The Difficult Decisions Behind Long-Term Care Insurance



Long-term care insurance is an expensive proposition. According to a 2012 Insurance Price Index published by the American Association for Long-Term Care Insurance, the average cost for an individual at the age of 55 was approximately $2,000 a year. That cost has risen every year since.

However, a good long-term care insurance product can pay off significantly over time. The AALTCI reported this year that one insurance company paid out $2.6 million to a woman for care over 20 years, the largest total payout to an individual in the history of long-term care insurance.

The question investors must ask themselves is “Do I want to pay now (for LTC insurance) or pay a whole lot more later?” For most investors, long-term care insurance is not the option they choose, with many believing they can handle the cost of long-term care through other savings or future income vehicles.

But the purchase of long-term care insurance, while perhaps stretching a budget for someone age 55 over the years they pay for the policy, can relieve one major headache that preys on the minds of middle-aged Americans. No one wants to saddle their children with the high cost of paying for the care of a parent who cannot take care of themselves or runs out of medical insurance options to pay for long-term care.

According to Spectrem’s new study on the cost and planning that takes place when investors get older, many investors who purchase long-term care insurance do so out of premature guilt. Though they could be incapacitated beyond the ability to know what is going on, investors do not want to burden their children with the high cost of medical care and no high-level insurance to access when the bills come in.

“Whether it is guilt or responsibility, investors respond to the need to do what they can to mitigate the costs of eventual health care that could fall to their children,’’ said Spectrem president George H. Walper Jr. “Wealthier investors believe they have the financial resources to cover those costs without the need for this special brand of insurance. But investors with less wealth see LTC insurance as a way to avoid the financial pain that could eventually come to their children.”

According to The Convergence of Health and Wealth, 29 percent of retired investors and 22 percent of non-retired investors have long-term care insurance. A large majority of those purchases occurred when the investors was between the ages of 36 and 55, when the cost is lower.

Asked to list the reasons why they made the purchase, despite its seemingly high cost and the possibility that the insurance will never be used or needed, 49 percent of retired investors said they did so in order to avoid being a burden to their family. Thirty-nine percent of investors who are not yet retired answered the same way.

“Not planning ahead for that put my parents in a difficult position, so as a result, I purchased long-term care insurance,’’ one investor said in a focus group for the study. 

Among non-retired investors, 31 percent said they experienced issues related to their parents’ health care costs and that caused them to make the purchase of long-term care insurance. Twenty-eight percent of retired investors said their finanicial advisor suggested the purchase and they agreed.

The research shows that the lower the net worth of the investor, either retired or not retired, the more likely they are to have considered the potential family burden of long-term medical care expenses in their purchase of long-term care insurance. This makes sense, as those investors with a lower level of net worth are less likely to have other potential income vehicles that can cover medical costs that can run into six or seven figures one day.


Top Takeaways for Advisors

Only 20 percent of investors who are not yet retired said their financial advisor suggested the purchase of long-term care insurance. Do you suggest LTC as a way to pay for future health care costs? If so, do you suggest it to everyone, or do you, too, feel it is unnecessary among your higher-wealth clients?

The Spectrem study indicates there is a peace of mind that comes from owning LTC. If you have an investor for whom the future holds an uncertain financial path, and a major medical breakdown could severely hamper that future, LTC might be a wise investment decision, for both financial and psychological reasons.


©2018 Spectrem Group