Determining if you need Long Term Care Insurance in Addition to Medicare

Long Term Care Insurance: a dilemma dissected

Where to start? Your first question is probably “is LTC insurance something I should even consider, and if so, at what age should I buy”? Then comes, “why, how much, for how long, which is a good company” and maybe even, “doesn’t the government already cover this through Medicare? Or was it Medicaid”?

Within this short space I will address the above which is based on seventeen years experience devoted to this one small niche in the monstrous world of “insurance”. And first is the acceptance that LTC insurance is not appropriate for everybody. There are no hard and fast guidelines and even those to be mentioned will have exceptions.

But first let me summarize a few of the more logical reasons for owning this type of protection presented in no particular order of importance:

A genuine desire to avoid becoming a burden on children and/or spouse.
A desire to preserve assets for children and/or the healthy spouse (or a favorite charity).
A strong preference to receive needed care at home rather than in a facility.
A preference of “quality” care for yourself and/or spouse.

Now for who should and who should not buy this type of protection: For the “poor” side of the equation it is suggested you own a home and have at least a minimum of $80-100,000 in liquid assets, keeping in mind that you should be able to afford the premiums for a number of healthy years (premiums are usually waived once a claim is made). Lesser amounts should require careful thought before buying.

For those more fortunate, a bench mark for liquid assets on the high side should be at least one million remembering that future care will continue to escalate in costs, and care for either spouse/partner may last several years. This amount is only a guideline as many, many clients have considerably greater assets and still see the logic and/or desire to have this type of protection.

One of the most frequently asked questions is “what age is best to buy”. Financial advisers are beginning to recommend purchase in the late 40’s however I remain pretty comfortable in suggesting early to mid-50’s and preferably sooner rather than later. The two reasons are first cost, and then good health. Although premiums obviously have to be paid for a longer time period if bought young, the costs are significantly less while most policies have a built in feature to increase the benefits for future inflation, while premiums will remain fixed.

The good health part of the equation relates to being able to qualify/purchase the protection. Insurance companies continue to tighten the underwriting requirements which are based almost solely on your good health at the time of application. And since age brings more ailments, poor health sometimes makes it all but impossible to obtain a new policy. Or if health is not too badly affected, adequate coverage becomes at least more costly (rated higher).

How much to buy and for how long of a benefit period, are mostly governed by your own peace of mind, along with pocket book/affordability. Choosing a strong and secure insurance company (Best’s rated A++ or better) is wisely suggested for two reasons. First is to more likely avoid future rate increases, and second is to make sure the company has a long track record and is a financially secure company which will be there if or when you need to make a claim.

Lastly is a brief summary of the alternatives. First is to do nothing and assume the risk which with continued increases of life expectancy, plus the probability and cost of care, becomes a risk that is often worth transferring to someone with deeper pockets (an insurance company). The only remaining alternatives are Medicare which will ONLY pay up to 100 days of Skilled Care, in a facility, and following a hospital stay. Home care is sometimes available on a limited basis but only for shorter periods of time and while in a recovery mode.

And then there is Medicaid which is primarily a program of aid to the poor. Medicaid becomes available after you “spend down” (go broke), which may well create a situation of restricted choices of care in an already unpleasant situation. For those wanting to game the system by giving away assets prior to needing care, there are ever tightening laws which now include a five (5) year look-back period from the date you apply for Medicaid benefits. Yes, Medicaid is a much needed safety-net, however dealing with this part of the “system” is fraught with issues and problems that any clear thinking person would sooner avoid. And getting worse with time and budget constraints.

The bottom line? The probability of needing care continues to increase as we age which says the prudent thing to do is to at least consider if LTC Insurance might be logical for your situation. Especially if you prefer avoiding risk.