What to Know About Long-Term Care Insurance
If you developed a disability or chronic condition that required long-term care, how would you pay for that care? Would you expect health insurance or Medicare to pay for it?
Unfortunately, you can’t count on either of those options to pay for ongoing care that you might need. Medicaid might cover the cost of long-term care services if you have very limited income or assets. Otherwise, if you need professional care at home, in an assisted living facility or in a nursing home, you’ll have to pay for it.
There is a product, though, that can help offset the cost of long-term care. That product is long-term care insurance. About 7.5 million Americans have some form of long-term care insurance, according to the American Association for Long-Term Care Insurance. However, that’s just a fraction of those who will end up needing care. It’s estimated that 27 million Americans will be using long-term care services by 2050, according to the Family Caregiver Alliance.
Long-term care insurance is the type of protection you wish you had with your health insurance or Medicare, says George Braddock, a certified long-term care insurance planner and independent insurance agent in Florida. “But many people find out the hard way,” he says. They don't do their homework in advance that health insurance, including Medicare health insurance, has never been priced to include personal care.”
To give you a better understanding about this often misunderstood product, here’s what you need to know about long-term care insurance. And to learn more about long-term care insurance, watch Carefull's interview with George Braddock.
What is long-term care insurance?
Long-term care is defined as a range of services to help people with activities of daily living. Those who need these services typically have some sort of disability, chronic illness or cognitive decline. Care can be provided at home, through community-based services, in an assisted living facility, in a memory care facility or in a skilled nursing facility.
Long-term care insurance covers the cost of these services—up to a certain amount (more on that below). To receive benefits from a long-term care policy, Braddock says you must be be unable to perform at least two of the six activities of daily living without hands-on help or supervision:
- Transferring to or from a bed or chair
- Using the toilet
And the condition causing you to need assistance must be expected to last 90 days or longer to trigger long-term care benefits. Policies also will pay benefits if you’ve been diagnosed with severe cognitive impairment. Be aware, though, that long-term care policies typically have what is called an elimination period that can range from 30 to 90 days. During that time, you must cover the cost of services before insurance starts paying for them.
Once benefits begin, the cost of care that will be covered will depend on the amount of coverage you have purchased. In short, the more you’re willing to pay for a policy, the higher the payout will be for the cost of care.
[ Find Out: What to Know About the Different Types of Long-Term Care ]
Is long-term care insurance necessary?
There are several reasons to consider long-term care insurance. As mentioned, traditional health insurance does not cover the cost of long-term care services. Medicare will pay for a maximum of 100 days in a skilled nursing facility only if you need rehabilitative care after a hospital stay. It won’t pay for extended care. And you have to have next to nothing to qualify for Medicaid—unless you’ve taken steps to shelter your assets in a trust.
If you have to pay for care out of your own pocket, you can expect to pay thousands of dollars a month. “It's expensive to be alive, and it's even more expensive to be alive and not in good health,” Braddock says. The cost of care can range from about $75 a day for adult day care services to $15 to $25 an hour for a home health aide to $3,000 to $10,000 a month for a private room in an assisted living facility, he says.
Because the cost of professional care is so high, people often rely on family caregivers. But Braddock cautions against counting on family to provide care. “The human cost is every bit as frightening as the out of pocket expense for commercial care,” he says. “It's an old saying that caring for chronically ill loved ones makes caregivers chronically ill. It's not all that uncommon for the caregiver to actually pass first. They buckle under all the extra emotional, mental, physical stress and strain.”
How much does long-term care insurance cost?
The cost of a long-term care insurance policy depends on several factors: your age, your health, your sex, your marital status, the type of policy you buy, the benefits you want and the company from which you buy a policy.
For example, a 55-year-old man in good health who buys a long-term care policy with a pool of benefits equal to $165,000 would pay an annual premium of $950, according to the 2022 AALTCI price index. If he bought that same policy at age 60, the annual premium would be $1,175. If a 55-year-old woman in good health bought a policy with a pool of benefits equal to $165,000, she would pay $1,500 a year. If she bought it at age 60, she would pay $1,900 annually.
The more you’re willing to pay, the more coverage you can get. Braddock says it’s common to see people choose to spend around $200 a month—$2,400 a year. However, he cautions against getting hung up on the price. Get a policy with a premium that fits within your budget, even if that means getting just partial coverage. Then you’ll have at least part of the cost of care covered. “They've erased it with merely pennies on the dollar,” Braddock says. “Remember, when you're paying out of your pocket for all your bills, that's a hundred cents on the dollar. Pennies is always better.”
Are long-term care insurance rate increases common?
Long-term care insurance gets a bad rap because rate increases have been common. When the insurance companies launched long-term care coverage several decades ago, they didn’t price policies accurately. “They realized they had not charged enough for the risk in good faith,” Braddock says. “They had made some honest miscalculations.”
So policyholders were hit with big rate increases over time as insurance companies tried to keep up with the cost of rising claims. New policies are now priced higher “to reflect what they learned from the mistakes of the past,” Braddock says. Although there’s no guarantee that the premium you pay for a policy you buy today won’t increase over time, rate hikes are a lot less likely, he says.
When is the best time to buy long-term care insurance?
Don’t wait until you need long-term care to try to buy a policy. If you already have memory issues or have trouble walking, bathing or other activities of daily living, you won’t qualify for coverage.
Experts tend to recommend buying long-term care insurance in your late 40s or early 50s while you’re still healthy. But you never know when a health issue might crop up that could make you ineligible for coverage. “In fact, almost 40% of all the people who need long-term care are working aged 18 to 64,” Braddock says. “So it's not like it's out of the question that you might need care even before your 40s.”
Certainly, the younger and healthier you are when you buy a policy, the lower the cost will be. “Time is not our friend, it's our enemy,” Braddock says. “So people should get covered as soon as they take the risk seriously and have the wherewithal to purchase coverage because there's a much greater chance they will be approved.”
Is it difficult to qualify for long-term care insurance?
You’re more likely to qualify for long-term care insurance in your 40s, 50s and 60s. Nearly half of applicants who apply in their 70s are declined coverage, according to the American Association of Long-Term Care Insurance.
There also are health requirements to qualify for long-term care insurance. Any insurer will accept you if you’re in great health, don’t use tobacco and don’t take any medications, according to AALTCI. If you’re not the picture of perfect health, though, that doesn’t mean you won’t qualify for coverage. You still might qualify if you have certain conditions or are taking certain medications. For example, people who have had heart attacks in the past often can get coverage if enough time has passed, Braddock says.
However, you won’t qualify for coverage if you have health issues such as AIDS or HIV infection, Alzheimer’s disease, cirrhosis, cystic fibrosis, Hepatitis C, kidney failure, muscular dystrophy, Parkinson’s disease and a handful of other chronic conditions, according to AALTCI.
What is a hybrid long-term care policy?
Long-term care insurance is a use-it-or-lose it proposition. If you don’t ever need care and don’t have to use your policy, you won’t get back any of the money you paid in.
Because plenty of people don’t like the idea of paying for something they might not use, the insurance industry responded with a product known as hybrid long-term care insurance, or linked-benefit long-term care insurance. These hybrid policies link life insurance with long-term care insurance. If you don’t ever need long-term care, your beneficiaries will receive a death benefit payout when you die. “You're getting a guaranteed return of your investment,” Braddock says.
However, you’ll pay more for that guarantee. For example, a 55-year-old man who buys a linked benefit policy with a pool of $180,000 in long-term care benefits and a minimum death benefit of $120,000 would pay an annual premium of $4,625, according to the 2022 AALTCI price index. That’s almost five times as much as he would pay for a stand-alone long-term care policy.
There are other benefits to these policies. Unlike with traditional long-term care policies, hybrid policy premiums are guaranteed and won’t increase over time. Premiums can be paid in one lump sum or over time. And Braddock says that many of the hybrid products on the market now offer something that traditional long-term care policies don’t: an indemnity payment option. Traditional policies will only reimburse policy holders for out-of-pocket payments made for care. Indemnity payment options offered by hybrid policies will pay out the policies’ full monthly benefit amount in cash, regardless of the actual cost of care. This means a lot less paperwork to get benefits and the ability to use this payment option to pay a family caregiver.
How can I buy long-term care insurance?
The best way to buy long-term care insurance is by working with an independent insurance agent who specializes in long-term care insurance. An independent agent works with several insurance companies. “So that that person is free to research the entire market of the available options to find the best possible fit for any given client,” Braddock says. Look for the Certification in Long-Term Care (CLTC) designation, which is the premier industry designation. You can find an agent through the American Association of Long-Term Care Insurance website.
Some employers offer employees long-term care insurance as a benefit. This can be an easy way to qualify for coverage because fewer health questions may be asked and an affordable way to get coverage with a group rate. However, coverage options can be limited.
You also might be able to get coverage if you belong to an association that offers access to a group plan at a discounted rate.
What should I consider when buying a long-term care policy?
When buying long-term care insurance, there are several factors to consider that will impact the coverage you’ll get and the amount you’ll pay for that coverage.
Benefit amount: This is the maximum amount a policy will pay out on a daily or monthly basis. To determine what your benefit amount should be, find out the cost of various types of care (home health aide, assisted living, nursing home) where you live. Genworth has a Cost of Care Survey that can help. Keep in mind that the higher the benefit amount, the more expensive the policy will be.
- Benefit period: This is the maximum number of years a policy will provide benefits. The average length of care for those who need it is 3.9 years, according to a study by the Bipartisan Policy Center. Again, the longer the benefit period, the more expensive the policy will be.
- Benefit maximum: The maximum policy benefit is calculated based on the monthly benefit and the benefit period. So a policy with a $3,500 monthly benefit and a three-year benefit period would pay out a maximum of $126,000.
- Elimination period: This is the number of days you must pay for care before insurance starts paying. Most long-term care insurance policies have an elimination period of 30, 60 or 90 days. The shorter the elimination period you choose, the higher the premium will be.
- Inflation protection: Opting for inflation protection will allow the value of your policy to keep up with the rising cost of care. Policies typically offer the choice to allow the value of benefits to grow at 1%, 2%, 3% or 5% annually. It’s smart to include this protection, but it makes coverage more expensive. You can keep the cost down by opting for 3% or less.
How can I cut the cost of long-term care insurance?
There are several ways to save money on long-term care insurance. The best way to keep the cost down is to buy a policy while you’re young and healthy. Insurers offer discounts of 10% or more to people who are in excellent health, according to AALTCI.
If you’re married or have a domestic partner, you’ll pay less by purchasing a shared care benefit that provides a pool of benefits you can share rather than two separate policies. Opting for a shorter benefit period and amount also can keep the cost down. And ask about whether you can get a discount by paying your premium annually rather than monthly.
Also, be aware that there are tax savings that can help offset the cost of long-term care insurance. Funds in a tax-advantaged health savings account can be used to pay for long-term care premiums. Many states have some sort of tax incentive for people to own long-term care insurance. Funds in a health savings account can be used to pay for long-term care premiums. And if you are self-employed or own a business, you might be able to write off the cost of long-term care insurance premiums as a business expense.
[ Keep Reading: Why You Need a Plan for Long-Term Care ]