Should You Invest in Long-Term Care Insurance?

Elderly WomanIf your grandmother was born in the year 1900, her life expectancy wasn’t much higher than 50, according to the National Institute on Aging. However, if you are 65 years old today, the Social Security Administration predicts that you will be able to blow the candles out on your 86th birthday cake if you are a woman.

Life expectancy has increased at an incredible rate over the last century, and it truly is a blessing that we can enjoy so many more years of life, experience, and time spent with the ones we love. However, as modern medicine allows more of us to survive things that would have killed us only decades earlier, like heart attacks, strokes, and cancer, it is more likely that we will eventually need some kind of care in our last years. That’s why the insurance industry offers Long-Term Care Insurance (LTCI).

Life expectancy has increased at an incredible rate over the last century, and it truly is a blessing that we can enjoy so many more years of life, experience, and time spent with the ones we love. However, as modern medicine allows more of us to survive things that would have killed us only decades earlier, like heart attacks, strokes, and cancer, it is more likely that we will eventually need some kind of care in our last years. That’s why the insurance industry offers Long-Term Care Insurance (LTCI).

A Growing Need for Long-Term Care

While none of us likes to imagine that we will end up in a nursing home or will need care at home, it is a very real possibility that we must prepare for. The Centers for Disease Control and Prevention found that 1.4 million Americans lived in nursing homes in 2014. Many others received assistance at home from home health care aides or homemakers. The costs for this care are absolutely staggering! According to the well-regarded annual Genworth survey, the national average cost of a semi-private room in a nursing home was an astounding $6,844 per month! The services of a full-time home health aide or homemaker averaged around $3,800 a month.

This is not pocket change! In fact, it is easy to imagine that just a few years in a nursing home could completely wipe out your nest egg, leaving you with little to live on in the future or to pass on to your heirs. This is exactly what long-term care insurance is meant to address.

What Is Long-Term Care Insurance?

Long-term care insurance is designed to pay for (or at least help pay for) the cost of your long-term care. There are many different types of long-term care insurance, so if you are considering this product, you need to choose carefully and read all the fine print. Some policies provide a lump sum amount that you can draw against to cover your care needs until it runs out. Other policies provide a certain amount of financial coverage each month that can be used toward your long-term care needs.

If the payment doesn’t cover the full cost of your care, you will need to find a way to make up the difference. Other policies have time restrictions on their payouts, often just a few years. Finally, certain policies restrict the type of long-term care they pay for. They may pay for nursing home care, for example, but not adult daycare.

If the payment doesn’t cover the full cost of your care, you will need to find a way to make up the difference. Other policies have time restrictions on their payouts, often just a few years. Finally, certain policies restrict the type of long-term care they pay for. They may pay for nursing home care, for example, but not adult daycare.

Drawbacks of Long-Term Care Insurance

Long-term care insurance can certainly be helpful if you ever find yourself needing expensive nursing home care, but there are some important drawbacks to consider. The most obvious is that you may never need to actually use the policy. If you die peacefully in your sleep after a robust and healthy life, you could have paid thousands of dollars for insurance you never needed. In this way, buying long-term care insurance is a gamble — and an expensive gamble at that!

We’ve already learned that long-term care isn’t cheap, so it’s not surprising that long-term care insurance isn’t cheap either. According to an article about LTCI on Wise Bread by staff writer Dan Rafter, a policy with a cap of $164,000 would cost a single 55-year-old female in good health $1,390 a year. That’s a lot of money for a policy you might not even use! The cost of LTCI goes up significantly as you age and if you have any health issues.

Is Long-Term Care Insurance Right for You?

The answer depends on a lot of different factors. If you have a history of Alzheimer’s or dementia in your family, or if your parents required long-term care, then you might be a higher risk of someday needing long-term care yourself. LTCI is also a good way to protect your nest egg if you have a spouse or want to pass something along to your heirs.

At the end of the day, the decision about whether or not LTCI is right for you should be made within the context of your overall estate planning goals. Consider working with an estate planning attorney or an elder law attorney who can help you define your estate planning goals and develop a strategic estate plan. A reputable financial advisor can help you find an LTCI policy that provides adequate coverage for any possible long-term care needs.

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