Is Long-Term Care Insurance Worth It?

Quick! Name a topic you’d like to think about less than needing expensive medical care in your old age.

We’re waiting. 

And we’re with you. The incalculable costs of living comfortably as a senior citizen are not at the top of our list either. 

But women ignore the issue at their peril. According to the Administration for Community Living, people who arrive at the age of 65 these days will have a 70% chance of needing some sort of long-term care—and women tend to need this care for an average of 3.7 years, compared with only 2.2 years for men. Further, as of 2016, the average cost of a nursing home stay was approximately $7,000 per month, meaning women face a potential long-term care cost of $310,800 over the course of those 3.7 years.  

The good news: Long-term care insurance can help mitigate those costs. And taking the first step toward finding the solution that’s right for you requires just a two-minute (we promise!) education. Starting … now.

How Does Long-Term Care Insurance Work?

There are three main types of long-term care insurance: traditional, hybrid and rider. 

“Traditional LTC insurance is use-it-or-lose-it,” explains Matt Ruttenberg, founder of the online insurance agency SureLI. “If you don’t need long-term care, then you are out the premiums you have paid.”

If the idea of spending money on insurance that you never use is tough to swallow, a hybrid life insurance and long-term care insurance policy may work better for you. Ruttenberg describes this as a use-it-or-use-it policy. If you don’t require long-term care, the insurance product will pay out a death benefit to your family when you pass away. 

Finally, a long-term care rider is an add-on to a life insurance policy. “This kind of rider allows your death benefit to be paid as a long-term care benefit,” Ruttenberg says. “You can generally expect a certain percentage of the death benefit per year to be available for long-term care costs.”

How Much Does Long-Term Care Insurance Cost?

Unfortunately, none of the three types of long-term care comes cheap, especially for women. That’s because this type of insurance is “the opposite of life insurance from an underwriting perspective,” Ruttenberg states. “Women statistically live longer than men, so their chance of using it—and using it longer—is higher compared to men.”

Insurers set the cost of premiums based on your age at purchase and the type of policy and coverage you select. Premiums may also go up as you age, which means 20-year-olds can’t purchase dirt cheap LTC insurance and keep the same premiums for the next 65 years.

According to a 2020 report by the U.S. Department of the Treasury, as of 2019, the average LTC insurance policyholder paid just over $3,000 in premiums during their first year of coverage. 

How Can I Lower the Cost of Long-Term Care Insurance? 

Despite its intimidating average premium cost, LTC insurance is easily adaptable to your budget and needs.

“Both traditional and hybrid policies are cafeteria-style plans,” Ruttenberg says. “You can pick and choose the specific benefit amounts, waiting periods, length of payout, inclusion or exclusion of an inflation rider and if you want a lifetime guarantee.” This level of choice means insurance shoppers can make sure their policy fits their finances.

Insurers are also very open to letting you adjust your policy as time goes on. “One benefit of LTC policies is it’s very easy to make changes along the way,” explains Ruttenberg. For instance, policyholders can easily tailor their LTC insurance over time as their finances or other needs change.

Is Long-Term Care Insurance Worth It?

Reviewing the various types of long-term care insurance available and the types and duration of care it covers forces you to think about how you will pay for your health care needs as you age—and, ultimately, answer this question. 

Whether or not this type of insurance is worth it to you will depend on your specific circumstances, finances and needs. But doing the research into long-term care insurance policies allows you to make an informed decision.

Ruttenberg wants everyone to have a plan for long-term care needs, whether that’s via insurance or savings. “Something is better than nothing, especially if you have a poor health history,” he says. “If you can’t save, then plan to be insurance heavy.”

 

Emily Guy Birken a former educator, lifelong money nerd, and a Plutus Award-winning freelance writer. She is the author of five books including The 5 Years Before You Retire and Stacked: Your Super Serious Guide to Modern Money Management, written with Joe Saul-Sehy. Emily lives in Milwaukee with her spouse, two sons, a dog and a cat. 

 

LEARN MORE: Personal Finance 301: Health Savings Accounts