Long-term care insurance — yay or nay?

Long-term care insurance — yay or nay?

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By Linda M. Toga, Esq.

The Facts: I am in my early fifties and in good health but I am concerned about depleting my assets in the event I need to enter a skilled nursing facility. Some of my friends have purchased long-term care insurance and have complained about the cost of their policies.

The Question: Is long-term care insurance a good value?

The Answer: Long-term care insurance can be a good value, but whether it is a good option for you depends on many factors, not the least of which is how much you have to spend on your long-term care and the value of the assets you want to protect.

People between the ages of 55 and 64 account for more than 50 percent of the people who purchase long-term care insurance, and nearly one-fourth of those people purchase the insurance to protect their assets. They are basically buying long-term care insurance to ensure that their assets will pass to their heirs rather than being depleted paying for their care. If you have assets to protect, and have the income to cover the annual premiums, long-term care insurance can be an excellent option for you.

The cost of long-term care insurance is based upon your age when you purchase the policy, the amount of the daily benefit paid by the policy, the term of the coverage, how long you must pay for your care before coverage begins and whether you purchase any riders to the policy such as an inflation rider that effectively increases the daily benefit amount. In order to apply for coverage, you will be required to undergo a physical exam and a mini mental competency test as part of the application process.

The younger you are when you purchase a long-term care insurance policy, the lower your annual premium. For example, a policy with a four-year benefit period that might cost you $2,225 annually if purchased at age 55 will cost over $3,700 annually if purchased at age 65. Although purchasing coverage at age 55 rather than 65 may result in you paying the premium for a longer period of time, when you make a claim, you will likely have paid less for your coverage by buying sooner rather than later.

Using the figures set forth above, if you buy a policy at age 55 and make a claim for benefits at age 85, you will have paid just under $68,000 for coverage. However, if you buy the same policy at age 65 and make a claim at age 85, you will have paid nearly $75,000 for coverage. Clearly, the savings enjoyed by purchasing a policy in your fifties rather than your sixties are significant, as is the peace of mind that comes from knowing your long-term care needs will be met. In addition to saving money, buying a policy when you are younger avoids the risk that you may subsequently develop health issues that preclude you from getting coverage later in life.

Even if you wait until you are 70 to buy long-term care insurance and your health deteriorates somewhat between now and when you purchase a policy, doubling or even tripling the annual premium, the cost of a policy over time will likely be small compared to what you would have to pay to cover your long-term care needs. 

For example, at today’s prices, the average annual cost of a semi-private room in a nursing home on Long Island is at about $155,000. The average stay is three years. That means individuals who do not have insurance or government benefits to cover the cost of long-term care will pay $465,000 over three years for their care. Assuming your long-term care insurance premium is $9,000 and you paid that premium every year until age 85 when you put in a claim for benefits, the total you will have paid for three years of coverage will be $135,000. That’s a $330,000 savings.

Although the examples set forth above do not take into consideration the future value of the money you use to pay your premiums over time, or the case where a person makes a claim after only making one or two annual premium payments, they illustrate why long-term care insurance can be a good value for many people.

Since more than 75 percent of people over the age of 65 will need long-term care at some point in their life, insuring against the risk of depleting savings and not having the assets to pay for care makes sense for many people. Since insurers now offer riders that include money back options and the option of using a death benefit toward long-term care services, even those people who have balked at the idea of buying long-term care insurance because they worry that they may die without making a claim can find a policy that works for them.

Insurance is complicated and everyone’s needs are different. Before buying a long-term care insurance policy, you should discuss your situation with an experienced elder law attorney and a reputable insurance agent with expertise in the area of long-term care insurance. That way you can be sure that the policy you decide upon includes the features that are best suited to your situation.

Linda M. Toga, Esq. provides legal services in the areas of litigation, estate planning and real estate from her East Setauket office.