Is Long-Term Care Insurance Worth It?

The answer depends on your circumstances

Because we’re living longer, many Americans will eventually need care in a nursing home, assisted-living facility or at home—and chances are 1 in 5 we’ll need it for five years or more. With annual nursing-home costs averaging $75,000 and rising, that’s a big financial burden. It’s one that Medicare and health insurers don’t cover.

“They usually pay for only a limited amount of skilled nursing care, and only if your condition is improving,” says insurance advisor Geoffrey Legg of G.A. Legg & Associates in Allentown. “If you require custodial care (help with daily living activities), they stop paying.”

Enter long-term care insurance, designed to cover the cost of extended care when a disability or chronic illness strikes. For many, it brings peace of mind and financial protection. But it isn’t right for everyone. “You need to consider your financial and health situation and know what you’re paying for,” says home health and hospice social worker Tom Smith of Lehigh Valley Hospital and Health Network. 

It’s best to consider coverage well before you need it. “The younger you are, the less expensive the premiums,” Legg says. The packages you can buy vary endlessly, but here’s a typical scenario:  For coverage of up to four years in a $150-a-day nursing home, your premiums might total $1,200 a year at age 50, and $7,500 a year at age 79.

When weighing your need for long-term coverage, consider these factors:

What’s the likelihood you’ll use it? If your family’s health history is good, you might never enter a nursing home.

Can family members provide care (and are you comfortable that it won’t be a burden on them)? If so, the costs will be much more manageable.

What’s your net worth? Long-term care insurance makes most sense for middle-incomers. Those worth $1 million or more may insure themselves to help protect their assets, but many choose to cover the costs directly. Those with very limited assets are usually covered by Medicaid (though the choice of nursing homes may be limited). Check your county assistance office for eligibility requirements.

If you decide to insure yourself, read the fine print. “Have an attorney or qualified specialist determine what’s actually covered, how long coverage lasts and when it kicks in,” Smith says. “Long-term care insurance typically begins only after you can’t perform two or more activities of daily living—until then, you’re responsible.”

Want to Know More? For detailed guidelines on buying long-term care insurance, click here.

Tom,* a 53-year-old executive, is in good health. Though he makes $150,000 a year, he’s still worried that a catastrophic illness (like the cancer that killed his father) could quickly wipe out his $500,000 nest egg—and his children’s inheritance. He decides to invest in long-term care insurance now, while his premiums are low, to protect his assets and spare his family the emotional and financial burden of caring for him later.

Betty* is a healthy 82-year-old living comfortably on $2,500 a month from savings and Social Security. Her nearby son and daughter-in-law are willing to care for her if her health declines. But they’re also busy with their careers and family. The memory of her late husband’s costly and emotionally wrenching struggle with brain cancer also weighs on her mind. Though she knows she might never need long-term care herself and the premiums are high at her age (almost $600 a month), she decides a policy makes the most sense for her and her family.

Fred* is 65 and has heart disease. A retired construction worker, he’s saved only about $4,000 and lives mainly on his monthly Social Security check. His grown sons also have low-earning jobs and little time to help if he ever needs extended care. Fred looks into long-term care insurance, but finds it doesn’t make sense. Not only are the $400 monthly premiums (made higher because of his pre-existing condition) more than he can comfortably afford, he also qualifies for Medicaid to cover any future long-term care costs.

*These fictional people are typical of those making decisions about long-term care insurance.

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