As the population ages, people may believe that health insurance or the government will pay for their long-term care needs. Medicare only pays for long-term care needs under very specific circumstances and for a fairly short period of time (a maximum of 100 days). Health insurance typically does not cover the cost of basic care that may be needed due to prolonged illness, disease, or injury. As a result, many are investing in long-term care insurance to help with these potential expenses.
What Is Long-Term Care Insurance?
Long-Term Care Insurance (LTCI) is different from traditional health insurance because it is designed to cover your long-term care needs, support, and services when the inevitable impact of aging or acquired disability gets to you. It includes custodial and personal care whenever and wherever you plan to receive care, be it in your own home, nursing facility, or a community organization.
Once you become a policyholder, the long-term insurance policy you chose will determine how much you can refund from the daily expenses paid for services and personnel who help you accomplish your everyday living activities like eating, dressing, and bathing. Depending on your preferred insurance company, you can choose from various benefits and care options that will ensure your care whenever and wherever you need it.
The Cost of Long Term Care
Before you can imagine how much you would pay for your long-term care coverage, you should first consider the expenses you have to pay for care without insurance. The reality is the cost of long-term care in the U.S., whatever type of service they offer, can be expensive if you shoulder it alone. Depending on the level of care you want to receive and where you want it to be received, your expenses can go way beyond what you and your family can afford.
According to The Genworth Cost of Care Survey in 2016, the costs of long-term care services in the U.S. vary from state to state. The averages are as follows:
- Semi-Private Room in a Nursing Home: $225 a day or $6,750 a month
- Private Room in a Nursing Home: $253 or $7,590 per month
- Assisted Living Facility: $3,628 per month
- Adult Day Care: $68 per day
- Home Health Aide Services: $20 per hour
- Home Maker Services: $20 per hour
If you plan to stay in a private nursing home, you should cash out $91,250 per year. This cost can even rise as high as $125,000 per year in some states. Assisted living communities may be a little cheaper than nursing homes at it charge only $3,628 per month for the rent and use of their facilities. However, if you need higher level of care, you'll have to pay more.
As most Americans desire to age in place, home care may seem a cheaper solution to long-term care. The problem is, it also adds up quickly. For 44 hours of everyday work done for you by a caregiver, it would easily cost you more than $45,000 a year. If you aren't eligible for Medicare or Medicaid, personally paying these amounts of money for your care is too much. If you can afford insurance, getting one will help you a lot.
How Insurance Companies Calculate Long-Term Care Insurance
In calculating for your premiums, insurance companies usually base the costs of long-term care insurance on the following considerations:
- Your AGE when you bought the policy. The older you or your parents are, the higher the premium insurance companies' offers are. More often, insurance companies deny people over 80 to avail long-term care insurance. Or they charge a hefty amount for their premiums. Experts suggest the perfect age to get covered is in your 50's, when you are still in good health and still have more time to build up your retirement assets.
- Your GENDER. If you're a woman, expect your premium to be much higher than men. Because women tend to live longer, insurance company thinks its only right they pay more.
- Your HEALTH. If you have a chronic illness or a disability, insurance companies may either raise your premium or deny you coverage, depending on your health condition. Insurance companies often deny clients if they have AIDS or AIDS – related complex (ARC), Alzheimer's disease, dementia, progressive neurological conditions, Parkinson's disease, multiple sclerosis, multiple strokes or metastatic cancer.
- The COVERAGE or the services to be subjected to daily reimbursements. Insurance companies usually cover 100 percent of the common long-term care services like Nursing home, assisted living facility or hospice facility, home care, adult day care, respite services, formal and informal caregiver services, and hospice care at home.
- The DAILY BENEFIT AMOUNT (DBA) or the chosen amount the insurance company will pay per day. Insurance companies usually pay the maximum of the policy holder's daily cost of care. For instance, if you chose a policy that will reimburse you $150 per day, you'll have to pay the rest out of your own pocket if you exceed $150. If you choose a higher DBA, the policy becomes more expensive.
- The BENEFIT PERIOD or the chosen number of years or days the insurance company must pay your care. The longer the years in your insurance package, the more expensive it is.
- The INFLATION PROTECTION for your benefits. Insurance companies make sure that the benefits that policyholders receive may keep up with the yearly inflation rate. For many years, many policyholders set their compound inflation protection to the standard 5 percent. However, from the average rate inflation for the past five years, experts say policyholders can do with a coverage less expensive, grows one to four percent per year and changes with the consumer price index.
- The CERTIFICATION PERIOD or the definite amount of time that an insurance company takes to assess whether you are eligible for long-term care and whether your income can handle the yearly premiums you chose.
- The ELIMINATION PERIOD or the period that must pass from the beginning of the disability (when you needed care) and the time you are eligible to reimburse benefits.
The Latest Data on the Cost of Long-Term Care Insurance
According to the 2017 Long-Term Care Insurance Price Index released by the American Association for Long-Term Care Insurance or AALTI, new policy rates for a 60-year-old couple increased by six to nine percent compared to last year. Now, an average couple who just recently became seniors must each pay around $100 to $150 per month to get an LTCI protection.
The premium rates for 55-year-old single males declined by 20 percent in some insurance companies. Some leading insurers can offer them about $90 to $150 monthly for their premiums. Women also pay more premiums compared to men because they are the largest long-term care insurer in the country. Two out of every three dollars spent on insurance claims comes from women. Statistically speaking they live longer and take care of their bodies more efficiently than men. The longer they live, the more they get out of their insurance. For insurance companies, not increasing their premiums would be disastrous.
Check out the AALTI Data on the Average Cost of LTC Insurance in US:
| Age, Civil Status And Gender | Health Status | Premiums (Annual) | ||
|---|---|---|---|---|
| GOOD | BETTER | BEST | ||
| 55 year old Single Male | In good health | $800 per year | $1,050 per year | $1,990 per year |
| 55 year old Sing Female | In good health | $800 per year | $1,500 per year | $2,600 per year |
| 60 year old Married Couple |
Standard health | $2,050 per year | $2,200 per year | $3,790 per year |
Data from the 2017 Long-Term Care Insurance Price Index of AALTI
How to Choose the Right Long-Term Care Insurance for You
AALTI believes when it comes to choosing a Long-Term Care policy that's right for you, you should consider the “Good – Better – Best” Approach. Insurance coverage can be considered “GOOD” if it encompasses a “short-Term Care policy which can pay benefits” for a whole year and with benefits that grows 5 percent annually. According to AALTI director, Jesse Slome, this short coverage is more than enough for many people who “ultimately need long-term care” in the later part of their lives. He also noted on recent long-term insurance claims, almost half of it ends within a year. Whereas a “BETTER” insurance policy that can cover care needed in the early years, maybe expensive but is practical because it remains level as a policyholder ages. And the “BEST” LTC insurance policy that AALTI considers is a policy that covers all and grows by 3 percent yearly.
| APPROACH | Daily Benefit Amount (upon inception) | Benefit Period | Coverge | Certification Period | Elimination Period | Inflation Protection |
|---|---|---|---|---|---|---|
| GOOD | $120 | 1 year (360 days) | 100% home care + | 5% (Simple) | ||
| BETTER | $150 | 3 years | 100% home care + | 90-day | ||
| BEST | $150 | 3 years | 100% home care + | 90-day | 3% (Compounded annually) |
Data from the 2017 Long-Term Care Insurance Price Index of AALTI.
Simple Reminders Before Buying Long-Term Care Insurance
- Avoid buying cheap insurance. Just imagine how you would feel if in your desperate time of need, your insurance doesn't cover the cost. Remember it is more difficult to raise your coverage in the later years than decrease it as you age.
- Avoid buying extravagant insurance. Don't buy more than what you may need. Keep savings and use it to pay for a part of your care expenses. The policy can fill in the rest. Don't hesitate to call on your family (if you have any) to help supplement your needs.
- Scrutinize each policy. Always remember your policy should be designed on your need and what you think you may need in the future. A “one-size-fits-all” policy doesn't exist.
- Get covered while you are younger. It's offered cheaper than when you reach your senior age.
- Do your Research about the service quality, efficiency and reliability of the insurance company you're thinking of getting. Compare insurance prices before choosing one.
- Talk with an insurance broker before finalizing your decision. There's a big difference in cost when you talk to a broker instead of an insurance agent. Brokers compare prices and service quality of several insurance companies while agents only pitch one company.
How Much Does Long-Term Care Insurance Cost?
The cost of long-term care insurance is dependent upon a variety of factors such as age, the daily allotted benefit, the number of days (or years) that the policy will pay, current health, and the types of benefits added into the policy. There are considerable price differences across companies and policies, but long-term care insurance for a couple aged 55-60 can range from around $2,000 to $4,000 per year. Coverage for an individual is slightly less than half that cost.
Where Can I Buy Long-Term Care Insurance?
You can buy long-term care insurance from either an insurance agent or a financial planner. Long-term care insurance is regulated by the state, so each state has different companies and policies available to residents. More than 100 companies across the country sell long-term care insurance policies.
Some states also offer long-term care insurance coverage through a State Partnership Program. These programs link special state partnership policies that provide private coverage with Medicaid. These programs include additional benefits and protections for the policyholder.
When Should I Buy Long-Term Care Insurance?
The best time to buy long-term care insurance is while you are in your mid-50's. Since your rate is partially based on your health, it is a good idea to lock in your rates before being faced with a chronic illness, disease, or other medical condition. Rates increase every year on your birthday, and the increase is only 1-2% while in your 50s. Rates start to increase annually by 6 – 8% once you reach your 60's.
What are Some Alternatives to Long-Term Care Insurance?
There are some alternatives to long-term health care insurance. Rather than purchasing an insurance policy, you could include these long-term care expenses in your financial planning decisions. So, you could purchase an annuity that would provide payments necessary to cover long-term care expenses. Alternatively, you could simply pay them out of pocket with your retirement savings.
Another possible way to pay for long-term care is through an alternative type of insurance policy. If you have life insurance, your policy may include “accelerated death benefits.” These benefits allow you to take a portion of your policy payout prior to your death in order to pay for medical expenses. The death benefit is then reduced by the amount of the payout you take. Short-term care insurance may be another option for you. These policies cover the same types of care services as long-term care insurance but do so for a shorter period of time (usually 3-12 months). These policies cost considerably less, and it is easier to qualify for short-term care insurance.
Is Long-Term Care Insurance Tax Deductible?
Yes, a portion of the annual premium for a qualified long-term care insurance policy is tax-deductible. The amount of the claim, together with other unreimbursed medical expenses, cannot be more than 10% of the insured's adjusted gross income.
Can I Buy Long-Term Care Insurance for my Parent?
Yes, you can buy long-term care insurance for your parent. You can pay for the policy, but your parent will be listed as the insured beneficiary. Buying a long-term care insurance policy for your parent may be a good idea to help with expenses if you are ultimately going to be responsible for caring for your aging parent.
Do I Need Long-Term Care Insurance?
Whether you need long-term care insurance or not is really a personal decision. If your health fails and you need long-term care in a nursing home, Medicaid covers your expenses after you have spent all of your personal financial assets. There are also provisions to cover the living expenses and medical expenses for a spouse continuing to live at home without the need for long-term care. Many nursing homes and most assisted living facilities, however, do not accept Medicaid patients. So, if you want to have more choice and more upscale facilities, you may want to consider the financial protection of long-term care insurance. Another reason to consider long-term care insurance is if you are concerned about protecting your financial assets in order to preserve the inheritance for your heirs.
How Does Long-Term Care Insurance Work?
To obtain a long-term care insurance policy, you will need to fill out an application and answer some health questions. The insurer may require additional medical records, tests, and an interview either in person or over the phone. You decide how much insurance coverage you want, and if accepted, you begin paying your annual premiums.
Most long-term care insurance policies allow you to begin making claims against the policy when you are unable to perform at least two out of six “activities of daily living” on your own or face dementia or other cognitive impairment. Activities of daily living include: bathing, caring for incontinence, dressing, eating, getting on and off the toilet, and transferring (getting in and out of a bed or chair). After contacting the insurance company about your desire to make a claim, an agent will contact you for medical documentation and may send a nurse to perform an evaluation. The insurance company will review and need to approve your “plan of care” before you can claim any of your benefits.
Once your care plan is accepted, you may be required to pay all expenses out of pocket for a short period of time. The length of time, known as the “elimination period” is dependent on the specifics of your policy. After the elimination period, the insurance company begins paying for long-term care expenses according to your plan of care. Long-term care insurance covers a specified daily amount up to a lifetime maximum payout. The actual coverage amounts depend upon the benefits and coverage that you purchase.
