Seventy percent of people over age 65 will need long-term care at some point in their lives, and more than 40 percent of the same group will require nursing home care. Yet few have the assets to cover the enormous expense of long-term care, whether it’s for a chronic illness, disability or other circumstances.
A 2011 MetLife survey found the average price for a year of nursing home care, with a private room, was more than $87,000. Medicaid covers long-term care for low-income Americans, but Medicare and Medigap insurance generally will not touch these costs. That leaves many middle- and high-income Americans to spend their own money, which, depending on their amount of savings and other expenses, could drain quickly.
Long-term care insurance offers an alternative to out-of-pocket and Medicaid payments, helping seniors pay for nursing homes, assisted living facilities and home care, whether in a retirement community or single-family home. But it’s important to understand the costs involved before jumping in.
Dignity and choice
A long-term care policy can guarantee considerable protection without depleting the assets for a surviving spouse and heirs, says Ralph Barringer, a certified long-term care consultant and financial planner with Northwestern Mutual in Louisville, Kentucky. As with other types of insurance, you pay a premium to guarantee the insurance company will cover your long-term care costs up to the dollar amount you specify (based on your preferences for length of coverage and how much you can afford). Without it, you must use your income and savings to pay all of your long-term care costs when they arise.
But it's about more than asset protection, says Wendy Rinehart, president of Mrs. LTC, a nationwide long-term care insurance consultancy.
"Everybody who wants dignity and choice at this most important time in their life needs a policy in place," Rinehart says. "People are running out of money trying to pay for their own care, and then they're left on Medicaid, which allows little choice.”
Weighing the cost of a long-term care policy
When it comes to coverage and cost, several factors can impact the bottom line. Among these are:
- Age: Policy costs can rise by as much as 50 percent between the ages of 50 and 60. Rinehart says the sweet spot for purchasing long-term care insurance is in your early to mid 50s.
- Illness: Good health keeps costs lower at almost any age—but some health conditions can put even younger adults in a higher cost category, and some illnesses can make you ineligible for coverage. For instance, some plans will not accept people with insulin-dependent diabetes, Alzheimer's disease or obesity.
- Duration: Long-term care insurance usually is a lifetime expense, but there is no guarantee that the premium you start out with will not increase. Preferably, coverage should be based on a monthly benefit, not a daily limit, Barringer says. A single day's medical care easily might bump your expenses beyond a daily limit, but a monthly limit should absorb the occasional higher costs. You also can purchase inflation protection, but that increases the cost of the policy.
Another consideration is the “elimination period,” part of most long-term care insurance policies. It's similar to a deductible and dictates the amount you must spend out of pocket by establishing how many days you must receive care before your coverage kicks in. While elimination periods often are set at 90 days, you can pay more for a shorter one.
Before you purchase coverage, do your homework. Several websites provide average nursing care costs by state (the U.S. Department of Health and Human Services, for example), and you can find the financial background and history of long-term care insurance carriers online.