Chris Farrell: Prolonged-term care insurance coverage is a challenging decision

Q: What is your place on long-phrase care insurance? I am a healthy 60-12 months-old woman. We have no debt and own our residence. I hope to function right up until I’m 70. Presently producing $ 99,000 a yr but only halfway to my retirement aim of $ 500,000.


A: I believe the choice whether to acquire prolonged-phrase care insurance coverage is one of the far more tough questions in personal finance. The biggest likely unknown expense when we get older is extended-phrase care. The catchphrase consists of the expense of nursing houses, assisted residing, residence wellness care and other providers for frail elderly. The cost tag for prolonged-term care is breathtaking. Like all insurance (fire for illustration) the hope is that you by no means require to tap the policy, but it’s reassuring to know it’s there in case you want it.

Without having insurance you and your family members are largely on your own meeting these costs. Medicare does not spend the tab for most prolonged-phrase care charges. Medicaid, the joint federal/state safety net, is the principal public program for lengthy-term care. Even so, Medicaid is a “means-tested” system geared toward minimal-cash flow households. The greater your financial sources, the far more acquiring extended-phrase care insurance is a wise precaution. Put it this way: If you can simply afford the premium payments then go ahead and get it and hope you never ever have to tap the policy.

Why don’t I merely suggest “buy it” following sensibly shopping close to? The reason is that the long-term care insurance market is in turmoil. A amount of brand-title insurance coverage organizations have dropped out of the market. Organizations are finding it challenging to value the solution at an cost-effective rate whilst nevertheless earning enough money to pay out for growing claims down the street. The remaining insurers are hiking rates and decreasing advantages. Prolonged-term care insurance coverage premiums are costly for middle-earnings households that could be attempting to conserve for retirement.

What I would do is gather simple data. 2 possible sources are Allen Hamm’s “How to Prepare for Extended-Phrase Care’’ and “Personal Finance for Seniors for Dummies,’’ by Eric Tyson and Robert Carlson. These guides will give you a excellent really feel for the trade-offs. When searching for a policy, you will want inflation protection. It’s the most important option to pick with extended-phrase care. You will also need to comprehend the fine print.

Then, place down the lengthy-phrase care guides and brochures. As an alternative, concentrate on considering by means of a comprehensive economic program. Lengthy-phrase care insurance coverage is only portion of a a lot larger retirement arranging puzzle. You can only make sense of extended-term care insurance coverage in the context of an total fiscal program. For instance, right here are some crucial questions raised by Henry Hebeler, head of the fiscal organizing web site

• Will Social Protection, your pension and investments be enough to shell out for long-phrase care?

• Will you have relatives who would be inclined to care for you?

• Can you protect an investment fund that would cover numerous years of long-phrase care.

• Will you have a property that through sale, or a reverse mortgage loan, would help many years of extended-term care.

• Finally, would you be ready to depart your LTC to government welfare (Medicaid)?

Your fiscal strategy will assist establish not only regardless of whether you can afford a policy, but what variety of policy will work for you.

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