Do You Need Long-term Care Insurance?

Do You Need Long-term Care Insurance?

By Alan G. Orlowsky, J.D., C.P.A. and David M. Freedman

Thanks to medical advances in the past few decades, life expectancies continue to trend upward. Many of the illnesses and injuries that used to kill people now merely incapacitate them, and more elderly people sooner or later need long-term nursing care.

Another upward trend is the cost of skilled nursing care. According to the U.S. General Accounting Office, nursing home costs average $51,000 per year, and are expected to triple by 2020.

Although you can´t predict whether you will spend time in a nursing home or need home-based care for a long-term illness, you would be wise to start saving for those possibilities.

Financing long-term care

If your disposable net worth is greater than $3 million ($6 million for a couple), the interest and dividends that you earn may cover your long-term care expenses – not including the cost of hospitalization, which presumably will be covered by your health insurance. Paying for long-term care out of your personal assets would, however, leave less in your estate for the benefit of your heirs.

One solution, if you are relatively healthy now, would be to buy term life insurance and name your children as beneficiaries (even if your children are independent adults). The insurance proceeds would replace a portion of the assets that you deplete to pay for long-term care, providing an inheritance for your heirs.

A better solution for some people might be long-term care (LTC) insurance. Such a policy would cover long-term nursing care in any setting outside a hospital, and still preserve your estate for your heirs.

A third option is to reside in a continuing care residential community.

Long-term care insurance coverage

LTC insurance covers what regular health insurance policies and Medicare do not: assisted living arrangements, nursing home residence, and long-term home care. LTC insurance pays benefits mainly to people with chronic illnesses, and can cover a broad range of medical, skilled-nursing and non-medical services.

A chronic illness is typically defined by LTC policies as one that requires care for at least 90 days. Non-medical or custodial services can include help with simple daily tasks like bathing, dressing, taking medication, going to the doctor, and shopping. Some policies even cover adult day care.

LTC policies usually require a short waiting period, analogous to a health policy´s deductible amount, before they will start paying benefits. Policies generally state a daily or monthly maximum benefit in terms of dollars, and/or a maximum period (in years) in which they will cover services. Some policies pay only a percentage of the nursing home cost (often in the neighborhood of 60 percent) but also offer higher coverage in return for a higher monthly premium. Also, some policies offer “inflation protection,” which increases the maximum benefit levels yearly, based on certain economic indicators.

Like life insurance and health insurance policies, LTC policies may limit or exclude coverage for preexisting conditions. But LTC policies may not exclude coverage based on type of treatment, non-preexisting medical condition (including Alzheimer´s disease), or accidents.

Cost of LTC insurance

The amount of the annual premiums may range from $200 to $6,000, depend on your age, your home state, and the coverage you need. The younger you are when you buy an LTC policy, the lower the monthly premiums will be. Premiums starting at age 60, for example, can be more than twice as expensive as premiums for the same coverage starting at age 50.

Of course, the earlier you start coverage, the longer you’ll be paying premiums. But as with life insurance, you must purchase LTC insurance before you really need it. People who are already in poor health, and those over age 84, will have a hard time getting any LTC coverage at all. In many cases, they’ll pay less in total premiums in the long run if they begin coverage now rather than wait until costs escalate. And if you have concerns about potential health problems, you should start sooner rather than later.

Individual vs. group plans

Once you decide to buy an LTC policy, you must choose between a group plan and an individual plan. A group plan may be available through your employer, if you´re not yet retired. Here are the advantages and drawbacks of each:

  • Individual plans are usually more expensive, but offer more coverage and benefit options. Discounts are often available for married couples and individuals in excellent health.
  • Group plans are generally less expensive and easier to qualify for, since you don´t have to meet any medical requirements during the enrollment period. You´ll have fewer options, however, as benefits are less flexible. Group coverage might be available for employees´ family members and retirees. In some cases, coverage may continue even after your employment terminates.

If you or your spouse has serious health problems and your employer offers guaranteed coverage, take advantage of it as soon as possible. Otherwise, consider individual policies that let you tailor the benefits to your needs.

The bottom line: If you are healthy today, and you can afford LTC insurance premiums without compromising your standard of living, you could benefit from LTC insurance.

Another Option: CCRC

Long-term care insurance may covers much of the cost of assisted living facilities and nursing homes. But if you live in a continuing care retirement community (CCRC) you may not need LTC insurance at all.

CCRCs combine the living arrangements and services of three types of senior residential facilities: retirement communities, assisted living facilities, and nursing homes. The three different levels are often located in separate buildings on a CCRC campus, but sometimes they are a short distance (usually within a few miles) apart in nearby communities.

Residential contracts vary from state to state, but in most CCRCs, as residents age and need more care they can move to the next higher level of care without re-applying or re-qualifying.

About the Authors

Alan G. Orlowsky, President of Orlowsky & Wilson, Ltd. in Lincolnshire, Illinois, has been counseling people on estate planning for 28 years. He previously worked for the IRS in its Estate and Gift Tax Division. He also worked for the Deloitte & Touche accounting firm, and he has taught taxation and accounting at Loyola University of Chicago, School of Business.

Al is a contributing author of the book 21st Century Wealth (Esperti Peterson Institute, Denver, 2000), and has written numerous articles on the subject of estate planning. Contact Alan Orlowsky by email or call 847-325-5559.

David M. Freedman is a Chicago-based writer, editor, and newsletter developer. He is the founder and director of Newsletter Strategy Session, a website for publishers of non-commercial newsletters.

Contact Dave by phone at 847-204-6848 or email at

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