Long Term Care Insurance: Good or Bad Deal?

Insurance is defined by Merriam-Webster as:

“:coverage by contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril.”

In other words, insurance is there to pay for financial losses in the unfortunate event that they occur. Most people do not buy insurance hoping to use it. Using insurance means a significant event, and financial loss, has occurred. For example, people do not buy term life insurance hoping they die before the end of the term so that the policy pays out, or that their house burns down so they can collect.

If you have been researching long term care insurance, then you may have read about significant rate increases for policyholders or that the insurance is now very expensive to buy. It is true that just about every carrier who has ever sold long term care insurance has raised their rates on policies. It is also true that a policy purchased today is more expensive than that same policy would have been 5 years ago. But does that mean it is a bad deal? Let’s look at some facts.

According to a study by the Department of Human Services, 70% of Americans will need long term care in their lifetime. Here are some odds by comparison:

RISK ODDS1 US AVERAGE COST OF INSURANCE2 INSURED?
Fire in home 1 in 1,177 $65.91 Yes
Car crash 1 in 303 $67.91 Yes
Dying before age 65 1 in 125 $66.25 Yes
Long Term Care 1 in 2 $179.81 No

By comparison, long term care insurance is more expensive than other insurance policies that most people own. But when you compare how likely we are to use the policy, it may seem more worth it. For example, if you bought a Term Life insurance policy, you would pay $15,900 over the life of the policy and less than 1% will use it. Chances are, you would be happy if your spouse never had to use the term life insurance policy! Long term care, on the other hand, at best has 33% of people needing to file a claim in their lifetime. The average monthly cost of Professional Home Care3 today is $3,622. When you consider how long we are living, and what effects diseases like Alzheimer’s and strokes have, the costs for recovery can escalate dramatically and for a long time.

Is Long Term Care insurance more expensive today than 5 years ago? Yes. Insurance companies are realizing how often and how long the claims for long term care can go. Is it a bad

deal even today? No. When compared to most other insurance products the need for long term care unfortunately happens to more of us.

It’s better to have it and not need it, than to need it and not have it.

  1. National Safety Council© Injury Facts© 2011. http://www.nsc.org/learn/safety-knowledge/Pages/injury-facts.aspx
  2. http://www.iii.org/fact-statistic/auto-insurancehttp://www.valuepenguin.com/average-cost-life-insurance
  3. Genworth 2014 Cost of Care Survey. https://www.genworth.com/dam/Americas/US/PDFs/Consumer/corporate/130568_032514_CostofCare_FINAL_nonsecure.pdf