Myth About LTC
Some old rules of thumb say that you don’t need long-term care insurance if you have more than $1 million in assets because you can afford to pay the bills from your own pocket.
That’s a mistake.
First of all, $1 million won’t get you very far at today’s nursing-home prices, and will cover even less in the future. Remember, the nearly $75,000 per year in average costs today will top $250,000 in 25 years if prices continue to rise by about 5 percent per year. It’s tough to imagine that even happening. Hopefully some changes will be made by then to help make the care more affordable, but you still don’t want to get stuck with the possibility that you’ll have to cover all of those bills yourself.
Most important, if you think you can afford potential long-term care costs, then you can definitely afford the premiums for the insurance instead. What sounds worse: $3,000 per year for insurance or more than $75,000 per year for care?
Buying long-term care insurance lets you shift some of the risk to the insurance company. You give them a set premium each year (which may go up a bit through time, but hopefully won’t) and in return they cover a potentially giant, unknown expense. It’s the same way that rich people still buy insurance on their health, cars, and homes even though they could afford to pay the bills themselves.
You may never end up needing long-term care, but if you know those costs are covered, you can afford to spend more money on retirement without having to worry about setting aside a big pot of money to pay for the potential expenses.
The opposite, however, is not true. If you can’t afford long-term care premiums, or don’t think you can keep up the payments through time, don’t buy a policy. The worst move is to buy a policy, pay the premiums for years, and then have to drop it when you get older - right at the time when you’re likely to need the coverage the most. If you drop the coverage before you need care, you’ll get nothing in return, even if you’ve paid premiums for years. If you don’t have much money to begin with, and understand the limitations on Medicaid coverage, at least you know that the government program can help pay some of the bills.
