This is a major question facing our generation. It is expensive - and is becoming even more expensive. Just the thought of needing it is unpleasant and can evoke strong emotions. And at best it appears imperfect: Buying a plan that will only pay for a certain number of years and which might not be enough to protect your family. Trying to predict the level of inflation for when you need long-term care, which is nearly impossible. The idea that if you don’t ever use it, then you threw away thousands of dollars. And certainly not to be ignored, the insurance companies themselves don’t appear to have a firm grip on the situation—your only guarantee is that you will have a premium increase in the future and it is highly likely to be a double digit percentage!
So, why buy it? Why not self insure? Most advisors, though they disagree on many aspects of managing the risk of long term care, agree about one thing: In almost every case, a family would have to have more than $5 million in assets to afford the risk of self-insurance. And even then it is a case to case basis. Just because your net worth reads $5 million doesn’t mean your family can afford it.
Currently the lowest private room rates in our nation average $165 per day…and that’s if you are willing to live in Oklahoma. Just imagine what paying an additional $60,225 every year would do to your family’s financial picture. Though it could be worse - if you live in Alaska, you could be facing an average rate of $771 per day or $281,415 per year.1
Over the years we have watched as several of the couples we have worked with choose not to buy long-term care insurance due to the effect of the cost on their nest egg. Some then reached a point in life where one of them needed concentrated care and, because their financial options were slim, the other spouse chose to be their caregiver. We have then watched every one of these individuals age substantially and in a few of these instances, pass away before their spouse.
And of course you have to ask yourself if it will be okay that you don’t get to chose what your living arrangements will be like. I recently read another advisor’s story regarding her mother who was placed in a room with four other women, who all shared the same bathroom. Furthermore, there was only one nurse for 19 patients. She stated she had never been a proponent for long-term care insurance until she felt she had no other choice but to pay out of her own pocket for her mother to have a better life.
The good news is that you don’t have to buy a traditional long term care insurance plan to protect your family as long-term care options have evolved in recent years. We have found that using a life insurance policy which has a long term care plan built into it defeats some unpleasant aspects of the traditional, costly plans in many cases. The “use it or lose it” element disappears and cost of the insurance can be locked in. The bad news is that these types of options are fading fast, a common factor in the long term care industry during the last decade. We can’t know how long this unique product will be around. Over the past decade, traditional paid-up plans have disappeared and traditional lifetime benefits plans are only offered by a select few companies and are ridiculously priced.
If you have battled the idea of how to protect against the risk of needing long-term care, right now is the time to talk about it. A few years ago, we wrote an article that talked about “absolutely unacceptable regrets.” If we were sitting here ten years from today and over the past five years you had to have long term care, what would be an absolutely unacceptable regret? That you never planned for this enormous financial risk?
- Genworth.com, 2015