The costs of long-term care can mount quickly, and many insurance companies offer long-term care insurance to cover these costs. However, the overall performance of these policies has been disappointing at best and disastrous at worst. They tend to be very expensive, and sometimes the restrictions on benefits mean that they cover only some or none of an individual’s costs. You should think carefully before signing up for LTC insurance.
Only 5 percent of Americans over 65 have signed up for it, recognizing that the chance of a long-term stay in a nursing facility is not as high as insurers claim. More than half of all nursing home stays end within six months, and only 10 percent of all stays last longer than three years, which is the usual definition of a long-term stay. About half of the population (two-thirds of men and one-third of women) never will stay in a nursing facility at all. Also, the availability of Medicaid provides a safety net that obviates the need for LTC insurance for many people. If you have substantial assets beyond your home, though, you might reasonably consider a policy that covers both nursing homes and assisted living facilities.
Concerns with LTC Insurance
Information on the performance of LTC policies suggests that they have been a very bad bargain for consumers. Half of the total policies issued in the 1990s, for example, lapsed before any benefits were paid because the policyholders stopped paying their premiums, presumably deciding that they did not need or could not afford the benefits. Of the people who purchased these policies and entered a nursing facility, half never collected any benefits from their policies. Many consumers chose to receive home care or live in an assisted living facility, and neither of these options is covered by most policies. The limits and exclusions on these policies often meant that benefits paid under them fell well short of the policyholder’s expenses. In other cases, the benefits were exhausted before a long-term stay ended, suggesting that the policy was poorly designed.
That said, the insurance industry has altered LTC policies over the years due to the results discussed above. Policies are now written more clearly and offer a broader scope of coverage, sometimes including assisted living facilities. Some policies may cover funds for home care as well. Insurers also have broadened the scope of eligibility for benefits and added multiple levels of coverage. This allows people who want to pay lower premiums to still receive some benefits.
When LTC Insurance May Make Sense
You probably should pursue LTC insurance only if the monthly premium is 5 percent or less of your monthly income. You should be aware that your income will drop after you retire, while the premiums will rise, so you may want to make this calculation with the future in mind. The general rule is that LTC insurance may make sense if you will have over $300,000 in assets beyond your home and over $50,000 per year in income when you reach your 80s. However, this does not mean that you should automatically get LTC insurance if you meet these criteria. You may have good reason to believe that you will never need long-term care. You should carefully review each policy that you are considering and explore consumer publications that describe these policies. If you have a financial adviser, you should ask for their opinion as well. There may be better ways to invest your money that would leave you just as secure in the event that you need to pay for care.