Is long-term care insurance a wise purchase? Here are five questions you can ask to see whether this type of insurance will benefit you.
- Knowing the pros and cons of long-term care insurance will help you decide whether it's a wise purchase for you and your situation.
- Consider factors such as your lifestyle, your family health history, and what kind of care you might need in the future.
- Think about whether you would be able to afford to pay for your long-term care in the future, or if you'd likely need the safety net of insurance.
Do You Lead a Healthy Lifestyle?
Believe it or not, being healthy may mean that you are more likely to need care. The healthiest people are often the ones who end up needing long-term care assistance later in life, whereas heart problems or cancer may take the unhealthy ones sooner.
One of the benefits of long-term care insurance, if you are a healthy person, is that it can allow you to stay in your home and maintain your independence longer. Most policies issued today cover the cost of in-home care, which can provide someone to help with many of the activities of daily living, such as cooking and cleaning. Usually, you must require assistance with two out of the six activities of daily living for your long-term care benefits to begin.
What Shows up in Your Family Health History?
What have longevity and health been like for your grandparents, parents, aunts, uncles, and siblings? Has anyone needed care later in life? Who was there to assist them? What if they had needed care? How would it have affected the family?
Today, many families are scattered across the country, making it difficult to rely on relatives for care. It can also be physically demanding to care for someone, and your family members might not be capable of providing the help needed. Long-term care insurance helps reduce the burden of care that may otherwise fall on loved ones.
What Kind of Care Might You Need?
What if you break a hip later in life? What if your mind remains fully alert, but you need help cooking, cleaning, and dressing, and you do not want to move in with a family member? Who would help, and how would you pay for their help?
Nursing home costs averaged around $290 per day in California. If you have sufficient assets to cover these costs, then you do not need long-term care insurance. If you do not have sufficient assets, without long-term care insurance, you will end up spending down the funds you have before you see whether you qualify for Medicaid. Long-term care insurance buys you time and enables you to afford quality care.
Can You Afford It, or Can You Afford Not to Have It?
Long-term care insurance has adjustable features. Like buying a car, you can get all the extras, and pay for them, or you can buy a base model that costs less but still provides decent transportation. The major downside of long-term care insurance is the same as with any insurance: you may pay premiums for years and never use the coverage.
According to the American Association for Long Term Care Insurance, the average annual premium for a long-term care policy for a 65-year-old male, in reasonably good health, runs about $875. That figure is based on a policy that provides a pool of benefits equal to $180,000. Depending on the level of care you require, and the state in which you live, the average cost of a stay in a long-term facility can exceed $10,000 per month, which means that the benefits from such a policy could run out in a little more than a year.
You need to look at it the same way you look at any other type of insurance. After paying for homeowner's insurance for years, are you upset that your home never burned down and that you never used your insurance? Of course not! You are happy that you never experienced such an awful event.
When it comes to the amount of coverage, you may not need a "Cadillac" policy. Instead, evaluate the amount of long-term care coverage you may need by considering your other sources of income. A policy that covers $100 per day, with an inflation rider, may be sufficient once you also factor in your Social Security and pension income.
If you have little income and not much in savings, you will likely need to rely on Medicaid should you need care during your retirement years. If you have a nice pension and $2 million or more saved, you may feel comfortable being self-insured, which means that you would pay out-of-pocket for care needs. If your financials are in the middle of these two scenarios, having essential coverage for a reasonable premium could be a life-saver in your later years.
What Are the Odds?
According to the American Association for Long-Term Care Insurance:
"The lifetime probability of becoming disabled in at least two activities of daily living or of being cognitively impaired is 68% for people age 65 and older."
It is wise to look at the statistics, but your personal odds are either zero or 100%. You either will need care or you will not. If you need care for more than four or five months, you will be glad you have long-term care insurance.
Long-term care insurance allows you to maintain your independence and afford quality care, and it also helps you reduce the financial and psychological stress that a long-term care event can impose on your family. The cons are the cost of the premiums.
Whether you buy insurance or not, you will want to have a plan in place so that you and your family will know what to do if you need care. That plan involves talking to family and friends about their ability to help, if and when help is needed. You may also want to consider alternatives to long-term care insurance, such as making arrangements to live with family or friends or moving into a continuing care community.
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