Last week, I mentioned how I spent two days learning about military retirement. The workshop covered a number of topics, but one of them, long-term care insurance, was one that I hadn't expected. It's something that I haven't covered previously on Lazy Man and Money. Truth be told, I knew very little about it.
To educate us on long-term care insurance the workshop brought in a speaker from an outside investment firm, Genworth Financial. However, it wasn't much of an education like the other parts of the workshop. This speaker couldn't have made it more of a sales pitch if he tried. He stressed that each of us is going to need some long-term care at some point, almost as if to create some kind of fear. He brought out the stats that the average cost for long-term care now is $82,000 a year and it is expected to double every 14.5 years. He strongly suggested that we get coverage now if you are healthy, because once you have a health condition, or take a prescription of any kind, you might not be able to get coverage - or you might have to pay more for it.
However, as the speaker explained how long-term care worked, it became clear to me that it didn't seem like a smart financial move. In fact, it seems quite limited. For one example, you don't buy insurance for the rest of your life - you buy a certain number of years of coverage. After that, that's the end of your care... you are on your own. Though the average person uses 3 years of long-term care, an Alzheimer might need 7-8 years. Buying 7-8 years of benefit coverage is obviously more expensive than 2-3. How many years of coverage should you buy? There's no easy way to know.
He also explained that in addition to a set number of years, long-term care plans also have a daily benefit allowance. So you might have purchased $150 a day of coverage for example. If you use only $100 of it a day, you'll get more years of coverage. If you use $200 though, you'll burn through your long-term care benefit faster than expected.
This sounds like a specialized annuity. I might be giving it too much credit - a simple savings account seems to do a similar job (provided you plan fair enough in advance as the speaker suggested we do). I pay money in now so that I can get money out at a later time. However with this annuity/savings account, I have to worry about paying more if my health isn't perfect. Even worse, he said that if the investment company doesn't manage the
annuity/savings account long-term care plan well, there might be increases in premiums that have to be paid in. The speaker used this a reason to go with a company with a proven track record... the sales pitch continued. However, this made me want to consider long-term health insurance even less. Think of all the pension shortfalls. Professionals sometimes don't plan for the distant future very well. If they make mistakes, I would have to pay more. What if they managed the money well, would they lower premiums? Perhaps I should have asked that one.
salesman speaker twice mentioned that Long-Term Care is great because you don't know need to draw down on your other retirement assets like 401k plans, IRAs, etc. I had to stifle a laugh. What are my 401k and IRAs for if they aren't to provide me with income in time of need? I'm not putting money in them so that my bank's computer has can get some digital bits to do a little dance.
The bottom line is that we all have a fixed amount of money to prepare for the future. In my opinion, it comes down to a question of whether my money is best invested in a retirement vehicle or a long-term care one. Long-term care plans will vary, but you should be able to figure out the total value by multiplying the daily benefit by the number of years. For example, $150/day for 3 years would be $164,250 of coverage. The salesman didn't go into what the premiums were for that kind of coverage, but you could take that money put it in your own investments or buy an annuity with it.
If it sounds like you'd be doing better investing it yourself, that seems to be the way to go.
18 Responses to “Does Long-Term Care Insurance Make Sense?”
Next: More MLM Scams, Freecycle Wins, Best Baby Strollers, and Personal Finance Links