P. Derek Ten Broeck Jr.
TB Group LLC
A friend of mine in his 70s recently told me that he and his wife are in a group plan and pay $8,800 per year for long-term care insurance. That seems like a lot of money for something you hope never to use.
That hope, however, is probably misplaced. Once you’re over 65, you have a 70% chance of needing long-term care before you die. And if you’re married, the chance is 90% one of you will need it.
The Cost of Long-Term Care
So what would long-term care cost you? It varies. If you need a half-time home health aide, it would be over $30,000 per year. For assisted living, it’s over $54,000, and for private-room nursing care, it’s over $108,000. Women who require long-term care need it for an average of 3.7 years. Men need for an average of 2.2 years.
You can do the arithmetic yourself, but it begins to make my friend’s $8,800 insurance premium look like a bargain.
Long-Term Care Insurance
If you think you can rely on Medicare or Medicaid to provide long-term care, think again. Medicare won’t pay for care that lasts over 100 days. The procedures for getting Medicaid to cover extended care are difficult and getting harder all the time. It varies from state to state, but unless you’re actually poor, you probably can’t count on Medicaid.
The average premium for a long-term care insurance policy is $2,332 per year. But the older you are, the more expensive the premiums. My friend with the $8,800 insurance premium tells me that four years ago, it was $5,900. What changed? He and his wife aged — from their early to their mid-70s. It’s cheaper, then, to buy long-term care insurance when you’re younger. Do you save by not buying when it you’re younger? Or do you wait and buy it more expensively when you’re older? This decision becomes a kind of balancing act.
These days, there are new choices in your long-term care planning. Some life insurance programs now include long-term care riders. If you’re buying life insurance anyway (and I hope you are!), then a long-term care rider may be only a modest expense for you. The best part is, you may be able to find a policy with guaranteed premiums that don’t rise as you age.
And there are now also long-term care annuities. With this, paying $200,000 up-front gets you a guarantee of $400,000 or $600,000 (depending on the product) in long-term care benefits when you need them. If you don’t need them, your beneficiary receives the $200,000 back when you die. Alternatively, you can surrender the contract for cash at a face value that starts at about $188,000 and grows modestly each year to just over $250,000 in the twenty-first year. This is only an example. The actual numbers depend on interest rates, your age, and the term of the annuity.
The recent increase in long-term care insurance choices means you may be able to find a product that fits your needs and saves you money. But it also means you have a lot to think about in terms of tradeoffs, expenses, and your future. Fortunately, you don’t have to do it alone. At TB Group, we’re very good at helping you understand the choices that are available, as well as the advantages and disadvantages of each. But there’s one choice you shouldn’t have to worry about at all, and that’s medical bankruptcy. Click here to set up a call or an appointment with us.