Do I Really Need Long-Term Care Insurance?

This Q&A is based on questions we receive from clients, just like you. Have a question that involves a dollar sign? Share it! Our planners and subject matter experts will help answer them in upcoming issues of Inside Personal Finance. Send us your questions here.

Q:

I’m in my early 60s and my sister has been urging me to buy a long-term care insurance policy. We both saw the toll that taking care of our father had on our mother and she wants to make sure we all avoid a similar situation. The difference is that I have lots of money saved for retirement; my parents did not. I really don’t think there’s any way I will outlive my money and the cost of insurance seems way too high to me. I don’t even know if I’ll need long-term care and I’d rather save that money for my kids. Am I missing anything?

A:

It’s great that you and your sister are thinking about this now. As you might know, the cost of a long-term care policy will only increase as you get older. And it’s wonderful to have different options for how to handle it.

First, let’s look at whether you can indeed afford to self-insure. You’ll need to forecast what the cost for long-term care will be in about 20 years (when you’re in your 80s and most likely to start long-term care). Two calculators our experts suggest are the Genworth Cost of Care and the LTC News Cost of Care calculators.

You’ll also need to estimate how long you might need that care. The average length of time people spend in long-term care is about three years. You didn’t say why your father needed care, but if his condition had a genetic link, it could give you a sense of how long you might potentially need it too. For example, some types of Alzheimer’s can run in families and they typically have a longer life expectancy. In that case, you may want to use four to six years in your calculation.

Now multiply those numbers together. For example, one calculator estimates that a private nursing home room in the Phoenix area will cost about $20,000 in 20 years. Multiply that by three years and you’d need to have saved $720,000 for long-term care. (Also keep in mind that if your money is in traditional retirement accounts, you’ll also have to have the money saved for the taxes on those withdrawals, so it could be more like $1 million.)

Now, you may go through this exercise and still feel confident you can self-insure. In that case, you need to consider whether it’s not just an option, but the better option.

Consider:

• If you have a strong financial plan, there is a good chance you can also afford the premium for long-term care insurance. Buying long-term care insurance, and using those benefits to cover the bulk of your long-term care needs can insulate more of your portfolio, so you can leave more for your kids. 
• You may need long-term care for more than three years, especially if you’re female – the average for women is 3.7 years vs. 2.2 years for men.
• Given your father’s experience, you might have a family history that makes it more likely you’ll need long-term care, and in that case, you may save more money for your heirs by paying the premiums now rather than the care bills later.
• You may end up living in discomfort longer if you eventually do need care because you’re hesitant to start spending your money (which, for most people, would be less of an issue if insurance is paying). It may also put pressure on your sister or children to help care for you.

FINAL ANSWER

If you can afford either option, then it’s a personal decision. Remember that your financial advisor and our insurance experts are here to help you make a good choice that can put your mind at ease.

We hope you found this information helpful

Remember that any financial guidance must be adapted to your unique circumstances, so consult with your financial planner. In the meantime, keep those questions coming!