What Is Long-term Care Insurance?

What Does Long-term Care Insurance Cover?

Long-term care insurance helps seniors cover non-medical needs and services in an assisted living facility, nursing home or in-home care due to a serious illness, disability, injury or effects of aging. 

These services may include help with daily tasks, professional nursing care and rehabilitation. There may also be coverage for short-term hospice care for the terminally ill as well as coverage for temporary care. 

Long-term care insurance may not cover care if there is a pre-existing condition, or pay a family member for in-home care – these depend on the specifics of your long-term care coverage. Also, long-term care insurance may not cover medical care, but this may fall under applicable Medicare coverage.

Related: Does Medicare Cover Assisted Living?

How Much Care Does Long-term Care Insurance Typically Provide?

Long-term care insurance policies vary depending on company and individual policy coverage. Usually long-term care insurance plans will provide care for 1-5 years, and LTC insurance plans will specify a per day benefit amount (such as $120 per day). 

Usually long-term care plans have a maximum benefit amount – which is the product of the length of the plan and the maximum benefit amount. Both of these factors will impact your premium rates (your cost of long-term care). 

Who Needs Long-term Care Insurance?

Long-term care insurance provides financial help with long-term care costs such as custodial and personal care for those who: 

• Are experiencing the effects of aging and can not independently complete several ADLs (activities of daily living)
• Cognitive disability
• Physical disability
• Serious illness
• Serious injury 

Generally, Long-term care insurance is a good idea for most people who cannot afford to self pay for assisted living care which costs an average of  $4,300 per month but can easily cost over $10,000 per month. 

As of  2021, a 65 year old has a 70% chance of requiring long-term care and around 20% will need long-term care for five years or longer.¹ Coverage can be tricky to qualify for if there is a pre-existing illness or disability. Long-term care is not typically covered by Medicare or private health insurance policies. Medicaid can be of assistance but only to low-income seniors. 

Related: How to Pay for Assisted Living

Retirement age is a good time to consider the financial demands of long-term care. It is important to look into policies when good health may mean better rates and a better chance of getting accepted by insurance companies. 

How Does Long-term Care Insurance Work? 

Long-term care insurance works like home or auto insurance. Each policy has a premium and may vary on what it covers. Claims are made based on the services needed. There is typically a maximum of daily or monthly and lifetime coverage. Policies also may vary in waiting periods between when care is needed and when benefits begin. 

Types of Long-term Care Insurance Policies

Some long-term policies provide specific care coverage. In California, there are three policy categories: home care only, nursing facility and residential care facility only and comprehensive long-term care. There are also tax qualified and non-tax qualified policies.   

Home Care Long-term Care Insurance

Home care long-term care policies cover costs for care in the home or community (how much does in-home care cost?). These exclude assisted living facilities and nursing homes. Benefits include:

• Home health care: skilled nursing care in the home 
• Adult day care: day program care in a licensed facility 
• Personal care: help with ADLs 
• Homemaker services: assistance with activities that allow for at-home independence
• Hospice: providing support (physical, emotional, social or spiritual) to the patient and family during a terminal diagnosis 
• Respite care: short-term care in the home, a nursing facility or program

Related: Cost of In-home Care vs Nursing Home?

Residential Care Facility & Nursing Home Long-term Care Insurance 

These policies cover care in a licensed residential care facility for the elderly (RCFE) or in a nursing home. Benefits include the facility services plus room and board and are capped at the maximum daily benefit.

Related: Assisted Living vs Nursing Home

Comprehensive Long-term Care Insurance

Comprehensive long-term care policies cover care in a nursing facility, assisted living and home and/or community care. Benefits include: nursing home care and residential care facility/residential care facility for the elderly (RCF/RCFE) assisted living plus the six benefits of home care (home health care, adult day care, personal care, homemaker services, hospice and respite care).

Hybrid Long-term Care Plans

Hybrid long-term care plans provide two types of coverage for long-term care and life insurance or sometimes annuity. A hybrid policy is typically more expensive and requires one payment broken down into several annual payments. They cover long-term care benefits as well as a life insurance death benefit payout if the benefits are never utilized. These policies may also allow a payback within the first few years if coverage is no longer wanted or needed and the premiums typically stay the same. Read here about the pros and cons of hybrid policies. 

Tax Qualified (TQ) and Non-Tax Qualified (NTQ) Policies

Tax Qualified policies allow for premiums to be federally and state deducted from income taxes as medical expenses. Medical expenses that exceed 7.5% of adjusted gross income (if older than 65) plus age is the amount that can be deducted. It is 10% of adjusted gross income if younger than 65.²  These policies require medical documentation that long term care services will exceed 90 days. 

Non-Tax Qualified policies may provide better benefits, pay benefits more quickly and may be easier to qualify for. However, they are not tax-free and may not be deducted from income taxes. 

Deductibles 

Tax qualified policies follow regulations in accordance with the National Association of Insurance Commissioners. Check with a financial advisor to ensure the policy meets these standards as well as a tax advisor for state rules. 

For the amount permitted as a medical expense deduction for the 2022 year:³ 

• 40 and under: $450
• 41-50: $850
• 51-60: $1,690
• 61-70: $4,510
• 71 and over: $5,640 

How Much Does Long-term Care Insurance Cost?

Many factors can affect how much long-term care insurance costs. Premiums can depend on age, gender, marital status, overall health condition, any chronic illness, as well as the insurance company or type of policy chosen and if there are any additional benefits such as inflation protection. 

Annual premiums can range from $300 for a 45-year-old to several thousand for a 75-year-old.² A 55-year-old male buying a $165,000 policy may pay $950 per year while a 55-year-old female may pay $1,500 per year. If adding ten years, that cost can rise to $1,700 per year for the policy for a male and $2,700 for a female.¹

The American Association for Long-Term Care Insurance (AALTCI) states that a couple in their mid-50s may purchase a policy for $3,000 per year with the combined benefit of $770,000 with considerations to payout periods.⁴  Prices may rise after a policy is purchased and there is no guarantee the price will stay the same. Companies should disclose any rate increases since 1990.

Learn more about long-term care insurance costs

What is the Application Process Like for Long-term Care Insurance? 

The process of getting long-term care insurance may involve an application with health questions. Medical records and an interview may take place. The coverage is then decided upon with a limit on coverage per day and lifetime. Premiums begin once coverage is approved. 

A claim is made when care is needed. The insurance company may review documents and provide an evaluation before a plan of care and claim can be approved. There is a daily limit for care coverage and a lifetime cap. Many policies require paying for long-term care services out of pocket for a certain amount of time before coverage begins. Some companies allow spouses with two policies to pool their benefits if a limit is reached.  

When is the Best Time to Apply for Long-term Care Insurance? 

The best age to consider researching and applying for long-term care insurance should be in or around mid-fifties to retirement age because of multiple factors including general state of health. Experts agree on ages 60 to 65 in order to lock in rates while not paying premiums for a long time.⁵

How to Buy Long-term Care Insurance?

There are a lot of considerations when looking for a reputable long-term care insurance policy. It is important to ask questions and choose a qualified insurance company and/or agent that provides appropriate materials and documents while offering various policies from financially good-standing businesses.  

This Investopedia article compares reputable insurance companies’ (New York Life, Mutual of Omaha, Lincoln Financial Group, Pacific Life and Brighthouse Financial) long-term care insurance policies for 2022. 

Some tips on buying long-term care insurance policies: 

• Purchase sooner rather than later
• Work with an independent and experienced agent
• Create a budget
• Be realistic in planning 
• Get quotes from several businesses and/or agents that offer similar coverage benefits
• Choose “good and simple” versus “over-the-top” policies and don’t purchase more than is necessary 

Some buyers may be able to purchase a policy through their place of employment at group rates. The process for applying to these policies may require a health assessment as well. Still do research on these policies because better rates may exist outside of employers’ deals. 

Find a local long-term insurance agent here.

The Federal Long Term Care Insurance Program (FLTCIP) offers long term care insurance for those associated with the Federal government including U.S. Postal Service employees and active and retired service members as well as family members.  

Long-term Care Insurance Benefit Eligibility

Benefit eligibility begins when an individual needs assistance with two out of six common activities of daily living or “ADLs” (these include: bathing, dressing, toileting, eating, transferring and continence); or, there is a cognitive disability diagnosis from a medical professional. 

There is typically a waiting period before benefits start (30, 60 or 90 days) called the “elimination period.” This period applies to care in a facility or in the home. Some policies may not have these waiting periods for home care. 

Resources

1. MarketWatch “Long-term Care Insurance Cost: Everything You Need To Know. https://www.marketwatch.com/picks/guides/insurance/long-term-care-insurance-cost-everything-you-need-to-know/. 14 March 2022. 
2. California Health Advocates “Long Term Care Insurance: An Overview.” https://cahealthadvocates.org/long-term-care/long-term-care-insurance-an-overview/#Partnership. 15 March 2022. 
3. Elder Law Answers “The Tax Deductibility of Long-Term Care Insurance Premiums” 17 November 2021. https://www.elderlawanswers.com/the-tax-deductibility-of-long-term-care-insurance-premiums-12320. 17 March 2022. 
4. Smart Assest “What Long-Term Care Insurance Covers.” 8 January 2020. https://smartasset.com/insurance/what-does-long-term-care-insurance-cover. 15 March 2022. 
5. Investopedia “Best Long-Term Care Insurance” 21 December 2021. https://www.investopedia.com/best-long-term-care-insurance-5070718#toc-when-should-i-buy-long-term-care-insurance. 15 March 2022.