One of the most difficult decisions in long-term care planning is whether to purchase long-term care insurance (LTCI) and which product best suits your needs. On the one hand, LTCI premiums are high and they may be raised in the future. Plus, if you are in your 50’s and 60’s when purchasing policies, the need may be decades in the future. On the other hand, many lives are saved—or dramatically improved—by LTCI.
LTCI coverage can enable one to choose one’s own care setting rather than relying on what is covered by Medicaid, make one more comfortable hiring necessary help without dipping into one’s savings, and protect savings for future use and an inheritance for children and grandchildren.
Here are five tips to help you make the decision whether to purchase LTCI and what kinds of products to consider:
Can you afford LTCI—or can you “self-insure”?
There are a few rules of thumb that can help determine whether you are a candidate for LTCI. You need to have enough savings and income to afford the premiums but not so much that you could easily pay your costs of care. If you are part of a couple whose net worth is more than $1 million but less than $3 million, or a single person with half these amounts, then you are a candidate for LTCI. (Some LTCI brokers will tell you that there’s no upper limit since even wealthy people may prefer to use LTCI rather than dip into their savings.) You could also look at this from the point of view of income. If you can pay the premiums without affecting your current style of living or using your savings, then you can afford LTCI.
Decide now once and for all.
Unless your financial situation is likely to change in the future, the best time to purchase LTCI is now. Every year you wait, you will face higher premiums and run the risk that a health care event will make you ineligible for LTCI.
Assess your own feelings.
First, if you or your spouse were to need care at home, would you be reasonably comfortable using up some of your savings to pay for care? Or would you exhaust yourself providing the care instead, whether due to fear of running out of funds or wanting to bequeath an inheritance? See if you can do this thought experiment; in the end, would you feel worse for having paid premiums over the years for insurance you did not use or for paying out-of-pocket for care that could have been covered by insurance?
Use an LTCI specialist.
LTCI is one of the most complicated insurance products available, with policies offering a variety of benefit levels and conditions for payment. Some insurance companies have raised premium rates on existing policies while others have not. Some honor claims readily and others have put up difficult roadblocks. And there is a proliferation of hybrid policies that merge LTCI with life insurance. You need someone who specializes in the field to guide you through all of these options.
You may have noticed that this article hasn’t addressed actual insurance policies and benefit choices. In part, this is because, as noted above, you need an expert to guide you. But before meeting with the expert, do a little of your own research. Consider requesting a copy of The Long Term Care Solution Guide, available free through the AIA Trust website.
While these tips won’t eliminate the difficult decision that all baby boomers are now facing, this framework may help to focus consideration on this important topic.
For information on the AIA Trust program with Long Term Care Resources and educational information about LTCI, visit the AIA Trust webpage by clicking here.