Many clients ask the question: “Do we need long-term care (LTC), and can we afford it?” To help better answer this common question, I have put together some guidelines.
For couples or individuals with a net worth of under $500K, the long-term premiums can be difficult to afford, especially if they are age 60 or over. On the other hand, clients (husband and wife) with an estate of approximately $3.5 million or more can, in most cases, safely self-insure. In this case, the risk of depleting the estate to zero if long-term care becomes necessary is minimal. For single individuals, this required net worth to self-insure is roughly half. Therefore, the sweet spot for needing and affording LTC is a net worth between $500K and $3.5 million for couples.
Cost is, of course, another important consideration. My wife and I recently started a joint policy for long-term care. Cost was a significant issue for us. We decided not to cover the entire cost but to insure for a portion of it, which brought the cost down to a reasonable amount. With the many options available (amount, length of time it pays, percentage of inflation rider, etc.), one can customize a plan that fits within their budget, as we did. In our experience, most people insure for about 50% of the cost. At the same time, it’s important to have an inflation rider to keep up with increasing costs.
A fact that many are not aware of is that in most states, including Illinois, there is a Long Term Care Partnership Act. This act allows the amount of long-term care benefits paid to protect that amount of assets from the spend-down provision before Medicaid kicks in. For example, if someone had $300K paid in long-term care benefits, they could keep/protect an extra $300K in their estate once they qualify for Medicaid. This is a huge benefit for someone in Illinois who has a long-term care claim.
My wife and I found that having this protection has given us peace of mind! We certainly hope we never have to use the coverage, but it’s reassuring to know we have it in place.
If you want to explore the Long Term Care (LTC) estate insurance options we would be glad to help!