Deciding if the cost of long-term care insurance is worth it

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 Q. I know long-term care is expensive, and but so is long-term care insurance. I’m 55 and my husband is 56, and we can get a plan for us both for about $5,000 a year. We have 401(k)s worth $600,000, IRAs worth $140,000 and about $30,000 in a savings account. We’re just not sure it’s worth spending that money. What should we consider, and if we do jump in, what features should we make sure the policies have?

A. You’re spot on about the cost of long-term care insurance.

These policies help to pay the cost of care should you ever need it, because you may not be able to count on Medicare or Medicaid to give the care you want or need.

“In your case if you did not get LTC you would have to spend down the majority of your assets before you would qualify for Medicaid,” said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette.

And that’s probably not what you want to happen to your assets.

Your age is a good age to start researching policies because, well, you won’t be getting any younger, and as you age, LTC policies won’t be getting any cheaper.

“It’s an insurance you are unlikely to need in your 40s, while waiting until your 60s or 70s to purchase can see the costs skyrocket, if you are even able to get coverage at all,” said James Sonneborn, a certified financial planner with RegentAtlantic Capital in Morristown.

He said while you’ve accumulated a nice nest egg, most people though don’t have the type of wealth that would allow them to self-insure for their long term care needs. These insurance policies can be a good way to protect your wealth from the high costs of such care, whether at home or in a facility, he said.

There are ways to lower the costs of LTC insurance, but you must understand what you’re potentially giving up in exchange for lower premiums.

First, there’s the “elimination period,” is the time from when you become eligible for coverage and when the benefits actually kick in. Self- insuring for the first three to six months can be a way to keep the premium costs down, Sonneborn said.

You should also pay attention to inflation riders, which will mean your daily benefits have a chance of keeping up with health care cost increases.

“The younger you begin with this insurance, the more important the rider is,” he said. “The most generous increase would typically be a 5 percent compound inflation rider, though that will come with a higher cost than a lower rate or a simple inflation adjustment.”

Then you can choose the daily benefit the policy will pay. Being New Jersey residents, Sonneborn said you will probably need to have a daily benefit of $200 per day or more. This will cover the majority of most facility costs, and probably all of your in-home care costs.

You also have to select the time the policy will pay benefits.

“The length of coverage will typically be between two and five years,” he said. “It’s better to opt for the longer term.”

Maye said you should ask the agent about spousal policies, or shared care riders, which allow one spouse to use the other spouse’s untapped LTC benefit if they have gone through their own LTC benefit.

A final and very important consideration is the financial strength of the insurance company.

“You are entering into a relationship that will likely last for decades to come and you want to be highly confident that your insurance company will be there when your need arises,” Sonneborn said. “Your insurance agent should provide you this information and be able to compare against your other options.”

He said to be sure that the company you buy your insurance from is rated among the top categories of financial strength and has a stable outlook.

And lastly, work with an insurance agent who can offer you policies from multiple providers, not just the one who writes his paycheck. Having choices is a good thing.

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This story was first posted in November 2014. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.