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Is long-term insurance really worth the added cost?

If you've been given good financial advice throughout your life and have made smart investment decisions, then you may think you're financially prepared for retirement and what comes afterwards. But there is one thing that can make you second guess your nest egg and wonder if you really have enough to stay financially afloat for the rest of your life.

As you may have already guessed, that one thing is a lengthy illness. Though most people assume that their health will degrade with age, sudden or prolonged illnesses catch most people off guard, leaving them with mounting medical bills that can quickly deplete even the most meticulously planned retirement funds. It's out of this concern that long-term health insurance was born.

long-term-insurance-frese-hansen.jpgFor a number of years now, long-term insurance has become sort of a nursing home avoidance policy because it offers more flexibility when it comes to in-home care than Medicaid. But high premiums and stricter health screenings can be a turn off for a lot of people, which can lead to an important question: is long-term insurance really worth the added cost?

If we consider a November 2014 study conducted by Boston College's Center for Retirement Research, the answer could be no. After looking at monthly data for the average stay in a nursing home, researchers noticed that for many people, the average stay was less than a year. As you may already know, Medicaid will "cover up to 100 days in a nursing home," which suggests that people with long-term insurance may be paying extra for an extended stay that may never come.

Although the study concluded that it is more cost effective for singles to forgo long-term insurance than married couples, it's worth pointing out that life is unpredictable sometimes, meaning the decision to forgo long-term insurance should only be made after speaking with someone knowledgeable in estate planning. Because of their experience with end-of-life events, they can help you decide what is best for your situation, not based on the outcome of a university study.

Source: Bloomberg, "Maybe You Don't Need Long-Term Care Insurance After All," Ben Steverman, Nov. 12, 2014

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