Should I Buy Long-Term Care Insurance? [30 Key Questions to Answer]

In working through the retirement and financial planning process with clients, we typically get a number of questions about long-term care insurance.

Long-term care (LTC) refers to a broad category encompassing several areas: custodial care, skilled nursing care, and other healthcare services provided over an extended period of time. The healthcare services take place in various settings such as nursing homes, assisted living residences, or at home. 

The need for long-term care usually emerges with some sort of “trigger” event. Common drivers include the progression of Alzheimer’s disease, cancer, and stroke, but there are many reasons that one may need some form of long-term care. 

The big question is, “Does long-term care insurance make sense for me?” While complex, we’ve put together these key questions to help you determine your path forward and whether it makes sense for you to buy long-term care insurance.

A. Evaluate your Long Term Care Insurance Needs

As a starting point for evaluating your long-term care insurance needs, look to assess cost. The cost of health care differs based on the type of care, but your age and current health status play a part in the calculation.

1. What are the average annual costs of different levels of care in my community?

As you can see from the chart above, a private room in a nursing home is much more expensive on an annual basis than general home health aide services, usually conducted in one’s private residence. Assessing the cost gives you a better perspective on what you will need to expect to pay, based on your health status.

2. At what age should I consider buying Long-Term Care Insurance?

Great question. Take a look at this retirement planning timeline to see our recommendations based on your age and stage of life. You will see that we recommend <Age 60, or the Initial Planning part of the process, to assess your insurance needs, and this includes long-term care.

After age 60, prices spike pretty dramatically for purchasing long-term care insurance. If possible, we recommend making a decision before this point. Over age 60? It may still make sense for you; however, you should just be aware that it will be more expensive.

3. How does my age and health affect my eligibility for coverage and pricing?

Certain pre-existing conditions are a bar to qualification for coverage. Medical underwriting varies by insurer.

4. What type of care does long-term care insurance cover and what type of care do I prefer?

While people think immediately of a nursing home, long-term care is much broader and could also mean home health care, adult day care, and assisted living. As part of your evaluation of long-term care insurance options and plans, make sure you think through what type of care you prefer and whether or not it will be addressed in your plan.

5. Do I want the option to purchase additional coverage in the future? 

If you want the option to purchase additional coverage in the future, this is a factor you should consider when evaluating your insurance plan.

6. Do I want reimbursement for home modifications, medical equipment, etc.? 

Similar to question #5, depending on your insurance plan, you may be able to get reimbursement for home modifications, medical equipment, and other needs that support your long-term care. Ensure you address this when evaluating your plan.

B. Assess your Long-Term Care Coverage Options

Contrary to what most people assume, long-term care is not an all or nothing decision. There are many different options to explore. Use these questions to help figure out which option is right for you.

7. Do I need to review what my current health insurance does and does not cover, and what gaps may be filled by LTC insurance? 

8. Am I concerned about outliving my income/assets? 

9. Do I want to protect a legacy to pass to my heirs? 

10. Do I expect to reach an advanced age at which I am likely to need assistance with everyday tasks? 

If so, consider the following: There are six general categories of activities of daily living (ADLs); assistance with two or more will trigger the activation of benefits under most LTC policies. The six general categories include: bathing or showering, dressing, getting in and out of bed or a chair, walking, using the toilet, and eating.

Cognitive impairments can also trigger LTC benefits, even if assistance with ADLs is not required. 

11. Do I have a family who can provide and/or manage my care? 

This is an important one to think through. Oftentimes, family members provide the bulk of long-term care and assistance. Consider whether your policy pays for family caregivers and/or covers caregiver training. 

12. How might my family (i.e., spouse or adult children) be impacted if I require LTC services? 

C. Determine How to Fund Your Long-Term Care Insurance

Once you understand the various costs and reviewed your coverage options, it’s time to determine the best way to fund your long-term care.

There are four different ways to fund your care:

• Pay for your care yourself (private pay)
• Pay with long-term care insurance
• Pay with long-term care insurance, and supplement what is not covered through your own funds
• Have a family member, or family members, provide your long-term care for you

Which is best for you? Here are some questions to consider.

13. Do I have adequate personal savings to fund my anticipated long-term care costs?

If so, you should compare self-funding any future costs to paying up-front premiums for long-term care insurance. As part of this comparison, weigh the impact on your cash flow, asset base, and wealth transfer planning.

14. Does Medicare cover long-term care?

No! This is a common misconception. Medicare does not cover long-term care. For more information about medicare, check out our Medicare 101 guide here.

15. Do I have an HSA or Health Savings Account? 

If so, you can pay a portion of your long-term care insurance premiums from your HSA, based on your age at year-end.

• $450 up to age 40
• $850 up to age 50
• $1,690 up to age 60
• $4,510 up to age 70
• $5,640 over age 70

16. Am I married and seeking coverage for myself and my spouse? 

If so, explore discounts for married couples. 

17. Does my employer offer long-term care insurance, and is it portable? 

Indemnity benefits paid from a qualified policy are income tax-free up to $390 per diem, or your actual long-term care expenses, whichever is greater. Payments that exceed the dollar cap, and for which no actual long-term care costs are incurred, are included in taxable income. Benefits paid from a non-qualified policy may be subject to income tax. 

18. Does your state offer tax incentives tied to LTC insurance coverage? 

19. Do I need to review an insurer’s quality?

If so, consider the insurer’s financial strength, reputation, and customer service ratings. 

20. Could an insurer increase premiums? 

If so, review the history and frequency of premium rate adjustments. 

21. Could I adjust my benefit amount, elimination period, and/or policy duration to control the costs of the policy?

22. Do I need to review any restrictions or exceptions? 

23. Do I want inflation protection and/or nonforfeiture protection?

24. Am I interested in any other riders? Do I need to determine what benefit payment best suits me? 

If so, compare fixed daily payments (i.e., cash indemnity) to reimbursement payments, subject to caps. 

D. Consider Potential Tax Liabilities with Your Long-Term Care Insurance

Depending on your tax planning, you can potentially offset your tax liabilities with your long-term care. This is a crucial part of your decision-making. 

As with every financial decision, there’s a domino effect with regards to taxes. It’s no different for long-term care: pulling funds from various retirement accounts or utilizing long-term care insurance can impact your tax situation. 

Here are some important tax consideration questions to think about.

25. If I am contemplating self-funding, do I need to examine the potential tax impact?

If so, consider how relying on your retirement accounts and taxable portfolio might expose you to ordinary income tax, capital gains tax, and possible surcharges and/or penalties. 

26. Do I have deductible medical expenses that approach 7.5% of my AGI (adjusted gross income)? 

If so, premiums paid for a qualified LTC insurance policy can be included with other unreimbursed medical expenses ($450 up to age 40, $850 up to age 50, $1,690 up to age 60, $4,510 up to age 70, $5,640 over age 70). If you itemize, you can deduct unreimbursed medical expenses (including LTC premiums) that exceed 7.5% of AGI. 

27. Do I need to review the federal taxation of benefits paid under a long-term care insurance policy? 

If so, consider the following: 

• Reimbursement benefits paid from a qualified policy are generally income tax-free. 
• Indemnity benefits paid from a qualified policy are income tax-free up to $390 per diem, or your actual LTC expenses, whichever is greater. Payments that exceed the dollar cap, and for which no actual LTC costs are incurred, are included in taxable income.
• Benefits paid from a non-qualified policy may be subject to income tax.

28. Does my state offer tax incentives tied to LTC insurance coverage?

E. Build LTC Expenses into your Financial Plan

All of these long-term care questions and considerations should be built into an overall, holistic financial plan. Long-term care can be a major expense. If you have an unexpected health event that you haven’t planned for, it can throw you completely off your trajectory. 

29. Does my financial and retirement plan factor in unexpected or uncertain healthcare needs?

30. Do I feel confident in my financial plan, even if the worst-case scenario arises?

If you answered no to either of these last two questions, or felt yourself getting more and more stressed out as you read through this guide, you should consider partnering with a trusted financial advisor. 

Long-term care needs and the decision to buy insurance is just one part of your financial and retirement planning. An advisor can build these considerations into an overall, holistic plan that puts you at ease, even if your healthcare needs arise suddenly.

Take a look at our sample financial plan to get a better sense of what a holistic, all-encompassing financial plan looks like. Want to have a custom-financial plan, tailored to your family, created for you? Drop us a note in the “Contact Us” section, and we’ll reach out to you to set up a discovery call.