The Ins and Outs of Long-Term Care Insurance

By Lee Bellinger / January 2, 2014
  • How to determine whether and when you need coverage.
  • How to choose the right insurance policy and avoid costly pitfalls.

It takes courage to look your final years straight in the eye and bet on whether you will need nursing care. The problem of course is that you won’t know until the very end of your life whether you made the best choice. Insurance may not be the right planning solution for you. But by weighing your options now, you have at least put an important planning matter on the table.

About 70% of Americans over 65 will eventually require long-term care in some form, according to the Wall Street Journal. Cost inflation is a major concern in this area. The Journal noted, “A private room in a nursing home, which now costs $82,125 a year on average, according to the American Association for Long-Term Care Insurance, could escalate to $190,000 a year by 2030, according to estimates by insurer Sun Life Financial.

Long-term care (LTC) isn’t covered by Medicare and is difficult to qualify for in a rudimentary form under Medicaid, so long-term care considerations an important part of retirement planning. Yet they are often overlooked. Many wrongly assume they are already covered, or that they’ll be able to afford nursing home expenses on their own, or that their children will take care of them. Sadly, those assumptions will, for a lot of people, turn out to be wrong.

Peace of Mind… for a Hefty Price

Long-term care insurance is for those who no longer have the ability to live independently and need medical assistance every day. Long-term health care is not covered by your medical group health plan, Medicare insurance, or secondary health insurance.

LTC insurers will only issue policies to those in relatively good health. That puts urgency on signing up. Most people start long-term care planning between ages 52 and 64.

Prudential and Met Life have stopped selling LTC policies – they just can’t handle the risk. The low returns and unpredictable costs were just too much for them. Other insurance companies have been forced to diversify their policies in order to cope with the rising costs.

Some 92% of all long-term care cases only need about 3 years coverage. That gives you a pretty good idea of how long you’d most likely need coverage, so don’t let the insurance company try to sell you 6 years without giving it plenty of thought. Deciding the length of your coverage time is up to you.

Other issues to consider:

  • Make sure the LTC insurance company you are considering is financially sound.
  • Ask about the deductible and elimination period (the amount of time before you receive care before the benefits begin).
  • Build in at least a 3% inflation protection into your policy — 5% would be better, though even it may be insufficient. If medical inflation takes off in an even bigger way than it already is, and your policy fails to keep up with it, your premium payments could represent good money going after bad.

You May or May Not Need Insurance,

But You Do Need a Plan

Here’s the bottom line. If you have ample assets on which you can draw in old age, then you may not need long-term care insurance. If you’re living paycheck to paycheck, you may not be able to afford it. Moreover, the dynamics of inflation, a weak economy, and an aging population increasingly drawing benefits, may cause some insurance policies to be inadequate or some insurers to default.

Long-term care insurance may or may not be right for you. But it’s never too early (or too late) to develop a plan of some sort for dealing with this potential financial burden.