As you get older, it’s inevitable to think more about your health and what an illness would mean for you and your family. Long-term care insurance (LTC) may not be a part of your retirement plan, but it could help you afford the necessary care you need later in life.
Only a small portion of the people who could use this insurance actually buy it, even though the Administration on Aging estimates that 70% of seniors will require some long-term care assistance in the future.
If you're trying to avoid wasting money in retirement, keep the following issues in mind when considering long-term care (LTC) insurance.
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Few companies still offer it
Decades ago, long-term care insurance was readily available, with over 100 companies offering policies. By 2019, just a dozen still provided it.
This type of insurance is expensive from an insurer’s point of view. Companies didn’t make enough money and, therefore, shuttered. People with long-term care insurance used it, and the payouts generally exceeded their premiums.
The costs could change significantly over time
While the companies still offering LTC insurance are well-known names in the insurance industry, the premium costs may vary over time. Could prices rise so high that it’s unaffordable to you later in life when you’re more likely to need it?
It’s not clear whether premiums will rise significantly in the future. But you need to ask yourself if you could manage a significant increase in your 60s and beyond.
It doesn't cover shorter-term care
Not all situations are covered by long-term care policies, like needing to spend some time in a rehabilitation center to recover after a fall.
If you’ll be receiving care for under 90 days, for example, the coverage isn’t available, and you’ll need to rely on out-of-pocket coverage or Medicaid if you qualify.
Many policies have limits
As with all financial investments, you need to understand the fine print. How many years does the policy remain in place? Is there a limit to how much a policy will pay?
Some policies have built-in limitations on the number of years they will be effective and the value or maximum coverage they’ll pay out. That could limit its protection for some people.
It could provide peace of mind
The “what ifs” are a big deal for many people, especially the concern about being a financial burden to family members later in life.
If you don’t want to move in with the kids or lose your home to afford long-term care, you may want to invest in LTC coverage now, so that’s less of a worry.
There’s a strong likelihood of need
Some people can look to the future and see that they may actually need this type of coverage.
For example, you may not have a family member who could help care for you, or you may have health problems now that will likely lead to the need for LTC. If you know you’ll probably need long-term care, it’s typically worth investing in the insurance.
It could be expensive right now
The younger you are when you purchase the policy, the lower your premiums will be.
If you’re older, though, your premiums could be pricey. You may need to make extra money to afford premiums if you’re just beginning to think about taking out a policy.
It’s becoming necessary for more people
Another way to decide whether long-term care insurance is a good fit for you is to look at the statistics. In 2000, 13 million seniors used some kind of paid long-term care service.
As baby boomers age, the need will grow. The Department of Health and Human Services anticipates 27 million people will need long-term care by 2050.
It could help you earlier in life
Long-term care insurance can be valuable if you become injured or suffer a serious illness requiring more than 90 days in a nursing home or care center.
Consider what could happen if you were in a serious car accident or faced a life-threatening illness. Would you have the financial means to cover these costs if you no longer had health insurance because you were out of work?
Qualifying for benefits isn’t easy
Let’s say you're in a situation where you need long-term care. The policy may require that you have a demonstrated need for support for at least two (if not more) of the activities of daily living.
This can include bathing, dressing, eating, toileting, walking, or incontinence. If you can still tackle these tasks, your coverage may pay benefits.
Better alternatives may exist
Before you purchase this coverage, realize that alternative options may be available, such as annuities with built-in riders providing long-term care coverage.
These may offer more flexibility in how those funds are used. Continuing-care community investments could also help you. These policies let you buy into a group policy at a potentially lower cost.
Many have qualification standards you need to meet
Like a life insurance policy, many LTC policies require you to pass a physical to demonstrate you’re healthy enough for a policy. You could be denied coverage if you have any health complications. In some cases, you may be able to get a policy but will pay a higher premium.
Medicaid could be an alternative
Low-income people may receive care in a long-term care facility if they qualify for Medicaid. This is a government-run program for those who have few assets.
You may have to sell or spend your assets to qualify for Medicaid. However, you may not want to put money into a long-term care policy if you have a low income now.
Alternative care options are available
If you are confident that your child or another person will care for your needs, you probably don’t need long-term care insurance. If you have the financial means to pay for your care, there’s little value in purchasing this coverage.
Make sure to have those conversations with loved ones now to ensure everyone is on the same page.
Ask a financial advisor
The best way to make a decision like this is to speak to your financial advisor.
Get a better idea of what your projected financial need may be later in life, and then do some research, compare policies and companies, and invest with confidence in a policy that fits your specific life.
Consider your health, financial status, and expectations for who may be able to care for you later in life should you become unable to take care of yourself.
This should be a conversation you have with your financial advisor and family members to avoid foolish money mistakes once you retire.
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