More than 70% of adults who live to 65 will need Long Term Care of some kind! Not only is LTC very expensive, most costs aren't covered by Medicare nor other health insurance plans.
As Ryan explains to Erin, without proper planning this can wipe out your retirement savings, but before you buy a policy, first, crunch the numbers to determine:
- What is the right age to buy LTC insurance?
- How Much Coverage to Buy
- Should You Consider Other Options?
There's a lot of planning that goes into determining when or whether you should buy long term care insurance. If you'd like to talk through these options with Ryan to figure out what's best for you and your family, please feel free to reach out.
Erin: Ryan, good to see you. Today, we are walking through long-term care insurance, three things to consider before you buy a policy. I was really surprised to learn that 70% of adults who live to 65 will need long-term care. Not only is it very expensive, but also it's not covered by Medicare nor most other health insurance plans. So let's just start with a big question. Who even needs long-term care insurance?
Ryan: Well, the key thing is that everyone has to have a plan as to how they're going to pay for their healthcare expenses in retirement. So when it comes to long-term care, whether that's funding it through a long-term care policy, or just having the other resources available to you in order to cover those costs, whatever it may be, you have to just have a plan in order to cover it if and when long-term care costs do come up.
Erin: Right. Preparation is absolutely key. So now let's walk through those three considerations, and I think a lot of people, this one is always first, what is the right age to buy that insurance?
Ryan: I recommend people look into it when they're in their fifties. When you're younger, the costs are going to be less, and presumably you're healthier as well. If you don't do it in your fifties, I do recommend you look at it still in your sixties, but once you get into your seventies, it does start to get pretty expensive. I'm not going to say it doesn't make sense to purchase a policy there, but it probably makes less sense for most people.
Erin: Okay. Now our next consideration is going to be about coverage, but before we hop into that, I want to show you this cost of care calculator. So this is the monthly median cost for your zip code right now in California, Ryan. And this is just incredible ranging from about 6,000 to $12,000 a month. So again, when I look at how expensive that is, how do I determine what kind of coverage to buy?
Ryan: And the thing is here, obviously in California, cost of livings a lot higher than it is in a lot of other areas of the country. So one thing too that I would consider is if you live in California and you're thinking about moving maybe to another state in retirement, you want to take a look at what those costs would be. But what happens with a lot of people when you're thinking about what you're going to do, if you're going to buy a long-term care policy is people kind of look at it as, I either need to go big, I need to cover everything that might happen and get this really big policy, or I'm going to get nothing. But oftentimes what I find is the best solution is just to get a modest policy, maybe even something as small as covering 4,000 a month or $5,000 a month, because for some people that might be all that you need. And for some people you may not even need long-term care.
Erin: Would not be the best. So instead of long-term care insurance though, I'd like to know, are there any other options you would recommend people consider?
Ryan: Yeah, so the typical life or the typical long-term care policies that people think of are the ones that work kind of like car insurance. So you pay your policy premium every month or every year. If you need long-term care, it will then pay out, kind of like with car insurance. If you got in a car accident, then it will cover you. But when it comes to these types of policies, a lot of us look at it as kind of a use it or lose it proposition. And quite frankly, it is. If you don't need long-term care, then that money is, quote unquote, 'wasted.' I mean, you were covered but you didn't need it. One of the other real popular types of policies are those that have a... They're a life insurance policy, that have a long-term care rider that's attached to them. And so the nice thing about that is that you could think of it as a pool of money.
So if you need money while you're alive, you can access the death benefit to pay for long-term care expenses. And then whatever you don't need to use during your lifetime will end up going on to your beneficiaries. So simple example, you buy a $250,000 life insurance policy with a long-term care rider and you need $200,000 of long-term care expenses during your lifetime. And you access the policy to be able to pay for that, and then there's still $50,000 that would go to your beneficiaries. Or if you never need a long-term care, then at least that $250,000 goes to your beneficiaries, and so the money that you paid in isn't wasted. It ends up going to somebody.
Erin: Right. That sounds like a very attractive option. Clearly a lot to consider here. I'm sure that there's no one right answer, but Ryan, if somebody would like to kind of talk this through with you to figure out what's right for them in their family, what's the best way to reach?
Ryan: You can call 714-462-9155. Alternatively, you can contact us on our website, CravitzFinancial.com.
Erin: All right, very easy. Ryan, thanks so much for your time today.
Ryan: Absolutely. Good to see you.