Long-term care (LTC) services are paramount for people with disabilities and chronic illnesses, whether provided at home, in an assisted living facility, or in a nursing home.

Since they need daily assistance, LTC services help people with various essential tasks, ranging from activities of daily living like using the toilet, dressing, bathing, and eating.

Most employer-provided insurance plans don’t include long-term care services. If you don’t have a standalone long-term care costs insurance policy, you could be facing substantial annual out-of-pocket expenses, ranging from $20,000 to $100,000, or more, depending on the type of policy and care you require, your location, and some other health factors.

The Wall Street Journal reports that seven out of ten seniors will need LTC at some point in life. That means, typically speaking, the sooner you take out a policy, the fewer costs you’ll have to face, and you get a chance to save on medical bills and associated debt.

This comprehensive guide will show you what LTC insurance is, how it works, why you may need it, and what it covers. It will also show you the long-term care insurance cost by age, and how it can vary, so you can know what to expect.

Key takeaways

Long-term care coverage includes qualified long-term care services received from adult day health care (ADHC) centers, in-home care providers, assisted living facilities, and nursing homes.

Those services help with mobility, bathing, eating, and other custodial tasks and chores that people can no longer complete independently. Long-term care insurance policies allow a policyholder to avoid high LTC costs and have their services covered through the benefits associated with a policy.

Since most disability and medical insurance policies don’t cover long-term care, you’ll need to purchase a long-term care policy independently. However, the insurance policies greatly vary by the type of plan, the carrier you choose, your gender, and your age.

If we look at the average LTC insurance costs in 2021, a 55-year-old male will pay $950 annually for a $165,000 policy benefit. A 55-year-old female will pay $1,500 a year for the same policy. Adding 10 years, the annual premiums go from $950 to $1,700 for men, and from $1,500 to $2,700 for women.

The pricing and eligibility for LTC insurance vary based on your current health condition and age. According to experts, the best age to consider purchasing this type of insurance is in your mid-50s.

What is long-term care insurance?

LTC insurance refers to an insurance policy that covers the cost of long-term care plan and all other expenses associated with it.

Those personal care services and expenses may include medical costs, professional health care and residential care facilities, among many other things, and they can quickly add up. In-home care is typically the most affordable version compared to a more expensive nursing facility care.

Instead of facing charges that can easily surpass $100,000 annually, you can save money and secure asset protection by investing in an LTC insurance policy. This policy provides coverage for some care costs and medical services, typically up to a specific amount of money per day necessary for in-home visits or nursing home services.

People with disabilities or chronic medical conditions usually purchase LTC insurance to get the personal care and assistance they need with daily living activities. However, it’s important to note that if you are already in a disabled condition and are unable to perform certain activities of daily living (ADLs), then you may not be eligible to purchase a policy. This is something we can help you with.

Assisted living facilities, nursing homes, ADHC providers, and professional in-home health aides are licensed to provide long-term care.

LTC insurance covers both medical care expenses and non-medical assistance.

Medical assistance includes skilled care and professional assistance with the ADLs, such as:

• Bathing
• Dressing
• Using the toilet
• Incontinence
• Eating and drinking
• Transferring (short-range and long-range)

Non-medical assistance includes help with instrumental daily living activities, including:

• Housekeeping
• Taking medications
• Money management
• Grocery shopping
• Pet care

Long-term care insurance costs

Long-term care services vary greatly and depend on multiple factors, such as your location, the provider you choose, the period of time you need it for, and the type of care you require.

Nursing home care is around $93,072 a year (semi-private) or $105,850 a year (private).The cost of care in community and assisted living facilities are a bit more affordable.

Adult day care (ADHC) goes up to $19,240 a year, while the cost of care in an assisted living facility can be up to $51,600 a year. According to 2021 data, the national average costs of LTC are as follows:

• Nursing homes – $255 per day, $7,756 per month (semi-private) and $293 per day, $8,821 per month (private);
• Assisted living facility (one-bedroom unit) – $141 per day or $4,300 per month;
• Home health aide – $150 per day ($24 hourly) or $4,576 per month;
• Homemaker services – $147 per day ($23.50 hourly) or $4,481 per month;
• Adult daycare health (ADHC) centers – $74 per day or $1,603 per month.

Estimated annual costs are as follows:

• Private room in a nursing home – $108,408;
• Assisted living facility – $54,000;
• Home health aide – $61,776;
• Homemaker services – $59,484.

As you can see, LTC costs can be pretty high and tend to add up over time. With that in mind, let’s review LTC insurance costs by age.

Long-term care insurance cost by age

Annual LTC insurance premiums vary by the policy you choose, the carrier, your health condition, marital status, and gender.

When you apply, the insurer uses your age to determine the long-term care insurance premium. However, the annual rate increases every year, typically rising by 2-4% (in your 50s) or 6-8% (in your 60s).

Here is a review of the costs associated with a $165,000 policy (on average):

• Single male (55) – $950 annually;
• Single female (55) – $1,500 annually;
• A couple (55) – $2,080 annually (combined);
• Single male (65) – $1,700 annually;
• Single female (65) – $2,700;
• A couple (65) – $3,750 annually (combined).

There are some alternatives to a straight LTC insurance that you can consider, such as a hybrid LTC insurance policy. This policy combines long-term care benefits with life insurance annuities.

If you have savings in money market accounts, this insurance policy might be the best solution for your needs. In some situations, reverse mortgages and home equity can also help cover your long term care planning costs.

Who needs LTC insurance?

People who may need this type of insurance the most are typically in their mid-60’s. However, the ideal time to start considering whether you need this policy or not is your mid-50s. That is the period when your health is likely still in good condition, and you may not need immediate health or medical care.

We recommend not to wait until your health deteriorates or cognitive impairment begins and demands immediate LTC. In such scenarios, most people will then not be able to qualify for a policy.

The best age to consider purchasing LTC insurance

While the best age to consider getting LTC insurance is your mid-50s, it’s not that simple. Most people in their mid-50s are well aware that their health only deteriorates from that point on.

Insurance providers offer policies and premiums on discounts to people in good health. The better your health is, the more affordable the policy you’ll get. While those discounts are fixed and locked in, they do not change if your health changes.

However, each insurance provider has unique requirements, which differ from person to person depending on their health condition, including but not limited to, any medications they may be taking.

Your age is also a big determinant of how much your policy is going to cost. The healthier you are, the more affordable the cost of your LTC insurance will be. There is typically a relationship between age and health condition.

As you grow older, the chance to qualify decreases:

• Ages 40 to 49: 62.0%
• Ages 50 to 59: 46.0%
• Ages 60 to 69: 38.0%

Insurers view certain health conditions as a higher risk, which is why they charge more. Older people are riskier and may not qualify due to existing health conditions. Let’s look at an example to explain why waiting too long doesn’t pay.

Let’s say that you’re 55 at the moment and you’ve just bought a $172,000 standard LTC coverage with benefits. That’s $150 in daily benefits for a three-year plan. You pay $1,084 annually in premium because you qualify for the discount. By age 65, the same benefits will have cost you $276,000 because the cost has increased. That’s $3,275 annually compared to $1,084—nearly three times more.

If you consider that the rates will also rise over ten years, it’s not hard to conclude that it’s better and more affordable to buy LTC insurance in your mid-50s.

How LTC insurance works

You can get a LTC insurance policy only after getting approved. The insurer may ask for your health records and medical history to ascertain any risks associated with insuring you. You can choose the type of LTC insurance policy you want, but the insurance provider must approve you through the underwriting process.

Once the insurer issues a policy, you must start paying your monthly premiums. They are necessary for receiving benefits if you ever need long-term care. Should you file a claim, the insurer will check your ability to perform a set number of ADLs over a certain period.

After that period has passed, the insurer will review your claim, the submitted medical history, and your health records before approving a payout. If you get approval, you’ll receive reimbursement for the LTC services you’ve paid, up to the limit on your policy.

Tax relief for LTC insurance

Some LTC premiums may be tax-deductible at state and federal levels. The best way to gain eligibility for tax relief for LTC premiums is to choose a tax-qualified insurer and then you become eligible by making payments toward a policy. You should know these things when applying for disability insurance.

The LTC insurance tax relief component is part of a medical expense deduction. The requirement for this deduction is to spend more than 7.5% of your adjusted gross income on medical care and associated expenses each year.

The maximum deduction you could receive varies by age:

• 40 or under – $450
• 41 to 50 – $850
• 51 to 60 – $1,690
• 61 to 70 – $4,520
• 71 and over – $5,640

How to buy LTC insurance

There are two primary ways to buy LTC insurance—through an insurance sales agent or broker, or directly from carriers.

Talking to a broker might be a better choice as they can help you explore different options and find policies with the most competitive rates.

They have the necessary knowledge and expertise to help you understand how different health insurance policies work, what they cover, and the benefits you could receive.

Another option is to get your policy through your employer. Some companies allow their employees to buy insurance at discounted prices and get group rates. But most employers don’t offer this type of coverage.

We recommend you get quotes from different insurance providers to compare the rates and find a policy that suits your needs. In some cases, the rates you discover on your own through an agent can be slightly more affordable than those your employer might offer.

When it comes to paying for LTC, you should seek professional help from a financial advisor to estimate the cost of LTC premiums in your area. It’s good to know what does disability insurance cover too.

They can help devise a money management plan to make paying for your LTC insurance easier. A financial plan is an excellent tool for finding the best way to ensure the necessary means for your insurance.

Some financial planners offer their consulting services for free or at quite affordable rates. You can also consider a health savings account. There are special accounts, called health IRAs, that allow you to save by reaping tax-deferred money.

Conclusion

The more you age, the more your health typically deteriorates. That’s why taking out a long-term care insurance policy before you need long-term care is one of the wisest steps you can take to ensure your future care.

Consider purchasing insurance while you still qualify for beneficial health discounts instead of risking paying for an expensive medical care facility and medical treatments.

The older you get, the higher your chances of additional costs or of getting declined. If your current health is poor, the chances are that you won’t be able to qualify.

Therefore, think in advance as that will help to ensure two critical things – you’ll receive the necessary medical care you require, and your insurance will cover the total costs of that care.

Sources

Ruffenach, G. (2019). The Odds on Needing Long-Term Care. Retrieved from The Wall Street Journal website: long term care planning

Kearl, M. (2021). Best Long-Term Care Insurance. Retrieved from Investopedia website: https://www.investopedia.com/best-long-term-care-insurance-5070718

American Association for Long-Term Care Insurance. (2021). Long-Term Care Insurance Facts – Data – Statistics – 2021 Reports. Retrieved from American Association for Long-Term Care Insurance website: https://www.aaltci.org/long-term-care-insurance/learning-center/ltcfacts-2021.php