Being a financial planner for as long as I have, my general observation around long-term care (LTC) insurance is this: if I don’t bring it up, it rarely ever comes up. Occasionally I get asked about it by someone if (and only if) someone in their family was affected by it. Usually by then, it’s too late. I always have the discussion with my clients, so we can at least say we covered it – whether they choose to address it or not.
To those who may not know what long-term care insurance is, a LTC policy will essentially reimburse policyholders should they require assistance with their daily living needs. We’re talking about things like needing help bathing, dressing, eating – not pretty stuff. The insurance would help pay for nursing home care, in-home care, or assisted living facilities.
This topic is not easily discussed with family members. After all, no one wants to think about themselves or their loved ones being incapable of taking care of themselves. Imagine the Thanksgiving dinner discussion, “So dad, who do you want to change your diapers when the time comes – should we hire a nurse to come to the house or just put you in a facility?”
Like most insurance, it costs money (FYI it’s not cheap!) but we hope to never use it. Homeowners insurance and car insurance is required, and we hope that our house never burns down nor that we get in a car accident. LTC is not required, nor does everyone need it – especially if you have enough money in the bank to cover it. In fact less than 3% of Americans have LTC insurance – the bulk rely on Medicaid (which should really NOT be your first choice) or do NOTHING, and the burden ends up falling on to family members to pick up the bill.
But statistics show the average 65 year old has a 52% chance of requiring services at some point. So for the typical mid-60s couple reaching retirement, one of the two of them is probably going to need it. Want to run the risk of you dying before you lose your bodily functions? Have at it. My recommendation would be to at least think about it now, and plan for it in advance. You probably don’t want to be a burden on your kids. Right?
What else can I tell you about LTC? The average length of time a person will need coverage is 2.5 years. Although those with dementia need it closer to 7 years. Women are more likely to need it than men. The average cost of a private room in a nursing home is $92k a year. Maybe you can get away with having a home health aide come 30 hours a week for half that but who will be doing helping for the other 138 hours of the week?
Add it up, and you should plan on spending $250-300k for this need at some point down the road. Have that in the bank to cover it? Great! If not, consider insurance to help cover the expense. If for no other reason, it’s for peace of mind.
How much does LTC cost? Estimate a couple thousand a year (average being $2,727/yr), depending on a number of factors. I would recommend to most interested people to wait until at least age 55-60 to purchase it. Chances are you won’t need it before then, but it’s not that much more expensive if you wait until age 60 than age 50. I would not wait longer than that, because as you approach 70 – that’s when things start to go wrong. In other words, your chances of getting declined for the insurance increase dramatically after 60.
How to buy it? Stand alone LTC policies are still available in the marketplace. However, we have seen fewer and fewer of these policies issued due to the rise of hybrid products – or life insurance policies that are combined with long-term care coverage. Hybrid policies have gained in popularity because unlike a stand-alone LTC policy which is “use it or lose it”, the hybrid policy has a death benefit so if you don’t end up using the LTC – your heirs will get the death benefit.
Do you need it? It depends. Depends on how much money you have saved. Depends on how you want to cover the risk of you need long-term care services. Depends if you want to be a burden to your family or not. Depends whether you can afford the insurance premiums. Depends if you want piece of mind.
At the very least, engage in the discussion with your family. Talk to a financial professional (like yours truly) about it. Assess your particular situation, and review your options. Treat this risk just like all the other risks you have in your life. And make the right decision which is best for your budget and for your family.