Pros and cons of long-term care insurance
The decision of whether to buy long-term care insurance is one of the most difficult for seniors. On the one hand, it helps protect people against the risk they will need expensive long-term care in the future. On the other hand, there are often so many unknowns about this type of coverage that makes people hesitant to purchase a policy.
There are many factors to consider when determining the need for long-term care insurance and how much coverage to buy. And as with most major purchases, there are pros and cons to buying this type of insurance.
The pros of long-term care insurance
It potentially protects your assets. The biggest benefit to buying long-term care insurance is protecting your assets from being depleted by the expense of round-the-clock care. Like most health care services, the cost of long-term care has risen significantly in recent years and will likely continue to do so. The current cost of nursing home care today can run between $80,000 to $90,000 or more a year. That can quickly erode your retirement savings or your home equity. Insurance also protects your family from having to shoulder some of the cost.
There are many options to fit your needs and budget. Long-term care policies can be structured in a number of ways and many offer optional benefits at extra cost. You can purchase joint coverage for you and a spouse. Some policies offer inflation features that will increase the amount of coverage you would receive each year. Insurers usually allow you to choose how long you will receive benefits and a maximum daily amount. You can save on the expense of premiums by opting for a longer waiting period before coverage kicks in.
Your premiums are potentially tax deductible. If you purchase a tax-qualified policy, itemize your deductions and report medical expenses of at least 7.5 percent of your adjusted gross income, you can deduct the value of your long-term care policy premiums from your federal income taxes. Many states also have tax deductions or credits for long-term care insurance.
Your coverage can never expire. Unlike term life insurance that has an expiration, long-term care policies are guaranteed for as long as you pay the premiums, regardless of your age or health condition.
The cons of long-term care insurance
Your premiums can increase after you buy the policy. This is perhaps one of the biggest drawbacks of buying long-term care coverage. With approval from state insurance departments, insurance companies can raise premiums on a block of policies (they can never raise just one person’s premium). Five or 10 years after you bought the policy, you may experience an increase in premium of anywhere from 5 percent to 25 percent. In some cases, insurance companies have been given approval to raise rates by 40 percent. So when you budget for insurance, you should leave enough room for future premium increases.
It’s difficult to predict how much coverage you may need in 10, 20 or 30 years. Most people buy this type of policy in their 50s or early 60s. But you may not require long-term care until your 85 or older. As expensive as care is today, one can only predict how much it will cost when you need it and what care options might be available. You also have no idea how long you will need coverage. While some research says the average duration of care is under a year, some people will need lifetime care once they become ill.
You may never use it. People are living longer, healthier lives. Although many will require long-term care as they age, some will never lose the ability to perform the daily functions that trigger long-term care benefits. That’s a hefty cost for something you never use.
You have other options for receiving long-term care coverage than buying a dedicated policy. The most common options are life insurance policies and annuities that provide long-term care coverage as part of the policy or as an optional benefit. Some life insurance and annuity policies will advance the death benefit in the event the insured needs long-term care. Others provide separate long-term care insurance in addition to life insurance or annuity benefits. These are known as hybrid policies.
It’s important to weight the upside of long-term care with the potential downside before committing to buying insurance. For some, the risk of spending the bulk of their savings on care outweighs the negatives of long-term care insurance. For others, there are too many variables involved to feel comfortable with the investment in coverage.