Do you need Long-Term Care Insurance? Are you of the age that it may be a concern? Chances are you will need some sort of long-term care (LTC) at some point in your lifetime. Now the period of time that you will need to spend in LTC can vary greatly by person. Some people may spend a few months in a LTC facility, but other may spend years in one and thereby rack up some serious bills. LTC insurance is like any type of insurance, and that is to manage the risk that you want to protect you and your estate from huge LTC bills at some point in the future.
People take many different views on LTC, and there is no one correct answer to who may or may not need LTC insurance. Most people who want to get the insurance have net worths between $200,000 and about $2,000,000. And most of the people who buy LTC insurance are between the age of bout 55 and 65. But buying LTC insurance at these ages can be expensive provided you do even qualify for the insurance. And the reason that many do not qualify is that as we get older health issues become a contributing factor to our insurability. People who get LTC insurance when they are younger will get a better premium and possibly avoid the health issues, but they will be paying the premiums for a longer period of time. The older we are, the more we will pay because the policy will simply have less time to build up the value that may be paid out in benefits later in life. Remember it is always a numbers game and we need to consider many things when considering any long-term insurance policy.
Now many of the insurance companies that have offered LTC insurance policies have dropped them because they did not understand the risks associated with the issuance of the policies. Some of the ones that are left are Genworth, Mutual of Omaha, MassMutual, Transamerica and John Hancock. Now some life insurance companies offer LTC as a benefit rider in the life insurance policy as an accelerated death benefit. There are some restrictions that go along with the use of the rider and benefits, but they are an alternative to buying a LTC policy outright. But as with anything in insurance these riders come at a price and the cost of the policy will cost more. This is not a bad thing but is just a fact of the insurance world. While not perfect, it is better than nothing so you may want to consider this option if LTC insurance is not a goal that you want to pursue.
Now I have taken the stance that some people can self-insure for their LTC needs, and I still believe this to a degree. Now if you are disciplined and can save on a regular basis, this may be a good option for you and I will explain the numbers to a degree. Now nothing is guaranteed in these figures, but they do assume a 7.5% return on a pre-tax basis. Taxes may affect your portfolio depending on what you have invested in, but these are general terms as I do not know your tax rate or bracket. If you are 25 years old and save 55 years, worth of premiums, you can self-insure with little difficulty by amassing $720,000 that can be used for LTC or any other need in the event you do not use the funds for LTC. That is not a bad chunk of change for someone. If you had bought LTC insurance at the same age, you would have a level of coverage that we will look at soon, but you will not have any value associated with the policy. If you save the premium, you will have some money saved that can be used for any need you may have.
If you are older, you can still save a sizable amount of money mainly because you will be paying a higher premium. If you are 45 and save for 25 years and have a premium of about $125 a month you can save up to about $254,000 at 7.5% annual return. Not bad but that may not be sufficient to cover your expenses after inflation is considered. And if you wait until you are 65 and save for 15 years your premium is about $7,800 annually, and that will save you about $215,000. The last two option can save you enough for about two years’ worth of LTC but not much more. In these instances, LTC insurance with inflation protection may be the better option. When you are younger self-insurance is more practical but may be problematic if you are not self-disciplined.
If you have questions or need more information, please leave a comment or contact me directly.
