Medical Insurance Magic: What is long-term care insurance?

June 4, 2012

Mark L. Friedman, MD, FACEP, FACP

Long-term care insurance is another in the long line of types of insurance now available. You can now insure everything from your life to your cell phone.


My personal rule of thumb is that you only need insurance for potential losses you cannot bear. After all, you are betting with the insurance companies in every case and, as we saw previously, they are very good at figuring the odds. So if you cannot afford the cost of a new cell phone (in which case you probably shouldn't own one because the cost of the service is even higher), you might want cell phone insurance.

Personally, I think it's a bad bet.

If you have significant assets or have no one beside yourself who depends on your income, you probably don't need life insurance. After all, it won't do you any good. You'll be dead.

I have made the case that most people do need health insurance. But what about long-term care insurance that will pay for a stay in a nursing home or rehabilitation facility? Many people think that Medicare pays for nursing home care. In most cases, this is just not true.

Under certain circumstances, once you have used up all your own money, Medicaid will pay, but many nursing homes require you to pay for a year out of pocket first or they will not let you in. This is because Medicaid doesn't pay much, and because the average stay in a nursing home is one year.

The other interesting fact is that many of the new long-term care policies guarantee what they will pay at some future time, rather than what the care will cost. So you are in effect buying a form of conditional "annuity" that pays a defined amount if you have to go into a nursing home.

You might be better off consulting a financial advisor to purchase a conventional annuity, or just put the money you would be paying in premiums into an investment account, or perhaps even bury it in a can in the ground. Do you get the feeling I don't like long-term care insurance? Let's just say I'm a skeptic when it comes to buying any kind of insurance and I'm not sure this insurance product is right for you.

If, of course you have a strong family history of, say, Alzheimer's disease or some other chronic debilitating disease that is likely to require long-term nursing home care, you may want to consider buying it. But please make sure you get some expert advice as you navigate this decision.

Originally published Jun 4, 2012 9:00:51 AM.