old man meeting with agent signing insurance agreement

Is Long Term Insurance Worth It?

Filife team

    The best way to decide whether you should buy long term care insurance is to know whether you will be needing old age care in the future. The United States Department of Health says that over 70 percent of adults aged 65may need long term care right now or in the near future.

    Insurances are always a good thing and a smart way to avoid unexpected expenses along the way. But with premiums becoming higher and higher, while insurances are sometimes not enough to cover increasing cost of care, is long term care insurance worth it?

    A lot of working age Americans want to acquire long term care insurances — or insurances that people would use in the late stages of their life where they may need extra assistance and care — despite some companies not offering such benefits.

    And why wouldn’t they buy long term care insurance policy? Who does not want his or her health, as well as finances, to be secured by the time a person grows old and walks away from their respective jobs?

    According to a 2019 survey done by The Harris Poll for financial services company OneAmerica, 28 percent of their respondents have access to voluntary long term care insurance policy, but an overwhelming number — 59 percent — would prefer availing insurance for long term care had their employers only offered such plans.

    Sadly, this indicates that not all workers are under the coverage of these benefits, even if people actually either want or need long term care insurance or life insurance plans.

    Benefits of long term care insurance

    But for what specific reasons do workers want long term care insurance? Primarily, life insurance provides a sense of security that whatever happens during a person’s advanced age, an insurance company would be around to shoulder the cost of assisted living.

    Second, a long term care insurance eases or relieves possible financial burden resting not only on the shoulder of the insurance’s beneficiary, but also for the insured person’s children. With long term care insurance, they no longer have to worry about finding money to finance the nursing home care cost of their parents or guardians.

    But considering the high cost of contributions or premiums, is long term care insurance still a good investment?

    How much does long term care insurance cost?

    Insurance company Life Plans Inc. said that the average annual cost of  contribution or premium for a long term care policy is around $2,727.  Some offer care policies amounting to less than $1,000 per year, but of course more perks or a wider coverage comes with the more expensive plans.

    However, this number fluctuates depending on the age of the person availing for long term insurance care. Basically, the older a person is, the higher the amount of premiums that he or she will pay for assisted living.

    Plus, there is also a higher chance that an older person’s bid for long term care insurance because of various factors, like the gravity of health ailments, and alleged incapacity to pay the premium required.

    Cardinal Advisors, an agency that specializes on advising adults who might consider getting their own long term care policy, said that only 7.3 percent of 50 year old applicants are being denied. In contrast, 44.8 percent of applicants aged from 70 to 79 are denied, and it even goes higher for those 80 and above — 69.8 percent.

    Younger adults or those aged around 30 to 40 years old on the other hand contribute less money for potential assisted living, but do so for a longer amount of time. It also depends on the income level of an individual: the more you earn, then the more you can put on your insurance policy.

    Weirdly, gender also plays a factor in the prices of long term care insurances: according to the American Association for Long Term Care Insurance, the average yearly premiums for basic plans worth $180,000 and without inflation growth is at $875 for men, and $1,350 for women.

    The same Association said that single, 55 year old males with long term care insurance which benefits grow on a yearly basis would have to shell something around $1,700 while for females life insurance costs around $2,675 — nearly a $1,000 difference.

    The reason for higher prices for women is simple: women have a longer life expectancy than men, and a lot of ailments that are not covered by the life insurance are conditions that generally occur more frequently with men.

    Perfect time to avail of life insurance 

    But as to the best time to avail life insurance, experts believe that the perfect time is when a person reaches 50 years old, as long term care insurances cannot be used for accidents and health incidents that are not related to old age — but may happen during a person’s younger ages.

    That is actually a smart choice: why place your hard earned on a long term care insurance when you are not even sure that you would be under its coverage, or in other terms, reach an advanced age? A lot of experts suggest that instead of placing money on long term care insurance at an early age, you can actually invest it on income-generating ventures.

    The key however is to know when the right time is to place your money on long term care insurance. Financial and health advisors have varying opinions, but they range from 50 years old to as late as 65 years old. This is largely dependent on a person’s health though: as said earlier, having various ailments may diminish chances of being allowed to avail such insurances.

    What is a long term care insurance’s coverage?

    Generally, the coverage of a long term care insurance is an applicant’s old age health expenses, regardless if a beneficiary is staying at a nursing care center or at home. Of course the costs of care, both within nursing home care and home-based assisted living are starkly different, since a patient or client would have to use the facilities of a nursing center.

    On the other hand, assisted living in home-based care means the caregiver is the one making the visits.

    Cost of care and policies have to cater to different needs. There may be insurances who turn down applicants whose family has a history of having Alzheimer’s disease — a brain disorder that usually appears in a person’s elder years, that leads to forgetting memories and inability to do even simple tasks.

    However, there are also insurances that include possible care for Alzheimer’s patients — although these may come at a more expensive rate of premium.

    But aside from the common tasks being done by a caregiver tending to the elderly, some insurances also cover home renovation costs that would be needed to allow the elder and the caregiver to move more easily around the house. Of course, as stated above, more perks lead to higher contributions.

    For insurances involving home care, the average costs per year revolve around $50,000 — considerably cheaper than what a nursing home care offers, which may range from $80,000 to over $100,000 for a private room.

    Home-based care vs nursing home care

    Nurse measuring blood pressure of senior elderly woman in nursing home care

    The obvious advantage of home-based care aside from its inexpensiveness is that an old person does not have to adjust to the differences between his or her home and a nursing care facility. But the problem with home care is that there may be gadgets or facilities that are not available at home, meaning that an elder who may need special attention aside from the home care may be forced to travel to a clinic.

    Whereas in nursing home care, beneficiaries usually do not have to release extra funds as these are covered by a specific plan. There are agents that interested parties may consult, and they would suggest the most feasible and compatible plan for you and your existing health conditions.

    Three forms of insurance 

    But to really know what would be included in a person’s long term care insurance, it is also important to understand the three different forms of insurance: the traditional long term care, hybrid long term care, and the short term care.

    Each of the following forms of insurance offers different perks, and all three have their own set of pros and cons: A traditional form has the most strict and stringent requirement, as these plans offer the greatest benefits.

    Short term care insurance meanwhile is a way to insure yourself, allows applicants who may have been rejected due to failure to meet the criteria to apply for a self insurance. Due to it being less stringent, insurance firms would ask an applicant to provide a plan on how the premiums could be paid eventually.

    Hybrid on the other hand offers more financial flexibility for users. If you availed for an insurance and managed to live through your life without even availing for a home-based care or nursing home care, then your money would be returned to your heirs if you used a hybrid method.

    This extra layer of security — opening the possibility of earning back unused insurance money — however costs more. But at least, if a beneficiary does not need elderly care, relatives can still redeem it.

    According to non-profit organization American Association of Retired Persons (AARP), the combined annual premium for couples aged 55 years old availing traditional long term care insurances are at $2,100, while hybrid formats would skyrocket the prices for the same age bracket to $8,100.

    It goes higher with age: combined premiums for couples aged 65 is at $3,700 for traditional insurances, and $13,800 for hybrid plans. This is the price of being able to protect hard-earned money, in case you do not even avail of their products in the long run.

    AARP suggests that while finding the right company and policy may be hard, there are numerous agents and professionals whom people can consult on what type of plan and what kind of care in the future best suits a person, in consideration of health history and current health status.

    The organization also advises that people should talk to different agents of long term care insurance, to ensure that an applicant is being ripped off and to hear a consensus on what the right plan is for a specific person.

    So, is it worth buying long term care insurance?

    Despite the costs — and the increasing amount of money needed for perks that may be essential to an old person’s needs — a lot of people believe that spending now for an uncertain future is already a need rather than just being a pleasing concept.

    Investing in the future, whether it be buying stocks from the market, to buy long term care insurance for an uncertain period in a person’s life — a worthy investment, especially if you have the money to buy one.

    But what if you do not have the money? Is it enough to settle on government-funded retirement for your future?

    Medicaid would not pay for your insurance if it determines that you have some assets, and if you are capable of tending to yourself, as the health system was created for the impoverished.

    For questions on why would people opt out or skip availing for a long term insurance, the answer usually lies on its cost, or the money needed. Consider this: if the average amount of salary a 20 year old lies around $27,000 per year or $2,250 per month, while the long term care insurance costs around $227.25 per month, then an individual would only have a little over $2,000 to spend every month.

    Then, some long term care insurances with inflation protection — that is, an optional measure to ensure that your insurance would be at par with the higher medical costs in the future due to inflation — demands additional costs. And as with long term care insurance or any other insurance for that matter, additional benefits comes higher premiums.

    Of course, the numbers stated above are mere averages: people earning lower would find it more difficult to even avail for one since that amount of expense does not even consider of taxes, obligations like credit card debts, unsecured debt, student loans, and other expenses like mortgage payments, utilities, healthcare, and groceries yet.

    This means that a worker has to shell out a lot just to buy long term care insurance.

    Long term care insurance amid COVID-19 

    But there’s always the other side of the coin. Considering the current state of affairs, with the COVID-19 pandemic endangering the lives of the people, long term care insurance may really be more of a need than a luxury.

    Several reports stated that while recovering from the latest coronavirus disease is extremely possible, several survivors have noted long-term effects like blood clotting, neural disabilities, heart ailments — conditions that may eventually lead into requiring long term care insurance.

    And a lot of financial advisors across the state have narrated several stories of how long term care, whether it be home-based or on a nursing home care center, have bankrupted households.

    What usually happens is that for old people who have not acquired any long term insurance, they usually use their retirement benefits to cover the costs of old age care. But as retirement plans depend from worker to another worker, and mostly relies on personal preference, there is a huge chance that relatives of the person needing old age care may use funds from their own savings.

    The Bottomline

    As said earlier, people can consult health experts and financial agents in order to determine whether you do need one. You can also discuss it with your family doctor, as he or she would be more familiar with your health history, as well as that of your other relatives.

    In that way, you can deduce whether you would ultimately need long term care.

    If you are confident enough that you would live healthy through your senior years — and if your doctor agrees with your views — then by all means veer away from long term care insurance and instead invest money somewhere else.

    If you have a history of requiring assistance due to health conditions at one point in your life, then it might be safe to assume that you will be needing long term care insurance.

    Additional tip

    Unsure of whether you will be needing one? Have the extra money to spend on securing your future? Opt for a hybrid long term care insurance, which will allow you to take back your money and help your heirs should you not need old age care.

    AARP says that it is true that not all people may need insurance, but everyone should have a plan in hand in case things go awry. If you are mindful with how you spend money — in AARP’s eyes, spending only four percent of your retirement savings each year for living expenses — you may do away with long term care insurance.

    The argument is not really whether everyone should avail a long term care insurance. In an ideal world where you need not to worry about other expenses, insurances are very much welcome — again, who would not want to secure his or her financial stature and health in the future?

    But if your resources are limited, it might be wise to know whether long term care suits you. And for most people in various states right now, yes it is a need.