The Real Costs of Long Term Care Insurance

Recently, Advisor One released an article that highlighted a study by the  American Association for Long-Term Care Insurance (AALTCI) which showed that long term care insurance is not as expensive as some people think.

Why do many people think Long Term Care Insurance is very expensive? From the article quoting Jesse Slome of AALTCI:

He attributes this to studies that average out the costs of policies and report on the results.Older consumers do pay considerably more for coverage than younger ones, as do those with health concerns, so their premiums can boost the average considerably.

The point is that the much higher premiums paid by older folks who are likely more motivated to buy the insurance, skew the numbers and cost ideas that most think about.  According to stats in the article, almost half of long term care insurance purchasers pay <$1,500/year for their premium.

My Take

it is likely true that people do not pay big premiums often for long term care,  but be aware that purchasers of long term care might be taking the ‘auto insurance name your price’ strategy to long term care insurance planning.

What do I mean?

People are likely buying the amount of coverage that matches what they want to pay, and not what they need, in my opinion. $1,500 likely does not include a coverage amount that would pay for what I would consider a minimum level of benefit:

The ability to cover a full time (40hrs/wk) home health aide/nurse salary with inflation protection. For example, and this is strictly coming from me and not any “official” source, I attempt to cover clients for at least $6,000/month for 3-4 years with inflation protection. In doing this I am thinking:

  • everyone I ask prefers home care to a nursing home
  • most people don’t go directly to nursing care and specifically about
    Home Care is Preferred

    dementia-related issues, adult day care is preferable to a nursing home

  • $6,000/mo = $72,000/year should afford a decent full time aide at home
  • specifically in Massachusetts, having a certain level of benefit ($125 daily benefit) with a 2 year benefit period and some other provisions creates home equity protection against possible Medicaid expenses
  • Inflation protection is critical for younger people especially with medical cost inflation
  • 3-4 years allows transition planning to Medicaid coverage – especially helpful if the client is not wealthy
  • having insurance can help the client get into a good facility which may not have a preference for Medicaid-funded patients

Bottom Line

Keep an open perspective on long term care insurance. I can tell you that costs can vary tremendously, but I for one, don’t see cost-decreasing trends in long term care insurance. In fact, I think that many insurers have incorrectly priced long term care insurance too low, partly because there is no long term data on long term care usage (unlike life insurance where mortality tables have been kept well for a long time).

Therefore, I see premiums continuing to rise and premium increases at more companies likely. Consider buying sooner than later from a strong, large company with a commitment to long term care insurance to attempt to avoid premium increases as John Hancock is trying. I would recommend you consult with a financial planner and/or a long term care insurance expert to determine if investing in this type of insurance makes sense. It is a sizable financial commitment for some people and depending on your net worth, income, and the structure of your assets and income streams, it may or may not make sense to buy long term care insurance.

If you would like to discuss the pros and cons of long term care insurance for your situation, get in touch with us by:

  1. using our contact form
  2. calling us at 781.393.0021
  3. emailing us by clicking here

Learn more about our firm,  Walnut Hill Advisors, LLC here

We are a financial planning firm based in Medford, MA, just outside Boston, focusing on financial planning for retirement, and retirement income planning – as well as investment management and insurance planning.

Learn more about our principal, Chris Grande, here

This article is meant to educate and not meant to be advice. Please consult with a professional advisor before making any decisions. See our disclaimer form for more information.