How to Decide if Long-Term Care Insurance Is Right for You

The Problem

En español | Cynthia Cooper, a college professor, and Jody Morrison, a librarian, are models of financial responsibility. The married Baltimore couple live lean, spending $3,700 a month on take-home pay of $4,400. They have emergency funds, retirement accounts, health insurance and disability insurance. What they don’t have: long-term care (LTC) coverage, should they ever need a nursing home or at-home care. LTC insurance, Cynthia says, is “way above anything we can afford.” Because women tend to live longer than men, their premiums are higher.

Cynthia and Jody also worry about a recent court ruling allowing a Missouri retirement home to reject a lesbian couple. Being shut out like that, they fear, would force them to cobble together more expensive care. “We’ve done so much financial planning,” Cynthia says, “but this keeps me up at night.”

The Advice

Cynthia isn’t the only one worrying about this topic. The 2019 Retirement Confidence Survey from the Employee Benefit Research Institute showed that while 72 percent of workers feel at least somewhat confident about being able to afford basic needs in retirement, just 52 percent feel the same about long-term care. One thing I’ve learned through the years is that, because LTC insurance products are in constant flux, you need advice from people who work with them daily. I turned to Scott Witt, an insurance adviser in New Berlin, Wisconsin; Brandon Jones, a financial adviser at Accredited Investors, in Edina, Minnesota; and Peter Florek of MAGA Long Term Care Planning, in Bannockburn, Illinois.

Of the many options that emerged, Cynthia and Jody felt that three were worth considering:

The traditional approach: The couple would take out a conventional LTC policy, paying a premium of about $7,600 a year with money that would otherwise go into their retirement accounts. The policy would provide a $5,000 monthly benefit that would grow by inflation at a rate of 3 percent annually. If either spouse needed care, there is a 90-day waiting period before any payout could begin. The policy would offer 10 years of “shared” benefits (meaning, if one spouse needed 10 years of benefits and the other needed none, they could cut the pie that way).

  • Pro: Thanks to the policy’s inflation protection, that $5,000 monthly benefit would reach $10,000 in 25 years.
  • Cons: You’d have to keep paying expensive annual premiums until you made a claim. And premiums could rise, as they have historically.

A hybrid policy: This is a life insurance policy that would let you use the death benefits for long-term care during life and pay out the remainder to heirs at death. Cynthia and Jody would have to pay a lump-sum premium of about $154,000 upfront — money they’d most likely get from a combination of savings and borrowing from retirement accounts. Then they’d pay ongoing premiums of $2,500 annually. In return, each would be able to draw $120,000 in LTC coverage off their $330,000 death benefit.

  • Pro: There is value in these benefits even if you don’t use them.
  • Cons: This couple has no heirs to receive the death benefit. Because there is no inflation protection, the $120,000 would be worth only about $66,000 in 25 years.

No insurance at all: Assuming Cynthia and Jody continue their retirement contributions, they could easily withdraw around $7,000 or $8,000 a month to live on 10 years from now. And they could add to that their Social Security benefits. This is substantially more than what they’re living on today, which should provide them some comfort.

  • Pro: It’s not insurance, but it may be just enough.
  • Con: It may not resolve Cynthia’s loss of sleep.

The Outcome

Initially, the couple leaned toward option three: relying on savings, not insurance, for long-term care. But it became apparent from working with me and the advisers that Cynthia and Jody have already saved so well for retirement that they could cut down on future contributions and pay for a traditional LTC policy instead. In other words, the premiums that once seemed expensive now felt affordable.

What sealed the deal was, as is often the case, personal experience. As we were talking through options, Jody found herself in Pennsylvania, dealing with her parents’ ongoing care needs — and was relieved to learn that they had purchased two LTC policies that would cover the bulk of the home health care they needed. So Cynthia and Jody decided to move forward with traditional LTC insurance. “While untangling my parents’ expenses, I decided right then and there that this wasn’t going to be us,” Jody says. “We weren’t leaving it to chance; we weren’t going without some kind of coverage to control our future care.”

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