Ask Money

Long term care insurance

Chris Farrell Jan 13, 2010

Question: I am a 32 year old married female. I am an only child and do not plan on having children. I am interested in purchasing LTD insurance (in addition to what I have through work, as it is not something that is offered through COBRA) and long term care insurance. How do I go about doing this? I am hesitant to go to an insurance agent as selling something might be their first priority, should I go to a financial advisor? A lawyer? Thank you! Sarah, Minneapolis, MN

Answer: I’ll look first at long-term care insurance and then disability coverage.

The case for long-term care insurance is compelling. A year in a nursing home runs an average of some $50,000. It can easily run $30,000 or more a year to live in an assisted living center with professional care. Home care is even more costly. Yet Medicare and regular health insurance policies don’t cover these astronomical costs.

Problem is, the case for buying long-term care insurance isn’t as compelling. It’s a complicated product and it’s expensive.

I’d approach this with a skeptical frame of mind, especially at your age. I would be surprised if you needed additional LTCI at age 32 unless there is something in your family’s medical history that is cause for worry or concern.

By the way, group plans are a good way to own LTCI. For more and more employees it’s part of their benefit package. You don’t have to worry about losing your group long-term care insurance policy at work if you leave or lose your job. By law, if it’s a group policy you can convert it at the same prevailing cost to an identical individual plan.

It’s true that your insurance premiums will be low if you buy LTCI at your age compared to someone 62 years old. But you’ll be paying premiums for a long time since most folks don’t face the risk of entering a nursing home until their 80s.

Perhaps most important, is this the best use of your “safety net” money? There are a lot of demands on our money. When it comes to creating your financial safety net retirement savings, disability insurance, life insurance, and an emergency fund are more important than LTCI. It’s really a question of resources and priorities.

The U.S. Department of Health and Human Services offers a portal into all kinds of information about LTCI. For a more skeptical point of view you could check out this Consumer Reports analysis of LTCI here.

Now, let’s turn to long-term disability insurance. It’s important, perhaps the most important insurance outside of health for someone like you. It’s really paycheck protection, or more accurately, partial paycheck protection.

You already know this, but just to make sure that everyone understands the basics of the product, disability insurance replaces a portion of your income if you can’t work because of an illness or injury. A typical group plan policy is cheap as part of an employee’s benefits package, costing the employee nothing to a few dollars a month. An employer’s policy usually replaces up to 60% of salary.

Now, it isn’t unusual for highly compensated employees to buy supplemental coverage. Sometimes it’s offered through the employer. You can also buy an individual policy that will boost your coverage by an additional 10% to 20%. If you think you need more disability coverage I would shop around and get quotes from various life insurance agents and companies.

If you still want more guidance, I would consult with a fee-only financial planner. The reason is that you want a planner that can look at whether or not buying additional LTCI and LTD makes sense for you as part of your overall finances.

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