If I never use it, I don’t get anything back
Yes, that is absolutely true of basic long-term care insurance. I say basic because hybrid plans exist that co-mingles LTC insurance with life insurance or annuities—but that’s a different subject for a different day. Today I would like to share a story with you:
Several years ago a very successful couple, who worked hard in life, built a solid nest egg for their golden years and had a plan to pass on their legacy to their children, grandchildren and church, decided not to purchase long-term care (LTC) insurance. The wife had seen her mother pay for years toward this type of coverage and had never used it, and they did not like the “use it or lose it” aspect of LTC insurance. A few years later her husband had a stroke and became paralyzed, unable to speak and violent. She was forced to place him in a facility that could care for him and was forced to spend down their nest egg over ensuing years. The legacy they had worked for and dreamt about leaving behind was now a distant memory. Now, at the age of 73, she is living with her oldest son and working part-time in a local clothing store.
It’s better to say I’m glad I did than I wish I had.
Some people claim LTC insurance is like betting against yourself and being hopeful you lose. In that case, it’s like any other insurance - auto, home, life, etc. You pay premiums, but you certainly would rather not have a claim, right?
Read this carefully: The average cost of a semi-private room at a nursing home in Texas is currently estimated at $54,020 per year.1 According to the U.S. Department of Health and Human Services, a person turning 65 today has almost a 70% chance of needing long-term care services at some point in his/her lifetime.
Stop to consider that if or when something happens that requires you to need long-term care, what is your plan? Can you afford to self-insure? Do you know for sure? It would be logical to set hundreds of thousands of dollars aside solely for this. If you had a stroke next week, what would you do? How would you feel if you were to lose your independence and have to rely on one of your children?
So what is the cost of a long-term care policy? The actual premium you pay depends on several factors such as your current age and health, amount of benefit, waiting-period before the benefit begins, length of benefit riders, etc. And, of course, every insurance carrier is different. I strongly recommend working with a planner who can obtain quotes from several carriers.
There is one last critical question I feel is essential to address today. When should I buy a policy? Ultimately, it is your decision. Just think of it as health insurance, though. The younger you are and the healthier you are, the lower your premium will be and the greater chance you have to be accepted. And in general, premiums will stay the same each year. Historically when they do increase, it will be for a whole class of policyholders due to actuarial assumptions, not just for you. Here are just a few stats to enlighten you on this critical note:
- The annual premium for a person who purchases a policy at age 50 can be significantly less expensive than the same policy purchased at age 60. 2
- Percentage of LTC Insurance applicants declined for coverage due to poor health: Under age 50 is 14%; ages 50-59 is 21%; ages 60-69 is 27%; ages 70-79 is 45%.2
I urge you to consider long-term care planning as a chapter in your estate plan. Yes, long-term care insurance is lousy, but it may be the only option. Would be worth giving up ½ of 1% of the return on your estate to protect your estate? Just remember plan for it when you don’t need it, because when you do need it; it will be too late.
1. Genworth Cost of Care Survey
2. American Association for Long-Term Care Insurance