It’s hard to plan for the future without a crystal ball; anticipating the needs that future-you will have depends on too many factors.
However, there are steps you can take now to cover all your bases. Purchasing long-term care insurance is one of them.
Read on to find out how much long-term insurance coverage you should purchase to protect your assets and your health in the twilight of your life.
What is Long-Term Care Insurance?
Long-term care insurance is meant to help you pay for the costs of long-term care.
This type of care is needed when you are unable to do everyday tasks—such as bathing yourself, walking on your own, or eating without help—and when you expect this disability to last several years or the rest of your life.
Long-term care includes assistance performing these and other activities of daily living, be it at home, a nursing home, or an adult day-care facility.
Do I Need Long-Term Care Insurance?
Typically, long-term care is given to the elderly when the aging process makes it difficult for them to care for themselves.
According to the U.S. Department of Health and Human Services, people aged 65 or older have a 70% chance of requiring long-term care at some point during the remainder of their lives.
However, the need for long-term care can be fairly unpredictable. A study by Georgetown University’s Long-Term Care Financing Project found that 42% of people requiring long-term care are under the age of 65.
This could be due to chronic illnesses or disabling injuries, among other conditions that prohibit them from performing daily tasks.
Though you cannot predict the future, you may be able to look at your family history and determine if you are at an increased risk of a disease like Alzheimer’s and Parkinson’s, which could limit your independence as you age.
There is also genetic testing available to find out if your DNA contains the genetic markers for certain chronic illnesses. Odds are you will need long-term care at some point in your life. But should you buy long-term care insurance?
There are many ways to pay for long-term care. One of them is through Medicaid, a state-run program which pays for some long-term care services.
However, depending on your state of residence, you may not meet the poverty requirements to receive Medicaid benefits and may, therefore, be required to “spend down” your assets to qualify.
An often-cited rule of thumb says if the long-term care insurance premium is more than 7% of your income, you might not be able to afford the policy. However, if you believe you can safely and comfortably afford the premiums, you should consider buying this type of insurance. Depending on your situation, it may prove to be a worthwhile investment.
The earlier you buy long-term care insurance, the better.
Premium costs increase as you age, while medical underwriting makes it impossible to obtain long-term care insurance after you are ill. Your best bet is to obtain a policy while you are still healthy.
How much does long term care cost?
According to Genworth Financial’s 2017 Cost of Care Survey, the national median annual costs of long-term care services are as follows:
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Homemaker Services (44 hours/week): $47,934
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Home Health Aide (44 hours/week): $49,192
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Adult Day Health Care (5 days/week): $18,200
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Assisted Living Facility (12 months in a private bedroom): $45,000
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Nursing Home Care, semi-private room (365 days): $85,775
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Nursing Home Care, private room (365 days): $97,455
These costs vary across regions, facilities, and the specific services required. They can even depend on the time or day the services are rendered—for example, a home health aide who must work on a holiday will be paid more than on a regular day.
In general, however, the costs of long-term care have been going up. Notably, the cost of home care has seen the most rapid growth, with homemaker services increasing by 4.75% since 2016 and home health aide services by 6.17% during the same period. Genworth expects these costs to double within twenty years.
How much long-term care insurance should i buy?
First, you must determine what your maximum daily benefit will be. This is the maximum amount the insurance will pay per day for your long-term care services.
If you expect you will only need home aide or homemaker services, then a daily benefit limit of $150 might be enough. If you believe you may eventually need to live in a nursing home, then something closer to $300 per day would be more suitable.
Keep in mind, however, that nursing homes often charge extra for additional specialized services, which are not included in these sample figures.
The Benefit Period
You must also take into account the benefit period. The benefit period ranges from one to five years, with a few insurers providing an unlimited benefit period, where the insurance will continue paying out until you stop submitting claims or until you die.
To choose your benefit period, you should consider the cost of the premiums—the longer the period, the higher the cost—and what you expect your needs to be. For comparison’s sake, consider that the average nursing home stay is 2.5 years, though most long-term care is provided at home and may last longer.
Together with the daily benefit limit, the benefit period will determine the maximum lifetime benefit, which is the maximum amount the insurance company will pay out.
This number is crucial because the insurance company will continue paying until reaching the maximum, regardless of whether that happens before the end of the benefit period or not.
The Elimination Period
It's also important to consider the elimination period, which is the amount of time you will have to pay out of your own pocket before your insurance kicks in and begins paying out your benefit.
The standard elimination period is 90 days, but you may be able to select a longer period, such as 180 or 365 days, for a lower premium or a shorter elimination period—as short as 0 days, meaning your insurance kicks in immediately—for a more expensive premium.
There are also additional coverages, such as inflation protection and future purchase options, which protect you in case inflation renders your cost calculations useless.
If you choose an inflation protection option, in the event that the cost of long-term care increases, your coverage will be automatically increased at a set rate—between 3% and 5%—to make sure that your benefits will be able to pay for those services when you need it.
A future purchase option is not automatic; rather, the insurance company will give you the option to purchase additional coverage throughout the years, without having to undergo medical underwriting, to keep your coverage up to speed with current cost trends.
Whichever you choose, you will be protecting your investment from economic shifts.
What is the cost of long term care Insurance?
Insurance underwriting—the process where an underwriter evaluates each applicant to see how risky it may be for the insurance company to sell them a policy—is notoriously complicated.
Everything—from your age, gender, medical history, address, and job—can factor into the decision and have an impact on how much your premium will be and even whether your application will be accepted or not.
What does this mean? That the cost of long-term care insurance can vary wildly from one person to another.
However, we understand how important it is to have an idea of how much it could be when deciding whether long-term care insurance is an option. Below, we provide some sample quotes.
For a 55-year-old non-smoking male in good health, a policy with an annual premium of $2,050 would have the following benefits:
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Maximum daily benefit: $150
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Benefit period: 3 years
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Inflation protection: 3%
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Maximum lifetime benefit: $164,000
For a 55-year-old non-smoking female in good health, the same policy would have an average cost of $2,700.
In general terms, women pay more than men for long-term care, though factors such as the individual’s health might tip the scales the other way.
How Can I save on Long Term Care Insurance?
If these two individuals were married, their insurance would have an average cost of $3,050. This is because many insurance companies apply a marital discount when married couples purchase long-term care insurance together.
Another good way to save would be to purchase a shared option rider. This rider allows each spouse to have access to the other’s benefits.
That means if only one of them requires long-term care while the other is able to live independently, the spouse who needs care could dip into the other’s money pool to pay for their own care. This option isn’t offered by every carrier, but it’s a great way to reduce premium costs.
The couple in our example above would pay an average of $2,810 for a policy with this rider.
For others, the best strategy for saving on long-term care insurance comes down to accurately assessing your risk of needing long-term care in the future.
Looking at your medical history, family situation, and the availability of long-term care providers in your area will give you a better picture of how much money you might need to spend on care.
If you have a strong family history of dementia, Alzheimer’s, or other degenerative diseases, it may be that the likelihood of needing long-term care is higher for you than for other people.
People with relatives who are able and willing to provide long-term care may be able to forgo the high cost of care at a facility and rely on home-based care, which is considerably less expensive.
If this is your case, you might only need to calculate the expenses for any special equipment or home modifications, as well as the cost of hiring a professional to occasionally give your relative caregiver a rest.