is long-term care insurance reliable?

January 27, 2014 8:40 AM

I have been paying $100/mo. for several years now for long-term care insurance with a carrier that is as good a bet as any in the market. But that is a big hit in my budget, and will be even bigger when I retire in a couple of years. It's kind of early in the overall history of this kind of insurance to be drawing conclusions from gathered data, but worst case, it could be just another corporate sleight-of-hand deal for sucking money out of the paycheck-to-paycheck crowd. I can not rely on family as an alternative strategy; I am in fairly good health so far. Should I consider this an essential expense?
posted by mmiddle to Work & Money (18 answers total)

Best answer: I don't know. I'd looked at it when I was young and healthy, but my company stopped offering it after a couple of years so I didn't pick it back up again.

I did recently find this, though.

MAKING SENSE -- JANUARY 15, 2014 AT 12:41 PM ET
Insured for old age? An economist explains the dangers of long-term care insurance BY: LEW MANDELL

If you do invest in such a long-term care policy, the probability of collecting on it is low. According to Prescott Cole in a recent article in the Wall Street Journal, about two-thirds of seniors stay in a nursing home for less than 90 days, which means that they get no compensation from their policies. Furthermore, fewer than 6 percent of those admitted will still be in the nursing home after two years. In fact, fewer than 4 percent of seniors currently reside in nursing homes.

If your objective is to completely cover your core retirement expenses, you will probably need more nursing home coverage than $150 a day (even adjusted for inflation) and will definitely need more than three years of total coverage to cover the unlikely, but extremely expensive, possibility that nursing home care will be needed for many years. For a single person, moving to a nursing home for care of indefinite length (as in the case of Alzheimer's) generally means that the former residence can be sold, and nearly all needs will be provided by the nursing home or paid for by Medicare. Lifetime income can now be used to offset the cost of the nursing home. Once your assets are exhausted, you are generally moved onto Medicaid, so the only reason to protect assets is to leave an inheritance. Therefore, it may not be financially beneficial for a single person without heirs to pay for long-term care insurance.

There's more in there, but that seems to be the meat of it.
posted by tilde at 8:49 AM on January 27, 2014 [1 favorite]

Do you have a family history of debilitating illness needing long-term care as age increases? Do you have other assets that can be converted to fund long-term care? Do you have other insurance coverage that offers similar or comparable benefits in case of accident or disease?
posted by infinitewindow at 8:52 AM on January 27, 2014

It's hard to say if you should bet on it from what little you've said. I figured out the percentage of premiums paid out as benefits in 2008 and it was about 105% of premiums for women and 80% of premiums for men, so I would only recommend women consider it. The demographics in homes testify to this.
posted by michaelh at 8:59 AM on January 27, 2014

Your money is probably better spent on an elder care attorney who can help you with Medicaid planning.
posted by melissasaurus at 9:02 AM on January 27, 2014 [1 favorite]

Response by poster: Thanks! these are helpful. Family history on father's side = living into early 90s, with decade or more of Alzheimer's; mother's side = living into early 90s, but sharp as a tack till the end. My equity in my house will be worth a fair bit by the time, if and when I need coverage, so that's a good point. I will be dependent on Medicare and whatever else Obamacare requires by then. I am female; this policy does pay for in-home care. Maybe I'll renew for another quarter, and ask my doctor's opinion (and seek a trusted recommendation for an attorney) in the meantime.
posted by mmiddle at 9:08 AM on January 27, 2014

Best answer: I've got it and I pay about $300 a YEAR for both Husbunny and I. I'm 51, he's 48. So, perhaps you can shop around and see if there's a less expensive plan for you.

Ours is John Hancock, so I'm pretty comfortable with it.
posted by Ruthless Bunny at 9:18 AM on January 27, 2014

I used to work as a legal assistant in a trust and estate firm. For what it's worth, we did see long term care insurance payouts.

From what I've seen, they work well for in-home care. If you need a nurse or caretaker 27/7, you may still end up paying some out-of-pocket, but the long term care insurance payouts can make a very large difference (judging from the prices we're paying for a relative now, $150/day would usually cover most, or all (if the hours are shorter and/or you need a caretaker as opposed to skilled nursing), of a day of in-home nursing care). Medicare and Medicaid do provide *some* in-home care, but, at least judging by the experiences of everyone I know, it's extremely limited (pretty much just getting you back on your feet for a couple weeks after a hospitalization, rather than coming in a few days a week long-term).

After going through close relatives' long illnesses, my parents bought coverage -- for comparison, they're in their late fifties/early sixties and pay a bit more than you do.
posted by rue72 at 9:34 AM on January 27, 2014

Response by poster: Wow, that's quite a difference. For the record, my company is Mass Mutual.
posted by mmiddle at 9:34 AM on January 27, 2014

You may want to compare what the payout is to the cost of care. My mom had it but it barely put a dent in the costs for her care (which were admittedly unusually high as she was on a ventilator).
posted by amro at 9:37 AM on January 27, 2014

I and my husband signed up for long term care insurance after dealing with the kind of nursing homes available to people who only have medicaid on behalf of my parents. long term care insurance also covers in home care and daily living assistance. And we pay $200/yr for our policies. im 37 he is 41.
posted by TestamentToGrace at 9:38 AM on January 27, 2014

Response by poster: This is such a wide range of costs! $200/yr for a couple approx. 40 yrs v. $1200/yr for an individual age approx. 55, assuming good health. Can the age difference alone explain it - are there such wide variations among insurance companies, using a standard hypothetical?
posted by mmiddle at 9:46 AM on January 27, 2014

The wide range of costs could be a result of what is covered and how much of your expenses would be paid. You won't know without doing the homework.
posted by cecic at 10:10 AM on January 27, 2014

My mother has it, it pays for virtually all of her supportive living costs, a godsend for her financial health as she ages (84, dementia). It only lasts 7 years, but in that time will save her a huge amount and she then has plenty left to continue to take care of herself financially.
posted by johngumbo at 11:37 AM on January 27, 2014

Response by poster: Thanks, everyone! super helpful.
posted by mmiddle at 11:50 AM on January 27, 2014

Just some data points, at this stage ours pays $150 per day in a skilled nursing facility or similar amounts for in-home care.

It goes up a bit as costs increase (like maybe $15 annually, every couple of years.) I got mine through BellSouth/AT&T, and I've had it for 10 years.
posted by Ruthless Bunny at 11:54 AM on January 27, 2014

I think the insurance can be the difference between being able to stay in your home or being forced to go into a nursing home. For my grandpa, Medicare covered the cost of a rehab facility/nursing home, but it would not cover the cost of having someone take care of him in his own house. Long term care insurance would have covered the cost of an in home person to take care of him.

The second way long term care insurance can help is if you have a spouse who does not need a nursing home. After 90 days or so, Medicare stops paying for a nursing home. Then, you have to pay out of pocket until you have no assets remaining and then you can go on Medicaid.. They will put a lien on your house for instance. If you are married, this is a big deal since your partner may end up losing the house or part of it. The same can be said for any savings you might have. You can mitigate some of these issues by working with an attorney.

I recommend talking to an estate attorney. The above are things I learned after my grandpa ended up in a nursing home.
posted by parakeetdog at 11:58 AM on January 27, 2014

What really counts here is the question, "Do these insurance policies actually pay out when needed and adequately, so that the person who needs the care is covered?"

Insurance companies sound terrific, but they're really sounding that way because the people doing the talking are basically sales people - but the fine print is what matters.

Old people, and their families, are frequently shocked at the worthlessness of an insurance jpolicy they've been paying on for 30 years or more. Every plan is different, every company is different - how reliable is the one you're paying? Try to dig up trash on your company - it's out there somewhere on the internet if there's trash to be found. If there isn't any, that's wonderful news, but honestly you need to do some real work to find out the truth about your policy and that means staying away from the company representatives.

I'm not just talking out my hat - I've had dear friends who pretty much lost everything because they counted on their long-term care insurance and failed to see more than what the agent told them.
posted by aryma at 10:00 PM on January 27, 2014 [1 favorite]

Also bear in mind that in theory, much like life insurance, these policies are more valuable when you are young, because you are paying for an unlikely high cost event which you don't have savings for. As you get older, they are less valuable, because you are paying more - by then you are "meant" to have more savings to cover this kind of cost.

How people actually save for these kind of expenses is a different matter....
posted by lalochezia at 7:10 AM on January 28, 2014