A question clients often ask as they approach retirement is whether or not they need long-term care insurance. The basic concept is pretty straightforward – if, at some point in the future, you need long-term care, you should be able to purchase insurance to partially or fully cover the cost.

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When such policies first became available, they were popular. Long-term care costs were rising, and the insurance policies themselves were relatively inexpensive. A common industry pitch at the time was that if you were interested in a policy, you should purchase while you were younger because the premium was lower. While carriers could legally raise the policy premium, the pitch continued, they hadn’t done so in the past and would not do so in the future.

Fast forward a few decades, and the story of long-term care has become a good bit more complicated. Costs for care itself have continued to rise, and the underwriting assumptions used on those early, much less expensive policies have proven overly optimistic. As a result, premiums have risen sharply on new policies (as well as on many of those older, much less expensive policies) and the number of long-term care insurance carriers in the market has dwindled as well. Finally, while clients with whom we have worked have been successful in making claims on policies when they needed long-term care, it isn’t hard to find stories of policyholders who encountered serious difficulties with the claims process.

So does long-term care insurance make sense for you? A recent Morningstar article provides some statistics that can be helpful in making that decision. Some of the more salient statistics are as follows:

  • 52% of people turning 65 will need some type of long-term care in their lifetimes, and that breaks down to 47% of men and 58% of women.
  • The average length of care is 2.5 years for women and 1.5 years for men. 14% of people need long-term care for more than 5 years.
  • Although it’s anecdotal, in my experience, those who need some form of memory care have the longest-term need and depending upon the level of care, expenses can reach 6 figures per year. 10% of Americans over age 65 have Alzheimer’s dementia and 33% over age 85 have it.
  • In Georgia, the average costs range from $30,000 for assisted living to $70,000 for nursing home. Note that there is wide variation in costs; for example, a more luxury-oriented assisted living community can easily approach 6 figures in cost.

If you have substantial assets, you might choose to self-insure when it comes to long-term care. After all, paying several thousand dollars in premiums per year for insurance you might ultimately not use may not be attractive to you. Still, before making this decision, make sure you understand the potential costs involved and confirm you could cover those costs.

If, after the initial analysis you’re still interested in long-term care coverage, you’ll find that there are both traditional long-term care policies as well as hybrid policies. Traditional policies offer solely long-term care coverage. Hybrid policies, on the other hand, offer some combination of long-term care and life insurance coverage and many have a cash refund feature as well. Quite often, the latter are funded a larger one-time lump sum, while traditional policies usually have an annual premium.

This article from AARP provides a good overview of basic long-term care considerations, and this Forbes article covers some of the ins and outs of hybrid policies. As to the larger question of whether or not to purchase coverage, that should be addressed in your overall financial plan by having a clear understanding of affordability, your resources and your overall risk tolerance.