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The Pitfalls of Long-Term Care Insurance

Planning for long-term care can be daunting. Nursing home care is expensive, but being taken care of by children or other family may not be appealing or practical either. Long-term care insurance can help with the cost, but it has its own pitfalls. You should carefully consider whether a policy is right for you and be sure you understand the benefits and how it works.

  1. Policy Expense

    • Long-term care policies can be expensive, especially if they include inflation protection. Inflation protection increases the policy benefits so the policy keeps up with inflation. According to the Kaiser Family Foundation, a 60-year-old who buys a policy with $150 per day benefit with a five-year benefit period and 5 percent compound inflation can expect to spend more than $3,000 per year on a policy. Couple that with how our incomes are typically lower once we retire, and the uncertainty of whether we'll need to use the coverage, and the premium expense may not be worthwhile.

    Policy Coverage

    • Another potential long-term care insurance pitfall is that the coverage may be too low, too high or not cover the type of care you need. There are numerous moving parts in a long-term care policy. There's an elimination period, which is the period of time you're required to cover benefits out of pocket before benefits start. There's a daily benefit, which is the maximum benefit paid per day, and a benefit period, which is the minimum amount of time a policy may last. Inflation protection is optional. The policy may cover home health care, possibly at a lower percentage. You may end up paying for coverage you don't need, or coverage that isn't adequate.

    Policy Exclusions

    • As with any other type of insurance, there are exclusions. One exclusion that may be frustrating is that policies don't cover home care or other services done by family or friends. Generally, care due to mental illness or addiction is also not covered (care for dementia or Alzheimer's disease is covered, though). Policies also don't cover care until you need help with two or more daily activities: eating, bathing, dressing, toileting or continence or if you are mentally incapacitated to the point of needing supervision. You may need help before this, but the policy will not provide care until these criteria are met.

    Policy Need

    • Another potential pitfall is purchasing a policy if you don't need it. You don't need a long-term care policy if you don't have a significant amount of assets. In the case of a nursing home stay, if you have limited means you may qualify for Medicaid. According to the National Association of Insurance Commissioners, you shouldn't spend more than 5 percent of your income on long-term care insurance. If policies you're considering cost more than that, long-term care insurance may not be a good fit for you.

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