Considering Long-Term Care Insurance? Read This First
If you’ve worked hard, invested wisely and had some luck, you should have enough income after retirement to live comfortably.
But what happens if you develop a chronic illness or disability in your golden years—one that prohibits you from taking care of yourself?
Paying for assisted living, nursing home or at-home care could suddenly place great stress on that retirement income, whether it’s from an IRA, annuity, pension, 401(k) or just Social Security.
Or you might have enough resources to adequately pay for your care, but will you have anything left for your heirs?
As Baby Boomers age, more people are facing these questions while their need for long-term care is projected to grow tremendously. From 2000 to 2040, the number of older adults with disabilities will more than double, rising from 10 million to 21 million, according to the American Association for Long-Term Care Insurance.
Is It a Good Fit?
Buying long-term care insurance can be costly and isn’t recommended for everyone.
If you are already having trouble paying your bills and receive only Social Security income, it’s probably not a good idea to spend your money on long-term care insurance premiums, according to the National Association of Insurance Commissioners, which has produced a free Shopper’s Guide to Long-Term Care Insurance.
On the other hand, if you are wealthy enough to pay for your own care and still leave an estate that will provide generously for your heirs, long-term care insurance typically isn’t recommended either.
But if you have a decent amount of income and assets, worth at least $50,000 according to the AAAP, and you don’t want the government or your family to pay for your care, long-term care insurance can be a great move.
When to Buy
Dean Ramey, a Raleigh-based health insurance agent and First Bank affiliate, says he bought his own long-term care policy 20 years ago at age 50. He continues to believe that’s the best age—old enough that you have most child-rearing costs behind you, but young enough that your health is still relatively good.
After 50, your premiums will only increase as you age, both because you pose more risk to the insurance company and because premiums, in general, are rising as insurers have a longer claims history from which to assess actuarial risk, Ramey says.
When the first long-term care insurance policies were marketed 30 years ago, it was called “nursing home insurance” because that’s what it paid for. But now, a policy typically covers non-medical costs associated with activities of daily living (ADL), such as eating, bathing, continence and household chores. Providers can range from nursing homes and assisted living to adult day care and at-home care.
And Baby Boomers increasingly want to live as long as possible in their homes. In fact, about 52% of long-term care funded by Medicaid in 2014 was for at-home or community-based services, according to a report by The Pew Charitable Trusts.
Safeguarding Your Legacy
Noting that 1 in 3 people over age 65 will require nursing home care, Ramey sees the question of whether to buy long-term care insurance less about gauging the potential for its eventual need and more about determining one’s financial legacy.
This issue is one with which Ramey has some personal experience. His mother died 4 years ago after 4 years of assisted living care that he and his brother paid for with proceeds from the sale of her home—losing their inheritance.
He plans a different outcome for his own children during his own final years.
“If I stayed in a nursing home for 40 months (the average stay), and it cost $200,000 without long-term care insurance, I just took $100,000 from my daughter and her family and $100,000 from my son and his family,” Ramey says.
“There’s an element of nobility,” he explains. “You’re doing it for them. If you have a family and a half million or million in assets, you want to leave all you can.”