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Long-term care can be an uncomfortable subject. No one wants to think about themselves or their loved one’s inability to care for themselves or live independently. But 70% of people over 65 will need long-term care at some point in their lives. Long-term care insurance is the initial thing that comes to mind regarding long-term care.

But wait, is long-term care insurance the best option to tackle the matter? How much does long-term care cost? Can’t Medicare cover long-term costs?

In this article, we are going to discover all these answers together. 

long term care insurance
Is Long-Term Care Insurance Worth It?

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What is Considered Part of Long-Term Care?

Long-term care is the assistance you need if you cannot perform daily activities independently. These daily activities, also known as ADLs, include bathing, dressing, eating, and using the bathroom. Depending on your needs, sometimes long-term care means getting ready in the morning. In other cases, it means moving into a care facility. The goal is to help you maintain a comfortable lifestyle as you age.

What Are the Odds of Needing Long-Term Care?

It’s hard to tell when and who will need long-term care, but statistics suggest that most of us will likely need long-term care. According to LongTermCare.gov, people 65 and older have a 70% chance of needing long-term care, with 20% needing long-term care for over five years. In addition, women are 21% more likely to need long-term care and almost twice as long of care. Some of us will need a few months of long-term care, but others will need long-term care for more than several years.

How Much Does Long-Term Care Cost?

Long-term care costs can vary based on the type of care you require. For example, the current average annual price for assisted living is $51,600, whereas a private room in a nursing home is about $105,850.

Let’s look at the national median monthly cost for different types of long-term care:

  • Homemaker services, $4,957
  • Home health aide, $5,148
  • Adult daycare, $1,690
  • Assisted living facility, $4,500
  • Nursing home, semi-private room, $7,908
  • Nursing home, private room, $9,034

If you live in California, the average cost of a private nursing home is about $137,000; however, in Texas, it’s $76,650 per year. In addition, the price of long-term care will likely be different than when you need the services. From 2004 to 2020, the cost of a facility and in-home care services rose, on average, between 1.88% and 3.8% each year.

Why Do People Buy Long-Term Care (LTC) Insurance?

Since regular health insurance doesn’t cover long-term care, and Medicare only covers short nursing home stays or limited home health care when a doctor prescribes skilled nursing or rehab care. In addition, for most circumstances, Medicare doesn’t cover custodial care: bathing, cooking, cleaning, and other daily activities.

You’ll likely have to pay out of pocket if you don’t have long-term care insurance. Medicaid covers long-term care, but only for those with low incomes that have exhausted all their savings.

The three main reasons why people buy long-term care insurance is

  1. To protect savings. With an assistive living center’s average annual cost of $52,000 per year, long-term care costs can quickly drain a retirement nest egg. 
  2. To give more options for care. The more money you have, the more choices you have available. If you plan to rely on Medicaid, your preferences will be limited. Buying long-term care insurance may be expensive, but it will give you more options to pick from. 
  3. To not rely on family for support. Unpaid family members perform 80% of long-term care. Many individuals do not want their loved ones to have the emotional and financial burden of caring for them.

How Much Does Long-Term Care Insurance Cost?

As with any insurance policy, the price varies based on age, gender, location, marital status, current health, and family health history. Depending on what type of long-term care policy you get, the yearly premiums can run from $1,000 to $10,000. 

Based on the 2022 AATLC long-term care insurance rates, here are the average yearly rates, assuming that the policy you have has benefits that grow 3% annually:

  • An average single 55-year-old man will have a premium of $2,220
  • An average single 55-year-old woman will have a premium of $3,700
  • An average 55-year-old couple will have a premium of $5,025 

Remember that these are just averages based on a pool of data gathered by insurance carriers. If you’re considering purchasing a long-term care policy, ensure that your premiums fit within your budget. A good rule is that your premiums should be at most 7% of your monthly expenses.

Will I Qualify for Long-Term Care Insurance?

Even if you can afford long-term care insurance, it doesn’t mean you will qualify. Unlike health insurance, preexisting illnesses or age may disqualify you from getting long-term care insurance. 

Here are some of the long-term care disqualifications:

  • A significant health condition, such as cancer, heart disease, or Alzheimer’s disease. 
  • A history of substance abuse of alcohol, drugs, or prescription medications.
  • A past criminal record
  • Elderly individuals 85 or older 
  • Individuals who already require long-term care or need help with activities of daily living 

What Age Should I Consider for Long-Term Care Insurance?

One fall, diagnosis, or illness is all it takes to need long-term care. Most long-term care claims start when people are in their 80s. Because of this, sometime between 50 and 65 is usually the most cost-effective time to get a long-term care insurance policy. If you start your premiums when you are young, the premiums will be lower, but you will be paying premiums for a longer time frame. However, the premiums go up the older you are, and there’s a possibility that you will be denied. 


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Other Ways to Pay for Long-Term Care

Choosing LTC insurance is complicated. First, talk to a professional to explore long-term care policies and carriers. If you feel that a long-term care insurance policy is not an option, here are some alternatives:  

Your Home: If you have a continuing need for long-term care, you may not require a personal residence anymore. If your home is close to being paid off or paid off already, you can sell the house for a lump sum, refinance and pull money from your home, or utilize a reverse mortgage. Using your home as a long-term care plan might be helpful for those who don’t have a diverse range of assets. 

Your Retirement Savings: If you plan to use your retirement savings, like a Roth or Traditional IRA, to pay for long-term care, the challenge is that your investments need to accumulate enough to beat the increase in long-term care costs every year. For example, if I had $240,000 in an account today, it would have to grow by at least 3% to beat inflation. In addition, keep in mind that if you withdraw money from a traditional retirement account (pre-tax) or a taxable account to pay for long-term care, you may have a large tax bill.

Health Savings Account(HSA): If you have access to an HSA account, this is a great way to accumulate money for your long-term care. An HSA has a triple tax benefit: your contributions are not taxed, invested contributions grow tax-free, and withdrawals are tax-free if used for medical expenses. However, there’s a limit to contributing to the account per year.

Supplemental Income Sources: Dividend income, annuities, royalties, and rental income won’t specifically pay for long-term care, but they’ll provide a fixed or variable payout depending on your contribution. These investments can be a good income supplement to help pay for long-term care; however, it is likely to cover only some of your long-term care expenses. 

Bottom Line

As you make your financial plan, the potential cost of needing long-term care is one of the essential things you’ll want to consider. However, long-term care insurance is one of many ways to pay for long-term care. Consider the options above to see which would make the most sense for you and your family. If you are still deciding whether to choose one, consider working with a financial professional to clarify your long-term care plan. 

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Danielle Miura, CFP®, is the founder of Spark Financials, a life and financial planning firm specializing in helping Sandwich Generation families manage their money. As a CERTIFIED FINANCIAL PLANNER™ professional, Danielle specializes in comprehensive financial plan development, financial education, and financial research.

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2 thoughts on “Is Long-Term Care Insurance Worth It?

  1. Couple of other options for LTC which people might not think of. Some conventional whole life policies can be used for LTC, esp if there is a terminal diagnosis. Quite obviously, you need to shop for those early on, and make sure it fits your needs.

    Likewise, if you are a saver and have good investment habits, you can self-insure for LTC. I watched my father-in-law do this. He had a great income stream in retirement and knew that even if he died, enouugh income would come in to pay for any long term care from his investments.

    Consequently, over the years, I did dividend reinvestment in one utility stock (safe, reliable, good dividend) and that will be my LTC stock. If LTC costs exceed my pension, our dividends, and SSec (unlikely, but possible) then I could sell shares of the stock to offset additional LTC costs.

    If one lives below your means, and pays attention to saving over the course of a marriage, it is possible to save enough for LTC.

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