Ask Ric: Should You Consider Long-Term Care Insurance?
The Good News Is We're All Living Longer but the Bad News Is the Longer You Live, the More Likely You're Going to Incur the Need for Long-Term Care.
Ric Edelman: Let's go to the phones here on The Truth About Your Future. Off the Bedford, Massachusetts. Erika is with us. Hi, Erika. Welcome to the show.
Ask Ric - Erika D from Bedford, MA: Thank you, Ric.
Ric Edelman: What can I do to help?
Ask Ric - Erika D from Bedford, MA: I just had a question. I have a financial person I've been working with for almost a year. And he was talking about long-term care insurance, he proposed a life insurance policy that can be used for long-term care. I guess half of the value could be used. So what he had said was instead of paying premiums that you might never get to use the insurance, the premiums go toward this life insurance and you can use half of it towards long-term care or it would be a life insurance policy if you died, going to your heirs. And I just wondered on your thoughts on it. I had never heard of it. It sounds interesting, but I'm also a little skeptical since his company is the one that has the life insurance policy. So I'd be taking money out of my investments every year and it's sizable premium. So I just wanted to get your thoughts on it.
Ric Edelman: Yeah, you're right to be skeptical, but the product is interesting. So let's talk about it and make sure we understand how it works. You've got a pretty good handle on it. Let me bring everybody else up to speed. We all know, first and foremost, that long-term care is a huge challenge in this country. The good news is we're all living longer. We talk about longevity on this show all the time. So the good news is we're living longer. But the bad news is the longer you live, the more likely you're going to incur the need for long-term care. And this is a devastating issue. It's the leading cause of poverty among retirees. The average cost of care right now is about $8,000 a month. That's $100,000 a year. It's not covered by your health insurance or Medicare. And this is why so many people go broke, paying for their long-term care. It's really room and board in a nursing home, increasingly in your own home, where you have a home health aide coming to visit your house. We're talking $75,000 / $100,000 a year. In urban areas, it can be $120,000 or more. If you have Alzheimer's, it's even more expensive than that because 24-7 care is required. So it's financially devastating. The solution, of course, is to buy long-term care insurance. For $7000 a year, you can get the coverage you need to pay for your annual need. I'd much rather pay $7000 a year than $8000 a month.
Ric Edelman: So this is why long-term care insurance is a good idea. But it's still $7000 a year and you might not ever end up needing the long-term care insurance. Which means all of that money you're spending - $7000 a year every year for your insurance (by the way, double that if you're married, you'd spend $12,000 or $15,000 a year on these insurance policies), if you end up never using the benefit, you've just wasted all that money on insurance premiums. And recognizing this fact, the insurance industry has tried to figure out a way to soften the blow. So they created this new hybrid policy. It's a combination of life insurance and long-term care insurance. Their attitude is that if you buy the policy and you end up needing long-term care, well, you've got the benefit. Good for you. That's why you bought it. But if you end up not needing the long-term care, then when you die you'll get a death benefit, you'll get life insurance benefits from the policy, and those death benefits will reimburse you or your heirs for the money you paid in the premiums. So this way it alleviates the risk of you throwing the money away on a policy you end up never using. So the concept, like you said, is pretty interesting, isn't it? The question is whether it's truly economic to go in this route. So let me begin by asking you this question. Do you need life insurance?
Ask Ric - Erika D from Bedford, MA: No, I don't think I want life insurance, and I'm not too concerned about leaving money to my heirs. But the other thing I was going to say is it's not like it's $7000 a year. It's actually more than that to to do the million dollar policy. It's it's $15,000 for the first year and like $10,000 after that.
Ric Edelman: And that's because they're providing you with a return of some of that money by virtue of the death benefit. So you're right, your cash out of pocket will be a lot more than if you merely buy a long-term care policy. But that's because you're going to get a lot of that money back upon your death. It doesn't do you any good. It benefits your heirs. And so we begin with the premise. Do you care about the need to do that? Depending on your family's circumstances, the answer could well be no. That's what you said your answer is, I could challenge that, but that's a whole nother conversation. I'm going to take you at your word that you're right. You don't need the life insurance, and therefore, what's in it for you to pay twice as much for a policy when you won't be the beneficiary of that, your heirs will be. In that sense, from what you've described, Erika, no, you should go with a straight long-term care policy and leave it at that. And don't let that bother you. Don't worry about the fact that, oh, gee, that means I might be spending $7000 a year on insurance and I end up never using it. Do you know what else we call that? Car insurance. I mean, we do the same thing with our cars, don't we? We buy car insurance, and then we hope we never get into an accident. And if you never get into an accident, you never get any benefit. So unless you have the attitude of, I'm going to wrap my car around a tree just to get the insurance money, you know, you pay the money, you pay the insurance, you get the protection. It gives you a peace of mind and then you hope you never need it. That's what you do. You do it with your car. You do it with your house. Do it with the long-term care as well.
Ask Ric - Erika D from Bedford, MA: All right. Well, my other thought was if it's $1,000,000 policy and it will pay $500,000. If I'm in my 50s and I need it 30 years from now, how much of a benefit is that even going to be if it's $1,000 a year now, how much it will be 20 - 30 years from now?
Ric Edelman: Well, let's keep in mind, of course, the insurance companies are very good at figuring out how to make money for themselves while delivering what they're trying to sell to the marketplace. So I think your circumstance makes sense. I think your analysis makes sense from what you've described. It would seem to me that just buying a long-term care policy is all you need to do.
Ask Ric - Erika D from Bedford, MA: All right. Thanks for your advice, Ric.
Ric Edelman: Erika, thank you for the call. That was Erika in Bedford, Massachusetts, here on The Truth About Your Future. Feel free to send me your question to AskRic@TheTruthAYF.com. You're listening to The Truth About Your Future.