The Pros and Cons of Long-term Care Insurance

March 7, 2019

Whether you are planning for retirement or caring for an aging loved one, you may be weighing the option of long-term care insurance. Long-term care insurance can help cover the expenses of a nursing home, assisted living facility, in-home care, and certain other long-term care expenses for an aging person who can no longer perform certain tasks of daily living like bathing, eating, dressing, or using the bathroom.

long-term care insurance

Source: Getty

The Long-term Care Insurance Debate

Experts often debate financial decisions, and long-term care insurance is no exception. Many experts maintain long-term care insurance is a poor investment and not right for most people. Others insist a carefully-chosen policy offers a lot of peace of mind with many financial benefits most people take advantage of with a little planning.

Long-term care insurance policies come in many forms. The most basic plans offer a few thousand dollars of lifetime coverage, which might cover a few hours a day with an in-home health aid but won’t include something like a long-term residential stay. More extensive policies offer several hundred thousand dollars or more and can cover an extended stay in a nursing home or residential facility. So while it is true every long-term care plan is not right for everyone, it is worth weighing the pros and cons to decide if some type of policy might be right for you.

Pros of Long-term Care Insurance

  • Lessens financial burden on family: Many families struggle to afford long-term care for aging loved ones, and deciding which family members can and should pay for care can cause ongoing strain. Long-term care insurance can help lessen this stress by covering at least part of the expenses that occur later in life, so family members don’t carry as much of a financial burden.

    Of course, not everyone has family or loved ones who can afford to support them later in life. If you don’t have family members who can help cover your expenses or if your family lives far away, long-term care insurance can help provide for you.

  • Protects retirement savings from depletion: If you’ve saved money for aging-in-place retirement expenses, then find you need long-term care, your savings will likely be quickly depleted. Ten years of nursing home care can easily cost nearly a million dollars. Long-term care insurance can carry some of that financial burden freeing your savings for other needs.

  • Provides peace of mind: Knowing you have a policy in place to cover aspects of long-term care like a home health aide or a stay in a nursing home or residential facility can help you rest easy. Peace of mind as you age isn’t something you can quantify financially, but it can make a huge difference as you juggle the other realities of aging.

  • A smaller policy is often enough: While it is impossible to know precisely how much you might need, about three-quarters of adults over 65 will need less than $50,000 worth of long-term care. Most of the time, a stay in a nursing home or assisted living facility is brief, with most around three months and the overall average around 17 months for females and 11 months for males. A smaller policy has more affordable annual premiums and can still provide peace of mind in the event you need a short stay (for example, after hospitalization or injury).

    A small policy can also come in handy if your loved ones can provide in-home care as you age. If you begin to meet the qualifications for long-term care (including not being able to perform specific tasks of daily living due to physical or cognitive decline), many small policies will cover a few hours a day with a home health aide. The aid can give your family members a rest from full-time caregiving while helping you perform daily tasks like bathing and eating.

Cons of Long-term Care Insurance

  • Policies are expensive: A long-term care insurance policy is not cheap, and if you cannot cover your monthly premiums, you’ll lose coverage. If you’re on a limited or unreliable income, it might not be in your best interest to purchase a policy.

  • Premium rates are not guaranteed: If you purchase a long-term care insurance policy, you may have to pay annual premiums for ten to thirty years, depending on how long you live. Your premium may increase substantially over time, making it more difficult to afford.

  • The industry is in flux, and you may lose your policy: Long-term care insurance is not a very profitable industry for insurance companies, so many carriers have opted out of offering this service over the last few years. It is possible you could purchase a policy from a company today only to find the company no longer exists or stops offering long-term coverage by the time you need to use your policy.

  • Can be difficult to qualify: It can be challenging to qualify for long-term care insurance. The companies who underwrite these policies typically put applicants through a rigorous screening process, including a full medical and medication history and even conducting telephone-based cognitive assessments. About a third of people who apply for long-term care insurance policies do not pass the underwriting qualifications.

Bottom Line

The financial realities of aging can be a lot to process. Since there are many pros and cons of long-term care insurance, it is essential to talk to a qualified financial advisor to find out if a policy might be a good investment for your future.