The Pros and Cons of Long-Term Care Insurance

Knowing the pros and cons of long-term care insurance policies will help you make an informed decision before choosing your policy. Long-term care insurance is a type of policy that covers the costs associated with nursing-home care, home health care, and adult day care for seniors who are 65 or older. It also covers the same services for people with a chronic condition that need round-the-clock care.

So, what are the pros and cons of long-term care insurance? There are many advantages and disadvantages of procuring long-term care insurance, and we’re going to go over the most important ones in this guide so that you can make the right choice for your future.

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What are the Benefits of Long-term Care Insurance?

The pros of long-term care insurance are abundant and can lift a considerable weight off the shoulders of those looking for peace of mind in their senior years. Determining whether or not long-term care insurance is right for you is entirely relative and dependent on many things, but taking time to consider these benefits of long-term care insurance can help you make that decision. From compassionate consideration of your close family and friends to tax benefits and annuity payouts, the pros of long-term care insurance can have a significant and positive impact on your life and legacy, as well as those of the people around you. Let’s jump into our list of long-term care insurance pros and take a closer look.

Peace of Mind

There aren’t a lot of retirees out there who don’t worry about the financial impact that a debilitating condition can have on the wellbeing of their families. Healthcare is expensive, and if you ever find yourself in need of constant care, you know you’d be running up a hefty bill. Not many people can afford to pay for such care out of pocket, and as each day passes, we know it can always be a possibility to require this kind of care in the future. It’s worrisome and weighs heavily on the mind.

When you have coverage with long-term care insurance, that worry lifts, and you know that you have things taken care of no matter what happens. The financial impact on your family and loved ones will be minimal, should you ever require daily health care and supervision. If you find yourself worrying about the possibility of needing long-term care in the future and how you might pay for it, long-term care insurance can relieve that worry immediately. In the process, you’ll be achieving peace of mind for yourself and those you love.

Reduce Care Stress on Family

When a family member requires round-the-clock care and doesn’t have the means to pay professionals for this care, the burden falls on family and friends. Constant supervision and care of someone with a disabling condition is a heavy burden to bear. It can cut into valuable time with children, affect their employment and social life, and even take a significant toll on their mental and physical health. It is a lot to ask of someone you love, to put their own life on hold to care for you all day and all night. Long-term care insurance gives you the ability to afford professional care to assist or take the place of your loved ones in your routine care should you ever need it. When your loved ones become your caretakers, your relationship centers around your care and your health. With a professional caretaker, you can ensure that your relationship with your loved ones doesn’t become strained. Long-term care insurance is a compassionate thing to do for your closest family and yourself as well.

May Be Cost-Effective

If you ever find yourself needing to stay in a long-term care facility, the bill can come out to as much as $10,000 per month. For the average American family, this cost would be financially crippling. If you end up requiring long-term care for six months or a year, the cost is astronomical. Conversely, purchasing a long-term care insurance policy costs the average American just under $1000 per year and can give you $200,000 of coverage and more. It doesn’t take many calculations to see that paying a long-term care insurance premium is, most of the time, far more cost-effective than paying for long-term care out of pocket. Even if you end up paying for long-term care insurance for 20 years, it can pay for itself in just a couple of months of long-term care when you need it.

Even if you don’t end up using your long-term care insurance benefits, knowing that it is there when you need it is invaluable. Like your car insurance, we know we’re better off paying the premiums each month just in case we ever find ourselves in need of the benefits, and if we never need to cash in on those benefits, it’s a good thing that it’s there.

Long-Term Care May Be Necessary

Seniors who report limiting disabilities account for over two-fifths of the over-65 population in America. In the year 2000, the number of American seniors who needed long-term care exceeded 10 million, which continues to grow. 68% of all seniors in America will need assistance at some point in their later years with at least one or two Activities of Daily Living (ADLs). As much as we don’t like to think about it, the chances that we may need long-term care in the future are good. Your odds may be increased by different lifestyle factors, including a poor diet, low activity level, and stress, as well as genetic factors, including a family history of disabling conditions. You may not feel it right now, but your risk of requiring long-term care in the future could be very real, and it’s better to be prepared for what could happen than to find yourself in that situation with no assistance. If you feel you have an increased risk of requiring this type of care at some point in your life, this insurance could be a sound financial decision for you and your family.

Benefits are Flexible, and Premiums May Be Affordable

With long-term care insurance policies, you can avoid one-size-fits-all coverage and tailor your insurance to your needs. Long-term care insurance policies are customizable, allowing policyholders to choose the coverage that fits their lifestyle while minimizing the cost of premiums. Purchase as much or as little coverage as you think you need, so you can stay on budget while achieving the peace of mind long-term care insurance provides.

Tax Benefits

Your long-term care insurance benefits are tax-free, and with some limitations, your long-term care insurance premiums are tax-deductible. Some seniors choose to save money in retirement accounts to pay for long-term care, which would be taxable once withdrawn from these accounts. Each state has different rules, but there are additional tax benefits at the state level. Both federal and state tax benefits add to the cost-effectiveness of long-term care insurance policies.

Annuity Payouts

A long-term care annuity covers both the cost of long-term care should you ever need it as well as provides retirement income to maintain the lifestyle to which you may have become accustomed. Choosing an annuity with your long-term care insurance provides the additional benefit of a steady income. Both fixed and indexed annuities can be purchased with a lump sum or with monthly premiums and you begin receiving payouts at the age you’ve designated. When buying long-term care insurance, annuities eliminate the “use it or lose it” problem. If you don’t need your long-term care benefits, you still reap the rewards of the annuity.

Out of Pocket Costs are High Without Insurance

As we mentioned above, just one month of long-term care can cost as much as $10,000. Years of long-term care add up quickly. In the United States, the average cost of long-term care each year can be as high as $100,000. If you choose a private room in long-term care, the cost is even higher and can run you as much as $150,000 per year. Assisted living facilities are less expensive but can still cost as much as $5000 per month. If you opt for an in-home nurse to care for you, the average cost is around $55,000 per year, and adult day care can run up a $20,000 bill annually. For seniors requiring care services for multiple years, this can be an inconceivable cost, and it can deplete their savings, leaving nothing behind to leave to loved ones when they’re gone. Preparing for these costs can make all the difference in the world for both you and your family.

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Disadvantages of Long-Term Care Insurance

Long-term insurance benefits are abundant, and they make long-term insurance sound like the best choice. Still, there are some disadvantages of buying long-term care insurance that you might want to consider before jumping into a policy. An informed decision is the best decision, especially when it comes to financial decisions that affect your future, so let's take a closer look at each downside of long-term care insurance.

Premiums are Variable

The cost of your policy now can change over time, which makes it difficult to budget for your senior and retirement years. Premiums can fluctuate and change, and your insurance provider can change the rates you pay at any point, especially when it comes to older policies. If you purchased your long-term care insurance a long time ago, you might be due for a premium hike. Essentially, these price increases enable the insurance company to keep old policies up to date with current prices, but it leaves the purchaser in a challenging position. While the increases aren’t astronomical, they can impact those with a tight budget. Variable premiums are something to consider when deciding on long-term care insurance policies.

Needs are Unknown

It’s challenging to plan for something we have no idea will happen and, if it does, to what extent you’ll need your benefits. You can customize your policy, but it’s a real challenge to predict what services you’ll need to be covered and which you may never need. However, this is a risk you run with most forms of insurance. If you have homeowner insurance and never need your benefits, most of us would see that as a good thing. Suppose you purchase a long-term care insurance policy and never need your benefits. In that case, you can always opt for a Return of Premium rider, which ensures that, if you never use your benefits, your premiums will be paid out to the beneficiary of your choice in the event of your death.

Access to Benefits May Not Be Timely

Long-term care insurance elimination periods may exceed the amount of time you have to pay for any long-term care you’re receiving. An elimination period is the time between the event that triggers the need for coverage benefits and the point at which those benefits are paid out. If your long-term care policy comes with a 90 day elimination period, that means you’ll have to pay out of pocket for your care in those first 90 days. Make sure you’re aware of the elimination period of any long-term care policy you’re considering.

You May Not Qualify

Like life insurance and health insurance, long-term care insurance requires a physical examination to identify pre existing conditions and determine your overall health. Some conditions may increase the amount of your premiums. If you do not pass your physical, you may be denied coverage by the insurance provider. Approximately 10-20% of all long-term care insurance applicants are denied coverage based on their physical examination. Many conditions can trigger an automatic denial of coverage, such as Alzheimer’s, chronic kidney disease, cystic fibrosis, multiple sclerosis, and more. Tobacco use can also raise red flags at the insurance company, and if you’re a current smoker, your chances of being denied coverage are incredibly high. Similarly, daily use of narcotics is often grounds for denial. If you’re unsure if you would pass a long-term care insurance physical exam, speak to your doctor and review your current health to get a better picture.

The Insurance Company May Go Under

Like any other company, insurance companies are susceptible to losses and closures. It’s always a possibility that a long-term care insurance policyholder could pay their premiums for decades only to have the company fold before the insured needs to cash in on their benefits. This scenario can be a devastating financial loss, and it’s always a risk when purchasing any insurance policy, for long-term care or otherwise. You can save yourself this worry by doing your homework on the insurance providers you do business with. Look at how long they’ve been in business and how well they have done over the years. Look at their track record and reviews and choose a company with an excellent solid foothold in the market. Choosing the right company can differentiate between continued worry and peace of mind.

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Should You Get Long-Term Care Insurance?

Now that you know the advantages and disadvantages of long-term care insurance, it’s clear that it has a ton of value to consider, but may not be for everyone. As such, it’s a good idea to review the pros vs. cons of long-term care insurance we’ve listed in this guide. Ask yourself some of the following questions before finalizing your decision:

  • Are you healthy? If you’re relatively healthy for your age, you’re likely to be approved for long-term care insurance and could benefit from it.
  • Are you wealthy? If you can afford to pay for your long-term care, this type of insurance may be redundant. Keep in mind, though, that the costs of long-term care can become astronomical, so purchasing this type of insurance even with some money in the bank is still a great idea to consider.
  • Do you have a history of long-term care necessity in your family? If so, coverage for long-term care may be in your best interest.
  • What kind of care could you need in the future? If you have conditions or a family history of certain conditions that could lead to long-term care, insurance is a good idea. Conditions such as arthritis or dementia and Alzheimer’s can increase your risk of requiring long-term care. Conversely, if your family history is full of people who were active and fully capable their whole lives, you might reconsider.
  • Are you low-income? If you have a limited income that can’t comfortably cover the premiums, you may wish to find alternatives, such as Medicaid and liquidating assets to pay for your long-term care.

Everyone is different, and each case requires a close examination of the variables to determine whether long-term care insurance is the right choice. Hopefully, by reviewing the pros and cons of buying long-term care insurance with us, you’ve been able to narrow in on the right decision for you.

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Our content is created for educational purposes only. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Everdays encourages individuals to seek advice from their own investment or tax advisor or legal counsel.


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