Why I Bit-the-Bullet and Bought Long Term Care InsuranceSubmitted by Concierge Financial Planning, LLC on February 19th, 2013
Making a hard decision now is easier than you think.
There is nothing like the fear factor to motivate one to take action. I finally made an executive decision and purchased long term care insurance (LTCi). The possible need for long term care has weighed on my mind for years. If they had purchased policies, my mother, grandmothers, and grandfathers would have accessed them. Family health history should be one of the first considerations when pondering LTCi, and mine, unfortunately, is abysmal. As a fee-only financial planner, I have seen first-hand how a long term care event can decimate an otherwise healthy financial plan, and I am running scared.
What exactly does LTCi cover? It depends on your particular policy, but generally the policies cover nursing home care, assisted living, home healthcare, and related expenses when you are chronically ill. LTCi insurers offer a full menu of policies, with various bells and whistles. I bought a shared care policy with my husband which includes a three year benefit for each of us at $300/day with a 5% annual compound inflation adjustment. Sound like Greek? Let me explain:
Shared Care: The policy is a joint policy and we can access each other’s benefits. We can each use three years’ worth of benefits or one of us can use six years. If I go first and use up the entire six years, my husband is still guaranteed 50% of his original benefit should he need it.
Three Years: Three years is the average nursing home stay as well as the average LTCi claim. None of my family members would have used their policy for more than that period of time. You can choose from other benefit periods as well.
$300/day: Nursing home care in New Jersey costs about $328/day now. We are one of the most expensive states in the nation. You can choose from other daily benefits amounts if costs in your state are different.
5% Compound Inflation: This is important! My $300/day coverage will increase every year by 5% compounded annually. With long term care costs rising at about 6% per year, my plan will barely keep up. This is an expensive option, but necessary in my opinion. No inflation and 3% compounded inflation are other popular inflation options.
100% Home/Assisted: I can use 100% of my $300/day benefit to pay for home healthcare or assisted living. Some policies only cover 50% for home healthcare.
90 Elimination: Basically my benefit only pays out 90 days after I have been diagnosed as chronically ill. I would have preferred 30 days, but it was too expensive. As a compromise I have a 0 day elimination period for home care.
What does all this cost? It depends on your medical underwriting and qualifications, but for us (ages 47 and 50), about $6,000 per year paid every year until death. $15,000 per year for 10 years and then fully paid up was also an option. Yikes!!
My husband was against this purchase and views LTCi as unnecessary. He thinks if we just save more every year we will be able to cover the potential expense. That is a big IF! Even if I have the assets to pay for a long term care event, do I want to use them for that purpose? A bigger question is whether my children will want to use them for that purpose if they are calling the shots? Maybe this will be the conversation:
Son or Daughter-in law: “Honey, your mom doesn’t really know what’s going on–let’s put her in a less expensive facility so that we can pay our college bills and put an addition on the house.”
If I have the insurance, my kids won’t hesitate to use it and they will appreciate me that much more for having made a prudent decision to purchase it. Lead by example.
Prices on LTCi policies are going up and underwriting criteria are becoming more difficult, especially for single women. If I waited until April my annual premium would be closer to $8,000. Don’t forget that the younger you are when you purchase the policy, the less expensive the annual premium will be. Consider your potential long term care needs now while you can still make your own financial decisions and afford the premiums. It’s a hard decision to make now, but it may save a ton of grief in 2053!