Although Adam McCurdy, a financial planner with Foundation Capital Advisors, Inc. in Chicago, says determining “is long term care insurance worth it” is entirely situational, he outlined the following pros and cons of long term care insurance to consider as you weigh your options.
Pros and Cons of Long Term Care Insurance
Con: There’s currently no certainty in pricing: Given that long-term care insurance is relatively new—McCurdy says it’s in its “teenager phase”—pricing has been a major concern. Premiums offered now might change over time, and there’s still much debate over how to properly price different plans.
“It can be a big risk,” McCurdy says. “You can’t be sure whether the premiums will raise in the future, and there’s uncertainty about the insurance being accurately priced.”
Pro: Long-term care provides peace of mind: If you’re the worrying type, long-term care insurance can ease your nerves. Once you take out a plan, you can rest assured that you’ll have some funds to support you and your health as you age.
“One thing it does, is that it gives a peace of mind, knowing that they will have money available if they ever need to go into assisted living or require home health services,” McCurdy says.
Con: It’s hard to figure out how much insurance you might need: Since it can be difficult to pinpoint the extent of benefits you might need down the line, taking out long-term care insurance becomes a risky endeavor, McCurdy says.
If you find a plan that guarantees $200,000 in benefits, for example, there’s no guarantee that this will be sufficient. The opposite also holds true: If you purchase more benefits, there’s a chance you won’t use them all.
“If you don’t use it down the road, then now you just wasted $600,000, for example,” McCurdy says.
Pro: It’s worthwhile if you’re sure you’ll use it: Of course, it’s impossible to predict the future, but evaluating whether you’ll need long-term care is crucial to deciding whether insurance is right for you.
“If you knew 100% that a client was going to go into nursing home, then it would make sense,” McCurdy says.
He recommends looking into family history to best gauge your likelihood of needing long-term care when you get older.
Con: Benefits may not be deployed as you need them: As with any insurance, long-term care insurance has an elimination period, or a set length of time between an injury or health episode and the receipt of benefit payments. So should you enter a nursing home for two months, McCurdy says, there’s the potential that you’ll go the entire stay without receiving benefits, depending on your plan.
“Every time you go, there’s a chance that you won’t receive the benefit you’re paying for,” McCurdy says.
Who Should Buy Long Term Care Insurance?
Whether you need long term care insurance or not may depend on your financial health. If you are very very wealthy, you might be better off using your own money to pay for long term care expenses. If you have very little income, you probably can not afford the insurance. If you are somewhere in between, then knowing what to do is tricky.
Using a Retirement Calculator can be a useful way to figure out if you need long term care insurance or not. A good calculator will give you a peek at your finances now and in the future — when you might need the care.
After setting up an account and some baseline data, the NewRetirement retirement calculator enables you to try different what if scenarios for how you might fund long term care. This is a very unique tool that enables you to really try out different strategies.
Are There Other Ways to Pay for Long Term Care?
The reality is that most of us are going to need some kind of long term care at some point in the future.
Another fact is that long term care is very expensive.
But is long term care insurance really worth it? What other options do you have to not go bankrupt paying for the care?
A deferred lifetime annuity is one option. Putting money into a deferred annuity — now or around the time you retire — can also be an efficient way to fund long term care. With this strategy, you invest an amount of money to be paid out as monthly income to start at a date in the future. So, if you are 63 right now, you might invest $100,000 to be paid out starting at an age when you think you might require long term care — maybe age 85. When you turn 85, you will start receiving monthly payments which can be used to fund care or anything else you might need or want at that time.