When to buy Long term care insurance
Taking into account the costs and benefits of LTC plans
with input from Derek Wolf, Founder | Senior Field Specialist
Last updated: October 12, 2022 | Article published: October 12, 2022
Over the course of the recent years, LTC insurance costs have risen astronomically to a point that many individuals can no longer afford a policy. The results of this has created a massive dilemma for many. With growing life expectancy, a major obstacle is the cost of long term care for individuals.
About 70% of Americans aged 65 and older are likely to need these services at some point, according to the Department of Health & Human Services. A private room in a nursing home costs an average
of $142,254 per year; and as much as $155,125 in high density urban areas, while the average cost of an assisted-living facility is $51,600 a year, according to Morningstar. This often leaves people wondering if is there a good time to buy long-term care insurance?
The average nursing home stay is 2.2 years for men and 3.7 years for women. With 67.9% of people in long-stay nursing homes being women, who tend to need care more often and for longer periods than men do because they live longer. And to add on to that; LTC costs are not tax-deductible, and the coverage provided by health insurance or Medicare is minimal at best. So the possible need to move to a nursing home can bring costly financial effects.
In the U.S., 41 million people are providing unpaid care for family members needing long term care. Often, in most situations, the caregiver is the spouse and of that %34 of them are unpaid with their average age being 62. So instead of being able to look forward to retirement, they are now faced with the emotional and financial toll of caring for their spouse. This is why it is important to pay attention to the cost of LTC.
This is why it’s so important, no matter how old you are, to pay attention to LTC costs – and it’s why we routinely recommend that our clients purchase LTC insurance sooner rather than later. In 1994, a policy might have cost about $1,500 per year and today, that policy would cost $6,500. These price increases don’t only affect today’s buyers of LTC policies, they apply to all previous buyers as well. Unlike life insurance, which premiums are guaranteed never to increase, the cost of LTC policies can rise over time.
Despite all this, we maintain the view that long-term care insurance is something you can afford not to have. While paying $10,000 or so a year can be unpleasant, it’s far better than spending $100,000 every year for several years if long term care is needed.
There are four viewpoints that can provide guidance about when to buy long term care insurance to balance your need for coverage against the rising costs of that coverage. (Please note that partnership plan rules can vary by state so please seek the counsel of professionals before purchasing anything. A financial planner can help tailor an approach for your unique circumstances.)
We recommend that you consider purchasing LTC insurance in either a traditional policy, state partnership plans, or through a hybrid policy if you haven’t already done so.
When buying a traditional long-term care policy, you can either pay monthly, quarterly or annual premiums. When you need assistance with two or more activities of daily living (walking, eating, bathing, toileting, dressing and transferring from bed or chair), you qualify for benefits under your policy. Your policy will dictate how much money you will receive and how long you’ll receive it and whether your benefits will rise with inflation. The more benefits you want, the more the policy will cost. If you exhaust your policy’s benefits but still need care, you’ll have to use your savings and investments. If you run out, you’ll become eligible for Medicaid.
It’s the possibility of running out of money that caused states to create partnership LTC plans. After discovering that many people were going broke paying for care, states created an incentive to buy LTC insurance to help reduce cost on reliance on Medicaid. So instead of requiring you to spend all but about $2,000 of your own money on care to qualify for Medicaid, the states let you keep as much money as you received in long-term care insurance benefits. So if your policy pays you $300,000 in benefits over several years before reaching its limit, you get to keep $300,000 in assets and still
qualify for Medicaid. Partnership policies can be complicated, and in some states, they are far more expensive than traditional policies.
Therefore, we advise careful research of each type to determine which is better for you. Both types of policies suffer a mutual drawback: If you never file a claim, you never get any money back, regardless of how much you’ve spent on premiums. But when we add to that the fact that premium costs have soared and are likely to continue rising, plus with the conceivability that long-term care services will become virtually extinct in coming decades, hybrid policies are now more attractive than they ever were.
So if you are younger then 50 and with good personal and family health history, we would generally not recommend the purchase of LTC insurance. Instead, you should consider self-insuring, meaning you should save as much as possible (this is possible with our hybrid policies that have built in LTC riders in them at no additional cost) so you have the cash reserves to pay for long-term care services, should you or your spouse or partner need them.
If you already own a long term care policy and the current price of your policy is making it unaffordable, talk with one of our planners. Many insurance companies are recognizing the price issue and are letting policyholders alter their contracts to make them more affordable. Changing the waiting period, daily benefit, years of coverage, inflation protection or other features could reduce the annual cost while ensuring that you still have protection.