Should a Person Purchase Long-Term Care Insurance?
- According to the U.S. Department of Health and Human Services, persons who reach 65 have a 40 percent chance of living in a nursing home. If at least one parent or two of your grandparents has spent an extended period of time in a nursing home, that can be an indication of your future. If you have a family history of early disability, debilitating diseases or chronic conditions that required substantive care, this also may prompt you to consider LTC insurance. If you smoke or are considerably overweight, you also have a higher chance of needing long-term care.
- The first questions to answer are, can you pay for your policy now and are you confident you can absorb premium increases in the future? If the answer to either is no, you probably can't afford LTC insurance. If the premiums will consume more than 10 percent of your projected retirement income, LTC insurance probably isn't for you. If you are a married couple and can afford to insure only one person, women are more likely than men to spend time in a nursing home because they typically live longer.
- Know the features and limitations of the policy, especially how the benefits will be paid out and what reimbursement restrictions will apply. Find out if premiums on previous policies from the issuing company have gone up and by how much. You can decrease the premiums by lowering the daily reimbursement rate, increasing the waiting period before coverage begins and shortening the period of reimbursement. Most people who enter a nursing home live there less than two years.
Because you arent' likely to use the policy for 10 years or more, inflation protection is valuable to include. You'll also want maximum flexibility for your future decisions, so policies that do not include home health-care coverage as well as nursing home coverage aren't usually recommended. - If you're under 55 and in good health, consider a Health Savings Account. If you choose health insurance with a deductible of at least $1,150 for single coverage or $2,300 for a family, you can open a Health Savings Account (see Resources) and make a annual tax-deductible contribution. The amount is adjusted annually by the Internal Revenue Service; it was $3,000 for individuals and $5,950 for a family in 2009. You can contribute an extra $1,000 if you're 55 or older.
The money can be used tax-free for medical expense in any year or for any purpose after you turn 65, including for LTC insurance premiums. You also can leave the money invested and untouched in the HSA as an alternative to LTC insurance.
Single people with investment assets of more than $1 million or couples with investments totaling more than $1.5 million might choose to "self-insure," earmarking part of their assets for long-term care. If you're concerned that an extended nursing-home stay will hack away your assets quickly, consider using part of them to buy an annuity, which can assure a surviving spouse a lifetime source of income.
Finally, if you run out of assets, Veterans Benefits and Medicaid, under strict regulations, also supplement or cover the cost of nursing-home care. Remember, some nursing homes do not accept Medicaid patients or designate only a portion of their space to Medicaid patients. - The optimum time to purchase long-term care insurance is between the ages of 50 and 62. Annual premiums escalate quickly if you wait much later to buy a policy, and after age 70, premiums can become cost-prohibitive. Buying a policy when you're much younger than 50 isn't a good idea because of the length of time you would pay premiums before you would need the benefits.