What Is Long-Term Care Insurance and Do You Really Need It?

Female carer wearing slippers to elderly female patient.
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If you live into your 80s and 90s, chances are you will need long-term healthcare. This type of care is typically not covered by Medicare, Medicaid or private health insurance. That’s why over 10 million Americans have purchased long-term care insurance, according to the American Association for Long-Term Care Insurance. As you prepare for your retirement years — or if you’re already retired — keep reading to find out how to not go broke paying for long-term care.

What Is Long-Term Care Insurance?

The term “long-term care” covers a range of medical and support services that are provided to people who have a degenerative condition, a prolonged illness or a cognitive disorder. These conditions affect many older individuals, especially those in their 80s and beyond. People who require long-term care are unable to do the daily tasks we take for granted — such as getting out of bed or taking a bath — without the assistance of a caregiver or medical professional.

Long-term care insurance can help pay for the day-to-day care that is needed but is not covered by traditional health insurance. What does long-term care insurance cover? It covers a broad range of services, including:

  • Assisted living services within your own home, such as nursing care
  • Occupational, physical, speech and rehabilitation therapy
  • Help with daily living activities
  • Adult day service centers
  • Respite care
  • Hospice care
  • Assisted living facilities
  • Nursing homes
  • Alzheimer’s special care facilities

With long-term care insurance, the policyholder is reimbursed a daily amount up to a preselected limit for these services. You can cater your long-term care insurance plan to cover the benefits and services that you need.

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Why You Might Need Long-Term Care Insurance

You might be thinking that you do not need to purchase long-term care insurance because you are healthy. However, just because you are healthy now does not mean you will be healthy in the future. According to the American Association for Long-Term Care Insurance, 69 percent of people over the age of 65 will require some amount of long-term care, with 20 percent requiring more than five years of long-term care.

Paying for long-term care out-of-pocket can be a major expense. Here are the average long-term care costs as of 2016, as reported by the U.S. Department of Health and Human Services:

  • $6,844 per month or $225 a day for a semi-private room in a nursing home
  • $7,698 per month or $253 a day for a private room in a nursing home
  • $3,628 per month or $119 a day for care in a one-bedroom unit in an assisted living facility
  • $20.50 per hour for a health aide
  • $20 per hour for homemaker services
  • $68 per day for services in an adult day healthcare center

At those rates, one year in a semi-private room in a nursing home would cost $82,128.

Related: 11 Signs Your Retirement Is Going to Be More Expensive Than You Thought

How Much Does Long-Term Care Insurance Cost?

The cost of long-term care insurance depends on a number of factors:

  • Your age when you buy the policy
  • The maximum amount that a policy will pay per day
  • The maximum number of days or years that a policy will cover
  • The lifetime maximum amount that the policy will cover
  • Optional benefits you add to the plan

In 2018, the average annual premium for a 55-year-old male was $1,870, according to the American Association for Long-Term Care Insurance — a fraction of the annual cost of a nursing home when paid for in full. At that rate, if you’re wondering, “How much does long-term care insurance cost per month?” it’s an average of $156. The typical long-term care policy covers 4.8 years of benefits, with an average daily benefit amount of $160. In addition to being relatively affordable, your long-term care insurance premium is a medical expense you can deduct from your taxes.

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How to Buy Long-Term Care Insurance

Long-term care insurance can be purchased through private insurance companies. According to the American Association for Long-Term Care Insurance, these are the top providers:

  • Genworth
  • LifeSecure
  • MassMutual
  • Mutual of Omaha
  • Transamerica Life Insurance Company

Pros and Cons of Long-Term Care Insurance

The biggest benefit of long-term care insurance is that it makes living comfortably in old age more affordable. However, there are some things you should keep in mind before you purchase this type of insurance:

  • Don’t buy more than you need. Think about how much care you can realistically pay for with your retirement income, and whether or not other family members will be helping you pay for this expense. You might only need a small amount of insurance to cover the difference.
  • Don’t buy too little. It’s easier to decrease your coverage than to increase it, especially if you try to increase it after your health is already declining.
  • Research your options, and find the plan that’s right for you.

It is possible you will never need to use your long-term health insurance, but it’s better to be prepared for the worst. Think of it as car insurance for your health: You’ll be lucky if you never have to use it, but you’ll be happy you have it if you need it.

When Should You Buy Long-Term Care Insurance?

The average age to purchase long-term care insurance is 60, according to the U.S. Department of Health and Human Services. It’s less expensive to buy long-term care insurance the younger you are, so don’t wait to apply for a policy until you are on the cusp of needing long-term care. Buying long-term care insurance is a good idea for people who are in good health but want to plan ahead for future costs that are not typically covered by traditional health insurance.

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You might not qualify for long-term care insurance if you meet any of the following criteria, according to the U.S. Department of Health and Human Services:

  • You already use long-term care services
  • You already require assistance with daily living activities
  • You have AIDS or AIDS-related complex (ARC)
  • You have Alzheimer’s disease or any form of dementia or cognitive dysfunction
  • You have a progressive neurological condition
  • You had a stroke within the past two years or have a history of strokes
  • You have metastatic cancer

If you do not qualify for long-term care insurance, you might consider buying short-term care insurance, which provides coverage for one year or less. Even if you do qualify for long-term care insurance, it might not be a good option for you if you can’t actually afford it. Keep in mind that your monthly income could change over time.

Click through to learn the signs you’re not saving enough for retirement.

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