Does it make sense to purchase long-term care insurance (LTC)? The answer to this question will vary depending on your own special situation.
Fortunately, there are a few questions that you can ask yourself that will help you make a decision on whether or not to purchase LTC insurance.
First, take a look at your estate and decide if it is of a size that is worth protecting by purchasing long-term care insurance.
Rules of thumb are dangerous, but financial columnist Gregory Karp has come up with a useful one regarding estate size. He says that if your estate is over $2 million, you should not need LTC insurance.
A lump sum of $2 million, invested at a reasonable rate of return and having withdrawals taken at a rate of 4% per year, would net you $80,000. That amount would be enough to pay for nursing home care in all but a few areas of the country, and you would be highly unlikely to seriously dent the estate during a nursing home stay of a few years.
Karp also suggests that an estate of less than $150,000 would be small enough that you would have spent down your assets and qualified for Medicaid within a couple of years.
Second, estimate your odds of needing long-term care.
A recent edition of Kiplinger’s Retirement Report states that the percentage of those over age 85 who reside in nursing homes declined to 13.9% in 2004 from 21.1% ten years earlier. That percentage would be greater if we included those receiving long-term care in the home. These odds are fine, if you are an "average" individual. Most of us should be able to get an idea of how likely we are to need long-term care by taking a look at our ancestors. Did any of our parents’ generation need long-term care (either in an institution or at home)? How about our grandparents’ generation?
Third, if you are 45 or younger, consider self-insuring.
This of course requires that you possess a couple of items that are often in short supply. First, you must have disposable income. Second, will power is necessary. If you were to begin setting aside an amount equal to a monthly LTC insurance premium in an investment account every month, beginning in your mid forties, you would likely have accumulated enough to cover long-term care if you actually need it.
If you do decide to investigate LTC insurance, don’t automatically assume that the federal policy is the best one out there. Do some homework and cross shopping to make sure you get the policy that is best for you.
