Do You Need Long Term Care Insurance?

By Henry K. Hebeler

4/30/05

Whether people should, or should not, buy long-term-care (LTC) insurance often requires a decision that is not black or white, but is in the gray zone. Letís first look at two areas where the decision is likely to be a slam dunk.

The first easy decision is for those who simply cannot even afford to consider LTC insurance because the sacrifices to make the premium payments would be far beyond their means. If LTC is needed ultimately, they will be on Medicaid anyway.

The second easy decision is for those who expect to have enough money in retirement late in life such that their normal expenses would exceed the costs of LTC. So, if full LTC costs were an inflation-adjusted $70,000 a year per person, and they had planned on having enough retirement resources to cover this level of expense anyway through a long life, they would be just substituting LTC expenses for their otherwise normal expenses.

The majority of people fall in between in the gray area, but just because they are in the gray area doesnít mean that they need full or any LTC insurance. Here are some questions to consider:

If your answer to any of these is, "Yes," then you probably donít need LTC insurance. But, as is most likely going to be the case, the answer is, "No," then you should ask yourself if a combination of any of the above answers would cover your LTC needs should that be necessary. For example, would a combination of your normal retirement income resources together with a reverse mortgage be able to carry you through one year of LTC, after which you would be willing to depend on government welfare.

If the answer is still "No," then you are in a crap shoot because it is far from certain whether you will ever need LTC. Neither my wifeís nor my parents needed LTC before they died, so LTC insurance premiums would have been wasted. However, insurance companies base their LTC premiums on the fact that a certain part of the population will need little, if any, LTC. So, if you answered "No" to the questions above and need LTC for an extended period of time, the insurance would provide the level of care you bought without further depleting whatever your heirs might get from your estate.

When in the gray area, you may want to compromise or go half way. For example, if you thought that you could provide an inflation-adjusted $50,000 with your own resources and the actual inflation-adjusted LTC costs would be $70,000, then you would buy enough LTC insurance to cover only an inflation-adjusted $20,000 of potential LTC expenses.

To find your personal solution, youíll have to do some pencil pushing and get several insurance company quotes. Steel yourself beforehand, because insurance agents are tenacious and will only present one side. You make the decision, not the agent! Also remember to use only top rated insurance companies to get an insurer that will hopefully last as long as you do. You can get ratings from A. M. Best Co., Standard and Poorís, and Moodyís Investors Services. Be sure to inquire about inflation protection, home care, and premium waivers after you start benefits. There are some fee-only professionals who specialize in LTC insurance and may help you wend your way through this thicket if you canít find your own solution in the five bulleted questions above.

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