If you are in or near retirement, no doubt the thought of Long-Term Care has crossed your mind. Long-term care is a range of services and supports an individual may need assistance with to satisfy their personal care needs. Long-term care is not medical care, but rather assistance with the personal tasks of everyday life, sometimes called the activities of daily living. These ADL’s may include bathing, dressing, toileting, eating, and transferring (to or from bed to chair).
Long-term care typically will be a necessary service for the elderly who can no longer perform these tasks for themselves or for those living with a debilitating illness such as Alzheimer’s or Parkinson’s disease.
Regardless of whether this care can be satisfied from home or in a facility, the costs can be arduous and difficult to manage. The simple solution is to purchase Long-Term Care insurance to cover the majority of these costs if/when they become a reality. However, long-term care insurance may be prohibitively expensive and has some complexities of its own. When, then, does it make sense to purchase long-term care insurance? The answer is different for everyone, but here are a few thoughts to consider when making your own decision:
1. Do you have assets in retirement of either less than $500,000 or more than $2,000,000?
If you fall into either of these categories, then paying an insurance company to cover the risk of long-term care needs may not be your best option. If you have more than a $2,000,000 net worth, you can almost certainly cover your long-term care needs yourself. The vast majority of those requiring long-term care need it for less than 5 years. Even at an extremely high cost of $120,000 per year, a high net-worth allows you to cover the $600,000 total cost and leave plenty of assets to your heirs. This will allow you to avoid paying an insurance company an excessive premium to cover a risk that may never happen.
On the other hand, if you have less than a $500,000 net worth, it is likely the premiums of $4,000-$5,000 per person per year for LTC insurance will be prohibitively expensive and significantly reduce your quality of life while you are young and able to enjoy your retirement. In this case, we recommend crossing your fingers and if the worst were to happen, once your assets are depleted, Medicaid will cover your long-term care expenses.
However, if you fall in the sweet spot of $500,000 – $2,000,000 net worth, you will want to strongly consider LTC insurance to protect your assets, so a healthy spouse is not left destitute due to your care
2. Are you married?
If not, then most likely long-term care insurance doesn’t make sense for you. The main purpose of LTC insurance, for planning purposes, is to protect your assets for a surviving spouse. As an example, if Joe is 86 and has developed dementia and his wife Joan, 83, can no longer care for him, he will need to enter a facility that provides the proper care for Joe but costs $110,000/yr. With only a $700,000 net worth, Joan is extremely worried about what she will do if Joe’s care severely depleted their assets. This is a place where long-term care insurance can greatly reduce or eliminate this concern.
However, if Joe were single, then there would be little or no concern as any remaining assets will simply be going to his heirs. If he is not terribly concerned about leaving a large estate to his heirs, then he can comfortably use what he has for care until it is exhausted, in which case Medicaid will kick in and pick up the tab.
3. Are you too old to get coverage?
Often, by the time many apply for long-term care insurance, they are too old and are either ineligible for coverage or find their coverage is prohibitively expensive. The best time to apply for any insurance is when you don’t need it. We recommend making a decision on long-term care insurance no later than when you are in your late 50’s. Once you enter your 60’s, LTC insurance premiums grow at a parabolic rate. If this coverage is something that fits with your retirement plan, apply before you turn 60 to avoid sky-high premiums.