The Basics of Long-Term Care Insurance, Ep #89

What is long-term care insurance? Do you need long-term care insurance? How much does it cost? When should you buy it? Is it a good deal—or is it a ripoff? Long-term care insurance is a necessity for some and completely unnecessary for others. You want to make informed decisions about your future. That’s why I’m going to share how it works and what it covers in this episode of The Retirement Made Easy Podcast.

You will want to hear this episode if you are interested in…

  • [2:48] Check out FREE resources at RetirementMadeEasyPodcast.com
  • [4:02] What is traditional long-term care insurance?
  • [11:52] Who needs longer long-term care?
  • [13:01] How much of a benefit do you buy?

What is traditional long-term care insurance?

Whenever you need long-term care, a physician must sign-off that you’re unable to complete two of the six activities of daily living:

  • Bathing
  • Dressing
  • Toileting
  • Transferring
  • Eating
  • Continence

My late grandfather was diagnosed with Parkinson’s disease. At some point, he was unable to dress without assistance and he was unstable when transferring. He qualified for long-term care insurance. Once you qualify, you don’t have to pay your premiums and you start receiving the benefit. It’s tax-free and will kick in after an elimination period, usually around 90 days later.

Long-term care policies will pay for home health care or assisted living. My grandfather had an in-home nurse that helped throughout the week and eventually he moved into assisted living. You want to purchase a policy that can pay for both.

Choosing the benefit period of your policy

You also get to pick the benefit period, usually a number between 2–5 years. The premium will be far higher for a longer policy. How long do you need the policy to pay out? The average woman needs long-term care for 3.7 years versus only 2.2 years for men. The premium is also a lot lower to insure a male versus female. Why? Women have a higher likelihood of using the policy versus men. If you can only afford care for one spouse, choose the wife. When my grandmother was in assisted living, there were 95 women to every 5 men.

How much of a benefit do you buy?

Some states have higher long-term care expenses (which tend to increase as you get older). Let’s say that it’s around $7,000 a month in Missouri. You don’t want to purchase a policy that covers the entire $7,000. Why? Because social security, pensions, and retirement accounts can be used toward the cost as well. Instead, you could purchase a $4,000 policy. Don’t pay more than you need to in premiums.

A made-up 60-year-old couple Michael and Mary are non-smokers of average health in the state of Missouri. How much would it cost them for a $5,000 a month benefit with a 3% compounding inflation as long as they own the policy? For Michael, it’s $209 a month. For his wife, it’s $356 a month. For both of them, it’s $566 a month—even with a discount that they give you if both spouses apply and purchase long-term care insurance.

Is there an alternative to long-term care insurance?

The other way to purchase long-term care insurance is as a life insurance policy with a long-term care rider. If you don’t use the long-term care benefits, it’s a life insurance policy that will pay out to your spouse or loved ones tax-free. It’s called a hybrid life insurance long-term care. The premiums are far higher because the insurance company is on the hook either way. These premiums are NOT fixed. Insurance companies can raise them whenever they want.

 

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