A Guide to Long-Term Care Insurance in 2023

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July 6, 2022 amie-clark Author: Amie Clark | July 6, 2022
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What Is Long-Term Care Insurance? Types of Long-Term Care Insurance Costs Pros and Cons How to Shop for Long-Term Care Insurance

According to the U.S. Administration on Aging, people over 65 have a 70 percent chance of needing long-term care services such as nursing homes, assisted living, and home care. No matter what type of care is best for you, the costs of long-term care can be astronomical, particularly for those who have not considered this expense. This is where long-term care insurance can become an indispensable component of your financial planning.

While Medicare won’t cover custodial long-term care, and Medicaid will only cover a portion, long-term care insurance can help you offset some (if not all) of the costs of a nursing home, assisted living community, or other care services.

Did You Know: To learn more about long-term care insurance, check out our guide to this year’s best long-term care insurance.

Costs of Long-Term Care

Long-term care costs vary widely depending on both your location and the type of care you need; however, in 2021, these were the national average costs per month:

  • $1,690 for an adult day healthcare center
  • $5,148 for an in-home health aide
  • $4,500 for an assisted living facility
  • $9,034 for a private room in a nursing home facility

Paying for Long-Term Care

There are a few different ways to pay for long-term care costs. Some individuals use their own personal savings and others purchase insurance policies. While Medicare does not cover long-term custodial care, it does cover some types of medical care.

Personal Funds

In many cases, people must dip into their retirement funds, pensions, savings, and investment dividends in order to pay for long-term care. Selling assets such as a home –– or taking out a reverse mortgage –– can help cover the costs.

Medicare

Medicare does not cover long-term care if all you need is assistance with personal care and the activities of daily living. Medicare Part A does cover a short-term (20 days) skilled nursing stay in a Medicare-certified facility or part-time skilled home health care as long as you’ve had a qualifying inpatient hospitalization and obtained a doctor's order for daily skilled care.

Hospice care is also covered by Medicare for terminally ill individuals who require palliative care. Medicare does not cover long-term care so if you need coverage for longer than a few months, you will have to dip into personal funds or explore other options.

Medicare Supplemental Insurance

Medicare supplemental insurance, sometimes called Medigap, is private insurance that individuals may purchase to fill in some of the gaps that Medicare doesn’t cover. Medicare supplemental plans do not cover long-term stays. It only fills in some of the gaps of Part A. Supplemental plans only cover around 100 days total in long-term care, which means this coverage is not meant for permanent stays.

FYI: To learn more about Medigap, read our guide to this year’s best Medicare supplement plans.

Medicaid

For low-income individuals, Medicaid will pay for one-third of nursing home care. This program may also help with in-home and community care services. In order to qualify, you have to meet federal and state guidelines based on your income and assets. Some individuals who do not qualify for Medicaid when they enter long-term care may start to qualify when they run low on assets.

What Is Long-Term Care Insurance?

Long-term care insurance helps pay for services (both in-home and community-based) that assist with activities of daily living. This type of insurance helps offset the costs of care administered both at home and in senior care communities.

With long-term care insurance, policyholders purchase a “daily benefit” or the price of care per day they would like covered (anywhere between $100 and $500) that the policy will pay out when care is needed.

It’s important to remember, however, that long-term care insurance will not cover medical care. Luckily, in many cases, Medicare will handle this portion of your care costs.

What Long-Term Care Insurance Covers

Long-term care insurance covers care administered in the following environments:

Some policies pay for hospice care, respite care, and rehabilitative care following a hospital stay.

What Long-Term Care Insurance Won’t Cover

Long-term care insurance doesn't cover:

  • Preexisting conditions: You cannot purchase a policy that covers care for an illness that you were diagnosed with in the last six months.
  • Mental healthcare: Long-term care policies do not cover care for some mental disorders outside of schizophrenia and major depressive disorders.
  • Family caregivers: Many policies do not cover care by a family member, though they might cover training for family members.

Is Long-Term Care Insurance Right for You?

Generally speaking, long-term care insurance is a good idea if you can afford the monthly premiums. Additionally, it’s possible to deduct some long-term care premium payments from your annual taxes as long as the policy is tax-qualified. If your budget is tight, it may not be a good idea to purchase a policy.

You’ll also want to consider your health and family history. Ask yourself:

  • Did your parents require long-term care?
  • Do some chronic conditions run in your family?
  • Do you have family members who can act as caregivers if you need them?
  • Do you have the funds to cover long-term care services?

These questions can help you more thoroughly understand your likelihood of needing long-term care, as well as your options for care.

Types of Long-Term Care Insurance

Individual policies

Individual policies make up the bulk of long-term care policies. These policies are sold directly from an insurance company, and they often require a medical exam. New York Life, Mutual of Omaha, and Lincoln Financial Group are a few insurance companies that offer long-term care insurance policies, and they can often be bundled with other policies for discounted premiums.

Life Insurance policies and annuity contracts

If you already have a life insurance policy, you may be able to withdraw from the policy to pay for long-term care. However, taking money out of your life insurance policy may impact the death benefit amount so talk to a trusted financial advisor before doing so. If you no longer need a life insurance policy, you can surrender the policy and use the accumulated cash value to pay for long-term care.

You may also withdraw cash from annuities, a financial product designed to provide cash flow to retirees, to pay for long-term care. There is sometimes a charge but companies may waive this fee if the money is for long-term care.

Did You Know: To learn more about life insurance, read our guides to the best life insurance for seniors and cheapest life insurance for seniors.

Life insurance riders

Some life insurance policies and annuities offer a “rider” or an additional coverage option that helps pay for long-term care. The rider works by allowing people to use their death benefit while they are still living to pay for long-term care. Most companies require that a doctor certify individuals have a chronic illness that requires long-term care in order to access the death benefit.

Employer policies

Some workplaces offer long-term care policies to employees, retirees, or their family members. These policies are often offered at a discounted price and may have tax incentives. Additionally, employees may not have to get a medical exam in order to purchase this type of policy. Most of these policies are voluntary, and employees must pay the entire premium; however, the premium is often less expensive than an individual plan.

Federal and state-based policies

Federal and state employees and retirees (including active or retired uniformed service members) and their dependents may access long-term care insurance through the Federal Long Term Care Insurance Program. This program often offers lower premiums than individual policies.

Tax-qualified policies

Tax-qualified insurance policies allow individuals to deduct all or some of their monthly premiums as medical expenses in certain circumstances. Many federal and state-based policies are tax-qualified along with some individual plans and riders. Ask your financial advisor or insurance agent about possible tax deductions before purchasing a policy.

Association policies

Many associations (such as the AARP) partner with insurance companies to offer long-term care policies to their members. These policies are sometimes offered at a discounted price and allow members to choose benefits.

Pro Tip: When choosing a policy through an association, keep membership dues in mind to see if you’re really saving money by purchasing the policy.

Long-Term Care Insurance Costs

According to the American Association for Long-Term Care Insurance, the average yearly cost for long-term care insurance is $1,700 per year for a 55-year-old male and $2,675 per year for a 55-year-old female. Many insurers allow you to pay for your policy either annually or in monthly payments.

Long-Term Care Insurance Rate Calculation

Long-term care insurance premiums will vary based on several factors:

  • Age: The younger you are when you purchase a policy, the less expensive the premiums will be. Many carriers won’t even offer policies to individuals over 75.
  • Health: Many policies require a medical exam prior to purchase. If you have more health issues, you are likely to pay higher premiums.
  • Gender: Women live longer than men and are more likely to pay higher premiums.
  • Marital Status: Premiums are typically lower for married people.
  • Coverage: Premiums are higher depending on the coverage you choose. A policy with a daily benefit of $400 per day for care will be more than one with a $150 per day policy. Add-ons like inflation protection and nonforfeiture benefits will also impact the price of your premium.
  • Waiting periods: Most long-term care policies will have waiting periods; that is, a period of time (often 90-180 days) between when you start paying for care and when the policy kicks in. Shorter waiting periods generally come with higher premiums.

Pros and Cons of Long-Term Care Insurance

Long-term care insurance provides peace of mind and security that you’re covered if you ever need around-the-clock personal care. Out-of-pocket costs for long-term care services are very expensive and insurance can help offset that expense when you have less income coming in later on in life.

On the other hand, premiums are not locked in with every policy. They may rise or fall over time. Additionally, it’s difficult to ascertain what coverage you may need. You may choose a daily benefit of $200 for your care based on the current national averages, and inflation may raise the average price to $400 per day by the time you need the care.

How to Shop for Long-Term Care Insurance

Before you shop for a long-term care insurance policy, assess your budget and current situation. Your health needs and monthly budget will determine what policy is best for you. Additionally, if you qualify for a federal, association, or employer plan, that may influence what plan you purchase.

If you choose between individual policies, make sure to shop around and compare quotes. It may be beneficial to purchase a life insurance policy with a long-term care rider to bundle those costs. Also, with many long-term care insurers folding in the past few years, you want to be sure you choose one with a strong financial rating.

To learn more about our favorite long-term care insurance providers, be sure to check out our provider guides: