Is Long-Term Care Insurance Worth It?


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By Financial Symmetry, Chad Smith, and Mike Eklund. Discovered by Player FM and our community — copyright is owned by the publisher, not Player FM, and audio is streamed directly from their servers. Hit the Subscribe button to track updates in Player FM, or paste the feed URL into other podcast apps.

How do you know if long term care insurance is worth it?

Short Youtube video here:

This is a topic we discuss with our clients regularly. With an aging population comes increased options for retirement living, assisted living and nursing care options. Along with increased options come increased costs as well which can be exorbitant in some cases. If long-term care insurance has been on your mind, you’ll want to have a listen to our objective viewpoints as we consider if long-term care insurance is really worth it.

Why do people consider long-term care insurance?

There are 3 different ways that people may fund their long-term care needs. They may self-insure, or use their savings. They buy long-term care insurance, or they may rely on government funding. Many of our listeners are in the sandwich generation, where they are both helping their kids and helping their parents at the same time. As they watch their parents age they begin to see the emotional and financial stress that can arise and it affects the way they think about aging. 70% of people will need some sort of long-term care. Usually, a stay in long-term care is only a couple of years but 1 in 10 men will require a stay of more than 5 years and 2 out of 10 women will stay more than 5 years in long-term care.

At what age should you buy long-term care insurance?

As you probably know, long-term care insurance only gets more expensive as you age. But you probably don’t want to buy into it too early, what if the insurance company goes out of business? We think the best time to buy long-term care insurance is in your mid-50s. Costs tend to jump about 6-8% each year that you wait. But even if you do buy early the premiums could increase. Often times the actuaries don’t fully understand the risk and end up raising premiums for current policyholders.

What does long-term care insurance cover?

Generally speaking, people go into long-term care when they can no longer perform the activities of daily living or ADL. This includes going to the bathroom alone, eating, moving about the home, or they experience a decline in mental state. Often the long-term care insurance covers a maximum period of 6 years or less. There is a daily benefit amount that you can choose from. Often that benefit is between $100-$200 per day. Many long-term care insurance packages come with an inflation rider. Your premiums will be related to the variables that you choose.

So, how much does it cost?

Long-term care is not cheap. A private room with skilled nursing can cost $100K per year. Going down the scale, assisted living averages about $75K per year. And home health can be about $50K per year, but you do have to factor in household expenses as well.

A 65-year-old couple can buy a long-term care insurance policy for $4800 per year with basic benefits totaling $180K. If that same couple waits until 75 to purchase a policy that amount will increase to $8700. You also need to consider the fact that not everyone gets approved. The longer you wait to buy a policy the harder it is to get approved.

It’s important to have as much information as possible before making costly decisions. You need to understand all of the factors before you commit. We’re here to help you make informed choices. Listen in to hear all of the factors that you should examine when considering whether to buy long-term care insurance.

Outline of This Episode
  • [4:27] Why do people consider long-term care insurance?
  • [6:57] At what age should you buy long-term care insurance?
  • [10:14] Won’t Medicare cover this?
  • [10:50] What am I paying for?
  • [13:47] How much does it cost?
  • [16:46] A case study about self-insuring
  • [20:07] What types of policies are there?
  • [23:25] What questions should you be asking yourself?
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