Should You Get Long-Term Care Insurance?

Do You Need It?

According to Consumer Reports,  if you have more than $2.5 million in liquid assets, you can probably afford to pay long-term care insurance premiums out-of-pocket, and if you less than $500,000 in liquid assets, you won’t be able to afford the premiums.  That article was written in 2012, but inflation has been low in the last several years for adjusting the dollar amounts.  We fall in the under the $500,000 in liquid assets category.  We only plan to have around $250,000.  Clark Howard recommends not buying long-term care insurance if you have over $3 million in liquid assets or if you are on Medicaid.

The Medicaid Option

If we are living in our home and one of us needed to go to a nursing home, the person going would need to spend down their retirement account to qualify for Medicaid.  The person not going to the nursing home could keep $2,980.50 in income, $119,220 of their retirement account and bank accounts, the house and its furnishings, and a car.  My understanding is that the state would have a lien against the house for when it is sold.

Partnership Plans

To encourage people to cover some of the costs of long-term care, many states started promoting partnership policies. Premiums paid to a plan are tax deductible, if you itemize.  Partnership plans protect your assets from having to be spent down, once you have exhausted your policy’s limit.  Your assets are protected up to the amount paid out by your long-term care policy.   I don’t feel guilty for the possibility of us not leaving an inheritance for our two daughters.  I figure if we paid for four years undergraduate education and their weddings, we have done our job.  However, it would still be nice to protect our retirement funds from being spent down, since we counted on whoever lives longer being a able to use income from a retirement fund to offset the loss of 40% of a pension and one entire Social Security retirement benefit.

The Cost

The average nursing home costs more than $70,000 per year.  That’s why long-term care insurance is expensive.  For a married couple both age 60, the annual premium averages $2,170 for a policy with a combined benefit of $328,000.  That would be about $181 a month.  We really can’t afford it now with a kid in college.  We’ll reevaluate in three years, when our younger daughter graduates from college.  At that point, we’ll be 61 and 59.  There is a greater risk that we wouldn’t qualify for a policy at that point, based on our health.  A policy would also be more expensive when we buy at an older age.  It does give an additional incentive for me to lose weight, since rates are lower if you’re classified as being healthy.

Self Insuring

If we don’t qualify medically for long-term care insurance in three years, we could take what we would be paying in premiums and place it in a separate account ear-marked for long-term care expenses.  Since long-term care expenses often don’t occur until your 80’s, we would have a long time to let the account grow and compound.  We don’t qualify for a health savings account with our health insurance, or that could be a possibility.

Assisted Living and In Home Care

An average one bedroom unit in an assisted living facility is $42,000 a year.  I realize it would be more than that if we both move in.  We figure that we could afford an assisted living facility if we both move in, but couldn’t afford to pay for one of us being in assisted living and keeping up our home at the same time.  In home care can vary widely in cost.  We would switch from in home care to assisted living when assisted living becomes the cheaper option.  If we get a long-term care policy, it could include in home and assisted living options.

Close to Home

My eighty-six year old mother carries nursing home insurance.  She pays about $1,000 a month in premiums. Since long-term care insurance is really inheritance insurance, I offered to pay part of her premiums, which she didn’t accept.  My father-in-law also had nursing home insurance.  He ended up doing hospice care at home, and never used the policy.

Useful Links if You’re Shopping:

A Shopper’s Guide to Long-Term Care Insurance

Clark Howard’s Long Term Care Insurance Honor Roll

Consumer Reports Long-term-care insurance

Consumer Reports Don’t wait to plan long-term care

Consumer Reports What to look for in an LTC policy

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