01 Feb

Long-Term Care Insurance- it’s a big decision (Part I)

February 01, 2012

The costs of health care continue to escalate annually. The average lifespan continues to lengthen as well. These are undeniable facts that give good reason to pause and consider what that might mean to you and your financial wellbeing. Will you be able to afford your healthcare needs in the future? Will a significant portion of your retirement years be spent in the care of others? What implications might there be for your family? Should you consider insuring yourself against that uncertainty? Should you purchase Long-Term Care (LTC) insurance?

Everyone is in a different financial situation with unique sets of goals and circumstances. Therefore, an individualized approach to the decision to purchase a LTC policy should be taken. The issue of deciding whether or not to purchase LTC insurance is a complicated one. What makes this decision so complicated is the fact that not everyone needs to be insured, not everyone can afford the insurance, and the types of available policies vary greatly.

First let’s explore whether there is a need for the coverage or not. The average stay in a LTC facility is 2-3 years, the average annual cost of an extended stay is $70k-$80k, and only roughly 50% of people who reach age 65 will need LTC at some point in their lives. So, there may be room for debate whether LTC insurance is necessary for all. Many people could absorb this expense without sacrificing much of their lifestyle. You should ask yourself, “Will I be able to afford not to have insurance if I need long-term care at some point in the future?” For those fortunate enough to have a very large amount of assets, the need for LTC insurance is not as great and being self-insured might be an option. Given that not everyone will need LTC, the premiums paid into a policy could have been spent elsewhere. Those who can afford to accept the risk of incurring LTC expenses may find that they can leave more to their families by avoiding not only those premiums but also an extended stay in the nursing home.

Individuals and families that do not have very large estates may not need the coverage either. If the estate is small and the income level is low, many families will be covered by Medicaid. Folks in this situation should probably consider spending the monies that would be spent on LTC premiums on other goals, such as saving to provide an income stream in retirement.

Those who can self-insure and those who will inevitably use the social safety net of Medicaid should be considered outliers. The sweet spot for those who should consider the coverage is somewhere in between these two extremes. Contained in this smaller subset are the folks who would be adversely affected by an event requiring extended care.

Many of us fall into the group that should consider LTC insurance. I will be discussing some of the things to look for while shopping for LTC insurance in Part II of this blog.

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