Is long-term care insurance worth the high premiums? There is no objective answer. The answer lies within us; it lies in answering these three questions: Do we want to control how we spend our money in our old age or whom we leave it to? Do we want as much control as possible over how and where we are cared for in our old age?
A word on what long-term care insurance is: It is coverage against the risk of long-term (usually more than three months') chronic (not medical) care frequently required for stroke victims, diabetics and the mentally disabled, among other disabilities. These chronic conditions commonly strike people in their old age.
Chronic care may be offered in our homes. This is the preferred setting. Chronic care is also offered in assisted-living facilities and nursing homes. The cost of this care is borne exclusively by the patient, the patient's family or long-term care insurance, except in the case of patients who are destitute or have already spent all of their money. Then Medicaid (not Medicare) will provide nursing-home care only.
The risk is a chronic-care expense that could amount to several hundreds of thousands of dollars. For those of limited means, the insurance makes no sense. For those of great wealth, the insurance may be nothing more than another luxury.
But for the great majority of us in the middle, the insurance may be worth the premiums if protecting our assets (both financial and residential) is important for ourselves or for our families. For some of us, the idea of avoiding dependence on children and others in our old age or the idea of being able to make choices of how and where we are cared for are important enough to buy the insurance.
Ultimately, the appropriateness of long-term care insurance and its worth to us depend on what's important to us. Is there a risk the insurance protects us from, and do we see value in the price of that protection?
Long-term care insurance is expensive. But its cost should be looked at in the light of the alternative, i.e., no insurance. Roughly speaking, annual long-term care insurance premiums might be comparable to the cost of one month's stay in a nursing home, anywhere from $6,000 to $10,000 or more depending on where you live. The typical insurance policy, however, covers 36 to 60 months of care.
In the last couple of weeks, the media has draw attention to the high cost of long-term care insurance and the recent request by major carriers to raise premiums. MetLife recently announced it wanted to exit this line of business.
States, which regulate these insurance carriers, want the private insurers to continue to offer long-term care coverage, as the burden of Medicaid swells with the aging population. The federal government and some states offer tax incentives for us to buy long-term care insurance. And states are pledged and highly motivated to ensure that the policies are honored.
If you are among those of us in the middle, the space between low income and great wealth, and you see some value in the protection and independence this insurance buys, then take a look. If you already own long-term care insurance, examine carefully the reasons you purchased it before you consider forfeiting it when the next premium comes due.
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Donald E. Askey, a Certified Financial Planner™ professional and president of Provident Advisory Group, is a registered fee-only adviser, headquartered in Newburyport. For questions, visit www.providentadvisory.com.