Do I Need Long Term Care Insurance?

It depends. As our population ages, this question has become more and more common. We often have clients ask this for themselves, for friends, even for their own parents, and the answer is usually, “It depends.” Taking the time to analyze your unique situation and your goals is important when making the decision on whether or not to obtain Long Term Care (LTC) Insurance, and if so, when to purchase the policy. Let’s start with the basics of long term care, discuss costs, and then talk about how to decide what’s best for you.

What is long term care?

Long term care encompasses the broad range of support and services required for assistance with daily living activities when your abilities to perform them are limited. Limitations could be due to illness, injury, disability or even age. Daily functions include activities such as bathing, eating, dressing, continence, transferring or toileting, and according to the U.S. Department of Health and Human Services, it’s very likely that most Americans age 65 and up will need some form of long term care during their lifetime.

How expensive is it?

Who provides the care, how much help is needed, and where the care is provided will determine an individual’s costs. A caregiver may be a neighbor, a friend, or even a family member who is able to help at home. According to Morningstar Investing Specialist Christine Benz, 83% of the help provided to older adults is delivered by friends or family members. Most of this help goes unpaid. If a person is in need of more skilled care, the costs can skyrocket. According to a study completed by Genworth Financial, the current average cost of care for a semi-private room in a nursing home within the Indianapolis area is around $80,000 per year. The costs of this type of care rise by nearly twice the amount of average inflation, which means it’s possible that $80,000 per year in 2017 could balloon to over $105,000 per year by 2027.

What’s best for me?

With all of this in mind, it makes you wonder how your costs will be covered, if you have enough saved already, or if you should purchase a LTC Insurance policy. A common misconception is that Medicare or private health insurance will pay for long term care services. In most cases, these policies only cover skilled services or rehabilitative care up to a certain number of days and only if deemed medically necessary. Outside of that or qualifying for Medicaid, you’ll be responsible for picking up the tab. As you contemplate whether you’ll need an insurance policy to help with covering your care costs, consider your current resources and options available to pay for the care. If you have enough saved to pay for one spouse, will that leave the surviving spouse with enough assets to cover their living expenses?

If you’ve determined that a LTC Insurance policy is necessary, the next question is when to apply.  The answer is that it never pays to wait, and somewhere in between the ages of 50 and 59 is typically the sweet spot to make your application.  Into your 60s, the chances of being approved for a policy decrease significantly due to an increased probability of health issues due to age, and the costs have likely already doubled for the same policy you would have qualified for and purchased in your 50s.

If you’re still not certain what’s best for you, working with your financial planner and an experienced insurance agent can help you determine if you need a policy, whether you can afford it, and the most appropriate type of policy available to you.

- Margaret Gooley, CFP®, Worley Erhart-Graves Financial Advisors