Long Term Care Insurance - Does it Make Sense For You?

In recent years, we have seen more clients taking a hard look at whether long term care (LTC) insurance makes sense in their situation. Demographics are driving this to a great extent. Our population is aging and many baby boomers are getting first hand experience by dealing with healthcare issues for their parents. Current average nursing home costs are often over $300 a day – more than $100,000 per year. Home healthcare is often the preferred method of care for many individuals, but that can even be more expensive, depending on the level and amount of care.

All of this has caused many people to consider LTC insurance.  The LTC insurance industry has “grown up” quite a bit in recent years and there are a number of very good, financially solid carriers in the business. There are also better quality products and more variations of products then there were in the early years. For most people, this coverage can be viewed as a way of shifting the potential cost burden (or some portion of it) to an insurance company. It can help people to preserve assets for their heirs and still assure access to their desired level of care, should the need arise. However, LTC policies can be expensive and represent a major financial commitment for something that may never be needed.

Many people feel that they should wait until they are older to purchase coverage, feeling that they are “too young” and will pay premiums for too long. The biggest risk of doing this is that as you age, health issues arise which could make coverage prohibitively expensive in later years. Others may feel that they are “too rich” to buy coverage, in other words, they can afford to pay for potential long term care costs out of pocket. That may very well be true, and the odds of needing the coverage are low anyway. However, even wealthy individuals can use this insurance to protect their asset base and leave a larger estate to their heirs. There may also be some income tax benefits to the premium payments. Entity owners may be able to deduct the costs at the entity level. Employees should find out whether their employers offer any LTC coverage as part of their benefit package, something that is often overlooked.

If you are investigating LTC insurance, there are several features of plan design that need to be evaluated. These include home healthcare coverage, daily benefit amount, duration of benefits, waiting period, and inflation rate. All of these are very important parts of a coverage plan and looking at options in each area will affect the pricing of the policy. While you may be able to reduce the premium by having less than lifetime benefits or a longer waiting period, a good inflation protection (ideally 5% per year) is important as health care costs have continued to rise rapidly.

It is important to think about this planning with the “who” in mind, not just what the cost will be. In these times of children living all over the country (or world), second marriages and combined families, you should give some thought to who would be the caregiver in your situation. A recent study estimated that there are now almost 10 million adult children over the age of 50 caring for aging parents. The emotional and physical toll on the caregivers is something to consider as you think about this. Once you have thought about “who” might provide care, then it might be easier to consider “how” you will pay for this as you plan for your later years.

One of the most challenging parts of planning for long term care is the realization that we are planning today in an environment that could change dramatically in the coming years. Future changes in healthcare might obviate the need to pay for long term care. Entitlement programs like Social Security, Medicare, and Medigap may change dramatically as the US deals with the budget deficit. This uncertainty, however, should not stand in the way of at least considering some of these issues and how they would affect your personal financial situation.  Start by thinking about your own personal finances, goals and objectives and how you will handle potential long term care costs in the future. We work with a number of experts in the LTC insurance field and we would be glad to refer them to you as your situation dictates.

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