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Do You Need Long Term Care Insuance

Long term care insurance has received some bad publicity in recent years.  When many policies were purchased decades ago, insurers made some significant mistakes in calculating premiums, resulting in staggering premium increases, in some cases as much as eighty percent.  These dramatic premium increases should moderate in the future, but there will more than likely be increases each year.  Because of this, in 2018, 84 percent of Americans who purchased long term care insurance chose the hybrid/combo life insurance product.

According to the latest survey by Genworth Financial, the average private-room nursing home now costs $100,375 per year, and home health aides cost nearly $21 per hour.  If you needed full time at home care while your family was working, you could end up spending over $49,000 per year, just on a home health aide. Having long term care insurance not only pays for your care, but it keeps you from spending all of your savings so that your spouse or family does not compromise their standard of living.

When is the best time to purchase long term care insurance?  The best time is when you are young and healthy enough to qualify for the least expensive policies. You may want to start considering long term care insurance at age 50 or even younger, but you are still not too old to purchase a policy at age 70, if you are healthy and can afford the premiums. It becomes more expensive as you grow older, so procrastination does not help you in this case.

Long term care insurance can be quite costly.  For example, a 60 year old woman in good health in Illinois, may decide to purchase that offers five years of coverage with a 90 day elimination period at a current benefit of $6,300 per month. This includes inflation protection at 3% compound inflation.  An annual payment could cost $4,500 per year for life, and this payment can increase each year.  This equates to a $375 per month premium.  For some people, this is too expensive, and they can then look to either decrease the benefit period, or the inflation protection, or benefit amount per month.  If it is a couple, and each are paying this amount, it can get quite expensive.

Another option is they hybrid life insurance policies with a long term care health rider.  The advantage of these policies is that the premium does not increase, and if the money is not used for long term care, it can be left to your heirs.  You usually have to deposit a lump sum or a series of guaranteed payments lasting up to 20 years. For a couple aged 65, using One America Asset Care with a single lump sum premium of $250,000, it would provide a long term care benefit of $6,888 per person until they have exhausted the death benefit.  This includes a 3% compound inflation adjustment, and a 60 day elimination period for care in a facility.  This is a significant amount to invest for a combo life insurance/long term care rider policy, but premiums will never increase, and it buys peace of mind.  If the benefits are not used, the heirs would at least receive the money, as opposed to a standard long term care insurance policy where the premiums are just gone if the benefit is not needed.

I do not sell long term care insurance, and it can get complicated when discussing the options and the different policies available.  I do work with some long term care specialists that would be happy to explain the policies and costs to you. If you do not purchase long term care insurance, you have to be in a position to self fund your long term care expenses, or risk spending down all of your assets and relying on a Medicaid facility.  

If you have been thinking about this, and want more information on long term care insurance and how it fits into our comprehensive financial plan, please contact me.

About the Author

Patti Hughes is a Chicago Fee-Only Financial Planner.  Lake Life Wealth Advisory Group provides comprehensive and objective financial planning, retirement planning, and investment management to help clients organize, grow and protect their assets through life’s transitions.  She is a fiduciary, and does not sell products or earn commissions, so she truly acts in the best interests of her clients.