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Many adults need long-term care as they get older. Someone turning age 65 today has nearly a 70% chance of needing long-term care assistance in their lifetime, according to the Administration for Community Living.
Long-term care can be expensive, but buying long-term care insurance can reduce the costs.
What Is Long-Term Care Insurance?
Long-term care (LTC) insurance is a policy that covers expenses related to long-term care. Most LTC insurance policies cover services like adult day care, hospice, nursing home stays and help with activities of daily living (ADLs), like dressing and eating.
The average cost of a private room in a nursing home costs $7,698 per month and a home health aide costs more than $20 per hour on average, according to the Association for Community Living (ACL).
Having an LTC insurance policy can dramatically reduce those long-term care costs.
How Does Long-Term Care Insurance Work?
LTC insurance benefits can only be used when you experience a benefit trigger. LTC insurance policies have unique benefit triggers, including:
- Needing assistance with at least two ADLs for 90 days (personal hygiene or grooming, dressing toileting, eating and transferring, which means the ability to move from a bed to chair or wheelchair)
- Experiencing cognitive impairment
- Recommendation from a medical doctor
Before your LTC benefits begin, you might have a waiting period, also called an elimination period. The waiting period might be anywhere from 20 to 100 days before the policy starts paying for long-term care. Once the waiting period ends, your insurance company covers the costs.
The length of time LTC benefits are in effect varies by policy. Some long-term care insurance policies cover only qualifying expenses for a few years or until you reach a maximum benefit limit. Other policies provide coverage for your lifetime.
How long-term care insurance benefits are paid
Long-term care insurance payment works in one of three ways:
- Expense-incurred: Pays the lesser of either the expense or policy’s dollar amount
- Indemnity method: Pays solely based on set dollar amount
- Disability method: Pays the full daily benefit amount if you meet the benefit eligibility criteria regardless of whether you’re receiving long-term care
Long-term care insurance policies generally have a maximum benefit limit, which is the most the policy will pay out if you need services. Policies may limit coverage for a number of years, while others have a dollar ceiling. Long-term care policies often pay benefits by day, week or month, though some policies may pay one time for single events.
Long-term care policies let you choose a benefit amount for nursing care, but they may also allow home care coverage. Home care coverage may pay at the same level as nursing care or may be capped at a percentage of nursing care coverage, such as 50%.
Inflation can also play a role in how much your policy pays. If your benefits don’t increase over time, long-term care insurance may not offer enough protection decades later when you need long-term care. That’s why long-term care insurance policies often offer inflation protection.
Inflation protection keeps long-term care payments at pace with inflation. Automatic inflation protection increases benefit amounts each year without a higher cost to policyholders. This feature may increase by a fixed amount each year, such as 3%, for a limited time or for the life of the policy.
Another option for inflation protection is to increase long-term care benefits every few years. This special offer option may require that you prove your health hasn’t deteriorated. Going this route will likely increase your long-term care insurance costs. The specific increase depends on your age and how much you increase benefits.
What Is Covered by LTC Insurance?
Long-term care insurance covers many expenses commonly associated with long-term care, whether you need assistance at home or in a facility. Here are some services that LTC insurance typically pays for:
- Nursing home care
- Hospice care
- Home health aides
- Respite care
- Adult daycare centers
- Physical therapy
- Occupational therapy
- Speech therapy
It’s important to check the policy for exclusions. For example, somelong-term care insurance policies may only pay for care in a state-licensed facility, while others will only cover care in specific state-licensed facilities. Some policies may exclude coverage for care received in a facility considered a rest home or personal care home.
What Is Not Covered by LTC Insurance?
Long-term care insurance can’t be used in some situations, such as:
- Mental health or nervous disorders (besides dementia)
- Alcohol or drug addiction
- War-related illnesses or injuries
- Self-inflicted injuries
- Treatment in a government facility
- Treatment that has already been paid for by the government
- Long-term care treatment outside the U.S.
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How Much Does Long-Term Care Insurance Cost?
The average LTC insurance cost is $2,675 per year for a 55-year-old female and the average cost for a 55-year-old male is $1,700a year, according to the American Association for Long Term Care Insurance (AALTCI).
Although long-term care insurance can be expensive, it may be worth the cost when considering the prices of common long-term care services.
Average long-term care costs
How much does long-term care cost with insurance? That depends on the specific policy. Here’s an example.
Imagine you have an LTC insurance policy that provides $5,000 per month for nursing home care and your nursing home expenses are $7,800 per month. In this case, your LTC insurance policy would cover the first $5,000, leaving you to pay $2,800 out-of-pocket.
Factors That Affect the Cost of LTC Insurance
Because not many companies offer coverage, finding the best long-term care insurance might be easier than shopping for other types of insurance since there are fewer options to compare.
LTC insurance premiums are unique to each individual. When you apply, the insurance company reviews multiple factors to determine how much you should pay.
Age and health
Your age and health when you purchase LTC insurance have a big impact your long-term care insurance quotes. Older buyers pay more for coverage. But there’s a catch—buying a policy at a younger age, such as when you’re in your 50s, means you will likely pay premiums for a longer time until you need care..
You may not qualify for LTC insurance if you have pre-existing health conditions.
Women tend to pay higher rates for long-term care insurance because women statistically live longer than men, and therefore may need LTC coverage for a longer period.
Women also tend to experience more chronic health problems than men. Insurance companies price LTC policies higher for women to prepare for the increased likelihood of a benefit trigger during their lifetime.
Individual or joint LTC policy
If you’re married and apply for a joint long-term care insurance policy, the premium is usually cheaper than for two individuals. The AALTCI estimates that the average cost of a joint LTC insurance policy for a healthy 55-year-old couple is $3,050 per year.
For comparison, the average cost for an individual male is $1,700 per year and $2,675 per year for females of the same age. A couple buying two individual policies can expect to spend more than $4,300 a year, so going with a joint policy can help you save money.
Type of coverage
The cost of long-term care coverage depends on the specific policy and coverage. This may include a policy’s pre-set daily limit; maximum benefits, including lifetime or for a limited time, such as up to two years; elimination period, which is usually between 30 and 90 days; and riders like inflation protection, which increases long-term care benefits each year based on inflation.
Insurance companies use different rating systems to calculate premiums. To find the best LTC insurance cost, it’s a good idea to get quotes from a few different long-term care insurance companies.
Increases in cost of care
Long-term care insurance premiums aren’t always fixed, meaning your rate can increase in the future. These rate increases are often tied to the rising cost of long-term care expenses over time.
Can Anyone Get LTC Insurance?
Not everyone can buy LTC insurance. You may not be able to find an LTC insurance policy if:
- You’re currently receiving long-term care services
- You are in poor health
- You have pre-existing conditions
- You are over age 80
When you apply for long-term care insurance, you need to answer health-related questions to determine your eligibility. You may still qualify for LTC insurance with minor medical conditions, but you will probably pay a higher premium.
Who Needs Long-Term Care Insurance?
If you don’t think you’ll be able to afford long-term care when you’re older, LTC insurance may be a good investment. Long-term care expenses can add up quickly and deplete your savings, especially if you need permanent care in a nursing home or assisted living facility.
You might also consider long-term care insurance if you don’t want to burden your family with long-term care costs as you age. If your children or surviving loved ones can’t afford to pay for your long-term care, LTC coverage can provide financial peace of mind as you age.
Where to Buy Long-Term Care Insurance
Long-term care insurance isn’t as widely available anymore. Only about a dozen private insurance providers offered long-term care insurance policies in 2020 and that number has decreased even more over the past two years.
The AALTCI says six companies still sell long-term care insurance policies:
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Alternatives to Long-Term Care Insurance
There are several alternatives to LTC insurance. Here are a few ways you can pay for long-term care without purchasing insurance.
Hybrid life insurance policies
A hybrid policy combines life insurance with long-term care insurance. One type of hybrid policy features whole life insurance paired with long-term care coverage. Hybrid life insurance policies allow you to use LTC benefits as you get older while guaranteeing a death benefit for your beneficiaries when you pass away.
Life insurance with an LTC rider
Some life insurance companies sell a long-term care rider that can be added to your policy for a fee. An LTC life insurance rider lets you use money from your death benefit while you’re still living to pay for qualifying long-term care expenses. The money you withdraw for care typically gets subtracted from your death benefit.
Annuity with an long-term care rider
Some annuity contracts offer the option to add a long-term care rider, which provides coverage for qualifying long-term care expenses. An annuity with an LTC rider can be a good option if you want to supplement your income during retirement but don’t want to use your savings to pay for long-term care expenses.
Continuing care retirement community
Continuing care retirement communities allow people to live independently as they age while providing on-site medical care when their medical needs advance. Depending on the community, some residents must purchase long-term care insurance to pay for their future medical care while living in the community.
Rather than investing in an annuity or an insurance policy, some people prefer to pay for their long-term care expenses entirely out-of-pocket. Although long-term care can be expensive, paying insurance premiums for decades before the benefits are needed can also be a major expense.
If you choose to rely on savings for LTC expenses, make sure to have a solid financial plan going into retirement.
Veterans Affairs health care
If you served in the military and are enrolled in VA health care, you can access long-term care through the VA. Many of the services covered by the VA are the same ones covered by long-term care insurance, like nursing home stays, pain management, help with ADLs, adult daycare programs and physical therapy.
Medicare doesn’t automatically cover long-term care, but some forms of assistance are covered if you meet the requirements. For example, Medicare Part A may cover short-term skilled nursing care based on a qualifying hospital stay. However, don’t rely on Medicare for long-term care needs due to the limited circumstances it covers.
If you qualify for Medicaid, you can get access to long-term care benefits, but you must meet the income requirement. This often means spending down most of your assets before Medicaid will take over the payments. Medicaid usually pays for nursing homes and some home health and community health services.
State Long-Term Care Partnership Programs
Some states have a partnership with long-term care insurance companies. If you live in one of these states, it prevents you from spending down your assets to qualify for Medicaid once you cannot pay for long-term care on your own.
For example, imagine you’re using your long-term care insurance to pay for a nursing home and the insurance company has already paid $70,000 in benefits. Under a state partnership program, you could keep that $70,000 in savings (or in investments) and still qualify for Medicaid if your income allows. This is called reciprocity.
In the table below, you can see which states have a Long Term Care Partnership Program and which ones have reciprocity.
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Long-Term Care Insurance FAQ
When is the best time to buy LTC?
Consider purchasing long-term care insurance in your 50s. As you age, your risk of not qualifying for LTC insurance increases.
More than 72% of LTC insurance applications were denied for people between age 70 and 74 in 2021. Only about 20% of people between age 50 to 59 were denied.
Is long-term care insurance worth it?
Long-term care insurance can be a wise decision, but it depends on your financial situation. If you’re concerned about paying for future long-term care expenses, long-term care insurance can be a good solution.
On the other hand, long-term care insurance is generally very expensive. When you consider how much you would spend in premiums, you might feel more comfortable saving or investing that money to use for long-term care when the time comes.
Can you use an annuity to pay for long-term care?
If you have an annuity, you can use the proceeds to pay for long-term care. The income from an annuity can be used for any purpose, including costs associated with long-term care and other medical expenses.
You can also consider adding a long-term care rider to an annuity contract if the insurance company offers it. A long-term care rider provides coverage for qualifying long-term care expenses without having to spend the annuity payments on your medical care.
Is long-term care insurance tax deductible?
Depending on the type of long-term care insurance policy, you can deduct the premiums on your taxes as a qualifying medical expense. Not all LTC insurance policies have this feature and there’s a limit to the amount you can deduct based on your age. As you get older, the amount you can deduct increases.