Savvy Senior: Is long-term care insurance worth it?

Dear Savvy Senior,

My husband and I have been thinking about getting a long-term care insurance policy, but we hate the idea of paying expensive monthly premiums for a policy we may never use. Is long-term care insurance worth it?

Approaching Retirement

Dear Approaching,

There are two key factors you need to consider that can help you determine if purchasing a long-term care (LTC) insurance policy is a smart decision for you and your husband. One factor is your financial situation and second is your health history. Currently, around 7.5 million Americans own a policy.

Who needs LTC insurance?As the cost of LTC — which includes nursing home, assisted living and in-home care — continues to rise, it's important to know that most people pay for LTC either from personal savings or Medicaid when their savings is depleted, or through a LTC insurance policy.

National median average costs for nursing home care today is over $100,000 a year, according to the Genworth Cost of Care survey. Assisted living facilities and home care aides average more than $65,000/year.

While national statistics show that about 70 percent of Americans 65 and older will need some kind of LTC, the fact is, many people don't need to purchase LTC insurance. The reasons stem from a range of factors, including the fact that relatively few people have enough wealth to protect to make purchasing a policy worthwhile.

Another important factor is that most seniors who need LTC only need it for a short period of time, for example, when they're recovering from surgery. For those people, Medicare covers in-home health care and nursing home stays of 100 days or less following a hospital stay of more than three consecutive days.

So, who should consider buying a policy?

LTC insurance make the most sense for people who have investable assets of $500,000 to around $2 million that they want to protect. Anything less, and you will likely deplete your resources and go on Medicaid for LTC coverage. Anything more, and you can probably afford to pay for care yourself.

Another factor to weigh is your personal health and family health history. The two most common reasons seniors need extended long-term care is because of dementia and/or disability. And, almost half of all people who live in nursing homes are 85 years or older. So, what's your family history for Alzheimer's, stroke or some other disabling health condition, and do you have a family history of longevity?

You also need to factor in gender too. Because women tend to live longer than men, they are at greater risk of needing extended LTC.

Choosing LTC coverageAfter evaluating your situation, if you're leaning towards buying a LTC policy, be aware that premiums can vary widely. According to the American Association for Long-Term Care Insurance, premiums for a policy bought by a couple who are both age 65 for a benefit pool of $165,000 each, with a 3 percent inflation rider, ranged from $7,137 to $8,493 a year.

You can buy LTC insurance from an insurance company or through an agent. Or you might also be able to buy a policy at work. Be sure to get quotes from several sources for the same coverage to compare prices.

There are two main types of long-term care coverage you'll want to consider. Traditional LTC insurance, which is "use it or lose it." And hybrid policies that combine LTC coverage with life-insurance benefits. These policies promise that if you don't end up needing long-term care, your beneficiaries will receive a death benefit. Both types of policies require medical underwriting to qualify.

Another hybrid product to consider is an income annuity that includes a provision to increase your payout if you need LTC. However, the payout may not cover the full cost of care, and the added cost of this provision, known as a rider, can reduce the standard payout from the annuity.

Send your questions or comments to questions@savvysenior.org, or to Savvy Senior, P.O. Box 5443, Norman, OK 73070.