Should I purchase long-term care insurance, or invest the money to pay for my long-term care?
I'm 53 years old and I'm thinking of purchasing long-term care insurance but I'm not sure I'll use it. Should I invest the money instead to pay for my long-term care? How much should I invest? What are pros and cons?
Most studies I've seen suggest that someone who is 65 years old today can expect to spend up to $250k on health care in retirement. That number will grow at a rate of approximately 7% in years to come. Traditional long-term care policies are pretty expensive, if you can find a good one at all. Today, most long-term care insurance is offered as a rider on an annuity or life insurance contract. I like this better because if I don't need to access the funds for long term care, then the money will pass to a beneficiary. The insurance companies also offer an enhanced benefit for long term care meaning that if I put $250,000 into a life or annuity policy, I will have a $500,000 long-term care benefit for example. Depending on how much long-term care insurance you may need will determine which vehicle is best for you.
Depending on how much money you have to invest will determine if an investment option is possible. There are some people out there that can self-insure against long-term care costs, but you would need to have a liquid net worth between $2 - 5 million.
This is always a tricky one as there is no definitive "right" answer. I generally think purchasing long term care insurance is a good thing as long as you can afford it. Few things to note. First, make sure you acquire with a creditable company. There aren't that many players in the long term care business so go with quality vs price. They can raise the price over the years on these insurances so you want a well established company. Second, make sure you get enough coverage that it is worth purchasing. Don't get a small amount as you want this insurance to actually have an impact years down the line. Third, you are in the prime years of purchasing this insurance. Don't wait too long as the prices start to escalate very quickly. Fourth, if you are married that is a big pro in the long term care insurance world. You'll get a roughly 50% discount if the both of you apply. Fifth, Get an escalation or inflation rider for sure! I'm a big fan of these as you'll want the coverage to increase over time. Finally, it is important to note approximately 50% of people need this care and women are much more likely than men to utilize it (hence costs for females is substantially higher than males). Hope this helps!