Doing the math on long-term care costs

I am a 59-year-old single woman with no children. I have a little over $1 million in qualified and taxable accounts. Due to pre-existing conditions, I am unable to obtain longterm care insurance. I was recently told about a universal life insurance policy with an optional long-term care benefit rider. The minimum investment is $50,000 (recommended amount is $100,000).

The benefits are guaranteed. The policy also guarantees a 2 percent credited interest rate. In addition, there is no deductible or elimination period to satisfy for LTC.

While I have no need for a life insurance policy, this would provide me with the opportunity to obtain longterm care insurance. Is this something I should consider? Or should I just put the money into a balanced index fund and treat that account as my long-term care “insurance”? — L.H., by email

Since you are single and without children, you don’t need life insurance. And with $1 million in financial assets, you probably don’t need longterm care insurance, even though I like the idea of no-deductible/no-waiting period LTC very much.

It’s also possible that your pre-existing conditions could work to (1) eliminate your access to having a life policy or (2) make the insurance so expensive, relative to the benefit, that it would be a poor choice.

Remember, while the policy is guaranteed to credit cash value at a 2 percent interest rate, the same universal life policy will be charging for the cost of life insurance and the cost of the long-term care rider. This could make your $50,000 payment disappear pretty quickly, forcing you to either add more money or allow the policy to lapse.

Now let’s measure your assets against the cost of long-term care. According to Genworth, a major provider of LTC insurance, the current annual cost of nursing home care is $80,300 in a semi-private room (the annual cost of an assisted living facility is $43,200, excluding up-charges). So your $1 million would last about 12.5 years in a nursing home and longer in assisted living.

According to the American Association of Long Term Care Insurance, only 50 percent of those age 60 will need nursing care before they die, assuming coverage from day one, without the usual 90-day elimination period. (For those who buy typical LTC policies with 90-day elimination periods, the association website says, the probability of use is 35 percent.) Of course, if you are in that 50 or 35 percent, the expense can be significant.

But how great will it be? The association website also notes that 44.2 percent of all nursing home stays are 12 months or less. And 74 percent are under three years. Only 12 percent are five years or more. So there is a 94 percent chance that your worst-case nursing care total spending would be less than $401,500 ($80,300 times five years).

This suggests it is unlikely you would exhaust your assets in long-term care. My suggestion: Stay calm, invest carefully and savor a long retirement.