You might be wondering why an investing website like Investor Geeks is discussing a topic like long-term care insurance. Well, it would be a shame to learn all sorts of great investing strategies on this website, grow your portfolio, and then watch it quickly disappear if you get sick or injured and require long-term medical assistance. Protection of assets should be a concern of all investors.
Do I Need It?
Currently, about 1 and 5 Americans over age 65 are utilizing some form of nursing home care, assisted living, or in home assistance. The average cost of nursing home care is $150 dollars per day in the United States. Let’s assume that a husband and wife enter a nursing home at age 70. If they both live until age 75, they would have exhausted a non-inflation adjusted $547,500 of a retirement nest egg. If you have a nest egg over $2 million, you could be fairly comfortable self-insuring yourself and a long-term care policy would not be as attractive.
What about Medicaid?
In most states, to be eligible for Medicaid assistance, you must have less than $2000 in assets. Your home, one car, and $30 in monthly income are excluded from this provision. Every other asset or income stream (including pensions and social security) goes to the state. Medicaid also is much more restrictive than long-term care insurance. In many states, Medicaid will only pay for assistance in nursing homes that accept Medicaid patients. You would not have the comfort of receiving assistance in your own home like long-term care insurance could offer you.
Going on Claim
To be able to start receiving your long-term care benefits, most policies require you to have the inability to perform at least two activities of daily living (ADLs). These activities include being able to bathe yourself, use toilet facilities, eat unassisted, and get out of a bed or chair without help. I know, terrible things to think about, but realities for many of us as we age. Many policies also allow you to go on claim if you fail specific mental acuity exams.
Policy Options and Opinions
Policies can be structured for certain periods of coverage. If policy pricing is not an issue, opt for the lifetime coverage. People are living longer and longer even if their faculties continue to diminish. Elimination periods are another consideration. Usually, going for the 90 day elimination period (similar to a car insurance deductible) can substantially reduce policy rates. Choosing the 5% compounded inflation adjustment also provides excellent safety as health care costs continue to rise. The biggest piece of advice I can give is to shop around. Compare apples to apples with the big providers like John Hancock, Genworth, and Met Life.
When Should I Buy?
Based upon some non-scientific research I conducted by calling agents at John Hancock and Genworth, I discovered that the ideal age to purchase long-term care insurance is your late thirties. The underwriters will see you as healthy, and settled down raising a family. You can take advantage of acting fast and buying a ten-pay lifetime benefit plan. You pay level premiums for ten years after which the policy is good for the rest of your life. In a few years, this will be what I purchase for my wife and I. Waiting until your early fifties, the policies would still be affordable for a healthy individual. Expect to pay about $2,000 per year for a lifetime coverage plan with $200 in daily benefit. If you wait until your early sixties, that same plan could cost you over $4,000 per year.
As a potential long-term care insurance purchaser, you should be aware that long-term care insurance is very lucrative business for broker-dealers. The broker-dealer you are working with will scoop up about 50-60% of your first year premium payments. In years 2-10, the broker-dealer will receive 10% of your ongoing premium payments. Just some information to be aware of. Analyze your own situation. Determine if your investment plan will allow you to self-insure or if you need the protection that long-term care insurance could provide you.