Understanding Long-Term Care Insurance
Quick Facts
Over two-thirds of Americans will require some form of long-term care
The average cost of long-term care in a private room in a nursing home is over $100,000/year
Experts advise planning for long-term care in your mid-50s while you still qualify
At some time in our lives, around 70% of us will need help with routine activities like getting dressed, traveling to appointments, or making meals.
Because many people are unsure of what their insurance policies cover, and Medicare benefits are frequently misunderstood, we’ll help you understand long-term care insurance policies today.
Why buy long-term care insurance?
Medicare and Medicaid can both help elderly people pay for some of their medical costs, but they might not cover the cost of a chronic illness or disability. Long-term care (LTC) insurance can help with that and cover your long-term care expenses, such as nursing home and hospice care.
The individual long-term care plan is guaranteed to always be renewable by law. If a group policy expires or is canceled, policyholders will have the option to convert to a comparable individual plan.
As LTC insurance serves as a safety net underneath your regular benefits, coverage could become crucial as you age. Additionally, you might combine long-term care with various types of life insurance to derive greater benefits whether or not you ever file a claim, which could save you money in the long run.
Using a life insurance rider for long-term care can offer some financial security if you become unable to care for yourself as you age. The cost of life insurance with an LTC rider will go up, and if you use the benefits of the policy while you’re still alive, there might not be much left over for your beneficiaries after your passing.
However, obtaining long-term care benefits might be possible with this rider or long-term care package.
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What does long-term care insurance cover?
Many different services are covered by long-term care insurance, such as adult daycare, in-home care, and nursing home or assisted living facility costs. Other covered services include nursing assistance, physical, occupational, or speech therapy, and assistance with daily tasks.
The cost of care for a chronic illness, disability, or accident is also covered by an LTC policy.
LTC insurance is primarily intended to assist in covering the costs of personal and custodial care rather than just medical care. For example, the supervision of your daily activities is a part of this category of care. Additionally, it offers the help you might need due to the general effects of aging.
Long-term care expenses are typically not covered by health insurance policies, so you’ll be responsible for paying these costs if you don’t have long-term care insurance. Furthermore, you might not be in luck if you count on Medicare to cover these additional costs. Learn more about how private health insurance vs. Medicare coverage works.
Custodial care is the classification used for the majority of nursing homes, but Medicare does not cover long-term or custodial care. It does, however, offer assistance to low-income families. But remember that you might not get coverage until your life savings are gone.
Just be aware that Medicare may only partially cover the long-term care that comes in between short-term nursing care and hospice care. Also, cashing out your life insurance policy might not always be the best option if you have combined different policies.
How Long-Term Care Insurance Works
Long-term care insurance typically pays for a wide range of services, whether you receive them at home or in a facility with specialized care. Although the specific type of coverage varies by policy, it frequently includes:
Home health services. Coverage includes skilled nursing at home, occupational, speech, physical, and rehabilitation therapy, as well as assistance with daily living activities like eating and bathing. Some insurance plans might also cover housekeeping tasks like cooking and cleaning.
Respite care. Provides short-term care in a home, adult day program, or nursing home and designed to release a primary caregiver from duties for a few weeks each year.
Adult daycare facilities. Provides supervised day programs and short-term rehabilitation after surgery.
Centers for assisted living. Coverage for facilities and nursing homes that provide personal and medical care.
Special care facilities. Coverage includes facilities that treat Alzheimer’s disease.
The average amount of time from the purchase of a long-term care policy until benefits are eligible to pay out is 14 years.
Cost of Long-Term Care Insurance
A 60-year-old male paying for a long-term care insurance policy with initial benefits of $165,000 and 5% growth to counteract inflation will pay around $320 per month. A 60-year-old single woman with the same policy will pay around $550. Married couples can save more together when they combine policies.
Waiting until 65 to buy coverage will increase the cost of initial coverage by 49.9%. Not only will you pay more, but you will also forgo the potential increase in benefits because there is an annual growth factor. Additionally, you risk being rejected due to your health or paying more.
Around 70%-80% of long-term care policyholders have seen their life insurance rates rise without any increase in benefits. However, a hybrid or bundling your life insurance with a long-term care policy or annuity will allow you to recover unused money from life insurance that you’ve paid but seen no direct benefit from.
Finally, if your spouse dies, gets divorced, or is denied coverage, you could lose the couple’s discount.
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Tax Advantages of Buying Long-Term Care Insurance
The IRS treats long-term care insurance similarly to health insurance. The policyholder’s monetary compensation for personal injury or illness is typically excluded from income, and the premiums paid are typically tax deductible.
For tax deductions to apply, LTC insurance must have the following characteristics:
Be assuredly renewable
Exclude any cash surrender value or other money that could be paid, assigned, pledged, or borrowed
Exclude any payments or reimbursements for costs that Medicare would cover.
Besides tax benefits, there are other ways to benefit financially from a decision to purchase a long-term care insurance policy.
How to Buy Long-Term Care Insurance
There are ways to buy long-term care insurance by itself, whether individually or through a group policy. Start by calling your current insurer and asking about life insurance with long-term care riders.
The best long-term care insurance company with low rates and an A+ financial rating is Nationwide. You might find better rates elsewhere, so use our free comparison tool below to get insurance quotes from local companies near you.
Unfortunately, long-term care insurance with Prudential is no longer available, although the company will continue offering group insurance and keeping its promises to current policyholders.
If you’re not sure which type of long-term care insurance you want, scroll through the following sections to learn more.
Cash Indemnity Policies Pay the Maximum
Many people recommend cash indemnity policies. After you file a claim, policies pay the maximum daily or monthly benefit, regardless of care costs. For instance, if your monthly benefit is $5,000, but your care costs are only $3,000, the insurance provider would still pay you the full $5,000 each month.
This is incredibly helpful, considering many long-term care insurance policies require you to spend money upfront during a 30, 90, or 100-day waiting period, then prove care through receipts and documents that must meet strict guidelines.
Understanding State ‘Partnership’ Plans
A joint federal-state policy initiative to encourage the purchase of private long-term care insurance is called the long-term care Partnership Program. The Partnership Program aims to increase access to private long-term care insurance coverage to cover long-term care expenses.
A further advantage comes from buying partnership-qualified long-term care insurance (PQ). This benefit is referred to as “spend down” protection or “dollar-for-dollar” asset disregard. Every dollar of insurance coverage paid on behalf of a PQ policyholder is considered to be one dollar of Medicaid asset disregard.
How popular is long-term care insurance?
If you simply go off how many long-term care insurance providers are still in the market, it’s not very popular. According to the American Association for Long-Term Care Insurance (AALTCI), nearly 700,000 long-term insurance care policies were sold in 2000. Just 20 years later, only 49,000 policies were sold.
However, this might shed more light on the reality of the American savings rate. Currently, the median savings for Americans aged 55 – 64 is only $6,400, while the average is $57,800.
While that may seem like a lot, many Americans have no savings at all. The average male needs at least two years of long-term care, while women, who typically live longer, may need up to four. And as life insurance rates continue to increase, even the average savings is insufficient to pay today’s long-term care costs out of pocket.
Unfortunately, starting December 19, 2022, the U.S. Office of Personnel Management (OPM) will no longer accept applications for coverage under the Federal long-term care Insurance Program (FLTCIP). Individuals who are not currently enrolled cannot apply for coverage, and those who are enrolled cannot request an increase in coverage after December 19, 2022.
According to the OPM, it is best for the program if applications for FLTCIP coverage, including requests for coverage increases, are suspended. Unless the OPM issues a subsequent notice to end or extend the suspension period, the suspension will last for 24 months.
Following the release of the final regulation, the OPM published a Federal Register Notice of Suspension for current and newly eligible individuals applying for coverage under the FLTCIP.
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Understanding Long-Term Care Insurance
Long-term care insurance makes sense for many people, but it is not without its inherent complexities. Navigating the policy creation process alone is something that requires licensed insurance agents several hours of training and re-certification to be legally compliant to sell policies.
This is due largely to the insurance market and how policies are written and funded over time. Because many people may not need to draw benefits from a long-term care plan for several decades, the markets where companies invest policy premiums become major factors in determining how your life insurance rates over time.
This is also why around 100 companies were offering long-term care insurance policies only 20 years ago, and now a mere fraction remains. It has simply not been cost-effective to offer competitive long-term care insurance for many policies amidst an economic and monetary policy of near-zero interest rates since late 2008.
Use our comparison tool to find out which life insurance companies sell long-term care insurance near you. You can compare quotes from multiple companies to find the right policy.
Frequently Asked Questions
What is typically covered in a long-term care policy?
The most frequent criteria used by insurance providers to assess eligibility for long-term care insurance benefits are ADLs: bathing, dressing, using the restroom, transferring (getting in and out of bed or a chair), eating, and maintaining continence are considered to be the six basic ADLs.
What are the three types of long-term care insurance?
The three types of long-term care insurance are traditional, hybrid, and any policy that’s part of a Continuing Care Retirement Community package.
What is the biggest drawback of long-term care insurance?
According to the American Association for long-term care insurance (AALTCI), 50% of those who purchase coverage at age 65 will use the policy’s benefits. Therefore, the other 50% won’t.
Additionally, it is almost guaranteed that your rates will go up even as you make your payments on time and do not require a benefit. This is often due to how insurance is funded through low-risk investments. It is difficult to keep these policies sustainable when the Federal Reserve lowers interest rates for a long period of time.
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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states.
After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in…
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Written by
Rachael Brennan
Licensed Insurance Agent
Benjamin Carr was a licensed insurance agent in Georgia and has two years’ experience in life, health, property and casualty coverage. He has worked with State Farm and other risk management firms. He is also a strategic writer and editor with a background in branding, marketing, and quality assurance. He has been in military newsrooms — literally on the frontline of journalism.
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Reviewed by
Benji Carr
Former Licensed Life Insurance Agent
