One of the most difficult areas to advise clients on is whether to purchase long-term care insurance (LTCI) and which of the wide variety of products to purchase. On the one hand LTCI premiums are high, they may be raised in the future, and if clients are purchasing policies in their 50s and 60s, the need is probably many decades in the future. On the other, we have seen clients saved by their LTCI, able to stay at home or in assisted living rather than move to a nursing home that would be covered by MassHealth, more comfortable hiring necessary help if doing so doesn't mean dipping in to their savings, and able to protect an inheritance for their children and grandchildren.
Here are a few tips that should help you make the decision whether to purchase LTCI and what products to consider:
- Can you afford LTCI? Can you "self-insure"? There are a few rules of thumb that can help determine whether you are in the target market for LTCI. You need to have enough savings and income to afford the premiums but not so much that you can easily pay your costs of care. If you are a couple whose net worth is more than $1 million but less than $3 million, or a single person with half these amounts,you are a candidate for LTCI. (Some LTCI brokers will tell you that there's no upper limit since even wealthy people may prefer to use LTCI rather than dip into their savings.) You could also look at this from the point of view of income. If you can pay the premiums without affecting your style of living or dipping into savings, than you can afford LTCI.
- Decide now once and for all. Unless your financial situation is likely to change in the future, the best time to purchase LTCI is now. Every year you wait, you will face higher premiums and run the risk that a health care event will make you ineligible for LTCI.
- Assess your own feelings. First, if you or your spouse were to need care at home, would you be reasonably comfortable using up some of your savings to pay for care? Or would you exhaust yourself providing the care yourself instead, whether due to fear of running out of funds or wanting to leave an inheritance? If you can do this thought experiment, in the end, would you feel worse having paid premiums over the years for insurance you did not use or paying out-of-pocket for care that could have been covered by insurance?
- Use an LTCI specialist. LTCI is one of the most complicated insurance products available, with policies offering a variety of benefit levels and conditions for payment. Some insurance companies have raised premium rates on existing policies while others have not. Some are honor claims readily and others have put up difficult roadblocks. And there is a proliferation of hybrid policies that merge LTCI with life insurance. You need someone who specializes in the field to guide you through all of these options.
- Read up. As you may have noticed, I haven't talked at all about actual insurance policies and benefit choices. In part this is because, as I say above, you need an expert. But before meeting with the expert, do a little of your own research. Start with this excellent article in The Wall Street Journal: "Mistakes to Avoid When Shopping for Long-Term-Care Insurance." Follow this up with two of our blog posts: "Should I Buy Long-Term Care Insurance?" and "Buy Long-Term Care Insurance with a Long Elimination Period."
While these tips won't completely eliminate the difficult decision that all baby boomers are facing, we hope that this framework will help focus its consideration.