Explanation of long-term care insurance – NerdWallet

It may be hard to imagine now, but you may need help to take care of yourself later in life. The big question is: How will you pay for it?

Buying long-term care insurance is one way to prepare. Long-term care refers to many services that are not covered by regular health insurance. This includes assistance with routine daily activities such as bathing, dressing or getting up and getting out of bed.

Long-term care insurance helps cover the cost of that care when you have a chronic illness, disability or illness such as Alzheimer’s. Most policies will reimburse you for the costs of care provided in different places, such as:

  • Life support facility.

  • Adult day center.

Accounting for long-term care costs is an important part of any long-term financial plan, especially in your 50s and beyond. Waiting until you need care to buy coverage is not an option. You will not be eligible for long-term care insurance if you already have a disability, and long-term care insurers will not approve most applicants over the age of 75. Most people with long-term care insurance buy it in the mid-50s to the mid-60s.

Whether long-term care insurance is the right choice depends on your situation and preferences.

Before shopping for coverage, it is important to learn more about the following topics:

Why buy long-term care insurance?

Nearly 70% of 65-year-olds will need long-term care or support, according to the 2020 Department of Community Living, part of the U.S. Department of Health and Human Services. Women usually need care for an average of 3.7 years, while men need it for 2.2 years.

Regular health insurance does not cover long-term care. And Medicare won’t come to the rescue either; it covers a short stay in a nursing home or limited amounts of home health care when you only need a qualified nurse or rehab. There is no charge for guardianship care, which includes supervision and assistance with daily tasks.

If you do not have long-term care insurance, you will have to pay for it yourself in most states. You can get help through Medicaid, the federal and state health insurance program for those on low incomes, but only after you have exhausted most of your savings.

Bumper tip: From 2025, the state of Washington will provide long-term care insurance to eligible residents, funded by a payroll tax that begins in 2022. Workers in Washington can drop out of the program if they purchase a private long-term care policy before November 1, 2021. Visit WA Cares Fund website for more information.

People buy long-term care insurance for two reasons:

1. To protect savings. The cost of long-term care can quickly deplete the egg for retirement. The average cost of nursing home care is $ 93,072 a year, according to the 2020 Genworth Care Cost Survey.


$ 51,600 for a private one bedroom

$ 93,072 for a semi-detached room

$ 105,852 for a single room

Source: Genworth 2020 Care Cost Survey

2. Give you more choices for care. The more money you can spend, the better quality of care you can get. If you have to rely on Medicaid, your choice will be limited to nursing homes that accept payments from the government program. Medicaid does not pay for assisted living in many states.

Buying long-term care insurance may not be available if you have a low income and little savings. The National Association of Insurance Commissioners says some experts recommend spending no more than 5% of your income on long-term care policies.

How popular is long-term care insurance?

The number of insurance companies selling long-term care insurance has decreased since 2000. Just over 100 insurers sold policies in 2004, according to 2020 data from the National Association of Insurance Commissioners. Today, about a dozen sell shelves.

Uncertain costs of paying off future claims, as well as low interest rates since the 2008 recession, have led to mass market abandonment. Low interest rates hurt because insurers invest the premiums their customers pay and rely on returns to make money.

The market continues to change. Genworthone of the largest remaining carriers, stopped selling individual long-term care insurance through agents and brokers in March 2019. The company sells policies to groups and directly to individual consumers through its own sales department.

How long-term care insurance works

To purchase a long-term care insurance policy, fill out an application and answer health questions. The insurer may ask to see medical records and interview you by phone or face to face.

You choose the amount of coverage you want. Policies usually limit the amount paid per day and the amount paid throughout your life.

Once you are approved for coverage and the policy is issued, you start paying premiums.

Under most long-term care policies, you are entitled to benefits when you are unable to perform at least two of the six “daily activities” called ADLs on your own or suffer from dementia or other cognitive impairment.

The daily activities are:

  • Toilet (going up or down the toilet).

  • Transfer (entering or getting out of bed or chair).

When you need care and want to sue, the insurance company will review your doctor’s medical records and may send a nurse to make an assessment. Before approving a claim, the insurer must approve your care plan.

Under most policies, you will have to pay for long-term care services out of pocket for a period of time, such as 30, 60 or 90 days, before the insurer begins to reimburse you for your care costs. This is called the “elimination period”.

The policy starts to be paid after you meet the conditions for benefits and usually after you receive paid care for this period. Most policies pay up to a daily care limit until you reach the maximum for life.

Some companies offer the option of shared care for couples when both spouses buy policies. This allows you to share the total amount of coverage so that you can benefit from your husband’s group of benefits if you reach the limit of your policy.

Expenses for long – term care insurance

The prices you pay depend on various things, including:

  • Your age and health: The older you are and the more health problems you have, the more you will pay when you buy a policy.

  • Gender: Women usually pay more than men because they live longer and are more likely to sue for long-term care.

  • Marital status: Premiums are lower for married than for unmarried people.

  • Insurance company: Prices for the same amount of coverage will vary between insurance companies. That is why it is important to compare offers from different carriers.

  • Coating size: You will pay more for richer coverage, such as higher daily and lifetime benefit limits, adjustments to the cost of living to protect against inflation, shorter elimination periods and fewer restrictions on the types of care covered.

A 55-year-old man in good health who buys new coverage can expect to pay an average of $ 1,700 a year for a long-term care policy with an initial set of benefits of $ 164,000, according to the 2020 U.S. Food and Drug Administration. long-term care insurance. These benefits increase annually by 3% to a total of $ 386,500 at age 85. For the same policy, a 55-year-old woman can expect to pay an average of $ 2,675 a year. The average combined premium for a 55-year-old couple, each of whom buys that amount of coverage, is $ 3,050 a year.

Warning: The price may increase after purchasing a policy; prices are not guaranteed to stay the same for the rest of your life. Many policyholders have seen jumps in interest rates over the past few years after insurance companies asked government regulators for permission to increase premiums. They were able to justify the increase in interest rates, as the cost of claims was generally higher than expected. Regulators approved the increase in interest rates because they wanted to make sure insurance companies had enough money to continue paying claims.

Tax benefits when purchasing long-term care insurance

Long-term care insurance can have some tax benefits if you specify deductions, especially as you get older. Federal and some U.S. tax codes allow you to count some or all of your long-term care insurance premiums as medical expenses, which are tax deductible if they reach a certain threshold. The limits on the amount of premiums you can withhold increase with age.

2021 federal tax-deductible long-term care insurance limits

Age at the end of the year

Maximum deductible premium

Source: IRS Revenue Procedure 2020-45.

Only premiums for tax-qualified long-term care insurance are considered medical expenses. Such policies must meet certain federal standards and be labeled as tax. Ask your insurance company if a policy is tax deductible if you are unsure.

How to buy long-term care insurance

You can buy directly from an insurance company or through an agent.

You may also be able to purchase a long-term care policy at work. Some employers offer the opportunity to purchase coverage from their brokers at group prices. Usually, when you buy coverage this way, you will have to answer some health questions, but it may be easier to qualify than if you buy it yourself.

Get offers from several companies for the same coverage to compare prices. This is true even if you are offered a job deal; despite the group discount, you can find better prices elsewhere.

The American Long-Term Care Association advises you to work with an experienced long-term care insurance agent who can sell products from at least three carriers.

In the comparison of prices for 2019, the association found that rates vary significantly between insurers.

Understanding national partnership plans.

Most states have “partnership” programs with long-term care insurance companies to encourage people to plan long-term care.

Here’s how it works: Insurers agree to offer policies that meet certain quality standards, such as providing cost-of-living adjustments for inflation protection benefits. In exchange for purchasing a “partnership policy”, you can protect more of your assets if you use all long-term care benefits and then seek help through Medicaid. Typically, in most states, for example, a person would have to spend up to $ 2,000 to qualify for Medicaid. If you have a long-term care partnership plan, you can qualify for Medicaid earlier. In most states, you can save a dollar that you would normally have to spend to qualify for Medicaid for every dollar paid out by your long-term care insurance.

To find out if your country has a long-term care partnership program, consult your country’s insurance department.

While making a long-term financial plan, the potential costs of long-term care are one of the important things you will want to consider. Talk to a financial advisor about whether purchasing long-term care insurance is the best option for you.

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