Pros and Cons of Long-Term Care Insurance

July 02nd @ 9:00 am

Long-term care insurance is a great way to protect yourself as you age. Here’s what you should know about this care coverage.

According to the U.S. Health and Human Services Department, approximately 70% of people turning 65 will eventually require some form of long-term care (LTC) services. Despite this, only a small percent of Americans financially prepare by purchasing long-term care insurance. As with all insurance policies, you should weigh out your options when it comes to selecting the best care coverage. Royal Oak Financial Group takes a closer look at the pros and cons of long-term care insurance policies to help you make the most sensible financial decision.

Pros and Cons of Long-Term Care Insurance

LTC insurance plans typically take effect when a policyholder cannot do at least 2 out of 6 activities of daily living alone. These activities include:

  1. Bathing
  2. Caring for incontinence
  3. Dressing
  4. Eating
  5. Using the restroom
  6. Transferring (moving from bed to chair to bath, etc.)

Ultimately, it is in your best interest to purchase a long-term care insurance policy. However, you should still do your research and understand any implications related to care coverage.

Pros of Long-Term Care Insurance

  • Protect Your Savings
    Long-term care costs can quickly drain any savings or retirement you’ve worked to build. Many who tap into their coverage only need a cushion for a few years, but this still can add up to insurmountable costs. Unfortunately, Medicare and regular health insurance will not cover more long-term care. While Medicare has short-term options, you’ll want to be protected should you require more extensive coverage, such as disability insurance.
  • You Have Options
    Traditional long-term care insurance is pretty cut and dry. It’s a cost-effective coverage that only pays out if and when you need it. If you’re willing to spend a little more each month, you should look into one of the newer age, hybrid policies that return money to loved ones if unused. Typically, these more expensive policies make the most sense if you already have another existing life insurance policy or annuity, or you plan to self-insure through savings. Additionally, you lock in a premium upfront, so you have inflation protection.
  • Tax Advantages
    Federal and many state codes offer tax incentives to those who opt into long-term care plans. Tax-qualified LTC plans allow you to deduct premiums as a medical expense. This is especially helpful as you hit retirement, where income tends to drop while expenses increase. However, please keep in mind that these tax incentives are only applicable to traditional long-term care insurance plans. Linked benefit products do not currently offer these benefits. It’s recommended you check with your financial advisor to understand your tax incentives better.

Cons of Long-Term Care Insurance

  • Rising Costs
    Long-term care policies are rising, and Americans are paying higher premiums to insurance companies than they used to in years past. However, an LTC policy is still typically cheaper than opting for self-insurance. Out-of-pocket costs are detrimental; private rooms at a nursing home can cost upwards of $8,121 a month! Assisted living comes in at $42,000 annually, and home care/home health aides are typically in the $21,000 ballpark. Without any form of coverage, it’s challenging for most to afford any of these options.
  • The Longer You Wait, The More You Pay
    If you begin shopping in your 50s while you’re still in good health, you can save big on your long-term care insurance policy. The American Association for Long-Term Care Insurance reports the most common ages to purchase are between 55-64. Since you must health-qualify, the earlier you apply, the better off. If you are in poor health or have hereditary problems that point to poor health down the road, you could pay higher insurance premiums or be rejected from certain policy plans.

As we age and transition into retirement, we are at higher risk of disability, and more economic challenges present themselves. Royal Oak Financial Group helps our clients better understand financial matters related to estate planning and its components, which include long-term care insurance. To begin planning for your future, get in contact with one of our financial advisors.


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