With a credit crunch, banks in crisis, politicians in trouble, and jobs on the line; to an average fifty-plus couple, long-term care planning must seem the least of their worries.
In recent years, the long- term care insurance and investment market in the UK has, unlike in the US, almost disappeared.
The solution of lifetime mortgages and equity release looked appealing two years ago. But as the mortgage market crashes, estate agents go bust, property prices and share values fall, and interest rates look set to rise, many advisors believe they are a risky solution where a customer could easily find that, in a twenty-year period, the ownership of the policy and effectively their house, could change four or five times due to mergers and takeovers.
We are all living longer and more healthily, so many argue that they may simply be throwing money away by buying protection against the huge costs of long-term care in a home or your own home, if a reducing percentage of people will ever need this help.
There are so many considerations when deciding whether to purchase long-term care insurance. Some experts say consumers should approach the question like any investment - in a businesslike, unemotional manner. For others, LTC offers peace of mind that everyone should have, it’s just a question of ‘how much?’ and ‘when?’ to sign up.
First, some basics: There are many variables to consider, and most of them play into how much consumers will pay in premiums each month.
What kind of policy to buy?
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A cash policy that pays the benefit no matter how much the consumer spends, as long as they meet the qualifications
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An indemnity policy that pays only for the days on which care is used
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A policy that reimburses consumers only for documented expenses
How much insurance to purchase?
In terms of elimination period or deductible, daily benefit amount and maximum length of benefit period?
What features will the policy have?
For example, will it cover only institutional care, or also home care? Will it have a set benefit, or inflation protection? Will it have a level premium or graduated? How many ‘activities of daily living’ (ADLs) will have to be lost before coverage begins, and which ones are considered?
Even after these questions are answered, policy pricing will be contingent on the age and health of the applicant, family health history, residence location and other underwriting criteria.
Because it’s such a complicated decision, all potential purchasers should work with a long-term care specialist.
Most people should have some insurance protection for long-term care, say some advisors. Even if you’re 50 and in really good health, you need to consider that 30 years from now the cost of long-term care will be huge. You either need to have private insurance, or a nice big nest egg outside of what you plan for your retirement income. Or, if you really like bingo, loud televisions, communal entertainment and being cared for by under-paid, overworked staff, you could rely on a local authority care home - if any exist in 30 years’ time.
Other advisors say invest the money you would have paid in premiums as there is a high probability that you will never need any care, or care for a short few years compared to a retirement that could last longer than your working life.
Costly hospice and nursing home care can bankrupt a spouse or children. Medical care can be a large burden on families and spouses after retirement - and we are getting to the stage where the people paying for parent care are themselves retired.
When you start balancing the cost of protection against what you’re getting, you may end up with very expensive nothing. To get optimal protection is very expensive, a policy with full inflation protection, lifetime care and top coverage. As you start coming down off of that, you end up providing protection only up to a point. That may not be sufficient to keep you from going broke, and all you’ve got is the privilege of going broke more quickly.
Wealthy people probably save money - lifestyle spending, such as travel and entertainment - when they go into a nursing home. For those with little, the state will pick up the cost of care. For the vast population in between, if you’re not going to do the job adequately, then you’re just wasting your money.
For people who have saved and accumulated, and can comfortably retire, they have to evaluate whether that capital is at risk if they find themselves in a long-term care situation. Long-term care insurance is an option for people who haven’t saved enough to pay for their retirement years.
Long-term insurance says it helps protect the legacy of the policyholder for one’s heirs - but that is outdated thinking, as the modern view is that children should not expect a windfall on a parent dying.
In reality, most people who buy or consider LTC are in their 50s or 60s. Some advisors believe the discussion should begin earlier. Some believe everyone should have a policy. But that is pure cloud-cuckoo land - younger people have families to bring up, cars to buy, holidays to enjoy, and usually a substantial mortgage to pay - they have no spare cash for LTC.
Whether planning for care should be done through prudent investments or insurance is an individual decision. In addition to available income to pay the premiums, policy options and costs must be factored in on the insurance side. On the investment side, it may depend in part on how reliable the individual is in sticking with the goal of putting the target amount away each month.
Whatever the decision, investors should look at the options and plan for the future, one way or another.
