Is long-term care insurance worthwhile?

Did you know that approximately 70 percent of people ages 65 and older will need some form of long-term care, or LTC, in their lifetime? According to Genworth, it's true, and the numbers are growing each year.

While long-term care insurance can be costly, foregoing it may have higher direct and indirect costs. Self-insuring may place an unfortunate burden on a spouse or other family member who must personally provide that care, underwrite it or make changes to their lifestyle due to depleted assets.

Long term care costs

The forms of LTC can vary widely, from home health aides to nursing homes. The cost of these services depends on geographic location, type and level of care service, service provider and time of service, as noted by Genworth.

Costs have risen steadily across this spectrum over the last 16 years. While home-based services have a median cost of $50,000 per year, this is still less than half the median annual cost of nursing home care. For higher level home care such as concierge service or luxury facilities, the costs can easily be multiples of these medians.

The type of illness can affect the cost of care as well. For instance, if a loved one has dementia or Alzheimer's disease, their period of care could extend well beyond the typical two to five years. If one spouse is sick and needs care, assets may be spent to pay for that care. However, it's important to consider if there will be enough funds left over for the healthy spouse.

Long-term care insurance costs

Unfortunately, standard health insurance covers little of the extended care expense. Medicaid provides coverage but only if the recipient has no assets. Most long-term insurance claims are paid out for home care and assisted living, which aren't considered medical expenses.

According to Forbes, this type of insurance typically costs an additional $2,000 to $5,000 per year, per couple. However, that cost increases significantly for longer coverage periods and higher annual payouts. Furthermore, long-term care insurance rates have periodically skyrocketed, so this range could change in the coming years. Although a portion of long-term insurance premiums are tax-deductible and can ameliorate the expense, the premiums must surpass the medical deduction AGI threshold on Schedule A. Therefore, it's not a dollar-for-dollar offset.

Combined insurance

LTC insurance is a risk management tool that may need to be thought of more like homeowner's insurance — something one has but hopes never to use. However, to make this insurance more palatable, more insurance firms are offering hybrid LTC/whole life policies, which pay a death benefit if the long-term care provision goes unused. With this option, policy holders will see a return of some of the invested premium, which will offset some of the annual cost.

The best time to purchase LTC or hybrid insurance is in your 50s or 60s because the odds of denial increase greatly after that. Also, just like medical insurance, many insurers will deny coverage for pre-existing conditions.

Additional considerations

High net worth individuals may want to self-insure. However, this decision should be approached with caution.

I have seen many couples move into continuing care retirement communities, where you start in independent living, then gradually move to assisted living and then to full time nursing home care. Each progressive move results in a price increase. In one situation, the wife had Alzheimer's and progressed more rapidly through the levels of care, which the husband was still able to live independently. Not only was he paying for her more expensive care, but he was also still paying for his own living situation as well. This is a situation in which having LTC insurance can provide relief to a difficult, stressful time and mitigate the guilt and emotional burdens that often arise when one spouse needs care but the other is still healthy. This insurance may also provide peace of mind and the space to support self-care and avoid burnout.

The discussion around this type of care and insurance is part of a larger discussion regarding how individuals want to be cared for in the future, should they need care. Questions include:

• Who will provide that care?
• Will you remain in your home?
• Do you have sufficient assets to self-insure?
• Could managing the process place more stress on your spouse or other family member?

Family dynamics can impact the decisions. Take into consideration that women often serve as caretakers to their husbands, often outliving them. Because of the myriad of decisions, long-term care insurance is definitely a personal decision for each client, couple or family.