Long-term care insurance, sometimes known as nursing home insurance, has been extensively promoted as a way to safeguard against the rising expenses of long-term care, especially in residential nursing homes. There are two types of insurance involved in nursing home insurance. One covers a resident’s belongings while in the nursing home, and the other covers the actual stay in the nursing home. In this article, we will be covering the policy that covers the latter of the two. The insurance that covers the stay in the nursing home can be expensive, and it frequently only offers limited benefits that may only cover a tiny portion of your overall expenditures, if at all [1].

Long-term care insurance is sold by implying that buyers may spend years in a nursing facility, a situation that would leave them destitute. However, the chances of spending a long time in a nursing facility are far smaller than they want you to believe. Because of Medicaid legislation, there is almost no danger of being evicted from a nursing facility.

With the high expense of LTC insurance and the other ways you might invest the money you spend on the premium, you may discover that LTC insurance is not as good for you as it is for the 95% of the population over 65 who have not invested in it.

LTC insurance may be a good option for those who have assets worth $300,000 to $500,000 over and above the value of their homes. This is especially true if you consider long-term care insurance a safety net rather than a financial investment and if your policy covers assisted living facilities.

Long-Term Care Insurance: Who Needs It?

Some say the majority will require long-term care of Americans, and long-term care insurance is the best method to pay for it. In reality, today’s 65-year-olds have a 70% risk of requiring long-term care, with an estimated 20% of Americans requiring it for more than five years. However, around 7.5 million people in the United States have long-term care insurance [2].

When Should People Consider Purchasing Long-Term Care Insurance?

Those who purchase long-term care insurance do it on average around the age of 65. Unfortunately, most individuals can’t anticipate their finances or health in the future until they reach that age, so they can’t make an informed choice on LTC insurance. In addition, LTC insurance rates are generally too expensive when people reach eighty years old. So what are some considerations you should keep in mind when researching a long-term care policy?

  • What are the chances of staying in a nursing home for an extended time?
  • The majority of individuals will not stay in a nursing home for many years.
  • Two-thirds of males and one-third of women over 65 will never require nursing home care.
  • The majority of nursing facility stays are short; just around 10% of men and 25% of women aged 65 and older spend more than a year in one.
  • Only ten percent of nursing home patients remain for over three years.
  • Most nursing home stays are for shorter than six months. Those who attend a custodial care facility spend an average of 18 to 20 months there. [3]

Long-Term Care Insurance’s Performance

Because there is little probability that a person may need more than three years of nursing home care, insurance companies do not pay as much as they claim when selling the coverage. When the plans’ terms, exclusions, and benefit restrictions are considered, the policies’ performance is dismal.

  • Approximately half of all LTC insurance ended before any benefits were provided, owing to policyholders’ inability or unwillingness to pay their premiums.
  • About half of individuals who purchased LTC insurance and subsequently joined a care home never received a penny from their plans.
  • LTC benefits were often paid at a fraction of the actual expense of the service.
  • Benefits were exhausted for the longest-term patients before their time in the nursing home ended. Unfortunately, this left them with big bills for the remainder of their stay.
  • LTC insurance failed to assist consumers in avoiding depleting their savings or from using Medicaid to pay for long-term care in any of these cases. To put it another way, it was a bad investment.

Improvements to Long-Term Care Insurance

LTC plans have improved in recent years as a result of customer pressure, humiliating media stories, and increasing competition from new insurers entering the market. Easier to understand terms and conditions offer customers a better picture of what they may expect when purchasing a policy. In addition to typical nursing facilities, several insurances now include enhanced coverage to encompass various kinds of assisted living communities. The requirements to qualify for benefits have also been modified a little. Most plans now allow policyholders to “drop down” to lesser levels of coverage for a cheaper premium if paying for the more significant benefits becomes too expensive.

Choosing Whether or Not to Purchase Long-Term Care Insurance

Financial professionals often consider LTC insurance a terrible investment unless the monthly payment is less than 5% of your monthly income. Be aware that your premiums are expected to climb while your income may fall when calculating this 5% number for future years.

If you plan to have considerable assets in addition to your house when you reach your 80s — over $300,000 in assets and $50,000 per year in income— long-term care insurance with high benefits and compounding inflation protection could be a good investment.

The Most Effective Method for Obtaining Long-Term Care Insurance

If you’re thinking about getting long-term care insurance, shop around carefully. Compare multiple plans, looking for exclusions and limits in each. Don’t make a choice based simply on the advice of an insurance salesperson or broker trying to profit from selling a policy. Consumer Reports’ most recent LTC policy research can be a valuable resource for research. Consumer Reports is a consumer information magazine that publishes extensive analyses and comparisons of various policies on a regular basis. You can find Consumer Reports at a bookstore, library, or online.

Keep in mind that you may never need long-term care at all or that you may not require enough care to qualify for insurance coverage. Before making a choice, consult with an accountant or other financial professional to see if there are any other options for investing the money you would otherwise spend on the policy. Those savings and investments may provide security for you and your money than a long-term care insurance policy, and you’ll only have to pay for treatment if you do need it [4].

References

  • [1] “Long-Term Care Insurance: The Risks and Benefits | Nolo.” https://www.nolo.com/legal-encyclopedia/long-term-care-insurance-risks-benefits-30043.html (accessed Feb. 15, 2022).
  • [2] “Long-Term Care (LTC) Insurance Definition.” https://www.investopedia.com/terms/l/ltcinsurance.asp (accessed Feb. 15, 2022).
  • [3] “Who Needs Long-Term Care Insurance? | RamseySolutions.com.” https://www.ramseysolutions.com/insurance/who-needs-long-term-care-insurance (accessed Feb. 15, 2022).
  • [4] “Long-Term Care Insurance Explained – NerdWallet.” https://www.nerdwallet.com/blog/insurance/long-term-care-insurance/ (accessed Feb. 15, 2022).