Is Long-Term Care Insurance Worth It?

What Is Long-Term Care Insurance?

Long-term care insurance is designed to help cover the cost of care when a person becomes unable to perform basic daily activities on their own. This type of insurance provides financial protection for services like help with bathing, dressing, eating, and other personal care needs—commonly referred to as custodial care. These needs often arise due to aging, chronic illness, or cognitive conditions such as Alzheimer’s or dementia. ¹

Does Medicare Cover Long-Term Care?

Medicare  provides very limited long-term care coverage, primarily up to 100 days of skilled nursing care following a 3-day hospital stay. It does not cover custodial care (help with daily activities), which represents over 90% of long-term care needs. This limited coverage is why many Colorado residents consider long-term care insurance. Get complete details about Medicare’s limited LTC coverage.

 

Types of Long-Term Care Insurance:

Traditional LTC Insurance: These policies provide a set daily or monthly benefit for care, subject to the policy’s lifetime maximum. While traditional long-term care insurance generally provides the greatest coverage for your premium dollar, premiums could go up in the future. If you never need long-term care, premiums are not returned.

Life Insurance with LTC Rider: This type of policy integrates the benefits of life insurance with long-term care rider benefits. If you do need care, a rider accelerates the death benefit to pay for long-term care. If you never need care, a death benefit is paid to your estate as a tax-free death benefit. Premiums are flexible and some plans guarantee that premiums will never increase.

Long-Term Care Annuity: A type of deferred annuity with LTC benefits that combines a fixed interest rate, and possible indexing strategy. A $100,000 investment in a long-term care annuity can give you $200,000 or $300,000 of long-term care benefits. This provides tremendous leverage of your premium dollars. Premiums do not increase and if you never need care, the cash value of the policy passes to your estate.

Short-Term Care Insurance: Short-term care insurance is an affordable alternative to LTC insurance. While LTC policies provide coverage for several years or even a lifetime, short-term care insurance policies provide coverage for a year or less. It often works best for those who: cannot health qualify for LTC insurance, can’t afford LTC insurance, or have missed the age limit to qualify for long-term care insurance.

Because age and health impact the cost of insurance, applying when you’re younger and healthier is best for obtaining lower rates.

 

Advantages of Long-Term Care Insurance

➤ Protects Against High Care Costs: In 2024, the national average cost of a private room in a nursing home is around $9,400 per month ($112,800/year).² Home health care services can add thousands to that number. Long-term care insurance can provide a safeguard against these expenses, especially if you opt for a policy that includes inflation protection.

Without long-term care insurance, the cost of care may need to come from your personal savings, investments, or other assets, potentially depleting your financial resources, especially if you have to liquidate assets in a down market.

➤ Provides Peace of Mind: Owning LTC insurance can reduce the emotional burden from family members of having to provide care. And it provides peace of mind for you by knowing that if you ever need long-term care, you can secure quality, affordable care. It also protects your assets and savings for your spouse or heirs.

 

Things to Consider Before Buying LTC Insurance

1. Premiums vs. Future Costs: A 60-year-old man might pay around $1,200 per year, while a woman the same age may pay $2,200. Compare these premiums to potential long-term care costs to determine if insurance is worth it for your situation. For example, in 2024 the average national cost for 3 years of long-term care is $318,000 ($106,000/year). That cost will be $633,000 ($211,000/year) in 2044.¹ Many locations are more expensive so be sure to consider the cost in your area.
2. Inflation Protection: Depending on your age, including inflation protection may be essential to ensure that your coverage keeps up with rising care costs. Although it can increase the cost of a policy, the future cost example above illustrates the importance.
3. Other Financial Resources: If you have enough assets, investments, or life insurance you can borrow against, weigh whether long-term care insurance is necessary. Also consider the alternative of using some assets to fund either an LTC Annuity or a Life Insurance with LTC policy. Either can be a great way to hedge your bet. Then if you need long-term care you have excellent coverage, but if you don’t need care the money goes back to your estate as a tax-free death benefit.
4. Should You Self-Insure?: Consider these two scenarios for covering future long-term care needs:Option 1)  You place $100,000 into an investment that yields a 7% annual interest rate. In 20 years, the capital will have grown to approximately $387,000 to be used for your LTC needs. Depending on the investment, the gains may also be taxable.Option 2)  You invest $100,000 into a long-term care annuity. On the first day of coverage, you have $407,340 available for care needs. In 20 years, the policy provides $574,592 of tax-free long-term care benefits. If you never need care, your estate would receive $142,265 as a tax-free death benefit when you pass.³Note: Some LTC annuities have an unlimited benefit option, can be funded with a tax-free 1035 exchange, or can be funded from your IRA.

 

Who Should Buy Long-Term Care Insurance?

Long-term care insurance is an excellent option for those who don’t qualify for Medicaid (welfare), but may not have enough assets to self-insure for several years of care, especially considering inflation. But, even those with a high net worth may want to transfer the bulk of this risk to an insurance carrier to protect their assets.

Generally, those in their 50s or 60s with pretty good health are the best candidates. Premiums are based on current age and health so it’s smart to lock in lower premiums and improve your chances of qualifying for LTC insurance.

As you age it’s more likely you’ll develop a medical condition making you ineligible for a preferred-health discount, or making it impossible to get coverage at all. So be sure to consider all your options while you’re at a younger age and enjoying good health.

 

Conclusion: Is Long-Term Care Insurance Worth It?

While premiums can be expensive, the potential cost of care, especially if extended over several years, could cost you hundreds of thousands of dollars. So if you end up needing extended care, LTC insurance would likely be a valuable safety net. Ultimately, deciding whether long-term care insurance is worth it depends on your financial situation, health, and long-term care needs.