Lesson 4f: Long-Term Care (LTC)

What is long-term care insurance?

Long-term care insurance covers specified medical and custodial care when you can not perform at least 2 out of 6 basic life functions independently (e.g., eating, bathing, dressing, transferring from bed to chair, going to the toilet, and continence, or control of bodily fluids).

• Six out of ten adults will need LTC insurance at some point in their life.

• The average nursing home costs $66,000 a year according to a 2003 Metropolitan Life Insurance Company survey.

• Approximately 42% of people receiving long-term care in the United States are adults between 18-64 years of age.

• The premium cost of TLC insurance for a 50-year-old can be 40% of the premium cost for a 65-year-old. So buy early and save.

• The average nursing home stay is over 2.5 years.

Based on these statements, purchasing long-term care insurance sounds very appealing.  However, insurance companies are using selected statistics to make the cost of long-term care sound worse than it actually is. 

What insurance companies do not tell you:

• The estimated average nursing home stay is biased towards patients who have been there the longest.  Nursing homes are surveyed at just a single point in time, missing those patients with shorter stays who have already been discharged.  So, the make-up of a nursing home at any single point time is weighted to individuals with longer stays. The average duration of a long-term care claim paid by the insurance companies is closer to 1 year.

• Not all nursing home stays are covered by long-term care because one needs to satisfy the insurance companies definition of not being able to perform 2 out of 6 basic life functions.

• The agent who sells you the policy gets up to 50% of the first year premium and up to 10% of all premiums thereafter.

• LTC premiums can increase over time.  LTC insurance is not like life insurance with fixed premiums for life.

• Over 25% of people who buy LTC insurance let the policy lapse (i.e., stop making payments thus terminating the policy) within 3 years of buying the policy.

• Paying a lower premium at age 50 may sound better than  paying a lot more at age 65, yet the amounts should be equivalent.  This is because you are paying a lower amount over a longer period of time (15 more years from age 50 to age 64).  The only difference is that you may have a harder time qualifying for LTC insurance at 65 if you show signs of needing care (e.g., already have limited functions due to having a stroke).

So should I get long-term care insurance? First, you should have your retirement plans in place and be closer to retirement age to know what LTC insurance you can afford in retirement.  The worst thing to do is buy a policy and then terminate it because you can not afford it.  The reasons to buy LTC insurance will depend on your circumstances.  The next page will explain more about LTC insurance.

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