How Can I Tell If Long-Term Care Insurance Will Be Worth the Cost For Me?

Long-term care insurance can cover the costs of ongoing assistance you may need because of age-related decline in cognitive or physical ability, or a chronic condition. This coverage can keep you from having to use your savings to pay for home care, assisted living or a nursing home – all of which generally are not covered by health insurance or Medicare. However, long-term care insurance can be costly and may offer limited protection. A financial advisor can help you evaluate your options if you’re interested in long-term care insurance.

What Is Long-Term Care Insurance?

Health insurance can pay for short-term medical care, including surgery, hospital stays and doctor’s office visits. But health insurance, including Medicare, generally does not cover costs for extended care in nursing homes and assisted-living facilities, as well in-home assistance with activities of daily living such as bathing and getting dressed. Medicaid can pay for these services, but only for people with limited financial means.

Costs for long-term care can be quite high, with the price of a semi-private room in a nursing home averaging $7,908 per month or $94,896 per year, according to GenWorth. Those costs are expected to more than double by 2051.

To avoid paying for these services with your assets, you can use long-term care insurance. However, this coverage also comes with some limitations and drawbacks. Here’s a look at the pros and cons of long-term care insurance.

Pros of Long-Term Care Insurance

Long-term care insurance potentially provides several advantages. This form of insurance can:

• Protect your nest egg from being depleted by a costly stay in a nursing home or assisted living facility;

• Provide tax-free benefits for long-term care claims;

• Allow you to deduct premiums from current income in some cases;

• Provide inflation protection by steadily increasing coverage amounts;

• Remain active for as long as you live if you keep paying the premiums

These are some of the reasons that 7.5 million people had some form of long-term care insurance in 2020, according to the American Association for Long-Term Care Insurance. However, that’s only a fraction of the population that’s at least 65 years old, meaning the majority of older Americans do not have long-term care insurance.

Long-Term Care Insurance Cons

Most of potential drawbacks to long-term care insurance are tied to costs. Here are details on that and other cons:

Cost is a significant issue. To buy $165,000 worth of long-term care coverage in 2022, a 55-year-old man would pay an average of $2,220 per year. Premiums are lower for women and go up for older policyholders or as the dollar amount of coverage increases.

Rising premiums. Insurers can periodically raise premiums for groups of insured people, although not individuals, if they get approval from state insurance regulators. One-time rate hikes of 20% to 40% can occur.

It may not cover all expenses. Policies only pay for certain services, including those associated with activities of daily living like eating and bathing. Coverage is also generally capped at a dollar amount and is limited to a period of time, usually no more than five years.

Loss of premiums. If you don’t need long-term care, your years of costly premiums will be spent for no benefit except peace of mind.

Qualifying can be an obstacle. If you are already in poor health when you apply for long-term care insurance, the costs will be higher and you may not be able to get coverage at all.

Is Long-Term Care Insurance for You?

Long-term care insurance is not necessarily right for everybody. Those with significant assets and sufficient income to pay for long-term care may be most suitable for long-term care coverage. It may not be as good of a fit for someone with limited assets whose income may not support years of increasing premiums.

Long-term care insurers often quote a finding that nearly 70% of people will need some sort of long-term care, along with a reference to the high annual costs of care in a skilled nursing facility. This implies that a large majority of people will need to pay several thousand dollars a month, potentially for many years.

However, the figure for long-term care use includes the 59% of people who, according to the U.S. Department of Health and Human Services, need unpaid care at home. This may include help from a relative with housekeeping or cooking. Only 35% of people spend any time in nursing facilities, where the average stay is one year. And, according to the American Association for Long-Term Care Insurance, half of all people who purchase long-term care insurance never use it at all.

Alternatives to Long-Term Care Insurance

A number of alternatives to purchasing long-term care coverage exist. These include hybrid life insurance and annuities that provide long-term care coverage as an optional benefit. Some life policies pay the death benefit while the policyholder is alive if long-term care is needed. Reverse mortgages can also help cover long-term care costs. Finally, a Medicaid trust, which is an irrevocable trust, could be an option, too.

Bottom Line

Long-term care insurance can help protect your nest egg from the potentially high costs of long-term care. Policy benefits may be tax-deductible and increase to counter inflation and premiums may also be tax-deductible. However, costs are high and are likely to increase as time goes by, while coverage is typically limited. Other options to pay for long-term care include hybrid life insurance and annuities, as well as reverse mortgages.

Long-Term Care Insurance Tips

• Before you decide whether or not to purchase long-term care insurance, consider talking it over with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• If you’ve decided that long-term care insurance is right for you, you’ll want to move forward with selecting a provider and policy. Before doing so, be sure to review SmartAsset’s list of the top long-term care insurance providers of 2023.

• You can’t always control whether or not you will need long-term care, but you can impact your costs as you age by selecting a low-cost place to live. SmartAsset’s Cost of Living Calculator can help you make that decision.

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