A Comprehensive Guide to Long-Term Care Insurance

Long-term care insurance explained

Long-term care costs tens of thousands of dollars a year—far more than most people have saved. Standard health insurance doesn't cover it, and Medicare covers only limited services. Many people buy long-term care insurance to protect themselves from these costs in retirement.

Whether to buy long-term care insurance is a personal decision. The American Association for Long-Term Care Insurance recommends exploring policies in your mid-50s, though some people wait until their 60s. Premiums are lower the earlier you apply.

What does long-term care cost?

According to Genworth's 2019 survey, a year in an assisted-living facility costs about $48,612 for a single room. A private nursing home room costs $102,200 a year—more than double the $90,155 for a semi-private room. About 70% of people will need some form of long-term care at some point. Medicare covers only limited nursing home and home care services, with strict income and asset requirements.

You may eventually need long-term care for a parent, spouse, or other family member. Options include assisted living, nursing homes, and in-home care. Most families cannot absorb these costs alone.

Long-term care insurance can protect your finances and help ensure your loved one receives the care they need. Policies are complex, and no single plan covers all care types or full costs. It's worth understanding what you're buying before you commit.

What does long-term care insurance cover?

Long-term care insurance policies include several components: daily benefit amounts, waiting periods, benefit periods, and inflation adjustments all affect the price. Understanding these basics helps you estimate what you'll need to spend in retirement.

In California, Connecticut, Indiana, and New York, the Partnership for Long-Term Care program adds value even to modest coverage. If you later need Medicaid, the program lets you preserve assets dollar-for-dollar based on your insurance benefits. For every dollar your policy pays out, you can spend a dollar of your own money before Medicaid begins.

What factors affect the cost of long-term care insurance?

Your age, health, and the coverage you want determine what you'll pay. The main factors are:

• Your age when you apply
• Daily or monthly benefit amount
• How long benefits will last
• The waiting period before benefits begin
• What types of care are covered
• Your health status at the time of application
• Whether you want inflation protection
• Local costs for long-term care in your state or region
• Other policy provisions

Key features of long-term care insurance

Look for these standard features when shopping for a plan:

Daily or monthly benefit amount

This is what your policy will pay each day or month, based on local care costs in the area where you expect to need care.

Elimination period

This is how long you must wait after care begins before the policy starts paying. It works like a deductible, except it's measured in days instead of dollars.

Benefit period

This is how long the policy will pay benefits once your elimination period ends.

Inflation protection

This increases your benefits over time to keep pace with rising healthcare costs. It matters because you may not use the policy for years or decades after purchase.

Premium discounts

You may qualify for discounts if you're in good health or if you and your spouse buy policies together.

Care coordination

Many policies include help from a healthcare professional to develop a personalized care plan.

Activities of daily living (ADLs)

Most policies pay benefits when you need help with at least two ADLs—bathing, dressing, toileting, eating, transferring from bed to chair—for at least 90 days. Severe cognitive impairment, such as Alzheimer's disease, can also trigger benefits.

Free look period

You have 30 days after buying a qualified policy to review it and return it for a full refund if you change your mind.

Lifetime maximum benefit

This is the total amount the policy will pay over its lifetime—think of it as a pool of money you draw from. Once depleted, benefits stop.

Understanding Medicare and Medicaid

Medicaid is a federal and state program for people with low incomes or high medical bills. It's means-tested and can help pay for long-term care once you've spent down your assets.

Medicare coverage

Medicare is the federal program for people over 65 and certain disabled individuals. It covers medical and hospital care but pays only limited amounts for nursing home and home health care.

Levels of long-term care

Skilled care is nursing care provided by licensed nurses, usually in a facility. Medicare covers some skilled care, but only for limited periods.

Intermediate care includes nursing care and rehabilitation ordered by a doctor. It's typically provided by nurses or nursing assistants for people who don't need constant supervision. Medicare rarely covers it.

Custodial care

Custodial care helps with eating, dressing, bathing, and other daily tasks. It can be provided by trained caregivers without nursing licenses. Medicare doesn't cover it.

Final thoughts

Long-term care insurance deserves serious thought. An insurance agent who specializes in this area can walk you through your options. Before you buy, make sure you understand what you're getting and what it will cost.

Long-term care insurance deserves serious thought. An insurance agent who specializes in this area can walk you through your options. Before you buy, make sure you understand what you're getting and what it will cost.