Long-Term Care Insurance: The Risks and Benefits
by
Attorney Joseph L. Matthews
Insurance companies advertise long-term care insurance as a necessary protection against the high cost of care, but is it really a good investment?
Over the past decade, people have become increasingly aware of how easily long-term care can wipe out a lifetime's savings -- and insurance companies have been quick to capitalize on that fear. Long-term care insurance, also known as nursing home insurance, has been widely advertised as protection against the costs of long-term care, particularly residential nursing facilities. However, this kind of insurance is expensive, and it often provides only limited benefits -- with many restrictions and conditions -- that may end up covering only a small percentage, or nothing at all, of your total long-term care costs.
Insurance companies market long-term care (LTC) insurance by suggesting that consumers are likely to wind up spending years in a nursing facility -- a prospect that would wipe out their savings and perhaps leave them without a roof over their heads. However, the actual odds of a long nursing facility stay are considerably lower than the insurance industry would like you to imagine, and with the protection afforded by Medicaid laws, there is virtually no risk of being thrown out of a nursing facility and into the street.
When you consider the true odds of a long nursing facility stay along with the high cost of LTC insurance and the other things you could do with that premium money, you may find that for you -- as for the 95% of the population over age 65 who have not invested in it -- LTC insurance is not a good bet.
Nonetheless, there are some people -- for example, those who have assets worth $300,000 to $500,000 above and beyond the value of their homes -- for whom LTC insurance may be a sound idea. This is particularly true if LTC insurance is viewed as a safety net rather than as a financial investment -- and if your policy includes coverage for assisted living facilities.
| When Do People Buy Long-Term Care Insurance? |
| Those who buy long-term care insurance make the purchase at a median age of 65. Before that age, most people cannot sufficiently predict what their finances and health will look like in the future to make an educated decision about LTC insurance. And by the time seniors reach their 80s, the premiums for LTC insurance are usually unaffordable. |
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The Odds of a Long Nursing Facility Stay
The real figures about how much time a person is likely to spend in a nursing facility present a rather different picture than the one painted by the insurance industry:
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