Long-term care insurance, which covers the cost of nursing homes, in-home care, and assisted living, can help tremendously if such a need arises when you retire. According to the AARP, out-of-pocket costs for long-term care average $140,000 (and these types of expenses typically aren’t covered by Medicaid), and by the time you reach the age of 65, there is about a 50-50 chance that you’ll have to pay for long-term care at some point. The U.S. Department of Health and Human Services has stated that 70 percent of people who are turning 65 will need long-term care.

Why, then, do so few people not plan for their long-term health care needs? Only about 7.2 million Americans have long-term care insurance, according to the AARP, and for many people, it’s a problem that they aren’t prepared to handle. Long-term care insurance policies can be costly, and the premiums typically become more expensive as you grow older. When you’re still relatively young and healthy, the need seems less pressing. As a result, long-term care insurance can be an easy expense to postpone. Here’s why you need, at minimum, a plan for financially managing long-term care issues, even if you’re perfectly healthy right now.

 

Assess Your Situation

First, it’s helpful to look at your life circumstances. Do dementia or other debilitating diseases run in your family? If that’s the case, you may need assisted care later in life. Consider how you’d pay for this care. Will your savings cover it? Would your children be able to help? Could you use your home equity? In some situations, financial advisors say that you could comfortably do without long-term care insurance, such as if you are using less than 4 percent of your savings for annual living expenses. If you have few assets, then you may qualify for Medicaid.

banking

However, most people will eventually have to face the reality of how to cover long-term care. According to LifePlans, an industry research firm, long-term care insurance premiums cost an average of $2,700 a year. The average stay in a nursing home is about two-and-a-half years, and prices tend to increase each year. Genworth Financial has tracked the price of care for 16 years, and its 2019 data shows that the costs for assisted-living facilities and in-home care have increased, on average, between 1.71 percent and 3.64 percent each year since 2004, an increase that’s often greater than the U.S. inflation rate. For in-home care, that’s an average increase of $892 each year, and for a private room in a nursing home, it’s an increase of about $2,468 annually.

 

Benefits of Long-Term Care Insurance

Some believe that Medicare will pay for long-term care, but this coverage typically only covers short-term nursing home care or a percentage of at-home care costs. Additionally, patients must be in specific situations in order to qualify for this type of care. Most of the time, families must pay for the care themselves. This is why long-term care can be so valuable, as it covers the cost of residential or in-home care, regardless of the diagnosis. Premiums are based on how much coverage the policy holder would like to have on a daily basis. Policies are typically available from private insurance companies or through employer-sponsored insurance plans. Some companies offer their employees group long-term insurance plans, which are often cheaper. One drawback is that once you no longer have a job, then you lose the insurance plan.

retirement

If you do want long-term care insurance, it’s never too early to purchase it. Waiting until you are sick or older may seemingly save you money in terms of the premiums. However, your age and health can work against you if you try to purchase coverage late in life. Conditions such as multiple sclerosis, metastic cancer, dementia, and Parkinson’s disease—all progressive health conditions—are often reasons why applicants are not approved for long-term care insurance. In 2010 (when the most recent data became available, according to the American Association of Long-Term Care Insurance website), 23 percent of people in their 60s who applied for long-term care insurance were rejected, and 14 percent of applicants in their 50s were declined. According to the American Association of Long-Term Care Insurance, the prime time to apply for long-term care insurance is when you are in your mid-50s.

Considerations to Keep in Mind

In addition, there are some considerations to keep in mind if you’re thinking about purchasing long-term care insurance. The number of carriers offering long-term care has shrunk significantly. According to one expert, 10 years ago more than 100 insurance companies offered long-term care policies; now, only about 12 do so. Questions remain about how much longer these policies will be available, even for those who have already purchased them.

If you’re in “The Big Middle,” a term that SCAN Foundation Chief Bruce Chernof coined for those who are not wealthy enough to pay their own long-term care costs and not poor enough to qualify for Medicaid, the choice remains about whether to invest in long-term care insurance.