There are so many types of insurance. It can be confusing and difficult to understand. No matter the type of insurance the basics are the same, it’s about protecting your wealth. The last thing we want is for a catastrophic event to come along and wipe out our entire savings. The unexpected happens and insurance is meant to help us bare the financial burden. However, long term care insurance is more about the expected than the unexpected. Long term care insurance is designed to cover the costs of services and support required over a long period of time. This can include personal and custodial care if you’re in an accident or elderly. It may also include any modifications you need to your home as a result in a change of your mobility.
Black women have traditionally been the caretakers in their families. They tend to take aging parents into their homes because they either don’t want to put them in a nursing facility or can’t afford care whether it’s at home or in a facility. Taking care of others or ourselves if something happens can deplete savings quickly. This can be another vehicle to protecting wealth against the unknown.
Here are the 10 things you need to know about long term care insurance and if you should invest in it.
1. Get it while you’re young and healthy. The best time to buy long term care insurance is when you are young and healthy when the premiums are at their lowest. It’s a mistake to wait until you’re in your 40’s and 50’s. The older you are the higher the premium. You may not be thinking about what you’ll do at 80 when you’re 25, but getting a policy may only cost in the neighborhood of $30/month. This is about protecting your future assets. Think of it as a gift to your older self.
2. The premium is determined by multiple factors. The cost of your policy is based largely on how old you are when you purchase the policy. The older you are the more expensive. This is because the primary use of this policy to help care for someone at home or in a nursing home. The closer you are to needing such services the higher the price. Other factors include the maximum payout per day and the number of years the policy will pay. The lifetime maximum is calculated by taking the amount per day multiplied by the number of days. Lastly, any any additional benefits you may choose.
3. You must qualify. Just like many other insurance programs you must apply for coverage. If you are in poor health you will likely not qualify for coverage. The insurance is underwritten. The higher the risk of the policy being activated the less likely they are to approve. In some cases this process is waived if the policy is offered as part of a group such as through an employer.
4. Fewer long term care policies are being sold. While long term care insurance used to be a popular option both companies and consumers are moving away from purchasing these policies. The consumers are moving away due to the increasing premiums and the lower policy payouts. Insurers are moving away due to the increased cost of care and the baby boomers are approaching the age of use. There are a lot of baby boomers. Because fewer are being sold they are becoming harder to find. Insurers such as MetLife and Prudential Financial have significantly reduced or eliminated their sales over the last five years.
5. Carriers may increase your premium after you lock in. You keep paying the premiums until you have to use the policy, if ever. In the meantime the companies use your premiums to invest and make more money. If you buy the policy when you’re 35 the insurance company is betting you have at least another 40 years before you need the policy. In 40 years the cost of at-home or in-facility care can grow exponentially. According to a study from Genworth Financial the median annual cost for private nursing-home care is about $91k, for at-home 24-hour care it can be $170k. That’s where it is today, 40 years from now it will be much higher. Because of this some companies have received regulatory approval to boost premiums on policies that are already rate locked no matter how many decades have passed.
6. You need something because Medicare will drain you. You may be thinking you worked all of your life and paid into the system, isn’t this what Medicare is for? Yes, Medicare and social security are meant to help care for you at this time of life. However, if you need home care or need to be in a nursing home Medicare requires that you spend down all of your assets before they pay a dime. That’s right, the system wants you to go broke before they assist you. While it may be expensive to purchase long term insurance the alternative is depleting your savings and selling your assets in order to get care. There are alternatives popping up such as hybrid life-insurance and long term care policies. These are confusing and tricky and should be discussed thoroughly with several licensed professionals to make sure you’re getting the best policy for you. Don’t just look on the internet for a policy.
7. Your family will thank you. Even if you have a large family and you know for certain your children wouldn’t put you in a home they will still need resources for your care. They will likely be taking care of their own growing family. If you have resources to help pay for at-home care it would go a long way. Those with debilitating diseases such as Alzheimer’s or multiple sclerosis will eventually require around-the-clock care.
8. Buy from a reputable and stable provider. Companies go out of business. While there’s no way to know if a company will fail in the future, if you stick with buying from a provider with a long successful history you reduce the risk that the company won’t be around to pay out when you need them.
9. Share your policy. If the policy provides for it, you can share your plan with your spouse or other immediate family. I shared mine with my Mom. She pays her own premium but because I got my policy through work I was able to share that plan with her. She still had to qualify but the process was very different had she tried to get a policy without me.
10. You are never too young to get long term care insurance. According to Genworth, almost 28% of long term care is provided to people under the age of 65. Remember this type of insurance is for people who need long term care either at home or in a facility for any reason. Young people have accidents and/or illnesses that require assistance. This covers that as well. While it’s mostly for retired or elderly people the policy is not restricted to that. It’s not like a retirement account when you can only make withdrawals at 65.
Black women have the least amount of wealth in this country and are the least prepared for retirement. In addition to creating wealth including building a retirement nest egg, we need to be thinking about how we will protect our assets. Long term care insurance is something to consider. You should consult a financial planner to understand the best options for you and your situation. Depending on the system to take care of us when we need help is not a strategy. Share this post with someone you love and comment below. We love to hear from you.
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