Long-Term Care Insurance: Do you need it?
As people approach retirement, one of their biggest financial concerns is the possibility of needing long-term care. For some, this fear stems from a family history of care needs; for others, it’s the worry of losing hard-earned assets to long-term care expenses. The question on many minds is whether long-term care insurance is necessary.
When Should You Consider Long-Term Care Insurance?
If you’re relatively healthy, the ideal time to purchase long-term care insurance is typically in your late 50s or early 60s. Buying too early means paying premiums for many years before needing care, while waiting too long may raise the cost due to health-related underwriting issues.
Assessing Your Financial Situation
Before deciding on insurance, it’s important to assess your current and future financial situation. A general guideline suggests that individuals with a net worth exceeding $2 million may be better off self-insuring. However, this threshold isn’t universal, so it’s crucial to consult with a financial advisor to understand how a potential long-term care event might impact your plan.
Traditional vs. Hybrid Policies
If you determine that long-term care insurance is right for you, you’ll need to decide between a traditional policy and a hybrid policy. While hybrid policies, which combine long-term care and life insurance, tend to be more expensive in the short-term, traditional policies carry a significant opportunity cost: if you don’t use the coverage, you get no payout. Some people feel this is a waste of money. On the other hand, hybrid policies offer a death benefit to your beneficiaries if you don’t use the long-term care coverage during your lifetime.
Another option to consider is adding a adding a critical or chronic illness rider to a permanent life insurance policy. In the event you need care, this rider will pay out a portion of your policy death benefit to you to help pay for the care.
The Likelihood of Needing Care
Statistics show that over half of Americans turning 65 today will need long-term care at some point. While this doesn’t mean everyone needs insurance, it highlights the importance of planning for a potential health event, as the financial impact can be substantial.
Estate Planning Strategies
In addition to insurance, there are estate planning strategies to help protect your assets in the event of a healthcare event. One option is a Medicaid Asset Protection Trust (MAPT), an irrevocable trust that allows you to gift assets like your home or investments while protecting them from Medicaid eligibility requirements. For instance, you can gift your home to a trust, continue living in it, and have it protected for your heirs. However, Medicaid has a five-year lookback period, meaning any assets placed in the trust within five years of needing care could still be considered in determining Medicaid eligibility.
Deciding whether to purchase long-term care insurance is highly individualized. The right choice depends on your financial situation, health, and long-term goals. To navigate this decision, work with a skilled financial professional who can help you assess your options and develop a plan tailored to your needs. If you have questions, feel free to reach out to a member of our Heritage Wealth Architects team.
Sources:
Pros and Cons of a Medicaid Asset Protection Trust
How Hybrid Life Insurance Pays For Long-Term Care – Forbes Advisor