Long-Term Care Insurance: What You Need To Know

Imagine that you’re aging and starting to need assistance with your everyday tasks. You have some money saved, but not enough to cover the costs of help. You know that a long-term care community or in-home care would best suit your needs, but you don’t know how you’re going to pay for it.

The reason you need to invest in long-term care insurance today is to avoid this scenario in the future.

Long-term care insurance is designed to cover the costs of assistance with activities of daily living. In many ways, long-term care insurance is a supplemental form of support for individuals as they age. Long-term care insurance alone likely won’t be enough, but it should be an important piece of your overall health care and financial planning.

This guide equips you with the knowledge you need about long-term care insurance and why you should consider it.

Why Long-Term Care Insurance Is Important

Simply put, long-term care insurance is important because long-term care is expensive.  The average annual cost of an assisted living facility is $54,000, and it’s $100,000 for a nursing home facility, according to Genworth Financial.

When the time comes that you need help, you don’t want the added stress of worrying about how you’re going to pay for your care. Beyond the tangible benefits, long-term care insurance offers you the peace of mind that you’ll be able to age with dignity and get the care you need.

Long-term care insurance is also important because it can help you protect your hard-earned nest egg. Reducing your out-of-pocket expenses for long-term care is crucial, especially if you plan to leave money to your family, charitable entities or other beneficiaries upon your passing.

Who Needs Long-Term Care Insurance?

Almost everyone can benefit from having long-term care insurance. In fact, 70% of individuals 65 years or older will need some type of long-term care within their lifetime.

Long-term care insurance is for people who fall between two realities: not having enough money to pay for long-term care but having too much money to qualify for government-subsidized long-term care programs. This is a common situation for many older adults, and long-term care insurance can provide a critical lifeline to accessing care.

Another reason to have long-term care insurance is that it’s a proactive measure that you can take sooner rather than later. Remember, it’s substantially harder to be approved for long-term care insurance once you develop a serious health problem. For example, if you have a family history of Alzheimer’s, dementia or other ailments that tend to result in the loss of independence, then it might be a good idea to obtain long-term care insurance while you’re young and healthy to help defray the future costs of your care.

What Does Long-Term Care Insurance Cover?

Generally, long-term care insurance covers the cost of many personal care services other than medical care. Oftentimes, individuals are considered in need of long-term care when they can no longer complete certain activities of daily living on their own. These can include things such as:

• Eating
• Transferring
• Dressing
• Bathing
• Toileting
• Continence

Long-term care insurance pays for help with these tasks in many settings. The insurance covers care administered at facilities such as assisted living homes, nursing homes and adult day care centers. Care can also be administered in your home by home health aides. Some, but not all, long-term care insurance plans also cover short-term hospice and end-of-life care. Additionally, other types of services, including physical therapies, rehabilitation and speech therapy, may be covered under long-term care plans.

Contrary to what some may believe, Medicare doesn’t pay for assisted living or nursing home care. It pays for the cost of medical care, such as the kind administered in a hospital or physician’s office but, generally, not the cost of non-medical services. Similarly, Medicaid is the most common way to pay for assisted living or nursing home care’ however, the program has its limits and drawbacks. Currently, Medicaid requires individuals to spend down their assets to reach below a certain threshold in order to qualify for coverage. Paying from personal funds, also called private pay, is always an option, but due to the extremely expensive nature of long-term care, many seniors lack the out-of-pocket funds to cover it. 

Think of long-term care insurance as filling the gaps between what Medicare, Medicaid and your personal savings will cover for your care. Most long-term care insurance policies don’t offer comprehensive coverage, so all of these resources most likely need to be combined to ensure you get the care you need.

How Does Long-Term Care Insurance Work?

Like some other types of insurance, long-term care insurance requires you to wait a certain amount of time before the policy begins to pay on your behalf. This means you need to front some of the money for your care during this time, which is known as the elimination period. This is a period of anywhere from 30 to 90 days before the insurance coverage begins picking up the tab.

There are typically restrictions on how much care long-term care insurance covers. Most policies no longer offer benefits until death and instead have claim limits of usually anywhere from 1 to 5 years. The longer the coverage you elect, the more expensive your premiums will be.

Long-term care insurance also stipulates the reimbursement rates for care and the maximum amount the policy will pay out. For example, a certain plan may have a maximum monthly benefit of $1,500 and reimbursement rate of 80%. This means you’ll be reimbursed 80% of your costs, up to a monthly maximum of $1,500, so you still need to have additional funding if you incur costs over this amount.

How Much Long-Term Care Insurance Costs

Long-term care insurance costs are dependent on the type of coverage you choose and a number of personal factors. It’s recommended that you obtain long-term care insurance between the ages of 52 and 64. Smart Asset estimates the following long-term care insurance premiums for 2022:

Long-term care insurance can get fairly expensive. However, premium tax deductions mean that you can start reaping the financial benefits of having a long-term care insurance policy before you ever need to tap into the coverage. The IRS allows policyholders to deduct the cost of the premiums from their taxes based on their age.

Frequently Asked Questions