May 15, 2009

Should You buy Long Term Care (LTC) Insurance?

Long Term Care (LTC) refers to medical care services over a prolonged period of time. Its often in a nursing home. LTC can be pretty expensive. The average cost of a year in a nursing home in 2008 was $68,000. Long Term Care insurance is a form of insurance that you can buy to pay for the possible costs of LTC. Lets consider the question: Is LTC insurance something you should buy?

Is LTC something you'll need?

It is very probable that you'll need some form of LTC during your life. The government has an informational site setup on LTC at They have some stats on the likelihood of needing LTC:

  • 70% of Americans will require some LTC in their lifetime.
  • 40% will need care in a nursing home for some period.
  • Women 3.7 years and men 2.0 years.
  • 33% never need care, 20% need over 5 years.
Most LTC needs are for people over age 65. However this study says that 37% of people needing LTC in 2000 were under age 65. The risks of needing LTC grow with age. Only 1.4% of people under 65 currently need LTC, 14% of people over 65 need LTC and HALF of people over 85 need LTC.

Conclusion : It is probable that you'll need LTC and most likely it will be 2-4 years of care after age 65.

So now that we know LTC is something we're likely to need, next we should look at the likely cost of insurance.

What does LTC insurance cost?

LTC premiums can be pricey. The premium costs will go up with age. The younger you are the lower the costs will be to get a premium.

The following table of average costs are from the government site.


Average Annual Premium amounts paid in 2007 – averaged for all ages and for specific age groups. (2008 LIMRA International, Inc.)

All ages $2,207
Under age 40 $ 881
40 to 49 $1,781
50 to 59 $1,982
60 to 64 $2,249
65 to 69 $2,539
Age 70 and older $3,026

I got a quote from this site Long Term Care Quote. Unfortunately they want contact info.
The quote result was from 3 reputable insurance companies. They offered coverage of $100 a day for up to 3 years. The premiums varied in the $91-$104 / month range for myself at age 37. So that is around $1,200 a year premium.

Should you buy Insurance? If so then at what age?

LTC insurance is pretty pricey. There aren't a lot of people with $2,000 to $3,000 a year to spare. If you can't really afford LTC then its not something to go out of your way to buy. However if you do have the funds to afford it then it might be worth something to consider.

Looking at the costs of insurance at different ages, I think that you're not likely to have it pay off if you buy LTC insurance in your 30's or 40's. Few people need insurance at that age and if you keep paying on a policy till you hit your 60's or 70's then you may as well just self insure. But if you look at the costs for LTC insurance in your 60's then you could be paying $2000 to $2500 annually for a policy and make use of it within 10-20 years. Given the average cost of LTC this should be worth a purchase. With that thinking in mind, I wouldn't buy LTC until you're around 60-65 age.

LTC insurance is an optional insurance and would fall below higher priority insurance such as health insurance, auto insurance, home insurance, disability insurance and life insurance.

Bottom line: LTC is optional purchase if you have the means and I'd wait till age 60-65 to consider it.

Be wary and do your research

A Consumer Reports article on LTC isn't very positive about the insurance. They say: "A CR investigation, for which we reviewed 47 policies, reveals that for most people, long-term-care insurance is too risky and too expensive. " A couple recommendations Consumer Reports gave are agreeing with my suggestion to consider buying a policy around age 65 and they also recommend to look for a strong insurer.

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