Should I Purchase Long-Term Care Insurance?

Buying long-term care insurance is one way to protect against the high cost of long-term care. However, this type of insurance may not be for everyone, so consider all your options.

Long-term care – care in a nursing home or at home — may be paid for in four main ways: 

  • Out-of-pocket. If you have sufficient resources, you can pay for your long-term care needs with money you have saved. 
  • MedicareMedicare covers short-term nursing home stays after an illness or injury that requires hospitalization. Medicare covers up to 100 days of “skilled nursing care” per illness. 
  • Medicaid. If you have limited resources, Medicaid will pay for nursing home care. In order to be eligible for Medicaid benefits a nursing home resident may have no more than approximately $2,000 in “countable” assets (it may be higher in some states). 
  • Traditional long-term care insurance. With long-term care insurance, you pay monthly premiums to buy a policy that pays your long-term care costs if you are admitted to a nursing home or need home care (depending on the policy). 
  • “Hybrid” life insurance policies with long-term care riders. A popular option for long-term care insurance is to purchase a life insurance policy with what is known as an either/or policy feature. With this feature, if the insured passes away, a death benefit is paid out just like a normal life insurance policy would do. But if the insured needed long-term care before their death, those specified benefits are paid, taking precedence over life insurance. If there are no benefits to be paid before death, the policy expires.

Determining whether you need long-term care insurance depends, in part, on your financial situation. The cost of a long-term care insurance policy varies considerably, depending on your age when you purchase the policy, the benefit period, and the level of benefits, among other things, but the premiums can be expensive. Therefore, if you have the resources to self-insure your long-term care and still have money left over, you likely don’t need to buy a long-term care policy. On the other hand, if you cannot afford to pay monthly long-term care premiums, you may be able to qualify for Medicaid at some point in the future. 

Another factor to consider is your family’s health history. Most nursing home stays are short-term and paid for by Medicare if in connection to a hospital stay. A common reason for needing extended long-term care is dementia. If you know you have a family history of Alzheimer’s disease, for example, it may make more sense to buy insurance. 

Of course, we never really know what the future may bring. Long-term care insurance is like any insurance policy: we don’t know if we will ever need it. In general, long-term care insurance is something to consider if:

  • you have the resources to pay the premiums, even in retirement,
  • you want to preserve your estate for your heirs, and
  • you don’t have enough money to self-insure.

For information on what a good long-term care policy should include, click here

For information on how much insurance you should purchase, click here