Skyrocketing long-term care insurance costs in recent years have turned an already expensive product into, for many, a downright unaffordable one.
This has created a massive quandary. After all, one of the biggest financial obstacles facing you is the cost of long-term care. Some 70% of Americans aged 65 and older are likely to need these services at some point, according to the Department of Health & Human Services. A private room in a nursing home costs an average of $142,254 per year (and as much as $155,125 in urban areas, such as New York City), while the average cost of an assisted-living facility is $51,600 a year, according to Morningstar.
This often leaves clients wondering – is there a good time to buy long-term care insurance?
The average nursing home stay is 2.2 years for men and 3.7 years for women – and 67.9% of people in long-stay nursing homes are women, who tend to need care more often and for longer periods than men do because they live longer.
Compounding the problem: LTC costs are not tax-deductible, and the coverage provided by health insurance or Medicare is minimal. The need to move to a nursing home, unfortunately, can bring with it devastating financial effects.
The mental stress for those without adequate means to pay for this care is harder to put a price tag on, but can be just as overwhelming. In the U.S., 41 million people are providing unpaid care for family members. Often, the caregiver is the spouse; 34% of unpaid caregivers are spouses, with an average age of 62.3. Rather than being able to look forward to the retirement they’ve worked toward their whole lives, they are now faced with the emotional and financial toll of caring for their spouse.
This is why it’s so important, no matter how old you are, to pay attention to LTC costs – and it’s why we routinely recommend that our clients purchase LTC insurance sooner rather than later. In 1994, a policy might have cost about $1,500 per year – today, that policy would cost $6,500.
These price increases don’t merely affect today’s buyers of LTC policies. They apply to all previous buyers. Unlike life insurance, for which premiums are guaranteed never to increase, the cost of long-term care policies can rise over time – and rise it has.
Prices are daunting enough that people either can’t afford them or are simply unwilling to pay the amount per year it takes to insure a married couple – especially since they don’t know whether they’ll actually use the insurance.
Despite all this, we maintain the view that long-term care insurance is something you can’t afford to be without. Policies are expensive because the cost of care is expensive, and while paying $10,000 or so a year is unpleasant, it’s far better than spending $100,000 every year for several years if care is needed.
To balance your need for coverage against the rising costs of that coverage, there are generally four broad viewpoints that can provide guidance about when to buy long-term care insurance. (Please note that partnership plan rules can vary by state so please seek the counsel of professionals before purchasing anything. A financial planner can help tailor an approach for your unique circumstances.)