Life vs. Long Term Care – What’s going on here?
Why do people find it easy to Justify buying Life Insurance – But delay Long Term Care Insurance (LTC)?
It’s an interesting question:
People will sign up for an inexpensive Term Life policy with little regard to whether it will pay out or lapse.
People will sign up for a Whole Life policy knowing it will definitely pay out and protect their loved ones but it can be more expensive.
But…
When confronted with the option of Getting a Long Term Care Insurance policy, they delay or opt out altogether.
Here are some possible explanations:
Long term care needs are an “if” proposition. There’s a 70% chance they may need it. Many people suffer from Optimism Bias, believing they will be the exception that stays healthy until the very end and simply die in their sleep. Because the need for care isn't guaranteed, the premiums feel like "wasted" money if they never use it.
Altruism vs. Self Preservation - Life insurance is often framed as an act of love for others, which provides a "warm glow" (and a psychological boost from doing something selfless).
Decision Paralysis: When faced with a complex financial product that requires predicting your health 30 years from now, most people’s default psychological response is Inertia - doing nothing at all.
The "Medicaid Safety Net" Fallacy people believe that if things get "that bad," the government or the "system" will have to step in. The urgency to privately insure against LTC is diminished. **Note: Medicaid coverage should be seen as a last resort where your choices can be very limited *
The Medicare Coverage Fallacy Many people mistakenly believe Medicare covers long-term care (it mostly doesn't). It may cover 100 days.
The "Burden" Reality: LTC insurance forces you to visualize yourself in a state of frailty, loss of independence, and cognitive decline. This triggers avoidance. Most people would rather not think about needing help with "activities of daily living" (bathing, eating) so they mentally block the purchase.