Although it can be difficult to think about, there’s a good chance that you, or someone close to you, will need help taking care of themselves as they get older.
And as with any extended care situation, cost can be a real issue for many people.
That’s where long term care insurance can be very helpful.
Long term care insurance is supplemental insurance that people buy to help pay for extended care situations when they’re ill or incapacitated in their senior years. Long term care coverage is beneficial for older adults who are chronically ill or suffering from dementia and cannot provide basic care for themselves.
It can help pay for live-in care or assisted living facilities, or provide for improved nursing home care. It is not always included in standard Medicare or health insurance policies, and it has several key differences.
In this guide, we’ll walk through how long term care insurance works and different things you need to consider before you purchase it.
How Long-Term Care Insurance Works
If you develop dementia or Alzheimer’s, or you become ill or afflicted with chronic medical conditions that prevent you from performing two or more standard daily self-care activities such as bathing and dressing, long term care insurance can help.
This type of insurance pays for the cost of an in-home nurse, a stay at a nursing home, living in an assisted living facility, or attending adult day care.
Standard care activities include:
- Taking a bath or shower
- Cleaning up when incontinent
- Feeding yourself
- Getting in and out of bed
- Getting on or off the toilet
- Dressing yourself
Long term care insurance is an additional and separate insurance from your standard health care insurance policy. You’ll need to apply for the insurance, submit medical information, and possibly have a physical to determine your eligibility.
As with other types of insurance, you get to choose the amount of coverage you’d like, and what types of benefits it provides.
Once you’re approved for long term Care insurance, you may have a waiting period before you’re able to use it. The waiting period varies from one policy to another.
Your policy may be set up as either an expense-incurred, or an indemnity policy. An expense-incurred policy is one in which you pay for the care services yourself, then submit a reimbursement claim to the insurance company. An indemnity policy will simply pay you a specific dollar amount, regardless of what type of services you’re using. Each type of long term care insurance may have both a daily payout dollar limit and a total policy payout limit.
Why Should You Buy Long Term Care Insurance?
Paying for specialized care in your older and infirmed years can often cost more than many people make in a year. In 2018, the annual cost for assisted living on the low end was close to $50,000, and a private room in a nursing home on the high end was almost $100,000. The median in 2019 was just under $90,000.
Having long term care insurance helps protect your savings and retirement while also providing you with more options for care as you age.
Many people begin to experience declining health in their 50s and 60s. Some will have chronic diseases that prevent them from living everyday life normally, and others will suffer from dementia or Alzheimer’s.
Due to the long life that most of us experience in the modern world, declining health and self-care ability is no longer a matter of if, but when.
Since long term care benefits are limited or nonexistent through Medicare or other basic health policies, it’s prudent to buy this coverage before you need it. Not all states will pay for nursing home care, for instance, and most will not provide in-home or assisted living care. When Medicare does provide for long-term care, you have no choice in where or how you’ll be cared for.
Most people buy long-term care insurance in their mid-50s to early 60s so they’re able to secure a reasonable price before any major health problems set in. If your family has a history of medical problems at younger ages, however, you may want to consider buying it a little earlier.
Obviously, the opposite may apply as well. If your family has a history of living long, healthy lives, it may be a waste of money to purchase long-term care insurance in your 50s and continue paying for it for 40 years without needing it.
What Are the Alternatives?
The primary alternatives to long term care insurance are generally either family, or government. You could also pay for different types of insurance, such as disability or critical care.
If you have a spouse that is much younger or healthier than you, they may be able to provide most of your care as you age. It’s not uncommon for adult children to provide the same services.
A healthy spouse or adult child is often able to help with day-to-day life care, especially if they live in the same household. Having a family member there is much like having a live-in nurse or caretaker. They can help an older adults get dressed, get in and out of bed, take a bath or shower, eat regularly, and so on.
This is often quite exhausting for the caretaker, however, and they may not be able to work outside the home or have much time for themselves. If the older adult has dementia or Alzheimer’s, there may also come a time in which the family caretaker can no longer provide for the person safely.
In the United States, Medicare is provided by the government to provide health services to older adults. This coverage varies in benefits and amounts of coverage from one state to another, and long-term care is quite limited.
Sometimes a chronically ill older adults may only be able to qualify for long term care in a state-run nursing home. Medicare does not normally allow patients to choose their care facility and level of benefits, nor does it provide for in-home care, which is why having long term care insurance could be a benefit.
Alternative insurance policies may be an option as well.
Critical care, or catastrophic, insurance helps provide additional coverage for emergencies and illnesses, such as having a stroke or getting cancer. This insurance supplies coverage above what your standard health insurance may provide, because the standard coverage may not be enough. It’s relatively cheap, however it often only covers limited events and scenarios. These limitations may not help when long-term care is needed.
Disability insurance is useful for replacing part of your income if you become unable to continue working due to disease or illness. Since this insurance replaces lost income, it may not apply if you are already retired before you begin needing long-term care.
What Companies Provide It?
Unfortunately, many standard health insurance companies no longer offer long-term care insurance policies. Low interest rates put into place by the government and held since 2008 has caused many insurance companies to stop providing this type of coverage.
Some companies still provide it directly to consumers, but no longer offer it through brokers or agents.
At the time of this writing, long term care insurance was available through about a dozen companies, including:
It’s also possible that you may be to purchase long term care insurance from your employer. While employers who offer this benefit must meet certain criteria, a person looking for coverage might have their best chance of qualifying by purchasing it from an established group plan offered through one’s workplace.
How Much Does Long Term Care Insurance Cost?
The cost of care will vary based on age, your level of health, the type of benefits you want coverage for, and the dollar amount of benefits you want. Women generally pay more than men because they live longer, and married couples often receive discounts.
Cost also varies depending on the provider you select, which is why you should compare prices for the same amount of coverage from different companies before choosing one.
You can purchase more coverage for a higher premium with richer features, such as higher limits on daily and lifetime benefits, cost-of-living adjustments to protect against inflation, shorter elimination periods, and fewer restrictions on care covered.
In 2019, a 55-year-old man paid just over $2,000 annually, a woman of the same age paid $2,700, and a couple paid a little over $3,000, all for the same amount of coverage and all in good health.
Unlike some types of insurance, long-term care insurance rates can rise over time. This means that what you start out paying is not always what you will continue paying throughout your retirement years.
Rate hikes usually must be approved by regulators, but those hikes are often granted to help cover the cost of increased claims, inflation, and related reasons. When insurance companies are approved to do so, they will raise your insurance premiums.
Tax Benefits To Long-Term Care Insurance
Long term care insurance can potentially have some tax advantages, especially as you get older.
In the United States, the federal and some state tax codes allow you to count part or all of your premiums as a tax deduction, as long as they exceed a certain threshold. The limits on deductions decrease with your age.
According to IRS Revenue Procedure 2018-57, these are the maximum deductible amounts based on age:
- 40 or under $420
- 41 to 50 $790
- 51 to 60 $1,580
- 61 to 70 $4,220
- 71 and over $5,220
To be able to claim long-term care insurance premiums as a medical expense, you need to purchase a “tax-qualified” policy. This means that they meet specific Federal criteria and are specifically labeled as tax qualified.
State Partnership Plans
Many states partner with long-term care companies to offer partnership programs. They do this as a way of encouraging people to think about and plan for their long term care.
The American Council On Aging describes how these partnership plans work:
Long Term Care (LTC) Partnership Programs are a collaboration between private long-term care insurance companies and a state’s Medicaid program. The intention of partnership programs is to encourage the purchase of long term care insurance to help cover the costs of long term care, while also alleviating the burden on the states to pay for this type of care via Medicaid. Of particular relevance to seniors who may need long term care Medicaid in the future, participating in a partnership program protects some (or in some cases, all) of a program participant’s assets (resources) from Medicaid’s asset limit.
Normally, an individual would have to spend down their assets to $2,000 before being eligible for Medicaid. However, if you purchase a partnership long-term care insurance plan, you can qualify for such assistance before meeting this threshold. This allows you to protect some of your assets while still benefiting from Medicaid. For every dollar your plan has paid out, you get to keep a dollar that would normally go towards qualifying for Medicaid.
To get more information regarding partnership programs, contact your state’s Department Of Insurance.
Medicare does not usually pay for adult day care services, assisted living facilities, or certain nursing home facilities. It may also limit in-home health care if it allows for that service at all. Long term care insurance gives you the option to supply those services for yourself when needed or desired.
If you’d like to be able to continue living with your spouse or adult children, for instance, having the option to go to an adult day care while they’re working, or to give them a break from caring for you would immensely ease their burden. A similar scenario applies to assisted living facilities or in-home health care.
Many older adults are able to continue living somewhat independently when they have the right support systems in place. With long-term care insurance, you’re able to provide yourself with those support systems and not be left to the mercy of your state’s Medicare services, or lack thereof.
While it may be unpleasant to envision yourself incapacitated enough to need assistance dressing, bathing, or using the bathroom, living a longer life almost guarantees that these ministrations will be needed eventually. Buying long-term care insurance allows you to exact a measure of control over how, when, and where you will receive those services.