What Is Long-Term Care Insurance?

Long-term care insurance can be an effective way to minimize expenses for older adults.
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Quick summary

Long-term care insurance is intended to reduce out-of-pocket costs if someone winds up needing long-term care from a paid provider. Long-term care insurance can pay for a nursing facility or home care, and many policies also cover assisted living, though no policy will pay the full cost of any of these. People usually pay premiums for 20 or 30 years before reaching an age when long-term care is likely.

If, like most people, you never need or qualify for the policy's benefits, or you collect benefits for only a short time, those years of premiums will turn out to have been a wasted investment. For that reason, it's best to consider long-term care insurance as a "peace of mind" investment rather than as a sound financial one.

Who will need long-term care insurance?

Most people buy long-term care insurance in their 50s and early 60s. The cost goes up with age, but it's still affordable for many people o ver age 65. Once you hit the mid-70s, though, the cost of a good long-term care policy becomes very expensive, and it may be difficult to qualify for if you already have health problems.

Even if you're are in good health today, there's a good chance that you'll eventually need some type of long-term care, at least for awhile. By 2020, roughly 12 million people over the age of 65 will require some long-term care, according to a study by the U.S. Department of Health and Human Services.

But that only gives a general picture. The hard part is figuring out in advance whether you'll need a long period of close monitoring -- daily or even round-the-clock care -- that you'll have to pay for. Some 70 percent of the elderly don't pay for their care but get it exclusively from family and friends.

The odds of needing two years or more of extensive, paid care is not high. Long-term care insurance, then, is security against a small but nonetheless real possibility of a lengthy, expensive period of care.

How much does long-term care cost?

The reason some people are willing to risk buying long-term care insurance is the staggering cost of care if it's not provided by family and friends:

  • A year in a nursing home costs more than $50,000 on average.
  • Home health care can cost $1,000 a month or more.
  • Assisted living facilities cost $2,000 a month and up, according to the Health Insurance Association of America (HIAA), a national trade group.

Health insurance or Medicare rarely covers any of these expenses. Medicaid does cover nursing facility and some home care costs, but you'll have to meet strict income and asset requirements to qualify. Without long-term care insurance or Medicaid, you'll be footing the entire bill out of your own pockets. It's the chance that these bills will continue for three, four, or five years that long-term care insurance is meant to help guard against.

What types of policies are available?

Several types of long-term care insurance are available, but they work on the same principle as regular insurance: You pay an annual premium, and the insurance company reimburses you for a specified amount of long-term care costs, should one or both spouses end up needing and qualifying for care under the policy's terms.

Some long-term care policies are "tax qualified." This means the policy meets certain federal regulations, and therefore some of the premium amounts may be tax deductible (as an itemized medical expense, depending on income). The benefits collected would be tax-free.

In several states -- California, Connecticut, Indiana, Iowa, and New York -- there's also what's called "state partnership" long-term care insurance. These are the same as other policies, except they provide an extra benefit that might allow you to more easily qualify for Medicaid coverage of long-term care. To qualify for Medicaid coverage , you must have very limited income and assets. With a state partnership long-term care insurance policy, you're allowed to keep more assets and still qualify for Medicaid coverage.

Long-term care insurance policies will pay benefits either on a per diem basis (a fixed benefit no matter what your costs) or on an indemnity basis (a portion of your actual expenses are reimbursed). Some policies pay only for a certified home care agency or licensed nursing facility, while others pay the policy holder directly, to use any way you sees fit.

How much does long-term care insurance cost?

The cost of a long-term care insurance policy is determined by several factors, including:

  • The age of the person covered (the older the person, the more expensive)
  • The amount of the benefit
  • How long the benefit is to be paid
  • The types of care covered
  • The health status of the beneficiary when signing up for the policy
  • Whether the policy includes inflation protection
  • The cost of long-term care in the state where the beneficiary lives

For example, in 2005, a typical low-end long-term insurance policy cost $1,877 per year for a 55-year-old, $2,000 per year for a 65-year-old, $2,600 for a 75-year-old, and more than $ 5,000 for an 80-year-old, according to the U.S. Department of Health and Human Services. These figures are higher today.

Premiums are lower for younger people, and the policy holder must be in reasonably good health to pass underwriting. So when thinking about getting a policy, it makes sense to do so sooner rather than later.

What does long-term care insurance cover -- and what's not covered?

Coverage depends on the plan you choose. Some policies cover only nursing home care, but many policies now include coverage for in-home care, including nursing care, physical therapy, and medical equipment. Many policies also cover assisted living, which is likely to be important, since this type of care is rapidly expanding.

Policies may also include adult daycare and respite care to give a break to a caregiver who is a family member. Almost all policies cover care related to Alzheimer's or other forms of dementia (though there are exceptions, and since this is a common condition, you'll need to be careful that the policy you choose does in fact cover Alzheimer's). In general, the more types of care that are covered, the higher the premiums.

Most policies include a deductible or waiting period before the coverage begins, especially if the policy holder has any pre-existing conditions noted during the underwriting process. Most policies don't include coverage related to alcohol or drug abuse. Also, no benefits at all are paid unless the insured person qualifies for coverage under the specific terms set by the policy.

Who's eligible?

Anyone between the ages of 18 and 84 in reasonably good health can purchase long-term care insurance, according to the HIAA. People over the age of 84 aren't usually eligible to buy new policies.

Many people can't buy long-term care insurance, however, because they are rejected due to pre-existing health conditions. The Insurance Information Institute reports that in 2003 to 2004, 11 percent of people in their 50s, 19 percent in their 60s, and a whopping 43 percent of people in their 70s had their long-term care insurance applications rejected.

If one or both spouses don't qualify for long-term care insurance because of health or age, some other insurance products -- though not new insurance policies -- are available that can help with the costs of long-term care. For exam ple, viatical settlements, in which an older adult sells his life insurance for roughly the present value of the policy, can help fund long-term care. This type of product has some eligibility limitations, and the money obtained from selling the policy is taxable.

Life insurance policies may also offer something called an accelerated death benefit (ADB), which offers cash advances against the value of the policy while the affected person is still alive. These policies have some drawbacks -- you have to continue paying the insurance premium, and the policies can generally be used only if the insured person has a terminal illness, needs nursing home care permanently, or can't perform normal daily activities.

How do you purchase long-term care insurance, and what else should we be aware of?

If you're going to look into long-term care insurance for someone in your care, check with his current or former employer, life insurance provider, or insurance broker to see if she can add long-term care coverage to an existing policy. If it's for your parents, you may also be able to purchase a long-term care insurance policy through your own employer. If your parent is or was a local, state, or federal government employee or a veteran, he may be eligible for long-term care policies through a government-sponsored plan.

Insurance policies are legally enforceable contracts, but they don't always match the sales pitch of the agent or the hype in the brochure -- some policies require specific care providers or nursing homes, for example, so read the policy thoroughly. Before signing on, compare policies and prices from different companies, and consult with an elder law attorney or financial planner if you have any questions. Don't rely exclusively on the word of an insurance broker or agent. If you've already bought insurance but find it's not what you thought, the law provides for a 30-day cancellation period.

Remember that when it comes to older people and money, fraud is something to watch out for. If the sales pitch sounds too good to be true, it probably is. Always check the insurance company's rating and complaint history with your state insurance commissioner before signing any contracts or making any payments. You can also research the financial health of the insurance company through Moody's Investors Services or Standard & Poor's insurance ratings services .

For more information on what kind of long-term care insurance policy to look for, see A Buyer's Guide to Long-Term Care Insurance .

Stephanie Miles

Stephanie Miles is a former business journalist for the online Wall Street Journal and CNET Networks, who focuses on consumer issues including finance and personal technology as well as consumer marketing and advertising. See full bio

over 3 years, said...

I applaud anyone who is considering Long-Term Care Insurance. Great work! Many families however need help now. Mom just fell or Dad became ill and the days for insurance are gone. There are immediate options families should consider. First, have a family member take part-time off of work and stay at home with the loved one. Stabilize the situation for a few weeks. Hire part-time at-home care. There are several resources for this kind of help. Speak as a sibling unit or family more broadly how to financially contribute to your loved one's care. Reach out and get support. Call a friend or Aunt who has cared for a loved one and ask them for help. We all deserve support, particularly when we are helping others.

almost 4 years, said...

One of the reasons why people don't purchase long-term care insurance is its high cost. It is expensive in nature and can cost around $1,000 to $7,000 depending on factors like age, health status and policy features such as elimination period and daily benefit amount. Long term care insurance cost can be overwhelming but www.ltcoptions.com/long-term-care-insurance-costs/ suggests myriad of ways to make it more affordable. It helps to purchase early, design a smaller policy and avail of couple or group discounts. Purchasing long-term care insurance is still the more affordable choice than self-insuring. A nursing home costs around $86,000 and an assisted living facility costs around $43,000 annually. This only shows that long term care insurance can protect your assets while you receive any form of long term care. So consider this as early as possible to avoid high premiums.

almost 4 years, said...

Before working for a live-in care agency in NJ I sold Long Term Care Insurance. Now being on the other end of it, it is extremely important to pick a quality policy. It may mean a higher premium but it will be worth it. Some of these LTCI companies put families through the ringer to receive payments. I witness an LTCI company pay 100% of personal care cost even though the client passed during the elimination period. Having everything in order before having to file a claim is also very helpful. http://www.lifeforceeldercare.com/blog/8-long-term-care-insurance-pays-for-live-in-care/

almost 4 years, said...

I am sorry I can't be of any help. Perhaps someone else could if you would provide what state you and your family member are in.

over 4 years, said...

Long term care (LTC) insurance will continue to evolve as long as it is here. It was initially designed to cover long term care expenses should you be needing it in the future. However, due to several issues, insurance providers are now offering options for potential clients. One good example is the hybrid annuity, you can now benefit from this annuity even if you stay healthy and does not require ltc. With the traditional ltci, you only get to claim your benefits once you are a dependent of the services. The government even collaborates with private insurance companies to entice people to get ltc insurance, that is why they came up with ltc partnership program. This policy may continue to rise but if you consider the amount of money you used when buying this product, compared to the amount of benefits you can get, it would still be wise to have one.

over 4 years, said...

In the two years since this thread was active, there have been many changes in new long term care policies. Some very attractive benefit options are no longer available and spousal/partner discounts have been reduced. The greatest change has been the shift to gender-based pricing. For most new policies, women are being charged significantly higher premiums than men. Walk into any assisted living or nursing home and you will understand why: women need much more long term care than men. If you have been putting off planning for your own long term care, please act now. The advice to work with someone who is a specialist in LTC insurance is still the best. Let the LTC specialist fit a policy to your needs, rather then trying to make you match the only company they represent.

over 4 years, said...

Most people complain how expensive long-term care insurance premiums are. I guess, everything becomes expensive when you can't afford it. So the solution? Buy only what you can afford. Do this by requesting quotes and comparing them. You can check with http://www.freeltcquotes.com/ or also acsia or other experienced ltc brokers. I'm looking at various financial protection products now that could help me deal with my possible long-term care needs. The bottomline: we need to take responsibility for our own care since government doesn't have all the solutions.

over 6 years, said...

If you are looking at a long term care policy, make sure it is considered "Tax Qualified." To be a tax qualified plan means that the basic plan design has the same four elements: benefit amount, benefit period, elimination period, inflation provision. The general advice is to purchase a "fat and short" plan, i.e. a greater daily benefit , with a shorter benefit period, because whatever daily benefit you don't use will remain in the benefit account to stretch out the benefit period. The policy definition of the Elimination Period is very important. A "calendar day" elimination period is one that you just have to wait that number of days before you are eligible for benefits. A "service day" elimination period means that you have to pay for that many days of care before you are eligible for benefits. If you only have care every other day, it will take you twice as long to be eligible for your benefits from a "service day" policy than from a "calendar day" policy. Depending upon your age,choosing the inflation increase option is crucial. The younger you are, the more you need inflation coverage. Do NOT skimp here! If you are considering a state Partnership policy, you will be required to purchase an appropriate inflation option for your age. Even though you might not live in Texas, check out the State of Texas website www.ownyourfuturetexas.org for an excellent interactive tool that can help you determine understand these options and what might be best for you. Then work with a specialist in long term care insurance, one who represents several different companies who can help you determine which company will best suit your needs.

over 6 years, said...

What are the necessary components of long term care and what are the unneeded components?

almost 7 years, said...

After having my husband in the nursing home since Jan. I 'm very happy that we purchased the ins. many years ago. I also used it for the home health care. Right now I'm happy to have it as its very expensive and would soon deplete savings. Gives a little peace of mind for some help.

almost 7 years, said...

Hello richard.mill­er1, WhoCanIHelp, and Anonymous, We appreciate that you've taken the time to send us this feedback. It's very helpful for us to know how caregivers and the public are responding to the information and resources we offer on our website. I've passed on your comments to our editorial team for their consideration. If you'd like to view the Stephanie Miles' profile, you can do so here: ( http://www.caring.com/authors/stephanie-miles ). Thanks again for sharing! Emily | Community manager

almost 7 years, said...

No kidding about recycling old info! Comments from this article that appeared 3 years ago!?! And the criticisms from that time are the same now. This is not useful information.

almost 7 years, said...

Hi, Much of the information in this article is very outdated, particularly regarding the Partnership Act states. It is available in many more states than listed above. The link to the Author does not work, and hopefully someone on the Caring Staff will see this and follow-up on the needed changes. Thanks in advance!

almost 7 years, said...

Caring.com- This article appeared in my inbox this morning as a "new" article explaining long term care insurance. Checking the date of the comments confirmed that some of the information is very out of date. Just one example: nearly every state now offers the asset protection of LTC Partnership policies, not just the original four. Readers may want to check www.longtermcare.gov for more up-to-date information on planning for long term care costs. I have sold long term care insurance for 11 years. Readers may consider me biased, but the reason I sell long term care insurance is that neither of my parents had it, and caring for them was financially devastating. Had they had long term care insurance, Mom and Dad's quality of life during their last several years would have been improved immensely.

almost 7 years, said...

Great overview of things to consider with Long Term Care Insurance (LTCI). The one good thing about our recent economic downfall is those insurers who are still standing--the survivors--are a testament to long-term viability. However, they have been strained and are revisiting plans, premiums, coverages. When considering LTCI, explore which insurers will stand the test of time going forward. --Ask caregiving friends who have already collected on their premiums how their experience was. --Also, know that the average nursing home stay is less than 5 years. This means that it is less common for one to live in a nursing home for 10 or 20 years...although, it has happened. Consider this when buying a policy that covers you for so many years. --Finally, ask the LTCI representative to explain why his/her company is a better choice than the other company you're considering. Sometimes this provide you with information you didn't even consider. And if the rep. refuses to answer or feigns no knowledge of the other company...well, incorporate this lack of information in your decision. After paying premiums for many years, the last thing you need is another "too big too fail" debacle where your premiums are lost forever because the company no longer exists. To Caring.com Updated figures in this article and care option coverages would be most helpful as this topic is too important to ignore.

about 10 years, said...

Ms. Miles....please call me. You need to read more, learn more about LTC insurance. If you are going to report to visitors to your website how to plan for the possible eventuality of needing care...you MUST become better informed. Shame on you for your flip comments about LTC insurance. Shame! I can tell you this...if you ever need care yourself.....your family will thank you for having a plan in place. Having money available to pay for quality care, choices, allowing your family to be care supervisors instead of care providers will endear you to them forever. Plan early, save, invest, insure....you just might live a long life.