Who Should Buy Long-Term Health Care Insurance?

I often get asked the above question.   Who really needs long term care insurance and who should buy it?  The answer to both of the questions is really the same.  All who can afford it?

Don’t get me wrong.   I understand that this includes thousands, no, millions of couples across the country.  However, I believe that that generally speaking most all couples who have the wherewithal to purchase this insurance also have the need for it.

Here’s an example.  Let’s take a fairly normal, 60-year old couple.  Their home is paid for.  They have a little debt on their vehicles, just as they’ve had for years.  They have $200k scattered across various retirement plans and about $75k more in cash, and will receive a modest inheritance when grandma passes.  They generally make more than they spend and social security will kick in within a few short years.  

The above hypothetical couple is not drastically different than countless thousands of couples across the U.S.    There are thousands, obviously, who don’t have anywhere near the assets listed above, but there are also thousands who have more.  The average net worth of couples 65 and older hovers near $250,000.  Again, not far from our fictitious couple above.

So, why would the above couple seem to be a good candidate for long term care insurance, you ask?  Two reasons:

1. They have significant risk, and
2. They have the ability to remove that risk.

Let’s start with the first one.  What exactly is the risk of the above couple?  Simply put, they are exposed to the risk that if they need long-term care by a nursing home, home-health care, or something else then a large portion (possibly very large) of their nest egg will be used to provide said care.

Let’s face it.  The entire healthcare system has done a fantastic job at keeping us alive longer than we ever thought was possible.  Global life expectancy increased from 47 years in 1950-55 to 68 years in 2005-2010.  This statistical increase is due directly to medical and pharmaceutical advances.   However, these benefits have come with a cost.  The downside of the advances in life-sustaining treatments is that, although alive, the elderly aren’t always healthy during those latter years, and without long-term care insurance, your life-savings could very possibly be lost to the costs of long-term care itself.  

What about the second one?  That is, the ability to remove the risk?  This is the beauty of LTC insurance.  For those individuals or couples with assets at risk, those assets often create enough in terms of income to remove the risk.

Let’s take an example from the above couple.  Interest earned from just the $75,000 would yield $3,000 per year at 4%.  For many couples, this would be enough to buy a lot of long-term health care insurance for both husband and wife.

Ask yourself the question, “Can I afford it?”  If the answer to that question is “no”, then there’s a good chance that there is not an ability to insure, there is not a need to insure.  If the answer is “yes”, then find a good agent, let him or her walk you through the long-term care insurance process.