LTC Insurance: Is Long-Term Care Insurance Right For You?

Long-term care insurance (LTC insurance) provides health insurance for extended periods of time, covering expenses that many private insurance policies, Medicaid and Medicare do not cover. LTC insurance addresses a growing concern for many individuals---the inevitable consequences of getting older and the potential ly requiring long-term care in the future. We all know individuals who can no longer care for themselves and naturally worry whether we'll need the same care someday.

The next thought, of course, is how will we pay for it? Private insurance policies, Medicaid and Medicare will only cover a limited amount of long-term care, which then forces you to ponder the need for long-term care insurance. You will need to inform yourself of the cost of long-term care (and LTC insurance) and balance that against the odds you will need long-term care.

See also LTC (Long-Term Care) Insurance: Risks and Benefits, and Home Care Options for Elders for more information. 

Cost of Long-Term Care Insurance

According to the U.S. Department of Health and Human Services (HHS), the average costs in the United States (in 2009) for long term care are:

  • $198/day for a semi-private room in a nursing home
  • $219/day for a private room in a nursing home
  • $3,131/month for care in an Assisted Living Facility (for a one-bedroom unit)
  • $21/hour for a Home Health Aide
  • $19/hour for a Homemaker services
  • $67/day for care in an Adult Day Health Care Center

If you don't have enough private resources to cover your needs, there are government programs, such as Medicare and Medicaid which can assist you, to a limited extend. For information on what government programs will pay for and eligibility requirements, visit the HHS long-term care website

The Odds

Over 1/3 of the population will need long-term care at some point in their lives, whether it's for a few months to recover from a serious injury or illness or for care toward the end of their lives. You can look at this in two ways--you have around a 65% chance you won't need long-term care and therefore don't need long term care insurance, or 35% is still a big chance and you don't want to risk needing care and not having the money to afford it.

If you fall into the latter category, LTC insurance may be the route for you. Like any investment, choosing whether or not to purchase an insurance policy will depend a great deal on your taste for risk. Because long-term care insurance is expensive, you'll be paying high premiums to insure against the roughly 35% chance that you will need such care. If you don't need it, or can't afford to continue paying premiums when you retire, you lose all the money you poured into the policy and get nothing in return.

Another factor that enters into the equation is whether you are predisposed to certain debilitating illnesses or have a chronic illness that you feel may require long-term care in the future. (Note that most insurers will not offer you a policy if your chronic illness is serious enough that they believe you will definitely need long-term care.)

Financing Long-Term Care

Paying premiums on any health insurance policy is expensive. Adding a long-term care insurance policy has the potential to double your current premium. There are a wide range of policies to choose from, that cover a variety of situations and types of long-term care. But the real question is, do any of them make sense for you?

The answer to that question depends on your circumstances. For those who own a home, have large retirement savings, or pension plans (traditional, 401(k), IRA) that can provide them with a steady source of income in addition to Social Security, paradoxically, LTC insurance may not make financial sense.

While you could probably afford the premiums, studies have shown that most people don't get their money's worth. The odds that you won't need long-term care are good, and even if you do, you can most likely afford to pay for it on your own. If worse comes to worst, you can always take a reverse mortgage on your home, giving you added income without the risk of losing your home.

For those not as fortunate to own a home or have a large savings or pension, LTC insurance may be more tempting. But as stated, premiums are very high and most non-insurance industry sponsored studies and organizations state that on average, most people lose money on these policies.

Additionally, there is the risk that the insurer will not be in business by the time you need long-term care. A Consumer Reports study found that a high rate of insurers were on shaky financial ground. The consequences of your insurer going under include a loss of benefits, increase in premiums (assuming another insurer buys your carrier), and loss of money you paid into the policy.

At the end of the day, it's all about what type of risk you are comfortable with. You could pay a great deal in premiums only to end up not needing the policy, or you may not be able to afford the premiums at some point and you lose the benefit and the money you've paid into the policy. On the other hand, there is the risk that you'll need long-term care and may not be able to afford it. Objectively review your circumstances (both financial and otherwise), investigate your options, and make the best decision for yourself.

Long-term insurance is not for everybody, but may be the best option for those who expect to need extra care down the road. 

Next Steps

Contact a qualified health care attorney to help navigate legal issues around your health care.

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