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Introduction to LTC Insurance


Whether or not to purchase long-term care insurance is a decision that can have a significant impact on your long-term financial security as well as your current monthly budget. Especially now, when some long-term care insurance premiums have increased significantly, it is very important to fully understand what you are buying and if you can afford the cost of coverage. 

Long-term care (LTC) insurance first came on the market about 30 years ago to help people cover future nursing home costs. When and if you need long-term care services, the policy will cover the cost, allowing you to keep your personal savings. Today's long-term care policies offer more choices and cover more than just nursing home costs; but buying "full" coverage may be too expensive for some consumers. In order to keep premiums affordable, many people choose less coverage and pay some of the long-term care costs out of their own pockets.

Is long-term care insurance right for you?

Generally speaking, the answer has a lot to do with your health and your wealth.
This type of insurance is not the answer for everyone. As a rule of thumb, if you cannot afford the yearly premium you should not buy long-term care insurance. Before taking on the cost of long-term care insurance, make sure you can first pay for your other expenses including medical insurance, life insurance, disability income insurance, and savings for retirement.

People with a lower income and limited assets (less than $35,000) usually meet their long-term care needs through their county's Medical Assistance program (also called Medicaid or MA). Once a person qualifies for Medical Assistance, all expenses for nursing home care, qualified home care and medical costs are covered by the state. In most cases, you do not have to give up your home to qualify for Medical Assistance. Currently, about 50% of all long-term care costs are paid by Medical Assistance.

Be aware that insurance premiums can increase. In the past two years some consumers have seen their long-term care premiums increase by 5% to 45%. Also consider that your income may change after retirement. Make sure your future income will still cover the premium costs.

What are the chances you will need long-term care?

Beginning about 2010, Minnesota's population experienced a significant shift in its age structure, as the first of the post-war baby boom generation turned 65. While many of us are saving for the future and planning for retirement, we often overlook the need to protect ourselves against the expenses associated with a prolonged illness that requires custodial care.

You may never find yourself in a nursing home, but the longer you live, the greater your chance of needing some form of long-term care. In 1999 (the most recent statistics*) showed:

  • 1% of people age 65-74 were residents of nursing homes

  • 4% of people age 75-84 were residents of nursing homes

  • 18% of people age 85 or older were residents of nursing homes

While there are no recent studies, a New England Journal of Medicine analysis of 1986 data projected that for a typical group of 65-year-olds, more women (52 percent) than men (33 percent) will enter nursing homes at some point in their life, and that 13% of the women in the group and 4% of the men will have nursing home use of five years or more.

*FROM: Centers for Disease Control and Prevention;
National Center for Health Statistics;
National Nursing Home Survey;
Insurance Information Institute