Long-Term Care Insurance: What to Consider

Long-term care might be the one unknown that could derail your retirement plans. Statistically, a 65 year old today has a 70% chance of needing long-term care in the future, and approximately 20% of people who are now 65 will need long-term support for more than five years, according to the U.S. Department of Health and Human Services. That alone makes long-term care insurance (LTC) worth considering to hedge your bets and possibly subsidize your costs.

Emotions can rise to the surface when this topic is raised. It’s just too difficult to envision ourselves in the position of needing care or assistance on a long-term basis. And so we put off any discussion of it. Whether or not we will ever need it is a gamble—that's many people cover long-term care with insurance. Unless you have a very large amount of liquid assets that you wouldn’t mind spending on long-term care for yourself and a spouse, then LTC insurance should be discussed with your advisor. (For related reading, see: Is Life Insurance Through Work Enough?)

Long-Term Care Considerations

Married couples should consider each other in their planning process. If not, your spouse’s standard of living may be significantly diminished if they end up needing to use a large portion of their assets to care for your long term needs. It is also important for single people to think about their ultimate care. Alternately, your children may be faced with the burden of your care.

Most long-term care insurance policies are sold to people in their 50s and 60s because the premiums increase as we get older. In addition, the longer you wait, the greater the likelihood that you will develop a medical issue prior to the purchase of LTC insurance, which could also increase premium costs. Most people I talk to would opt for long-term care insurance if the cost fit into their budget. Often times, you can modify the features of the policies to bring down the cost.

LTC policies are complicated and may cover different lengths of stays in a nursing home or provide for home care. For example, your coverage may provide $3,000 a month for three years. Lifetime policies are also available, however they can be fairly pricey. Some policies even offer a refund of a portion of your premiums if the insurance is not used. A long-term care policy purchased from your employer is typically the least costly and it may be portable if you were to leave. (For related reading, see: Taking the Surprise Out of Long-Term Care.)

My Personal Experience

Long before my father developed an aging illness, I tried to gently discuss his options for long-term care before he needed help. I told him how important it was to have a plan, especially because he was living alone in his 80s. However, even at age 80, he didn’t want to have that discussion. He had always been independent and planned to remain independent. However, as it turned out, he did need a few years of long-term care.

Fortunately, he and my mother had purchased long-term care insurance years earlier. Without that insurance, we would have needed to sell the beach home that had been in the family for over 100 years in order to pay for his care. Instead, the insurance supplemented his other income streams so that he could have great care in his later years. However, a very opposite situation happened with my mother. She passed away from lung cancer in under a year and the long-term care was not used because we were able to care for her. The reality is that we don’t know what lies in our future.

Long-term care insurance isn’t for everyone. However, if you decide that LTC insurance is for you, remember that your policy doesn’t need to cover all of your anticipated expenses. If you can combine it with your social security or other assets, it may make for a much more comfortable future for you and your family. (For related reading, see: Your Complete Guide to Long-Term Care Insurance.)