What are Long Term Care Policies? Part I of II

Photo credit Matthias Zomer

A popular insurance product that is currently being pushed to us is long term care policies. I just recently received an email from my college suggesting I look into this. My college joined with an insurance company to promote this product to its alumni.

At the same time, I am reviewing my mother’s finances as my father recently passed. She has been paying for long term care since early 1990s. The premiums are not cheap. The insurance companies use scare tactics to compel you to purchase. Statements like these:

(a) “You will need to write personal checks for home health care or care in a facility.”

(b) “The money you saved by not buying Long-Term Care will quickly be exhausted by the expenses for your care.”

(c) “The National average for a private room in a Nursing Home is $91,250 a year.”

(d) “If the need for care lasts for an extended period of time, your life savings could be depleted leaving your spouse impoverished or with nothing to leave to your heirs or favorite charity.”

(e) “If your life savings is spent caring for one spouse, the surviving spouse would need to depend on Medicaid or Welfare for their potential needs and living expenses.”

These are the scare tactics used to get you to fork over your money. If, as an attorney, I could say that you always get the benefit of these lost dollars, then I wouldn’t be writing this blog!

While they spend much of theirs ads scaring you, they then promise you security. People buy the insurance so that their children and family do not have to struggle to find a place for them. The cost for home health care, nursing homes, and assisted living facilities is exorbitant. People purchasing these plans are trying to offset that costs and prevent them from passing on to their descendents. Here are some of the promises:

(a) Pays for home care, assisted living, adult daycare, respite care, hospice care, nursing home and Alzheimer’s facilities.

(b) Gives peace of mind.

(c) Prevents you from using retirement savings for these facility costs.

But, are these policies worth it? Do they really cover long term care? Or, are you placing trust in an insurance company to honor their promise 30 years later? Remember, this is not the government you are giving your money to – it is a private insurance company.

And, for those 30 years of premiums you pay, the insurance company is investing your dollars and making a return on it. You are not. You have lost the value of those dollars. You do not get to deduct it from your taxes. The dollars you give to the insurance company is after-tax money. What happens when you finally need the benefits? That is in part II.