Is Long Term Care insurance a good idea? Yes, but it may cost you.
Andrea Riquier
5 min read
Dying is the most certain reality of human life, but perhaps the most unknowable. And as America continues to age, the issue of how we pay for the care we’ll need before death is becoming a crisis.
Nearly three-quarters of all Americans who reach the age of 65 will need some form of long-term care in their senior years, according to the U.S. Department of Health and Human Services – 20% for longer than five years.
Such care is incredibly costly: Nationally, the median tab for a month of assisted-living facility care was $4,500 in 2021, while a month of nursing-home care cost a median of $7,900.
But few of us are prepared for it: only about 7 million Americans, or 1 in 10 Baby Boomers, have some sort of long-term care insurance. Some projections suggest that more than half of all middle-income seniors will not have sufficient financial resources for the care they will need.
What is the biggest drawback of long-term care insurance?
How to pay for long-term care is “probably one of the hardest decisions that the boomers and the Gen-X generation will have to deal with,” said Adam E. Block, a professor of health policy and management at New York Medical College.
Horror stories abound, and probably scare many Americans away from long-term care insurance. Many people have seen their premiums surge, in some cases to unaffordable levels. One insurance company went bust when it turned out their calculations about how much it would cost to cover policyholders who are living longer, sicker lives fell well short.
The same unknowns make planning for end-of-life care seem formidable for many families. “It is a high-risk, high-cost event that occurs at an undetermined point in time in the future,” Block said. Also uncertain: “how much the costs of care are going to inflate” over the decades you pay into a policy?
Still, given the expense, it’s better to bite the bullet early. As Vance Barse, a financial planner who founded Your Dedicated Fiduciary, puts it, “I don’t introduce long-term care insurance simply to introduce it. I have witnessed firsthand the impact that these costs can have on an estate.”
Bonnie Burns, who’s known as a national policy expert on long-term care, adds that end-of-life care struggles are “more universal than we realize because when it’s happening to people, they don't like to talk about it.”
For all its flaws, many advisors say long-term care insurance is still the best choice, particularly if you can afford it earlier in life, which gets you lower-cost premiums.
Policies can be incredibly tricky to compare – regulations differ by state, insurers may or may not be financially healthy, and the range of coverage decisions can be overwhelming.
If you can afford it, it’s smart to work with a professional, preferably one who doesn’t get compensated for selling policies, Burns says. She suggests consulting specifically with geriatric care managers, who help families navigate all the options available.
Besides possible premium hikes, one of the biggest stumbling blocks for people considering long-term care policies is that most are “use it or lose it:” You could pay into a policy for years, and then never need it.
Still, David Alvarez, a financial adviser with San Antonio-based PAX Financial Group calls that “a good thing.” Like insurance against fire or a flood, someone lucky enough to never need the protection is better off.
Barse finds many clients feel better about paying into an insurance plan that carries some certain form of payout, rather than paying for years for nothing. He likes products called “linked-benefit policies,” which offer a death benefit payout to a spouse or other beneficiaries if the insured doesn’t use the long-term care coverage. They’re more expensive than traditional “reimbursement-only” policies, however.
Alvarez isn’t a fan of annuities, which can be expensive, but he makes an exception for clients who won’t qualify for affordable long-term care insurance and want to put aside some money for their care. Annuities are sold through insurance companies, and for this purpose, you’ll want one that carries a “long-term care rider.”
Medicare, the federal health program for the elderly, won’t pay for long-term care. But Medicaid, which covers lower-income Americans, will. The catch: you have to have a very low income to qualify. But the workaround is that there’s an entire industry of lawyers and financial planners who can help you transfer your assets into a trust or other vehicle so that you will.
To save money, wait until later
Adam Block, who helped craft parts of the Affordable Care Act, isn’t anti-insurance but says he can’t bring himself to pay an insurer for decades for an uncertain payout. He counsels people to wait until they’re older to purchase a long-term care policy when the premiums will be much more expensive, but the period of time over which they’ll pay them will be much shorter. “I put my head in the sand and hope for the best,” Block said.
