Long Term Care Insurance is one of those products which nobody really understands. When I listen to insurance agents explain it, I just hear gibberish. But it is a very important one of a kind product that can preserve your assets.
Long Term Care Insurance is a Tough Sell
I worked in an insurance agency for a bit and we sold Long Term Care Insurance insurance. It was a tough sell. Pay $3K of premiums for 25 years in the oft chance you need it.
People couldn’t wrap their heads around it and couldn’t write that check.
Children Buy It Because they Know
Do you know who were the ones who came in and bought Long Term Care Insurance without us needing to sell it? The children of parents who needed it and didn’t have it. They had just had their parents go into nursing homes and eat up their savings at the rate of $10K per month.
When they were finally out of money they were impoverished and went onto Medicaid. They left nothing to the kids. The financial devastation and power of these experiences caused the children to swear they would never let it happen to them. So they bought Long Term Care Insurance for themselves to make sure their children didn’t have to go through the same thing.
How to Pay for Nursing Home Care
If you need assisted care or a nursing home, you have to pay for it yourself, until you are out of money and then the government will pick up the tab (Medicaid). So, 3 years at $10K a month is $360K of assets, wiped out. Five years is $600K.
There is nothing you can do to avoid this except 1. Save more money so you don’t run out, 2. Eliminate your assets and income to qualify for Medicaid (you need to be 5 years ahead of the curve), or 3. Buy Long Term Care Insurance.
How LTC Works
Long Term Care Insurance is a simple product. You pay premiums for life until you become disabled and then the insurance company will give you a certain amount of money each day to pay for your care. Normally, the number of days they will pay is capped.
For example, if you are 55 and good health, your life expectancy is about 25 years. So if you pay $3K per year in premiums that is $75K in premiums. If you are disabled for 3 years with a $300 a day benefit, the insurance company has paid out $330K in benefits.
A good deal? Generally if it works out this way it is. If you pass away without using the benefit, it is not. Kind of like fire insurance on your house, but hey, who wants to use their fire insurance.
Buy it Around 55 and in Good Health
If you are going to buy Long Term Care Insurance, you want to buy it when you are in good health since the insurance company is going to evaluate your health and price the policy accordingly. If you have big health problems, you won’t get it. The rule of thumb is that 55 and in good health is the best time to buy it.
You Don’t Need Long Term Care Insurance if you are Rich-But it is Nice to Have
Most well off people don’t by Long Term Care Insurance because they can self-fund their care. For instance, if you have $2M in the bank at 6% it yields $120K per year in earnings. Your care is $110K per year. So you can pay for care and not diminish your assets.
You can still buy it as a planning tool to preserve your assets for your kids. Generally, $1M in assets and less and you should be looking at Long Term Care Insurance.
Connecticut and New York have some unique laws around Long Term Care Insurance so it makes a difference if you live in Newtown CT or Lewisboro NY.