Is Buying Long Term Care Insurance Worth It?

National estimates are that about 8% to 9% of all seniors have purchased long term care insurance. Seniors who do not currently own long term care insurance are probably not going to be able to get it. Not only is the insurance expensive for older ages but for anyone over the age of 65, who is not in absolute pristine health, insurance companies will typically refuse to issue a long term care policy. Pristine health means ideal weight, no blood pressure issues, virtually no medications, no history of any chronic illnesses or chronic medical conditions, no indication of cognitive impairment and a clean family health history with no record of cancer, heart disease and so forth.

This does not mean that someone in good health could not apply even if he or she could afford the extremely expensive premiums. At the National Care Planning Council were heavily involved in helping families cope with the need for long-term care. We do this through a planning process called Life Resource Planning. The problem we are confronted with is our Life Resource Planning process typically deals with people in their final years of life who are facing the need for eldercare. There is no way anyone in this situation could get a long term care insurance policy.

Long term care insurance must be purchased when someone is younger and healthier. The very best age for purchasing this insurance is starting at 40 years old. Starting any younger than this usually does not result in any premium savings over the lifetime of the policy. The most affordable premiums are found between the ages of 40 and 55. Getting any older makes premiums more expensive and the risk of future health problems creates additional premium ratings increases to the policy or results in denials for coverage.

The Life Resource Planner is in a perfect position to encourage individuals in their 50s to purchase insurance. The planner is always working with these children of aging seniors. Because the parents are confronting the need for long term care, the children are always involved in the decision-making process. The children are typically in this age group. The children have also become believers in preparing for the need for eldercare because they are going through it with their parents. At this stage, children are likely to purchase long term care insurance.

But the window for purchasing insurance is small. Within a year or two after their parents have been taken care of, preparing for the need for long term care becomes less important to the children. If the children did not act within the first few years to purchase insurance, it is likely they will not purchase it in the future. No one knows for sure why the American public ignores the need to prepare for long term care. The fact is the majority of Americans do not care to deal with the need for eldercare.

Here are some major arguments for purchasing long term care insurance.

Reasons for Buying Long Term Care Insurance

  1. It will help you keep your independence and dignity. Here’s how. . . some of you will spend all your assets on care while others plan to give their money away or put it in trust. With no assets you will now qualify for a welfare program called Medicaid. Medicaid typically pays for a semiprivate room in a nursing home, and; not all nursing homes take Medicaid patients. In many states it’s not easy to get Medicaid to cover home care or pay for assisted living. Many people want to stay at home, but with Medicaid may not be able to. And assisted living is rapidly becoming a preferred alternative to nursing home care for certain disabilities but Medicaid may insist on a nursing home instead. A nursing home is not the most desirable place to finish out one’s life. For many, a terminal stay in a nursing facility robs them of a purpose in life and strips away their dignity. As an example, have you ever thought of the indignity of being bathed, toiletted or diapered in a nursing home environment? No wonder many people express the desire to die before ever having to go into a nursing home. For some conditions a nursing home is the only alternative, but for many long-term care patients there are more options than nursing homes. A good long term-care insurance policy covers those options and when all else fails, it pays for nursing homes too.
  2. If you are married and you have a need for long-term care, your spouse may be forced to pay for an outside care giver. The cost is likely to come from your combined income and assets. If the need for paid care drags on too long, your spouse may be left with minimal cash assets for future needs. Insurance solves this problem and allows your spouse to keep the assets.
  3. Many healthy care-giving spouses won’t spend their money and choose to “tough it out” on their own without help. If care of a disabled spouse drags on too long, this can have a devastating effect on the physical and emotion health of the caregiver. Surveys reveal that even though healthy caregivers often don’t spend their money for help, they will use insurance if available. Insurance allows the healthy caregiver to buy much-needed respite from paid professionals, while at the same time, retaining the assets and possibly avoiding an early death from the mental and physical stress of caregiving.
  4. If your children or extended family promise to take care of you when the time comes, insurance will help them do that. Probably you nor your children have thought of the prospects of moving you from place to place, changing your dirty diapers, cleaning up after “accidents” in the bathroom or helping you with bathing and dressing. Insurance will pay for aides to help with these tasks.
  5. If you are single and a need for long-term care arises, insurance can pay for and coordinate that care. With insurance you won’t have to feel you would be a burden for family or friends.
  6. If you have the desire to leave assets behind when you die, insurance will help preserve those assets from the cost of long term care.

Why Not Buy LTC Insurance When You’re Older?

  1. Don’t forget that 43% of those needing long term care are under age 65. You may need it now.
  2. Every few years insurance companies come out with new policies. Although these policies contain many new benefits and features, they are also more expensive for new people signing up than the previous policy. Estimates are, because of this rate creep, new applicants for long-term care insurance are paying about 5% more each year than applicants at the same age would be paying with older policies. At this rate of increase, ten years from now, a policy for a 50 year old would cost 50% more than an equivalent policy for a 50 year old would cost today.
  3. To get long term care insurance you must answer questions relating to your health. If you wait, you may develop a condition that would prevent you from obtaining coverage.
  4. The cost of coverage increases with age. For younger ages you can get a rate that is relatively inexpensive. At older ages the rate becomes very expensive.
  5. It costs less, over time, buying now than buying equivalent coverage in the future. The 20 year total cost of buying now is less than the 19 year total cost of buying next year, or the 18 year cost of the next year, and so on.

Why Not Invest the LTC Premiums Instead of Buying Insurance?

The invested amount of premiums over 20 years, may be only 5% to 12% of the potential insurance benefit. A 6 year insurance benefit may only yield ½ year of long term care if the premiums are invested instead. Besides, if you invested premiums, where would the money come from if you needed long term care next year or even 5 or 10 years from now? The saved premium account wouldn’t have time to grow.

Why Waste Money on LTC Insurance if You Have Assets to Cover the Cost Directly?

The same question could be asked of auto, home owner’s or medical insurance. Why not self-insure there as well? You could just as easily pay your medical bills from your pocket. Or pay for damage to your cars and loss of your home out-of-pocket and possibly save a lot of money over time? No matter what the risk, the total cost of premiums over a long period is usually a fraction of the cost of paying a claim from your own pocket. The purpose we buy insurance is to preserve assets by leveraging premiums to buy a benefit at pennies on the dollar instead of paying dollar-for-dollar out-of-pocket for a loss. The probability of a house fire is 1 in 1200, of having a major auto accident is 1 in 240 and of needing long term care is 1 in 2 . With a much higher probability doesn’t long term care insurance make as much sense as buying those other coverages?

Why Don’t You Get Your Money Back if You Don’t Use LTC Insurance?

This question always begs the underlying reason for it’s being asked. In essence the person with this concern is thinking, “it won’t happen to me, so it’s a waste of money”. To play to this objection, many carriers design policies with cash values, life insurance death benefits or return of premium at death. But these features increase premium cost and sometimes make coverage unaffordable. The same question could be asked of all insurance. Why don’t we get a refund with term life, health, disability, commercial lines, auto, or homeowners insurance? People seem to take it in stride, paying $80,000 for auto insurance or $20,000 for homeowners insurance over their lifetime. Then when they make a claim, if they ever do, they get their coverage canceled or more likely their rates are increased to cover the cost of the claim. Yet, out of denial or ignorance they can’t see why they should pay $40,000 over their lifetime for long-term care insurance where the probability for a claim is higher and the risk of loss is 4 to 10 times higher than the risk of loss with a car or home.

Annuity or Life Insurance with Embedded Long Term Care Insurance

Long term care insurance is often bundled together with life insurance or inside of an annuity. This makes sense to purchasers who would have a single some amount of money to put into life insurance or annuity but would like the added benefit of having long term care insurance. Several years ago, Congress also decided this was a good idea and passed legislation that would allow any money coming out of an annuity or a life insurance product with long term care coverage, that would normally be taxable, would not be taxable if used for long term care. The reason this type of bundled coverage is popular is because if the long term care insurance portion of the policy is never used, the insurance or annuity owner gets back his or her money.

Dovetailing VA Aid and Attendance Pension Benefit with Long Term Care Insurance

Sometimes we are asked how one can obtain the aid and attendance benefit if that person is already receiving long term care insurance payments to cover the costs that aid and attendance would cover. Generally, insurance coverage would make the veteran or surviving spouse ineligible.

If a long term care insurance coverage is adequate to cover the entire cost of care and if it is a lifetime policy, then aid and attendance Pension is not necessary. Most long-term care policies only pay out for a certain number of years. The best strategy is to preserve the policy and used aid and attendance to pay all or enough of the cost difference with insurance to qualify for aid and attendance.

For example, suppose the cost of assisted living is $5,000 a month. John is in this facility and makes $2,500 a month. His long term care policy will pay $3,000 a month towards the facility for three years. After the policy runs out, John will not have any source to pay for his long term care if he needs to stay in the facility longer. Here is a better strategy.

John is eligible for $1,644 a month from VA to use towards his assisted living. He does not qualify because his long term care policy is covering the difference between his income and the cost of assisted living. John reduces his claim under his insurance policy to $900 a month. This covers $3,400 of his bill. He now qualifies for the additional $1,644 per month from VA to cover the balance of his bill. Because he has reduced the amount that the long term care insurance pays, the policy will now last longer than three years. Depending on how much the policy would’ve paid out over all, he might get seven or eight years out of it. If John has to go to a nursing home, he has up to $7,144 a month from VA, his income and the policy to cover a nursing home

Reverse Mortgage Long Term Care Insurance Strategy

A couple could leave the money from the reverse mortgage in a line of credit and draw out enough every year to pay a $5,000 annual premium for a long term care insurance policy for both of them. When the time comes for long term care, the policy allows them to save their assets, including the money in the line of credit which is growing with interest.