What is Long-Term Care Insurance?

What is long-term care insurance and does it make sense for you?
Long-term care insurance (LTCI) typically picks up the tab for very expensive illnesses that leave you unable to take care of your own “activities of daily living”. You generally need to be unable to care for yourself for quite a while before they’ll step in – a typical elimination period is 90 days. It helps with caregiving for dementia patients, or people who need nursing home care. It typically doesn’t pay for rehabilitation – that’s covered by health insurance. In fact, that’s a good way to tell them apart: health insurance pays for you to get well from an unwell state. Long-term care insurance pays to take care of you when you’re not going to get better. Long-term care can be very very expensive, on the order of $10,000/month.
If you are at all interested in ever having long-term care insurance you should apply sooner rather than later, probably in your fifties. They are really picky about who they cover!
Should you bother? In general, people with over a million dollars can probably skip it and just pay out of pocket if they need the care. People with under $250,000 can probably skip it and just spend down their assets and go on MassHealth. Are you in the middle somewhere? I think it depends then on what would happen to other people in your family if you had an expensive illness. Would it impoverish a spouse if one of them needed nursing home care? Would you mind using the money up on old-age care rather than leaving it to heirs? Perhaps long-term care insurance is right for you.
One alternative to a long-term care insurance policy is a Home Equity Conversion Mortgage line of credit. If you (or a loved one) intends to stay in their home until they die AND they don’t necessarily care if the home stays in the family after both spouses are gone, you may be a good fit for this. Basically, you can arrange to tap the equity of your home some day, if you want to, for less than the cost of a year’s worth of long-term care insurance. There’s a possibility of the amount you get being more than the value of the house. Unlike LTCI, you don’t have to pay every year. However, if you do end up needing it, you don’t have some insurance company paying the benefit; it comes out of the equity of your house. It’s not perfect, but it’s really interesting idea for people who have paid off the mortgage on their house.