IN THIS ARTICLE
01/ Are you considering buying long-term care insurance?
02/ What is long-term care insurance?
03/ What does a long-term care insurance policy cover?
04/ Who should consider buying long-term care insurance?
05/ At what age should you consider buying long-term care insurance?
Are You Considering buying Long-term Care Insurance?
Maybe you’ve heard of long-term care insurance, but aren’t quite sure what it is. Maybe you know what it is, but don’t know if it’s appropriate for you. Perhaps you know you should get long-term care insurance at some point, but aren’t sure when the best age to buy it is.
If you’ve wondered about any of the above, we’ve got some answers below.
What is Long-term Care Insurance?
Let’s start with the basics. If you are considering buying long-term insurance, you should know what it is.
Long-term care (LTC) insurance is an insurance policy that covers the cost of hiring a home health aide to help you with your personal care needs, when you are no longer able to manage them on your own.
Care may be provided in-home or depending on your policy, at an assisted living facility or nursing home.
What Does a Long-term Care Insurance Policy Cover?
The coverage provided by LTC insurance policies varies greatly, depending on the coverage options you choose when you buy the policy.
Typically, a LTC policy will cover in-home care, and may cover assisted living, nursing home care, hospice care, and adult day programs.
Your policy may cover the entire amount of home care or assisted living, or just a portion of it, requiring you to supplement the insurance coverage, out of pocket.
For long-term care insurance benefits to kick in, an individual must need assistance completing 2 or more activities of daily living (ADLs) or have severe cognitive impairment. Activities of daily living include: bathing, dressing, toileting, walking, transferring, and eating.
Typically, people will have to pay out of pocket for in-home services for some period of time (usually 30-90 days), before LTC insurance kicks in.
Who Should Consider Buying Long-term Care Insurance?
Since approximately 70% of people over age 65 will require in home care or care in a facility of some type in their lives, it’s probably not a bad idea to consider buying long-term care insurance.
There are two exceptions to this. One is if you are very wealthy and are confident you will have the financial wherewithal to cover the cost of in-home care or care in a facility, should you need it.
The other group that may not need long-term care insurance are those with little income and few assets (in which case they will likely qualify for government assistance).
If you fall in the middle and especially if you are single, purchasing LTC insurance may be one of the best moves you make to care for your future.
The reality is that women typically outlive men, with an average life expectancy in the US of 81 years. And if you don’t have a partner or child to assist with care, you want to ensure you will have the care you need, when you need it.
At What Age Should You Purchase LTC Insurance?
There is not a straightforward answer to when you should buy LTC insurance.
Buying a long-term care insurance policy earlier in life makes it more likely that you will be healthy enough to be approved for the insurance and the monthly cost will be less.
On the other hand, if you start paying on a policy when you are 55 and you don’t end up needing care until you are 85, that is a lot of time and money spent on the policy.
Considering the right time to buy a policy, will certainly be influenced by your own and your family’s health histories. If your mother and aunt had Alzheimer’s before age 70 for instance, you’d probably be well-served to buy a policy when you are in your 50s.
By the time people reach 70, it becomes much more difficult to be approved for LTC insurance and the monthly premiums will be quite a bit more expensive.
According to the American Association for Long Term Care Insurance (AALTCI), the “sweet spot” for buying LTC insurance is between the ages of 52-64.
It’s also important to note that long-term care insurance is a product that, once purchased, needs to be paid monthly until you begin to draw on its services.
What you definitely do not want to do is purchase a policy and pay on it for 20+ years and then let it lapse. All the money you sunk into it will be, well, sunk.
How Much Does LTC Insurance Cost?
LifePlans, Inc., a “clearing house for industry-wide knowledge for the long-term care and health insurance industries” conducted a survey and found that the average annual long-term care insurance premium is $2,727.
Included with that premium is a nursing home care benefit that extends for a specific number of years (with four being the most common), and covers the cost of care up to $161 / day.
There are many variables that will influence the premium you pay though, including the amount and type of coverage you want, how soon you want the policy to kick in once you start needing personal care, whether you want to include an inflation rider and so on.
Although LTC insurance isn’t cheap, you may be happy to hear that, if you itemize your taxes, the money you pay for your LTC is tax-deductible, to a point. See the graph below, published by the IRS, to see how much you can deduct for LTC insurance, based on your age.
2020 Long Term Care Insurance Federal Tax Deductible Limits
Taxpayer’s Age At End of Tax Year – Deductible Limit
Attained age before the close of the taxable year | Maximum deduction for year |
40 or less | $430 |
More than 40 but not more than 50 | $810 |
More than 50 but not more than 60 | $1,630 |
More than 60 but not more than 70 | $4,350 |
More than 70 | $5,430 |
Where Can You Buy Long-term Care Insurance?
You could shop around and compare the cost of coverage with various insurance companies to find one that best suits your situation. You may also want to consider working with an independent insurance broker.
Independent insurance brokers will shop around for you, comparing the options different insurance companies have to offer and hopefully getting you the best deal, based on your criteria and situation.
If you do decide to go with an agent, the American Association for Long-Term Insurance suggests that it is best to work with one who sells policies from three or more different insurance carriers.
If you go it on your own, do compare policies, as there are often significant differences in rates between insurers.
Whatever you decide about LTC Insurance, to get a policy or not, or how much coverage you choose to buy, just be sure that you have the facts and make an informed decision.
You don’t want to find out that you need the protection down the road, when it’s too late. Likewise, if you do have a policy, be sure you understand what it actually covers and the limitations of the coverage.
For more information, check out the six guides published by the American Association for Long-Term Care Insurance.
These guides were first published in Kiplinger’s Financial Magazine and cover LTC Care planning, frequently asked questions about LTC and so on.
There is certainly a lot to know about LTC insurance. While researching whether LTC insurance is right for you and comparison shopping is time-consuming, it is worth your time now. You don’t want to wait until you need the coverage only to regret you never took the time purchase it or that you didn’t purchase the right plan for you.
