Long-Term Care Insurance Explained

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Updated: December 24, 2022

Long-Term Care Insurance

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Whether you are exploring long-term care insurance policies for yourself or for your aging loved ones, it doesn’t take too long before you start to feel confused or overwhelmed. Even the most financially savvy person can start to drown in the options available on most long-term care insurance plans.  Also, budgeting the costs associated with aging, such as Life Alert costs, can be daunting. Fortunately, you can sift through the details more easily if you know the basics of long-term care policies, plans, and options.

Here’s what you need to know before making any long-term care insurance decisions.

What Is Long-Term Care Insurance?

Let’s start with the basics of what long-term care insurance is supposed to be. In premise, long-term insurance policies were created to provide financial assistance and offset the cost of assistance with any of the six basic activities of daily living, or ADLs. These activities of daily living are tasks that we all do daily but that we can end up needing help with as we age with complex or chronic health conditions.

The six activities of daily living include:

  • Dressing
  • Eating
  • Toileting
  • Bathing
  • Transferring (going from sitting to standing or from couch to wheelchair, for example)
  • Continence

Typically, adults who need hands-on assistance for at least two of these activities of daily living need long-term care via a skilled nursing facility, assisted living community, or other senior living solutions.

The Cost of Long-Term Care

While seniors today have many more viable options for senior living than generations prior, senior living communities are hardly affordable by most. Skilled nursing facilities charge, on average, anywhere from $250-$600 per day depending on the room and services needed. While Medicare does cover some long-term care stays, the maximum amount covered at 100% is 20 days, with 80% covered for days 21-100, per year. Further, Medicare coverage only happens for qualifying events and only after qualifying stays in a hospital prior to admission to a skilled nursing facility.

Long-term care insurance was designed to create a way for long-term care to be more affordable for the average older adult. However, it can be confusing to know when to purchase a plan and which plan to choose.

When to Purchase Long-Term Care Insurance

In order to receive the benefits of long-term care insurance, adults must begin paying into their chosen plan prior to the age of 65. The average adult begins exploring long-term care insurance options between the ages of 40-50, however it is still viable to get a plan after age 50.

Long-term care policies become more expensive as chronic or complex medical conditions are diagnosed. Policies can also become more expensive as the person gets older. However, don’t let the time crunch make you feel rushed, resulting in a poor or hasty decision. While about 50% of adults have a long-term care policy, it is not imperative that you choose yours too quickly.

Types of Long-Term Care Insurance

Long-Term Care Insurance

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There are traditionally two main types of long-term care insurance: traditional and hybrid. The traditional policies typically have lower premiums and are similar to your car insurance policy. You pay a premium monthly for the insurance and then use the benefits as you need them. However, if you do not end up needing long-term care, you will not receive compensation for the money you have paid in premiums. Also, premiums for traditional plans can (and typically do) increase over time.

Hybrid insurance plans combine long-term care coverage with life insurance. These plans require that premiums are paid over a set amount of time, such as 15 years. Premiums are locked in and will not increase during your payment time, though it is important to note that hybrid policy premiums are typically higher than a traditional plan. Hybrid plans also pay out your benefits to your beneficiaries if you do not use long-term care benefits.

How to Choose Your Long-Term Care Insurance

Now that you have a basic understanding of long-term care insurance, you can begin to weigh your options and make decisions. It is wise to involve your trusted family members in your decisions, as well as talk to your medical professionals about the likelihood of any complex medical conditions that could be on the horizon due to genetics or lifestyle. You should also include your financial planner in your decision-making process as well so that they can make recommendations based on your financial goals and future planning.

Finally, ensure you are working with a licensed provider of long-term care insurance policies. You can even go to multiple brokers to bid out different options with different providers until you find something you are comfortable with. Or, you may decide that long-term care insurance is just not for you at this time.

Long-term care insurance is a complex and relatively new topic for most adults. However, it is worth starting the conversation in your 40’s or 50’s, if possible, so that you can capture low premiums. Policies are available for adults up to age 79 though those would understandably be more expensive. 

In order to determine if long-term care insurance is a viable option for you right now, start talking with your family, doctor, and financial planner.