​

Financial Samurai

Slicing Through Money's Mysteries

  • About
  • Invest In Real Estate
  • Top Financial Products
    • Free Wealth Management
    • Negotiate A Severance
  • Buy This, Not That (Bestseller)

Should I Get Long-Term Care Insurance?

Updated: 05/25/2020 by Financial Samurai 43 Comments

I spoke to my father yesterday and curiously asked him about his thoughts on assisted living facilities. “Absolutely depressing!“, he said. I couldn’t agree more that assisted living programs are depressing given it reminds us everyday about our mortality.

Who wouldn’t want to stay put in a home they’ve lived in for years instead? I know I would. Home is a special place that makes us feel comfortable and warm. Ideally, you own your home outright in retirement and no longer have payments. However, this is a topic for another post.

We can only hope that we remain healthy for the rest of our lives, but we’ll eventually need some help thanks to injuries or illnesses. Some of us will have the financial strength to comfortably pay for our healthcare in retirement. Others might have wealthy children to rely on. But what if you do not want to burden anybody, and don’t have that much money to last?

Buying long-term care could be an ideal solution for your retirement years.

THE IMPORTANCE OF LONG-TERM CARE INSURANCE

Long-term care insurance generally covers home care, assisted living, adult daycare, respite care, hospice care, nursing home and Alzheimer’s facilities. If home care coverage is purchased, long-term care insurance can pay for home care coverage, such as the cost of a live-in caregiver, housekeeper, or therapist for up to 7 days a week, 24 hours a day.

Clearly, one can imagine this type of care is not cheap, often ranging from $50,000 to $75,000 a year. You might think long-term care (LTC) is only reserved for people ages 65 and up. 

However, that’s wrong as LTC insurance can be purchased and used for everyone of all ages. In fact, according to Wikipedia, 40% of those receiving LTC are between the ages of 18-65.

According to a survey done by New York Life Insurance Company, the 2019 national average per night at a nursing home costs ~$300 a day, or some $109,500 a year on average. Given the average stay at a nursing home, or need for long-term care is about 3 years, one would need over $300,000 to pay for long-term care if one doesn’t have LTC insurance.

According to the American Association For Long-Term Care Insurance, for 2020, the average annual premium for a 55-year-old couple was $3,050, the same as the prior year.   For a single male, age 55, the average cost reported is $1,700 that was significantly lower than the prior year.

Below is the historical California average nursing home cost per yar.

California Average Nursing Home Cost
YearAnnual Cost
1980$15,500
1988$28,000
1996$42,000
1999$47,500
2003$59,000
2006$76,000
2020$120,000+

Why Would You Want Long-term Care?

* You don’t have the financial capacity to take care of yourself.

* You don’t have any children.

* You have children who don’t want to help, or don’t have the financial ability to help.

* You don’t want to feel like a burden on your children, friends, or relatives.

What Determines Long-Term Care Insurance Premium Rates?

Long-term care insurance rates are determined by six main factors: the person’s age, the daily (or monthly) benefit, how long the benefits pay, the elimination period, inflation protection, and the health rating (preferred, standard, sub-standard).

According to “America’s Health Insurance Plans” The average age of purchasers has dropped from 68 years in 1990 to 61 years in 2005, and the number of purchasers who are under age 65 has increased significantly.

Most companies offer multiple premium payment modes: annual, semi-annual, quarterly, and monthly. Companies may add a percentage for more frequent payment than annual. Options such as spousal survivorship, non-forfeiture, restoration of benefits and return of premium are available with most plans.

According to the website Allaboutlongtermcare.com, the following chart below shows a rough estimate of a $219,000 ($150 a day), 4-year benefit LTC plan. As we’ve already discussed above, it costs $200,000+ already for only a 3 year plan, therefore the annual premiums here are likely 30% too light. 

Please note you can take various different amounts of LTC insurance coverage e.g. 2 year coverage, 5 year coverage, lifetime coverage and benefit amounts of course.

Below is a example of long-term insurance premiums per year by age range.

AGEANNUAL PREMIUM
40-49$1,600
50-54$2,000
55-59$2,150
60$2,500
61$2,600
62$2,650
63$2,800
64$2,900
65$3,500
66$3,3800
67$4,000
68$4,300
69$4,800

As you can see, the older you are, the more expensive LTC insurance will be. That’s not a surprise.  Nobody really knows how much long-term care they need, because nobody knows exactly when they will start needing help, and when they will die. However, statistics show that the median life expectancy is 80, and the majority of us will require 2-5 years of long-term care before we die.

The policy premiums of long-term care insurance are created to account for the majority of people. Of course, if you are more conservative and believe you will live a long time, then you should consider getting more coverage.

However, life expectancy and quality of life are two separate issues. You could live until 100 and just need care from ages 98-100. Or, you might be unfortunate to contract something at 75, but live on in an unideal state for 25 years, requiring $2,125,000 (25 X $80,000) to pay for LTC.

Long-Term Care Insurance Conclusion

If you do not have $200,000-$300,000 in liquid cash saved up, are not very healthy, and have no children to rely on to pay for long-term care, you should consider taking out LTC insurance.

You should absolutely also consider getting life insurance way before you need life insurance. The most common types of life insurance for seniors are simplified whole life insurance and final expense life insurance.

Remember, LTC insurance is not necessarily an age issue, as 40% of those receiving long-term care are between the age of 18-65.  Every single major insurance company provides long-term care so shop around for the most competitive rates.

Long-term care is insurance that pays off after a pre-determined period, which is usually after both short-term and long-term disability runs out after 12-36 months if you are working. 

You can tell from the charts that the cost of LTC is getting incredibly expensive, way outstripping the rate of inflation.  As a result, you’ve seen the average LTC policy holder’s age decline to age 61 from 69 according to America’s Health Insurance Plans.

Feeling like a burden is a terrible, terrible thing. I can’t stand relying on people given my pride and guilt. However, getting long-term care is a personal decision only you can decide to make.  Hope this information helps!

Recommendations

Best place to get life insurance: Check out PolicyGenius, an independent insurance broker that is revolutionizing the way we shop for life insurance – for free. Answer a few simple questions on PolicyGenius’s website and instantly receive free, personalized and comprehensive life insurance quotes.

PolicyGenius provides free, unbiased advice on more than 25 A-rated top life insurance companies they have thoroughly researched and vetted. Because life insurance prices are regulated, you don’t have to worry about not getting the best deals. PolicyGenius helps you compare the best quotes all in one place. Check out their free life insurance rate quotes with PolicyGenius today. When insurance companies compete, you win!

Photo: Old Man Resting In Santorini, Sam.

Updated for 2020 and beyond

Tweet
Share
Pin
Flip
Share
Buy this not that instant bestseller Wall Street journal banner

Filed Under: Insurance

Author Bio: I started Financial Samurai in 2009 to help people achieve financial freedom sooner. Financial Samurai is now one of the largest independently run personal finance sites with about one million visitors a month.

I spent 13 years working at Goldman Sachs and Credit Suisse. In 1999, I earned my BA from William & Mary and in 2006, I received my MBA from UC Berkeley.

In 2012, I left banking after negotiating a severance package worth over five years of living expenses. Today, I enjoy being a stay-at-home dad to two young children, playing tennis, and writing.

Order a hardcopy of my new WSJ bestselling book, Buy This, Not That: How To Spend Your Way To Wealth And Freedom. Not only will you build more wealth by reading my book, you’ll also make better choices when faced with some of life’s biggest decisions.

Current Recommendations:

1) Check out Fundrise, my favorite real estate investing platform. I’ve personally invested $810,000 in private real estate to take advantage of lower valuations and higher cap rates in the Sunbelt. Roughly $160,000 of my annual passive income comes from real estate. And passive income is the key to being free.

2) If you have debt and/or children, life insurance is a must. PolicyGenius is the easiest way to find affordable life insurance in minutes. My wife was able to double her life insurance coverage for less with PolicyGenius. I also just got a new affordable 20-year term policy with them.

Financial Samurai has a partnership with Fundrise and is an investor in private real estate. Financial Samurai earns a commission for each sign up at no cost to you. 

Subscribe To Private Newsletter

Comments

  1. KVMoo says

    July 24, 2019 at 10:30 am

    Hi Sam, I’m new to your site and really appreciate what you do. Would you consider writing an updated LTC post? Things seem quite different now, with new options such as the combo/hybrid Life Insurance with LTC rider. I’m having a really hard time wrapping my head around all the options and figuring out the best one for my circumstances, and I know I need to get on this soon as I’m in my late 50s. Thank you!

    Reply
« Older Comments

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *


n

Top Product Reviews

  • Fundrise review (real estate investing)
  • Policygenius review (life insurance)
  • CIT Bank review (high interest savings and CDs)
  • NewRetirement review (retirement planning)
  • Empower review (free financial tools and wealth manager, previously Personal Capital)
  • How To Engineer Your Layoff (severance negotiation book)

Financial Samurai Featured In

Buy this not that Wall Street journal bestseller

Categories

  • Automobiles
  • Big Government
  • Budgeting & Savings
  • Career & Employment
  • Credit Cards
  • Credit Score
  • Debt
  • Education
  • Entrepreneurship
  • Family Finances
  • Gig Economy
  • Health & Fitness
  • Insurance
  • Investments
  • Mortgages
  • Most Popular
  • Motivation
  • Podcast
  • Product Reviews
  • Real Estate
  • Relationships
  • Retirement
  • San Francisco
  • Taxes
  • Travel
Buy this not that WSJ bestseller 728
  • Email
  • Facebook
  • RSS
  • Twitter
Copyright © 2009–2023 Financial Samurai · Read our disclosures

PRIVACY: We will never disclose or sell your email address or any of your data from this site. We do highly welcome posts and community interaction, and registering is simply part of the posting system.
DISCLAIMER: Financial Samurai exists to thought provoke and learn from the community. Your decisions are yours alone and we are in no way responsible for your actions. Stay on the righteous path and think long and hard before making any financial transaction! Disclosures