A SUM180 member recently asked us about long term care insurance. “Is it worth it? Couldn’t I just start saving in an IRA or Roth IRA account myself, and eventually use that for long term care?”
Here’s how I see it.
The promise of long term care insurance certainly is compelling: it’s a way to pay for nursing home care so that all your savings and investments are not eaten up by nursing home costs. After all, Medicare and private health insurance programs don’t pay for all of the long-term care services that most people eventually need, such as help with personal care such as dressing or using the bathroom independently. And furthermore, costs for such services are increasing beyond the rate of inflation.
Of course, the younger and healthier you are when you buy long term care insurance, the better and more affordable the policy is likely to be. So, if someone were fortunate enough to already have a long term care policy, especially one purchased years ago, before many insurers started limiting their LTC policy offerings and raising premiums, it would be a good idea to hang on to it!
However, for someone in their 60s or older who does not yet have long term care insurance, it would be difficult to get – and probably prohibitively expensive even if they could. Other alternatives for paying for long term care may make better sense: easier to obtain, and cheaper. Some alternatives to consider:
- Health savings accounts. If you have an eligible high deductible health insurance plan, you can have a health savings account to put money aside tax-free for medical costs such as long-term care. Think of it as a Health IRA.
- Short term care insurance. These policies are less expensive than long term care insurance. Benefits are usually limited to one year.
- Life/LTC hybrid policies. These policies combine life insurance and long term protection. They’re suitable for people in their 50s and 60s who still need life insurance but want protection from long term care costs. Fixed premiums protect you against rate increases.
- IRA or Roth IRA. Even if you are under age 59 ½, you can take distributions to pay for medical expenses without incurring an early withdrawal penalty as long as the medical expenses are not reimbursed by health insurance and exceed 10% of your adjusted gross income.
Finally, don’t forget to consider your overall financial picture as you prepare for future long term care needs. For example, major assets like your investments and your home will come into play in covering long term care expenses.