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What is Long-Term Care Insurance?

How to find health coverage for long-term care

Key Takeaways

  • Long-term care (LTC) helps those living with debilitating diseases or illnesses. It’s for people who need assistance with daily living activities such as bathing, dressing, eating, moving around and more.

  • Care in a nursing home can be more than $90,000 a year for a semi-private room. Long-term care is costly, and it’s important to plan for the future.

  • Most health insurance, Medicare, Medigap and disability insurance policies do not cover long-term care.

What is Long-Term Care?

Long-term care (LTC) provides coverage to people with disabling diseases, chronic conditions, mental illnesses, and developmental disabilities. Patients with long-term care receive assistance with daily tasks, also called custodial care. This includes eating, dressing, bathing, getting in and out of bed, moving around, and using the bathroom. You also receive support services for monitoring medication, preparing meals, grocery shopping, and housework. Patients receive this care in a variety of settings, including your home, nursing home or assisted living facility.

The U.S. Department of Health and Human Services estimates that 69% of Americans turning 65 years old will need some form of long-term care during their lifetimes, and 20% will need it for more than five years. Furthermore, 8% of people between the ages of 40 and 50 will be treated for an injury or condition that requires long-term care. [1]

What Does Long-Term Care Insurance Cover?

Long-term care coverage is different from your standard health insurance. It’s designed to cover or reimburse people who need assistance with daily activities. For example, if you have a traumatic brain injury and can no longer dress or feed yourself, you can use long-term care to help with those functions.

Most long-term insurance plans are comprehensive. Long-term care is available in three main categories: home care services, community care, and facility-based programs. Below are examples of the type of care each service provides:

Home Care Services 

  • Bathing, dressing and walking
  • Meal preparation
  • Therapy

Community Care 

  • Transportation assistance
  • Adult daycare services
  • Home care agencies

Facility-Based Programs 

  • Nursing homes
  • Assisted living
  • Skilled nursing

How Much Does Long-Term Care Insurance Cost?

Long-term insurance plan costs can vary depending on the level of care you need. Long-term care can be expensive.

Here’s a breakdown of the estimated average annual costs per option in 2019: [2]

Home Care Services

Homemaker ServicesHome Health Aide
$4,290 per month$4,385 per month
$51,480 per year$52,620 per year

Community and Assisted Living

Adult Day Health CareAssisted Living Facility
$1,625 per month$4,051 per month
$19,500 per year$48,612 per year

Nursing Home Facility

Semi-private RoomPrivate Room
$7,513 per month$8,517 per month
$90,156 per year$102,204 per year

Long-term care policies have different limits on how much they will pay and how long they will pay for coverage.

The cost of your premiumA premium is a fee you pay to your insurance company for a health plan coverage. This is usually a monthly cost. is based on five primary factors: 

  • Your age and health at the time you buy the policy
  • The maximum daily limit a policy will pay 
  • The maximum amount of days and/or years a policy covers your care
  • The lifetime maximum amount the policy will cover
  • Any optional benefits you choose

What is Inflation Protection?

Inflation protection is an optional benefit that you can add to your long-term care insurance plan. The protection allows your policy’s daily limit to keep pace with the rising costs of long-term care. Investing in the protection ensures you get the proper coverage when your long-term insurance coverage begins, which is often decades after buying a plan. You can increase your benefits with a given percent using either simple or compound inflation protections. Some plans also offer guaranteed-purchase options.

 

Simple Inflation Protection

Simple inflation protection increases your daily benefit by a fixed percentage starting with the original benefit amount. For example, let’s say you purchase a four-year policy that pays $100 per day. If you increase your benefit rate by 5%, the limit will go up $5 each year.

Year One

  • Increase: $0
  • Policy Daily Limit: $100

Year Two

  • Increase: $5
  • Policy Daily Limit: $105

Year Three

  • Increase: $5
  • Policy Daily Limit: $110

Year Four

  • Increase: $5
  • Policy Daily Limit: $115

Compound Inflation Protection

The compound option is calculated differently than the simple inflation protection. Instead of rising 5% based on the original daily limit, the cost builds off the higher amount of coverage at each anniversary date of the policy. 

For example, let’s say your plan pays $100 per day and you selected a 5% compound inflation protection rate. The daily limit would increase to $105 in the second year. Instead of continuing to increase $5 for the third year, it will increase by $5.25 (which is 5% of $105).

Year One

  • 5% Increase: n/a
  • Policy Daily Limit: $100

Year Two

  • 5% Increase: $5
  • Policy Daily Limit: $105

Year Three

  • 5% Increase: $5.25
  • Policy Daily Limit: $110.25

Year Four

  • 5% Increase: $5.51
  • Policy Daily Limit: $115.76

Guaranteed-purchase options

Some policies offer guaranteed-purchase options, which allow you to increase your coverage limit at a designated time without additional underwriting. This option replaces automatic increases like simple or compound inflation protections. The policies generally have a lower premium with limited coverage to start, but the premium significantly increases when you add more coverage.

Am I Eligible for Long-Term Care Insurance?

The need for long-term care varies by your health and lifestyle. On average, people need long-term care for two years or less, while 14% [3] need it for more than five years. Additionally, anyone who has suffered a severe injury or has a disability may require long-term care, regardless of age.

Those who have invested in a long-term care plan are eligible only after being unable to perform at least two of the six Activities of Daily Living (ADLs). These are essential functions a person must be able to perform to reasonably care for themselves. Dementia or other cognitive impairments can also make you eligible to receive coverage.

What are the six Activities of Daily Living?

  • Bathing
  • Dressing
  • Using the toilet
  • Transferring (in and out of a bed or chair)
  • Caring for incontinence
  • Eating

How Do I Enroll in Long-Term Care Insurance?

If you are between the ages of 55 to 65, it’s an excellent strategy to consider long-term care before you need it. If you become aware of any condition that may debilitate, you should contact a licensed insurance agent to determine if long-term care may be right.

Long-term care coverage is underwritten, which means you’ll need to provide medical information during the application process. You may also need to complete an interview.  If your application is approved, you will start paying the monthly premium. 

Your coverage won’t begin until you’ve reached both a benefit trigger and the elimination period. A benefit trigger is what insurance companies use to determine if you are eligible for long-term care. Most policies start paying benefits when you need help with two or more of the six activities of daily life. 

The elimination period requires you to wait a certain amount of time between when the illness starts and when the insurance company begins payments. This is usually a period of 30, 60 or 90 days.

When Should I Enroll in Long-Term Care Insurance?

You can sign up for long-term care coverage at any time. Many experts recommend buying a policy a few years before retirement. The idea is to get the coverage you need before you need it. According to the American Association for Long-Term Care insurance, most people start planning for a long-term policy between the ages of 52 and 65. 

Costs of coverage increase with age, but applying early enough to qualify is even more important. Like other services, coverage is not guaranteed. Enrollment can be denied based on your health condition. In fact, 51.5% of people aged 75 or older were declined long-term care insurance in 2019 because of their health. [4]

FAQs

Is long-term coverage included in my existing policy?

Most health insurance, Medicare, MedigapMedicare Supplement Insurance (Medigap) are policies designed to provide coverage that Original Medicare (Parts A and B) do not. Medigap policies are purchased in addition to Original Medicare and have their own monthly premiums you'll need to pay. and Disability Insurance policies do not cover long-term medical needs. Health insurance and Medicare will often cover skilled, short-term, medically necessary treatments, but they often limit the care to 100 days. To be sure, check your policy or ask an enrollment specialist.

Do I need inflation protection with long-term care insurance?

Generally speaking, it’s a good idea to add inflation protection to your long-term care policy. Most people buy long-term care insurance plans anywhere from ten to 30 years before they need coverage. The cost of long-term care is likely to increase from the date you originally purchased your policy. Your benefits won’t cover nearly as much if you don’t have inflation protection.

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