2008-04-29

Do I Really Need Long Term Care Insurance In My 30s?

I generally try to guard against financial disaster. We have pretty robust homeowner’s insurance, an umbrella policy, quite a bit of life insurance, and the list goes on.

No bunker underneath the house or anything like that. And rice shortage or not, we’re not stockpiling food.

But even as creaky as my knees feel, and as little time as I may have left in my 30s, c’mon—do I really need long-term care insurance?

Here’s what some well-known personal-finance authors and radio/television personalities say.

Dave Ramsey says: “Long-term care is absolutely mandatory for people 60 and over… You have to get long-term care whether you’ve got $1 million or not.” And he says: “Buy it at age 60. Don’t buy it before then or a day later.”

Suze Orman says: “Once you reach your 50s you should consider adding a long-term care policy to your insurance coverage.” According to an indirect source, she also says: “No well-planned retirement should be without long term care insurance. It is the very cornerstone of retirement security.”

Ben Stein says: “If you're in your late 50s or 60s you should have long-term care insurance unless you're terribly rich.”

Okay, so all of these folks seem to be saying, yes, I need it—but no, not until some later age.

This seems to be a burgeoning hot topic, as both SmartMoney and Money covered it in their May issues: Peter Keating’s article, “Take (Long-Term) Care” in the May 2008 issue of SmartMoney and Justin Martin’s article, “Long-Term-Care Insurance: When It Makes Sense” in the May 2008 issue of Money. SmartMoney is essentially saying, yes, I should get it now. Money hedges more, saying it could be great or could be “a giant waste of your savings”—and says the decision is “one of the toughest calls you’ll ever have to make.”

Wonderful.

Here’s where the two articles more or less agree:

  • If you end up needing a significant period of long-term care, it can and most likely will be a financial disaster. SmartMoney calls it “the single most catastrophic financial risk we face”; and Money acknowledges that nursing-home expenses could “decimate your savings” and “financially devastate your spouse or your kids.”
  • There is around a 40-45% chance that Americans reaching the age of 65 will need some type of long-term care.
  • If you get the insurance, you should get an elimination period—the number of days that you pay for before insurance kicks in—kind of like a deductible. This should reduce your premium.
  • If you get the insurance, you should get the inflation-protection option.

The SmartMoney article makes two additional points I found compelling. First, it suggests that the risk of needing long-term care is higher than other risks with potential $100,000+ exposure against which people routinely insure:

[T]here’s a one-in-1,200 chance that your house will burn down, a one-in-240 chance that you'll be involved in a car-accident lawsuit, a one-in-15 chance you will incur a major medical expense—and a one-in-four chance you will rack up a long-term care bill.

Second, it expresses concern about costs going up in the future:

As you age, the price of signing up for long-term-care insurance skyrockets, typically more than doubling between the ages of 55 and 65. And if you wait you could develop conditions like high blood pressure or osteoporosis that can make getting insurance harder or impossible.

Fortunately, both my wife’s and my companies just started providing long-term care insurance as a benefit. It’s a fairly minimal amount, but this is still a nice trend. I actually signed up for more than the amount covered by my company, meaning I pay for the overage. My thinking is that I can more or less lock in a level premium now (though it’s not quite 100% guaranteed). Also, I am allowed to ratchet back to the minimum later. If I had it tried to do it the other way—go back later to try to increase the amount of coverage—I would not be assured of the current rates. In the meantime, I can do some more comparison and investigation.

Does anyone have more specific knowledge or experience with long-term-care insurance?

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