Should You Buy Long-Term Care Insurance?

(Don’t forget to get your tickets to WCICON21 so you don’t miss my two lectures or the dozens of other great lectures. CME included.)

There are many types of insurances that are important to own. Life insurance to protect the people who depend on your income if you were to die. Disability insurance to protect your livelihood if you can no longer work. Malpractice insurance to protect your assets from a lawsuit. Insurance should only be used to cover a loss you cannot afford, something that could wipe you out financially. That is why an extended warrantee on your automobile is not needed, since you can afford to replace the alternator if it fails.

One type of insurance you should probably not have is long-term care insurance. For the average American who has very little in savings, there may be a benefit for this type of insurance. The average high-income earner most likely has plenty of savings to cover their long-term care needs. 

If you have crossed the finish line, and are now financially independent, or have a large net worth, you are unlikely to benefit from long-term care insurance. If you need long-term care, spending money on traveling or other luxuries will come to a complete halt and you are not likely to need your money for very much longer. Healthy people tend to live a lot longer than those who need a long-term care facility. So for high-income individuals who are near the finish line, this insurance is usually not needed—for the same reason you no longer need life insurance, because you are self-insured. In your younger years, when you have a low net worth, it may be of benefit, but is unlikely to be used. Insurance is definitely a betting game that the insurance company always wins. 

I witnessed my grandparents’ long-term care needs firsthand and their experiences make good examples. Both of my grandfathers died of cancer fairly soon after being diagnosed at a fairly early age, they both died at home, therefor, neither would have benefitted from this insurance. Both my grandmothers became frail at a much later age and eventually needed to live in memory care facilities, at which time this insurance would have come into play.

Each of my grandmothers, who both passed away in 2016, paid about $4,500 per month for their time at the memory care facility. Once they reached the point of needing long-term care, they were nearing the end of their lives. One needed this service for eight months before she passed away, for a total cost of $36,000 plus some start-up fees. The other was in a long-term care facility for two and a half years before her death. She needed a total of $135,000 plus start-up fees to cover her care. For each of them, the proceeds from selling their home, which they no longer needed, more than covered their long-term care needs without even dipping into their savings. Could you cover those costs now if you needed them?

In 2019, and in a more expensive city, my father-in-law needed long-term care. He went into a memory care facility that cost just under $10,000 a month. He stayed six months before his death. His long term care expense totaled nearly $60,000. Hardly a sum that the average physician household could not handle.

Consider long-term care in the same way you think about life insurance. Early in your life, you don’t have enough money saved to protect your family from disaster if you die, so you buy life insurance. Later in life, when your savings are substantial enough that your family will be OK financially without your income, you don’t need life insurance. You are financially vulnerable early on when you have a small amount in savings. Later, with a large amount saved, you are not at risk of financial catastrophe and don’t need the insurance.

Long-term care insurance is often limited. The policy will likely have either a time limit (i.e., you will be covered for a maximum of three years) or a dollar limit (i.e., you will be covered up to $200,000). The policy may also have both limits in play. So if you have significantly more than $200,000 in your savings, you have enough money to self-insure your long-term care needs if they arise.

Some people make the argument that they need long-term care insurance because they do not wanting to burn through their savings to cover this care. But isn’t that why you have a savings account in the first place? You put money away to take care of yourself in the future when you are no longer able to earn a living. Burning through your savings is exactly what you put it there to do and exactly what will happen when you eventually retire.

Every source that discusses the average length of time someone stays in long-term care are slightly different, but they are all in the vicinity of three years. The average cost for a nursing home, the most expensive long-term care option, has topped $100,000 a year. This amount will vary depending on what part of the country you reside. Three years at $100,000 a year is $300,000. If you have crossed the finish line, you will have significantly more than that.

Looking back at the long-term care needs of my grandparents and father-in-law, they needed this service for 0, 0, 6, 8, and 30 months. They averaged a little under nine months in long-term care. At $10,000 a month, that was an average cost for them of $90,000 near the end of life. Just a drop in the bucket for a high earner who has been saving money for many years. None of these people were considered high earners, yet they had enough money to cover their long term care needs without buying insurance.

Doctors who have been saving money should have a net worth exceeding a million dollars at the time they will need long-term care. It is unlikely you and your spouse will require more money than the amount you have accumulated. Long-term care insurance is a less important consideration for high-income earners, especially those who have crossed the finish line. The group who benefits from it the most are those with little to no savings. If you are in this group, then it may be an option to consider.

If you have more questions about what to consider as you prepare for retirement, pick up a copy of my book The Doctors Guide to Smart Career Alternatives and Retirement. 

What about you? Did you choose to buy long-term care insurance? If so, what was your thought process?