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Long-Term Care Insurance: Everything You Need to Know

As you plan for your retirement and beyond, you’re probably not anticipating you or your spouse going into a nursing home. But sadly, someone turning 65 today has almost a 70% chance of needing some kind of long-term care in the future. Long-term care is extremely expensive, depending on the type of care. For example, a stay in a nursing home will cost you about $150,000 a year in Connecticut; $54,800 in Texas; or $85,800 on average in America. And some people who need long-term care need it for more than five years. Few retirees have that much extra cash on hand. How will you pay for that, should the need arise? Long-term care insurance is one way you can plan for that possibility. 

What is Long-Term Care?

We should probably start by defining what long-term care is. People who need assistance with activities of daily living (ADL’s), such as:

  • Bathing
  • Dressing
  • Toileting
  • Eating
  • Getting around
  • Grooming

Custodial care refers to a health care professional visiting the client at home and providing help with these activities of daily living. 

Skilled care is provided by nursing homes, rehab facilities and the like. Either way, both are expenses that few people plan for, which brings us to long-term care insurance. 

>>MORE: A Comprehensive Guide to Long-Term Care Solutions: From Insurance to Medicare/Medicaid

>>MORE: Life Insurance With Long Term Care Benefits

What is Long-Term Care Insurance?

Did you know that regular health insurance will not cover long-term care? Many people don’t realize that until it’s too late. Medicare will not cover long-term care either. Medicare believes most long-term care is custodial (helping with ADL’s) and to them, that is not health-care related. 

Disability insurance doesn’t cover long-term care, either. Long-term care insurance will cover costs such as:

  • Nursing home stays
  • Assisted living
  • In-home care
  • Adult day care services

Long-term care policies can vary, but usually they go into effect when you can no longer perform two out of the six ADL tasks. 

>>MORE: The Best Traditional Long-Term Care Insurance Companies

How Much is Long-Term Care Insurance?

Like all insurance policies, premiums vary by how old you are when you purchase the insurance and what the policy covers. If you buy a policy when you are 50, the average is $1,294 dollars a year for a per-person daily benefit of $161 and a limit of four years of benefits, assuming no adjustments for inflation. If you get a policy for both you and your spouse, the premiums increase by about 30% for the second person. 

You should buy long-term care insurance while you’re still relatively young and healthy. If you wait until you need it, you won’t qualify. Most people start thinking about long-term care insurance when they’re in their fifties. 

If you have personal savings you want to protect, can afford the premiums, and want choices as to who provides your long-term care, long-term care insurance may be for you. When you buy a policy, make sure Alzheimer’s disease is covered, as this is a major reason for needing long-term care. 

On the plus side, long-term care insurance can be tax-deductible. Learn more about the tax benefits of long-term care insurance.

Also, keep in mind that many long-term care policies have what they call an elimination period. This is basically a waiting period, where you’ll have to pay for your long-term care costs out-of-pocket before the insurance kicks in. It can be 20, 30, 60 or even 90 or 100 days, depending on your policy. 

Compare long-term care insurance quotes

From the top rated companies of both traditional and hybrid long-term insurance products.

What Happens If I Buy Long-Term Care Insurance and Don’t Need Long-Term Care?

That’s a huge disadvantage of long-term care insurance. If you do buy a policy and then wind up never needing long-term care, then all the premiums you paid just go to the insurance company. You don’t get anything back. You could argue that you also pay lots of money for car insurance companies and you don’t use it if you never get into an accident, but then again, it’s illegal to drive without car insurance. 

There is such a thing a hybrid long-term care insurance that was developed because of this. Several insurance companies have started offering this product and it has become more and more popular. Here is our analysis on the best hybrid long-term care insurance companies for your consideration.

It’s a combination of long-term care insurance and life insurance with a rider attached. Learn more about hybrid long-term care insurance here.

Pros and Cons of Long-Term Care Insurance

ProsCons
– You’ll have more say in where and what kind of long-term care you get
– You’ll protect your assets
– Tax benefits 
– Peace of mind
– You’re likely to require some kind of long-term care
– Long-term care insurance is expensive
– Should you not need long-term care, you’ll lose everything you paid in premiums
– Premiums can increase over time
– Guessing how much long-term insurance you might need requires fortune telling

Are There Alternatives to Long-Term Care Insurance?

Of course. Here are a few of them:

Group long-term care insurance: Some companies will offer this as a benefit. It’s cheaper than paying for it yourself

Paying for long-term care yourself: If you’re wealthy, this could work for you. You can just invest the money you would have paid in premiums and then pay for long-term care if you need it. 

Life insurance with a long-term care rider: These are increasingly popular, because in the event you don’t need long-term care, the money passes on to your heirs. To most people, this is much better than giving it to the insurance company. Learn more about accelerated death benefits (ADB) for long-term care in life insurance.

Hybrid long-term care and life insurance policy: To address the risk that you may invest a lot of money to a long-term care insurance policy but do not end up with needing it and lose all money, insurance companies develop hybrid long-term care and life insurance product. This has become more and more popular in the past years. If you end up with not needing it, your beneficiaries will receive the death benefit from the policy.

>>MORE: Hybrid Long-Term Care Insurance: Explained and The Best Hybrid Long-Term Care Insurance Companies

Health savings accounts: This is an account where you can set aside pre-tax money to pay for qualified medical expenses. You can earn tax-free interest on the account, too. You only qualify for this type of plan if you have a High-Deductible Health Plan (HDHP). How can you tell? For 2020, the minimum deductible for an individual is $1,400 and $2,800 for a family. You can also contact your health insurance company to see if your plan qualifies. 

Annuities: You can qualify for these even if you’re not in good health but expect to pay a hefty lump sum up front. Once you own the annuity, the growth on the account is tax-deferred and you’ll be able to receive monthly payments from the annuity. You can apply these to long-term care. 

Compare long-term care insurance quotes

From the top rated companies of both traditional and hybrid long-term insurance products.

Where to Buy Long-Term Care Insurance

Long-term care insurance market has become very difficult in the past decade. There used to be hundreds of companies in this market, only a handful still offer long-term care insurance today. Several reputable companies have exited the market such as John Hancock and CalPERS. (click on the link to learn more why they stopped offering long-term care insurance).

Among those remaining in the market are Mutual of Omaha, Transamerica, National Guardian Life, New York Life, Genworth, and Northwestern Mutual Life. We have written in-depth review of the long-term care product of these companies, below are some highlights:

Last Thoughts

Long-term care insurance will help you pay for long-term care if you need it. It is necessary since more than half of us will need it one day. Without it, you might drain your entire nest egg. Navigating the world of long term care insurance might be complicated with lots of products and options, if you need help to find the best policy for you, feel free to schedule a free 30-min consultation with our licensed advisor, we are happy to help. As a broker, we work with 30+ reputable life insurance companies and will be in your side to find the best policy for you.

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