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Is long-term care insurance worth it?

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In the ‘80s when my grandmother bought long-term care insurance everyone thought she was nuts.  Twenty years later, my grandmother’s policy which covered her for unlimited lifetime benefits (a type of policy no longer offered) became useful and continued to be useful for nearly ten years of care as she fought and ultimately lost a battle with Alzheimer’s disease.  Unfortunately for the insurance company, claimants like my grandmother, were far too frequent.  Insurance profits rely largely upon interest rates but those investments never paid off for them because the recession drove interest rates into the ground. Then healthcare costs hit the stratosphere.  The result of those three hits has been that insurance companies selling long-term insurance either quit selling the plans or drastically increased premiums, sometimes by 40 percent or more.  Companies, such as Genworth, have changed their policies to offer fewer benefits and they’ve priced their premiums to reflect low interest rates.  Still, most Americans opt out of purchasing long-term care insurance.  A recent Center for Retirement Research study found that they might have the right idea after all, hoping to win the lottery of either not needing long-term care at all or not needing it for long.  The study found that previous research on long-term care overstated the average length and thus costs of long-term care stays while understating the risk of needing such care.  The striking result?  “The use of corrected care status transition probabilities reduces estimates of the value of insurance and strengthens the claim of previous research that most single individuals should not buy insurance given the availability of Medicaid,” according to the study authors. Of course, all that presupposes that Medicaid as it looks now will continue unaltered.

One striking find was that although more people end up in long-term care than was previously stated, they stay for much shorter durations (between 10 months for the average single man and 16 months for a woman) and Medicare covers many of those stays.  This eliminates some of the value of long-term care insurance.  Because nearly half of all men’s nursing home stays and over a third of all women’s nursing home stays don’t exceed three months, they fall within Medicare’s 100-day maximum stay.  Instead of the new findings making the decision to buy or not buy long-term care insurance easier, it makes the decision trickier.  Low-income individuals are still better off allowing Medicaid to kick in.  Higher income individuals are still likely capable of paying for care out of pocket.  The middle group needs to ask themselves a variety of questions beginning with whether they can tap someone for future care and whether they have home equity for starters.

The current group of retirees has a larger potential staff for caregivers than future octogenarians and nonagenarian but those numbers are shrinking due to a variety of factors including smaller family sizes and larger numbers of aging (since we are all living considerably longer).  Those shrinking caregiver numbers and the potential for future Medicaid changes put the ball back into the court of middle-income Americans.  Some consumers are looking to hybrid policies, which combine long-term care insurance and either life insurance or an annuity.  These policies tend to be complicated and require a trusted advisor to determine whether they make sense on a case-by-case basis.  Whatever choice individuals make about how to pay for future long-term care needs, it’s going to cost real money so it’s important to address these concerns head on to avoid burdening your children or your children’s children with the cost of your care. Read the Wall Street Journal article for more in-depth coverage.

Attend a free LifePlanning Seminar to find solutions to this and other aging problems.

For more information on hybrid long-term care policies, read on.


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