I am 82 with chronic kidney disease stage 4. The next step is dialysis. My husband is 80 and has a pacemaker but is in general reasonably good health. My question is in regard to long-term care insurance, which we have had for many years.
The current value is about $350,000. Currently, we pay about $3,000 quarterly, but that amount will double if we don't change anything. We have some retirement accounts, and we own our home (50% equity), valued at $1 million. As part of the same property, there are two rentals, which bring in $3,000 per month.
We have no family to care for us or for us to have to worry about. The hope is that we can stay in our home until one or both of us die. My question is, which is the wisest plan: keep the long-term insurance as is; reduce the benefits but keep it; or drop it?
— P.
Dear P.,
Long-term care can be prohibitively expensive, but I'd urge you not to give up this policy. You've paid into it for years. Unlike some types of life insurance policies, long-term care policies don't accumulate cash value. In other words, they're use-it-or-lose-it.
Chances are, you will need to use this policy at some point. A person who lives to be 65 has about a 70% chance of needing long-term care. That's why long-term care insurance is so expensive: People don't tend to buy policies until they're older, at which point the odds are high that you'll need the insurance. With, say, a car insurance policy, you get lots of drivers who pay premiums for decades but file few, if any, claims. But people who buy long-term care insurance are pretty likely to need long-term care.
If you cancel your insurance, it would be virtually impossible to obtain coverage again, given your age and health issues. You'd need to deplete most of your assets aside from your home to qualify for Medicaid. For many people who need long-term care, Medicaid truly is the only viable option. But you'll typically have more options for health care under a long-term care policy than you'd get with Medicaid, so continuing your coverage is worthwhile.
I'd also hesitate to reduce the coverage amount. Though $350,000 sounds like a lot, even a relatively short period of nursing care could burn through that amount quickly. According to Genworth's 2021 Cost of Care survey, the median monthly cost of a home health aide was $5,148. A semi-private room in a nursing facility was $7,908.
But I get it: Absorbing a $12,000 annual premium increase is brutal. Since you have 50% equity in your home, you may want to see if you qualify for a reverse mortgage to give you some breathing room on those payments. This option could be especially appealing since you don't have heirs you're hoping to leave your home to.
As the name suggests, a reverse mortgage is like a backward home loan, where you get access to money — you may receive fixed monthly, quarterly or annual payments, a lump sum or a line of credit, depending on the loan — using your home equity. The loan doesn't need to be repaid until you die, at which point the borrower's heirs can pay off the proceeds by selling the home or turning it over to the lender.
Focus on using your money to do whatever will make life comfortable for you and your husband. In your case, I think that means keeping this policy and tapping into your home equity if necessary.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to AskPenny@thepennyhoarder.com.
This was originally published on The Penny Hoarder, a personal finance website that empowers millions of readers nationwide to make smart decisions with their money through actionable and inspirational advice, and resources about how to make, save and manage money.
Photo by National Cancer Institute on Unsplash
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