The U.S. Department of Health and Human Services (HHS) estimates that 70% of people over the age of 65 will need some form of long-term care during their lifetime. Many will require support and services for several years, which can lead to high medical costs for family members. The 2016 average cost for a private room in a nursing facility, for example, was $7,698 per month or $92,376 per year.
Regardless of how gracefully you may be aging, the reality is that you will, at some point, need assistance with daily activities—whether from an in-home care provider, nursing home, or assisted living facility. In this article, we will provide an introduction to long-term care insurance (LTC), which many families turn to in order to mitigate the high costs of long-term care.
Quick Article Guide:
1. What is Long-Term Care Insurance?
2. How Does Long-Term Care Insurance Work?
3. The Four Main Elements of a Long-Term Care Policy
4. Standalone LTC vs. LTC Riders
5. Finding the Best Long-Term Care Insurance Rates
Long-term care insurance is designed to cover the daily care needs of the elderly, also known as activities of daily living. Activities of daily living or “ADLs” are essential to independent living and include; bathing, grooming, dressing, eating, toileting, walking, etc. Since health insurance, Medicaid, and Medicare typically do not cover these costs, LTC can prove extremely helpful, especially considering the following stats:
- By 2050, the number of individuals using paid long-term care services in any setting will likely double from the 13 million using services in 2000 to 27 million. (HHS)
- Roughly 30 percent of the older population with long-term care needs have three or more activities of daily living (ADLs) limitations and require substantial care. (Source: Kaiser Family Foundation)
It’s important to understand that long-term care insurance is not health insurance, but rather a separate addition to any health coverage you might already have.
The U.S. Department of Health and Human Services, or HHS, offers the following definition for long-term care insurance:
“Long-term care insurance policies reimburse policyholders a daily amount (up to a pre-selected limit) for services to assist them with activities of daily living. You can select a range of care options and benefits that allow you to get the services you need, where you need them.”
Long-term care insurance can be purchased in one of two ways:
- As a standalone insurance product, OR
- As an add-on or “rider” to life insurance.
At JRC Insurance Group, we are happy to assist you with finding LTC coverage via either route. Regardless of which option you choose, purchasing the coverage sooner rather than later will save money in the long run. As with any type of health or life insurance, premiums generally rise with each year you age, because the insurer is assuming a higher risk.
It’s also important to note that if you are already receiving some form of long-term care, or if you are in poor health, you may not qualify for long-term care life insurance. This is why it is so advantageous to lock in your policy and rates when you are young and healthy.
The HHS explains that the cost of long-term care insurance is determined by several factors. To keep things simple for you, we’ve divided the anatomy of a long-term care policy into four parts:
Every long-term care policy has an amount of time that must pass before the benefits kick in. This is called the elimination period, which is usually somewhere between 30 to 180 days. During the elimination period, you are fully responsible for any long-term care costs. While a longer elimination period might save money on the front end of your policy, the savings are often negated by increased costs once the policy does begin. Long-term care insurance companies tend to have the most aggressive rates for policies with a 90-day elimination period.
Long-term care insurance functions similarly as a term life insurance policy. Your long-term care policy will provide a benefit for a set period of time, usually 3 to 5 years. The longer the term, the more expensive the policy will be, because the insurance company is putting themselves on the line to pay a larger sum.
Daily Benefit Amount
An LTC policy will pay a daily reimbursement up to an agreed upon figure, called the daily benefit amount. While a LTC care policy with a lower daily benefit amount may be less expensive, you’ll want to consider the cost of long-term care in your state before deciding on an amount. With the cost of a nursing facility pushing $100k per year in most states, you probably will want to secure a daily benefit amount of at least $250 to $300 to be adequately insured.
If you’re not sure how much coverage you need, we’re here to help. Most LTC policies are sold in $50 increments and offer daily benefit amounts ranging from $100 to $500.
LTC can come with various add-ons, the most notable being inflation protection. As the average cost of care continues to rise year after year, inflation protection can provide peace of mind in knowing your policy will hold the same value down the road—when it’s needed most—as it holds now. Most LTC insurance policies offer 3-5% compounded inflation protection; the higher inflation protection percentage you choose, the higher the cost of your policy. But again, the extra cost can be worth it to know that you’re covered.
Long-term care life insurance can be purchased as a standalone policy or as an addition to life insurance policy, also known as a LTC rider. Choosing between a standalone LTC policy and life insurance with a long-term care rider can be difficult when you’re not sure of each policy’s cost, benefits, and limitations. That’s why we’re here to provide expert guidance.
Depending on your unique financial and family situation, we can help you determine the most cost-effective product for your needs. For a complete guide to the different ways you can purchase a LTC policy, you can also visit our previous article on life insurance with a long-term care rider.
When shopping for long-term care insurance, here are a few tips to keep in mind to find the best rates:
Buy While You’re Young
Buying a LTC policy in your 40s or 50s could save you immensely compared to waiting until you’re in your 60s or later. Remember, the older you get, the higher the cost of any type of life insurance or long-term care coverage. Even if you’re paying for the policy sooner, you’ll be saving yourself from potentially astronomical costs later on. In addition, if your health declines as you get older, you won’t have to worry about being ineligible for a LTC policy.
Being Married Helps
Are you married or do you live with your significant other? If so, you can expect favorable LTC rates–roughly 10-15% lower than single applicants. If you and your spouse or domestic partner apply for long-term care life insurance together, you can expect a discount of up to 35%. This is because the insurance company assumes that your spouse or partner will be able to provide some of the care needed in your latter years, delaying an influx of daily care costs with a provider or care facility.
Know Your Needs and Means
If you don’t have a large savings set aside, it may be advantageous to select a policy with a shorter elimination period. Remember, though, you’re responsible for all of your long-term care costs until your policy’s elimination period has ended. If you’re more concerned with the monthly cost of your coverage and you have an ample amount of money set aside for your retirement, consider buying a policy with a longer elimination period.
Shop Multiple Providers
The best practice when shopping for an LTC policy is to work with an independent agent who can shop the market on your behalf. Don’t just go for the first policy you see; different insurers cater to different types of applicants, and you might miss an opportunity to lower your cost with a lesser known but equally reputable company.
Not sure where to begin? We can help.
As an independent agency, JRC can retrieve quotes from various top-rated insurance companies in a matter of minutes. By having access to numerous companies and their underwriting guidelines, we’re able to match our clients with the most affordable options available.
Our owner-operated agency is licensed to sell life and health insurance throughout the United States and there is no obligation or cost for summoning our services. We can also help you assess your overall needs to determine exactly what coverage you should buy—nothing more, nothing less. We’re here to save you money and provide you with the information you need to make an informed decision. Call us today, toll-free, at 855-247-9555.
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