Is Buying Long-Term Care Insurance Worth It?

After a lifetime of hard work, you’re ready to enjoy your golden years and live life to the fullest — all without the burden of workplace drama or demanding deadlines. If everything goes according to plan, you’ll live out the remainder of your life happy and healthy.

However, a lifetime of experience will likely have taught you that things don’t always go according to plan. Even if you’re in good health now, your circumstances may change — and you may find yourself needing long-term care at some point later in life.

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Do you need long-term care insurance?

According to the AARP, it’s estimated that nearly 3 in 4 seniors will require at least some long-term care in old age. Of those, a quarter will spend at least $50,000 in out-of-pocket costs over their lifetimes. Some will pay much more — nursing homes can cost in excess of $150,000 per year.

Suffice to say, these costs are substantial. Unfortunately, they’re not covered by Medicare, which is why you may want to consider purchasing a long-term care insurance policy to help insulate yourself against these expenses. Long-term care insurance is offered by companies like Genworth Financial or MetLife and covers the cost of assisted living facilities, nursing home care, in-home care, and adult day care.

However, long-term care insurance itself is also quite expensive. For instance, ConsumerAffairs notes that for a 65-year-old man with some health issues, annual premiums can top $2,100. For women of the same age, premiums are even higher, notching $3,100 a year.

In exchange for these upfront payments, your hypothetical policy would cover roughly $400,000 in benefits at the age of 85. If you were to need long-term care immediately, your policy would only cover a little over $160,000 in benefits — barely enough for a year’s worth of nursing home care.

Do some math before you buy

Keep in mind that your insurance policy will only remain active if you pay your premiums year after year. If you start paying at age 65 and don’t need long-term care until you’re 85, you’ll have paid your long-term care insurance premiums for two decades before you use your policy.

At this point, you’ll have paid more than $42,000 in premiums as a man, and over $62,000 if you’re a woman. If you need long-term care in a high-intensity setting for the last few years of your life, that investment might pay off.

However, it’s more likely that you might not face any costs at all. Notably, the U.S. Department of Health and Human Services estimates that 63% of retirees are expected to incur $0 in long-term care costs over their lifetimes, either because they won’t need long-term care at all or because they’ll have access to substitute care provided by relatives or loved ones.

In light of this fact, it may be worth considering what would happen if you simply saved the amount you would’ve otherwise paid in premiums. Assuming you save $2,100 annually and then invest it — achieving a 7% compound annual growth rate — you’ll end up with over $86,000 after the same 20-year period between ages 65 and 85.

If you save $3,100 per year instead and manage to compound at the same rate, you’ll be left with more than $126,000, enough to cover a substantial portion of your long-term care costs — if they ever materialize.

To insure or not to insure?

Long-term care is expensive. But so is long-term care insurance — so much so that you might be better off saving and investing the money rather than spending it on insurance premiums.

Long-term care insurance may still make sense if you expect to be among the small fraction of Americans who will incur substantial long-term care costs. But the overwhelming majority of retirees who face out-of-pocket expenses that fall under the lifetime cost of insurance premiums may be better served paying for care on their own.

By carefully considering your options and evaluating your health, family circumstances, and financial situation, you’ll have a strong idea of how to arrange for your healthcare needs in old age — long-term care insurance or not.

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