Clients often ask me whether they should purchase long-term care insurance. Answering this question is not as easy as it may sound.
Five or 10 years ago, the insurance was relatively affordable, and there were many choices of plans and carriers. But it turned out insurance companies grossly underestimated their future liabilities for these plans. Today, there are far fewer companies in the business and the cost of premiums has skyrocketed.
If you’re still thinking about purchasing, it helps to be younger. The best age to consider the insurance is in your 50s. By the time you’re 70 or older, you may not be able to get it. Forty-five percent of applicants over 70 are denied coverage.
So what are the odds that you will need long-term care?
According to the Department of Health and Human Services, about half of us will need it during our lifetime. If you buy the insurance and use it, you will probably at least recoup your costs, and hopefully, gain more than that. But if you’re in the half who never use it, you may have put tens of thousands of dollars down the drain. That’s what makes “Should I buy it?” such a tough question to answer.
Insurance company Genworth Financial, which did a study on the costs of long-term care, estimates the national average for the cost of a nursing home to be about $98,000 per year. In high cost-of-living areas such as Seattle, Los Angeles, and New York, it can cost you upwards of $130,000 per year.
If you are single and own your home, the equity in your house can help pay for long-term care. But that option doesn’t always work for couples, particularly if one spouse needs a nursing care facility and the other wants to stay in the home.
If you’re trying to decide whether to buy coverage, you should first determine whether you will have the financial assets to self-insure instead. In other words, will you have enough retirement income from pensions, investments, and Social Security to pay not only for normal retirement expenses, but for nursing care as well?
Another consideration is whether you want to leave your heirs an inheritance. If so, you may want to at least look into the insurance, since nursing care can easily wipe out an estate.
You may not know for sure until you’re in your 80s or 90s whether long-term care insurance was the right choice. But in the meantime, talking with your financial advisor can at least give you a clearer picture of your situation and help you weigh your options.