My wife and I purchased long-term care policies 25 years ago when they were relatively inexpensive. Now our premiums have increased for the third time to over $500 per month and will increase again in six years. I figure I’ve already paid about $72,000 in premiums. Now, in my late 70s, I’m trying to decide whether to accept the increases or cancel the policies. What do you think?
– Roberto
Nobody likes paying higher premiums, and it can be frustrating to see them go up. However, just as was the case when you initially decided to purchase the policy, the question at hand is still whether you need and can afford the coverage. (And if you need help planning for your long-term care or saving for future expenses, consider talking to a financial advisor.)
Sunk cost of previous premiums
Before we get into that directly, let’s talk about the $72,000 you’ve paid up to this point. I’m not sure if you’re suggesting moving forward or stopping because you’ve already spent so much, but either way that shouldn’t influence your decision. Those previous premiums are sunk costs, and the insurance coverage they bought you is a thing of the past. It’s no different than the $10 you spent on lunch yesterday.
The value of insurance for the future
The real question is whether or not you still need long-term care insurance and whether the coverage provided by your policy is worth more than $500 a month.
I think there are two big concepts at play here that you should consider when thinking about your decision: your age, your resources, and your goals.
Your age
The first is your age and likelihood of needing long-term care. It’s a few years old, but this Morningstar article discusses some relevant statistics about long-term care that I think illustrate what we all know intuitively. The chances of needing long-term care increase as you age. Data from 2018 shows the percentage of people who end up needing long-term care:
So, unlike premiums you’ve already paid, the days you’re most likely to need long-term care are ahead of you. (A financial advisor can help you prepare for future expenses, such as long-term care.)
Your resources and your goals
While it certainly speaks to it, just because you’re more likely to need long-term care in the future doesn’t necessarily mean you need long-term care insurance.
Depending on the performance of your investments and how much you’ve spent over the course of your retirement (assuming you’re retired, you may not be) your account may have grown large enough that self-insurance makes sense. Obviously I don’t know, I’m just pointing out that it’s possible. If not, your decision is pretty simple in my opinion. Provided you can continue to make your premium payments, it’s probably best that you do.
Even if you can reasonably self-insure, you’ll want to think about what you hope to do with your savings. Just because you can afford to self-insure doesn’t mean you have to or should. Long-term care insurance can help you avoid depleting all your assets, which in turn provides some protection for the money you hope to leave to your heirs. This alone may be worth it depending on your financial goals. (And if you need help setting and planning financial goals, such as bequeathing assets to heirs, talk to a financial advisor.)
Bottom line
I think there’s a good chance it still makes sense to continue your long-term care policy, but take what we’ve discussed above as a starting point for evaluating your situation. Find out if the new rewards fit your budget and help you reach your goals. Assuming they do, keeping your policy may be the best option.
Tips for finding a financial advisor
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Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors serving your area, and you can have free introductory calls with your advisors to decide which one you think is right for you. If you’re ready to find an advisor who can help you reach your financial goals, start now.
Brandon Renfro, CFP®, is a financial planning columnist at SmartAsset, answering reader questions on personal finance and tax topics. Do you have a question you would like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future article.
Please note that Brandon is not a participant in the SmartAdvisor Match platform and has received compensation for this article.
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The post Ask an Advisor: Our Long-Term Care Insurance Now Costs $500 a Month. We are in the mid 70’s and paid $72,000 total. Should we cancel our policies? appeared first on SmartReads by SmartAsset.