Long-term care insurance (LTC insurance) is a standalone insurance product designed to help cover the costs for the assistance many elderly people need with activities of daily living (ADLs), such as walking, bathing, grooming, eating, toileting, and household chores. Medicaid, Medicare, and health insurance generally do not cover these costs, which is why long-term care insurance is so important to have.
When should you buy long-term care insurance, how does it work, and how much do you need? We’ll answer these questions and more in this complete guide to long-term care insurance.
Quick Article Guide:
1. Short Answer: The Sooner The Better
2. Does Everyone Need Long-Term Care Insurance?
3. What is the Daily Benefit Amount in Long-Term Care Insurance?
4. What is the “Elimination Period” in an LTC Insurance Policy?
5. Buying Long-Term Care Insurance in Your 50s
6. Buying Long-Term Care Insurance in Your 60s
7. Compare: Real-Life Rates at Ages 50, 55, 60, and 65
8. Long-Term Effects of Waiting Too Long to Buy Long-Term Care Insurance
9. Long-Term Care Insurance for the “Sandwich Generation”
10. Inflation Protection for Long-Term Care Insurance
11. Find the Best Long-Term Care Insurance Rates
You came to this article because you want to know when it’s necessary for you to secure a long-term care insurance policy, so let’s start with the short answer, which is to buy LTC coverage while you are relatively young and healthy. Many people purchase long-term care insurance around the age of 50 when they realize the cost of their parents’ care. It’s still possible to find affordable coverage in your 60s, but after that, it becomes a scramble. We will elaborate on this shortly but wanted you to have a clear-cut answer in the meantime.
The U.S. Department of Health & Human Services (HHS) estimates that 70 percent 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. HHS expects the number of individuals using paid long-term care services in nursing homes, assisted living facilities, and home care programs to double from 13 million in 2000 to 27 million by 2050.
Pair the likelihood of needing long-term care with New York Life’s estimate that the average annual cost of a nursing home is $96,000 and rising, and you can see why so many families rely on LTC insurance to pay for the high costs of long-term care. With the “less expensive” options of assisted living and home care capable of pushing $50,000 per year, even someone with significant savings can become financially distressed due to long-term care costs.
A long-term care policy pays a daily reimbursement of a specified sum, called the daily benefit amount. Most LTC policies are sold in $50 increments and offer daily benefit amounts ranging from $100 to $500.
While a long-term 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, call JRC Insurance Group at 855-247-9555 for friendly, personalized assistance with buying a long-term care policy.
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, long-term care costs during this time can severely overmatch any savings on your monthly premium.
Insider’s Tip: Long-term care insurance companies tend to have the most aggressive rates for policies with a 90-day elimination period.
Buying long-term care insurance in your 50s is a smart choice, because you can usually lock in a favorable rate. Just like life insurance, long-term care insurance gets more expensive as you age. It might seem subjective, but a 60-year-old is empirically more of a risk to a long-term care insurance company than a 50-year-old. The old saying, “not getting any younger,” sums this up perfectly. Even if you’re living healthily, you are still aging.
The American Association for Long-Term Care Insurance (AALTCI) explains that the average annual rate increases for long-term care insurance are 2-4 percent in your 50s before jumping to 6-8 percent in your 60s. AALTCI uses the following example to illustrate this reality:
“You are age 55. You want what we term a “standard” plan of coverage. That equals $172,600 in current benefits (based on a $150 daily benefit for a 3-year plan). Your cost is $1,084 per year because you qualify for the preferred health discount (spousal discount too).
Long-term care insurance protection should grow to keep pace with rising costs. The one we are illustrating does. So, by age 65, the $172,600 benefit you bought at age 55, will have grown in benefit value to $276,000. Someone age 65 (today) would pay $3,275 for $276,000 in coverage because it’s very unlikely they will still qualify for that good health discount.”
AALTCI’s example is from 2010, so we pulled real-life LTC insurance rates from March 2017 to illustrate the difference between buying long-term care insurance in your 50s and buying the exact same policy in your 60s. The rates below are for a policy with $200,000 in benefits, $5,000 per month in benefits, no deductible for in-home care, 90-day deductible for facility care.
50-year-old male: $73.80/month
50-year-old female: $110.77/month
55-year-old male: $85.55/month
55-year-old female: $131.80/month
60-year-old male: $105.44/month
60-year-old female: $165.85/month
65-year-old male: $152.41/month
65-year-old female: $236.13/month
Long-term care insurance is generally more expensive for women because they have a longer average lifespan, and thus are more likely to need long-term care for a longer period of time.
If you wait too long and develop serious health issues, you might not qualify for LTC coverage. Kiplinger explains this possibility in detail:
“Buying while still in good health has become more important as insurers tighten underwriting standards. Some companies have added blood-test requirements and started scrutinizing family health history for conditions such as heart disease and dementia. One-fourth of applicants age 60 to 69 are rejected, and 44% of those age 70 to 79 are denied coverage, according to the long-term-care association.”
If you do manage to secure a policy at a later age, there’s a good chance it will be for less than you would have paid if you had bought the same policy proactively instead of waiting until the need became apparent. This might mean choosing a shared room rather than a private room, or living in Miami, Missouri when you really want to be in Miami, Florida.
In the “sandwich generation” of Americans who are simultaneously caring for their aging parents while supporting their own children, long-term care insurance is a top concern.
If you fall into this category, consider purchasing long-term care insurance for your parents. According to the Kaiser Family Foundation, roughly 30 percent of the older population with long-term care have three or more ADL limitations and require substantial care. This means long-term care costs can run extremely high in many cases. If you can lock in long-term care insurance for your parents sooner rather than later, you won’t have to dip into your personal savings to pay for their long-term care.
We understand that you might not want to take on an additional monthly expense at this time. However, the difference between the cost of long-term care insurance and that of long-term care out of pocket is alarming.
The cost of a long-term care policy with $5,000 per month in benefits for a 65-year old male or female might run from $150 to $250 per month. That’s $1,800 to $3,000 per year. To put that in perspective, consider these stats:
- $96,000 per year for a nursing home
- Average nursing home stay: 2.3 to 2.6 years
- Up to $43,000 per year for assisted living
- $28,000 to $45,000 per year for home care
When we compare the cost of a nursing home vs. the cost of long-term care insurance, we’re pushing nearly a six-figure annual difference. Over the course of the average nursing home stay, you’re coming up on a quarter-million dollars! If you wish to leave behind an inheritance to your kids, failing to secure an LTC policy for your parents can deplete your savings later on, jeopardizing your ability to leave any inheritance. This advice is accompanied by many more tips, tidbits and examples in our article, “Everything the Sandwich Generation Needs to Know About Long-Term Care.”
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.
Are you shopping for long-term care insurance for yourself, your spouse, your parents, or all of the above? Count on JRC Insurance Group to provide the free, honest guidance you need. As an independent agency, we 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.
Call us toll-free today at 855-247-9555 for a free cost comparison between various long-term care insurance providers and policies.
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