What is Long-Term Care Insurance and Should You Buy It?

The purpose of long-term care insurance is to help you absorb the costs of taking care of your elderly parents. It is an insurance product intended to help the beneficiary pay for the costs of nursing facility, home care, assisted living, etc. This insurance primarily pays for non-skilled assistance with activities of daily living (ADLs)*, which include:

Photo by Ulrich Joho via Flickr

  • Bathing
  • Dressing
  • Using the toilet
  • Moving (i.e., walking, standing up, sitting down, etc.)
  • Caring for incontinence, and
  • Eating

* From National Clearinghouse for Long-Term Care Information

For example, my parents’ insurance agent wants to sell them each a long-term care policy for about $150 a month per person. In return, the insurance company promises to pay $150 per day (with 2% inflation protection) for up to 3 years. The premium must be paid until they die (I am not sure what happen if they used up the benefits before they die).

How Much Does Long-Term Care Cost?

How much really depends on the type and level of services that you need. The price can vary from $5,000+ per month for a nursing home (again wide range depending on the region) to a $1,000+ for home healthcare visits, and a few thousands for assisted living facilities.

Does Medicare or Medicaid Pay For Long-Term Care?

The short answer is some, but not all long-term care services are covered by Medicare/Medicaid. And you must meet all the requirements in order to qualify for these benefits.

Medicare

Medicare is a Federal program designed to cover health care for people age 65 and older, or younger people that qualify. It focuses on medical acute care, and only covers medically necessary care. It doesn’t pay for most long-term care services. Some exceptions include limited skilled nursing facility stay, hospice care, and home health care.

If you qualify, Medicare pays a portion of your cost up to 100 days (100% the first 20 days, and for days 21-100 Medicare pays any expense above $128 per day deductible).

Medicaid

Medicaid is a joint Federal and state program that helps pay medical costs for people with limited incomes and resources. The exact coverage varies from state to state. Most often, eligibility is based on your income, which means that you must use up your personal assets before you qualify.

My Situation

My parents are 64 and 62 current, so they are just in the tail end of that window to buy long-term care insurance. They are likely to outlive their retirement savings and will be able to qualify for Medicare, if needed.

Here are some of the costs and benefits:

After Out of pocket expenses Opportunity cost at 7% CAGR Coverage amount
10 years $18,000 $26,600 $196,000
15 years $27,000 $48,000 $217,000
20 years $36,000 $79,000 $239,000
25 years $45,000 $122,000 $264,000

As you can see the opportunity cost is quite steep. Although it’s less than half of the potential benefits even after 25 years, the key word is potential. Unlike life insurance, there is no guarantee that my parents will be using their long-term care benefits. They could die without ever needing the insurance. They may not use up their entire benefit allowance. And most likely their children and grandchildren will be providing some level of support.

Reader’s Feedback

In the end, I am still on the fence about whether LTC insurance is worth it or not. On one hand, it would put my mind at ease to have the safety net of long-term care insurance coverage for my parents. On the other hand, the opportunity cost could be quite significant.

I think comparison shopping is a prudent next step. So I’ve submitted my parents information to InsureMe to get free insurance insurance quote. Looks like I’ll be seeing some information from John Hancock, MetLife, Northwestern Mutual, and LTC Financial Partners soon.

Now let me ask you this. Are you familiar with long-term care insurance? Do you think long-term care insurance is worth it?

Get your life insurance quotes now, or you can also check out these list of insurance companies that can provide you with free quotes:

About the Author

By , on May 20, 2008
Pinyo
Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

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Leave Your Comment (17 Comments)

  1. Pinyo says:

    @Pearl – That’s an interesting option. I’ll have to read more about it.

  2. Pearl Fleischmann says:

    I have decided to buy the NYS Partnership long term care policy (Total 50). It provides home care at 50% of the daily rate for nursing home care. Should I get the rider to increase home care to 100% of the daily rate for nursing home care?

  3. Bernz says:

    Long term care is really not for everybody. Besides being expensive it’s really hard to predict the future of health care in the US. And if you can afford this, the next question will be, what is the right age to buy long term care insurance.

  4. Michael says:

    I read a couple of weeks ago that Hartford is planning to increase their rates to current policyholders 40%. Also the government’s proposed CLASS Act seems doomed to fail. I beginning to doubt whether private or public long term care insurance options are going to be there when you need it. Saving and self funding long term care seems like the best solution to me. Also I wouldn’t buy until closer to age 60.

  5. Miranda says:

    I’m not a financial professional, but, for what it’s worth, I personally think that late 30s to very early 40s would be appropriate. You don’t want to get into long term care insurance too early, you might be in trouble as well, with possible changes in the future of health care. If possible, a flexible policy might be in order. Does anyone else have some thoughts?

  6. Jenna says:

    Good lists of things to consider. When you say your 40s is a fine line to make the decision about long term insurance, when do you think the earliest time to consider it? 20s, 30s?

  7. Jerry says:

    I think Lisa has a good point. Long term care insurance is a great idea but you want to have the security that it will be there when you need it. It’s good you’re having the discussion because hopefully, it will lead to a solution. With the influx of baby boomers here, something’s gotta give.

  8. ane says:

    There is a lot of misinformation I see here. Medicaid is aid for your wealth, Medicare is aid for your health, while coverage is provided to those reaching the age of 65, covering for SKILLED care only, and Intermediate care up to 100 days (Important: to learn the levels, and understand Health Insurance/Medicare do not cover for CUSTODIAL care (95% of those receiving LTC receive CUSTODIAL care). Medicaid is your state’s system providing for care once all asset’s have been spent down to your state’s requirements…(not too mention that Life Insurance policy cash value).

    A firm that is very well known in WNY, that has assisted thousands in educating and recommending for and against LTC Insurance, would be a great place to start with the FACTS!!

    From there, you may want to call one of the experts to help you in your decision making process while evaluating the various strategies families take.

  9. Pinyo says:

    @Barbara – according to longtermcare.gov:

    “On average, someone age 65 today will need long-term care services for three years. Service and support needs vary from one person to the next and often change over time. Women need care for longer (on average 3.7 years) than do men (on average 2.2 years). While about one-third of today’s 65-year-olds may never need long-term care services, 20 percent of them will need care for more than five years.”

  10. Barbara says:

    Long-term care insurance has the benefit of care for parents in the home, which medicare does not (- only for some medical reasons). If you need someone to come in and just “help out”, long term care insurance is good for this. But I don’t understand the three year limit on payout on the plan you looked at- What is the length of the average assisted living/nursing home stay?

  11. Pinyo says:

    @B Smith — I agree that’s and important factor, and that’s why it’s not easy to make a decision.

    @GreenerPastures — I know the feeling.

    @Make Friends – It’s funny you mentioned that. When I spoke to the agent, I kept looking at the photo of their building with gold plated top…someone is paying for the gold, the building, the decoration, etc.

    @BankerGirl – Thank you for sharing you positive experience with LTC.

    @Ron – Thank you. That’s certainly part of the consideration. It’s very typical of Thai people to take care of their parents during their final years. In fact my wife’s grandmother has Alzheimer’s and her children/grandchildren were the ones that took care of her. And from seeing it (I wasn’t part of it), I could tell it’s not easy.

    Lastly, I have a friend of a friend who works for an insurance company. After a brief discussion, we concluded that it wouldn’t be a bad decision to skip on LTC.

  12. RC says:

    Pinyo:

    First, let me say that i think it is fantastic that you are thinking of your parent’s future now, many of us could learn a lesson from you.

    An additional thing to think about is the effect on you or your wife’s ability to earn income in the future should you have to provide care to elderly parents. Even if you did have the means to pay for the level of care they need, it would certainly take quite a bit of time to make sure they were well taken care of, not to mention things such as a home health care worker not showing up, taking them to doctor’s appointments, etc.

    Great post.

  13. Heidi says:

    My paternal grandparents bought it when it first became available and now they are thanking their lucky stars. Now that they are both well into their 80’s, it looks like it was a good investment. My grandmother has been diagnosed with Alzheimers and will likey be using the benefit very soon. They are paying $12,000 a year in premiums now, but when you consider the costs of long term care for Alzheimers patients, it’s a bargain.

  14. Jonathan says:

    I think it’s just another way of insurance companies to cream off thousands from the general public. Personally my parents Long Term Care Insurance is me and my brothers and sisters. I’d advise them to invest the money instead in something that they can enjoy now. Nice post Pinyo I think this is tapping into a new market that is opening up for insurers and it’s good to discuss it.

  15. Erin says:

    This is a good article. My mother in law is 57 and has been paying for long term care health insurance for years. (probably since she was at least 50). I don’t know how much she pays a month though.

  16. Greener Pastures says:

    You’re looking at this for your parents, and I’m looking at it for me!

    My thoughts- I don’t like it, don’t trust it yet. It’s way too expensive, and with no proof yet as to how it will carry through over the long term, I’m hesitant to drop any money on it. I wonder if any insurance agents will comment? We need to get the inside scoop.

    Lisa

  17. B Smith says:

    Pinyo-You may want to put a value (in dollars) on your peace of mind. This will put the emotional into a form that can be evaluated.

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