The Cost of Long Term Care Insurance
Long-term care can be expensive, especially for anyone who needs care for an extended period–whether from illness, injury, disability or neurological disorder.
Long term care insurance minimizes the risk of depleting their savings and having to recur to family members for financial support or to government programs that only pay for certain types of care under specific circumstances.
For this kind of coverage, GoldenCare is usually the best.
My top 4 overall best long term care companies:
- GoldenCare: wider variety of plans
- LTCRplus: free legal support and objective advice
- CLTC Insurance Services: clear and simple plan comparison
- LTC Financial Solutions: easy online interface
But let’s go over the actual costs of long-term care.
Although these vary by state, Genworth Financial’s 2017 Cost of Care Survey and data gathered by Carescout reveal the national median annual costs of long-term care services also vary considerably depending on the type of service:
|Services||Length of Care||Cost|
|Homemaker Services||44 Hours a Week||$47,934|
|Home Health Aides||44 Hours a Week||$49,192|
|Adult Daycares||5 Days a Week||$18,200|
|Assisted Living Facility (Private Bedroom)||12 Months||$45,000|
|Nursing Home Semi-Private Room||365 Days||$85,775|
|Nursing Home Private Room||365 Days||$97,455|
Nursing home care in a private room, for example, can cost up to $97,000 a year, and home health aides can be just as expensive for those who need round-the-clock assistance.
Most individuals pay for long-term care out of pocket using their assets and savings, yet the cost of these services can quickly add up, especially if the length of care extends for a period of one to five years.
Reverse mortgages, life insurance with long-term care riders, and some annuity products can be of help, yet the most popular option to cover long-term care costs remains stand-alone long-term care insurance.
Long Term Care Insurance Options
There are different types of long-term care insurance options, yet most fall under conventional or stand-alone long-term care insurance or hybrid policies that combine other types of financial products such as life insurance with an LTC rider.
The Long Term Care Partnership Program
The Long-Term Care Partnership Program is a federal initiative that allows those who purchased a qualified long-term care insurance policy to protect a portion of their assets they would otherwise be required to “spend down” to qualify for Medicaid.
Since Medicaid pays for long-term care for people with minimal income and assets, the maximum in most states being $2,000, purchasing a qualified state partnership policy would allow them to raise their total assets by the coverage amount and still qualify for the government health aid.
States that do not participate in the Long-Term Care Partnership Program
Another important detail to keep in mind is that your state of residence will have to determine whether the policy is qualifying or not, so make sure the policy you are considering meets the requirements set by your state.
As an additional precaution, find out if your state honors partnership plans originally purchased elsewhere.
California, for example, does not offer reciprocity in the sense that the state requires policyholders to spend down their assets and have less than their established maximum to qualify for Medicaid.
Life Insurance Policies with Long Term Care Riders
This type of policy is a combination of whole life insurance with a long-term care component called a rider.
Hybrid policies will pay out a benefit for insured individuals who need long-term care and then disburse any remaining benefit to the policyholders’ beneficiaries upon the policyholder’s passing.
The best thing about these plans is that they pay out no matter what, meaning your investment will never be lost.
Either you use the benefit amount to cover your long-term care needs or your beneficiaries collect the full benefit upon your death if you never use it.
The main drawback, however, is that hybrid policies can be very expensive, with lump-sum premiums starting at $75,000 and up.
That means the plans are not a feasible investment for a large portion of the population, making hybrid policies a choice for those who already have considerable assets by the time they retire.
There are a number of advantages to purchasing an insurance policy through an employer, particularly the lower premiums.
Since insurers can afford to charge less per policy if they sell them in bulk as opposed to one at a time, an employer-sponsored long-term care insurance policy may cost much less than one purchased individually.
The downside to plans of this type is the limited flexibility regarding coverage options. Having to choose from set variables can severely limit your ability to craft a plan tailored to your needs.
Additionally, insurance companies may not offer the same range of benefits on group policies as on individual policies, further limiting your choice.
Is LTC Insurance Worth It?
Statistics reveal the average length of a long-term care insurance claim is one year, often less.
Yet, projections suggest individuals who require long-term care may need to use those services for up to three years.
Furthermore, the risk of requiring long-term care increases for women, who tend to live longer than men and therefore have a greater likelihood of needing care services over the long term.
Although long-term care insurance is an excellent alternative to cover expenses associated with aging, such as homemaker services or in-home living assistance, the cost of these types of products has steadily increased since they entered the market.
Since the odds of policyholders using a long-term care policy is much higher than, for example, the odds of them using a term life insurance product, insurance companies have either stopped offering long-term care insurance or have increased premiums for existing coverages.
The American Association for Long-Term Care Insurance reports the costs of long-term care insurance have increased slightly since 2017, making the product more expensive for those who already own a policy.
New policies, on the other hand, may still be an excellent investment for those worried about the type and length of care they may require in the near future.
Despite the hike in premiums, long-term care insurance coverage may still be more profitable than paying for care services out of pocket, especially for those who live alone.
The AALTCI 2018 National Long-Term Care Insurance Price Index reveals median long-term care insurance costs for a 3-year benefit coverage with a 90-day elimination period, a daily benefit of $150, and a 3% compound inflation protection are as follow:
|Marital Status||Gender||Age||Initial Benefit||Benefit (Age 80)||Benefit (Age 85)||Annual Premium|
What Affects the Cost of Long Term Care Insurance Premiums?
A myriad of factors affects the cost of long-term care insurance premiums.
For starters, insurers charge very different prices for policies with almost identical terms and benefits based on their underwriting guidelines.
Besides the insurer, individual risks markers also come into play when a prospective policyholder is evaluated for coverage.
The person’s age, gender, family health history and current health status are most relevant ones.
The older you are, the higher your premium payment will be. Generally, consumers tend to buy these types of products before retirement, or between the ages of 55 and 65.
As you age, your odds of suffering a debilitating illness or injury increase, and insurance companies have that very present.
As you can see in the table above, a couple aged 55 can expect to pay $3,000 for a benefit of $164,250.
A couple purchasing a policy for the same benefit amount at age 65, on the other hand, can pay over $1,000 more.
The best way to get lower premiums is to purchase these products while you are younger and in good health.
Health requirements differ from one company to another, so shop around and get quotes from several insurers before you make a final decision.
Gender is also a decisive factor in premium costs, as statistics reveal women tend to live longer than men. Being long-lived increases women’s likelihood of requiring long-term care services in their later years.
Insurance companies are aware of the risk, which means that women, especially singles, can expect to pay more toward premiums than their male counterparts.
When Does Long Term Care Insurance Make Sense?
So, when does it make sense to purchase a long-term care insurance policy? The decision will rest on your particular situation and projected needs.
Single women between the ages of 55 and 65, especially those who are in good health but fear they could suffer an accident or develop an illness or disorder in their later years, may want to look into long-term care insurance.
Premium costs are higher for women than for men, especially if the woman lives alone.
For example: A 65-year-old Minnesotan can end up paying an exorbitant $59,488 a year for home health care services, while nursing home care could cost up to $98,094 annually.
If the said individual were a single 55-year-old woman with long-term care insurance coverage worth 164,000, she would be able to cover home health care for about a year, paying an annual premium of $2,965.
Because of the high premiums costs, long-term care insurance makes the most sense for married couples who opt for a pool of benefits approach that allows one spouse to use the benefit intended for the other in the event they required care for longer than initially expected.
Depending on the insurance carrier, couples may also be eligible for a marital discount that could make annual premiums even more accessible.
Finally, purchasing insurance at a younger age, especially when one is in good health, is the best way to secure more affordable premiums.
Inflation protection should also be a consideration for smart buyers thinking about the long-term.
The same statistics gathered by AALTC reveal that since 2017 annual premiums for a single male aged 55 increased by $205, while premiums for single females in the same age range increased by $365.
As the costs of care continue to rise, so will the cost of long-term care insurance. An annual compound inflation protection rider can be the difference between a profitable investment and the forfeiture of a considerable benefit amount.
How To Calculate Long Term Care Needs
Again, the costs of long-term care vary by facility and region and also depend on particular factors such as:
- Type of Care Required
- Length of Care Required
- The Elimination Period
- The Benefit Amount Selected
- Family Health History
The hour of the day and the specific date on which you require care services may also affect their cost.
Home health aide services, for example, may cost more during the holiday season and after regular work hours.
No one can predict the future, yet you may be able to determine your risk of developing a neurological disease like Alzheimer’s or Parkinson’s by evaluating your family health history.
Are you predisposed to certain conditions? Has anyone in your family suffered from a cognitive disorder or genetic illness?
Another option to help you ascertain your prospective needs is to have your DNA tested for genetic risk markers that may alert you to certain chronic conditions.
Whatever you choose to do, be honest with yourself and take into account your assets and savings. A popular unwritten rule says that if the long-term care insurance premium payment is more than 7% of your income, you might not be able to afford the policy in the long run.
However, if you believe you can afford to make the payments comfortably, this type of insurance may be an excellent way to protect your savings and ensure your family receives an inheritance upon your death.
Everything will depend on your particular situation and needs.
What Goes into LTC Insurance Coverage Premiums?
Determine what your daily benefit limit or the maximum amount the policy will pay per day for the long-term care services you receive.
If you expect to need a home health aide or require homemaker services, then a daily benefit limit of $150 might be enough to meet your needs.
If, on the other hand, you think you may eventually need to live in an assisted living facility or require costlier services like physical therapy, then you might want to consider a higher benefit amount.
Some insurers offer monthly benefit amounts as opposed to daily benefit ones, which could be a better option for those who require differently-priced services on different days and can’t afford to be constrained by a daily limit.
If, for example, you needed physical therapy three days a week in addition to home health care, then on those three days you will likely require a higher benefit amount than you would the rest of the week.
Again, make projections for the long term and consider all possibilities before making your choice. You should also take into account the benefit period, which can range from one to five years.
Few insurers provide unlimited benefit periods where the insurance will continue paying out until you stop submitting claims.
To determine the best benefit period for your needs, consider premium costs. The longer the period, the higher the premium cost.
Someone with a chronic debilitating illness in its initial stage may require care for a longer time span than a person who has suffered a physical injury.
The benefit period and daily or monthly benefit limit will determine the maximum lifetime benefit or the maximum amount the insurance company will pay out.
It’s essential that you read your coverage details and know exactly what your maximum benefit will be for the life of your policy.
The insurer will continue to pay for the care you require, but only for as long as there is a benefit to pay out. If you need more expensive services than initially envisioned, you may run out of funds before your benefit period is over.
One final consideration to keep in mind before opting for a long-term care insurance coverage the elimination or waiting period.
The elimination period is the length of time you have to pay for long-term care services before the plan begins to cover those expenses.
Since the policyholder is the one responsible for covering those costs during the elimination period, that timeframe can be considered a deductible of sorts.
Just as with any other insurance product, the higher the deductible, the more affordable the premiums, and vice versa. That means longer elimination periods translate into lower premiums but higher out of pocket costs.
Aside from the long-term care insurance options we’ve gone over, there are additional coverages like inflation protection and future purchase options available to protect your investment from the possibility of inflation rendering your benefit insufficient.
If you are looking at long-term care insurance as an investment or form asset protection, you should consider one of these riders.
- Inflation Protection: By opting for an inflation protection option, you ensure your coverage will automatically increase at a set rate between 3% and 5%, ensuring your policy will cover the services you need when you need them.
- Future Purchase: Unlike the inflation protection rider, the future purchase option rider is not automatic. In that case, the insurance company will allow you to purchase additional coverage throughout the life of your policy without requiring additional underwriting.
Either of these options is a surefire way to protect your long-term care coverage from future price increases, which projections suggest are highly probable.
Those purchasing a long-term care insurance policy at age 55 will likely begin to use their benefit around age 85, a 30-year timespan.
In thirty years, an individual residing in an area with a high cost of living, like Washington, can expect to pay around $147,170 for homemaker services and $2,49,838 for a semi-private room in a nursing home.
Hence the importance of purchasing some inflation protection while prices are still somewhat affordable.
Remember, when choosing a long-term care insurance coverage, based your decisions on educated guesses and your projected needs for the future.
Communicate your choices to your family and loved ones, and speak to a financial advisor before committing to any one policy.
Above all, your long-term care insurance policy should serve you, and finding affordable alternatives to cover the costs associated with aging should be your primary goal.