Who Needs Long Term Care Insurance?

Author: Duane Lipham

With all of the statistics that are commonly used regarding the need for long term care, it would seem at first glance that almost everyone should have long term care insurance to be adequately protected from such a serious risk.

For instance, consider the statistic that almost half of all seniors over 65 will need some form of long term care. In addition, consider that the average cost of staying in a nursing home can run more than $80,000 a year in many areas, and is increasing in cost at a rate well over five percent annually. Doesn't these kind of sobering facts clearly indicate that everyone should be buying long term care insurance?

Actually, the answer to that question is "not necessarily"!

There are certain situations where LTCi may not be the best choice at all. Let's discuss who should and should not be buying long term care insurance then.

A common myth is that LTCi is for those with very little money. But the truth is that those who have very low income and little savings can easily qualify for state-funded care instead, so LTCi is just not necessary. In fact , LTCi is mainly for those that have enough income or assets that they must be protected from the risk that a prolonged illness requiring custodial care could represent.

The National Association of Insurance Commissioners suggests the following guidelines for LTCi applicants: (1) retirement income should be at least $20,000, and (2) they should have assets of at least $30,000, not including their home and auto.

For those that have countable assets that exceed Medicaid limits, but not enough to sustain paying for a prolonged nursing home stay out of their own pocket, LTCi will most likely be a wise investment. For these folks, having to come up with $7,000 or more each month for nursing home costs, would place a heavy drain on their savings and work a financial hardship that may be especially difficult for the community spouse. Investing in LTCi can help secure independence for these folks, and protect cherished assets for the spouse and/or children.

Then there are the small minority that have enough assets and income that they can comfortably pay for nursing home care for a 3-5 year stay and still provide for the spouse in the meantime with no hardship. This group may elect to simply forego LTCi and rely on their own savings should such a need arise.

However, many of these folks are also seeing the wisdom of investing in LTCi anyway, because they are able to leverage the money that they invest in such a policy to buy a much higher level of protection than would be possible by just using their own funds, and protect their estate from a serious risk at the same time.

So, as you can see, there is no one-size-fits-all solution for everyone when it comes to LTCi. But there are certain situations where investing in a good LTCi policy can be very prudent, and in other cases it may simply be an option to consider. And for those with little income or savings to have to protect, it is not necessary at all.