As you grow older your need for life insurance usually drops as your children become independent. However, you may find an increasing need for long-term care insurance.
This kind of insurance appeared as more and more elderly people began entering expensive nursing homes. With annual fees for nursing homes running at $30,000 or more per year, many people feared that a long stay in a home could ruin them and destroy any chance of leaving money for their children.
They knew that if they became impoverished the government would probably pick up their tab for nursing home care, but this would come with the red tape and lack of freedom typical of government welfare.
Although you might want to give long-term care a good look, there are plenty of caveats to consider before buying.
The first is that long-term care insurance is expensive. Premiums depend on your age, but they can easily cost $1,200 per year for someone age 65.
Annual premiums increase as you grow older and the risk of needing care rises. Also, benefits are usually limited to three to five years, although the majority of people who enter homes stay there for less than three years.
As with buying any kind of insurance, you should also do some risk assessment before buying long-term care insurance. If you've already built up a large amount of savings, you can provide self-insurance and save yourself thousands a year in premiums. If you're already fairly poor, you can't afford the premiums, and Medicare should be there to help you anyway.
But if you decide to buy long-term care insurance, you probably should delay its purchase for as long as possible. You probably shouldn't buy the insurance before age 65 because the chances of needing care before then are small.
Also the long-term care insurance business is new, and insurers have little experience evaluating their risk exposure, so they're probably overpricing policies to make up for this uncertainty. Try to wait until the insurers gain more experience and rates come down.
Finally, the government recently has provided some help in buying long-term care insurance. Premiums recently were deemed to be a medical expense, so you can deduct the premiums on Schedule A of your taxes if you itemize. Even better, if your employer provides long-term care insurance, this is a tax-free benefit like other medical insurance. Check my tape on income tax planning for more on this.