Should you buy Long-Term Care Insurance?

Whenever financial planners model the sustainability of a person’s retirement assets, the Big Unknown is long-term care expenses.  These costs are not covered under the Medicare policy and they are not trivial.  The median cost of a private room is now estimated to be over $9,500 a month.  The median annual cost of a home health aide is over $50,000 a year.  Average costs also vary considerably across different states.

The challenge is that most retirees will not be plagued by dementia or other handicaps, but an estimated 7 out of ten will spend some time in a facility, and there is no way of knowing which of us may be looking at half a million dollars or more of these unexpected expenses.

The government and state programs can cover some long-term care costs, but the Medicaid coverage only becomes available when a retiree has largely exhausted his or her other financial resources, and anecdotal evidence suggests that the least attractive facilities are the ones that accept government payments. 

Retirees can insure against any future long-term care costs with long-term care insurance, but it might pay to shop early.  The average annual premium for a 55-year-old runs to roughly $3,000; that goes up to more than $50,000 for an 82-year-old.

Some people avoid paying long-term care premiums because the money they are paying for coverage will be lost if they’re one of the lucky ones who never have to move into a nursing facility or pay for skilled in-home care.  That, and it is possible for those with robust retirement savings and investments to essentially insure themselves and forego expensive premiums. 

A large benefit of insurance is the peace of mind it provides.  The real question that people should be asking themselves is: does it make sense to protect against the biggest unknown expense in a retirement plan’s later years through Long-Term Care Insurance, their investments, Medicaid planning, so some combination of all three?

This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice.