Should I Keep My Long-Term Care Insurance?

Question: How much of one’s income should be spent on long-term care insurance? I’m single, 62 and have no dependents. My siblings and parents are deceased, and there’s a history of Alzheimer’s and colon cancer in my family. I earn $150,000 a year. I’ve had a “Cadillac” LTC policy for about 10 years, but it’s doubling in cost this year — to about $8,500 annually. It provides up to $10,000 a month for nursing-home care, an additional amount for home health care and many other benefits. It has a 5% inflation rider and an unlimited benefit period. I have about $400,000 in savings and investments and live in a rented house. I’m curious as to what, if anything, you think I should do about this policy, given the costly new premium.

Ric: Let’s simplify the question: If you were to need care, how would you pay for it?

You seem to have sufficient personal assets to pay for care for as long as you live. Thus, we could conclude that you can self-insure; you don’t need an LTC policy.

This means, however, that if you do need care, you will spend your money providing it. By the time you die, you might be broke. But so what? You have no spouse or children to worry about and no inheritance issues.

But if you can’t afford the cost of care for your expected lifetime or aren’t sure, then you do need a good long-term care policy. Your family medical history also matters; Alzheimer’s patients live longer in nursing homes than do other patients, which could drive up your lifetime costs substantially. So do you really want to gamble that your assets will be sufficient for your care needs for your lifetime?

To learn what is advisable in your case, I suggest that you meet with a financial advisor who can review your financial situation comprehensively and help you decide what kind of LTC insurance you need and how much, what policy features you should have and how to make sure you can afford it.

Originally published in Inside Personal Finance November 2013

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