As your elderly loved one approaches the point where he or she will need a greater level of care than you are able to provide, you may want to begin considering your alternatives. One option is purchasing long-term care insurance ("LTCI" for short). LTCI can be a valuable tool in helping to defray the costs of providing long-term care; on the other hand, LTCI itself can be a significant expense, especially if you are in a situation where you are on a tight budget. Here are a few things to consider in determining whether LTCI is for you.
Pro: Defrays the High Expense of Long Term Care
The cost of a room in a long-term care facility can be around $100,000 per year. To be sure, this is a significant expense, and something that may be worth insuring against. At the same time, you should take into consideration the fact that when your elderly loved one enters into a long-term care facility, other expenses will go down.
For example, if your elderly loved one currently spends $40,000 a year between rent, food, utilities, medications, car insurance, and other miscellaneous expenses, the true cost of long-term care may not be as high as the $100,000 price tag because $40,000 of would be spent regardless. Thus, in this situation, the true cost for the year of long-term care would actually be $60,000. That's still a hefty sum, of course, but it's not as bad as the $100,000 annual figure would suggest.
The true cost of long-term care--that amount of money above which your elderly loved one would be spending on all of his or her daily living expenses regardless of where he or she lives--is the actual figure you should consider when determining whether to pursue LTCI or not.
Con: How Much LTCI Does a Person Really Need?
Statistics should be carefully considered when looking at LTCI. While the proposition of spending $100,000 for a year in a facility is unnerving, statistics show that few people actually spend that long in such a facility. In fact, half of men and 40% of women will remain in a long-term care facility for 100 days or less. Thus, the $100,000 annual price tag suddenly becomes closer to the range of $33,000. In addition, Medicare pays for the first 20 days completely and pays part of the cost for days 21-100. This further decreases your loved one's actual out-of-pocket exposure. These considerations should be weighed against the costs of premiums for this kind of insurance.
Pro: Peace of Mind
Although your elderly loved one may not end up actually needing LTCI, nobody can dispute that having it provides some peace of mind. Further, it can be a useful tool to have when trying to figure out what your loved one will be able to leave his or her heirs. Although he or she may never need to actually use his or her LTCI, if he or she is among one of the few who actually have a lengthy stay in a long-term care facility, it may be that having LTCI allows him or her to preserve something of his or her estate to pass on. This can provide great peace of mind for the elder and also for his or her descendants.
Con: Higher Premiums for the Elderly
Of course, LCTI has higher premiums for those who are aged and infirm-the very people who need such insurance the most. If LCTI is started earlier in life, the premiums are lower, but then the person pays in for a longer period of time. Costs of premiums should be carefully considered and weighed, especially when estate planning.
LTCI can be a great way to ensure that your loved one does not get stuck with an enormous bill for an extended stay in a long-term care facility. Such facilities can be prohibitively expensive, depending on your loved one's needs and the duration of his or her stay.
At the same time, although most people over the age of 65 will spend at least some time in a long-term care facility, chances are that such a stay will not be more than 100 days. Given the high cost of LTCI, and the fact that most stays are not as long as one might expect, LTCI may not be the best option for your elderly loved one. On the other hand, having LTCI does provide peace of mind and the ability to proactively engage in estate-planning and estate protection as long as the cost of premiums over the probable life of the insurance policy are taken into consideration.
Roth, Allan. Should I Buy Long-Term Care Insurance? February 5, 2015. Available at http://blog.aarp.org/2015/02/05/should-i-buy-long-term-care-insurance/. Last visited November 13, 2015.