Long-Term Care Insurance Coverage

Gone are the days of comprehensive long-term care coverage. Realizing how expensive those plans can be, those insurers that haven’t stopped offering coverage have priced it out of reach for most of the people who need it. The majority of long-term care insurance plans nowadays limit their coverage by measuring their terms in years or capping the overall payout, forcing people to predict how long they will need coverage and in what amount.

       But is limited coverage better than none at all?

Most people get long-term care insurance to cover their stay in an assisted living or nursing home facility once they become unable to care for themselves. In reality, while some with chronic conditions or dementia may need care for longer, most people will spend on average just over a year in a nursing home. For the latter, years of investing in a long-term care policy could mean spending money on a level of coverage they will never need.

If the premiums are too onerous to continue paying indefinitely, buying a reduced-coverage plan may spare a family financial hardship down the road. On the other hand, if a family could (relatively) easily absorb the cost of a stint in a nursing home, they may forego buying coverage altogether and avoid regular payments in favor of only paying if and when it’s needed. If neither of these options sounds particularly appealing, a long-term care policy with limited coverage could be combined with other measures, insurance-related or otherwise, to create a custom plan that addresses possible future needs without breaking the bank. Even so, unforeseen long term care costs are always a possibility, and being caught unprepared can have detrimental effects on quality of life, personal finances, and inheritance.

Whatever decision is made should have an eye towards future risk and preferred living situation. For people who would prefer staying in their home, a lower-coverage plan could pay for in-home assistance without incurring higher costs for unneeded benefits. But for those with a family history or at higher risk of more serious conditions, spending extra on a plan to cover assisted living or nursing home costs may be necessary.

Related to this is how much of the potential risk can be shifted to the insurance company, and how much can be shouldered by the insured. An “elimination period” is the difference between when someone becomes eligible for benefits, and when the insurance company actually starts paying for them. During that period, the insured is essentially on their own, but a longer elimination period translates to a lower premium.

Similarly, opting for less (or no) inflation protection on a policy usually lowers premiums by implicitly agreeing to cover costs of inflation yourself. Like with elimination periods, the question is whether to pay for increased coverage now or making up the difference out-of-pocket later.

It is also important to realize that providing coverage is risky for insurance companies. As the chance of having to incur costs by paying out increases, the more an insurance company will charge for a policy to cover those costs. As people get older, they become costlier to insure as their health (ostensibly) deteriorates; the same goes for people with or at risk for severe or chronic conditions. So regardless of what level of coverage is sought, the best time to buy is early, before more serious health problems begin to emerge. Buying sooner rather than later may translate to sizeable savings, even for the most expensive plans.


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