Long-term care insurance can be an emotional topic. It’s not exactly something you want to talk about at the dinner table. After all, no one wants to think about themselves or their loved ones being unable to live on their own. But if you want to make a smart financial decision and protect your nest egg, long-term care insurance is a must!
Take Steve and Rachel, for example. They weren’t always smart with money, but they worked hard and built up a nest egg of $300,000.
When Steve was 67 years old, he developed Alzheimer’s disease. At first, it wasn’t too bad. Rachel used some of their nest egg to hire a home care specialist to help with Steve a few hours every day. But as his condition worsened, Steve had to go into a nursing home. Sadly, after five years in the home, Steve passed away. Rachel, now 72, is healthy as can be for her age, but she has to work full time because her husband’s stay in the nursing home cracked and scrambled most of their nest egg.
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Unfortunately, Steve and Rachel’s story isn’t unique. In fact, around 63% of caregivers say they paid out of pocket for long-term care—with their own savings and retirement funds.1 But you can keep that from happening to you by having a plan. And that plan is called long-term care insurance.
What Is Long-Term Care Insurance?
Long-term care insurance is basically nursing home or assisted living insurance. It pays for the long-term care services—like getting dressed or taking a bath—that some folks will need help with as they age or become ill.
And long-term care can get expensive—really expensive. According to the Alzheimer’s Association, the estimated cost for care in the final five years of life is $367,000 for people with dementia and $233,000 for those without.2 On average, Americans spend $140,000 out of pocket on long-term care—out of pocket!3 Most health and disability insurances won’t cover long-term care, but long-term care insurance will.
The Alzheimer’s Association estimated end-of-life care costs in the final five years of life starts around $233,000. Simply put, long-term care is expensive.
What Does Long-Term Care Insurance Cover?
Long-term care insurance covers most of the expenses that aren’t covered by Medicare. (Surprise! The government isn’t going to take care of all your needs). Costs could be for things like:
- Nursing home care
- Assisted living facilities
- Adult day care services
- In-home care
- Home modification
- Care coordination
Of course, not all policies are the same, so talk to a trusted insurance agent to find the best fit for your needs.
Why You Need Long-Term Care Insurance
Did you know that 14 million adults needed long-term care services in 2018?4 And yet, only about 7.2 million Americans have long-term care insurance.5 That’s a lot of people who are getting a surprise $140,000 bill.
Purchasing long-term care insurance can give you peace of mind and protect the nest egg you worked so hard to build. You’ll know that if you do become ill, you can afford the care you need and still have enough money left over so you and your spouse can eat. Plus, your kids won’t be burdened with huge payments for your care.
Now, you may be thinking: What about government programs? Can’t they help? Again, don’t make the mistake of believing Medicare will cover long-term care costs. It won’t. And while Medicaid—the government program designed for people who truly don’t have any money—will cover long-term care expenses, it should never be your first choice.
Side note: It’s common for people to try to cheat the system by moving their folks’ assets around to try to get them to look broke so they’ll qualify for government help. That’s considered fraud—a federal crime—and the government will prosecute you! Don’t become a criminal just because you failed to plan ahead.
How Much Does Long-Term Care Insurance Cost?
It’s hard to pinpoint an exact number here because the cost of long-term care insurance ranges based on a lot of different things. The insurance agency will factor in your age, gender, current health and family health history when giving you a quote. The cost also ranges depending on where you live and what type of policy you choose.
Right now, a single 65-year-old man with $165,000 worth of benefits will pay an annual premium between $1,700–4,200.6 Meanwhile, a 65-year-old woman will pay between $2,700–7,225 for the same coverage.7 Because women tend to outlive men, insurance companies require ladies to fork over more money.
The good news is that couples get discounts! A 65-year-old couple will pay an annual premium ranging between $3,750–9,675.8
Types of Long-Term Care Insurance
Traditional Long-Term Care Insurance
Traditional long-term care insurance is a no-frills, stand-alone insurance policy. All it does is offer to pay for long-term care services when you need them. That’s it!
When does a traditional policy kick in? The policy is triggered when you can no longer perform two out of six activities of daily living (such as dressing, bathing, eating, or getting into a wheelchair) or if you suffer from severe cognitive impairment. Under most policies, you’ll have a waiting period between 30 and 90 days before insurance kicks in, which means you’ll need to plan for about three months of out-of-pocket expenses even with long-term care insurance.9
Okay, let’s look at the numbers. The median cost of a semiprivate nursing home room nationwide is $93,075 per year.10 Assisted living runs $51,600 annually, while having a home health aide will cost about $54,912 per year.11 That’s expensive! But having traditional long-term care insurance means that no matter where you need care, you’ll have the money to cover at least a portion of the bill. That way, a lengthy stay at a nursing home is less likely to drain your savings or wipe out your estate.
The average annual long-term care insurance premium for a 65-year-old couple is around $3,750 (or about $313 per month).12 As far as the payout, the typical long-term insurance policy provides a benefit of $160 per day for nursing home care for a set number of years (three is most common).13 Plus, you can add an inflation rider, which is a fancy way to say “inflation protection.” With an inflation rider, your benefit will increase over time (usually about 3% a year) to keep up with inflation. But fair warning, adding a rider will probably cost you a little extra.
Hybrid Life and Long-Term Care Policies
Another option is a policy that combines life insurance with long-term care coverage. With a hybrid policy, you can access the death benefit—the money that your beneficiaries would receive when you die—while you are still alive to pay for long-term care.
And if you end up not needing care, your heirs get the full payout. Rates are considered “noncancelable,” which means premiums are fixed for life.
But brace yourself—the price tag for a hybrid policy is usually thousands of dollars more than a traditional policy. That’s because you’re also buying life insurance you might not even need along with long-term care coverage. And unlike traditional long-term care insurance, the premiums for hybrid policies are not tax deductible.
Similar to whole life insurance, a hybrid policy means that insurance companies are investing your money for you. The problem is, they’re not making good investments, and your returns will probably barely keep up with inflation. If you take into account all the lost earnings, hybrids may be the most expensive long-term care policy of all. That’s why hybrid policies should generally be a last resort.
The only time you might consider buying a hybrid is if you don’t qualify for a traditional long-term care insurance policy based on your health status. If that’s not the case, buy long-term care insurance and life insurance separately—don’t try to marry the two!
When to Buy Long-Term Care Insurance
Dave suggests waiting until age 60 to buy long-term care insurance because the likelihood of your filing a claim before then is slim. So, on your 60th birthday, go out and buy yourself the gift of a long-term care policy! (We know, it’s not the most exciting birthday present, but it’s definitely one of the smartest.)
Get this—about 95% of long-term care claims are filed for people older than age 70, with most new claims starting after age 85. That’s why it doesn’t make sense to get long-term care any earlier than age 60.14 But remember, insurance is not one-size-fits-all. You need to do what’s best for you and your family. If you or your spouse has family history of illness at a young age or concerning health issues, you may need to get long-term care earlier. But don’t do it because you’re paranoid of what might happen. If it’s not likely to happen, wait until you’re 60.
50 Years Old vs. 60 Years Old: Is It Better to Buy Early?
You may have heard that you’ll pay less and lock in a lower monthly premium if you buy your policy at age 50 instead of age 60. That might be true, but you’ll also be dishing out money for an extra decade—for no reason. Dave will never tell you to buy something based on how much the monthly payment is. That’s what broke people do. It’s about what you need, when you need it.
It might seem cheaper to buy long-term care in your 50s because of those lower monthly premiums, but the numbers tell a different story.
Let’s compare the long-term care policy costs for a $5,000 monthly benefit. A 50-year-old man in Tennessee will pay an estimated $2,304 per year. If the policy remains in effect until he’s 95, he can spend approximately $103,680 in long-term care premiums. If that same man waited until he was 60, he’d pay an estimated annual premium of $2,952. If he keeps the policy until he’s 95, it would cost him $103,320 overall.15
You can already see how buying at age 60 is a better deal. But what would happen if, instead of buying long-term care at age 50, you invested that $2,304 each year until age 60? At 11% interest, you could have roughly $41,600. And if you keep that money invested until age 95 and never add anything to it, you could have over $2.8 million. That’s not too shabby!
Many people worry that if they wait until age 60 to buy long-term care, they’ll develop a medical condition that will either prevent them from qualifying for coverage or significantly raise their premiums. Again, if you have genetic health concerns or you’re losing sleep because you’re worried about getting sick and not being able to afford care, then buy long-term care when you can afford it. The peace of mind is worth more than any cash you’ll save on premiums. But don’t buy long-term care at a young age just because you think you’ll save money by doing it. That’s just not true.
The Best Way to Get Long-Term Care Insurance
So, what’s the best way to find long-term care insurance? Go to an independent insurance agent. They’ll shop around several different long-term care companies and get you quotes that can save you thousands of dollars and loads of unnecessary worries. Long-term care is an important decision, so make sure you get a professional on your side!
Don’t know where to look? Our Endorsed Local Providers (ELPs) are trusted insurance experts fit to answer all your questions. Your ELP will listen to your needs and help you make the right decision for you and your family—and your budget.