Who Should Not Buy Long-Term Care Insurance?

Long-term care can be a financial and personal challenge. While long-term care insurance offers a means of mitigating these costs, it isn’t suitable for everyone. This article explores situations where purchasing long-term care insurance might not align with an individual’s best interests, considering financial standing, health, and available support networks.

Financial Scenarios Where It May Not Be Prudent

Individuals with very limited financial resources often find the cost of long-term care insurance premiums prohibitive, making a policy an impractical expense. Such individuals may eventually qualify for Medicaid, a government program that covers long-term care expenses for those who meet income and asset eligibility thresholds. Medicaid functions as a payer of last resort, meaning it steps in to cover costs once an individual has exhausted most of their personal financial resources.

Conversely, individuals possessing substantial liquid assets and a net worth may also find long-term care insurance unnecessary. These individuals are often in a financial position to self-insure, meaning they have resources to cover potential long-term care costs out-of-pocket without needing an insurance policy. For example, if someone has several million dollars in accessible investments, they can typically absorb annual care costs, which can range from approximately $60,000 for in-home care to over $100,000 for skilled nursing facility care, without depleting their overall financial security. The decision to self-insure depends on a financial plan that accounts for potential care duration and inflation.

Health Factors Impacting Insurability

Certain pre-existing health conditions can impact an individual’s ability to obtain long-term care insurance, often leading to a denial of coverage. Insurance providers assess applicants based on their health history and current medical status, and conditions such as advanced stages of dementia, Parkinson’s disease, or mobility impairments may be deemed too high a risk. Underwriters evaluate the likelihood of an applicant needing care in the near future, and conditions that indicate an immediate or very probable need for long-term services typically result in an unfavorable decision.

This underwriting process ensures that the insurer is not taking on an immediate and substantial claim risk. Applying for long-term care insurance at a more advanced age also typically results in substantially higher premium costs, often rendering policies unaffordable for many. As individuals age, the likelihood of developing health conditions that necessitate long-term care increases, which is reflected in the pricing of insurance policies. For instance, premiums for someone in their mid-70s could be two to three times higher than for someone applying in their mid-50s, making the policy economically unfeasible.

Furthermore, individuals who are already experiencing declining health or are close to requiring long-term care services may not be approved for a policy. Insurance companies generally require applicants to be in relatively good health at the time of application to qualify for coverage. If an applicant requires assistance with basic activities of daily living, such as bathing, dressing, or eating, at the time of application, they typically will not be eligible for a new policy. The purpose of long-term care insurance is to protect against future, rather than immediate, care needs.

Existing Support Systems or Public Benefits

Individuals who have a network of family members willing and able to provide long-term care at home may find private insurance less necessary. This arrangement typically involves family members assisting with personal care, household tasks, medication management, and transportation, reducing or eliminating the need for formal care services that insurance would otherwise cover. While family care can provide support, it often requires time and emotional commitment from caregivers.

Eligible veterans and their surviving spouses may have access to long-term care services through the Department of Veterans Affairs (VA), which can reduce the need for private long-term care insurance. The VA offers various programs, such as the Aid and Attendance benefit, that provide financial assistance to help cover the costs of in-home care, assisted living, or nursing home care. Eligibility for these benefits depends on factors like service record, disability status, and income and asset limitations set by the VA.

Some individuals may already possess coverage for long-term care through alternative means, making a standalone long-term care insurance policy redundant. This can include riders on existing life insurance policies that allow for the acceleration of death benefits to cover long-term care expenses, or hybrid policies that combine life insurance with long-term care benefits. These integrated policies offer flexibility by providing a death benefit if long-term care is not needed, or care benefits if it is. Reviewing existing insurance portfolios can reveal whether long-term care coverage is already in place.