Hi, Ms. MoneyPeace:
I want to learn more about long-term care insurance. I’ll be 68 next month, own a house in Massachusetts and live alone. My sons reside in Pennsylvania and Washington, and I would not be living with them. I know little to nothing about this area other than it is expensive but potentially necessary for someone in my situation.
Alone in Massachusetts
Great question — a complex one — as there is not one right answer, depending on who you ask. For example, the short answer from long-term care (LTC) insurance brokers is: “Everyone needs LTC insurance.” Typically, though, LTC annual premiums are too expensive for those who need it most because they do not have the assets for annual payments for decades to come.
As you allude to, there is a lot to learn about this type of product, but first understand if LTC insurance is necessary for your situation. This involves a deep dive into your financial and personal situation.
Clarify your details by reviewing the following before making a final decision: Assets, needs and goals.
- Assess your assets: Review your annual income. Then, total your investable assets. How much of these can be set aside for your medical and care needs in the future? Your home is included in this calculation because it creates other income options, including home equity and a reverse mortgage for your care. (Reverse mortgages had a well-earned bad reputation but legislation has mitigated risks, especially if you wait until later in life to apply.)
Consider your details based on your disposable income. For example, you may have assets today to cover any unanticipated caregiving costs, but will you in 15 years? There is a host of wealthy Americans able to handle paying cash for any upcoming long-term care expenses. Yet, even with a net worth of close to $2 million, someone may be financially stretched to cover those costs. Basically, the fewer assets you have, the more you need LTC insurance, but you also need the annual income to cover the premiums.
- Assess your needs: No one truly knows their future medical needs. However, you can understand the cost of years of personal care needs. Take into account that the average rate for a caregiver is $24 an hour and often there is a four-hour minimum. If you needed care, can you afford an extra hundred dollars a month, a week, a day?
- Assess your goals: Are you planning to leave your children money? Are you intending to leave a charitable legacy? Or are you wanting to die broke? (I take that phrase from the classic book “Die Broke: A Radical Four-Part Financial Plan.”)
Your goal may be to live in your home as long as possible, but you have other options. With a home in Massachusetts, you could sell and enter a continuing care retirement community, covering a portion of your care. The funds from your home sale would be a down payment or cash for other options. You may opt for a smaller place, assisted living or co-housing. Some people set money aside for your added care needs if needed. Others choose LTC insurance, which pays for care no matter where you are living.
If your goals are to involve your sons as little as possible, be aware that someone still has to manage care if you are incapable of handling the details yourself. In fact, the LTC policy requires you to name someone on the application.
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Once you have evaluated what you want based on your income and assets, then you can start exploring LTC insurance options. If you have the income and do not want to spend down your assets, LTC insurance may be for you.
If you do decide to purchase this insurance, don’t shop for the best price. This product is not just about costs, it is also about benefits. Be sure to check the rating of the insurance company as well as how they evaluate how you qualify for benefits.
Premiums are not fixed and can rise with inflation. But the premium is based on age, so this is a great time to begin to make your decision before you enter a new decade.
And one caveat: Those already diagnosed with a progressive debilitating disease like Parkinson’s typically do not qualify for coverage, so you may want to explore other options. The industry has evolved to include life insurance and annuities that can be used for caregiving expenses while alive.
LTC insurance work great for people, allowing income to cover the burden of care costs. But fear is not a good reason to buy LTC insurance. Don’t be swayed by the costs of care, as those that sell the insurance focus on the longest length of care. However, according to statistics, the average stay in a nursing home is only 835 days.
Before that, an elder may need assisted living or care at home. According to the CDC, only 7% of older Americans need help at home.
With LTC insurance, you have more money and, therefore, options for care, especially during the term of the policy, typically three to five years. Though this is not unlimited coverage, whatever happens, because of Medicaid, everyone in this country will receive care even if they run out of assets.
Seek out the best objective advice you can. Then consider, with your asset and income information, the options and make the best decision for you. The bottom line is: Purchase the product with open eyes, knowing what it can, and cannot, do for you and your family.
Remember: You are not alone, as long-term care is a consideration most people will face.
CD Moriarty is a certified financial planner, a columnist for MarketWatch and a personal-finance speaker. She blogs at MoneyPeace.