Pros and Cons of Long-Term Care Insurance
Is long-term care insurance a wise purchase? Here are five questions you can ask to see if this type of insurance will benefit you.
Do You Lead a Healthy Lifestyle?
Believe it or not, being healthy may mean that you are more likely to need care. The healthiest people are often the ones that end up needing long-term care assistance later in life, whereas heart problems or cancer may take the unhealthy ones sooner.
One of the benefits of long-term care insurance for a healthy person is that it can allow you to stay in your home and maintain your independence longer. Most policies issued today cover the cost of in-home care, which can provide someone to help with many of the activities of daily living, such as cooking and cleaning. Usually, you must require assistance with two out of the six activities of daily living for your long-term care benefits to begin.
What Shows up in Your Family Health History?
What is longevity and health like for your grandparents, parents, aunts, uncles, and siblings? Has anyone needed care later in life? Who was there to assist them? What if they had needed care? How would it have affected the family?
Today, many families are scattered across the country, making it difficult to rely on family for care. It can also be physically demanding to care for someone, and your family members may not be capable of providing the help needed. Long-term care insurance helps reduce the burden of care that may otherwise fall on loved ones.
What Kind of Care Might You Need?
What if you break a hip later in life? What if your mind remains fully alert, but you need help cooking, cleaning, and dressing, and you do not want to move in with a family member? Who would help and how would you pay for their help?
Full-time, long-term care assistance can run from $6,000 to $10,000 a month, or even more if medical care is needed. If you have sufficient assets to cover these costs, then you do not need long-term care insurance. If you do not have sufficient assets, without long-term care insurance, you will end up spending down the funds you have before you see whether you qualify for Medicaid. Long-term care insurance buys you time and enables you to afford quality care.
Can You Afford It, or Can You Afford Not to Have It?
Long-term care insurance has adjustable features. Like buying a car, you can get all the extras, and pay for them, or you can buy a base model that costs less but still provides decent transportation. The major downside of long-term care insurance is the same as any insurance: you may pay premiums for years and never use the coverage.
You need to look at it the same way you look at any other type of insurance. After paying for homeowner's insurance for years, are you upset that your home never burned down and that you never used your insurance? Of course not! You are happy you never experienced such an awful event.
When it comes to the amount of coverage, you may not need a "Cadillac" policy. Instead, evaluate the amount of long-term care coverage you may need by considering your other sources of income. A policy that covers $100 a day, with an inflation rider, may be sufficient once you also factor in your Social Security and pension income.
If you have little income and not much in savings, you will likely need to rely on Medicaid should you need care in your retirement years. If you have a nice pension and $2 million or more saved, you may feel comfortable being self-insured, which means you pay out-of-pocket for care needs. If your financials are in the middle of these two scenarios, having essential coverage for a reasonable premium could be a life-saver in your later years.
What Are the Odds?
According to the American Association of Long-Term Care Insurance:
"The lifetime probability of becoming disabled in at least two activities of daily living or of being cognitively impaired is 68% for people age 65 and older."
It is wise to look at the statistics, but your personal odds are either zero or 100%. You either will need care or you will not. If you need care for more than four or five months, you will be glad you have long-term care insurance.
Long-term care insurance allows you to maintain your independence and afford quality care, and it also helps reduce the financial and psychological stress that a long-term care event can impose on your family. The cons are the cost of the premiums.
Whether you buy insurance or not, you will want to have a plan in place, so you and your family know what to do if you need care. That plan involves talking to family and friends about their ability to help, if and when help is needed. You may also want to consider alternatives to long-term care insurance, such as making arrangements to live with friends or family or moving into a continuing care community.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.