Long-term care insurance is a kind of insurance that covers some or all of the cost of long-term care services at home or in a facility. These services can be as simple as having someone come to your home to assist with everyday tasks such as bathing, dressing, and eating or as comprehensive as the high costs of living at a nursing home.
As individuals age, they may become less and less able to care for themselves and perform everyday tasks such as bathing and cooking. Even younger individuals may become unable to care for themselves due to a health condition or injury.
While some individuals in these circumstances may be fortunate enough to have friends or family able and willing to provide daily care without pay, this isn’t the case for everybody.
The High Cost of Long-Term Care
Many individuals unable to care for themselves need to pay either a health aide or a homemaker to come to their home to assist them.
Nationwide, the average cost of these assistants is around $20 an hour. The cost of eight hours of care, then, comes out to $160. If care is needed, say, 300 days per year, the annual cost would come out to $48,000. Costs may be similar at an assisted living facility, if not a little bit less.
On the other hand, individuals who need medical care and personal care may need to live at a nursing home, where costs could exceed $90,000 per year for a private room.
How Long-Term Care Insurance Works
In exchange for paying a policy premium, long-term care insurance reimburses policyholders a daily amount to cover the cost of long-term care services if and when they need them.
Like any insurance policy, premiums vary based on several factors, including:
- Your age. Generally, the younger you are when you purchase your policy, the less expensive your premiums will be.
- Your health. Generally, better health at the time of policy purchase will lead to lower premiums.
- Amount of coverage. The higher the daily amount you want coverage for, the higher your premiums will be.
- Length of coverage. Some policies pay out for life, while others are limited to a certain number of years. Policies that pay out for life or many years will typically have higher premiums than those that only cover a few years, all else being equal.
- Other factors. Policies may have various add-ons that you can tack onto your policy that may increase the premium.
Receiving Your Policy’s Benefits
Whether you need long-term care and therefore qualify to receive benefits from your long-term care policy will be determined by a medical professional compensated by your insurance company.
When the time comes, this professional will assess your condition, especially your ability to think clearly and engage in daily tasks such as bathing and eating.
If this professional does not deem you in need of long-term care, you will not receive benefits at this time. If the professional deems you are in need of long-term care, your insurance company will put together a plan of care describing your benefits that have now been “triggered.”
Most long-term care policies have an “elimination period” (typically 30, 60, 90, or 100 days) that must pass after you start needing long-term care before your insurance company will begin paying benefits. You are responsible for paying all costs of your care during this period.
Note: If there is a period during which you need long-term care followed by a period in which you do not need care and then you need care again a second time, your policy may require you to satisfy the elimination period requirement separately for both the first and second care periods.
It is very important that you understand the terms of your policy, especially what degree of impairment is necessary to trigger benefit payout and the length of your policy’s elimination period if any.
Where to Get Long-Term Care Insurance
You can purchase long-term care insurance from a licensed insurance agent or broker in your state. Some states have special programs that link long-term care insurance provided by private companies with Medicaid.
Also, some employers offer their employees long-term care insurance. Even the federal government has its own long-term care insurance program for federal employees.
If you’re not sure where to start, first check with your employer to determine what, if any, long-term care insurance options they have available. Then, check with a trusted insurance broker about your non-employer-provided options so you can compare policies.
If you don’t currently work with a broker, reach out to your state’s insurance department to find one.
Types of Long-Term Care Insurance
Insurance companies offer various types of long-term care insurance, but here are some of the more common ones.
- Nursing Facility / Residential Care Facility Only. These policies only cover care in a nursing home or other live-in facility.
- Home Care Only. These policies only cover care provided by an in-home assistant.
- Comprehensive Long-Term Care. These policies cover whatever the policyholder requires: live-in care or home care.
- Hybrid Policies. Some life insurance policies offer a rider that can be used to cover long-term care expenses.
Is Long-Term Care Insurance Right for You?
It’s true that purchasing a long-term care policy presents a degree of risk. After all, you may live a long, healthy, active life and eventually pass away, never needing to tap into your policy’s benefits.
That said, the reality is that today’s 65-year-olds—healthy as they may be now—have a nearly 70% chance of needing some kind of long-term care in the future.
And while some of these individuals may be fortunate enough to have accumulated the kind of wealth to cover six figures of care costs per year for decades, not everybody has these kinds of means.
It’s also not a given that one’s children or other family members will be available to help with care. Between raising their own children and cultivating their own careers, younger family members may simply not have the time available to provide the degree of care some people will need.
While no one but you can decide to purchase long-term care insurance, you should carefully weigh its costs against the peace of mind it can secure.
Finance of America Reverse LLC is a reverse mortgage lender that offers reverse mortgage loans. It does not offer long-term care insurance or require any customer to obtain this product. This article is not a solicitation for long-term care insurance. This article provides general information about long-term care insurance that you may wish to consider and is based on general discussions with third-party financial professionals.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.