How To Evaluate Whether Long-Term Care Insurance Makes Sense For You

long term care insurance

I grow old… I grow old…
I shall wear the bottoms of my trousers rolled.

If you’re of a certain age, besides reading The Lovesong of J Alfred Prufrock, you may have considered long-term care insurance. Is it a good idea?

1. What is it?

Long-term care insurance provides reimbursement for nursing, assisted living, or in-home care expenses associated with “activities of daily living”: dressing, eating, walking, toileting, hygiene, and bathing. To qualify for benefits, you typically must be unable to perform two or more of these activities.

2. How is the premium determined?

The pricing is complex and based on the interplay of several factors. The primary considerations are:

  • Age
  • Medical assessment — how good is your physical and mental health
  • Benefit maximums — a combination of the allowable number of days, dollars per day, and/or total dollars
  • Waiting period — how long you wait to receive benefits, once you have qualified for them (typically 1 to 6 months)
  • Inflation adjustment — how much benefits may adjust upward each year for inflation

These are difficult trade-offs. As you may expect, the more protection you purchase, the greater the premium you pay, so you shouldn’t buy more than you need.

3. Is there an optimal age at which to purchase it?

As with any insurance, the day before you need it is always the best time but that’s a risky strategy.

There’s no precise answer, but you’ll want to apply for it while you are healthy as the premiums will be higher if your health declines. Or, you may become uninsurable.

4. What else should you consider?

First, you’re making a lifelong commitment to pay the premiums. Second, you’re making a lifelong commitment to the insurance company you choose. From those two points, keep these in mind:

  • Don’t start if you don’t plan to continue.
  • The premiums may increase in the future — while it is not easy for the insurance company to raise your premiums each year, you have no certainty that they won’t.
  • The insurance company may not always offer the coverage — they’re unlikely to drop coverage but you have little protection if they do.
  • The insurance company may not remain solvent — insurance companies rarely go bankrupt but if one were to do so, it is likely that state guaranty pools would provide some coverage but you have no assurance of this.

These considerations make it a difficult decision as you’re taking risks whether or not you insure.

Update: The New York Times writes about insurance companies substantially increasing the premiums they charge.

5. What should you do?

If nothing else, it forces you to have a conversation about your mortality but who wants to do that?

  • If you’re young, you’ve probably already stopped reading this note but if not, you shouldn’t consider this for many years.
  • If you’re wealthy, you can afford to self-insure against this risk.
  • If you’re low-income with little savings, you cannot afford a lifetime commitment to pay these premiums so you should go without and recognize that if you need these services, you’ll probably require Medicaid.

The decision is hardest for people who fall into the category of having savings but not enough to cover a long period of care. You’re faced with either a financial commitment to pay these premiums for many years, or the risk that you may need care for an extended period of time and this could drain your savings. There is no single correct answer for everyone.

If you choose to move forward, use an experienced and reputable agent. Also, pay close attention to your choice of both the insurance company and the level of benefits as it may not be easy to change either at a later date.

Questions?  Get in touch

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