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Should I Have Long-Term Disability Insurance?

September 5, 2017 | Amin Dabit, CFP®

Not to be confused with long-term disability insurance, long-term care coverage insures you against nursing and custodial costs in old age; policies will pay for the associated expenses. Recent research estimates that about half of Americans turning 65 today will require long-term care, and on average, will incur $138,000 in future long-term care costs. Long-term care insurance generally pays for custodial care, home care, or nursing home care, for periods longer than a year for those who have a chronic illness or medical disabilities. These costs are usually not covered by standard health insurance, Social Security or Medicare.

Who Should Have Long-Term Care Insurance?

Long-term care insurance is an important consideration for many who are nearing or in retirement. You should do research on how much long-term care services and support would cost to meet your health and personal needs. The cost of long-term care insurance has increased dramatically over the years, and if you have a family history of health problems, long-term care insurance may be advisable. It can help offset the costs of caring for a family member suffering from illnesses that require costly medical care. Statistics show single people tend to utilize long-term care insurance more, but they also may not care as much about depleting their assets at the end of their life, so this becomes a personal preference issue. If you have children, it is worth it to discuss it with them, as unpleasant as it may be. Ultimately, they will likely have a lot at stake in the decision.

Does Long-Term Care Make Sense For You?

Long-term care is also a personal issue that requires an individual solution for each situation. A common belief is that if you have less than $250,000 or more than $1,500,000 in liquid savings, long-term care insurance does not make sense. There is some logic to this when you compare it to how much out-of-pocket expenses may cost you and what resources you may have to rely on. For instance, if you have less than $250,000 saved, making long-term care insurance payments will noticeably dent your lifestyle in retirement. While it could end up saving you some money, it is too expensive relative to spending some savings and relying on Medicare for the rest.

If you have more than $1,500,000, paying several hundred thousand in long-term care expenses would be unfortunate, but would still leave you able to maintain a comfortable lifestyle. Typically, at the point you are relying on long-term care, your other discretionary expenses usually drop. You should speak with a financial advisor to see if long-term care insurance fits into your overall financial plan.

When Should You Buy Long-Term Care Coverage?

Another important question to ask yourself is when you should start thinking about long-term care. Premiums are, of course, cheaper if you start paying earlier. For most people, however, it probably does not make much sense to worry about this before they are around 45 years old. In most cases, premiums can increase over time, so there is rarely a large benefit to starting too early.

On the other hand, your current health and age plays a critical role in determining what type of insurance you can get at what cost. That’s why you may want to start planning for long-term care insurance before you turn 64. At 65, when you qualify for Medicare, you’ll be eligible for a slew of preventative screenings, which are likely to spot a problem that may disqualify you from obtaining insurance.

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