Created: November 5, 2020
Modified: September 16, 2022

Episode 24: How Much Does Long-Term Care Insurance Cost?

Thank you for joining us for Episode 24 of our Money Wisdom Question Series, where we answer common financial and retirement investment questions. Today’s question is, “How much does long-term care insurance cost?”

How Insurance Works

The comment that we get from time to time or that people read in publications or hear on the news is that long-term care insurance is very expensive. Very expensive is relative but let me put it in perspective for you based on how insurance works.

The last time I looked at a few different sources, the percentage of people age 65 and older that will need long-term care before they pass away is well over 50%. Especially since people are living longer.

Long-term care insurance is expensive because the probability is very high that people will need long-term care. This is a significant risk for the insurance companies and because of that, the premiums are high relative to the benefit. It’s like if every other house on your street was going to burn down, homeowner’s insurance would cost a lot more.

Two Types of Long-Term Care Insurance

There are two different types of long-term care insurance policies.

  1. The “old” long-term care policy
  2. The “new” long-term care policy

The “Old” Long-Term Care Insurance

The old policy, where if you were paying attention 15 or 20 years ago, you would just pay a premium. If you ever went on the claim they would pay you a benefit, but if you never went on claim your premiums were gone.

The “New” Long-Term Care Insurance

There’s a new type of insurance, which I tend to like a little bit better. You pay your premium and if you never go on a long-term care claim you get your money back or your family gets the money back when you pass away. You win both ways. Whether you need the insurance or you don’t, you get all that money back. I personally tend to favor this type.

Is it expensive? If someone were to buy at age 65 about a $5,000 a month benefit or $60,000 a year, it’s going to cost a couple anywhere between $5,000-$10,000 a year. Therefore, people like a refund. If you paid that premium for, let’s say 15 years and you don’t need the coverage, you can either cash in the policy and get all your money back or wait till you pass away and your family gets the money back.

The Risk of Long-Term Care

Long-term care insurance is a significant investment to cover yourself for the risk of long-term care, but the risk tends to be very, very high. Obviously, this is a very individual situation. We need to look at your financial situation because not everybody should buy long-term care insurance. Although, some people should purchase it. Instead, some people ignore it because they don’t quite understand how high the risk is.

Thanks for joining me and I hope you found this information helpful!

P.S. If you enjoyed this topic and want to learn more, download our free guide, “What If You Need Long-Term Care?”.

P.P.S. Feel free to submit questions here for a chance to have them answered!

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