Long term care-something that seems a long way off down the line, right? Hopefully, it is. We are living healthier lives for the most part-but we are also living longer, and there is no way of knowing how our health will remain in our later years.
With that in mind, is Long Term Care Insurance a smart buy?
The answer is not a simple one. Like any insurance policy, you pay premiums for something you may never use. (which would be great!) How do you determine whether it’s worth the investment? There are many factors to consider:
Do you have a family member or loved one that currently has a LTC policy that is being used? I do, and I know it has had a profound effect on our discussion surrounding this topic. My mom has been living in an assisted living facility for about 3 years. Although she is physically able to do all of the 5 daily living activities identified in a long term care policy, she has a cognitive impairment, which qualified her for receiving benefits. All of her expenses at the facility have been covered by this long term care policy. And with the inflation rider, she still has another year of benefits before we will have to pay out of pocket. Her expenses average about $96,000/year (Massachusetts is one of the more expensive states for senior care) and her policy will end up paying out over $280,000 in benefits. This has allowed my family to keep her money invested for future needs, once her policy runs out. If she succumbs before this happens, then her estate is intact for our family.
What about Medicare? Yes, Medicare is an option to pay for your needs once you qualify-however most facilities only have a certain amount of units for Medicare clients. The nicer the facility, the smaller amount of Medicare units available. Also, keep in mind that any money you do have in investment accounts, savings, IRA accounts, etc. will be taken to pay for your care before the government will start to pay. Medicare should be considered a back-up plan, not the only plan.
Do you feel you have enough money in savings to self-insure? For those people who absolutely feel they have enough money to pay for these services out of pocket, then perhaps a LTC policy is not needed.
Can you afford the annual premiums? Clearly, this is an individual decision. The older you are when you enroll, the more expensive the annual premiums can be. You also must be of good health when you enroll-if you have an ongoing medical condition or illness, you may not qualify.
Does it actually make more sense to set aside the money you would spend on premiums annually and create your own “long term care” account, investing the money in safe investments? The reality is that the annual premiums wouldn’t cover even a month of living in a facility- and that’s today’s figures. It’s hard to know what the costs will be in 20 years…
Having experience with my mom’s policy, I can say that there is an annual assessment done of the client to make sure they still qualify for benefits. Believe me, Long Term Care companies only want to pay out what they have to-and they typically don’t look back in their records to review the client history.
Our family encountered this challenge last year, when the nurse who came to re-evaluate my mom did not know her prior history. My mom answered enough of her questions correctly to cause the nurse to assess my mom as no longer qualifying to receive benefits. This was absurd, as my mom has dementia! We then had a lengthy battle with the insurance company, including requesting another assessment and constructing a well written letter indicating our frustration, our experience with the assessment nurses, and the threat of taking this to court.
My mom’s benefits were quickly re-instated..
There are also various types of policies to consider. Some are now tied to life insurance policies (somewhat expensive), others have flexible inflation riders, etc. If you are considering a policy, you need to look at all the options. You also need to look at what states you are considering retiring in so you know what the average daily expense might be. They can vary by state.
In the end, my husband and I decided to purchase LTC policies a few years back however it was mostly due to my history with my mom’s policy. (Most agents will tell you that a majority of the policy owners are people who have had this history.) Our premiums are reasonable since we are considered younger and healthy. We will re-evaluate our policies every few years to see what’s new in the market.
However, here’s an article where the author made a different decision. His insight is interesting..
Food for thought…hope it’s helpful!