Is Long-Term Care Insurance Worth It?

But is long-term care insurance worth it? Here is what you should know so you can decide for yourself.

What is long-term care?

LongTermCare.gov defines long-term care as “a range of services and supports you may need to meet your personal care needs.” Much of the care is non-medical care, meaning it is assistance with the “activities of daily living” – bathing, dressing, eating, toileting, transferring, etc. And those who have suffered debilitating conditions such as strokes, Parkinson’s, or Alzheimer’s will need long-term care the most.

For those who need it, long-term care is expensive, with the cost of care continually rising. Current estimates range from an average annual price of $43,000 in an assisted living facility to $92,000 for a private room in a nursing home. Some experts predict a 42 percent increase in these figures over the next two decades!

The American Association for Long Term Care Insurance predicts that two-thirds of all people who are 65 or older will need long-term care. Most of these seniors will require help because they no longer can care for themselves, and with long-term care costs outpacing inflation, it will be challenging for many to afford it.

Is long-term care insurance worth it?

Most types of insuranc – auto, homeowners, life – are designed to protect against sudden and unpredictable catastrophes. Long-term care insurance is for something that will happen – old age. Everyone ages and most will need some care, so you’re not preparing for the unexpected.

However, just like with life or health insurance, you are considered a higher risk the older you are, which translates into higher premiums. Purchasing a policy at age 45 instead of waiting to age 60 can save you over $400 a year on premiums for a standard 3-year long-term care policy.

Why not save the money you would put into LTC premiums and put it toward your future care? Take the example of that 45-year-old married man paying $88 a month for an LTC policy that pays $3,500 per month for three years:

Investing the $88 in a mutual fund with an average rate of 5.5% compounded monthly would yield only $41,500 by age 65 – far short of the $119,000 total value of the LTC policy. And the longer you wait to start investing, the less sense it makes to self-insure.

While this might sound like a “slam-dunk” decision to purchase it, long-term insurance comes with several considerations. These policies have various benefit periods, waiting periods, and premium costs associated with them.

Most long-term care policies have a waiting period of 90 days, meaning you’ll need to cover your expenses out-of-pocket for that time. Keep in mind that more than half of the stays in a nursing home are less than 90 days, so you would not receive any payments from your policy for these relatively short stays.

What should you look for in a long-term care policy?

You’ll want to know how long the policy will cover you (benefit period) and how long you must wait before your coverage begins (waiting period). Long-term care insurance typically comes with 36 months of coverage and a 90-day waiting period. Even though you can choose a longer benefit period or a shorter waiting period, be aware that either of these options will raise your premiums.

Ask what happens to your long-term care insurance if you can no longer afford premiums. Do you lose all of the money you have put into the policy?

Also, check if the policy has inflation protection. Since you are purchasing this policy to use in the future, its value could be considerably diminished when you need it. While many policies will provide an inflation rider, you will have to decide on the percentage. Most policyholders choose 3 percent, but 5 percent is also available.

The bottom line?

Once you understand what long-term insurance entails, you’ll need to evaluate your situation to determine: is long-term care insurance worth it to you? Will you be able to save enough toward your long-term care as opposed to paying LTC insurance premiums? Have you already accumulated sufficient funds to self-insure?

Evaluating whether long-term care insurance is right for you could be easier with a trusted financial advisor to assist you.