Why You Need Long-Term Care Insurance

While Ben and I were watching an episode of CBS Sunday morning, he said he had a reader question.  It was a little weird for him to ask a question as a reader (he normally just asks), and it’s not something that I usually entertain first thing Sunday morning (it takes me a while to pull myself together in the mornings, even on the weekends).

The question stemmed from a segment called “Aging in America: Stuck in the Middle.” It highlighted senior citizens who were not rich or poor enough to obtain assistance with their home health care.  His question was what would happen to us if we find ourselves in that situation without kids.

Hopefully we both stay healthy enough where we can live long lives taking care of ourselves and each other. However, to hedge against the risk that we won’t, we will likely purchase long-term care insurance.

Here’s what you need to know about this type of policy and why you should spend the money on it.

What is Long-Term Care Insurance?

As I have mentioned before, the purpose of insurance is to transfer your risk of loss.  We purchase insurance to cover the potential financial loss of our cars, home, and health among many other things.  Similarly, long-term care insurance covers the potential loss of our ability to care for ourselves. Specifically, it covers the costs of services to assist with daily living activities such as bathing, dressing, and eating.

With longer life expectancies, it’s more likely that people will need help with these services. In the television segment, Former Democratic Senate Majority Leader Tom Daschle said that “70 percent of people over the age of 65 will need care of some kind, whether in their home or in institutions before the end of their life.“ Even more staggering was that “only seven percent of people who are in need of long-term care are able to rely on private insurance options today,”

Employer-sponsored health insurance won’t cover this type of care, and Medicare only covers a short-stay at a nursing home and a very limited amount of home health care. You should definitely consider long-term care insurance given estimated long-term healthcare costs of $250 a day and the possibility that you won’t qualify for Medicaid (which covers long-term care expenses).

When to Buy Long-Term Care Insurance

Unlike the essential five insurances – health, dwelling, auto, disability, and life – not everyone should have a long-term care policy. Premiums for these policies tend to be on the expensive side ($2500 – $3500 a year) and often increase over time. My mom’s long-term policy premium went up almost 40% last year.

You should also strategize for the optimal point where you can obtain a lower premium and absorb the costs of the insurance.  (Many experts suggest looking for policies in your mid-to late-fifties.)

The costs of the policies depends on:

  • how old you are when you buy it 
  • the amount the policy will pay per day
  • the maximum time the policy will pay
  • the lifetime max of the policy
  • optional riders associated with the policy (like inflation-protection riders)  

Again, this type of policy isn’t for everyone. It really serves those people with mid-level savings – those stuck in the middle.  The poor will have government subsidies like Medicaid and the wealthy can cover the additional costs themselves. Because of the costs, you need to take a hard look at your income and assets to see if you could afford to pay for long-term care on your own.

If you find that this type of policy is either too expensive or won’t benefit you, alternatives to traditional long-term care exist. I will go in more detail of those on Friday.