The Value of Long-Term Care Insurance

Colored eggs in a basket to symbolize nest egg for retirement
Monika Grabkowska | Rawpixel

As the average life expectancy continues to rise in America, long-term health care is becoming a more prevalent issue. When you’re facing the prospect of possibly living until 80 or 90 years old, you’re also facing the possibility of disability, disease, and other expensive health challenges.

If your retirement plans don’t include costly medical care, your nest egg probably isn’t prepared to take the hit for it. Investing in a long-term care insurance policy isn’t right for everyone, but it could be a wise decision if you need to protect your savings or access health care beyond the options provided by Medicaid.

What Is Long-Term Care Insurance?

LTC insurance covers the costs of long-term care.

As the name suggests, long-term care provides many services that help the ill and injured perform daily tasks. Bathing, using the toilet, getting dressed, eating, and getting in and out of bed are all essential day-to-day tasks that people with chronic medical conditions, disabilities, and disorders can’t do alone. Standard health insurance doesn’t cover the costs of this type of care, which creates the need for long-term care insurance.

A long-term care insurance policy covers or reimburses the costs of long-term care provided in your home, nursing homes, assisted living facilities, and adult daycare centers.

Who Needs Long-Term Care Insurance?

Adults need LTC insurance if they suspect they’ll require medical services beyond the scope of regular health insurance and Medicare. According to the U.S Department of Health and Human Services, at least half of all senior citizens are predicted to develop a serious disability that will require long-term care.

In 2018, the average cost of a home health aide was $50,336 a year, while the average annual cost of a shared room in a nursing home was $89,297. Most Americans don’t have that much set aside in savings to spare on out-of-pocket care expenses. LTC insurance makes it possible to receive long-term care for much less.

But this is where LTC insurance gets tricky. You can’t wait to purchase your policy until you’re chronically ill. Most insurance companies disqualify applicants who already have a debilitating condition. If you believe you’ll need LTC insurance, purchase your policy while you’re still relatively young and healthy.

For example, a 55-year old man in decent health can expect to pay about $2,000 a year for a pool of benefits of $164,000. Since benefits compound annually, that same man’s pool of benefits may increase to $386,500 by age 85.

Is It Worth It?

LTC insurance is worth it for some people, and definitely not worth it for others.

You may consider long-term care insurance if you need to protect your retirement savings. Paying for medical care out-of-pocket is one of the quickest and easiest ways to deplete your nest egg. If you don’t have the buffer room to afford long-term care, explore insurance options. Remember, buy your policy in your mid-50’s or 60’s, long before you’ll need to file your first claim.

Long-term care may also be worth it if you don’t want to burden your spouse or children with your medical care as you age, especially if a certain chronic condition like Alzheimer’s disease runs in your family.

Just be sure to compare insurance company policy benefits and prices before you settle on your final choice. The American Association for Long-Term Care Insurance offers helpful guidance to ensure older adults get the care and support they need as they age.

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