If you’re older than 65, your chance that you’ll need some kind of help is up to 70 percent. It’s a difficult calculation to decide how you’ll pay for it.
Long-term care includes a variety of services people need in their daily lives, including help bathing, dressing, and eating. It’s tempting to think you’ll remain completely self-sufficient until you die, never needing someone to bring you meals or help you get into bed.
That’s not realistic. If you’re older than 65, your chance that you’ll need some kind of help is up to 70 percent. You might be counting on a spouse or a child, but they may not be available for any number of reasons.
One option is to buy long-term care (LTC) insurance that will pay for those services. As of the beginning of 2020, however, only 7.5 million Americans had some kind of LTC policy in a country with more than 54 million people age 65 and over.
That mix of statistics shows that many more people may need coverage than currently have it.
But there are reasons why you might hold back.
The cost of long-term insurance
The cost of long-term care insurance varies.
Here’s an example: A single 55-year-old man can expect to pay between $1,000 and $3,700 a year, while a single woman of that age can expect to pay between $1,500 and $6,400, according to the trade group, the American Association for Long-term Care Insurance.
Women pay more in part because they live longer. Your rate will depend upon your health at the time you apply and how much coverage you choose.
It also matters when you buy insurance
Most people buy insurance between the ages of 55 and 65. Note that as you get older, you may develop illnesses that will make an insurer less likely to accept you.
Some people buy a LTC option along with life insurance, especially if they have a spouse to protect. You can get a discount if you apply as a couple.
Will you qualify for long-term care insurance?
Another thought that holds people back is the fear that it is too difficult to qualify for covered services. According to the trade group’s data, if you buy a policy at age 65, you have a 50/50 chance of using its benefits. On average you will do so 14 years after the purchase. But about a third of home care claim recipients recover enough that they are no longer entitled to coverage.
You might assume that Medicare or Medicaid will cover you. Medicare usually will not. Medicaid is the single-largest source of funding for long-term services, but, in most states, it will only kick in when you have used all but the last $2,000 in your retirement accounts.
Is long-term care insurance right for you?
A study from Boston College concluded that less than 30 percent of Americans would benefit more from coverage than saving and investing money to pay the costs themselves, knowing that it’s possible they won’t need much care.
To do that calculation, think about how many years you will cover, to be on the safe side. Data suggests that on average claims longer than a year ranged from three and a half to four years. You might think about covering that many years, whether through insurance or savings.
In 2021, the national median (half are higher, half are lower) cost of a room in a nursing home was about $95,000 a year for a semi-private room and more than $108,000 a year for private one. It also depends on where you live. Moreover, costs have been rising about 3 percent a year.
You can estimate future costs here.
Alternatives to long-term care insurance
A home health aide costs about $60,000 a year. Costs in this category are soaring by 11 to 13 percent a year.
Essentially, you need to think of all the ways you can cover your needs into old age. One is doing everything you can now to stay healthy. That might sound trite, but research has shown that an ounce of prevention is worth a pound of cure.
Maybe you can look toward family and friends who can and want to take care of you. That way, you’ll have what you probably intended when you considered buying long-term care insurance: remaining at home.
Your home equity may be an important resource for you, so you may not need to sell your home to tap into it. You can have a home equity line of credit or a reverse mortgage. But consider the money you can generate by selling your home if you can find less expensive living options.
If you have $400,000 in your retirement fund that you could spend on your care now, what might you have left later? Will you be spending down your savings?
Some people choose to buy a bare-bones LTC policy as backup.
Long-term care insurance is a complex decision that may be a good reason to work with a trusted financial advisor. The members of the National Association of Personal Financial Advisors charge by the hour for their attention. That’s important, because other advisors who offer you seemingly free help may be biased. They typically earn a commission on certain choices and will steer you accordingly. A LTC broker can help you choose among plans but may not be the best person to tell you whether you need to buy insurance at all.
August 30, 2022
Christopher Nystuen, MD, MBA and Janet O'Dell, RN