Updated: Dec 5, 2018
Whether to purchase long-term care insurance or not is a personal decision. Many people opt not to purchase it because it is expensive, they consider themselves healthy, or they simply don’t know enough about it. While there are definitely some pros to getting coverage, there are cons as well — many of which have recently been in the spotlight. So, is long term care insurance worth it? Is it right for you?
Although Mark McQuire, a financial planner with Capital Advisors, says determining whether “long term care insurance is worth it” is entirely situational. He outlined the following long-term care insurance pros and cons to consider as you weigh your options.
Pros and Cons of Long Term Care Insurance.
Con: There is currently no certainty in pricing: Given that long-term care insurance is a relatively new insurance product, premiums offered now inevitably will change over time, and there’s still much internal industry debate over how to properly price different plans. “It can be a big risk,” McQuire says. “You can’t be sure whether the premiums will rise in the future, and there’s uncertainty about the insurance being accurately priced and ultimately effective for your needs.”
Pro: Long-term care provides a measure of peace of mind: If you’re the worrying type, long-term care insurance can ease your financial concerns for the future. Once you purchase a plan, you can rest assured that you’ll have some funds to support you and your health as you age.
Con: It’s hard to figure out how much insurance you might need: Since it can be difficult to pinpoint the extent of benefits you might need down the line, taking out long-term care insurance becomes a risky endeavor, McQuire says. Long term care policies don’t insure you in all cases. They only pay a fixed amount for a fixed period of time. The average length of stay in a nursing home is 24 months. But what if you exceed the average? If you find a plan that guarantees $200,000 in benefits, for example, there’s no guarantee that this will be sufficient. In New York State in 2018 the average cost of twelve months in nursing home exceeds $150,000. On the other hand, the opposite also holds true: If you purchase more benefits, there’s a chance you won’t use them all. “If you don’t use it down the road, then you just wasted $600,000, for example,” McQuire says.
Pro: It’s worthwhile if you’re sure you’ll use it: Of course, it’s impossible to predict the future, but evaluating whether you’ll need long-term care is crucial to deciding whether long term care insurance is right for you. “If you knew 100% that a client was going to go into a nursing home, then it would make sense,” McCurdy says. If you have one or more chronic health conditions rest assured they do not get better with time. As your health worsens, what have you done to arrange for care? Do you have a reliable plan to age-in-place and stay in your own home? Do you have enough financial resources to allow you to stay at home? Do you have someone reliable to care for you as you age – preferably someone much younger and healthy because care giving requires a great deal of stamina? Do you have a home that is designed to allow you to be mobile and able to get around or will you have to move in order to remain home?
Con: Benefits may not be allotted as you need them: As with any insurance, long-term care insurance has an “elimination period”, or a set length of time between an injury or health episode and the receipt of benefit payments. So, should you enter a nursing home for two months, McQure says, there’s the potential that you’ll go the entire stay without receiving benefits, depending on your plan, because Medicare insured patients get up to 120 days covered in a nursing home depending upon your Medicare plan. If Medicare covers all of what you need, then you long term care investment becomes useless.
Pro: You really are likely to require long term care: According to the American Association for Long Term Care Insurance (AALTCI), 68% of people who are 65 and older will require long term care. However, this statistic is misleading. You may need multiple times in a long term care facility after the age of 65, however, if your stays are under 60 days, Medicare will pick up the tab depending upon your diagnosis. Medicare only covers you in a nursing home if you have had three full days in a hospital prior to admission to a nursing home. They do not cover you if you are being admitted from home.
Con: You might not qualify: Most long-term care insurers require that you pass a physical before they insure you and somewhere between 15-20% of applicants are denied coverage. And, any health concerns will make your premium higher.
Pro: Out of pocket costs for long term care are expensive: While costs vary widely, the U.S. Department of Health and Human Services, reports that the average cost of long term care is $325 a day or $118,625 per month for a semi-private room in a nursing home. This really adds up quickly and few can really afford these costs. So, insurance may be a good way to insure that you are taken care of (at least for some period of time). However, keep in mind that depending upon your assets (home, stocks, bonds, etc.,), once your financial resources deplete, your nursing home costs may be covered by Medicaid, a state program for the financially indigent.
Who Should Buy Long Term Care Insurance? Whether you need long term care insurance or not depends on your financial health.
Wealthy? If you are very wealthy, long term care insurance is not an investment, it is simply an unneeded expense.
Low Income? If you have very little income and no assets, long term care insurance is out of reach and unnecessary. You will be covered by Medicaid if you are a legal resident.
Somewhere in Between? If you are somewhere in between, then knowing what to do is tricky. The best advice is to speak with both an Elder Law attorney certified by the American Bar Association and an accountant who specializes in estate planning for older adults.
Are There Other Ways to Pay for Long Term Care? A deferred lifetime annuity is one option according to Robert Reynolds, CEO of Putnam Investments. Putting money into a deferred annuity — now or around the time you retire — can also be an efficient way to fund long term care. With this strategy, you invest an amount of money to be paid out as monthly income to start at a date in the future. So, if you are 63 right now, you might invest $100,000 to be paid out starting at an age when you think you might require long term care — maybe age 85. When you turn 85, you will start receiving monthly payments which can be used to fund care or anything else you might need or want at that time.
Clearly there are many variables to consider. Funding you long term care medical and custodial needs is not one size fits all. The earlier to begin your research and planning the more likely you are to have made the best decision for you.