Do I need Long-Term Care Insurance?

One of the biggest debates for those nearing retirement can be whether or not to purchase Long-term Care(LTC) Insurance. What are the details needed to make this important decision?

The Cost of Long-Term Care

The effects of Long-Term Care (LTC) on retirement savings are undeniable. An extended stay in a LTC facility can be financially devastating and destroy your retirement nest egg. Home care, assisted living and skilled nursing care all fall under the LTC designation. While home care and assisted living costs are expensive enough and range around $4000-5000 per month, skilled nursing care can easily double those amounts, depleting over $100,000 per year for one person in skilled care. According to the Bipartisan Policy Center, those who need the highest level of care will require it for an average of 3-9 years. A married couple could end up paying these amounts for care of one partner, while their spouse still has more traditional expenses of living like housing, utilities, transportation, among others.

How do you pay for Long-term Care?

The options for paying the costs of long-term care are limited. Regular health insurance generally doesn’t cover long-term care. Medicare may only pay for short-term stays for rehabilitation, but this is temporary and usually for recovery after hospitalization. The remaining options are self-pay, Medicaid, and some form of insurance with specific coverage for LTC. Self-pay may be an option for some people, but can quickly deplete resources, as the costs listed earlier in this article indicate. Medicaid does pay for LTC but there are some caveats. First, Medicaid is only available to individuals with low income and a low amount of assets, requiring some people to significantly deplete their savings before qualifying. In fact, outside of their home and one car, applicants must have less than $2000 in assets, $3000 for a married couple. Second, the number of facilities that accept Medicaid payment amounts as full payment may be limited in some areas as not all LTC facilities participate in the program, and program payments can vary from state to state.

Insurance may be a good option for some to help pay for LTC costs. On average, people purchase LTC insurance plans around age 57. Stand alone LTC policies vary in cost, depending on how much monthly coverage and the maximum payout of the plan. You can expect to pay $2000-3000 per person in annual premiums if the policy is purchased around age 55. Women pay higher rates as they are more likely to live longer and actually use the policy. The debate about these types of policies comes in when considering whether you might end up using them or not. These policies are usually a “use it or lose it” type of policy. If the insured dies without a LTC stay, it can seem like the premiums have been wasted. According to estimates by the Department of Health and Human Services, 76% of current 65 year olds will incur less than $50,000 in LTC expenses over their lifetime and 63% will have no out-of-pocket costs at all. Another insurance option is a hybrid Life Insurance policy. These policies can help solve the “use it or lose it” dilemma. Benefits for a hybrid life policy include both payments to cover LTC stays and a death benefit. While this may seem like the perfect solution, caution must be exercised depending on your situation, as the LTC benefit is often lower than a stand-alone policy and funds used to cover LTC expenses usually reduce the death benefit payable to the beneficiaries, unlike a term life policy (which we often recommend).

Long Term Care expenses can certainly be a wild card in retirement planning. The important choice of whether or not to purchase a LTC insurance policy, a hybrid life insurance policy or neither is very dependent on your finances, your family and your health. As with many other financial decisions, an informed choice is the better choice.

For more statistics about Long Term Care needs, payment, and insurance visit an article from Morningstar here. For more information about hybrid life insurance policies see the Forbes article here.

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