I'm a Financial Planner: This Is How I Would Advise My Wife to Structure Her Long-Term-Care Policy Differently Than Mine
Women's longer life expectancies mean long-term care coverage should feature longer benefit periods, higher payout amounts and robust inflation protection.
Most research suggests the best time to buy long-term-care (LTC) insurance is typically in your late 50s.
Ten years ago, the advice I was giving clients on LTC planning was totally different than it is today. Ten years from today, I'm hoping robots have made the cost of care significantly cheaper without, at the same time, taking our jobs.
Anyway, on to the reason we're here.
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Like so many planning arenas where women should plan differently than men, this one stems from longevity. It's a fact that women live longer than men. Because of this, a married woman is often the one taking on the primary caregiver role for her husband.
Once he passes, there is no spouse to take care of the caretaker, so she is forced to hire someone or enter a community.
I often joke in the courses I teach that if both a husband and wife enter a retirement or nursing community together, the husband will hate it and die. The wife will make new friends and live forever.
The numbers actually support this. Over 70% of nursing home residents are women, according to the American Association for Long-Term Care Insurance.
First targets: The benefit period and amount
The first thing I would adjust on an LTC policy is the benefit period. At Exit 59 Advisory, where I am the president, when we structure benefit periods for traditional long-term care insurance, we often use a starting point of four years for women and two years for men.
According to LongTermCare.gov, women on average need 3.7 years of care, while men need 2.2. Many of the newer hybrid LTC policies rely more on pools of money, or the total amount of coverage, than on a specific number of years.
"Long-term care" is a broad term. It often starts with custodial care, where someone comes to your home to help you cook, clean and get around. For women, it is more likely to end with skilled nursing care, which is medical care.
As you may imagine, these two levels of care cost very different amounts.
This is the second adjustment I would make: Whether it's a pool of funds or a monthly benefit, I would increase the amount for women, based on the statistic I stated earlier: 70% of nursing home residents are women.
Next target: The inflation rider
I have written more columns than I choose to admit on inflation over the past four years. Not exactly what I was picturing as a young boy aspiring to be a professional athlete. This one is no exception: Don't ignore the inflation rider on an LTC policy.
This is especially true for women, who are more likely to enter a facility later in life.
You've seen how inflation can erode your egg-purchasing power over the last few years. The same is true in this space. The longer down the line you plan to use the policy, the more important the inflation rider becomes — 3% vs 5% over a long period of time compounds to two very different numbers.
Simple interest inflation riders vs compounding interest riders will also look quite different 25 years from now.
The bottom line
We always start with the financial plan to see whether long-term care coverage is even necessary. For those with significant assets and low relative expenses, you may have no problem paying out of pocket.
First, assess your needs. If there is a need, measure it and build the policy to fit.
Just as you wouldn't buy a custom suit made for someone else, you shouldn't buy a long-term care policy that doesn't fit you.
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