Long-Term Care (LTC) insurance is designed to help ease the burden of transitioning into an assisted living/nursing home as your health declines and you are no longer able to live independently.
As costs for these facilities have skyrocketed in the last 15 years, so too have the premiums for these policies. Not only have premiums increase, coverage caps have become the industry standard, and cost of living adjustments (COLA) can increase your premiums significantly.
As you think about adding disability insurance to your wealth plan, here are a few items to consider:
- Estimate your LTC cost: Genworth has a wonderful website to assist you with determining the cost of care in your city/state: https://www.genworth.com/aging-and-you/finances/cost-of-care.html
- Can you self-insure? Depending on the value of your investment accounts, home equity, and other factors, self-insurance (meaning paying out of pocket if the need arises) might be a feasible solution. Make sure you discuss this with your financial planner to determine feasibility.
- What is your family history? If you have a family history of Alzheimer’s, dementia, or longevity, this information might bolster the case for having a policy in place. The downside is the insurers will also need to know this information and may not write a policy for you due to this history.
- What are the cumulative premiums paid compared to the maximum benefit? Would you be better off simply investing what would otherwise be paid in premiums? This starts to get into the math and tradeoffs with policies. It is very important to note that most policy DO NOT provide unlimited coverage, meaning that there is still a chance you would have to pay for something out of pocket after you reach the policies maximum benefits. If you assume a conservative return of 4-5%, simply do the math on keeping your premium payments in your investment account monthly/quarterly and allowing that compounding to take effect through age 65, 70, and 75, then compare that to the maximum policy benefit. Which is higher? This might make the decision for you.
- What is the age gap between you and your spouse? If there is a chance that one of you might need an assisted living facility significantly earlier than the other, then coverage for the older spouse might make sense.
- Are there hybrid policies that are more reasonable? As the cost of coverage for LTC has continued increasing, new hybrid policies have become more popular. These tend to be life insurance policies with a LTC rider that provides LTC benefits if needed and also provide a death benefit. It is very important to compare these to similar non-hybrid policies to make sure the cost is sensible. With that said, this could be the right alternative if your budget doesn’t support the premium payments needed for a standard LTC policy.
Have additional questions about long-term care insurance, schedule a meeting!
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