Many times over the years I’ve written about long-term care insurance, and it still blows me away how many people say that this coverage is a waste of money. I’ve heard it from readers, accountants, attorneys and financial advisors.
The only ones who want LTC coverage are the families who have been squeezed by the very difficult decisions in providing long-term care for a loved one or the agents who sell the policies.
The issues surrounding caring and paying for long-term illnesses are far more significant than issues that we think about when evaluating the purchase decision. The factors surrounding the purchase decision are frequently the odds of needing the coverage, fear of the cost and alternative ways to get care if needed. When you are feeling great and healthy; purchasing long term care insurance is an easy decision to put off until next year.
Consider forecasting your retirement under two scenarios. First is with the cost of paying for coverage and the second would be the consequences of a full blown long term health emergency. More likely than not, the later forecast will be gloomier and cause you to investigate further.
Statistics show that family caregivers, on average, hit the wall after about 6 months of playing nurse. At the same time, their lives and everything else that
they do takes a back seat. That may sound acceptable to your daughter today as she tells you not to buy coverage. But she may have a different opinion after she sees how challenging the caregivers' role can be.
Regarding the costs of providing care, there are direct costs such as doctors, nurses and therapists, but also the indirect costs of lost wages for family caregivers. Elder clients often tell me that they don’t want to become a burden on their children at any time. That burden could be financial, time, or both.
In recent years, I thought that LTC insurance will be as ubiquitous as health insurance is today. But unfortunately for seniors, that is not true. Premiums have been rising materially throughout the past decade and underwriting has become more stringent. Most policies leave the door open for future rate increases, which indeed scares buyers.
Your options to better contain the cost of your LTC coverage are quickly dissipating in the insurance marketplace. For the past several years, as evidence led professionals to believe that premiums were set to rise, the advice frequently went to shorter payment periods such as 10 or 20 pay policies or policies that provide a refund of premiums for coverage never used. Limited pay policies have become very rare in the marketplace today with only a few companies still willing to underwrite that risk. Return of premium policies still exist, but require a much larger premium outlay in order to generate the cash for the insurer to fund the guarantee.
Insurance markets are constantly changing and evolving. The outlook for LTC insurance still calls for rising premiums, and should cause anyone concerned about the impact of long term illnesses to take another look.
John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA. Visit JohnPNapolitano on Facebook or uswealthnapolitano.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through US Financial Advisors, a registered investment advisor. US Wealth Management and US Financial Advisors are separate entities from LPL Financial. He can be reached at 781-849-9200.
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