Pros, cons of long-term care insurance debated

Did you know someone turning 65 today has nearly a 70% chance of needing long-term care or support during their remaining years?

Last month, I wrote about how investment in a continuing-care retirement community may provide peace of mind for your long-term care. In this article, I discuss another option: long-term care insurance.

Long-term care insurance can finance day-to-day cost of caregiving for those with chronic illnesses or loss of cognitive or mental capacity. Most policies pay for home-health care, assisted-living care or skilled nursing at home or in a nursing home. LTC is necessary because neither your health insurance nor your Medicare plan cover it.

Demand for long-term care will continue increasing as 10,000 boomers turn 65 every day through 2029. With increasing life-expectancies, there is greater risk of injury or disability as people age. Increasing demand and difficulty in recruiting health-care workers are driving up costs.

In a 2021 survey, Genworth found median annual costs to be $54,000 for an assisted-living facility, $61,776 for a home-health aide and $94,900 for a semi-private room in a skilled-nursing facility.

Long-term care insurance can be pricey – and even more so if you wait too long because rates go up as people age. People also develop more health reasons for not qualifying. LTC insurance specialists recommend 45-55 as the optimal age range to acquire LTC coverage.

Age and health are primary components of pricing an LTC policy, as are the amount, period, elimination period and inflation rider. How you structure these options determine policy cost and how the benefit will be disbursed. You can estimate the full cost or determine a partial amount to offset some future cost. The higher the coverage, the higher the cost.

The benefit period can be written as a length of time or a dollar amount. Again, the longer the period, the higher the cost. The elimination period is a deductible or copay period in which you pay the full amount. All costs during this period are the responsibility of the insured. The longer the elimination period, the lower the policy cost. Finally, there is the inflation rider. If you add one, the benefit will increase by a percentage in future years.

Arizona and several other states offer a long-term-care partnership agreement, in which a portion of LTC premiums can be deducted on your taxes. These policies are guaranteed renewable and you qualify for nonforfeiture benefits should you default on a payment. These are important differences that can protect your assets.

New hybrid policies offer riders allowing withdrawals for medical payments. Policy payments don’t go up and death benefits go to your estate. An annuity-based variation eliminates increases because it is paid in a lump sum and deposited money grows over time. If needed, money can be withdrawn for long-term care without penalty. If the insured dies without needing long-term benefits, the value of the annuity is paid to the estate. Because it is an annuity, there are no medical questions to qualify.

There are pros and cons.

Pros:

• It provides peace of mind.
• You are likely to require long-term care at some point.
• Out-of-pocket costs for long-term care are expensive and going up.

Cons:

• There is no certainty in pricing with the exception of newer hybrid policies, such as the annuity policy.
• It’s difficult to determine how much insurance coverage you might need.
• Benefits may not be paid as you need them because you must wait for the elimination period to expire.
• You might not qualify.

Ron Smith is a living-in-place advocate, a member of the Age-Friendly Maricopa Advisory Committee, a Certified Aging-in-Place Specialist and a Certified Living in Place Professional.