Is long-term care insurance worth it?
Long-term care insurance is something many people may need as they grow older. But is it worth the investment, and how does it actually work?
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Is long-term care insurance worth the cost? With care often exceeding $100,000 a year, insurance could make financial sense if you want to protect your savings and maintain independence.
Pros and cons of long-term care insurance: It can cover in-home care, nursing homes, and other services, but premiums vary based on age, health, and policy features.
Should I buy long-term care insurance? If you’re planning for retirement, it may be worth considering — especially as 7 in 10 adults over 65 will need some form of long-term care.
What is long-term care insurance, and what does it cover?
With age, the likelihood of encountering health conditions that require medical intervention increases. Some of these costs won’t be covered by Medicaid, which is where long-term care insurance comes in.
Plus, unlike Medicare, which generally doesn’t cover long-term care, Medicaid only steps in once you’ve depleted most of your assets. The costs of assisted living facilities, adult day care, nursing homes, any modifications required to your home or the wages of caregivers often fall outside the coverage of Medicaid. Unless your retirement savings are sufficient enough to cover it, insurance can be a financial safety net.
The stats suggest that 70% of people turning 65 years of age will need some form of long-term care services.¹ As part of your retirement planning, it can be worth asking: can you afford to include long-term care insurance in your budget — or can you afford not to?
How much does long-term care cost without insurance?
Long-term care costs money, and without insurance, that money could be enough to put people off getting the care they need. The average cost of long-term care for just one month in a nursing home is currently $9,277,² while the average American spends between $26,000 and $127,750 a year on long-term care, depending on the particular service.³ That’s an expensive commitment, and without insurance, it could easily upend your other retirement plans.
If you’re asking, "Should I buy long term care insurance?" then another question should be, "Can I afford my long-term care without insurance?" If you can, you’re in the minority.
How much does long-term care insurance cost?
The cost of long-term care annual premiums ranges between $1,000 and $10,000, and there are a few different factors that will affect how much you pay:
Age
Gender
How healthy you are
Any pre-existing health conditions
Your family health history
Where you live
What you do for work
Whether or not you’re married
You may also find your policy costs more if you take it out for a longer term, add more benefits, or include additional add-ons. Inflation protection, for example, is an add-on that increases your benefits over time, but raises your premiums. Different policy providers will also charge different prices, even if their offer is identical. And most policies have an elimination period (typically 30 to 90 days) before benefits begin, during which you’ll need to pay for care out-of-pocket.
If you’re a 55 year-old man, you could expect to pay $1,650 per year for a long-term care policy with benefits that grow at 2% annually. Women of the same age can expect to pay $2,725 per year for the same product.⁴ The difference comes down to life expectancy; since women tend to live longer, insurers predict they’ll need care for a longer period, which drives up the cost. That’s why financial longevity is such an important consideration for women in particular.
Is long-term care insurance worth the cost?
While long-term care insurance can be expensive, when compared with the price of long-term care without insurance, it can make financial sense to take out an insurance policy. It’s impossible to predict the future, but you’ll thank yourself later if you need to take a claim out.
So, does long-term care insurance make sense? In a way, you’re protecting yourself against any health eventuality, and investing in your health could be a very smart use of your money.
The pros and cons of long-term care insurance
Is long-term care insurance worth buying? There are many benefits that should be considered before making your decision, while downsides should also be thoroughly researched.
Your savings can be spent elsewhere
If you use your retirement savings to cover your long-term care, you could soon see your funds diminish. Protecting your assets with long-term care insurance means you can spend your savings on enjoying your retirement, rather than paying for your medical costs.
You can also start comparing high-yield savings accounts to see if you could be earning more interest on your retirement savings.
You can prepare for any eventuality
No one can predict what the future holds, and while good health is what everyone hopes for, there are no guarantees. By taking out a long-term care insurance policy, you can prepare for whatever your future has in store.
It could allow you to live in your home for longer
One reason long-term care insurance might be worth considering is that it can be used to cover the cost of in-home modifications. So, whether you need a ramp installing to access your front door or a stairlift to help you get up stairs, taking out an insurance policy now could allow you to stay in your home for longer later.
It’s tax deductible
Long-term care insurance is tax deductible up to a certain limit, meaning you’ll pay less in taxes while putting more towards your future.
It takes the burden off your loved ones
Many people rely on loved ones to care for them as they age, but this can be a huge weight for friends and family to carry. It can be worth buying long-term care insurance for many reasons, and a key one is that it will cover the work of caregivers to come in and look after you, so your loved ones don’t have to take on that responsibility themselves.
What are the disadvantages of long-term care insurance?
When you’re trying to decide if long-term care insurance is a good investment, there are some downsides worth taking into account.
Long-term health care insurance can be expensive
Depending on your health condition, age, family history, and working situation, a long-term care insurance policy could end up being quite a costly addition to your monthly expenses. When weighing up how important long-term insurance is, ask yourself if you can afford the cost every month, and what the alternative could look like if you didn’t take out a policy. Reading up on how to budget your money can give you a better idea of your financial situation.
Your insurance premiums may go up
The price you agree on initially may not be the price you end up paying every year. The price of insurance premiums can change on any kind of policy, depending on the state of the economy, inflation and the cost of long-term care. While the cost may go down, it may also go up.
You can’t predict what you’ll need in the future
No one knows what health conditions they may face in the future, so you could find you take out higher benefits that you end up not needing. On the other side of that, you could choose a lower benefit and end up needing more care, or find that your long-term health remains in a good condition and that you don’t need any care at all. As with all insurance policies, nothing can be guaranteed.
Prepare for your future with a high-interest savings account
While you can’t predict the future of your health, with a savings account through the Raisin marketplace, you can plan for a future of financial well-being. Browse our savings options today and see how they could support your retirement planning.
The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.