Once the cornerstone of retirement planning, long-term care (LTC) insurance has quietly slipped out of the spotlight. Over the past two decades, the LTC market has changed dramatically. Rising premiums, shrinking benefits, and vanishing insurers have left many people wondering: Is long-term care insurance still worth it?
A safety net for aging.
LTC insurance was originally offered to help people cover the cost of care they might need later in life, such as home health aides, assisted living facilities, memory care, and nursing homes. Medicare rarely covers this kind of care, and Medicaid only partially covers it when applicable. LTC insurance was designed to cover those costs, helping to preserve a senior’s independence, protect savings, and reduce the burden on family caregivers.
What changed?
- People needed more care than insurers predicted: LTC insurance came to market in the 1970s and became quite common in the 1990s and early 2000s. At the time, insurers severely underestimated the costs of coverage. They expected fewer people to file claims, and for shorter durations. Instead, people were living longer and used more care than expected, which led to significant losses for insurance companies.
- Premiums skyrocketed: To stay solvent, insurers raised premiums, often significantly. Policyholders were left with a difficult decision: pay dramatically higher rates, reduce their benefits, or drop their policies completely.
- Few companies offered policies: Dozens of insurers exited the LTC market altogether. Today, only a handful of companies still offer traditional standalone policies, and underwriting has become stricter.
- Coverage has shrunk: The newer policies on the market often come with shorter benefit periods (2-3 years vs. lifetime), lower daily benefit caps, and fewer inflation protection options.
What are the alternatives?
While traditional LTC insurance has fallen out of favor, there are other planning strategies to address future care needs:
- Hybrid life + LTC policies: These life insurance policies let you use the death benefit to pay for long-term care if needed. If you never use the care portion, your heirs still receive a death benefit. These types of policies offer predictable premiums, avoid the “use it or lose it” dilemma, and often come with simplified underwriting.
- Self-insuring: If you have significant assets, you might plan to pay for care out-of-pocket. Modeling several years of high care costs ($80,000 – $120,000 per year) and building it into your retirement plan is a must, should you go this route.
- Leaning on family: Some families assume they’ll handle care needs themselves. It’s important to understand that being an elder caregiver is often an emotionally, financially, and physically demanding undertaking.
- Relying on Medicaid: Medicaid does provide some coverage but is only accepted at certain facilities. However, you will not qualify for Medicaid until you’ve spent down your assets. Medicaid also reviews an applicant’s financial history to determine coverage qualification, known as the look-back period.
Even though traditional long-term care insurance isn’t what it used to be, the need for long-term care planning is very real. The costs of aging can be substantial. Addressing this side of the equation ahead of time – whether through insurance, savings, or a combination of both – is a key part of a sound financial plan.
Want to understand your options? We can help families review their resources, compare insurance coverages, and run real-world scenarios so you can make an informed decision about your future. If you would like to learn more, don’t hesitate to reach out.
Disclaimer: This material is for informational purposes only and should not be considered financial, tax, or legal advice. Always consult with a qualified professional regarding your specific situation. All investment strategies involve risk, and there is no assurance that any strategy will achieve its intended results.