The sales pitch is that 70% of those over 65 will require “long term care” at some point in their lives citing a U.S. Department of Health and Human Services survey.
The sales pitch anchors you to the idea that 70% will require assisted living or skilled nursing level care.
What they leave out is how HHS defines “long term care” – which includes such things as:
- hiring a housekeeper
- hiring someone to take care of your yard
- hiring someone to advise you or assist you on managing money/finances
- caring for pets
- paying for a “life alert” emergency service activation button
Those are all counted as long term care in the HHS survey but they hardly meet the definition of expensive skilled nursing center services.
Intensive long-term care can be expensive – running $5k to $15k/month.
But the reality is that most long-term care is actually provided by family members (often a spouse), friends or neighbors.
At least half of those who buy long term care insurance will never make a claim.
Many of those who do use it, will use it for less than 90 days – and many policies have a 90-day exclusion period (basically an insurance deductible – you pay the first 90 days).
Total policy coverage length is likely less than six months (for short term care policies) and 1 to 2 years for long term care policies (which pay $100 to $200/day – they do not necessarily cover all expenses, by any means). And the policy may not be adjusted for inflation and what real costs are in the future. Finally, the premium you start with may be increased – by a lot – over time. And worse, the insurer might go out of business – and you could lose all money put in to it. In fact, there are today reportedly just six insurance companies still offering long term care policies.
20-25% of those who do require intensive care may receive care for 1-3 years.
Most LTC is provided between ages 80 to 89.
In your mind, at age 65, you might be thinking about care issues in the future, and still have, in your mind, living in your own home. While most elderly hope to stay in their home, many will choose to downsize and move closer to their family members, specifically so they can get some help from their adult children and grandchildren.
For this reason, many people will choose to self-insure. LTCI is typically bought in one’s 50s or 60s and you pay a monthly premium; while the premium may remain stable, they can be raised later on.
For many, it makes much more sense to set aside that monthly premium in your own investment account.
By the time you might require long term care, the value of that account will fund your long-term care – and if like most people, you never require LTC or much LTC, what is left over can be given as an inheritance to your family members. You cannot do that, typically, with an insurance policy you did not use.
This video is the most concise explanation I’ve seen. Note – when LTCI is provided by your employer or if you have a pension and LTCI provided insurance, then by all means, use that LTCI. But for most, who do not have these benefits, LTCI may not make any sense at all.
Update – this appeared in an email newsletter from Barron’s on June 17:
Long-term care is the biggest wild card of retirement planning. Most people will eventually need some help with routine tasks in older age—about 70% of those who turn 65, according to government estimates. Yet some retirees won’t need assistance, while others will need care for much longer than the average of two to three years.
Medicare doesn’t pay for help with bathing, dressing and other activities of daily living. Traditional long-term care insurance is one way to prepare for this likely expense. It looked like a great deal more than a decade ago, but the industry is now in crisis. Policyholders with older policies are being asked to pay huge premium hikes—one major insurer is seeking a 143% increase in some places—or forfeit their generous coverage. And financial advisors have told me they aren’t finding much value in the newer policies, whose coverage is much more limited.
And again note the “70%” will need LTC – but that LTC includes everything from hiring a once a week housekeeper to assist with cleaning, to hiring a lawn care company – it does not necessarily mean being in a skilled nursing center. The industry is using that misleading figure without explaining what it means.
