Should You Purchase Long Term Care Insurance?

Long term care costs are expensive and rising every year.  For many, a two or three year stay in a skilled nursing facility could cost several hundred thousand dollars and potentially wipe out a retirement nest egg.

Consider the following statistics provided by the US Department of Health and Human Services regarding the cost of long term care services (in 2009):

  • For a home health aid, the average cost is $21/hour
  • The average daily cost for adult daycare services is $67
  • The cost of a semi-private room in a nursing facility averages $198 per day.
  • The cost of a private room in a nursing facility averages $219 per day.

While long term care insurance can also be expensive, paying a known cost (insurance) to protect against an unknown expense (long term care) can provide peace of mind.  However, prior to shopping for long term care insurance, an understanding of the basics may be helpful.

What is long term care?

Long term care is not just skilled nursing care.  Long term care can include all the assistance required should you have a chronic illness or disability that leaves you unable to care for yourself for an extended period of time.  Long term care can be received in your home (home health care) or in a nursing or assisted living facility.

What are the costs of long term care services?

The total cost of care varies based on the types of services needed and where you live.  In NC, skilled nursing costs average about $176/day while home health and custodial care services average $20 to $25 per hour.  Nationwide, the average cost of skilled nursing care (in 2009) averaged about $210 per day.  It is widely expected that costs for care will rise faster than the average rate of inflation.

When would long term care insurance begin paying for services received?

Most policies provide that benefits are “triggered” by certain physical and/or mental impairments. The most common method for determining when benefits are payable is based on the insured’s inability to perform certain activities of daily living (ADLs). The primary ADLs are as follows:

  • Eating
  • Bathing/Hygiene
  • Toileting
  • Dressing
  • Continence
  • Transferring (i.e. getting out of bed)

Typically, benefits are payable when the insured is unable to perform a certain number of the ADLs, (such as two or three out of the six) and has satisfied the elimination period or deductible on their long term care insurance policy.

Reasons to consider obtaining a long term care insurance policy

For those above the age of 50, we suggest that you consider obtaining long term care insurance in any of the following circumstances:

  • Your current retirement assets cannot support an extended long-term care need.
  • Your primary source of paying for long term care expenses would be your IRA, 401(k), or other retirement plan in which all distributions are taxable.
  • You do not want to depend on your spouse or children to provide you with custodial care.
  • You are afraid you will experience a change in health that may make you unable to obtain (or afford) a long term care insurance policy in the future.

There are many contributing factors one should consider when deciding if long term care insurance is appropriate for you and your family.  We would suggest that you carefully consider the costs and weigh your options.

About the author

Chip Hymiller, CFP®

Chip is a principal of Beacon Financial Strategies and serves as the firm’s investment portfolio manager. He earned his business management degree from North Carolina State University and a Masters in Business Administration from East Carolina University.

Chip is a Certified Financial Planner™ practitioner and works closely with clients in the areas of overall financial planning, asset allocation and risk management strategies. As the firm’s investment portfolio manager, he is responsible for developing and maintaining Beacon’s model portfolios.

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