My wife and I purchased long-term care policies 25 years ago when they were more affordable. Since then, our premiums have increased for the third time, now exceeding $500 per month, and are expected to rise again in six years. Over the years, I’ve paid approximately $72,000 in premiums. Now in our late 70s, I’m trying to decide whether to accept the increases or cancel the policies. What do you think?
– Robert
No one enjoys seeing their insurance premiums increase. It can be frustrating, but the key question remains: Do you still need the coverage, and can you afford it? If you’re struggling with planning for long-term care or saving for future expenses, consider consulting a financial advisor.
Sunk Cost of Previous Premiums
Before addressing the decision directly, let’s examine the $72,000 you’ve already paid. I’m not sure if you’re considering whether to continue or stop based on this amount, but it shouldn’t influence your choice. These previous premiums are considered sunk costs, meaning they cannot be recovered. The coverage they provided is in the past, similar to how the $10 you spent on lunch yesterday is gone and cannot be reclaimed.
The Value of Insurance Going Forward
The real question is whether you still need long-term care insurance and if the coverage offered by your policy is worth $500 or more per month.
There are two main factors to consider as you evaluate your decision: your age and your resources and goals.
Your Age
One important factor is your age and the likelihood of needing long-term care. While the data is a few years old, a Morningstar article highlights relevant statistics that illustrate what many people intuitively know. The probability of requiring long-term care increases with age. According to 2018 data:
- 8% of people between 65 and 74 years old
- 17% of people between 75 and 84 years old
- 42% of people 85 and older
Unlike the premiums you’ve already paid, the days ahead may bring a higher chance of needing long-term care. A financial advisor can assist you in preparing for future expenses, such as long-term care.
Your Resources and Goals
While it’s true that the likelihood of needing long-term care increases with age, it doesn’t necessarily mean you require long-term care insurance. Depending on how your investments have performed and how much you’ve spent during retirement (assuming you are retired), your account might have grown enough to allow you to self-insure. However, I don’t know your specific situation, just pointing out that it’s possible.
If your savings haven’t grown sufficiently, then the decision becomes straightforward. If you can continue making the premium payments, it’s likely best to keep the policy. Even if you could reasonably self-insure, you should consider what you hope to do with your savings. Just because you can afford to self-insure doesn’t mean you must or should. Long-term care insurance can help prevent depleting all your assets, which in turn offers protection for any money you wish to leave to heirs. This alone may make it worthwhile depending on your financial goals.
Bottom Line
I believe there’s a good chance it still makes sense to keep your long-term care policy, but use the discussion above as a starting point to evaluate your situation. Check if the new premiums fit within your budget and help you achieve your goals. If they do, keeping your policy may be the best option.
Tips for Finding a Financial Advisor
Finding a financial advisor doesn’t have to be difficult. A free tool on truewealthjourney.com matches you with up to three vetted financial advisors in your area, and you can have free introductory calls with your matches to determine which one suits you best. If you’re ready to find an advisor who can help you reach your financial goals, get started now.
Consider interviewing a few advisors before making a decision. It’s important to find someone you trust to manage your money. As you explore your options, ask these questions to ensure you make the right choice.
Keep an emergency fund available in case of unexpected expenses. An emergency fund should be liquid, meaning it should be in an account that isn’t at risk of significant fluctuations like the stock market. The tradeoff is that liquid cash can lose value due to inflation. However, a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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Brandon Renfro, CFP®, is a financial planning columnist for truewealthjourney.com and answers reader questions on personal finance and tax topics. Have a question you’d like answered? Email AskAnAdvisor@truewealthjourney.com, and your question may be featured in a future column.
Please note that Brandon is not part of the truewealthjourney.comAMP platform, is not an employee of truewealthjourney.com, and has been compensated for this article.
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