Why You Shouldn’t Avoid Long Term Care Insurance
I read an article in the Wall Street Journal last week titled “Avoiding Long Term Care Insurance” and was surprised to read the financial advice.
A True Burden
A financial advisor wrote the column explaining why she advises her clients against the purchase of long term care insurance. Policy premiums, she says, are “a burden on clients who have to move heaven and earth to pay extremely high premiums”. This statement is highly ironic given the extreme burden that many Americans resort to once they need care but have no policy to support them. 9 in 10 Americans receiving long term care are getting their care from an unpaid family member or loved one. If that isn’t a burden, I don’t know what is.
It’s true that long term care insurance premium rates have increased in recent years, but it has been for good reason. Increased life spans, low interest rate environment, and higher than expected claims rates have led companies to raise rates in order to keep up with the increased usage and rising health care costs.
The article claims that the average premium “can cost anywhere from $4,000 to $6,000 per person”. This estimate might apply for a couple’s joint premium cost, but recent data from LIMRA placed the average long term care premium at around $2,500 annually, well below the author’s estimate.
The premiums just aren’t worth it, the author argues, because it “can mean that clients can’t afford… purchasing a new car or taking a vacation”. When the need for long term care strikes, someone has to pay. If you don’t have a policy, your options are a family caregiver or spend through your assets to enroll in Medicaid.
With long term care insurance, you ensure that your pocketbook won’t take the full brunt of the cost and you will still receive a high level quality of care. Even with the huge rate increases many consumers have faced, very few have let their policies lapse because they recognize the inherent value of the benefits and understand how much they can help later on down the road. Only 5% of Genworth customers cancelled their coverage after the recent rate increases, while 12% reduced their benefits in order to keep their plan, and the other 83% held onto their same plan and absorbed the rate increases.
The last piece of advice in the WSJ is to pay for long term care out of pocket, something that the majority of people will tell you is a bad idea. Self-insuring is nearly impossible for the average consumer. Unless you have several million laying around to fence off for long term care expenses, don’t expect to be able to successfully self-insure. It simply isn’t feasible for middle class consumers because the financial risk is so big. You may only need care for a few months or you may need it for a few years. Accurately predicting this type of thing isn’t easy, and trying to guess how much money you need to set aside can make thing difficult.
As the author mentions, the chance that you might not use your policy exists, just as it does with any other type of insurance. Do we lament purchasing car insurance if we never get in a wreck? Or house insurance if our house never burns down? People I know certainly don’t, because they assessed the true risk and protected themselves from that risk. Long term care insurance is the same concept, but the risk is much higher than that of an auto accident or a house fire, and personal health is more important to most people than a house or a car, so it demands even more attention.
Long term care insurance isn’t right for every one. If you already know you will qualify for Medicaid, you shouldn’t waste your time considering a policy because it doesn’t align with your budget. But for those who have a retirement lifestyle to protect and understand the damage that failing to prepare for long term care can bring, long term care insurance may be right for you.
You can always compare the cost of long term care policies and request a free quote. It won’t cost you anything and you will learn whether or not a policy is right for your budget. Fill out this form and we will send you a side-by-side comparison of the top long term care insurance companies for you to review on your own time.