How to Tell if You Need Long-Term Care Insurance

Long-term care insurance sets up the typical "boon-or-boondoggle" conundrum of insurance: If it's needed, it's a great purchase. If it's not needed, it's a waste of money.

AARP estimates that a 65-year-old consumer in good health will pay between $2,000 and $3,000 a year for a policy that covers home care and nursing-home care, with inflation-adjusted premiums. Premiums can be much higher or lower, based on several factors, like health, age and family-health history. Location also matters since the cost of living and the cost of health care are more expensive in big cities.

Still, the average cost of a private room in a nursing home is more than $75,000 per year -- a cost burden that family members often have to carry, and which will almost certainly increase in years to come. The cost of long-term care has been expanding at a rapid pace and most services, from home aides to nursing homes, are not covered by government programs or traditional health insurance.

"These expenses really get quite significant over time," says Joan Bloom, senior vice president of Fidelity Investments' life-insurance business. "It can have a significant impact on people's asset level and the quality of life they have through the rest of their years of retirement."

New Fidelity research suggests that a 65-year-old couple in 2008 will need to spend $85,000 for long-term care insurance. While that figure sounds high, it is certainly less than the total costs that they and their family would incur for just a few years of care.