Planning for Long-Term Care Insurance


Last posted at RetiredBrains

Long Term Care Insurance is private insurance designed to help pay for nursing home or home health care expenses. It is available to individuals and may be available under a group policy. You pay a premium to an insurer in return for protection against the high costs of long-term care. Long-Term Care can be expensive; especially for retirees living on a fixed budget. The reality is that one-in-three long-term care policy holders will wind up using their long-term care policy at some point in their retirement.

  • Federal data shows that about half the people who turn 65 today will not have any need for long-term care. But 27% will spend at least $100,000 on long-term care during their lifetime, and about 15% will face costs over $250,000. Unfortunately millions of Americans who need long-term care end up paying for it out of pocket or, in some cases, after impoverishing themselves. It is estimated that at least 10 million Americans are currently in need of long term care services and support and this figure is projected to increase to 15 million by 2020. Research from the National Bureau of Economic Research estimates that a 50-year-old has a 53 to 59% chance of entering a nursing home during his or her lifetime. In a recent study by the Employee Benefit Research Institute 62% of those at or above age 85 recorded overnight stays in a nursing home facility.
  • According to a John Hancock national study of long-term care costs,  the average annual cost of care in the U.S. was $94,170 for a private room in a nursing home ($82,855 for a semi-private room); $41,124 for an assisted living facility and $18,460 for adult day care. The average annual cost of care received at home was approximately $29,640. These figures show that long term care insurance is expensive. Many feel it has little value if the insurance money is never used; however it should be thought of as financial protection and not an investment.  What must be considered is the catastrophic loss a long term care policy helps avoid.

A long-term policy is supposed to pay for in-home, assisted living or nursing home care. Typically, benefits will be triggered by diminished mental ability, as with Alzheimer’s, or if you can’t perform activities of daily living: walking, dressing, bathing or eating for instance. Many insurers spell out a list of activities; you must be unable to do a certain number of them for benefits to kick in.

The cost of premiums depends on the insurer, as well as the policy’s provisions. Some provisions will affect your price more than others. Typically, you can’t get a long-term policy after age 79.

Yearly premium costs

​According to the American Association for Long Term Care Insurance a 55-year-old single male purchasing new long-term care insurance protection can expect to pay an average of $925-per-year for $164,000 of benefits.  He’ll pay $1,765 for coverage that increases the benefit pool to $365,000 at age 85. Policies offering $100 a day in benefits with a 5%  annual inflation protection and a 90-day deductible now average over $5000 a year up from up from $1982 seven years ago. Premiums on policies have more than doubled over the years as people are living longer and they will continue to increase at 5% a year and possibly more in years to come as some insurers are getting out of the business.


Benefits and explanations of coverage

  • Daily benefit. The amount per day the policies pays. ($100, $200, etc.)
  • Length of benefit. You can buy policies that pay for one year, three years — or as long as you need them. The longer the benefit, the more you pay.
  • Waiting period. A policy that kicks in as soon as you need it will cost more than one that won’t start until you’ve paid for 30, 60 or 90 days of long-term care yourself.
  • Health. If you’re in good health, you can often get a discount. If you’re not, you may not be able to get long-term insurance at all.
  • Features. Many policies offer an inflation feature; your benefits will be adjusted up for inflation every year. Typically, a policy whose inflation feature is linked to the consumer price index is cheaper than one that awards a flat 5% inflation boost to benefits each year. If you’re worried about cost, opt for a policy that pays out for three years. The odds are good you won’t need more than three years. A recent study found that just 8% of claimants with three-year payout policies exhausted their benefits, according to the Long-term Care Association.

Your choice of coverage should depend on a variety of factors; however If Alzheimer’s runs in your family, consider opting for unlimited benefits.


Why long term care insurance is so important

Caregiving takes its toll on retirement savings Nearly three in four family members serving as primary caregivers to loved ones report a reduction in their savings plans as a result of a long term care event, according to Beyond Dollars: The True Impact of Long Term Caring, a study released by Genworth Financial includes the following information: 80% of care givers reported decreasing their retirement contributions; nearly half of primary caregivers have lost a job or missed career opportunities as a result of family care giving responsibilities.


Long Term Care Insurance Cost Calculators

If you are interested in checking the cost of various long term care policies go to the Federal Long Term Care Insurance Program. Here you can enter your age, the daily benefit amount you wish to receive, the length of time you will continue to receive benefits and the waiting time before the benefits will start and your premium will be shown.

For example if you are 60 years old and want insurance that will pay you $200 a day for up to 5 years with a waiting period of 90 days before payments start, the cost is estimated at $243.64 per month with a maximum total lifetime payment of $365,000. This quote includes a 4% inflation option.


Tips for Buying Long Term Care Insurance

  • Buy from an established national company with financial strength. Remember: You’re buying a policy you may not need to use for many years and you want the insurer to stick around.
  • Look for flexibility. Make sure your policy will pay for home health care, nursing home care, or even respite care, which gives caregivers a break. Also be sure the policy will cover Alzheimer’s and other long-term cognitive disorders.
  • Buy the inflation rider. A payout of $100 a day would be worth only $76 a day after 10 years of 3% annual inflation.
  • Shop around. Insurers have the right to change premiums. Don’t just look for the lowest initial premiums. Insurers with low prices now might raise rates later.
  • Should you buy long-term care insurance? It depends. The odds of spending many years in a nursing home are fairly low if you’re in good health and have no family history of Alzheimer’s or stroke. But if you fear being a burden to your family, or if you don’t want to wind up in a nursing home paid for by Medicaid, you might consider a long-term care policy.
  • There’s no sense in buying long-term care insurance if you’re behind on paying your bills or funding your retirement.

At least half of the population 85+ will need help with some of the activities of daily living. Such care is provided when someone can no longer independently carry out essential everyday activities like eating, bathing, dressing, etc. Most people think of long-term care as something needed by older people, but accident or illness can strike someone of any age. When it does, they too may find themselves in need of assistance.

Traditionally, women in U.S. families have provided this care when needed. However, today’s smaller families may be scattered across the country, and many women are now working outside the home. What’s more, caring for a loved one full-time can overwhelm even the most devoted family member. As a result, more caregivers than ever are turning to outside resources to help with the care of a family member.

Many people automatically think of nursing homes when they think of long-term care, but there are other options available as well, some provided in your own home or others in the community.


Do retirees need long-term care insurance?

Health care costs are a big concern for people going into retirement, but the costs of long-term care can still be a shock.

Here are a few facts:

  • 70% of people over 65 will need some form of long-term care at some point. Statistics show that at least 6.4 million people aged 65 or older today will need long-term care within one or two years after turning 85.
  • For married couples, the chance that one spouse will need long-term care rises to 91%.
  • People living alone are more likely to need some sort of home health care.
  • Women outlive men, and thus, are more likely to live alone and need some sort of home health care.

So, while some financial planners previously were on the fence about purchasing long-term care insurance, most were still encouraging people to at least have a plan for long-term care.

Since long-term care insurance provides the elderly or infirm with the opportunity to stay in their homes, this is an important factor in the selection process. If this is where the insured wishes to be, as opposed to a facility like a nursing home, long term care is probably the right choice.

Several things were working against the broad appeal of long-term-care insurance over the years. A major problem is the expense. The insurance industry has seen some dramatic rate increases in the past several years as a result of new drugs and better care to extend lives. As a result several insurance providers got out of the business entirely as it became less profitable.

How your net worth should determine your decision to purchase.

​Be aware that straight long-term care premiums don’t offer a guarantee against premium hikes.

If you have no money and have need, Medicaid will pay for it. But you have to be broke. If you have a lot of money you can pay your expenses out of pocket. It’s the people in the middle, $100,000 to $1 million in net worth that have the problem. A few years of paying for long-term care can wipe out entire savings and leave you have flat broke. These are the people who should be willing to spend a few thousand a year for long term care insurance as protection.

Some say “It’s very expensive and I don’t know if I’ll need it, so I’ll just do nothing.” These are the people who blow through their savings.


At what age should you consider purchasing long term care insurance?

Stand-alone long-term care insurance is an imperfect financial hedge to a complex situation. And for many people it doesn’t make sense to pay for a policy that may never deliver its promised benefits.

While insurance premiums are lowest when you’re younger, you may not need it for decades, if at all. In the interim, most policy owners face premium increases, which is why many people let the policy lapse, leaving them with no coverage and no compensation for money spent on premiums.

Lifetime long term care coverage is no longer offered by most insurers, and unlike basic health insurance, you can be rejected for a policy based on health history. Some 45% of applicants age 70 or older were denied coverage.


Check the credentials of your advisor

Remember that the insurance professional advising you likely has a financial stake in selling you a policy. Consider one who follows a fiduciary standard that should put your best interests first. You should work with a professional who asks for a complete picture your family’s financial resources and evaluates this along with your health and the health risks of your family prior to selecting a policy or possibly recommending against a purchase.

Be aware there are now a number of newer products called hybrids which add on long-term care benefits to life insurance and annuities which may be appropriate; however they add even more layers of cost and complexity. Another reason to select an advisor to help in the selection process.

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