Is Long Term Care Insurance Expensive?

Reading the EOBYou hear this a lot – that long term care insurance is “expensive.”  Nearly every article written about this in the business section of The Times, or from Forbes or Money Magazine will at some point make a statement like, “this insurance isn’t cheap” or even “this insurance can be expensive.”  So they always caution folks to shop carefully and buy wisely.

I can’t disagree with the usual money advice – one should always shop carefully and buy wisely.  What I can disagree with is whether or not this product is “expensive.”

First, EVEYRONE’S definition of “expensive” is relative to their income – if you make only $30,000 a year, a $300 decision is “expensive.”  On the other hand, if you make $300,000 a year, a $300 decision is chump change.  Every long term care insurance application has a written statement that your premium should be less than 7% of your income to be in the “safe zone” for planning purposes.  Since you will be paying for this into retirement years (think “fixed income”), we usually recommend that it is less than 7% of your retirement income.  This way you buy what you can afford and keep yourself out of the “expensive” waters.

Secondly, long term care insurance is always cheaper than paying out of pocket.  Let’s say a couple pays between $2,000 to $5,000 a year in premium for 25 years — they have sunk $50K to $125K in premium into ownership of a policy.  Clearly that is not small dollars for nearly anyone.  But is it expensive?  Well…not when compared to the cost of a nursing home out of pocket.  As of this writing, the average cost of a nursing home across the USA ranges from $60,000 a year to $120,000 depending on your geographic area.  So let’s compare:

  • Price of ownership for 25 years: $50K to $125K
  • Price of paying for care now: $60K to $129K per year
  • Price of paying for care 25 years from now: $180K to $300K per year.

If a person could know beyond shadow of a doubt that in 25 years they would be in care for even 1 year, EVERYONE would gladly trade off $50K in premium for $180K out of pocket.  And if you could know you would be in care for 2 or 3 years…?  Well you’d be flat out silly not to trade $50K in premium for $540K out of pocket for a 3 year run of care.

The real problem is not that long term care insurance is expensive.  The REAL problem is that we don’t know for certain we will be in care.  And any time we have a suspicion that we might not be in care, we start to balk at the premium costs as “too expensive.”  I can promise, if you end up in care, you and your family will be so very glad you own a policy to off-set the cost.

So, instead of asking yourself, “Is it expensive?”  Ask yourself the way better question, “If I am need long term care, can I withstand the financial hit?”  If that answer is “no”….you’d better own a policy.


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