Knowledge and Insights

Should I Consider Long-Term-Care Insurance?


As the first baby boomers approach their 70s in a healthier state than any prior generation, and as medical expertise and technology improve, it is vital that they address the possibility of needing long-term care. According to a recent study by Bankers Life and Casualty Center for a Secure Retirement, 70% of all Americans between the ages of 49 and 67 will require long-term care services in their lifetime. The current cost of this care in a nursing facility in the tri-state area is approximately $10,000 per month and is expected to triple in the next 20 years.

Although many look to long-term-care insurance (LTCI) as a potential solution to the ever-increasing cost of long-term care, it is not a panacea. In order to qualify for care, a care provider must assert that it is likely you will require care for 90 days or more and you are cognitively impaired or require assistance with two activities of daily living, which include: dressing, bathing, transferring, eating or continence. Once these gatekeepers are satisfied, a good long-term-care policy will allow you to receive care at home or in an assisted living facility, adult day care center or nursing home.

Variables that affect the cost of policies include the following: length of benefit period; monthly benefit amount; waiting or deductible period before payments begin and inflation protection terms. Shared policies are available for both same sex and heterosexual couples.

In addition, there are now hybrid policies that combine life insurance or annuities with long-term-care riders. With the life/LTCI combination plans, for example, if you never need long-term care, there is a death benefit, and should you need care, the cost of care is deducted from the death benefit. Also, many of these plans include a full return of premium less any benefits paid should you choose to cancel the policy. If you purchase a combination plan with a single premium, concern about increasing premiums is eliminated but initial payments may be costly. Careful analysis and number-crunching can determine whether this is truly a cost- and benefits-effective option.

There is no easy answer as to whether you should consider LTCI. Generally, we encourage those who have assets between $500,000 and $10,000,000 to seriously explore it. For many in that group, an annual LTCI premium or even a single combination premium might make only a small ripple in your finances. On the other hand, if you and/or your spouse or loved one should require ongoing long-term care, the possible effect on your savings could look more like a tidal wave.

Here are some questions to ponder:

  • Are you between the ages of 40 and 75?
  • What would you do if you were suddenly faced with an additional monthly expense of $10,000? How long before you would exhaust your assets or retirement plan?
  • Do you have family members nearby who could take care of you (take off from work) in your/their home should you require care?
  • Would you want those family members to care for you?
  • Can you afford the premiums for a long-term care policy without having to significantly change your style of living?
    • For a $6,000 per month benefit with 3% inflation protection, three years of care and a 90-day wait, premiums are approximately:
      • $120 per month at age 45
      • $165 per month at age 55
      • $255 per month at age 65
      • $625 per month at age 75
  • If you needed care, where would you prefer to receive it?
  • Would you move to a different state or country if you needed care?
  • Do you hope to leave an inheritance to your children or a charity?
  • Are you healthy?
  • Did either of your parents have dementia, Alzheimer’s, heart disease or diabetes?
  • Do you live with a spouse or significant other?
  • Do you need or have life insurance?

The cost of care is expensive! It can run between $6,000 and $10,000 monthly for facility care, and possibly even more for home healthcare. The cost of insurance is expensive as well. What will help you sleep better at night – having the insurance and never using it, or not having it and being faced with the enormous cost of care?

Which “mistake” would you rather make?