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What is Long Term Care Insurance?
By Joan Pabón MONEY RESEARCH COLLECTIVE
Long-term care refers to services and support a person with a physical or cognitive impairment may need to carry out everyday activities.
Traditional healthcare plans don’t cover long-term care, and Medicare generally doesn’t cover custodial care — the type of support you would receive at home or in a nursing home. Depending on your income and assets, you may qualify for Medicaid, a government health insurance program that covers some skilled and custodial care services for people with low income and limited resources.
If you are over the minimum income threshold to qualify for Medicaid and don’t have family members or loved ones who can provide care for you, long-term care insurance may be an option. (Another – for well-off retirees – is to self-insure. If long-term care is needed, you draw from retirement savings or liquidate other assets, such as a home.)
The following guide provides an overview of what long-term care insurance is, how it works and what it costs to help you make better-informed decisions regarding long-term care planning.
Table of contents
- What is long-term care insurance?
- How does long-term care insurance work?
- Long-term care insurance cost
- How to choose long-term care insurance
What is long-term care insurance?
Long-term care insurance can help you cover some of the costs of custodial or skilled care, whether you require it due to old age, cognitive impairment or physical or mental illness.
According to the Administration for Community Living, people 65 or older have an almost 70% chance of requiring some form of long-term care in their later years, albeit only briefly for some. And while a third of the population may never need these services, about 20% will require care for five or more years.
The services covered by long-term care insurance can be provided in different settings, including nursing homes, assisted living facilities, hospices, respite care facilities, adult day care centers or in your own home. Regardless of where these services take place, their cost can be prohibitive for many.
While actual long-term care costs depend on where you live, the type of care you require and how long you need assistance, the following are national monthly averages for some common services:
| Service | National Average Per Month |
| Homemaker services | $4,957 |
| Home health aide | $5,148 |
| Assisted living facility | $4,500 |
| Adult day care | $1,690 |
| Semi-private room in a nursing home | $7,908 |
| Private room in a nursing home | $9,034 |
Source: Genworth Cost of Care Survey
Long-term care insurance can be a solution for those who don’t have family members or friends who can act as unpaid caregivers, don’t qualify for Medicaid and don’t have enough saved up to cover at least four years of long-term care services.
Types of long term care insurance
There are several different types of long-term care policies, each with particular features and benefit structures.
Stand-alone long-term care policies
Traditional or stand-alone long-term care insurance (LTCI) policies typically feature a daily, weekly or monthly benefit maximum as well as an overall maximum limit. Policyholders pay a premium for these benefits, which may increase over time. If the policyholder doesn’t end up requiring long-term care, they lose the benefit.
The National Association of Insurance Commissioners (NAIC) reports that the number of stand-alone long-term care insurance policies in the market has decreased considerably since their introduction in the 60s. Today, only about a dozen insurers offer conventional LTCI products.
LTCI policies are sold to individuals or groups and can be differentiated by their benefit structures:
- Reimbursement or expense-incurred policies: Will reimburse you for expenses incurred up to the limits you selected when you purchased the policy. If the services you receive cost less than the maximum the policy will cover, some plans put the unused amount into a pool of benefits you may use to extend the benefit period.
- Indemnity policies: Will pay out the maximum benefit you have selected, regardless of the actual cost of care you receive. This is in contrast to reimbursement policies, which will reimburse you for the cost of services rendered and no more.
- Pooled benefit policies: While other policies set a maximum amount they will cover for each type of long-term care service — say, up to $200 a day for a home health aid — pooled benefit policies offer a total benefit amount that applies to different care services.
Hybrid life and long-term care insurance
Hybrid policies combine a life insurance death benefit with some long-term care coverage. If the policyholder develops a cognitive or physical impairment and requires long-term care, a portion of the policy’s death benefit can be used to cover those expenses. If, on the other hand, the policyholder never needs long-term care, beneficiaries receive the death benefit in full.
Hybrid policies have two advantages over traditional ones: 1) the benefit isn’t lost if the policyholder doesn’t require long-term care services and 2) premiums are guaranteed never to increase. However, the main disadvantage of bundled life and long-term care policies is that they can cost almost three times as much as stand-alone policies — depending on the plan features.
Partnership for Long-Term Care programs
Residents of California, Connecticut, Indiana and New York may qualify for a Partnership for Long-Term Care program, which may help long-term care insurance policyholders qualify for Medicaid benefits without having to spend down their assets and savings to the Federal poverty level.
To participate, partnership programs require you to purchase a qualifying partnership policy, live in the state while receiving benefits and exhaust those benefits completely. Partnership plans vary by state, but they generally allow you to retain assets up to your LTCI policy coverage amount.
How does long-term care insurance work
Long-term care insurance policies cover different types of care, including hospice care, home health or respite care, and care provided at assisted living facilities, adult day cares or nursing homes.
Benefits generally kick in once the insured is unable to perform at least two basic activities of daily living (ADL) without assistance. These may include:
- Eating
- Bathing/personal hygiene
- Dressing
- Transferring/ambulating
- Toileting
- Continence
Coverage may also commence if a doctor certifies that long-term care is necessary or if the policyholder develops Parkinson’s or Alzheimer’s disease or suffers a stroke.
As mentioned in the previous section, policies differ in how benefits are paid out. While some plans offer lifetime benefits, most feature a benefit maximum or provide coverage for a predetermined number of years. After benefits rendered to the policyholder reach the coverage limit, the plan will cease to pay for long-term care services.
Long-term care policies also feature an elimination period, a timeframe during which the plan will not cover care services. Elimination or waiting period options are generally 30, 60, 90 or 120 days.
What does long term care insurance cover?
Long-term care insurance can cover the costs of care of those who medically require assistance with common activities like eating and bathing. Services may include professional medical care rendered by skilled nurses or licensed caregivers — injections, physical therapy, wound and ulcer care, etc. — or custodial care provided by a non-licensed caregiver either at home or in a nursing home.
Some long-term care insurance policies also cover homemaker services like cleaning and meal preparation or home health aide services, including help with feeding, bathing and health monitoring. Rare plans may also cover the cost of care provided by the policyholder’s family members.
Long-term care insurance cost
The cost of long-term care insurance will depend on a number of factors, including:
- Your age: Your chances of getting denied for long-term care insurance coverage increase as you age. According to the Insurance Information Institute, your odds of being rejected increase from one in ten to four in ten between the ages of 50 and 70. Additionally, the older you are when you purchase coverage, the higher your premium will be.
- Your gender: According to the American Association for Long-Term Care Insurance (AALTCI), women account for the vast majority of long-term care insurance claims. Since women tend to have greater longevity than men and are therefore more likely to require long-term care, premiums for this population tend to be higher.
- The amount of coverage you select: The monthly, weekly or daily benefit amount you select, as well as your policy’s overall maximum benefit or coverage length, will greatly affect your premiums.
- Your policy’s waiting period: Having a longer waiting period means you would have to cover LTC services out of pocket for a prolonged interval were you ever to need care. Naturally, choosing a shorter waiting period will be more expensive, as the plan will cover your costs of care sooner rather than later.
- Whether you buy inflation protection: Adding features to your policy, such as an inflation protection rider, will increase what you pay for coverage — especially if you are a woman. Nevertheless, inflation protection is recommended for those purchasing a policy in their younger years, as even a 3% annual inflation over a 24-year period could reduce an LTCI benefit by almost half.
Long term care insurance cost by age
According to the American Association for Long-Term Care Insurance, premiums for LTCI products can vary considerably by state, between insurers and based on your personal details and choices. For this reason, the association recommends speaking with a specialist before purchasing coverage.
The association also states long-term care insurance premiums increase based on your age at the time you apply. Annual rates go up by 2% to 4% in your 50s, but can reach 6% to 8% per year just a decade later. The general advice is to purchase long-term care insurance as early as possible or between your early 40s or mid-50s.
The following examples are from AALTCI’s most recent annual Price Index survey of leading long-term care insurers. They illustrate long-term care insurance price differences by age, health and plan details in the state of Illinois.
| Applicant Details | Annual Premium |
| Single Female, Age 55 | $ 2,675 (some health issues) |
| Single Female, Age 65 | $ 2,100 (good health) $ 3,100 (some health issues) |
| Single Male, Age 55 | $ 1,700 (some health issues) |
| Single Male, Age 65 | $ 1,400 (good health) $ 2,100 (some health issues) |
| Couple, Age 55 | $ 3,050 (some health issues) |
The annual premiums shown above are for a pool of benefits equal to $164,000 for 55-year-olds and $164,000 for 65-year-olds. Note that rates for policyholders aged 55 include inflation protection (3% compounded annually), which factors into the overall cost.
How to choose long term care insurance
If you’re looking to purchase long-term care insurance, start as early as possible. As you age, your chances of being denied coverage increase — as do potential premiums.
According to data collected by the Insurance Information Institute, 15% to 25% of people over the age of 65 are not eligible for long-term care insurance. Moreover, almost 10% of people living in nursing homes and 30% of those receiving home healthcare services were under the age of 65.
Besides looking for coverage early, here are some steps you can follow when shopping for long-term care insurance coverage:
1. Take stock of your finances
Consider potential long-term care expenses and whether you have enough saved up to cover them. If your only option is a long-term care insurance policy, NAIC recommends not spending more than 7% of your income on monthly long-term care insurance premiums. If you’re buying a policy before the age of 65, consider adding inflation protection to your policy — if you can afford it.
2. Consider the insurer’s financial strength
Since you won’t be tapping into your long-term care benefits immediately, seek to do business with an insurance company that has been around for years and is financially stable to pay out claims in the future. Financial strength ratings from independent rating agencies like AM Best can help you determine whether a company is on a sound financial footing.
3. Compare policies and premiums
Once you’ve selected a number of trusted companies offering long-term care insurance policies, get quotes from several insurers and compare plan details to get the best price for the benefits you want. Reading online reviews of the best long-term care insurance companies can also be a good starting point if you’re unsure which plan features might best suit your care needs.
4. Consult a specialist
Lastly, review your policy with a specialist to understand how it works, including the components we mention in this guide: benefit triggers, waiting or elimination periods, benefit limits, duration of coverage, etc. An expert can also help you choose a coverage amount, weigh in on whether you should consider a life insurance policy or annuity with an LTC rider or a stand-alone LTCI policy, and help you select other plan details based on your situation.
Joan is a professional translator, writer and editor with a special interest in personal finance and insurance topics. She has been a contributing author and independent researcher at ConsumersAdvocate.org since 2017 and an editor at Money since 2019. Her work has been featured in MSN Money and Apple News.