Long Term Care Insurance: Is it Right For You?
While baby boomers are aging, so are their parents. As clients get more and more involved in the process of moving their folks out of the family home and into the next phase of living, we are getting more questions relating to home care, assisted living and skilled nursing care. This often leads to the question-should I purchase Long Term Care Insurance (LTC)?
If you choose not to purchase LTC, you are choosing to accept the burden of paying for any expenses associated with long term care out of pocket, or “out of portfolio”. This isn’t necessarily wrong, but before doing so you should understand the risks, and evaluate if self-insuring makes better sense for you than paying a premium to an insurance company.
In a nutshell, buying LTC ensures that more of your assets will pass to heirs instead of being drawn down by high costs of nursing care. But you should know the likelihood of the risks, and their magnitude. A semi-private room in a skilled care facility is roughly $81,000 per year. If you and your spouse are paying more than twice that living in the way to which you’ve grown accustomed, you may actually SAVE money if you both go into a retirement center or assisted living facility. If your current standard of living is well below this figure, then your portfolio will need to support the higher expenses necessary to cover skilled nursing care. However, the average stay in a nursing home is just over two years. So you will experience a spike in outflows, but for a short period of time.
If you desire to leave assets to your children, one way to improve the chances that they will receive something from your portfolio is to purchase LTC. This forces the insurer to bear the risk of any spikes in income necessary to cover the costs associated with providing care, instead of drawing down your portfolio. This begs the question-at what age should I consider purchasing LTC? Certainly it depends on one’s unique situation, including your health and insurability. We seldom suggest a healthy 40-year old purchase LTC, while at age 55 or so one should be considering it if circumstances indicate it.
If you would like to discuss LTC, please let us know. We are happy to evaluate your unique set of circumstances and see if LTC is something you should consider now or in the future.