In my estate planning seminars I often tell potential clients that an important consideration for their long term healthcare is to purchase as much insurance as they can afford as early as they are able to do so. Recent events have caused me to question whether or not that remains true. More and more insurance companies are deciding not to offer long term healthcare insurance (LTHI) because it is not a profitable endeavor for them. As of a couple of years ago, 10 of the top 20 insurers (by sales) have stopped selling new long-term-care policies. More recently, earlier this week, Genworth Financial Inc., one of the remaining insurers still offering LTHI policies, warned of “material weakness” primarily caused by the billions of dollars insurers like Genworth are losing with LTHI.
How are they losing money? Basically for three reasons: 1) Rising cost of elder care, 2) Low interest rates impacting bond yields, and 3) Rise of the baby boomers swelling the demand for elder care services. As a result, insurers like Genworth are caught with insufficient funds to pay health care claims and have had to increase insurance premiums time and time again. For many aging customers, they are put in the difficult position of having to chose to either keep their policy and pay the higher premium, scale back coverage to reduce their costs, or drop their policy altogether. (Some policyholders might be entitled to use the premiums they’ve paid if they need care in the future.)
So what should you do? There is no single answer that fits everyone’s needs. But the following should be part of your consideration.
Buy Long Term Healthcare Insurance Early
The earlier you purchase LTHC insurance the better. For starters, your premiums will be lower which, in part, allows you to more easily absorb increases should they come in the future. Try to buy a policy that provides for a minimum of three years of coverage for men and five years of coverage for women (roughly the average length of stay in a nursing home). And if you can afford more, do so.
Long Term Care Is Part of Your Estate Plan
You must consider the probability of needing long term healthcare as part of your overall estate planning. A perfect Will and/or Trust does you no good if all of your assets are spent providing for your end of life health needs. If you want to provide for your family and loved ones, you have to make sure that you can pay for your own care through the use of insurance and income generating assets such as an annuity. Advance planning with respect to qualifying for Medicaid coverage of nursing home care is crucial. An estate planning attorney can assist in sheltering assets and income such that qualification is more attainable should the need arise.
Current Health is the Greatest Component for Long Term Healthcare Needs
It should go without saying that the healthier you are now the greater chance that you will not need extensive long term healthcare. While that isn’t a given truism, healthy people do sometimes get sick and need nursing home care, you can reduce your odds by paying attention to your health now. Too often I see clients in my peer group succumb to the belief that their long term health has already been determined by their past lifestyle. Nothing could be further from the truth. So quit smoking, cut down on the alcohol, get more exercise (particularly weight training), and eat more vegetables and less meat. This part is not rocket science.
In the end, you can’t wait to plan for the end. Nobody wants to think about their own mortality and possible end of life scenarios. But it is far better to do it now than to force your family and loved ones to have to deal with it at the most critical time when you can not. My advice? See an estate planning attorney, talk with a financial advisor, educate yourself, and take action now.
I think this is SUCH a tough issue. A really good rule of thumb that I have heard is that LTCI is most suited to people with mid-range wealth who want or need to leave something to their children. So, using year 2000 dollars- if you have less than a million in assets don’t bother with LTCI because the cost of the premiums will eat your assets and even if you DO need LTC, you will go broke relatively quickly and then be on state assistance. If you have more than 5-6 million in assets, you are relatively able to self insure (especially for only 1 person) so you will never spend down your assets even self-funding LTC. The middle of that- $1-5 million are the folks that should seriously consider LTCI, ESPECIALLY if they have a strong desire or need (disabled child, ect) to leave a sizable estate at the end of their life.
I also, however, think it’s important to address the “I’m too healthy to ever need long term care” fantasy. My grandma will be 100 this spring. She is the healthiest person I know. She is also 99.75 and the reality is that even as an extraordinarily healthy 99 year old- she needs more help than she/we can provide and has just moved into assisted living. She was a very wealthy woman back in her day- but no one’s retirement cushion was ever meant to support almost 50 DECADES of retirement. How long you live is as much or more of a factor than “just” your health.
That’s my 2 cents. Take the advice for what you paid for it…
I think you mean 5 decades not 50.