SMART MONEY: Is long-term care insurance worth considering?
DEAR S.J.: You failed to tell me your age — a rather important variable. While you can buy long-term care insurance in your 40s, it is not really appropriate or cost-efficient to purchase this coverage until you are in your 60s. The ticklish part of that is you will be required in most cases to be in good health or you will pay a very heavy premium if your health has deteriorated. Whether you should have this insurance at all is yet another matter.
As I have said repeatedly, the very wealthy don’t require long-term care insurance and the impoverished don’t require it either given the fact that Medicaid will pay for them. It’s the people in the middle. The other variable is for how long a period should you purchase the insurance. The hard realities are that relatively few people survive more than four years in an intensive-care facility. That doesn’t mean that there aren’t people who have lived for many years beyond that, but we have to deal in averages when considering insurance.
If your individual income upon retirement is over $140,000, meaning each partner exceeds $70,000 a year, I doubt it’s really necessary for you to purchase insurance. On the other hand if it is much below that, you might consider covering the difference between your income from investments, pension plans, etc. and the requirements. Bear in mind that the troublesome part of the equation can be that if one spouse requires care and severely diminishes assets it makes it very tough for the second. This is a problem that our country, as a nation, is going to have to take a hard look at and find some type of an equitable solution so that people are not impoverished in a few months of a lifetime of savings.
DEAR BRUCE: Several years ago I bought a whole life policy on my husband. Over the years I have paid in $5,643. The company was taken over by another and I asked to cash out. Eventually, I was given a check for $3,300. I have paid in so much more and I think I have been ripped off. There is not much that I can think of to do. Can you help me? — G.C., Muhlenberg Township, Pa.
DEAR G.C.: You failed to take into account that, over those many years your husband was insured and, had he passed away in an untimely manner, you would have received the face amount of the policy. While I’m not a fan of whole life insurance for a variety of reasons, I think it’s unreasonable to think that you were ripped off. You developed some cash value and your husband happily survived for a good many years. Life insurance should be called “death insurance.” This way you would not think of it as an investment. Although there might be some investment qualities, it’s strictly something that provides money if the insured leaves in an untimely fashion. Given the first company’s insolvency, you did rather well.
DEAR BRUCE: I’m nearing the end of my mortgage payments, which is good news, but I’m afraid of losing my tax deduction. I’m a relatively high-income earner and live in a very high tax area. My itemized deductions have been limited to less than the full amount. How can I determine whether it’s worth taking out another mortgage to preserve the mortgage interest deduction? — J.S., via e-mail
DEAR J.S.: Borrowing money simply for a tax deduction makes very little sense. You are still going to pay 60 percent of the cost of the money after taxes have been taken into account. You will have to find a home for that money with little risk, since you are borrowing against your residence that will generate, once again after taxes, enough to break even. While this can be done, it is a far more difficult task in today’s world of very cheap money.
Send your questions to: Smart Money, P.O. Box 504, Elfers, FL 34680. E-mail to: bruce@brucewilliams.com. Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.