Should I Buy Long Term Care Insurance?
Should I buy long term care insurance?
That depends on how you feel about “green bananas”.
The decision to buy or not to buy long term care (LTC) insurance has several angles. Some aspects of the decision are driven by practical realities, others by emotion. Either way, the possibility of needing long term care is real. According to longtermcare.gov, someone turning 65 today will have a nearly 70% chance of needing long term care services at some point in their remaining years.
Emotions are inevitable. In working with clients on retirement and LTC planning, there are typically two schools of thought concerning emotions. For the purposes of this article, we’ll call one “the LTC Veteran” and the other the “Skeptic”. The LTC Veteran is someone that has a family history of longevity and/or personal experience helping someone through a LTC journey. These experiences can sensitize a person to the financial requirements of LTC and the pitfalls of not having a plan. The LTC Veteran understands the limitations of Medicare as it relates to LTC. He/she has also become aware of the wide variety in “LTC lifestyles” and their substantial costs:
National & Nebraska Median Monthly and Annual Cost - 2015 Genworth Cost of Care Survey2
Monthly / Annual
Assisted Living - US $3,600 / $43,200
Assisted Living - NEB $3,627 / $43,530
Nursing Home * - US $7,604 / $91,250
Nursing Home * - NEB $6,630 / $79,570
The opposite of the Veteran is the Skeptic. The Skeptic does not see themselves needing care - or only needing care for a limited period of time. A partly tongue in cheek sentiment we hear often from Skeptics is, “I don’t buy green bananas -I’ll probably just drop dead.” This group’s main concern is the “use it or lose it” nature of many LTC policies. Sure, there are policies that offer riders or features that return premium under certain circumstances. However, those features often come with an unpalatable cost. Much like your homeowners insurance that only pays in the event of a fire or other peril, LTC will only pay if you need qualifying care once certain triggers are met. The Skeptic finds it difficult to make a LTC insurance purchase. Food for thought, what happens when one half of a couple is a LTC Veteran and the other a Skeptic?
The practical matters.
First, let’s talk finances. If assets and income are scarce, it may be impractical to include LTC insurance in your plan. Reliance on family and Medicaid may be the only option. On the flip side, if you are famously wealthy, self-insuring could be sensible. For those in the middle, the financial portion of the conversation often sounds something like this: If you can protect a meaningful portion of your assets (and lifestyle) from LTC risks without changing your financial life today, LTC insurance may be a viable solution.
Next, let’s talk health. You have to be healthy enough to be insurable. The old adage of insurance is true. To buy it you can’t need it - if you need it you can’t get it. Good health can mean lower costs and health concerns can mean extra premium or denial of coverage. Age 55-65 is a sweet spot to do planning.
You may notice senior living communities, assisted living, and related services building like crazy in your area. Just as the long term care services industry is expanding to meet the future needs of the baby boom generation, so has the insurance industry. There are an ever growing number of “hybrid” or alternative options to traditional LTC insurance. Life insurance and annuities with LTC riders are some examples. You can see how someone who also has a life insurance need, is concerned about traditional LTC's potential for increasing premiums, or is against “buying green bananas” might gravitate toward the idea of a hybrid solution. Additionally, states that have LTC Partnership provisions offer an incentive for residents to purchase qualifying LTC policies. Incentives may include additional asset protection from Medicaid spend-down requirements.
Conversations are key. It can be awkward to think about and discuss LTC planning. That said, the reality remains that around a 3 in 10 of those turning 65 will never need long term care, but around 7 of 10 will need LTC in their lifetime, and 2 in 10 will need care for five years or longer.1 This conversation is worth having!
Should I buy long term care insurance? Maybe - maybe not. Should I have a plan for long term care? Definitely!
Contact us today for a personalized, no obligation, conversation about protecting your family from LTC risks.
Vista Wealth Group | 11235 Davenport St Ste 109 | Omaha, NE 68154 | 402.339.4800
Securities offered through J.W. Cole Financial, Inc (JWC). Member FINRA/SIPC. Advisory Services offered through J.W. Cole Advisors (JWCA). Vista Wealth Group and JWC/JWCA are unaffiliated. Non-securities products are not offered through JWC/JWCA.
2. Genworth Cost of Care 2015 https://www.genworth.com/dam/Americas/US/PDFs/Consumer/corporate/130568_040115_gnw.pdf