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Long-Term Care Insurance: Is It Right for You (and Your Parents)?

Most people have to think about buying long-term-care (LTC) insurance. Your parents may be considering it, whether they’re still working or retired. The purchase often presents the most nagging insurance question for people over 50.

What’s more, LTC coverage may not be necessary or affordable. Before buying, take the following into account:

Family status. Consider the financial risk of incurring out-of-pocket expenses for long-term care: impoverishing a spouse, partner, or other financially dependent family member. Single people don’t face that risk, so all other things being equal, they have less need for LTC insurance.

Affordability. Most LTC experts say the ideal candidates for long-term-care coverage are those who can comfortably afford the premiums and can handle premium increases, which are becoming quite common.

Your general financial picture also determines how affordable LTC policies are for you. One common measure is net worth, excluding the home, or more simply, the amount of investments and savings you expect to have after you retire. People with less than $500,000 in investments might not be able to afford LTC coverage.

Another more reliable measure of affordability is how much the insurance will cost as a percentage of your expected retirement income. If the premiums are likely to consume more than 10 percent of your income, you probably can’t afford the coverage.

Singles with more than $1 million in investments, and married or partnered couples with more than $1.5 million in investments, may want to consider self-insuring. If this describes you, though, remember that a long stay in a nursing home or extended home-health care could whittle down even a large nest egg.  

Family health history. Not a perfect predictor, the health patterns of parents and grandparents can still indicate what the future may hold. If your parents experienced chronic health problems or other conditions that required prolonged care, this may argue in favor of an LTC policy.

Importance of passing on an inheritance. If passing on an inheritance is important to you, an LTC policy could protect some of your assets for future generations.

Before Buying a Policy

An LTC policy can be an expensive, long-term investment. Consider the following:

Understand the limitations and features of the policy. Long-term-care insurance is aggressively sold. Many purchasers don't understand what they're getting—or not getting.

Become an expert on long-term-care insurance before buying a policy. Its premiums could be one of your biggest retirement expenses. So make the most of your hard-earned dollars.

If your employer offers LTC insurance, consider it. But while policies offered through an employer may be less expensive, the benefits may not be as comprehensive as you would like.

Favor policies that provide comprehensive home health-care coverage and coverage for nursing homes. Inflation protection is also an important feature, particularly for boomers who are considering this coverage.

Instead of buying long-term-care insurance, consider using the money you would pay in LTC premiums to invest in other ways. Think on this: According to a 2005 study published in the journal Inquiry titled "Long-Term Care Over an Uncertain Future: What Can Current Retirees Expect?," only 37 percent of all 65-year-olds will need long-term care in a nursing home or assisted-living facility. Most will stay less than two years.

You can cut premium costs by limiting the LTC policy to three years or less. However, if you spend much longer than that in a nursing home, you may impoverish yourself anyway. According to the study I mentioned, 8 percent of us will spend more than five years in a “nursing facility.”

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