You make many decisions in your lifetime concerning insurance. What should my deductible be? How much coverage do I need? Who’s the best carrier? These are all necessary question concerning some of the different types of protection we all need.
But what about Long Term Care insurance (LTC)? You may have been approached about it by an insurance agent, or read about it in a periodical. You probably learned about the aging population and how many baby boomers are turning 65 every day (about 10,000), as well as the average cost of staying in a nursing home ($7,700 per month for a semi-private room.)
That high cost of having a bed in a nursing home may have left you feeling a bit uneasy, and probably caused a few new questions to pop into your head:
Let’s jump in and answer these questions and more, including the key question: “Is it worth it?”
What is Long Term Care?
Sometimes people need help, short-term or long-term, meeting their personal needs. Long term care delivers services that meet a person’s health and personal care needs. It helps aging adults (which includes all adults) live as safely and independently as possible when they aren’t able perform everyday activity by themselves.
Depending on a person’s needs, LTC is provided by different caregivers in a variety of places, including at home by family members, neighbors, and friends (who are unpaid,) facilities such as a nursing home, and in the community in places like adult day care centers.
The most common type of assistance someone requiring long term care receives is help with daily activities, which includes:
LTC also includes the provision of meals, adult day care, and transportation. These are usually provided for a fee.
Who Needs Long Term Care?
Just about anyone may need long term care during their lifetime; there’s no way to tell if you will or not. But there are factors which increase your risk of needing LTC:
Long term care is often needed when someone has a serious, ongoing disability or condition. Someone may not need it one day but need it the next, such as after they suffer a heart attack or stroke. Usually, however, the need comes on gradually as a person gets increasingly frailer or as their physical condition worsens from an illness or disability.
When I’m Older, Won’t Medicare Cover my Costs?
Many people think that they’ll just let Medicare, or their health insurance, cover the costs of LTC after they turn 65. The sad truth is that neither of these cover the cost of custodial care services (Medicare will for qualified impoverished individuals.)
Because of this, the majority of people end up paying out-of-pocket to cover the cost of care, which is no minor expense. According to a study by Genworth, these are some of the median costs for various types of care:
Considering these prices, even a short stay in a nursing home could be financially devastating to a family.
How Do People Pay These Costs?
As you can see, the cost of care is expensive, and it continues to rise. Americans are spending billions of dollars every year on LTC services. How they pay for that care often comes from a variety of sources, such as:
Nobody chooses long term care; they usually need it because of their inability to take care of themselves. Rising LTC costs have substantially outpaced inflation and have made it difficult, if not impossible, for many people to pay for services.
What Does Long Term Care Insurance Cost?
Considering the non-insurance options listed above can be depressing. Unless you have a net worth of over $1,000,000 or qualify for Medicaid, it’s really up to you to come up with the cost of care for you or your loved one each month.
The best way to tell how much LTC insurance will cost you is to get a quote online or talk with an agent licensed to sell LTC insurance. The table below shows how demographics and benefit periods affect the average premiums. The costs below are broken up by costs for a single male, single female, and a married couple. These figures are courtesy of the 2019 National Long Term Care Insurance Price Index.
As you can see, the cost of coverage is not inexpensive. But looking at them raises an important question: “Would I rather pay a potentially enormous expense out-of-pocket or would I rather pay a monthly premium just in case I need it?”
That raises another question: “Will I need it?” The short answer: there’s no way of knowing if you’ll ever need to use your coverage (much like paying your car insurance each month and not needing it.) If you don’t ever use it, many thousands of dollars in premiums will have been paid and you won’t receive a penny in benefits.
One study conducted by AARP found that the majority of Americans (63%) will never have a dollar’s worth of out-of-pocket expenses for LTC during their lifetime (48% will need the assistance for under one year.) Is it worth the risk?
Are There Any Other Alternatives?
Yes, there are alternatives to provide funds for future custodial care bills. They aren’t much less expensive than LTC insurance, but they can be of some future value to you if you end up not needing care. Here are five to consider:
If you do some checking, you’ll find that there are permanent life insurance policies out there that offer a long term care rider. The rider lets you use your death benefit while you’re living to pay for your long term care costs, but the amount you use will be deducted from your death benefit. This may not be something you want to have affect your beneficiaries.
A standard annuity is another insurance product. With an annuity, you give a lump sum of money to the insurance company and they provide you with payments for a fixed period of time. Hopefully, you’ll get back more over your lifetime than what you gave them.
A long term care annuity is a bit different. This annuity splits your payments received from the insurer in half. One part is totally for you to use for anything you choose, and the other part is earmarked for future long term care expenses. If you never use the LTC part, you can designate a beneficiary who will receive it when you pass away.
Yet another insurance product, this policy will pay you a lump sum of money when you are diagnosed with an illness named in the policy. Some of these are heart attack, stroke, cancer, and renal failure. Benefit amounts range between $10,000 – $50,000 and you can use the payout for anything you’d like.
But, be careful to read the fine print. There are some policies that reduce your benefit as you age, making them an undesirable substitute for LTC insurance.
Unknown to many people, you can sell your life insurance policy to a third-party since it’s legally property that you own. If you’ve had the policy for a while, this can be a good option since you typically receive more money than the cash value you’ve accumulated in the policy. It’s a nice backup plan to have.
Instead of paying the insurance company premiums for LTC insurance you may not need, pay yourself the premium by depositing it into a savings or investment account. If you have a Health Savings Account (HSA) at work, you can put it there. HSA contributions carry a tax-advantage (they’re paid with pre-tax dollars) and any withdrawals you make for medical costs are tax-free.
When Should I Get Long Term Care Insurance?
Similar to life insurance, it’s best to get LTC insurance when you’re young, though some companies won’t issue you a policy if you’re under 30 years old.
As you get older, you become a greater risk to the insurance company since we tend to have more illnesses as we age. Because you’re a higher risk, your premiums are going to go higher each year. A 45 year-old taking out a policy can save $440 in annual premiums compared to a 60 year old taking out the same policy. You’ll also have difficulty in getting approved by an insurance company if you’re not in good health, which frequently happens when you advance in years.
What Does a Good Long Term Care Policy Look Like?
Not all LTC policies are created equal. There are three major things to consider before you purchase LTC coverage.
With the inflation rider, you’ll select the assumed inflation rate and whether you want simple or compound inflation protection. The greater the inflation percentage you get, the more valuable your policy becomes, which of course, means a higher premium. Most people select a rate of 3%, though many insurers offer up to 5%.
The Bottom Line
If you’re thinking about buying long term care insurance, there are first a few things you need to consider.
First, do you understand long term care insurance and how it differs from Medicare and health insurance? Second, can you afford to self-insure, and do you know how much your policy is going to cost you compared to conscientiously saving towards an amount for which you set the target?
After evaluating your answers to those questions and having made sure that buying long term care insurance is a good decision for you, you’ll then need to decide what level of premium cost you’re comfortable with and the level of coverage you’ll feel safe with.
The last step is to fill out the application and submit your initial premium payment. Many companies can help you complete the application online and submit payment. Remember, you won’t have coverage until your application is approved and they’ve received your money.
Hopefully, you now feel better knowing all of your options and you feel good about deciding what’s best for you concerning long term care insurance. You should now be able to answer the big question: “Is long term care insurance worth it?” Only you can answer that question. Take your time when you shop for the right policy and fill out your application with confidence.