Long Term Care Insurance: Do You Really Need It?

When planning for retirement, most people think about their investments, pension, Social Security or where they'll live. But there's another important question many Washington public employees approaching retirement should consider: "Do I really need long-term care insurance?"

This question becomes even more relevant with the WA Cares Fund now in effect, Washington's state-mandated long-term care program. But is this coverage enough, or should you consider additional protection?

What Exactly Is Long-Term Care Insurance?

Long-term care insurance helps cover costs for assistance with daily activities like bathing, dressing, or eating when you can no longer do these things independently. These services aren't typically covered by regular health insurance or Medicare.

For example, the average annual cost of a semi-private room in a nursing home in Washington State is about $152,570, while home health aide services average around $96,096 per year.[1] Without proper planning, these costs could quickly drain your retirement savings.

The WA Cares Fund: Understanding Your State Benefit

If you're employed in Washington State, you're likely paying into the WA Cares Fund through a payroll tax. This program provides a lifetime benefit of $36,500 (adjusted for inflation) for qualified long-term care needs.[2]

While this benefit is helpful, it may not cover extended care needs. The $36,500 benefit would cover a fraction of the care needed.

Start With Understanding Your Financial Picture During a Care Event

The first step in determining if you need long-term care insurance isn't looking at policies—it's understanding how a long-term care event would impact your specific financial situation.

For Married Couples

When one spouse needs care, the financial impact is complex:
·       Expenses often increase dramatically with care costs
·       The healthy spouse still needs sufficient income and assets for their own living expenses
·       While pension income remains stable, the overall household budget changes significantly
·       The healthy spouse may need to reduce their own activities to provide care

For Single Individuals

The financial equation is different if you're single:
·       Your entire pension and other income is available to pay for care
·       Without a spouse to provide informal care, you might need paid care sooner and for more hours per day
·       Asset protection becomes a different consideration without a spouse's needs to consider

Key Factors to Consider Before Purchasing Long-Term Care Insurance
1. Your Overall Financial Picture
Take Sarah's story as a cautionary tale. At 68, she purchased an expensive long-term care policy, fearing future health costs. The premiums increased dramatically over time, straining her budget. She later realized her assets might have been sufficient to self-insure.

2. Policy Details Matter
When evaluating policies, look closely at:
·       Benefit period (how long benefits last)
·       Elimination period (waiting time before benefits begin)
·       Inflation protection
·       Premium increase history of the insurer

3. Hybrid Policies as an Alternative
Many insurers now offer hybrid policies that combine life insurance with long-term care benefits. These products address one of the biggest objections to traditional long-term care insurance: "What if I pay all these premiums and never need care?"

With hybrid policies, your beneficiaries receive a death benefit if you don't use the long-term care portion. However, these policies typically require a larger upfront payment.

4. The Washington State Alternative: Partnership Policies
Washington participates in the Long-Term Care Partnership Program, which allows qualified insurance policies to protect a corresponding amount of your assets if you need to apply for Medicaid after exhausting your policy benefits.[3]

For example, if your partnership policy pays $300,000 in benefits, you could protect an additional $300,000 in assets and still qualify for Medicaid.

Alternative Strategies to Long-Term Care Insurance

Traditional long-term care insurance isn't the only way to prepare for potential care needs. Here are some alternative approaches:

1. Self-Insuring
If you have substantial assets, you might choose to set aside specific funds earmarked for potential long-term care needs. This approach gives you flexibility but requires disciplined saving and investment.

2. Home Equity Strategies
For many, their home is their largest asset. Options include:
·       Reverse mortgages
·       Home equity lines of credit
·       Downsizing to free up equity

3. Family Care Agreements
Some families create formal agreements where family members provide care in exchange for payment or future inheritance. These arrangements require careful planning and clear communication.

Making an Informed Decision
Before making any decision about long-term care planning:
·       Map out how your income and expenses would change during a care event
·       Review your retirement income sources and assets
·       Consider your family health history
·       Explore all options, including self-insurance and alternative strategies
·       Get quotes from multiple insurers if considering traditional policies
·       Consult with a financial professional familiar with Washington State's specific programs

Remember that traditional long-term care insurance isn't right for everyone. For some public employees, the combination of pensions, personal savings, alternative strategies, the WA Cares benefit may be sufficient. For others, dedicated insurance provides valuable peace of mind.

The right answer depends on your unique financial situation, health outlook, and comfort with risk. The most important thing is making an informed decision that aligns with your overall retirement plan.

Sources
​1.        https://www.carescout.com/cost-of-care
2.        https://wacaresfund.wa.gov/about
3.        https://www.insurance.wa.gov/insurance-resources/long-term-care   ​

-Seth Deal