Planning for retirement has always been a daunting task. But with life expectancies steadily increasing, planning for retirement also means planning for in-home or nursing home care. With either option being costly, many older Americans acquired long term care insurance (LTCI) to offset the expense. Now with one LTCI carrier close to liquidation and others reducing benefits while hiking rates by up to 60%, people who have paid premiums for years are concerned about their investment paying off when they need It most.
What went wrong with LTCI?
In the 1980s and 90s, baby boomers began to see retirement age on the horizon. Long term care insurance seemed like the perfect product for a huge number of Americans who were worried they’d become a burden on their families or spend their senior years in a low-quality facility.
Problems didn’t arise until those baby boomers started needing their LTCI benefits. Insurance companies underestimated how many would drop their policies, make claims, and how long those claimants would live and continue to require care. With many policies offering unlimited benefits, the liabilities of LTCI quickly began to outweigh the assets. Insurance companies are now scrambling to keep these products profitable by limiting benefits and raising premiums.
How can I prepare financially for my eldercare needs now?
At Home Helpers, I meet frequently with the children of my clients and am frequently surprised how few of them have LTCI policies even though their parents have them. I highly recommend to them to consider a LTCI alternative as they can’t count on having their children take care of them when they are 90 years old. A carefully chosen LTCI policy is still a viable option, and many alternative products are coming to the forefront. Here are a few tips to keep in mind as you consider the options:
- Get the insurance you need, and not the insurance you don’t. The easiest way to reduce your premiums is to reduce benefits. Whether it’s in-home care, assisted living, or coverage for a pre-existing condition, make sure your non-negotiables are covered, and be flexible with the benefits that are less important to you.
- Do your homework on the policy AND the company. Always make sure you meet with a highly recommended LTCI agent who will explain the fine print and get the coverage you need, but keep in mind that knowing the company is healthy and has a track record of paying claims is equally important.
- Consider other options. Shorter-term care insurance, annuities, “hybrid” policies that combine life insurance with long term care, health savings accounts, and reverse mortgages are just several of the many alternatives for covering eldercare expenses.
While it’s good that we have a host of options, it can make it difficult to know which direction is the right one for your current budget and your long-term health. Whether you go with LTCI, one of the alternatives above, or something else entirely, consult with your financial adviser to make the best choice for both your present and future needs and remember that the younger you are, the cheaper will be the premiums.