How much of your long-term care expenses are you willing or able to pay out of your resources?
Updated: Sep 8, 2022
Where do you want to receive your care, i.e., your home, a facility, etc.? Where do you plan to live when you retire? Who will need long-term care, and if you need it, for how long?
Many people have asked themselves, “Should I wait to consider my long-term care needs until I reach my seventies or later?” There are several key reasons why you should address long-term care needs now. Maybe the most important is that you are not getting any younger and your options limit with age.
Your current health is the number one factor in whether you will be able to qualify for long-term care insurance. According to the American Association for Long Term Care, the following percentages of applications were declined coverage due to poor health:
Under Age 50: 9.5% of applications declined.
Ages 50-59: 14% applications declined
Ages 60-69: 23% applications declined
Ages 70-79: 45% applications declined
Age 80+: 66% applications declined
When applying for long-term care insurance, the older you are, the higher the costs. The not-so-obvious fact is that the longer you wait, the more risk you run of being uninsurable.
Additionally, the annual premium for someone purchasing a policy at age 50 can be significantly less costly than that same policy purchased at age 60 or older.
Since you will inevitably go through an underwriting process to qualify, the company will have the opportunity to review your medical history. The insurance company may classify you in one of eight risk categories. Naturally, the longer you wait to apply for coverage, the greater the likelihood that health issues may arise, causing increased costs or possibly even being disqualified from obtaining coverage.
Interestingly, just over half of all long-term care insurance buyers today are couples. Couples represent 54% of all new policies sold. Since women are statistically more likely to need long-term care, some couples choose only to insure the perceived greater risk between them. This approach creates a far more significant financial problem and potential catastrophe.
This creates a significant emotional toll should the other spouse need care before their insured partner. Regardless of who is covered, the risk of needing care and the subsequent emotional caregiving and financial responsibilities will impact both people’s quality of life and their children who most likely will be burdened by taking the lead on care.
93% of the long-term care buying population currently self-insures, taking on the entire risk of paying for long-term care. This could be because people may overestimate their ability to pay for care over an extended period or convince themselves that they’ll never need care.
Whatever the reason, the risk of needing and paying for care remains. Still, in many cases, it is far less costly to use someone else’s money – in the form of an insurance policy – than to use one’s own money.
You have four choices when paying for long-term care. The question becomes, which dollars do you want to use?
Use your retirement money, but because you have to pay Uncle Sam, the actual cost is $1.40 on the dollar. (40% or more in taxes.)
Use non-qualified money, (stocks, bonds, etc.), which means the actual cost after taxes is $1.20 on the dollar.
Use cash to pay for your long-term care, which means a dollar for dollar.
Use insurance to pay for your long-term care, which means it will cost you thirty cents on the dollar.
It is critical to explore your needs for long-term care protection, which depend on your assets, where you live, and your health, among other factors. June helps us promote and celebrate our health in many ways, and for that reason, it is also the best month to work on your long-term care plans.
If you would like to explore your specific circumstances, please send me an email or give me a call today.