Further Thoughts on Long-Term Care Insurance

Our recent post (see below) entitled, “Is Long-Term Care Insurance Worth the Cost?” has generated a lot of discussion.

We’d like to clarify a few points:

  • Long Term Care (LTC) insurance pays for expenses associated with chronic illnesses, such as home care, assisted living and nursing homes. On a long-term basis, these expenses are not covered by Medicare, which covers mainly short term rehabilitation.
  • In many cases, long-term care insurance enables policy holders to protect their financial assets.
  • Premiums for LTC insurance are based on a variety of factors, including the person’s age, health, medical history and policy benefits.  The earlier you buy, the less expensive the policy will be.

Whether and when a particular individual should purchase a LTC policy is a complex issue and the answer to the question posed in the original post can differ by individual, age, family situation, income and assets.  There really is no bright line test. LTC insurance should be considered by all as part of the estate planning process.

Before purchasing a LTC  policy:

  • Familiarize yourself with the benefits as well as the limitations
  • Have a thorough understanding of your financial situation and goals

Work with a reputable agent who specializes in LTC insurance.  In addition, speak to an elder law attorney and discuss the terms of the policy, the costs, the associated benefits as well as the financial strength of the insurer.

 

Is Long-Term Care Insurance Worth the Cost?

As the cost of a nursing home stay has increased, so has the cost of long-term care insurance, causing many seniors to reassess the value of such insurance.

Many people’s financial planning for retirement includes a combination of Social Security retirement benefits, other sources of income such as a pension, and savings and investments. On the expenses side, many costs are stable and predictable, with one serious risk being the need for nursing care for a long period of time. Since the annual cost of care in an Alzheimer’s unit can reach $100,000 or more, it is no wonder that many consider long-term care insurance. However, it is important to think about whether such protection is right for you.

First, keep in mind that many nursing home stays are not covered by such policies. Most long-term care policies do not cover the first 90 days, and two-thirds of nursing home stays are for less than 90 days, so insurance will not help at all in these cases. In the case of an extended stay, many policies will cover only a certain dollar amount and only for the period of time covered, often three years.

For many seniors entering a nursing home for an indefinite stay, Medicare will provide for the cost, with assets being used to offset the cost until they are exhausted, when Medicaid will kick in. Therefore, for a single person with no heirs, long-term care insurance may not be necessary. For a married couple, if one spouse requires an extended stay in a nursing home, the healthy spouse may keep the house, one vehicle, and assets of about $116,000 (the amount varies by state), and still qualify for Medicaid for the nursing home expenses.

One view is that long-term care insurance may be unnecessary either if a couple’s assets are less than $116,000 exclusive of the home and one vehicle, such that they will be eligible for Medicaid, or if assets are above about $700,000, in which case the couple can probably self-fund a nursing home stay. Within that window between roughly $116,000 and $700,000, long-term care insurance may be useful.

 

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