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Pros and Cons of Long Term Care Insurance

By on March 29, 2010

Look at the Pros and Cons of Long Term Care Insurance

Will You Need Nursing Care?

Making Sense Of Long Term Care Insurance

Awhile back we posted an article on long term care insurance alteratives, and we also showed you how to find the cost of LTCi. We did not mean to suggest that these policies were a bad idea. In fact, they make sense for a lot of people who are developing a retirement plan.

Note You can also visit here for Long Term Care Insurance Cost Quotes and Policy Comparisons.

Here’s the reality. If you do not have any coverage for nursing care, you, or your family, will be responsible for the bills. Costs vary depending upon the care giver, location, and type of care. In general a full time nursing home will be more expensive than assisted living, adult day care, or part time home health care. The problem with planning for this expense is that we really have no way to predict which kind of care we will need in the future!

What About Medicare And Medicaid?

Medicare only covers short term or irregular nursing care. Medicaid covers long term care, but has very strict income and asset requirements. Qualification rules vary by the state you live in. Nursing homes in the US can charge $50,000 a year, or more. If you are a person with a lot to lose, it is a great idea to have a plan in place to protect your assets in case you need long term nursing care in the future.

Update: Since this article first came out, there has been a lot more attention paid to state long term care insurance partnerships. Some states will ease Medicaid qualifications for residents that participate in qualified LTCi plans. If you live in one of those state, you may want to factor this in.

Update 2 for 2012: I also want to mention some updated average nursing care costs by type. This information comes from a Met Life Insurance survey of US national averages for nursing homes, assisted living facilities, and home health care.

Cons of Long Term Care Insurance

You may wonder if there could possibly be a downside to preparing for the chance of having to pay for nursing care. But there are some reasons that people do not purchase a policy, or decide to drop one they have. Consider these possible long term care insurance disadvantages.

  • Insurance is all about risk management. Just as you could purchase an auto insurance policy, hoping you never have an accident, you could pay LTCi premiums for years, never need the policy, and never get anything back.
  • Premiums cost money. If you cannot afford to keep paying premiums on a good policy, it will not do you any good if you buy it, and then drop it years before you need it. If you do not think you can afford to pay the premiums, even after you income is reduced in retirement, it may be better to figure out another way to plan for possible nursing care.
  • Long Term Care Policies Vary. The whole process of figuring out which type of LTCi policy will be useful and affordable can be a complex process. If your policy only pays for nursing homes, and you only need part-time home health care, you policy will not be useful.  That is why we provided the long term care insurance quote form above, because an online quote form makes it a little simpler.
  • Policies will be underwritten. People with health conditions, or those who have passed a certain age, may have to pay a lot more. Some applicants may not be accepted at all.
  • LTCi policies remain confusing, consumer advocates and state regulators say, and the terms and features vary widely, from when benefits start and the maximum daily payout to how long benefits last and what services are covered. State insurance regulators field a steady stream of complaints from consumers over issues such as unexpected premium increases and denial of coverage.

Pros of Long Term Care Insurance

A lot of people do find policies that they believe will benefit them. Consider this. Medicaid pays about half of all US nursing home costs in the US. In order to qualify for Medicaid benefits, a person has to exhaust most of their assets first. In 2006, the National Center for Policy Analysis figured that people who enter a nursing home will be charged between $69,350 and $346,750. That figure is sure to be higher today.  Medicaid will kick in after their own money is exhausted.

So LTCi is one solution to protect a lifetime’s worth of assets.  That same study, conducted by the National Center for Policy Analysis estimated that 40% of people who turn 65 would spend some time in a nursing home, and that more would need some type of nursing care.

Some Long Term Care Insurance Advantages

Some policies are tax qualified, which means they can be deducted from income for tax reporting. This makes the real cost of premiums a bit lower.

In addition, many policies are flexible. This means that they will pay for whatever type of care is needed from home health care to assisted living to inpatient nursing homes. This leaves the insured people, and their family, with choices. And it also leaves them the freedom to change their mind as problems progress.

A family may decide to care for an elderly parent with adult day care in the early stages of dementia, for example. But later, it may become more than they can handle, so they can seek full time help.  On the other hand, an illness or injury may require nursing home confinement for several months, but as the insured person recovers, perhaps they could come back home with part time home health care.

Are There Disadvantages To Having Long Term Care Insurance Then?

Actually the biggest argument against buying coverage is that you will have to spend money on coverage that you may never need. This is actually true with most types of insurance though. You purchase auto, home, and health insurance policies, and you hope you do not need to make claims.

  • In my opinion, somebody could make a better argument that the premiums will use up money that may have been put to another use – like a product that could do double duty.
  • My other problem with the whole LTCi industry is that policies are still confusing and not standardized.

Is Private Long Term Care Insurance Right or You?

Before you decide for or against, you should learn about the types of LTCi policies that are marketed in your area. Weigh the pros and cons of long term care insurance, and the benefits of various types of plans. Then you can find out how much long term care insurance costs to see if this solution will work with your current budget.

Long Term Care Insurance Advantages And Disadvantages

This article has been amended quite a bit to keep up with changes. We have also provide an update summary article here that may be easier to digest: Long Term Care Insurance Pros And Cons.

Do you have any experiences, good or bad, with nursing care and insurance?  You can register for free to let us know in the comments! If you would like to gather some competitive rates and plans to cover yourself, or somebody in your family, you can find insurance quotes here.

 

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34 Comments

  1. Dawn

    July 1, 2010 at 9:56 am

    So do we spend money on LTCi, hoping we never need it – or do we just roll the dice? This article is good, but I am still on the fence.

  2. Justin

    July 1, 2010 at 10:01 am

    Dawn, a lot of people feel like you do. The whole subject of long term care insurance is very complicated too because plans are not standardized.

    I Think some of the alternatives – like finding anuities or life insrance with LTC clauses are attractive. Otherwise, looking for flexibe LTC insurance that is well within your budget is something to consider.

    But I would not tell anybody to stretch their budget over it – that is counter-productive.

  3. MaxDrake

    July 8, 2010 at 9:13 am

    Right Justin, but it is also counter-productive to ignore the issue. The facts are – half of us will need long term nursing care at some point in our lives. There has to be some plan – even if the plan is to pay down our assets until we qualify for Medicaid – assuming that is still an option in 30 years.

    I think people should, at least, compare long term care insurance quotes to see how much it costs before they decide if they can afford it or not.

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  6. David

    August 24, 2010 at 10:08 am

    I think a ltc policy can provide some peace of mind if it is the right (flexible) policy that won’t break a budget.

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  8. JohnBoyd

    October 12, 2010 at 8:17 am

    Another idea is to purchase an annuity (if you have the savings) that has a clause for early withdrawel in case of nursing confinement. This can peform double duty – as savings and emergency funds for nursing care. There are even some that have LTC insurance as a feature. Compare.

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