If you have read my posts before you know Long-Term Care (LTC) Insurance is something that many people consider as they get older. As people are living longer the chances are greater that you, a spouse or a parent will need long-term care at some point in their lives. With the advancement of medicine, people are just living longer and thereby will most likely require assistance as we age. Enter Long-Term Care Insurance or from here on out in the post LTC.
I know I have considered purchasing a LTC policy from the government provider as I work for the Federal government and it does provide some decent premiums if you purchase the coverage when you are younger. And the nice thing is if you buy the coverage through your employer if they offer it you can get coverage even if you have a pre-existing condition, similar to group term life insurance. But the more I look into it, the more I am concerned. It seems that the insurance companies have not done a good job of predicting their payouts and the overall costs of these policies. The result for policy owners are increasing in premiums and unpredictable rate increases.
Due to these rate increase, people are being forced to make some very difficult decisions about their LTC policy. If the premiums are raised too many people may be forced to cancel their policy that they have had, in many cases, for several years. This means you are out all of that money you paid for a policy that you will now not be able to utilize. Or if the rate increase is too much you can decide to adjust your benefits by reducing such things as daily coverage, extending the number of days before coverage will start or adjusting your inflation index that will mean you will not necessarily outpace LTC facilities and inflation. None of these options are what you expected when you purchased your LTC policy as you were most likely led to believe the premiums would be consistent.
Here is where things can get a little scary for people who have purchased these policies in the fifties or early sixties. On average premiums have increased 40% or 50% from what they were when you bought the LTC policy. So people think I will shop for a different policy after their current company has raised their premiums, and then they find out that a new policy will cost even more, and now they may not be eligible for a new policy due to health concerns. So by planning for your future needs at an early age, you got the advantage of lower premiums only to see them increased at a rapid rate as you get closer to needing the coverage for actual care. So how do you get the most out of a LTC policy and your retirement assets? That is the key to real success in the LTC game.
The average stay in a long-term care facility is about three years at an average cost of $275 a day for a private room. Depending on the policy you buy will determine what kind of premium you pay. Some policies will start after 30 days of not being able to do two life activities, such as bathing and eating by yourself. Then the policy will start, and your premiums will be put to use and pay the long-term care facility. These are complicated policies, so it is best to buy them from someone you trust or have a trusted professional review them before you actually purchase one. Here is where the insurance companies have their issues, people are living longer in these long-term care facilities and the rates are increasing at a pace that is higher than what they expected. The results, higher premiums for new and existing customers.
The key to a successful LTC plan is to combine current assets with a form of insurance to make up the differences. True, LTC insurance is important, but there are other ways and means to cover these costs if and when you need them. What I suggest to anyone younger than say 50 is to find out what the monthly premiums will be on a policy that you would want to purchase. Then I would recommend investing that money in a brokerage account that uses exchange traded funds that follow an index such as the S&P 500. These will give you a decent return over the long haul and have extremely low fees as they simply follow an index not try to beat the market. Then after 30 or 40 years of paying the premiums to yourself, you will have a sizable amount in which you can pay for any long-term care needs and in the event you do not need the care you have an asset that you can spend on anything you want or leave to your heirs.
Another tactic is to buy a LTC policy that pays less than what you will need, and then you pay the difference. This will require some advanced planning on your part and possibly the need of a professional to help with the numbers and what you can and cannot afford. But the premiums will be lower, and if you have a pension, social security, and retirement savings, this is a viable option for you.
A third option that is becoming more and more popular is the use of life insurance for LTC needs. Some policies allow you to use your death benefit to pay for long-term care and then will reduce the death benefit by the amount they pay out before your death. Other policies have riders that will allow a payout of a percentage of the death benefit on a monthly basis to pay for any long-term care needs. This is particularly popular for permanent policies that people have purchased.
Regardless of what approach you take with LTC you need to have a plan to address LTC needs as most of us will at some point need long-term care. That can either be in a licensed facility or home based services that some insurance allows. But the costs associated with both are expensive and need prior planning by you and your family.
If you need more information on LTC insurance or how to plan for it, please feel free to contact me directly or leave a comment on the site.
