07 Mar Letting an LTC insurance policy lapse

Q. My husband and I are 84 and 85 and we have had long-term care insurance for 17 years. The premiums are going up too much and we are on a fixed income, earning a little over $30,000 a year. We have a good amount of other assets, and we’re trying to decide if we should keep the insurance or cancel it.
— Tough decision

A. As you know, long-term care insurance can be a very important part of your financial plan.

You shouldn’t let the policy lapse without serious consideration.

“The best thing that can happen to you is that you never use the policy and live a great life,” said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton. “The reality is that one of you will probably need care and that care is really expensive.”

Lynch said most of the companies insuring long-term care are getting destroyed in their assumptions on the cost of care, and that’s why you are seeing so many companies get out of this business.

If you need home-based care in New Jersey, you’re looking at a cost of $40,000 to $70,000 a year, Lynch said. Facility-based care is in excess of $100,000 annually.

“If one of you needs care for one year, probably the premium you would have paid [for your LTC policy] and then some will come back to you,” Lynch said.

We don’t have specifics on your policy — the price, benefits, etc. — so it’s impossible to tell you what the break even point would be.

“Many people need care in the last year of their lives, and very few people actually know when that will be,” Lynch said. “I would not feel comfortable advising someone at this age to cancel a policy when it is reasonable, even if you are in good health, given that you may need the policy benefits in the next few years.”

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This post was first published in March 2018.