Based on a 2020 study from the Administration for Community Living, a branch of the U.S. Department of Health and Human Services, about 70% of people 65 years and older will need long-term care services or support at some point in their lives. The study shows that women will need care for an average of 3.7 years, while men will need it for 2.2 years.
Regular health insurance doesn’t cover long-term care, and Medicare only covers short nursing home stays or limited amounts of home health care when you require skilled nursing or rehab only.
That means if you don’t have insurance to cover long-term care, you’ll have to pay for it yourself in most states and most instances.
Here’s a quick overview of two long-term care insurance options.
After you choose the amount of coverage you want and buy a policy, in most cases you’ll be eligible for benefits when you can’t do at least two out of six “activities of daily living” (ADLs) on your own or you have dementia or other cognitive impairment.
Those six activities are:
When you need care and want benefits to kick in, the insurance company will review medical documents from your doctor and may send a nurse to do an evaluation that will be used as the basis for approving your plan of care.
Most policies are structured so that you’ll pay for long-term care services out of pocket for a certain amount of time, such as 30, 60, or 90 days, known as the elimination period, before the insurer starts reimbursing.
Most policies pay up to a daily limit for care until you reach the lifetime maximum. Some companies offer shared care options for couples when both buy policies. That lets you share the total amount of coverage so you can draw from your spouse’s benefits if you reach the limit on your policy.
Policies are written so that you can get coverage in a long-term care facility, adult day care center, nursing home, or at your home. This is significant because facility care is costly, often topping $100,000/year. At-home care and other options are less, but still not cheap.
Premium costs vary based on several factors:
Age and health. The older you are and the more health problems you have the more you’ll pay. It makes sense to buy a reasonably priced policy early in life before health problems arise.
Gender. Women usually pay more than men because they live longer and have a greater chance of making long-term care insurance claims.
Marital status. Premiums are lower for married people.
Insurance provider. Prices for the same amount of coverage will vary depending on the company.
Coverage amount. You’ll pay more for enhanced coverage, such as higher limits on the daily and lifetime benefits, cost-of-living adjustments, shorter elimination periods, and fewer restrictions on the types of care covered.
Location. Long-term care costs vary by state. For example, Florida and New York have costs that far outweigh those in states with lower living costs, like Utah or Georgia, and premiums are reflected accordingly.
Taking these factors into account, according to the American Association for Long-Term Care Insurance, the average annual premium for a 60-year-old couple is about $3,500 for a plan with an initial benefit of $150 per day for up to three years. A single 55-year-old male could expect to pay $1,870 annually for the same benefits, while a single 55-year-old female would pay $2,965 annually for similar coverage.
Traditional long-term care insurance isn’t for everyone. A better choice may be hybrid long-term care insurance.
Unlike traditional long-term care insurance, which is a use it or lose it situation, hybrid long-term care insurance is more flexible and responsive by combining long-term care and life insurance.
Here’s how it works.
When you buy a hybrid policy, you are buying long-term care insurance in case you need it. However, if you don’t need long-term care, the premiums you paid are converted to life insurance, and your heirs will receive a tax-free life insurance benefit when you pass away. They will receive a relatively high percentage of the premiums you paid for your long-term care insurance.
The “use it or lose it” issue effectively goes away. It shifts the financial burden from the policyholder to the insurance company, significantly reducing costs to the policyholder.
With a hybrid policy, the cost can be locked in from the initial purchase date and insulated from possible policy increases. Typically, this has not been the case with traditional long-term care policies and can cause financial strain for some people as premiums increase significantly over the policy's life. Because of this lock-in feature, it’s possible to buy a hybrid policy with a single lump-sum payment or pay premium costs monthly.
In many cases, it can be easier to qualify for coverage because the underwriting can be less stringent with a hybrid policy than a traditional long-term care policy
It should also be noted that the amount of long-term care coverage you get will depend on the type of coverage you buy. Also, your death benefit is impacted if you tap the policy to pay for long-term care.
In some instances, you may be able to add a long-term care rider to an existing life insurance policy when you buy it. You can’t add it later. However, the long-term care benefits are not as robust as with a traditional long-term care policy or hybrid policy.
DISCLAIMER: Medi-Solutions Insurance Agency, LLC is not affiliated or endorsed with the Social Security Administration or the Federal Medicare Program. Information is for educational purposes only and should not be construed as an offer of insurance, advice, or recommendation. The information provided is not intended as tax, financial, investment, or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
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