Pros and Cons of LTCi

May 2, 2014

 

Buying long-term care insurance is a sure-fire way of getting protected against the greatest risk you can face in retirement. However, you need to carefully decide if getting insured through this policy is the best move and suitable for you.

Examining the advantages and disadvantages of LTCi can help you in doing so. Let’s look at the upsides and drawbacks of this policy.

But given the high cost of care, premiums are likely to go up. Since the price tag of a traditional policy is on the rise, hybrid products are also being offered in an effort to cut down on costs for future care needs.

Pros

Just like any type of insurance, LTCi offers financial protection against a risk, in this case it’s long term care. Financial protection is the most important advantage of a long-term care policy.

As it is, the cost of care services is expensive and it is increasing continuously, typically at a 4 percent annual rate. Clearly, paying for long-term care from your own pockets can easily deplete your savings, which is wealth that took years of hard work to build. But with LTCi in place, you can prevent this financial threat from hurting your finances.

Based on Genworth’s Cost of Care Survey for 2014, the annual median cost of staying in a private room in a nursing home is $86,400. If you have a $500,000 nest-egg, even a few years of staying in the said facility can cut a huge chunk out of your savings. This can drastically impact the quality not just of your life, but also your family members’ lives.

Cons

Some see LTCi as a waste of money because there’s a chance that they may never use it. Such an opinion can arise since premiums are not usually returned if the coverage is not needed. Some see this as money lost, but actually you didn’t lose anything because you were insured throughout your life and that gives you peace of mind that if anything happens, your finances will not get derailed.

Let’s use auto insurance as an example. As a car owner, drivers do not typically wish for their vehicle to be in a crash just so they can say that they got their money’s worth out of the policy. The same analogy applies to LTCi. You wouldn’t wish to need long term care just so you can say that you didn’t waste money on a policy.

LTCi is also expensive, and this is the reason why some people are skeptical about purchasing a policy. They can be anxious that they can’t afford the policy, or lose coverage along the way because of failure to pay the premiums. However, people should recognize that the cost of this policy can be made affordable according to their budget and financial strength. It’s just a matter of knowing the right kind of coverage to buy and features to include in the policy.

Is LTCi for you?

It depends on a lot of factors. First, you need to look at the amount of assets you want to protect. Experts advise that if you have at least $250,000 in assets excluding your home, you need to get insured under LTCi. But this is just a general rule. You still need to examine your financial strength if you actually need to purchase this policy.

You also need to consider how much risk you’re willing to take. Determine if you want to use LTCi to cover for all of your possible care expenses, or if you’re just intending to use it as a supplemental coverage, meaning you will only use this policy once your long term care fund runs out.

Health is also a factor when deciding to buy LTCi. If you’re at risk for developing cognitive or chronic conditions, you need to get protected under this policy. Conditions like Alzheimer’s disease, Parkinson’s disease, cancer, and heart problems warrant all warrant long-term care.

Talking to an expert can help you decide if you should purchase LTCi or not. Experts like financial advisers can help you examine your finances and determine the right kind of coverage for you.


Leave a Reply