The Middle Class and Long Term Care Insurance

Published FEBRUARY 19, 2015

The cost of long-term care can be very high. Nationally, a one-year stay in a nursing home averages $87,000, though it can be significantly higher in certain parts of the country. The average in the New York City area, for example, is $136,000 per year, and is even higher in Alaska. In-home care, while cheaper, can still run around $50,000 per year or more.

It’s often said that the rich don’t need long-term care (LTC) insurance, as they can afford to self-insure. It’s also said that the poor don’t need it as they will be covered by Medicaid and other such programs. That leaves the middle class as the best candidates for this coverage. Here are few thoughts on long-term care insurance and how financial advisors can help their clients decide if this is the best route for them.

What is LTC Insurance?

Long-term care insurance, like any type of insurance policy, is protection against some event that would be too costly to fund out of one’s pocket. Let’s say a married client had a $1 million retirement nest egg, which along with their Social Security and a small pension, provided an amount sufficient to support their retirement lifestyle.

If one spouse developed a medical situation requiring a stay in a nursing home for several years, even at the national average cost of $87,000 per year, this could deplete the couple’s retirement savings in a hurry. Having long-term care insurance in place could certainly help offset some or all of this expense and preserve the couple’s nest egg.

Preserving an Inheritance

For many families providing an inheritance to their children, grandchildren and others is a priority. Long-term care insurance can provide a source of funds to pay for needed care. The money paid by the policy represents funds that an individual will not have to pay out of pocket and in this case can potentially be preserved to pass on to their heirs as desired.

Getting the Care Needed

People are more likely to get the care they may need if they have the means to pay for it without ruining the financial situation of loved ones. This alone would seem to be reason enough to consider long-term care insurance.


While annual premiums can easily be in the $3,000 to $6,000 range, this equates to the cost of less than one month in a nursing home based on national averages.

For most policies the premiums are not fixed. In Illinois a few years ago a large issuer of long-term care policies raised premiums in an aggressive fashion. In this case they were going after policyholders with a 5% inflation rider. They offered to keep premiums the same if the insured would drop down to a 3% rider, otherwise the increases ranged from 20% to much higher.

Premium hikes will likely not be uncommon going forward, as many insurers did not count on people living as long as they are.

Riders and Elimination Periods

Choosing among all of the various features available with today’s long-term care policies is akin to shopping for a car. Do you want cloth or leather seats, a premium sound system, etc.?

An inflation rider is often a good idea as the cost of healthcare in general and long-term care costs specifically seem to increase faster than inflation.

Another decision is the length of benefit coverage. Lifetime protection, protection for five or three years are common. The length of the period of consecutive days of eligibility for benefits until coverage starts can also influence the cost. A longer elimination period (180 days versus 90 days, for example) will reduce premiums.

Helping Clients Make the Decision

Financial advisors can help their clients decide whether or not long-term care insurance is a viable option for them, and if so, what type of coverage and policy features makes sense. Advisors are in a position to understand the client’s overall financial situation as well as their goals. An independent financial advisor can also help clients shop for a policy and to select a reputable source whether it is an insurance agent or other outlet.

The Bottom Line

Healthcare costs and the costs of long-term care are rising and can be a huge burden in retirement. A situation requiring this level of care can deplete a retirement nest egg quickly. This can be a hardship for the caregiver, spouse or family members. Long-term care costs are generally not covered by Medicare or regular health insurance policies. Though they are costly, long-term care insurance policies can pay off in a big way for clients by helping them pay for the care they need without depleting other financial resources.