Long-term care insurance is a retirement protection option that’s been around since the late ’80s. Like the name suggests, getting it means paying insurance premiums of roughly $2,000 to $3,500 per year depending on your age and health, and getting guaranteed protection against long-term care costs in the hundreds of thousands of dollars.
As with many insurance and investment decisions, the devil is in the details. There are as many different scenarios out there as there are people. Let’s take a deeper look at the arguments for and against long-term care insurance.
The Pros: Why Long-Term Care Insurance is Good
There are many insurance and tax pros out there who are fans of long-term care insurance under the right circumstances. Here are a few arguments those folks regularly make in favor of long-term care insurance:
- Long-term care insurance can mean living in a nursing home absolutely free if your health declines, which means preserving the wealth you’ll pass on to your beneficiaries
- There are some tax benefits, since the premiums you pay for the coverage can be partially tax deductible.
- Since it’s a type of insurance, paying for it comes with peace-of-mind
- It guarantees protection against the $250 per day some folks pay for long-term care
- Medicare does not cover long-term care, so just because you’re old doesn’t mean you’re entitled to care
- An estimated 70% of folks who turn 65 will need long-term care at some point
- It can be good for middle-income retirees who don’t qualify for Medicaid coverage but can’t afford medical bills
- Investing the money you would have spent on premiums can mean saving enough for care if you have enough time, but if something happens sooner rather than later you’ll only have what you were able to save, not a policy worth hundreds of thousands in coverage
The Cons: Why Long-Term Care Insurance is Bad
There seem to be just as many experts arguing against long-term care insurance for the average American retiree. Here are a few arguments against purchasing long-term care insurance:
- The premiums that come with long-term care insurance have gone up pretty much across the board in the last 10 years; some insurers are charging 25% more than they were a few years ago
- More and more insurance companies have stopped selling the product to new customers, indicating that it’s not profitable as a line of business
- This is insurance, not an investment, so you never get your premiums back and paying those premiums means putting that much less into your retirement savings (or into other things after you’ve retired)
- The average length of a stay in an assisted living facility is 28.3 months right now
- There is a 90 day deductible impacting many of these policies, meaning you only get free care after the first three months of paying for it. Many people only need long-term care for short stints, and those will be out both their premiums and the cost of their care.
Insure for Custodial Care not Skilled Care
Affordable if You Don’t Need it, Not if You Do
The long-time knock on long-term care insurance is that it doesn’t really serve any one socioeconomic group of people well. If you’re poor (less than $2,000 in total savings) Medicaid will cover all your long-term care costs. So long-term care insurance never makes sense for the poor. If you’re rich, and can afford to self-insure by setting money aside for your long-term care, then paying the premiums to get the insurance doesn’t make much sense, because those premiums mean paying money every month to avoid potentially paying money later. This means long-term care insurance doesn’t make any sense for the wealthy either.
For the rest of us — the biggest chunk of the population, the answer seems pointedly unclear. We can pay for insurance we might never use or save that money in hopes that we don’t need more of it than we have. In the end, you have to make a decision that’s right for you and that means getting personal advice from a professional.
If anything’s certain, it’s that long-term care is really expensive, and the issue of how Americans pay for that isn’t going to be resolved anytime soon — not with some 70 million Baby Boomers on the cusp of retiring.
What do you think about the value of long-term care insurance? Do you have it? Are you planning to avoid it? Share your opinions below and help someone else make a wise decision.