Is long-term care insurance right for me?


Q. How much money should a person have in order to consider long-term care insurance?
— Planning

A. Long-term care (LTC) insurance seems like a great investment.

These policies are designed to help you cover the costs of a nursing home or other skilled care as you age.

But it is expensive.

There’s a real debate going on about whether this coverage is really worth having, considering the many years of rising premium payments that are usually required before ever needing it, said George Kiraly, a certified financial planner with LodeStar Advisory Group in Short Hills.

Kiraly said based on the 2018 American Association for Long-Term Care Insurance Annual Price Index survey of leading LTC insurers, a married couple, both age 60, can expect to pay $3,490 per year for $287,500 worth of LTC coverage.

Medicare, of course, provides only very limited coverage.

“If your income is low and your assets become depleted, Medicaid benefits will kick in to cover your long-term care costs,” he said. “Most, but not all, nursing home facilities accept Medicaid payment.”

Unfortunately, there is no “right” answer to the often-frustrating long-term care question, Kiraly said.

“Wealthier people, those with financial assets of $2 million or more, may decide to self-insure and forgo LTC insurance premiums altogether,” he said. “They can almost always cover care costs.”

But those with more limited assets have a tougher decision, he said. The key for these people is to make sure the premium payments fit within their budgets.

As a general rule, you probably shouldn’t purchase a policy unless the monthly premium is 5 percent or less of your monthly income, Kiraly said.

“When calculating this 5 percent figure, keep in mind that your premiums are pretty much guaranteed to rise in the future, while your income will likely fall,” he said. “You need to be sure that you can continue the premiums indefinitely, otherwise you shouldn’t buy a long-term care policy.”

If you let the policy lapse before you need it, you get nothing.

Kiraly said according to the Center for Retirement Research at Boston College, at age 65, a man with long-term care coverage stands a 27 percent chance of letting the policy lapse before death and a woman stands a 29 percent chance.

Kiraly recommends you seriously look at LTC coverage if you have assets worth between $300,000 and $600,000 above and beyond the value of your home.

“If you determine that you want a policy, buy it sooner rather than later – ideally while in your 50s,” he said. “Premiums will climb with each year you age. Buying while still in good health is important. Rejected applications rise with age.”

Kiraly said when you turn 50, it’s time to research whether a LTC policy makes sense.

He said you may even want to consider something less than full coverage and take some of the risk yourself. If so, think about a policy that pays about one half of the daily coverage, Kiraly recommends.

“In this case, if you end up needing the coverage, you will wish you had purchased more,” he said. “But if you never use it, you will have not paid so much for something you did not need.”

And if you do actually need it, having a policy that pays one-half of your needs will slow the drain on your other assets, he said.

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