Is Long Term Care Insurance Worth It?

At some point in your life, you begin to plan for the expenses of your final years. Your financial condition, both now and in the future, where you expect to live, your anticipated health, and the support you expect from your family are among the variables you need to consider when you plan for your later years.

Various estimates suggest that between 40 and 55 percent of Americans need some form of long term care during their final years. Long term care refers to the medical or personal care services needed for those unable to care for themselves because of chronic illness, disability, loss of functional capacity, or cognitive impairment. This kind of care differs from regular medical care, which aims to improve or cure physical or cognitive problems. Long term care helps a person maintain the ability to function, perform daily activities, and retain as normal a life style as possible. A younger person who experiences a disabling injury or illness may require long term care, but the most common need for long term care is for those in the later years of life.

Depending on your situation, you might consider insurance to cover some or most of the expenses of long term care, but not everyone needs long term care insurance. As you plan, you should consider all factors before buying a long term care policy. Recognize that you will need sufficient income to pay premiums for the rest of your life without sacrificing your standard of living. Your planning must also take into account annual cost of living increases and the fact that, over time, your retirement income may not keep up with the cost of living. You need to be certain you can afford your premiums and still meet unexpected expenses or future premium increases. In addition, since long term care insurance will not cover all the expenses associated with long term care, you need to calculate how much you will need to pay out of your own pocket.

Medicaid, a federal-state assistance program, pays long term care costs for those who qualify. Many people with low incomes already qualify for Medicaid and those with moderate incomes may be able to "spend down" their assets to qualify. Because of this program, long term care insurance is probably not appropriate for those with fixed or low incomes or for those with moderate incomes who could spend down to become eligible for Medicaid.

Spending down your assets means selling them and using the proceeds to finance your long term care until your assets are so reduced in value that you qualify for long term care coverage under Medicaid. If you are in the moderate income range, you may want to consider whether you will be happy with the quality of care you will receive with Medicaid-eligible care-givers and facilities before you spend down your assets.

You also may not need a long term care insurance policy if you have sufficient assets to pay for a lengthy nursing home stay or if you are certain that your relatives will care for you without considering you an undue burden.

If you do decide to purchase long term care insurance, you need to make a tactical decision about when you want to start paying premiums. Because policy premiums are based partly on your age and health, a long term care insurance policy is more expensive if you are older or in poor health. If you wait too long, the cost may be prohibitive, or you might be unable to purchase a policy. But if you decide to buy earlier, the overall cost of the policy may be higher because, even though you are paying a lower premium you are paying it for a longer time. If the insurance company does not have a history of raising premiums—though that is no guaranty--you may be quite comfortable paying the lower premium. The decision is yours.