The Risks of Failing to Plan for Long-Term Care Costs

Yet when it comes to arranging long-term care insurance, many of these same people hesitate, saying, “What if I don’t need it?” Of course, the whole point of this type of coverage, like auto insurance, is that you can’t know this. You buy this insurance to protect yourself from risk, not certainty.

Some people think about long-term care but choose not to purchase it because they believe that alternative arrangements are possible. A common assumption is that their son or daughter would take care of them. But this may not always be possible, especially if the son or daughter has to work to assure their own financial security.

Another fallback strategy is: “I’ll sell my house.” But this shouldn’t be confused with a risk-management strategy. The whole point of long-term care insurance is to protect assets, and your home is a significant financial asset.

For single women in some states, the cost of long-term care insurance is rising far faster than it is for men. In recent years, regulators in those states have approved policies that charge single women premiums as much as 50 percent higher than single men.

The justification for this cost difference is based on women’s greater likelihood of needing long-term care, so these premium differences are expected to surface in other states. Women contemplating this kind of insurance may be able to save money by accelerating their purchase and locking in premiums before they rise in their states.

Here are some points for both women and men to keep in mind when assessing long-term care policies:

* Don’t buy more insurance than you need. Brokers will try to sell you a Rolls-Royce policy that includes no elimination period — the initial period of care that you pay for yourself. This is like an auto policy with no deductible. Instead, assume some of this risk, choosing an elimination period of 90 to 180 days to get a lower premium. You don’t need a policy that will cover costs of $100,000 a year.

Instead, you need one that covers much of your risk; covering all of your risk brings high premiums.

You may not know what part of the country you’ll be living in when you retire, but you may be living in a less-expensive region – another reason to not over-buy. The average long-term care stay is two and one-half to three years, but you may want to insure for more than that. One reason for this is that Alzheimer’s patients typically need care for extended periods.

* Unfortunately, you can’t buy long-term care insurance directly; you must use a broker. You want a broker who represents various insurance companies so they’re not intent on selling you one of the few substandard products that they have in their quiver. A professional broker with a lot of knowledge about this coverage can assist you in arranging appropriate coverage, assuming they’re ethical and don’t oversell.

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