Long-Term Care Insurance
By 2030, more than 70 million Americans will be over age 65. Improvements in health care will help keep this aging generation alive for longer than any that preceded it, which means that most of those 70 million people will likely need some type of long-term care as their long lives come to an end. Long-term care is defined as full-time rehabilitative and/or ongoing nursing care for patients in need of assistance with the activities of daily living, such as dressing, eating, and bathing. Long-term care (LTC) insurance covers some or all of those costs.
Who Needs Long-Term Care Insurance?
Long-term care insurance is aimed primarily at older people but is also relevant for anyone with a debilitating illness or injury. Ideally, you would get long-term care insurance before the care is required or before you get so old that premiums become exorbitant, but this is not always possible. Generally, you don’t need to buy long-term care insurance before age 60 unless you have a chronic disease, such as diabetes, that might become debilitating.
Long-Term Care Insurance Coverage
| Long-term care insurance plans have six important traits: | |
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Length of Self-Insurance Period
Policies typically require a set amount of time before coverage actually begins, known as the self-insurance period or elimination period. During the self-insurance period, the policyholder must pay for all long-term care costs out-of-pocket. Self-insurance periods typically last 20, 30, 60, 90, or 100 days. Policies with the longest self-insurance periods typically have lower premiums.
Length of Benefits
Some policies pay benefits for a period that expires on a fixed
future date. Other policies pay for life.
If you choose a policy that expires: You’ll be
responsible for paying all long-term care costs from that point
forward.
If you choose a policy that never expires: You’ll
likely pay a hefty premium, but the added security is usually worth
the extra expense.
Daily Cost Allocation
Every policy comes with stipulations that limit the amount of coverage the insurance company will provide per day, known as a daily cost allocation. Coverage amounts typically range from $50–350 per day. Today, the average daily cost for nursing home care is $100, so a policy with $150 of daily cost allocation should cover your needs.
Home Care Option
By default, most long-term care policies cover nursing home care, as opposed to care in the insured’s private residence. But many people prefer the home care option. If home care is important to you, make sure your policy provides coverage for it.
Coverage Increase Option
Plans that include a coverage increase option increase the amount of coverage each year to keep pace with the rising costs of healthcare. Since healthcare costs have risen in recent years by 10% or more annually, a coverage increase option could prove to be very valuable over time.
| Criteria | A good LTC plan... |
| Length of coverage | has no limit, or expiration date, on coverage. |
| Location of care | has no constraints on where care can be received, such as at home, in a nursing home, in a hospice, or elsewhere. |
| Coverage start date | has coverage that begins when the policyholder is unable to perform 2–3 activities of daily living, such as bathing, eating, or dressing. |
| Daily cost allocation | provides $150–350 of coverage per day. |
| Healthcare cost increases | increases the level of coverage by at least 5% per year. |
| Guaranteed pricing | has fixed prices for the first five years. |
| Guaranteed coverage | covers all types of long-term care, including care that results from debilitating injury or illness. |
| Track record | is offered by an insurer with at least a few decades long record of providing long-term care insurance. |
Long-Term Care Insurance Costs
The cost for long-term care insurance varies widely, depending on factors such as the options you choose, your age, and your current health. Premiums can range anywhere from $500–8,000 per year.
How to Buy Long-Term Care Insurance
Due to its complexity and wide variety of options, long-term care insurance is best purchased through a captive or independent agent who can guide you through the entire process and answer any questions that arise.