Financial Questions & Concerns
Long-term care insurance can be an enormous help for some, but is not the right choice for everyone. While it was originally meant as a solution for middle-class people who earned too much to qualify for Medicaid but couldn’t afford to self-insure, LTC insurance is still out of reach for many, and only about 8% of Americans have a policy. In addition to concerns regarding cost, there is also a chance that one will never end up making a claim, causing years’ worth of premiums to go to waste.
In general, long-term care insurance is best for those who have assets exceeding the value of their home by at least $300,000 and/or who anticipate needing significant amounts of care in the future. Looking at it another way, LTC insurance may not be right for you unless your income is high enough that you will be spending less than 5% of it per month on premiums. Keep in mind that your income will probably decrease following retirement, while premiums will likely rise over time.
When determining whether long-term care insurance is right for you, consider what will happen if you forgo buying a policy but then need to pay for long-term care out-of-pocket later on. How will this impact other members of your family? Do you want to be able to leave an inheritance for your heirs? Take some time to look into your family history as well and see whether relatives required care, and if so, how it was handled. When in doubt, talk to a trusted financial advisor.
Is long-term care insurance a good deal?
Whether long-term care insurance is a good deal hinges largely on how much you end up using it, and this can be difficult to predict decades ahead of time when you first look into buying a policy. According to the American Association for Long-Term Care Insurance, the cost of long-term care is expected to increase to more than $300,000 per year by 2050. If you require multiple years’ worth of care, this can make long-term care insurance very worthwhile. However, some people will require little to no care, and any money they had put into an LTC insurance policy will then go to waste.
Overall, there is no clear-cut answer. If you anticipate needing long-term care because of family history or other factors, LTC insurance is definitely worth looking into. For those who are uncertain, it is best to talk things over with a financial advisor who can better help you understand your position and the options that are available to you.
Is long-term care insurance a good investment?
The question of whether long-term care insurance is a worthwhile investment is heavily debated, and the answer largely depends on each person’s unique situation. Those who argue in favor of LTC insurance as an investment point to the fact that the cost of long-term care is steadily rising and is expected to triple by 2050. The number of elderly Americans in need of long-term care is also expected to grow. On the other hand, some financial planners argue that LTC insurance is a poor investment because risk is much more concentrated in its pool of enrollees than in most other types of insurance, which in the past has led to higher-than-expected costs for companies and increased premiums for customers.
While long-term care insurance can be greatly beneficial and is certainly the right choice for some people, it is generally better to view it as a sort of safety net rather than a financial investment. If making a sound investment is your primary goal, you may want to look into stock funds, municipal bonds, real estate trusts, annuities, and so forth. These can then be drawn on in the future to cover the costs of long-term care should the need arise.
Can I buy long-term care insurance for my parents?
Many children choose to purchase long-term care insurance for their parents, especially when the child has a greater amount of disposable income than the parents do. Purchasing a long-term care policy can provide a great deal of peace of mind and future savings for both parties.
Note that while you can cover part or all of the premiums yourself, when purchasing a policy, you must name your parents as the insured – you can’t name yourself and list them as dependents. Your parents will also need to meet whatever qualifications have been set down by the insurance company, such as medical examinations and reviews of medical history. They will also need to sign the application and healthcare releases themselves.
If you are considering purchasing a policy for your parents, do it sooner rather than later. It is generally considered best to purchase a policy before the insured reaches the age of 65, as policies purchased when the insured is younger and in better health will cost less than those purchased later on.
Does long-term care insurance have a cash value?
Traditional long-term care insurance policies do not have a cash value. In most cases, if you choose to cancel your policy or do not require much (if any) long-term care, you will not receive any cash value or refunds for your premiums. However, hybrid long-term care policies do have cash value. These policies essentially give you have a large pool of money to work with, which you can then use for any long-term care you may need. Whatever you don’t use becomes a death benefit for your heirs. In life insurance policies with long-term care riders, the cash value is what is eaten into when and if long-term care is needed. Similarly, long-term care annuities will grow provided no withdrawals are made.
While the knowledge that your money will not be going to waste can be a great comfort and these types of policies are becoming increasingly popular, it should be noted that hybrid policies are also more expensive than traditional long-term care insurance.
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Services Covered by An LTC Insurance Policy