When it comes to planning for the future, one question usually comes up regarding long-term care insurance: Is it worth it?
Some financial planners and health experts say long-term care insurance provides services and support to help older adults meet their care needs. But, on the other hand, some older adults question the need for long-term care insurance after looking at the costs for annual premiums and the benefits they may or may not get.
It all boils down to whether you want long-term care insurance as part of a plan for successful aging. Carolyn McClanahan, a physician and certified financial planner at Life Planning Partners in Jacksonville, Florida, says most people only think about long-term care insurance when their parents need it or when they realize that they are getting older and need a plan themselves.
Research suggests that people turning 65 will need long-term care services at some point. So, when they need assistance, long-term care insurance helps pay for essential daily living activities, such as bathing, dressing, eating, transferring, and toileting. It can also include having someone protect an individual’s health and safety. Long-term care insurance policies usually pay for benefits from one year to five years.
Long-term care is different from medical care, which is usually covered by a health insurance plan. Financial planners encourage seniors to explore long-term care insurance because Medicare does not pay for essential personal care services, only skilled nursing or therapy services. Medicaid, a state and federal health insurance program, pays for personal care, but recipients must have limited income to qualify for benefits.
PriceWaterhouseCoopers estimates that the current average lifetime cost of long-term care is $172,000 for a person who needs help with at least two activities of daily living or has a cognitive impairment. However, in reality, the average cost of long-term care depends on various factors, including the type of services needed, age, gender, and geographical location.
According to the 2022 Long-Term Care Insurance Price Index, a 55-year-old man can expect to pay an average premium of $950 a year for a traditional long-term care insurance policy valued at $165,000. A 55-year-old woman would pay $1,500 a year for the same procedure. Women tend to pay more for insurance premiums because women tend to live longer than men and make claims more frequently than men.
When deciding whether it’s worth getting long-term care insurance, it’s not just about the cost, says McClanahan, a member of the CNBC Financial Advisor Council. It’s also about “the whole logistics” for how you will “thrive as you get older.”
Does Long-Term Care Insurance Factor into Your Future Plans?
According to financial planners, one way to determine whether long-term care insurance is worth it is to determine your plans and income. For example:
1. What are your long-term goals? Are you planning to age in place, live with one of your adult children or move into a continuing care retirement community? If you decide to sell your home, you may stash the profits away for your long-term care needs. However, if you had insurance, the policy would pay for care and you would not have to disturb your savings.
2. What are your long-term care needs? It’s hard to predict future care needs. After all, how do you know if you will need care? However, if you have a family history of certain medical conditions or disabilities, you may be at high risk for these conditions. While this does not mean that you will develop a disease or disability, it is crucial to have a care plan just in case.
3. Can you afford to pay out-of-pocket for long-term care? Long-term care can be costly. Without long-term care insurance, you will need to have a healthy savings account or be able to access your home equity or have other income options to pay for your care.
According to Genworth Financial, the cost of long-term care, particularly home-based services, had been on the rise even before the COVID-19 pandemic. Genworth Finacial’s 18th annual Cost of Care Survey for 2021 noted that the average yearly increase in care services cost had been 2-6 percent over the last five years.
Consider Long-Term Care Options
Another way of deciding whether long-term care insurance is worth it is to look at the options for care. For example, some people opt to have a spouse or another relative take care of them long-term. But this arrangement can be fraught with problems and can impact family relationships.
Family caregivers can also be impacted financially if they pay out-of-pocket for a loved one’s care. The small amount of savings a family has can quickly be depleted when care is needed long-term.
Since everyone’s care needs are different, it’s essential to review the benefits offered by various insurance companies.
Some policy features to look for include whether:
The plan offers protection against inflation.
Policy owners are required to pay premiums while receiving long-term care.
The plan allows policy owners to access a care coordinator who can determine their needs, develop an individual care plan, and arrange for services.
Couples can buy a shared-benefit policy that provides benefits either spouse can use.
There are hybrid plans that combine long-term care and life insurance policies or whether the insurer offers only one long-term care plan.
The insurer allows personal care at the home, hospital, nursing home, or an assisted living facility.
There’s a lot more to consider before determining whether it’s worth purchasing a long-term care insurance plan. Without a doubt, figuring out long-term care insurance can get confusing. Aaron Ball, head of insurance solutions, service, and marketing at insurance company New York Life, suggests talking to insurance professionals before making a final decision.
According to Ball, a professional can help to evaluate the available options and “demystify’ the process.
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