Anyone who cares to do a little research on the
subject will easily find information about the
valuable benefits of long-term care insurance. A
$2000 annual premium will often pay for care
that could exceed $60,000, $80,000 or more
annually. It sounds like a "no-brain" decision.
For many, it has been.
As our government begins to push long term care
insurance as a partial solution to our national
budget problems, it's important to also know the
risks and downsides of these products.
What Your
Insurance Agent May Not Tell You About
Long Term Care Insurance:
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Your Premiums Will Go Up
Your individual premium may be "locked in," but
the insurance company can raise the rate for an
entire "class" of purchasers. Rates will
probably go up every year on your birthday.
Rates may also go up for everyone in a
particular ZIP code or other geographic area. As
rates go up, a policy that was affordable when
you bought it may become too expensive to
maintain.
You certainly won't want to pay premiums for 20
years and then find your policy to be
unaffordable as you reach the age when you are
more likely to need it. Sadly, it is true that
insurance companies count on a certain number of
people allowing their policies to lapse, because
that reduces the number of potential future
claims.
In Most Cases You Will Still Pay A Lot For
Care
Almost every policy will include a period during
which you must pay for care before coverage
begins. While home care today may average $17 an
hour, depending on where you live, it may well
be $35 per hour when you need it. While today
your insurance agent may talk about an
out-of-pocket risk of $6,000 to $10,000, in 20
years this number could easily more than double.
Nursing homes today average between $4,000 and
$10,000 per month today (again, depending on
where you may live). In 20 years, if this number
only doubles (and that's conservative), the
annual cost of nursing care could be as much as
$240,000 or more.
Inflation riders (at extra cost) are presented
as just the way around this problem.
Unfortunately, the rate of inflation in the
health and long term care arena is forecast to
be much higher than the standard 5% inflation
rider offered by most carriers. You will be
responsible for all costs above the limits of
your chosen policy.
Paying Premiums Reduces Your Available
Investment Dollars
You can only spend each dollar in your
pocketbook one time. Every dollar that you
remove from your investment pocketbook to buy
insurance reduces the number of dollars you have
earning (compound) interest for your future
needs. Inflation will eat away at our purchasing
power as we age. An item that costs $1 today may
cost $3 or more when we're in retirement.
While it's important to plan for our future care
needs, it's also important to insure that our
retirement nest egg continues to grow at a rate
at least equal to the rate of inflation. If you
can't purchase long-term care insurance without
jeopardizing your other retirement needs it may
be a very bad investment for you. If cat food
tastes like it smells, you surely don't want to
be eating it to afford your insurance.
For the right person, long-term care insurance
can be priceless when care is needed. It can
help preserve individual independence, and for
many it provides access to a life quality that
would be unaffordable without it. However, most
LTC information ignores the potential financial
speedbumps associated with these products.
Before you purchase long-term care insurance you
would be wise to consult with a strong financial
advisor who can review your particular situation
and advise you accordingly. Of course, in order
to get unbiased advice, you will want to be sure
that your advisor does not have a personal
financial interest in whether or not you buy.
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