Life expectancies have exploded over the last 50 years, and for most couples, at least one spouse will survive until age 90 or older. Yet along with age comes a variety of maladies — everything from diabetes and high blood pressure to broken hips or dementia. Oftentimes, these types of illnesses and accidents require health care expenses in addition to the expense of long-term assisted or living care, but how do you know whether you should purchase a long term care insurance (LTCI) plan to complement your retirement plan?
According to the National Association of Insurance Commissioners (NAIC), before making this decision, ask yourself these questions:
● Do you have assets you'd like to protect?
● Do you need to ensure your nest egg remains untouched and unbroken?
If you answered “yes” to these questions, then long term care insurance is worth discussing with your agent or advisor.
● Is your Social Security your only source of income?
● Will you soon or already be eligible for Medicaid?
● Are your retirement assets negligent?
If you answered “yes” to these questions, then you probably won't need long term care insurance, but you should discuss it with your agent anyway.
Before meeting with your insurance agent or advisor, it will be helpful to review the NAIC's Ten Tips Regarding Long Term Care Insurance:
1. First things first: Long term care is not ideal for everyone. As mentioned above, if you have little to no retirement savings and are currently receiving Social Security payments, you most likely could not afford the additional expense. For these reasons, you should qualify for state assistance, which supersedes the need for LTCI.
2. Be certain you understand what is typically covered under an LTCI policy, and conversely, what is not covered with long term care insurance. Don't ever hesitate to pose questions to your financial advisor or to the carriers that offer this coverage.
3. Ask for guidance from your advisor on determining if LTCI is appropriate for your individual situation. If he or she agrees, ask for help budgeting it in your lifestyle, and also ask them to provide you with a list of LTCI companies they work with so you can do some independent research.
4. If you don't want to become a burden to your loved ones (both from a financial and caregiving point of view), then LTCI is certainly worth investigating. This is also true if you'd like to have more control over which type of facility you'll receive care.
5. Check in with a variety of companies before committing to a sale. In addition to asking each carrier about their rate-raising history, the NAIC also recommends that you do a comparison that considers:
● Coverage limits
● Covered facilities
● Insurer ratings (from A.M. Best or Moody's)
● What is and what is not covered by your premium: You'll also want to investigate the strength and reputation of each company, and that they possess the correct licenses to offer this product. Contact your state insurance department to verify your findings or to dig deeper into a company about which you have questions.
6. Learn to watch the rates. Start by checking with the state insurance department to see how your state regulates premium increases among LTCI providers, and then conduct a bit of research in the major carriers you're considering and evaluate their respective histories of raising rates for this coverage.
7. Try to avoid solely relying on Medicare or Medicaid to pick up the tab for you long term care. While Medicare pays for a small amount of certain nursing home costs, if you want to qualify for Medicaid — as Medicaid does cover long term care, albeit in a typically-less-than desirable home — you'll need to spend down your assets until you reach the poverty line to qualify.
8. Many long term care insurers, just as with medical insurers, will choose not to cover preexisting conditions. Before you begin developing the difficulties often associated with older age, it's a good idea to buy LTCI as young as possible, ideally around age 50. The NAIC also warns that many LTC insurers use age 60 as an automatic trigger to increase your rates, so be sure to check on those rules, too.
9. Remember that if you purchase a qualified long term care insurance policy, your premiums will receive tax breaks, and furthermore, the benefit payments are also tax-free.
10. When you purchase LTCI, the insuring company should send you your policy. Be sure to read this policy carefully and make certain you understand its contents in their entirety. You may also elect to add an inflation protection option to your policy. This option periodically increases your benefits levels without you having first to provide evidence of insurability.
The decision to purchase a long term care policy is one that should not be entered into lightly. This is why working with a reputable agent or advisor who represents quality insurance carriers is so important. But these tips offered by the NAIC should get you started thinking about your LTCI need and desires — and whether it fits into your retirement plan. Read through all the above tips, give them some good thought, and then take this list with you when you meet with your financial advisor.
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