. The cost of this care can be very expensive, and LTC insurance can help defray some of these costs. However, because the cost of LTC insurance is also very expensive, and there are no regulations on providers raising the cost of an already-purchased policy, the decision to prepare for your future healthcare needs in this way can be a difficult one.

Where to Get Help

Everyone’s situation is different. Usually, the person most in need of this type of insurance is someone who is too wealthy to qualify for Medicaid and too poor to self-insure for this expense. There are many factors that weigh in the decision and also other options for covering care. Consider consulting a fee-only financial planner, who can take into account different scenarios to help you explore your options. You can find a planner in your area on the website of the National Association of Personal Financial Advisors. Several online sources also can help you decided whether or not LTC insurance is a good idea for you &/or your spouse. Google “Long Term Care Insurance Pros and Cons.”

What to Consider Before You Buy

Income, Assets and Costs: An article in Consumer Reports suggests that you first need to add up the income and assets—savings, retirement funds, pensions, Social Security, and investments—that you are likely to have for living expenses and to pay for the long-term care you might someday need. Also consider how much of that care you’d like an insurance policy to cover. To find state-by-state LTC costs, check Genworth Financial’s 2015 Cost of Care survey.

Shared Benefit Rider: Couples have the option of a “shared benefit” rider that lets them both draw from a combined pool of funds instead of limiting each of them to a set amount of coverage. For example, a three- or four-year shared-benefit plan provides a pool of six or eight years of coverage they can share. 

Length of Elimination Period: Decide how long you are willing to cover your own care before the policy starts paying benefits, known as the elimination period. Once someone develops dementia or loses two of six of their “activities of daily living”— eating, bathing, dressing, toileting, walking and continence – the insurance will help to cover the cost.

Inflation Rider: You can pay extra for an inflation rider to help keep pace with the rising cost of care, but doing that could potentially boost your premium by as much as 80 percent.

Your age: You’ll pay less if you buy a policy before age 60. “After 60, insurers figure we’re like cars; our parts are older, start to break down, and cost more to fix,” says Owen Malcolm, a fee-only planner in Norcross, GA. However, if you buy a policy in your 50s, you could end up paying premiums and future price hikes for decades and never collect any benefits. Or you could become uninsurable at any time. You just don’t know what your health will be in 20 years and whether you’ll be able to qualify for coverage.

Policy Benefits: Make certain you understand the benefits paid by the policy. For instance, are the benefits inflation-adjusted? What is the maximum amount that a policy will pay per day and for how many days or years? Are the benefits enough to cover potential expenses? What other expenses will you have that are not considered “healthcare”?

State partnership programs: These programs set minimum requirements for private insurance policies that allow you to retain some assets you otherwise would have to spend to qualify for Medicaid if your care costs exceed your coverage. For more information on this and other LTC options, go to www.longtermcare.gov.

Different Quotes: “Get at least four or five quotes from different highly-rated companies. Search for local agents on the website of the Independent Insurance Agents & Brokers of America. But don’t buy unless you’re sure you can afford a premium that may double in the future,” says Michael Kalscheur, a fee-only financial planner. “If not, I’d say you should look at other options to pay for your care.”

Other Considerations

Katy Votava, founder of GoodCare, a health insurance consultancy, advises her clients to buy as big of a benefit as they can for just a few years, what she calls a “short and fat” policy that will cover at least $300 a day, with inflation protection for just three years. “A lifetime policy is not worth the money,” Votava said. “For most people, [long-term care] doesn’t go beyond three years.” Of course, that changes drastically for dementia patients, when care may be needed for up to a decade. That’s why Votava and others recommend purchasing a partnership policy that lets you keep a sizable portion of your assets after your benefit runs out and still qualify for Medicaid. Experts note that unless you have a partnership policy, you may not have a choice of which facility you will be assigned to by Medicaid.

AARP contributor Allan Roth advises in a recent blog, “While I often counsel clients to self-insure this risk, you may want to consider LTC insurance if you want to protect your assets for your spouse, heirs or charity. Or perhaps you don’t want to be dependent on a government program. Buying long-term care insurance will give you more control and independence, which in itself could offer a benefit by providing peace of mind. You can also choose to partially self-insure by buying a policy with lower benefits, such as a longer elimination (waiting) period or a lower daily benefit. Finally, newer hybrid policies combine annuities with long-term care. While they provide some tax benefits, returns are likely to be very small.”

Carolyn McClanahan, a physician and a certified financial planner, gives us some good concluding advice, “Even more important than having long-term care insurance is to have a plan for your long-term care. Do you have family members who can take care of you? Have you completed clear advance directives and appointed a health-care surrogate to make decisions for you in the event you can no longer care for yourself?” She adds that taking care of your health can go a long way toward reducing future health-care costs.

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