Long Term Care Insurance is a Waste of Money! Really?

This is insurance, after all. Many put money in because some are going to need it.  Like home and auto insurance. Not everybody’s house burns down or totals their car but we protect those assets nevertheless. Long Term Care Insurance (LTCI) ought to be seen through the same lens.

Another important observation is that not everybody ends up in a nursing home. When skilled nursing is needed 24 hours a day, a facility will be the best place for care. However, most care starts in the home setting. Especially now with the COVID scaring people out of facility care. Most LTCI policies cover home care at 100% up to the maximum stipulated in the contract.

Family members are perceived to be the best source of care in home. The question then is, who in the family is able to provide that care? The model is for the oldest daughter to become the caregiver. Therein lies a challenge for the family. Whoever becomes the caregiver will have to change their life around if they even live close enough. Then, how long can they afford to be away from their career and immediate family members?

That is where the insurance comes in. Hire professional caregivers and let the insurance company pay the bill. Relieve the family of the financial burden and tend to the emotional needs of the person needing care.

As to the cost of Long Term Care Insurance, some say that it’s very expensive. It can be but the cost of care is much higher. However, it doesn’t have to be costly. The premiums ought to be affordable now and in the future. As an example:  a $300 a month deposit for a 55 year old produces a money pool at age 80 of $375,000 (the gain would be taxable) However, using the same scenario, a traditional style LTC policy would provide over $750,000 in needed care (tax free!).

And, finally, there are the hybrid models of LTCI. These contracts do three things: (1) it covers the cost of care up to the maximum chosen, (2) if the policyholder dies without using the LTC money, the contract pays out like a life insurance policy, and (3) if, for whatever reason, the policyholder cancels the policy, they get most or all of their money back. In addition, the premiums never go up and the policy can be paid up in a designated number of years. Great for a 50 year old who wants to reduce expenses at retirement time.

The last point has to do with access to Medicaid (in CA it’s called Medi-Cal). This is the government program for people of very little means. All assets have to be divested and have very little income. You have to be at the poverty level.  Then, if the government is going to pay for care, they are going to determine where the care will be provided. Physical Therapy, for example, may only be available in Hemet!

The bottom line is that preserving assets and unburdening family can be accomplished in many ways. However, LTCI offers guarantees of having the cash to pay those bills. No estate of long term planning is complete with coming to terms with the need to have a plan and that plan must include wills, trusts, and Powers of Attorney.

Related Posts:

#213 Buy Long-Term Care Insurance or Self-Insure?

Cost of Long Term Care Cannot Be Ignored

The 2015 Cost of Long-Term Care Services Tool


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