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Should I Buy Long-Term Care Insurance

Written By Gary S. Williams, CFP®, CRPC®, AIF® and Nicholas A. Ibello, CFP®, AIF® February 27, 2019

As much as we look forward to our retirement, where we hope to spend more time with family, travel, or indulge in our hobbies, statistically, there is a high likelihood we may become ill at some point and require long-term care. Just like any other risks – life, disability, automobile, home – we need to determine if we should shift this risk to an insurance company or accept the risk.

What is long-term care?

Long-term care (LTC) involves a variety of services you may rely on to meet your health or personal care needs. LTC often includes assistance with basic everyday personal care tasks such as bathing, dressing and eating, as well as daily living tasks such as housework, cooking, and shopping. Between the relatively high probability of needing long-term care services and the cost of care, your retirement savings could be depleted rapidly.  The U.S. Department of Health and Human Services states that 70 percent of individuals turning age 65 today will need LTC services at some point, with the average cost of care estimated at $138,000.

What is long-term care insurance?

A long-term care insurance (LTCI) policy is specifically designed to pay for services like in-home care, respite care, assisted living, nursing home fees, and even home modifications. The cost of an LTCI policy varies widely based on factors such as age, gender, health status, and level of coverage. According to LifePlans, the average annual cost of LTCI is $2,700.

Is long-term care insurance right for me?

While there are other options available, such as self-insuring, it’s important not to underestimate the substantial cost of long-term care and consider that using your savings for this purpose may mean that you or your spouse will have fewer funds for retirement. So, how do you determine if you should purchase LTCI? While a lot of factors go into this equation, we will touch upon them from a high-level below.

First, in our opinion, the reason to purchase an LTCI is to protect your assets. So, if you don’t have children or are not interested in protecting your assets for other heirs or charitable organizations, you could simply spend down your wealth and qualify for Medicaid and the Government will provide for your care. To qualify, you must first exhaust your own resources, among other criteria.

If you have a modest net worth which, according to Money Magazine could be less then $200,000 the premium for LTCI may not be affordable nor might LTCI be needed as you have limited assets to protect until Medicaid could kick in. If, however, you are in between $200,000 and $2,000,000 then it may make sense to purchase it. Finally, if you have a substantial net worth, which again, according to Money Magazine could be greater then $2,000,000, you may be able to self-insure.  In this case, you understand and are accepting the risk which means your assets would potentially be used for care, and a substantial amount of assets would not transfer to your heirs or other beneficiaries that otherwise would have if you purchased insurance. 

Retirement planning can be a complicated process, and long-term care is just one facet of it. To plan adequately for retirement, consider seeking financial advice to determine the best options for you and your family.

Let the CERTIFIED FINANCIAL PLANNER™ professionals at Williams Asset Management help with your wealth management needs. Whether you need comprehensive and holistic financial planning or investment management, we can help!  We are fee-based, independent financial advisors located in Columbia, the heart of Howard County, Maryland.  Schedule your complimentary consultation today by calling (410) 740-0220!

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