Long-term care insurance is an excellent example of how confusing personal finance can be. Forbes recently had an article on whether or not you should buy a policy and the answer was “it depends,” which we probably should have guessed just from the article title, “The Maybe Policy.”
In general, it seems like most people would not need this type of insurance coverage, according to the experts that Forbes relied on.
The basics of long-term care insurance, and how to decide if you need it
In part, the answer to this question is determined by your assets and income. If you have limited income and assets of less than $200,000, the answer is clear: don’t buy private insurance.
Medicaid provides a safety net and it should cover people at this level of wealth. If your assets top $2 million, the conclusion is that you can probably afford to cover the expenses yourself.
For those in the middle, the expenses can be substantial. The cost of a nursing home averages more than $200 a day and could be more than $300 a day. Home health aides can cost $20 an hour and up. Experts estimate that 70 percent of seniors will need at least some assistance. They actually believe that the average man will suffer through a severe disability lasting about 18 months and the average woman will need help to meet her needs for about three years.
As always, remember that averages are useful as a guide but your personal experience can be dramatically different.
If you decide that an insurance policy is the best option for your long-term care, the time to buy is when you are in your mid- to late-50s. Rates rise with age. As an example, a policy might cost about $100 a month at age 45 but $250 a month at 65. Of course by waiting until you are 65, you save 20 years worth of premiums, so the right answer is still confusing to find.
Long-term care insurance should be something that you consider as a part of your retirement planning, experts do agree.
Your comprehensive planning should include this assessment along with a review of your income and expenses. Don’t forget to include a reverse mortgage as part of this planning process.
Again, it depends, but a reverse mortgage might be the best way to fund your long-term care. Or a reverse mortgage might just be the best way to find additional income that lets you enjoy retirement. A reverse mortgage can also impact whether or not your home is counted as an asset under the Medicaid funding formulas. It’s all very complicated, but there are a number of professionals that can help.