Is Long-Term Care Insurance Right For You?

Adults over 65 in this country outnumber teenagers, and they are living longer. Demand for elderly care is rising exponentially, emphasizing the importance of planning for the possible need for long-term care.

Long-term care refers to the medical, personal, and social services that might be required as we age. It includes daily help with household activities, home healthcare, daycare, nursing home, group care, and residential retirement care. Long-term care (LTC) insurance is designed to pay for some or all of these requirements and to afford policyholders more choices than they might have otherwise and preserve more of their estates.

But the decision of whether to purchase is a complicated one, and clearly it is not for everyone. At the extremes there are those with few resources for whom Medicaid will provide coverage, and those with ample means are likely better off self-insuring.

At the low end, Medicaid does indeed cover end of life care, but the facilities that accept it, even at their best, are a far cry from home or private care facilities. To qualify for Medicaid, monthly income must be below the federal poverty level and assets must be below $2,000 for dementia care.

Many with sufficient means to self-insure their LTC needs can take an economic view. Howard Gleckman of Forbes magazine points to a  research paper by Jeff Brown and Amy Finkelstein which finds that private LTC insurance is very expensive relative to its benefits. “For instance, Jeff and Amy found that 65-year-old buyers of a typical policy would get back only 68 cents for every dollar they pay in premiums. By comparison, the same buyer of a life annuity would get 75 cents to 85 cents. It is also important to note that long-term care insurance is a much better deal for women, who get back 87 cents for every dollar in premium they pay, than for men–who get only 45 cents.”

A report from the Society of Actuaries suggests that people with savings less than $250,000 may not want to buy insurance while those with assets of greater than $2 million may not need to. Other research noted by Gleckman suggests that only 5% of people over 65 will incur long term care costs exceeding $250,000. But these statistics don’t help us sleep better at night.

To be sure, the question of whether or not to buy LTC insurance should never be considered only as a sales transaction. It is a decision ideally discussed at length with your trusted financial advisor and planner who knows you and your goals and has significant insights into your temperament for risk, your health, and your longevity expectations. All of these factors play a critical role in making a decision that is uniquely right for you and your family.

The decision should not be addressed from a product perspective but a holistic view of your life’s plan. The goal is to be assured that you are you adequately prepared to fund the potential LTC needs you may reasonably expect to face without over-burdening your loved ones, your resources, and your estate. Considering the product alone provides no frame of reference for its affordability, its effectiveness or its overall impact on your lifestyle.

The National Association of Insurance Commissioners website provides an excellent “What You Should Know” about LTC insurance.