Should You Purchase Long-Term Care Insurance?
The two primary questions professors ask about long-term medical care, also known as extended care, are, “Do I need it?” and “How do I pay for it?”
According to the U.S. Department of Health and Human Services, 70 percent of people over the age of 65 will need some type of long-term care services and support during their lifetime. But very few Americans age 40 and older have made ANY plans for long-term care. This should be concerning to most of us since most Americans are living longer and should not risk outliving their assets. Not planning for long term care costs adds significantly to this risk. Additionally, it is apparent that health care costs are increasing at an unknown rate for all of us.
Making plans for extended care as early as possible in your retirement planning cycle is important. If you don’t have a plan for how to pay for it, and you become one of the 70 percent who needs it, the money will need to come from somewhere. In most cases, it will come from money you had intended for some other use, either for yourself or for your family. Lack of advance planning also increases the stress on your loved ones, as they may have to make sacrifices and cut corners themselves to help with the payments.
The costs of most types of long-term-care service are rising at a rate surpassing inflation, leaving both the people who need the services and the companies providing them in unenviable positions.
Genworth Financial, a Richmond, Va.-based company specializing in long-term care funding solutions, reported in its 11th annual Cost of Care survey that the cost to receive care in an assisted living facility or nursing home is rising at a level three times greater than that of home care. Over the past five years, these costs have increased at annual rates between 2.16 percent and 3.51 percent.
The most common ways to plan for long-term-care coverage are:
- Medicaid, the government program that pays for long-term care after a senior exhausts assets and meets income requirements
- Self-funding the expense from savings over a fixed period of time
- A traditional long-term-care policy with a long front-end waiting period before benefits kick in
- Long-term care riders coupled with certificates of deposit, life insurance policies or annuities
Each option has benefits and drawbacks. Despite the growing need, options to mitigate risk are shrinking. For example, John Hancock Financial announced in November is would stop selling new stand-alone long-term-care insurance policies, meaning fewer options for professors who are considering such a policy. John Hancock is one of the largest providers of long-term care insurance and has more than 1.2 million policyholders nationwide. John Hancock will continue to service the existing policies, but will not issue new ones.
Insurance companies’ projections on the number people who would purchase extended care insurance were low, prompting John Hancock to join the likes of MetLife, UNUM and Prudential in dropping out of the business. As the trends of increasing insurance costs and fewer coverage options continue, the chances of a health care crisis grow for many families.
Long-term care insurance is designed to fill the gap between Medicare, the health insurance for the elderly that covers short-term rehabilitation and recovery services, and Medicaid.
Please be aware that with the current trends, the longer you wait to make plans, the more expensive it is likely to be. If you need additional guidance or information, please contact us.