Long-term Care Insurance

Social Security and Medicare along with retirement income from sources ranging from pensions, a 401(k), an IRA or even rental income—are things you probably consider when planning for retirement. You may also worry about stock market performance and the costs of getting older. For most people, the biggest threat to their retirement is not a stock market crash. You can recover from that. A bigger threat is the cost of healthcare. A long illness requiring around-the-clock care can devastate your finances and few are prepared to cover those costs. This is where Long-term care insurance (LTCI) can be a life-saver both emotionally and financially. The question is, as single person, do you really need it?

The costs of long-term care (LTC) will vary widely depending on where in the country you live. It can easily cost $8,000 per month ($96,000 annually) in many parts of the country. In Manhattan, the estimated cost is a whopping $405, per day, which is more than $147,000 per year. Those figures are well beyond the retirement income of the average American. The fact that few people have the resources to cover the cost of LTC may lead you to believe everyone should run out and buy some LTCI. However, those decisions are much more complex. In many cases LTCI is unnecessary, and in others, you are putting your spouse’s financial future at risk if you forgo it.

Singles And Long-Term Care - Would you believe singles now make up the majority of Americans? However, that includes widows and widowers, which is relevant since we are talking about end-of-life care. A study by the Boston College Center for Retirement Research asserts it will only make sense for the richest 20% to 30% of single (unmarried) people to purchase some type of LTC coverage or insurance. The study reported that individuals, not part of that richest group, will likely be better off going without care.

Additionally, the research gave estimates of the various lengths of nursing home stays for those who needed them. Using monthly statistics, as opposed to annual ones, it was discovered that people who went to nursing homes stayed there around 30% less than was previously thought. Nearly 45% of patients stayed three months or less? For the remaining 55%, it was reported that the average stay for a man was slightly less than a year. That compared to an average stay of 17 months for women. It’s important to note those were averages. My great- grandmother had around-the-clock care for nearly a decade before she passed. That isn't how I hope to spend the last decade of my life but at least she had the means to be adequately cared for. 

On the flip side, many nursing home stays end up being quite short. Often, a stay is right before death. I know that isn’t a happy thought but it’s better to talk about now, when you are younger and healthier. Short visits may be covered by Medicare whereas stays, up to 100 days, may qualify for Medicare reimbursements. Keep in mind that it is unlikely to pay for the type of place you would want to visit, if given a choice.  

The direst LTC scenarios are the ones for a long illness. Those could easily bankrupt the most financially prepared among us. f you don’t have much in the way of assets, you may be able to skip paying for LTC coverage and rely on Medicare. On the other hand, if you need LTC, and are married, you could leave your spouse destitute for the rest of his or her life. Not to mention leaving little to nothing for them to pay for LTC if they happen to need it as well.

Which Singles Should Buy Long-Term Care Coverage? - According to the Boston College study estimates, the wealthiest 19% of single men and 31% of single women should invest in LTC coverage. Of course, that study missed a few points like the cost of medical care often being more expensive for single retirees. In my experience, single retirees are often more concerned about how they will be taken care of later in life. They often don’t have as much support from their immediate families. Those individuals will more likely need to pay for elder or home-health care.

LTCI isn’t just about dollars and cents. Many people look at it as ensuring they have the funds to stay in their home, if they so choose. It will also allow retirees to spend a bit more of their retirement nest eggs knowing that they have coverage for end-of-life care. The decision to purchase LTCI is often more about peace of mind than whether or not they can actually afford to pay for a long nursing home stay.

Alternatives to Long-Term Care Insurance - For the most part, I no longer recommend getting basic LTCI. Insurers have made policies harder to qualify for and many companies are no longer selling those types of policies. There are stories, across the personal finance world, of skyrocketing premiums on existing LTC policies. Insurance companies often hope that you drop the policy at some point before actually needing expensive care. Also, most LTCI is either use it or lose it. No one wants to go into a nursing home. At the same time, you don’t want to pay for insurance you will never use.

In life insurance, with an LTC benefit, will be a more effective option for many future retirees. There are more ways to get care and benefits from the policy. You are guaranteed to see some benefit from that type of policy provided you don’t require a stay in an LTC facility- we are all going to pass someday, right? You may also get coverage for terminal or critical illness, such as heart attacks or strokes. The bottom line is that will often provide a bit more value for your insurance dollars and increased flexibility to avoid premium increases seen on individual, LTC policies.

Regardless, if you are looking into LTC, do it earlier rather than later. Many people, were turned down for the most miniscule pre-existing conditions. Also, premiums can be hefty and the cost will compound the longer you wait to pursue coverage.

Who is Wealthy Enough to Need Long-Term Care Insurance? - Aforementioned “wealthier” singles have more to lose from not getting coverage. They also have more to gain by having it. Wealth and high income is a bit skewed based on who I generally work with, and the fact I live on the edge of Beverly Hills. That aside, here are some statistics to know. To be in the top 25% of wealthiest Americans, it takes just $260,000 or so in investable assets (so not your stuff or home equity). If we are talking income, something around $90,000, per year, will put you in the top quartile of earners. Keep in mind, these are middle to upper-middle-class numbers.

While some of those statistics may assert that LTC is less useful for say the bottom 75% of the U.S. population, that is only looking at the financial side of the equation. The emotional side of the conversation may lead to a very different outcome. In reality, I think a billionaire can just pay for coverage. For the rest of us, paying for premiums may not be fun but having the peace of mind that you have funds to cover the care you need, and want, could be called “priceless.”

Bottom line- determine if coverage is, or is not, important to you. If it is, explore your options to find the best value for your hard-earned money.