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Q: My financial adviser suggested I buy long-term care insurance. I’m 56, in good health and recently divorced, so it rang a bell. The policy he wants to sell me is $2,600 a year, which seems expensive — but is it? Other friends say buy a CD and you’ll be in control of your own funding for the future. Insurance is a rip-off, they say, and you should put money in something that will be there if you need it — or not. What do you think?
A: Investing in a CD instead of insurance might work for some people. Two problems to consider. First, you’d have to purchase one of significant value — say, $300,000 — to cover what you’d probably choose in a comparable insurance policy. That money would not be available for other purposes, so it may be an option primarily for the wealthy. Second, because CDs are highly interest-sensitive, they could produce yields lower than increases in the cost of care over the long run. You’re protected from this in an insurance policy by buying an automatic inflation option.
There are no guarantees anywhere on earth, and I have my own skepticism about the long-term care insurance industry. But the bottom line for me when thinking about funding my care is this: I see no alternative to insurance, based on several factors.
• I won’t have enough saved to cover both my retirement and care needs (most boomers don’t). My parents needed care for 14 years. While many people die quickly, many don’t, and I don’t intend to gamble on where I’ll fit.
• Medical science will continue to find new ways to keep more of us alive longer than ever before, regardless of our ability to live independently.
• Eldercare costs have risen faster than the economy annually for the past 30 years, and may shoot through the roof when severe labor shortages arrive in the next decade.
• If you’ve read about the economic catastrophe that awaits us because of our nation’s scandalous financial deficits, you’ll know it’s futile to count on the government’s largesse to pay for most eldercare in the future.
• No stock investment protects against inflation; however, if you buy an insurance policy with inflation protection, your benefits are guaranteed to increase annually.
• Each long-term care insurance company is required to have significant reserves held aside to cover future policyholder needs (something the stock market doesn’t).
• The minute you’re covered by insurance, you’re covered for good to the limit of your policy; not so with the stock market, where the value can wax and wane.
Most consumers don’t want to pay for another kind of insurance (me, too) and don’t want to consider ever needing care someday (me, too). While I understand these reactions, I don’t see an alternative. Which is why I continue to pay on my policy every single month, year in and year out, now going on eight years.
Liz Taylor’s column runs Mondays. With 30 years experience in the aging field, she writes and conducts workshops. E-mail her at growingolder@seattletimes.com or write to P.O. Box 11601, Bainbridge Island, WA 98110. You can see all of her columns at www.seattletimes.com/growingolder/.
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