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Do you need long-term care insurance? If so, how much do you need? These are not easy questions to answer.
Adequate insurance coverage is foundational to good financial planning. Most of us insure our car, house, personal property, health, life, and income. Insurance for these risks is straightforward, standardized, and easy to find.
When it comes to paying for long-term health care, though, it’s hard to know if you need insurance in the first place. If you do, it's hard to determine whether the insurance company will still be around and the coverage relevant when the time comes that you need to use it.
The chances are 50/50 that you will need some type of long-term health care. However, the common perception that long-term care means spending years confined to an assisted living center or nursing home isn’t the whole picture.
While long-term care includes these scenarios, it also includes a variety of medical and non-medical services which help meet the needs of people who are not able to fully care for themselves for long periods. A lot of long-term care happens in a person’s home, and not all long-term care extends until the end of life.
Most long-term care needs are not as long as you might think. For example, some people actually need such care for a period of time, recover, and go back to leading a normal life. According to an August 2017 article by Christine Benz on Morningstar.com, " 75 Must-know statistics about long-term care ," the average person who needs long-term care does so for two years or less. Only about 25% of people need long-term care for more than two years, and the probability of needing it for more than five years is only 2% for men and 7% for women.
What we can deduce from this information is that when buying long-term health care insurance, you will probably get the best buy and greatest odds of having enough coverage by sticking with a policy that pays benefits for no more than five years, preferably for two or three.
Related: When You Can't Earn an Income, How Will You Be Provided For?
How much will you spend for long-term care?
That is going to depend a lot on the type of care you need and the area of the country in which you live. According to Morningstar, the average end-of-life cost in a patient's last five years is $217,820 without dementia and $341,651 with dementia. This would indicate that a policy with a daily benefit of $125 to $200 for five years would have a high probability of being adequate.
However, most long-term care isn’t provided by professionals or paid aides. About 83% of long-term care is provided for by friends or family, and 65% of older adults with long-term care needs rely exclusively on family or friends to provide and pay for that assistance.
The Morningstar statistics show that only 7.25 million people carry long-term care insurance, which is just 2.3% of all Americans. The majority (62.3%) of those who need long-term care are funded by the federal government’s Medicaid program. In fact, 20% of the entire Medicaid budget goes to pay long-term care costs.
If you are thinking of obtaining long-term care insurance, it’s best to apply when you are in your 50’s. The denial rate is just 17% for applicants in the 50-59 age range. For those aged 70-79, it rises to 45%. The average annual premium is $2,772. And only 0.5% of all businesses offer long-term care insurance to their employees.
To make decisions about long-term care insurance, it's important to research options for your specific needs. To make the best decisions, it's also important to start early.