Long-Term Care Insurance for the Elderly: What You Need to Know
By Luke Redd
| Last updated
It feels good to imagine living all of your senior years without any worry. That's why the topic of long-term care insurance for the elderly is worth learning more about. After all, some people eventually need help with basic activities of daily living—things like eating, bathing, getting dressed, using the bathroom, taking care of personal hygiene, or moving from place to place. You may never need that sort of help, but wouldn't it be nice to know that you could access care if it ever became necessary?
For those who need it, long-term care (LTC) is a saving grace. Of course, the longer you live, the greater your chances of eventually needing LTC—as well as a reliable way to pay for it. (If you're wealthy, paying for care is probably not an issue. If you're financially disadvantaged, you can use Medicaid for certain types of care. But if your financial situation falls somewhere between those two extremes, your options may be a little less clear.)
That's where long-term care insurance (LTCI) comes in. Under the right circumstances, it can provide peace of mind and the ability to pay for extended help if you ever need it. But this care-funding option isn't right for everybody. So it's essential to understand the potential advantages as well as the risks. This article will give you a good introduction to the topic.
The following information is not a substitute for professional, personalized advice. Everyone's circumstances are different.
What Is LTC Insurance?
Long-term care (LTC) insurance is a type of financial product that can help you cover the costs of home care services or an extended stay in a nursing home, assisted living residence, memory care facility, or hospice. It provides a way to ensure that you and your family will be able to afford your care in the event that you eventually need assistance with two or more activities of daily living. When you purchase an LTC policy from an insurance company, you pay a certain amount of money (i.e., a premium) each month in exchange for a guarantee that your future care costs will be covered in accordance with the specific terms of your particular agreement.
Many families and individuals decide to buy LTC insurance because of the fact that Medicare only pays for long-term care under very limited circumstances and Medicaid is designed for people with low incomes and low-value assets. Plus, Medicaid programs vary from state to state in terms of what they do or do not cover. So, for example, your state may or may not cover assisted living. By purchasing an LTCI policy that covers the types of care you may need in the future, you can give yourself more options if a time ever comes when you or your family have to pursue long-term care.
However, it's important to know the potential limitations of LTC insurance. Most policies include a lot of exclusions. For example, services that are not covered by long-term care insurance usually include:
- Hospital care
- Care for self-inflicted injuries
- Paid care from an immediate family member
- Care for illnesses or disabilities caused by war or participation in illegal activity
- Treatment for alcohol abuse or self-induced drug addiction
- Care for certain pre-existing conditions such as diabetes, dementia, mobility problems, or HIV-related illnesses
Most LTCI policies are comprehensive, which means that, aside from exclusions, they cover a wide range of services, including home care and assisted living. But some policies only provide coverage for facility care. That's why you always need to read all the terms of any policy you're considering very carefully before buying it. Here are other terms that are crucial to understand:
How Much Does Long-Term Care Insurance Cost?
When you buy insurance for long-term care, premiums are based on several different factors. For example, in addition to the benefit amounts, elimination period, and types of coverage you choose, LTCI rates are also based heavily on your age, existing health, and whether you are purchasing a single policy or a combined policy for you and your spouse. Long-term care insurance rates also vary significantly from company to company, even when the terms are nearly identical. So unless you shop around and compare, it's difficult to get a handle on exactly how high your premiums will be. There are simply too many variables at play.
That said, you can get a better idea of today's LTCI costs by looking at the following examples of monthly premiums. They are based on a survey of top insurers by the American Association for Long-Term Care Insurance (AALTCI) for a policy with a 90-day elimination period, three-percent inflation protection, and a maximum life benefit of $164,000 in 2018 dollars (which would cover three years of care at $150 per day). These examples also break down the cost of long-term care insurance by age (from 55 to 65 years old) as of 2018:
You'll notice that a woman's premiums are generally a lot higher than a man's. That's because women live longer, on average, and therefore tend to require more long-term care. You'll also notice that the best deals are usually offered to married couples under a "shared care" policy (especially when each person is close to the same age). That's because the chances of each spouse requiring a lot of long-term care are relatively low. Regardless, you can expect to pay higher premiums for higher benefit amounts and shorter elimination periods. In addition, the younger you are when purchasing your policy, the lower your premiums will be going forward.
Also, keep in mind that insurance companies tend to raise premiums by at least a small percentage every so often. So you need to budget for those potential increases. The good news is that if you buy a tax-qualified (TQ) policy, you can deduct your long-term care insurance premiums on your federal income tax return—up to a certain amount. For example, here are the LTCI tax deductible limits, by age range, for 2018, according to AALTCI:
- Age 50 to 59—$1,560
- Age 60 to 69—$4,160
- Age 70 and up—$5,200
Do I Really Need Long-Term Care Insurance?
It depends. You should consider a number of major factors, such as your family situation, your chances of needing future long-term care, and your current and future financial health. First, however, you should consider what LTC may cost in the decades ahead. (Hint: It will be expensive.) For example, check out the projected yearly median costs of the following types of long-term care in 2037 (based on Genworth survey data and a conservative annual inflation rate of three percent):
- Nursing home care (private room)—$176,015 (compared to $97,455 in 2017)
- Nursing home care (shared room)—$154,919 (compared to $85,775 in 2017)
- Home health care—88,846 (compared to $49,192 in 2017)
- Homemaker services—$86,574 (compared to $47,934 in 2017)
- Assisted living—$81,275 (compared to $45,000 in 2017)
As you can see, nothing costs more than staying in a nursing home. Insurance companies know that few people can afford an extended stay in one. That's why the best LTCI policies aim to cover the daily or monthly costs of nursing home care. But it's also why premiums can be so high.
So, is long-term care insurance a good investment? For some people, it definitely is. The answer might be yes if:
- Your net worth is between $200,000 and $2 million
- You have a good income that you can count on indefinitely
- You want to protect your assets
- You have a family history of illnesses that have required many years of LTC (such as dementia)
- You want to purchase long-term care insurance for parents who have assets you hope to inherit
- You don't want to rely on help from your family or the government
On the other hand, LTC insurance isn't the best option for everyone. So the answer might be no if:
- Your net worth is below $200,000 or above $2 million
- Your income is low or can't be counted on indefinitely
- You wouldn't be able to easily afford a premium increase of 50 percent or more
- You don't have valuable assets to protect
- You don't have any heirs, or you don't care about passing on any assets
When considering this question, think about these facts: For somebody who purchases an LTC insurance policy when he or she is 60 years old, the chances of ever needing to make a claim are about 50 percent, according to information from AALTCI. But nearly 75 percent of all nursing home stays last less than three years. And only about 12 percent of nursing home stays last five years or longer. You're more likely to need home care or the limited support offered by an assisted living facility.
At the end of the day, it's good to have long-term care insurance if (1) you aren't wealthy, (2) you're confident that you'll be able to comfortably afford rising premiums and (3) you have valuable assets that you want your children or other heirs to inherit. Otherwise, it's a good idea to explore alternative ways of funding your potential long-term care.
However, it's still wise to weigh the various pros and cons of purchasing LTC insurance. After all, everyone's situation is unique. For some people, the benefits will outweigh the downsides. For other people, this type of insurance may be too risky.
Here are some of the benefits of long-term care insurance:
Here are the potential downsides of LTC insurance:
What Are the Alternatives to LTC Insurance?
Wealthy people generally have enough savings to fund their own long-term care. And low-income people can usually qualify for Medicaid without much trouble. But for people in the middle class, good LTC funding solutions can be a lot harder to figure out. That's why long-term care insurance seems like one of the most common-sense options. However, as you've already read, there can be real drawbacks to choosing that route. So, what alternatives exist—aside from trying to scrape together enough money from whatever savings, family assistance, and Social Security or pension income you may have? Here are some of the possibilities worth exploring.
Seek advice from a reputable legal or financial planning professional before pursuing these options.
When Should You Buy Long-Term Care Insurance (If You Decide to Get It)?
The best age to buy long-term care insurance is between 40 and 60 years old. The earlier you purchase it, the lower your premiums will be. At an earlier age, you'll also stand a better chance of qualifying for LTCI since you'll need to pass a physical exam and allow your medical records to be reviewed. Insurance companies prefer young and healthy customers.
That said, you shouldn't discount the possible benefits of purchasing a policy if you're over age 60. When considering what age to buy long-term care insurance, your health is one of the biggest factors. If you've had a relatively trouble-free health history, then you may be able to get an affordable policy as late as your 70s. However, the chances of that happening are definitely much slimmer. And most insurance providers won't even consider anyone over age 80.
Who Should I Buy From, and What Should I Look For?
Not all LTC insurance companies are created equal. Some companies deploy persuasive sales agents who try to sell policies that sound good but have terrible terms when you actually look at them. So it's wise to never believe anything you read or hear in an advertisement, marketing brochure, or sales pitch. When it comes to considering a long-term care insurance policy, the only thing that matters is the actual written agreement. You should have a trusted lawyer who specializes in retirement, LTC, and estate-planning issues go over any policy you're thinking of purchasing.
It's usually better to purchase a policy through an independent insurance broker than directly from an insurance company. A good broker will be able to compare terms and prices from several different companies to help you find a policy that best fits your particular situation.
When approaching an insurance agent, insurance broker, or financial planner, be prepared to listen carefully and ask good questions. He or she should want to know about your retirement plans and goals, your current financial situation, your current health, and any personal or family history of medical problems. Make sure you find out how much experience and expertise he or she has when it comes to selling LTC insurance policies. Request verification of that experience.
When considering a policy from a particular insurance provider, find out how much that company has paid out in LTC claims over the years. A large amount (when compared to other companies) may indicate that it conducts business in a more honest, good-faith manner. By the same token, any lawsuits against the company for unpaid claims could indicate that it's more likely to deny the payout of benefits when things are in a legal grey area. Also, since each state has regulations about which companies can or cannot sell LTC insurance, it's worth making sure that the provider you're considering has approval in your state. You can learn that information from your state's office of consumer protection.
Always look closely at the terms of any policy before you buy it. Make sure you understand everything. Pay particular attention to the insurance provider's rights when it comes to raising premiums or denying claims. You need to be comfortable with the risks.
How Do You File an LTC Insurance Claim?
The first thing you should do is grab a copy of your LTCI policy and carefully read through everything. Ensure that you understand all of the terms, including the benefit amounts, elimination period, types of coverage, exclusions, and conditions you must meet. Seek the help of a trusted legal or financial professional if anything confuses you.
Call your insurance provider or visit the company's website to request all of the claim documents you'll need. If you've already entered a care facility or started receiving assistance from a home care agency, you can probably have the facility or agency handle these details on your behalf. (You'll just need to sign an authorization form.) But if you have a trusted family member who can do these things for you, that's also a good option.
Several documents will likely need to be completed, such as:
After your insurance provider receives all of the necessary documents, you or your authorized representative will be scheduled for a phone interview to go through everything. Most claims take at least 30 business days to fully process. Your insurance company will then notify you of its decision to either approve or deny your claim.
When it comes to long-term care, it's always better to have a solid plan than to get caught unprepared. After all, your elderly years will matter just as much as any other time of your life. So seriously consider the potential benefits of long-term care insurance. But also be aware of the risks. Make sure you consider all of your options, not just one.