Long-term Care Insurance: Is This a Good Buy for You?

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One aspect of retirement planning many people neglect is the possibility that they may face crippling costs for long-term care (or LTC) after they retire. In fact, if you’re 65 years of age or over, there’s a 70 percent chance that you will require some type of long-term care services, notes the U.S. Department of Health and Human Services. 

On average, the costs of long-term care in a nursing home are $6,844 per month (semi-private room) or $7,698 per month (private room), according to LongTermCare.gov. In an assisted living facility, the average cost is $3,628 per month for a one-bedroom unit, while the cost of services for an adult day healthcare center are $68 per day, or $2,040 a month.

Limitations of Private Health Insurance

It’s important to realize that most private health insurance policies only cover limited and specific types of long-term care, while disability insurance policies generally don’t cover any long-term care expenses. Any LTC expenses that private health insurance does cover are usually for skilled, short-term care that’s medically necessary.

Skilled nursing services must follow a recent hospitalization for the same or related condition and are limited to 100 days. Home care coverage, meanwhile, is typically limited to medically necessary skilled care. Private health insurance usually doesn’t provide any coverage for custodial or personal care services.

Given these limitations, it may be a good idea to plan for how you will cover LTC costs should the need for these services arise. One solution is to purchase long-term care insurance. This type of policy will cover a portion of the costs incurred for long-term care expenses after you retire.

Nut and Bolts of LTC Insurance

Most LTC policies today are comprehensive, which means you can use your benefits in different settings including a nursing home, assisted living facility, hospice or respite care, adult day healthcare center or your home. Policies typically cover such services as skilled nursing care, occupational and speech therapy, physical rehabilitation and personal care assistance (such as dressing and bathing).

LTC insurance policies reimburse policyholders a daily amount (up to the policy limit) for long-term care services rendered. The cost of LTC insurance is based on a wide range of different factors, including:

  • Your age when you buy the insurance.
  • The per-day payment limit.
  • The length of time the insurance will pay for services.
  • Optional benefits selected, such as inflation or cost-of-living adjustments.

Note that most LTC policies require medical underwriting. So if you are in poor health or have suffered a major medical event — such as a stroke, metastatic cancer, AIDS, Alzheimer’s Disease or Parkinson’s Disease — you might not qualify for coverage. However, you might be able to buy limited coverage at a higher non-standard premium rate if any of these conditions apply.

Is It Worth It?

Prices for LTC policies vary widely. For example, a 60-year-old couple buying a standard policy today could pay between $2,600 and $5,600 a year in premiums. Let’s assume this couple buys a policy with an annual premium of $4,100. Over 20 years, or until age 80, they would make total premium payments of $82,000, which would be enough to cover one year of nursing home care or nearly two years of assisted living care (not factoring inflation) for one of them.

So is this a good buy? It depends on how you look at it. For example, instead of using $82,000 to buy LTC insurance, the couple could have invested this money in their retirement savings account and possibly benefitted from growth. Then they could have withdrawn the money from their account to cover the LTC expenses.

If you decide to buy LTC insurance, keep in mind that premiums tend to increase as you grow older. Of course, the younger you are when you buy insurance, the more years you’ll be paying premiums, so the cost difference over the long term could be negligible. Investigate policies carefully and be sure to shop around and ask lots of questions so you fully understand your policy, the benefits offered and any limitations.

Making the right decision about purchasing LTC insurance will be different for every individual and couple, based on their particular circumstances. Give us a call if you have more questions about long-term care insurance and whether buying it would be a smart strategy for you.


The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC's ("Frontier") investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.

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