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My wife and I bought a long-term care policy 25 years ago when it was relatively inexpensive. Now our premiums have increased for the third time to over $500 per month and will increase again in six years. I think I’ve already paid about $72,000 in premiums. Now in my late 70s, I’m trying to decide whether to accept the increases or cancel the policies. What do you think?
–Robert
No one likes paying higher premiums and it can be frustrating to see them rise. But just like when you initially decided to purchase the policy, the question still remains whether or not you need the coverage and can afford it. (And if you need help planning your long-term care or saving for future expenses, consider talking to a financial advisor.)
A retired couple is looking at their long-term care insurance premiums.
Before we answer the question directly, let’s talk about the $72,000 you’ve paid so far. I’m not sure if you’re suggesting that you should continue or stop because you’ve already spent so much, but either way it shouldn’t affect your decision. Those past premiums are a sunk cost and the insurance coverage they purchased for you is in the past. It’s no different than the $10 you spent on lunch yesterday.
The real question is whether you still need long-term care insurance, and whether your policy’s coverage is worth $500+ per month.
I think there are two big concepts at play here that you need to consider as you think about your decision: your age, but also your means and goals.
The first is your age and the likelihood that you will need long-term care. It’s a few years old, but this Morningstar article discusses some relevant long-term care statistics that I think illustrate what we all know intuitively. The likelihood that we will need long-term care increases as we get older. The 2018 data shows the percentage of people who ultimately need long-term care:
So, unlike the premiums you have already paid, the days for which you are more likely to need long-term care are ahead of you. (A financial advisor can help you prepare for future expenses, such as long-term care.)
While it certainly points out, just because you’re more likely to need long-term care in the future doesn’t necessarily mean you need long-term care insurance.
Depending on how your investments have performed and what you’ve spent over the course of your retirement (assuming you’re retired, maybe not), your account could have grown so large that self-insurance makes sense. Of course I don’t know, I’m just pointing out that it is possible. If not, then in my opinion your decision is quite simple. If you can continue paying the premium, it’s probably best to do so.
Even if you can reasonably self-insure, you need to think about what you want to do with your savings. Just because you can afford to insure yourself doesn’t mean you should or should. Long-term care insurance can help you avoid depleting all your assets, which in turn provides some protection for the money you hope to leave to heirs. That alone could make it worth it for you, depending on your financial goals. (And if you need help setting and planning financial goals, such as leaving assets to heirs, contact a financial advisor.)
I think there’s a good chance it still makes sense to continue your long-term care policy, but take what we discussed above as a starting point to evaluate your situation. See if the new incentives fit your budget and help you achieve your goals. Assuming this is the case, maintaining your policy may be the best option.
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Brandon Renfro, CFP®, is a financial planning columnist at SmartAsset, answering reader questions about personal finance and tax topics. Do you have a question that you would like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Brandon is not a participant in the SmartAsset AMP platform, nor an employee of SmartAsset, and has received compensation for this article.
The post Ask an Advisor: Our long-term care insurance now costs $500 per month. We are in our mid 70’s and have paid a total of $72,000. Should we cancel our policy? first appeared on SmartReads by SmartAsset.
