Long-Term Care Insurance: Is It Worth It?
For older adults who need long-term care, either in the home or in an institutional setting, long-term care insurance has often been touted as an ideal solution. But after decades in the healthcare coverage market, such insurance has not been found to be a one-size-fits-all solution, or even a viable option for many. Rising long-term care costs and concerns about the best coverage solution have created a potential crisis for a large portion of the aging population. According to a recent article in the New York Times, national figures are telling:
Approximately 70% of individuals over the age of 65 will need long-term care before they die.
Median annual costs for semi-private nursing home care is over $80,000 per year, while a private room costs more than $90,000. Nursing home costs are growing at an annual rate that is double the rate of inflation.
Only 20% of those over the age of 65 have any type of long-term care insurance.
Of those who are insured, over a third of those who carry long-term care insurance at age 65 will eventually let their policy lapse, losing all benefits.
In his article, “Long-Term Care Insurance Can Baffle, with Complex Policies and Costs,” John F. Wasik examines recent data on long-term care and also talks with insurers and aging experts. His conclusion: long-term care insurance may not always be the right solution for older adults. Why? Consider the following:
Complexity. Understanding insurance policies can be unduly complicated because of exclusions, multiple coverage layers, waiting and elimination periods, etc. Insured individuals may later find that their coverage did not extend as far as previously assumed.
Cost. Long-term care insurance is an expensive proposition. Premiums have at least doubled in the last 7 years, with the average annual cost now around $3000 per year. People may pay decades for a policy that they never use. According to some experts, people with modest assets may not be the best candidates for the insurance, because of high premiums vs. potential benefits.
Eligibility. An individual’s health history can lead to rejection for coverage, unlike with regular health insurance. About 45% of applicants 70 and above were denied coverage last year.
Insurance companies also struggle with the benefits of offering such policies. In the last decade, approximately 90% of the companies selling long-term care insurance have discontinued this practice. While lifetime coverage was originally offered, it is no longer.
To navigate the minefield that finding the right coverage can be, several recommendations are offered:
First and foremost, study carefully before you buy, and make sure you understand a policy before you purchase it.
Consult a financial or long-term care advisor to obtain expert advice. One option is to use the services of an elder law attorney or a financial planner who is fee-only. They can provide some of the most objective evaluations. An estate planner may also be a valuable consultant if an individual wishes to avoid his or her estate going to long-term care expenses.
Check into alternatives such as hybrid annuities and life insurance policies that offer long-term care benefits, although these options also have issues with complexity and cost.
Planning for potential long-term care needs is essential for almost everyone, and the path to adequate coverage depends on an individual’s income/potential earning potential, age, health history, and other personal factors. For many, long-term care insurance may remain the best choice for the future.
NOTE: Photo courtesy of freedigitalphotos.net.