What Is Long-Term Care Insurance, and Do I Need It?
Key takeaways:
Long-term care insurance can cover the cost of ongoing medical services or help for a chronic medical condition or after an injury or medical event.
The cost of long-term care insurance depends on several factors. These factors include your age and health when you buy the policy, your gender, and where you live.
Insurers require you to take a health exam before they sell you a long-term care policy.
While not everyone will need long-term care in their life, it’s common — and expensive — enough that people planning for retirement should account for it. Buying long-term care insurance is one way to protect your finances.
What does long-term care insurance cover?
Millions of Americans rely on long-term care insurance to help them pay certified nursing aides and other attendants who give day-to-day care. That care may involve providing medical services after an injury or health-related incident, or tending to someone with a chronic illness. The care may simply be assistance with activities of daily living — everything from getting in and out of bed to feeding yourself.
Most traditional health insurance plans don’t cover such services. Neither do Medicare, Medicaid, or Affordable Care Act (ACA) marketplace insurance policies. Long-term care policies typically include:
A set daily benefit, which limits the amount the policy will pay per day.
A lifetime cap, which limits the amount the policy will pay out in total.
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Some policies allow beneficiaries to use their benefits to pay family members who are taking care of them.
Depending on your budget, preference, and needs, long-term care can take place in different places with different types of caregivers. You may choose:
“Aging in place” at home with family or live-in help
Daily senior care at an adult care center
Care at a residential facility such as an assisted living community or a nursing home
The cost of long-term care varies widely. Nationwide, the median cost of having a home health aide is about $4,500 per month, while the median cost of a private room in a nursing home is $8,800 per month, according to Genworth’s Cost of Care report. These costs may be higher or lower for you depending on the amount or type of care that you need and the area you live in.
What doesn’t long-term care insurance cover?
Long-term care insurance does not cover medical services for acute injuries or illness; traditional health insurance generally covers those. Some long-term care policies also restrict coverage for services related to pre-existing conditions. The restrictions might last for the life of the policy or merely for a period of time (such as 6 months) after purchase.
Does Medicare pay for long-term care?
Medicare provides limited long-term care coverage in specific situations. If you go to a skilled nursing facility after a 3-day hospital stay, Medicare will pay all costs for the first 20 days you spend there. Starting on day 21, you’ll owe $185.20 in coinsurance per day. As of day 101, Medicare coverage ends, and you are responsible for all costs. That coverage will reset after you’re released from the hospital and remain out for at least 60 days.
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Medicare will also cover home health care for up to 28 hours per week. The benefits last as long as you need skilled care; your doctor will have to certify your plan of care every 60 days.
How much does long-term care insurance cost?
The cost of long-term care insurance depends on several factors, including:
Your age
Your gender
Where you live
How healthy you are when you purchase the policy
The price will also reflect your level of benefits, such as:
The amount of your deductible
The amount of your daily benefits
Whether you choose an inflation rider, which adjusts your benefits as prices go up
In general, women pay higher rates, since they live an average of 2.6 years longer. But couples who buy a plan together may pay a lower combined premium than if they purchased separate policies. That’s because spouses often provide unpaid care to each other, potentially reducing their claims.
Typically, the younger you are when you sign on to long-term care insurance, the cheaper it is. But if you purchase a plan at a very young age — even accounting for the lower premium — you could end up paying more over time, due to extra years of monthly payments.
As with life insurance, you’ll likely need a medical exam when you apply. You may pay higher premiums (or be denied entirely) based on the results of that exam. This is called medical underwriting.
Here’s a look at the current averages for long-term care insurance premiums in the state of Illinois, according to the American Association for Long-Term Care Insurance. These prices would be for healthy applicants buying a policy that’s now worth $165,000.
| Benefit growth over time | Yearly premium for policy purchased at age 55* | Benefit value after 30 years (at age 85) | Yearly premium for policy purchased at age 65* | Benefit value after 20 years (at age 85) | |
|---|---|---|---|---|---|
| Single male | 0% (level benefit) | $950 | $165,000 | $1,700 | $165,000 |
| Single male | 3% increase in benefit per year | $2,220 | $400,500 | $3,135 | $296,000 |
| Single female | 0% (level benefit) | $1,500 | $165,000 | $2,700 | $165,000 |
| Single female | 3% increase in benefit per year | $3,700 | $400,500 | $5,265 | $296,000 |
| Couple | 0% (level benefit) | $2,080, combined | $165,000 each | $3,750, combined | $165,000 each |
| Couple | 3% increase in benefit per year | $5,025, combined | $400,500 each | $7,150, combined | $296,000 each |
*Assumes couples are the same age when purchasing the policy.
The best age for most people to buy long-term care insurance is between 60 and 65. That’s when you’re young and healthy enough to qualify for a plan with a relatively affordable premium. But you're also old enough that you won’t be paying a decade’s worth of premiums for a service you’re unlikely to use.
Current projections say that 20% of 65-year-olds will never need long-term care. Another 20% will need only minimal care, according to research from Boston College.
If you are among this 40% and you never file a claim, you won’t ever get a benefit from having long-term care insurance — aside from peace of mind. That’s why some insurers now offer hybrid policies that combine life insurance and long-term care insurance. These plans are pricier, but if you die without using the long-term care benefit, your heirs will receive a payment.
What level of care do I need based on my health?
Remember, you’re purchasing insurance for care you’ll need in the future, not right now. You may need to sign up for a higher level of coverage if:
You already have chronic conditions.
Chronic conditions run in your family.
You know you’ll prefer private care when the time comes.
Health isn't the only factor to consider. You'll also need to think about your finances. You may need less (or no) long-term care insurance if you have a health savings account or other savings earmarked for healthcare costs in retirement. If you have very few assets, you may be able to rely on Medicaid.
How many years do I need covered?
On average, women who need long-term care need it for 3.7 years, and men need it for an average of 2.2 years, according to the U.S. Department of Health & Human Services. So, policies that cover 3 to 5 years should suffice.
How much help will I get from unpaid caregivers?
Most people who receive long-term care get it from unpaid family members. Unfortunately, that can cause financial strain on the family members who take time off work to do the caregiving. If you expect to rely on your family for care, discuss that with them now. That way, future caregivers can plan for the possibility. Also consider a backup arrangement in case your preferred caregiver can’t provide the level of care you need.
How can I get the most for my money?
Long-term care insurance can be expensive, but there are ways to keep costs down:
Buy your plan between the ages of 60 and 65. Buy it as a couple, if possible.
Shop around. Roughly a dozen insurers now offer long-term care insurance. Premium rates vary, so look at plans from at least three companies.
If you’re eligible to write off medical expenses on your taxes (typically if they exceed 7.5% of your income), you can include a fraction of your long-term care insurance premiums in the write-off. The older you are, the larger the fraction.
The bottom line
Long-term care insurance can protect your financial assets if you need ongoing medical services or help. The benefit amount that you need depends not only on your health and family history but also on how much you can afford to pay without insurance.
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References
American Association for Long-Term Care Insurance. (n.d.). Long-term care insurance companies AARP long-term care insurance information for consumers.
American Association for Long-Term Care Insurance. (n.d.). Long-term care insurance facts - Data - Statistics - 2021 reports.
Center for Retirement Research at Boston College. (2021). Retirees’ need for caregivers varies widely. Squared Away Blog.
Genworth Financial, Inc. (2022). Cost of care survey.
HealthCare.gov. (n.d.). Medical underwriting.
Huddleston, C., et al. (2020). 2021 long-term care deduction limits. Forbes.
LongTermCare.gov. (2020). How much care will you need?
Medicare.gov. (n.d.). Skilled nursing facility (SNF) care.
Medicare Interactive. (n.d.). Home health hours.
Shell, A. (2019). Buy long-term care insurance at the right age to get the best value. AARP.
USA.gov. (2021). Caregiver support.
Witt, S., et al. (2021). Activities of daily living (ADLs). Seniorliving.org.
