Is a long-term care insurance policy right for you?

Dear Savvy Senior: My husband and I have been thinking about getting a long-term care insurance policy, but we hate the idea of paying expensive monthly premiums for a policy we may never use. Is long-term care insurance worth it? — Approaching Retirement

Dear Approaching Retirement: There are two key factors you need to consider when deciding whether long-term care insurance is a good decision: your financial situation and your health history. Currently, around 7.5 million Americans own a policy.

Who needs a policy?

As the cost of long-term care — which includes nursing home, assisted living and in-home care — continues to rise, it’s important to know that most people pay for it either from personal savings or Medicaid when their savings is depleted, or through a long-term care insurance policy.

National median average costs for nursing home care today are more than $100,000 a year, according to the Genworth Cost of Care survey. Assisted living facilities and home care aides average more than $65,000 per year.

While national statistics show that about 70 percent of Americans 65 and older will need some kind of long-term care, the fact is many people don’t need to purchase long-term care insurance. The reasons stem from a range of factors, including the fact that relatively few people have enough wealth to protect to make purchasing a policy worthwhile.

Another important factor is that most seniors need long-term care for only a short period of time: when they’re recovering from surgery, for example. For those people, Medicare covers in-home health care and nursing home stays of 100 days or fewer following a hospital stay of more than three consecutive days.

So, who should consider buying a policy?

Long-term care insurance makes the most sense for people who have investable assets of $500,000 to around $2 million that they want to protect. Anything less, and you will likely deplete your resources and go on Medicaid for LTC coverage. Anything more, and you can probably afford to pay for care yourself.

Another factor to weigh is your personal health and family health history. The two most common reasons seniors need extended long-term care is because of dementia or disability. And almost half of all people who live in nursing homes are 85 years or older.

So, what’s your family history for Alzheimer’s, stroke or some other disabling health condition, and do you have a family history of longevity?

You also need to factor in gender. Because women tend to live longer than men, they are at greater risk of needing extended long-term care.

Choosing coverage

Premiums can vary widely. According to the American Association for Long-Term Care Insurance, premiums for a policy bought by a couple who are both age 65 for a benefit pool of $165,000 each, with a 3 percent inflation rider, ranged from $7,137 to $8,493 a year.

You can buy a long-term care policy from an insurance company or through an agent. Or you might also be able to buy a policy at work. Be sure to get quotes from several sources to compare prices.

There are two main types of long-term care coverage: Traditional long-term care insurance, which is “use it or lose it,” and hybrid policies that combine long-term care coverage with life insurance benefits. These policies promise that if you don’t end up needing long-term care, your beneficiaries will receive a death benefit. Both types of policies require medical underwriting.

Another hybrid product to consider is an income annuity that includes a provision to increase your payout if you need long-term care. However, the payout may not cover the full cost of care, and the added cost of this provision can reduce the standard payout from the annuity.

Send your senior questions to: Savvy Senior, P.O. Box 5443, Norman, OK 73070, or visit SavvySenior.org.