12 Oct Should I cancel long-term care policy?

Q. I’m 70, and I am trying to decide if I should cancel my long-term care insurance. My only income is Social Security of $2,249 a month after the deduction for Medicare. The long-term care insurance costs $320.70 a month. It is with Genworth and would pay $100 a day for three years only. I have $200,000 in savings but no other major assets. I do not want to touch my savings. My doctors tell me I am very healthy and I could live into my 90s. I realize that, if I cancel the insurance, I never will qualify for it again.
— Unsure

A. You are correct that it would be difficult if not impossible to secure long-term care insurance again if you drop your coverage.

While long-term care insurance isn’t cheap, neither is care.

And the odds say after age 65, an individual is more likely than not to have some type of long-term care need, said Charles Pawlik, a certified financial planner and chartered financial analyst with Beacon Trust in Morristown.

He cites a U.S. Department of Health and Human Services study, which said roughly 70 percent of Americans over the age of 65 will need some level of long-term care services at some point in their lives.

“Although this figure does not account for your personal circumstances and your personal odds of needing long-term care, it gives you a sense of the prevalence of the need for long-term care,” Pawlik said. “The fact that you are healthy and have a long life expectancy may actually increase the chance of needing long-term care at some point.”

Pawlik said it’s important to consider the impact a long-term care need could have on your savings if you drop your coverage.

He said the median annual cost of care in New Jersey for adult day health care is $23,400, and roughly $52,600 a year for a home health aide, according to Genworth’s 2017 Cost of Care Survey. The estimated median annual cost for an assisted living facility is roughly $69,700 a year, and well over six figures for a year of nursing home care in New Jersey.

And, it’s not uncommon for a long-term care need to last two to three years or even significantly longer, Pawlik said.

“When you look at the cost of care for these various options over a several year period, the potential impact on your savings without any level of coverage becomes clear,” he said. “There are also intangible benefits to maintaining long-term care insurance, such as being able to minimize the burden and stress on family members if a long-term care need arises and you are not able to otherwise afford the care that you need.”

This, along with the idea of being able to afford a better level of care should the need arise, can help to provide peace of mind longer-term, he said.

Pawlik recommends you speak with your long-term care insurance agent to review other key provisions of your policy, such as the elimination period (how long you have to wait before coverage starts), or any inflation protection that the policy may have. Both a longer elimination period and having simple vs. compound inflation protection can serve to reduce monthly premiums, he said.

But, he said, make sure you aren’t sacrificing on the overall quality of your coverage too much in order to save a few dollars if you decide to maintain your policy.

He said a certified financial planner professional can assist you with talking through the various considerations relative to maintaining your policy in the context of your overall financial picture, as well as with discussing the various provisions of your policy and the impact these different provisions may have on the cost and quality of your coverage.

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This post was originally published in October 2017.