Pros & Cons of Long Term Care Insurance

Published on February 21, 2019 by Eric Rosenberg in Life Settlements, Retirement Planning

Elderly couple riding bikes exploring long term care insurance pros and cons.

Long-term care insurance is an important financial protection that most Americans could take advantage of. Just as you need medical insurance for health care needs, well over half of Americans eventually need long-term care. That may include expensive stays in a nursing home or assisted living facility. If you can’t afford the many thousands of dollars per month that comes along with a high level of care, you should seriously consider buying long-term care insurance. Here we will weigh long term care insurance pros and cons.

Today, let’s dive in and look at how you can find the right insurance company for your long-term care financing needs.

What to consider when purchasing long-term care insurance

Like any other insurance or large purchase, buying long-term care insurance is a major decision. Medical insurance pays for hospital stays, but it doesn’t pay for long-term home care, assisted living, or nursing home care. This is why long-term care insurance is so important.

A long-term care policy typically begins providing a benefit when the insured needs help with a number of activities of daily living (ADL). Between the time you qualify for the care and the payments begin, you typically have a waiting period. Each policy defines this differently, so it is important to read and understand any policy before you get started.

Long-term care insurance used to be cheaper and easier to come by, but these days only a limited number of companies offer long-term care (LTC) insurance and prices have gone up. We can attribute that to longer life expectancies and the related care needs that come with an aging population.

The US government sayus that 70% of 65-year-olds today will require long-term care. If you don’t have long-term care insurance, you’ll be paying for it out of pocket. But before signing up, here are so major pros and cons to consider when considering long-term care insurance.

Couple discussing the benefits of long term care insurance over coffee.

Major pros of long-term care insurance

As an insurance-related business, we generally think insurance is a good thing. However, the importance of long-term care insurance for some households cannot be understated. Here are some of the biggest pros of long-term care insurance:

Access care when you need it

If you get an ear infection, your health insurance lets you go to the doctor. When your child or grandchild falls and breaks an arm, you can take them to the emergency room knowing insurance will cover a significant portion of the cost. If you don’t have long-term care insurance, you can rest easy knowing those costs would be covered in the event of injury, illness, or age-related need for care arises.

Depending on your condition, you may require any level of long-term care someday. That could include anything ranging from basic home care or assisted living to skilled nursing or memory care. A private room in a nursing home often costs in excess of $8,000 per month. If you don’t have the savings to support this type of cost, long-term care insurance helps you access care when you need it.

Most long-term care policies include a waiting period after qualifying for care before benefits start to pay out. Watch out for this elimination period in your insurance policy. You should plan to keep enough in emergency savings to cover long-term care costs during the elimination period, or come up with another plan for care while waiting for long-term care insurance benefits to kick in.

Protect family finances and wealth

When the most expensive long-term care facilities cost more than $100,000 per year, a surprise need for long-term care can ruin retirement plans and a whole lot more. This important insurance protects your family from financial ruin should you ever need long-term care.

While the monthly cost can feel like a lot at first, it is a lot less than the cost of long-term care. Even home care for an hour a day turns into thousands of dollars quickly. An insurance policy can act as a hedge against this major, common risk.

Peace of Mind for you and your family members

LTCI gives your family members more than financial security. It also gives you peace of mind. Just as life insurance gives you peace of mind that your family would be able to weather the financial stresses of a worst-case scenario, losing you, long-term care insurance gives peace of mind that your needs would be met if you are like 70% of others and end up need care for a period of time.
If you can’t afford care, your family could be stuck in a position where they have to miss work, skip other obligations, or spend a large portion of their time taking care of your basic needs. It could also be the difference between getting the level of care you want or need versus a lower level of care that is more budget friendly.

Couple enjoying the benefits of long term care insurance while walking.

Major cons of long-term care insurance

While long-term care insurance is great for many people in many circumstances, it is not a perfect solution for every household. Consider these two common downsides of

Premium costs

The first major con is that it costs money. Premiums for long-term care insurance have gone up and up over the years. According to AARP, the average policy costs $2,700 per year. That’s $225 per month. Depending on your income and budget, that could be a serious challenge.

If you can budget for that premium, you’ll save an average $140,000 per year. Just like any other insurance, you have to weigh the monthly cost with the potential likelihood you will need long-term care. Also, keep in mind that insurers will ask about your personal and family health histories. If you are a high-risk of needing care, your premiums will be even higher.

Over-insuring

If you qualify for Medicaid, you may have some long-term, care services. If that is the case, long-term care insurance would be excessive. However, most people who qualify for Medicaid are likely under-insured and dealing with other, more pressing financial struggles.

If you qualify for Medicare due to disability or age, you may get some long-term care benefits there as well. While everyone qualifies for Medicare once they reach age 65. However, waiting for those benefits is a big risk, and you may not qualify for Medicare or it may be insufficient for your needs.

Limited options

As the insurance industry learned more about the costs and risks of long-term care insurance, the number of insurance companies willing to issue new LTC insurance policies has dwindled. Genworth is a leader in this type of insurance, but there are still a handful of competitors offering competitive policies.

Just make sure you don’t pick a low-quality policy due to convenience. You want a policy that covers a wide range of long-term care services with as much freedom and flexibility as possible.

Happy senior couple finding out the pros and cons of long term care insurance.

General cost of long-term care insurance

As we discussed above, most long-term care insurance costs an average of $2,700 per year, which breaks down to $255 per month. If that sounds like a lot, however, consider the alternatives.

When living on a fixed income in retirement, one of the most common periods when you would need long-term care, that could be a challenge. Social Security alone is usually enough to keep someone out of poverty, but it is not enough alone to maintain the same quality of living in retirement as you did during your working years. Adding the costs of care can further strain those limited budgets.

While long-term care insurance isn’t cheap, the six-figure annual benefit could be well worth it for you, your spouse, or other members of your family.

Where and how long-term care insurance can be purchased

Long-term care insurance is available from a list of companies. To find the best LTC policy, you may be best off working with a trusted insurance agent. This agent can help you review insurance plans from Genworth and other insurance companies. The agent can also help you review important aspects of the LTC policy.

For example, you will want to understand how to qualify for the daily benefit, which long-term care expenses the policy covers, the waiting period before benefits begin, and how this policy may fit in with other insurance products you already have.

You may also want a policy that includes an inflation rider, which would offer inflation protection against higher care costs if they go up over time with inflation. While it doesn’t pay a lump death benefit like life insurance, it does offer a great value that you can maximize when working with a trusted insurance expert.

Summary of pros/cons

The U.S. Department of Health and Human Services says that more than half of Americans will need long-term care. With that in mind, let’s look at the pros and cons of long-term care insurance we discussed above:

Pros:

  • Access care when you need it
  • Protect family finances and wealth
  • Peace of mind for you and your family members

Cons:

  • Premium costs
  • Over-insuring
  • Limited options

Care coverage can be important to you, even if that future seems very distant. In an ideal situation, you are in good enough condition that home health care is a viable option. No one wants to leave home due to needs that traditional long-term care insurance can cover.

Eric Rosenberg
Eric Rosenberg is a personal finance expert residing in Southern California. He holds a BSBA in finance from the University of Colorado and an MBA in finance from the University of Denver. He has over a decade of experience writing about financial topics online. His work has been featured on Business Insider, Investopedia, The Balance, Investor Junkie, and a wide range of quality financial publications.

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