10 Things You Should Know About Long-Term Care Insurance

It’s no secret that long-term senior care is expensive. Assisted living facilities run as high as $4,000-$6,000 per month nationally. Nursing homes cost upwards of $8,000 per month. That’s close to $100,000 per year. 

Well over half of us will need some type of long-term care in our later years. The problem is, most of us don’t have enough income or savings to pay for that care. 

Long-term care insurance is one way to pay for senior care. Long-term care insurance (LTC) policies cover senior care and housing expenses. It covers services such as personal care, medication management, and other activities of daily living. Services can be provided in-home, through adult-day centers, or in assisted living facilities or nursing homes. 

LTC policies are costly and complicated. Each company structures its policies a little bit differently. You’re left comparing apples to oranges. It’s easy to get confused about the benefits and limits of different policies. 

To help, we’ve rounded up ten things you should know about buying long-term care insurance. 

Long-term Care Insurance Isn’t Worth It for Everyone

As a general rule, long-term care insurance is geared towards the middle class who have assets to protect. Wealthy people can afford to pay for care from their pension and assets. It’s not worth it to them to pay for a policy they may never use. People with low-income and little to no savings can’t afford the premiums of LTC. 

Only (some) middle-class people can afford LTC premiums. Only some have assets worth protecting. Like any insurance, LTC insurance is a game of financial roulette. You’re betting you will need the protection. The insurers are betting you won’t. 

Long-term Care Has Limits

Long-term care doesn’t pay for all of your senior care expenses. There are limits. 

  • LTC policies can have a daily or monthly monetary limit. If your costs exceed the amount the policy pays, you will have to pay the difference.
  • There can be a waiting period before your policy kicks in. Typically, insurance companies release payments after 90 days of care. This is called the elimination period. Policy holders are responsible for all costs until the elimination period is over.
  • There is a cap on lifetime claims. Most policies stipulate a time-bound or monetary limit. Be sure you understand if and when payments from the insurance company would stop. If you require care beyond these limits, you pay.

Long-term Care Can Protect Your Nest Egg

A couple of years of assisted living or nursing home care can burn through your life savings. In some cases, LTC can protect the nest egg you worked your whole life to build. It’s not a guarantee, but that is the idea behind LTC policies.

Everyone’s financial situation is different, so you have to weigh several factors:

  • the cost of monthly premiums (can you afford them?) 
  • whether you have assets to protect (savings, 401k, IRAs, etc.)
  • whether you want to leave an inheritance for loved ones
  • your current health
  • your family health history 

If the stars align, your LTC insurance could work out to protect some or all of your savings. 

Medicare Doesn’t Pay for Long-Term Care

A lot of people are under the impression that Medicare will pay for assisted living or nursing home care if it’s medically necessary. That’s not the case. 

Medicare is medical insurance for people 65 years or older. It covers doctors’ visits, therapies, surgeries, tests, and medications. It doesn’t pay for assisted living. Medicare only pays for nursing home care if it’s short-term, usually 100 days. 

Only a Few Companies Offer LTC Insurance

Long term care insurance is a risky proposition, even for insurance companies. People are living longer and the cost of long-term care is only going up. That’s why many insurers are getting out of long-term care insurance altogether.

In 2004, there were over 100 insurance companies that offered long-term care insurance. By 2020, there were roughly a dozen. Consumers now have fewer choices when choosing a provider. 

Hybrid LTC Insurance Policies Offer More

A traditional LTC insurance policy covers long-term care expenses. Hybrid LTC policies combine traditional coverage with a death benefit. They protect against spending thousands of dollars on insurance and having nothing to show for it. If you pay into a hybrid policy and you need long-term care, you’ll get coverage for care and forfeit some or all of your death benefit. If you never need to tap into the LTC coverage, your family will receive the full death benefit. 

Hybrid policies are growing more common because they guarantee that you will receive at least some benefit from the policy.

Your Monthly Premiums Can Go Up

Read the fine print on your LTC policy. Some policies allow insurance companies to increase rates. Look for policies with a lock-in rate. You don’t want premiums to increase in your later years, when other cost-of-living expenses are increasing.

The Best Time to Buy LTC

Timing matters when it comes to getting a LTC insurance policy. If you buy too early, you can end up overpaying for your policy. If you wait too long, there are two risks. First, you may be denied coverage. Second, you risk being stuck with higher monthly premiums. Most sources suggest buying into a policy in your late 50s or early to mid 60s.

According to the American Association for Long-Term Care Insurers, in 2021, 55-year-old men pay between $950 to $3685 per year for LTC insurance. For the same levels of coverage, 65-year-old men pay $1700- $4200. Women live longer than men. They pay a much higher rate for LTC insurance. At 55-years-old, women pay $1500-$6400 per year. At 65, women pay between $2700-$7225. 

Married couples may get a discount if partners purchase a policy together.

You Can Be Denied Long-term Care Insurance

There is no guarantee that you will qualify for long-term care insurance. LTC insurance companies can deny coverage for a number of reasons. Most importantly, the older you are when you look for a policy, the more likely you are to be denied.

LTC insurance companies may decline coverage for other reasons. These include needing help with daily living tasks or having a diagnosis of Parkinson’s disease or dementia. 

The takeaway? The earlier you take out a LTC insurance policy, the more likely you are to qualify for coverage. 

You Need Professional Help—Financially Speaking

Is long-term care insurance right for you? Maybe, maybe not. Are you the best judge of whether LTC insurance is right for you? Probably not.

Professional help is in order for decisions involving large sums of money. Speak with an elder lawyer or someone who specializes in senior care financial planning. You need someone who can lay out what your true options are for financing senior care. 

Planning a senior move? Contact us to see how we can help!