Should I Buy Long-Term-Care Insurance, or Self-Insure?

Editor’s note: This is one of the 20 tough financial questions posed in the “Do This or That?” cover story in the September 2011 issue of Kiplinger’s Personal Finance. Use the drop-down menu above to consider other financial conundrums and the right answers for you; share your own experiences and insights in the Discuss field at the bottom of this page.

Choose long-term-care insurance if the cost of a nursing-home stay would devastate your savings. The median cost of one year in a private room in a nursing home topped $77,000 in 2011, and round-the-clock home care costs even more. The long-term-care insurance industry has been in turmoil recently, with insurers exiting the business or raising rates. But a healthy 55-year-old could still find a policy for about $2,000 to $3,000 per year that provides $150 in daily benefits, with inflation protection, for up to three years. You can save on premiums with a policy that boosts annual benefits based on increases in the consumer price index, rather than rising by 5% compounded each year. A three-year benefit period covers average long-term-care needs, but you can hedge your bets by buying a shared-benefit policy with a spouse, which provides a pool of benefits you both can use. You may also get a discount of up to 15% by buying a policy through your employer.

Self-insure if you have very deep pockets. But incurring hundreds of thousands of dollars in potential long-term-care expenses is a huge hit for even the wealthiest seniors. You can compromise by buying a policy that combines life insurance and long-term-care coverage, or combines annuities and long-term care. A $100,000 combo annuity, for example, may provide up to $300,000 in long-term-care benefits; unused portions of the annuity -- minus any long-term-care payouts -- may be left to heirs. These policies are also a way to get long-term-care insurance if you can’t qualify for a stand-alone policy, and they help you avoid long-term-care rate increases.