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I work for a financial services company (a situation soon to be rephrased in the past tense), and every once in a while, our businesses go on “road shows” selling their products to the employees, supposedly at reduced rates. This month’s product is long-term care insurance. This type of insurance pays for nursing homes and at-home care for people who are unable to care for themselves. I’m 34 years old, so I don’t foresee needing this type of care for a long time, if at all.
The Long Term Care Insurance National Advisory Center — an organization with an official sounding name, though I don’t trust their website without any official information about who they are — says, “By 2030 those needing LTC will skyrocket to 23+ million Americans, with projected, individual long term care costs reaching $300,000 annually per individual!” Even if there is some hyperbole here, inflation is always scarier when it’s applied to expenses.
That’s the risk with insurance: you spend your money now and over time, and you never need the service you purchased. This is why I don’t buy added warranty insurance when I buy electronic items — I rarely need to take advantage, but if I were to need, I’ll have self-insured well enough to handle the expense myself.
The best unbiased information I could find on long-term care insurance comes from a series of articles on CBS Moneywatch. I call this unbiased, but in a broader view, you can bet that any information coming from a financial publication is going to have advice falling in the direction of taking advantage of products offered by the financial industry. The analysis of pros and cons of a variety of methods of planning for long-term care seems fair.
From what I have seen, the cost of caring for an elderly individual with a condition such as Parkinson’s disease can deplete all of that individual’s wealth accumulated after a lifetime of working. The peace of mind gained from long-term care insurance — as long as the insurance does provide the benefits when needed — is worth the expense.
Updated January 20, 2012 and originally published December 1, 2010.
{ 15 comments… read them below or add one }
Does not care insurance included is some life insurance? If so, what is the point of having both?
I am sure anything is possible but I have never heard of a life insurance policy that includes long term care insurance. I would be interested to see a single example and would not be surprised a bit to find that there are zero. If there are any I am confident it is far less than 1% of all life insurance policies sold.
Should have looked before I posted.
So there are some products that do combinations but I don’t think they are what most people expect. One example is just a whole life that lets you take the earnings out of the policy and use them tax free to pay nursing care expenses. That is not an LTC policy. It doesn’t give you any guaranteed benefits. It only gives you the option to use the dividends of the policy to pay for LTC instead of getting them as a death benefit.
There also appears to be things like large lump sum premium policies that give guaranteed LTC benefits and if not used return you in excess of what you put into the policy. This is still not really both. It’s either or. If you use the LTC portion you don’t get to collect at death. If you don’t use it, you get to collect a benefit but it’s probably not nearly as high as if you had purchased a life insurance policy. It’s more like a LTC policy with a return of premium guarantee with a little kicker in it that gives you a little return on the premiums if you didn’t use it.
Bottom line, if you need life insurance, you should buy that. Trying to buy a mixer policy doesn’t really get you both, it just kind of looks like it.
Long Term Care Insurance is a very questionable purchase for several reasons. First off, you need to look at the actual amount they would pay (very rarely 100%) and what’s going to come out of your pocket. Secondly, you need to ask yourself what long term heath care will be by the timeframe you might need it. In other words what are the various health care initiatives, Medicare changes, and insurance laws going to do – and that’s tough!! The last question that needs to be addressed is risk. How much long term care cost could your savings handle? Remembering that unlike earned income, retirement income (pensions & Social Security) don’t stop just because you’re sick and the average length of stay in a nursing home really isn’t all that long. Insurance companies aren’t pushing Long –Term Care policies because they love you – it’s a cash cow that a thorough assessment of that risk might indicate you’re insuring against a small risk that you might be able to handle differently.
It’s one of those things you need to do your research on. With life expectancy ever increasing, it provides more and more support for LTC insurance. But of course you still have to study the product and make sure you know what you’re buying.
I wonder if someone in their thirties can get the insurance fairly cheaply?
This is a tough one! It has a lot of variables, and even depends on one’s occupation! If I were a roofer, you can bet I’d get it! But being the pencil pusher (or keyboard pusher), that I am, it might not make as much sense for me…
Actually most Companies won’t sell to those under 40…the unknown risk is too high.
If you’re in your 30’s, barring something catastrophic like a bad accident, etc., you’re not going to need LTC insurance for 40+ years. What’s the guarantee that the company will be around then to actually pay?
My experience with LTC insurance is that most of the policies cover less than you’d want. Nowadays, you’re most likely best off transferring away all your assets when you retire and having Medicaid pick up the tab when you’re older. What will be the case in 2040….who knows?
I think that LTC can be valuable. I’d wait till I was around 60 years old to buy it though. Most LTC is when people are over 65 years old. If you start paying early you’ll get a lower premium but pay extra years so it doesn’t really help too much in the long run. If you can’t afford the LTC policy then don’t buy it, or if you are a millionaire and can self insure then don’t buy it. But many people fall in the middle.
I would *not* plan on having Medicare pay your bills. Medicare is not good coverage and they pay the bare minimum. And before you can qualify, they do check to see if you gave your money away, they are on to that trick.
How can we trust companies with our money over a long time period? They are not regulated enough, and can misuse our money. I would get sicker if, years up the bend when I need long term care, I discover that the company has gone out of business or has sold my policy to someone. Too many people are being milked these days.
Interesting posts, but I’m surprised more folks have not picked up on this topic, especially since so many readers of the wsj are at the age to start thinking of long-term care options. Some of the money magazines have run good articles on the types of questions to ask insurance carriers, but is there anyone out there that knows of an unbiased clearing house that can post rates based on age and health? I’m thinking of something that could serve the growing population of aging baby boomers that have just begun to think about the “what if’s.” Anyone out there have any solid objective material? Sales reps are eager to come over for an evening to discuss their company’s plans, but it truly is mind-numbing after a while. Thanks to all of the wsj online community!
John, a newly addicted iPad user typing away from recliner command central. . .
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Flexo, With my dad bleeding through cash while in a nursing home, my husband and I just picked up some ltc insurance. I did a financial analysis and found that if we need it, the payouts will likely exceed our contributions by a large margin. And the likelihood that one of us will need it is also quite high!
Your exact situation is why my firms sells LTCi….and it seems like that it is happening more and more as the boomers get older.
Just be careful who you buy from as some companies are increasing premiums and cutting benefits, even after the contract was sold!
It would be interesting to know the actual statistics on what percentage of people who had purchased LTC insurance actually ended up using it.
One thing that you don’t see mentioned much is that LTC Ins. is not just for those who are old and infirm and in a facility. It can also be used if a person becomes disabled and needs extensive in-home care, I think (similar to the Parkinson’s disease case mentioned above). And aren’t many debilitating diseases diagnosed later in life (i.e. Lou Gehrig’s and Alzheimer’s)?
There are constant changes to Medicare. I’m not sure that long term insurance can keep up with them.