Should I Acquire Long-term Care Insurance?

Long-term care (LTC) insurance coverage is well worth considering, yet it still may not be necessary or affordable. Here are some suggestions on long-term care insurance that will help you make a decision one way or the other.

Important matters to consider.

  • Understand the policy limitations and features. Long-term care insurance is aggressively sold, and many purchasers don't really understand what they're getting - or not getting. Become an expert on long-term care insurance before signing up for a policy. This insurance could be one of your biggest retirement expenses. It requires considerable effort to ensure that you make the most of your hard-earned dollars, but keep in mind that this is a major financial commitment that will span decades.
  • Favor policies that provide comprehensive home health care coverage as well as nursing home coverage. Inflation protection is also an important feature for those who are considering this coverage.
  • One alternative to long-term care insurance that you may want to consider is to invest the money you would pay in LTC premiums. According to recent statistics, only 37% of all 65-year-olds will need long-term care in a nursing home or assisted living facility. Most will stay less than two years.
  • Faustian bargain: You can cut premium costs by limiting the policy to three years, but if you spend a lot longer than that in a nursing home, you may end up impoverishing yourself anyway. Eight percent will spend more than five years in a "nursing facility."
  • Chances are that you could accumulate a significant amount of money by the time you enter a nursing home (if you ever do). If you're worried about a nursing home confinement impoverishing you and your spouse, consider investing some of your retirement savings in an annuity, which will at least assure you and/or a surviving spouse or partner a lifetime source of income that won't be forfeited to the nursing home.
  • You may lower premium costs by eliminating all the fancy, and expensive, bells and whistles, while keeping the inflation kicker. Lowering the daily reimbursement rate will also lower the premiums as will increasing the waiting period until benefits kick in.
  • If you can only afford to insure one party, women are more likely to spend extended periods in a nursing home.
  • Continuing care communities (CCCs) may be considered in lieu of long-term care insurance. CCCs provide three levels of care for their residents: independent living, assisted living, and nursing home. CCCs may obviate the need for an LTC policy.

LTC policy features worth considering. While "new and improved" insurance policies should often be viewed with skepticism, some enhancements, particularly of the long-term care genre, may be worth considering, particularly since every several years Congress further tightens eligibility requirements for Medicaid coverage of nursing home costs. Here are some examples of innovative long-term-care-insurance policy features:

  • Combination policies. Money that is not used for long-term care is paid out in the form of annuity distributions.
  • Shared care. Allows couples to tap into each other's policies in case either exhausts policy benefits.
  • Flexible payout. Rather than receive the stated benefits, these policies will allow policyholders to change how they're reimbursed from month to month to better match their long-term care costs.

The bottom line. Not everyone needs long-term care insurance. So analyze your own situation before shelling out the big bucks. Weigh your answers to these questions:

  • Are you worth over a million dollars, excluding your home? In that case, you probably can afford to pay for home health care and nursing care out of your own pocket.
  • Have a limited income and less than $500,000 in investments, excluding your home? You probably can't afford long-term care insurance.
  • Are you somewhere in between? Have more than several hundred thousand dollars, but aren't quite a Rockefeller? Long-term care insurance could be worth the price, particularly if you're married or in a partnered relationship. If you're single…
  • Are you single? The major protection offered by long-term care insurance is preventing nursing home costs from impoverishing a surviving spouse or partner. If you're single and are not really anxious to pass on your estate to someone, then as long as you can afford to be placed in a top quality nursing home, you may not need this coverage.

What is the best age to buy a long-term care insurance policy?

Opinions vary greatly as to the best age to acquire an LTC policy. One thing to keep in mind is that the annual premiums for LTC coverage are a lot higher if you wait to take out a policy until your 60s or later. Few objective experts on these matters recommend that it be purchased before age 50 and after age 70 when premiums may become prohibitively expensive. While premiums are lower if the policy is purchased at a younger age, keep in mind that that premiums are likely to be paid for decades before any benefits are collected, if ever (the average age that a senior enters a nursing home is 83). On the other hand, one compelling argument for purchasing a policy sooner rather than later is that health issues may arise that render you uninsurable. Therefore, if your health is deteriorating, or you have a family history of early disability, or you engage in high-risk activities, you should probably acquire an LTC policy at a younger age. Finally, if your fear of the unexpected is robbing you of sleep, you may want to obtain coverage now, rather than waiting. Of course, a decision of equal importance to deciding when to acquire a long term care policy is whether you can afford the premiums or whether you're wealthy enough to self insure.

Shopping tips. If you're shopping for long-term care coverage, you should consider:

  • Inflation protection that provides for your benefits to increase five percent annually.
  • Guaranteed renewable policies, so that the company can't cancel you.
  • Waiver of premiums once you start collecting benefits.
  • Third-party notification in case you forget to pay a premium.
  • A provision that lets you keep a lesser amount of insurance in force if you let the policy lapse.
  • Restoration of benefits, which insures that your benefits are reinstated under certain conditions due to an oversight on your part.

For more information on long-term care, use these links:

Agency on Aging

Health and Human Services

America's Health Insurance Plans Guide to Long Term Care pdf