Long-Term Care Insurance: Worth the Cost?

Elderly couple calculating costs of long-term care insurance
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By: Danny Szlauderbach, editor

It’s normal to worry about whether you can afford your senior years. Your retirement savings may cover the cost of living — but the cost of long-term care is something else entirely.

There’s a good chance that somewhere down the road you’ll need medical care beyond regular doctor visits and short hospital stays, which can get very expensive very quickly. Long-term care insurance can help with the cost of senior living.

Here’s a quick guide to the costs and benefits of long-term care insurance.

What is long-term care insurance, and what does it cover?

“Long-term care” means day-to-day help to live as you live now. Many people think of long-term care as strictly nursing home care, but that’s false. It can include much more, including help with activities of daily living, home care, and adult day care. Long-term care insurance — sometimes called nursing home insurance or senior care insurance — is one way to pay for long-term care. Coverage varies but often includes:

  • Extended nursing home stays
  • Assisted living communities
  • Alzheimer’s or memory care facilities
  • Adult day care centers
  • Home health provided by a professional
  • Home care (some policies)
  • Respite care
  • Hospice

It’s important to know exactly what services and types of facilities your long-term care insurance policy covers. Personal care homes, for example, are often not covered, according to the National Association of Insurance Commissioners (NAIC). Always talk to your insurance provider about coverage before choosing care communities or services.

You’re generally eligible for long-term care insurance benefits when you’re no longer able to perform two activities of daily living — or ADLs — on your own. ADLs include bathing, continence, dressing, mobility, eating, and toileting. Another common eligibility trigger is cognitive impairment.

How much does long-term care insurance cost?

Many factors affect the cost of long-term care insurance, but you can expect to pay at least $1,500 per person each year. The average annual premiums in 2019 were:

  • $3,050 for a 55-year-old married couple
  • $1,700 for a 55-year-old single male
  • $2,650 for a 55-year-old single female

Premium rates for long-term care insurance vary wildly from one provider to another.

You could spend more than $3,000 more a year for the same plan, depending on which company you buy coverage from, according to the American Association for Long-Term Care Insurance. This is why it’s important to work with an experienced agent when looking for insurance.

Your cost for a long-term care insurance plan depends on your personal situation, which means:

  • Your age and health. The older you are and the more health issues you have, the more expensive your premiums will be.
  • Your gender. Women live longer and therefore are more likely to make a long-term care claim, so their premiums are usually higher.
  • Your marital status. Married couples who buy coverage together pay less.
  • Your benefit amount. This is the amount of money the insurance provider would pay for your long-term care (for example, $150,000 per year). If the plan you choose covers a high cost of care, your premium would be higher.
  • Your benefit period. The length of time covered varies from one plan to the next. The more years your plan covers, the more expensive your premium.
  • Your elimination period. Like a deductible amount, this is the amount of time you must pay for your care before your insurance kicks in and starts paying. For long-term care insurance, it’s usually between 30 and 180 days.
  • Inflation protection option. This is an optional feature that protects your benefit amount from inflation, so if your care gets more expensive each year, your benefit amount increases as well.

Is it worth buying long-term care insurance?

There are two important things to consider when deciding whether to buy long-term care insurance:

  1. Your risk of needing long-term care
  2. What long-term care would cost without insurance

A person turning 65 in 2020 has a 70% chance of needing some type of long-term care, according to the U.S. Department of Health and Human Services. One in five will need support for longer than five years. Women typically need care longer (3.7 years) than men (2.2 years); the average length of long-term care is about three years.

Then there’s the cost. Medicare does not cover long-term care. It may cover short-term care in a nursing home after a hospital stay.

Based on an annual survey by Genworth, a long-term care insurance provider, these are the projected median costs per year in 2020 for different long-term care services:

  • Adult day care: $20,085
  • Assisted living community: $50,070
  • Homemaker services: $53,024
  • Nursing home private room: $105,266
  • Nursing home semi-private room: $92,860

Simply put: the likelihood you’ll need long-term care is high, and the cost is high, too.

Still, most people don’t buy long-term care insurance, largely because premium rates have increased over the past few decades. There are also fewer insurance companies offering the coverage.

Your decision to buy senior care insurance will depend on your personal financial situation. If you have savings to pay for care out of pocket, then paying for insurance premiums may be unnecessary.

Keep in mind that the numbers listed above are the median costs, so the cost of your care could fall below or above those numbers.The cost of care at an assisted living community or nursing home depends on the amount of help you need. For example, if you require specialized memory-care services on top of daily food and housekeeping services, your cost could be higher than the median.

Your location also matters. If you live in a state with a large population of senior citizens and an abundance of senior living communities with a high turnover rate — and you only need basic care — you might find much lower prices for a room at a nursing home.

What are the benefits of senior care insurance?

The main benefit of buying long-term care insurance is cost savings. Your rates for premiums will be far less than what you’d pay for care without insurance. With insurance, you can preserve your savings, assets, and financial independence.

Other benefits include:

  • Increasing availability of care options. If Medicaid helps pay for care, a nursing home is your only choice. With long-term care insurance, you can decide where you want to receive care, whether it’s at your home, in a nursing home, or in an assisted living facility.
  • Expanding the range of services you receive. This could mean care from visiting nurses or home health aides, home-delivered meals and chore services, time in adult day care centers, and respite services for caregivers.
  • Relieving family and friends of caregiving tasks. With insurance to help pay for long-term care, you won’t need to rely on your loved ones for daily assistance.

What is the best age to buy a policy?

The best time to buy long-term care insurance is in your mid-50s, according to the American Association for Long-Term Care Insurance. Insurance companies know that most people begin to develop more serious health issues after age 55, so premiums are higher for older applicants. But if you’re around 55 and in relatively good health, you’re still young enough that insurance providers are likely to offer the best rates.

NAIC Availability of Long-Term Care Insurance
Your Age Age affects the premium you’ll pay. As age increases, so does the possibility of developing health conditions that will make it difficult for you to buy insurance. Most companies direct their marketing efforts accordingly.
50-70 Within this range, you’ll have many companies and policies from which to choose. Premiums will be more affordable.
80-84 A few companies market to this age range. Some companies sell only one year of coverage to those 80 and older.
85 and Older Few companies sell to people older than 84. Very elderly people should carefully consider the wisdom of purchasing long-term care insurance because of its cost.

Tips for shopping for long-term care insurance

Here are few things the NAIC recommends you keep in mind when looking for the right plan:

  1. Don’t be afraid to ask questions. Insurance is complicated, but if you spend time talking to your agent and insurance company representatives, it will start to make sense. Identify specific things you’re unsure about — whether it’s covered services or future premium rate increases — then ask and re-ask until you feel comfortable moving forward with that provider.
  2. Get quotes from at least three different companies. You can often buy a nearly identical plan for much cheaper depending on the company. Compare policies with several different insurance providers. Check to see what’s covered under each policy, what the benefits and limits are, what types of facilities you’d have to be in to get coverage, and what the premiums would be for different types of coverage.
  3. Take the time you need to make an informed decision. If an agent tries to rush you or isn’t giving you all the information you need, work with another agent. Make a list of all the essential features for each plan so you can compare properly. Usually, agents are required to provide you outlines of coverage of all the plans offered. Once you have a good list of options, go over all the policies with a family member or friend you trust.
  4. Think ahead. Once you feel comfortable with a policy, consider what the next few years will look like in terms of payment and coverage. Pay with a check or credit card rather than cash, so that there is a record of your payment. Make sure you receive your policy within 60 days, then put it in a safe place. Once you receive your policy, you usually have a short window of time to cancel if you realize the plan is different from what you expected. Consider setting up automatic premium payments with your bank account, so that you don’t accidentally miss a payment and lose your coverage.