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Marc A. Hebert's Money Sense: The pros and cons of buying long-term care insurance

By MARC A. HEBERT
June 17. 2018 12:05AM




Long-term care includes a range of services that helps people with chronic illnesses or disabilities. It can include both medical and nonmedical needs. It can involve the ability to perform certain basic tasks like feeding oneself, bathing, dressing, transferring and toileting.

This part of long-term care can be referred to as custodial care. This is the care designed to help one perform activities of daily living, such as those mentioned above. Custodial care can be provided by someone without professional medical skills and is usually supervised by a physician. It should be noted that Medicare and other forms of health insurance do not pay for custodial care, which is often very expensive. This leaves few alternatives for payment. Among them are the individual's own assets, Medicaid, which is a federal/state insurance program for low-income and needy people, and long-term care insurance (LTCI).

LTCI can pay for the necessary care as well as protect assets for loved ones, but it can be an expensive choice. Before buying LTCI, it is a good idea to review whether you can afford the premiums. During the retirement years, income may decrease substantially, making the premium costs tough to pay.

Given the cost, just what are the pros and cons of purchasing long-term care insurance?

The first pro is that LTCI does subsidize long-term care costs. We all age with time, and needing help to function is a potential issue we all face. Long-term care insurance can provide peace of mind in this regard. Some or all of the cost of this care may be paid for by the insurance. It may also give the individual a choice as to just where that care is received. Some nursing homes limit Medicaid beds, which means that if a person is relying on Medicaid to pay the cost, the choice of care with Medicaid may be more limited.

LTCI allows for some asset protection. Medicaid has certain asset and income levels that need to be met before the program will step in and pay for care. Medicaid also has certain rules governing the transfer of assets to others. Long-term care insurance can pay for care while these transfer rules play out.

There are some cons to LTCI. The first is expense. Depending on age, chosen benefits, insurer and other factors, the cost of the insurance can be very expensive. Also, the premiums are not guaranteed and can increase in the future.

The premiums need to be paid each year to keep the policy in force. Premiums may be paid for care that a person may not need for a very long time - or perhaps will never need. Another con is that the premiums paid reduce the assets that heirs could potentially receive.

There might be other planning tools available. Reviewing the situation with an elder-care attorney may provide options other than LTCI, if the need for care is nearer rather than further down the road.

If, after all the considerations, LTCI seems to be the answer, then compare policies and check the financial ratings of the companies offering coverage.

Next, review the policy's provisions. Be sure to read the fine print. Consider what is affordable. Investigate policies for couples. Make certain it offers the required features. Among the factors to consider are inflation protection, a full range of care, and exclusions for pre-existing conditions.

Consider whether the policy is a tax qualified LTCI policy, meaning the benefits are not taxed as income and the premium may be a deductible medical expense.

Finally, make sure someone you trust knows about the policy and your plans.

Marc A. Hebert, M.S., CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at mhebert@harborgroup.com. Your question and his response might appear in a future column.


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