Is Long Term Care Insurance Worth The Cost?

Long Term Care (LTC) insurance typically pays for all of assisted living costs (about $40,000/year) and half of nursing home costs. What most people don’t realize is that they already have LTC insurance provided by the federal government, Medicaid. The catch, of course, is that Medicaid wont pay if you can. Therefore, LTC insurance is closer to estate insurance than health insurance.

How much to leave to your children is a personal choice. But if you’re buying LTC insurance to protect your estate then you should realize that you have another choice, gift to your children now. For a 55 year old couple, the typical policy will cost about $11,000 each year. These are funds that could be given to your children now tax free.

The “worst case scenario” is that of a couple with one spouse entering LTC at an early age and staying there many years. In this case, the spouse in LTC could drain the couples savings leaving the healthy spouse little to live on. However, you should seriously consider if you’re willing to put your spouse in assisted living if you’re still capable (and vice versa). The extra care that the LTC spouse needs could be provided for about $15,000/year using in home care providers. If the LTC spouse needs a nursing home then this would be costly, but probably not lengthy. The average nursing home stay is one year.

If you’re single, I recommend against buying LTC insurance. This is because LTC is one of the lowest cost living arrangements that a single person living alone can have. The $40,000/year cost covers everything, including meals and transportation. Your financial plan should budget at least $40,000/year for “normal” (not LTC) living. If $40,000/year is beyond your financial resources then you should not be paying a LTC insurance premium in order to protect your small estate.

One of my biggest concerns about LTC insurance is that people will be tempted to use it, and I don’t see living in an LTC facility as an attractive option. Although each policy specifies specific criteria and a doctor’s assessment before paying, I can tell you from personal experience that it is a very fuzzy line. Doctors aim to please patients and you could qualify for care with fairly minor ailments. If you buy a policy you should be clear with yourself and your spouse about when you will use it.

The NAIC has a “Shoppers Guide” for LTC insurance, find it here