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You’ve seen the statistics showing that a third of men and half of women over 65 will need long-term health care.
You’re shocked at the high cost of such care—now averaging almost $60,000 a year for a nursing home stay, and headed much higher, to an average of more than $100,000 by 2015 according to the American Association of Long-Term Care Insurance. But you’ve yet to answer the obvious question: Should you buy long-term care (LTC) insurance?
The answer varies according to your budget, your goals, your wealth, and even your gender. Consider:
- Can you afford it? What you pay for LTC coverage depends on the level of benefits you choose and the age at which you buy the policy. In a 2002 study, America’s Health Insurance Plans (AHIP), a trade group of health insurers, asked insurers to quote a price for a $150 daily benefit, four years of coverage, and a 90-day elimination period before coverage begins. The sample policy also included 5% compounded inflation protection and a non-forfeiture benefit. At age 40, this policy costs $1,117 a year on average, according to AHIP, while a 50-year-old paid $1,474 and a 65-year-old, $2,862. A 40-year-old could get a stripped-down policy for $422 a year; at 65, basic coverage cost $1,337.
- Are you comfortable without it? Spending upwards of $50,000 annually for a nursing home could quickly deplete your savings, and most long-term care is financed by Medicaid, which kicks in when assets are gone. But impoverishing yourself to qualify for a program for the poor may not thrill you, particularly if you had hoped to leave a bequest to your heirs or a charity. And many of the best nursing homes don’t accept Medicaid patients.
- Should you self-insure? If you have at least $1.5 million in investable assets (excluding your home), you may be able to “self-insure”—that is, set aside a fund to draw upon when and if you need care. But consider how much you’d need in a conservatively invested account to be sure you have the money on hand if you need it. The annual price of a semi-private room in a nursing home averaged $156 a day in 2003, according to trade group American Association for Long-Term Care Insurance (AALTCI). Suppose you’re 50 now and think you might need five years of nursing home care starting in 25 years, when you’re 75. If you assume a 5% average annual after-tax return on your savings, it would take a fund of about $285,000 to pay for that care. If your area has above-average costs, you’ll need to save even more. Of course, if you don’t need the care, you’ll still have the money. But you might have invested it more aggressively had it been intended for another purpose.
- Are you a woman? Being female dramatically increases the chance you’ll need long-term care. Women live longer than men, and that means they’re much more likely to be single late in life. At age 65, just 43% of women are married, compared with 75% of men according to the U.S. Census Bureau. In a typical scenario, a woman may nurse her husband through a final illness—and then fall ill and have to enter a nursing home, suffering the fate she helped him avoid.
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