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Understanding Long-Term Care Insurance: A Comprehensive Guide

As we age, the likelihood of needing assistance with daily activities such as bathing, dressing, or managing medications increases. With the cost of in-home or nursing home care averaging from $4,500 to over $9,000 a month, it’s essential to plan for these expenses. Long-term care insurance is a policy designed to help cover the cost of long-term care at home or in a nursing home should you ever need it.

What Is Long-Term Care Insurance?

Long-term care insurance can pay for both medical and non-medical care, such as help managing chronic health conditions, getting in and out of bed, and bathing. Medicare and most health insurance generally don’t cover this type of long-term care.

If one spouse needs long-term care, the cost can quickly drain your retirement fund and leave the other spouse struggling to pay bills. Long-term care insurance can fill the gap by reimbursing you for covered long-term care expenses, which may include home health aides, assisted living facilities, or nursing homes.

Types of Long-Term Care Insurance

Traditional Long-Term Care Insurance

Also called stand-alone or individual long-term care insurance, this coverage works similarly to health insurance: You pay premiums monthly or annually. Once you qualify for long-term care, the policy reimburses the cost up to your policy limits. Generally, after you start receiving long-term care, you no longer pay premiums.

Hybrid Long-Term Care Insurance

Hybrid long-term care insurance is also called asset-based, combination, or linked-benefit coverage. This type of policy is typically a rider to an annuity or permanent life insurance policy, which is added at extra cost. Depending on the policy, it may reimburse your long-term care expenses or pay out a set benefit each month.

Pros and Cons of Long-Term Care Insurance

Pros

• More choices for how you want to be cared for, such as staying in your home rather than moving to a nursing care facility.
• Avoid draining your retirement savings or spending down your assets to pay for your care.
• Premiums for tax-qualified plans may be tax-deductible.
• Benefits from tax-qualified insurance plans generally aren’t considered income, so you won’t pay income taxes on them.
• Any unused benefit from a hybrid long-term care insurance policy goes to your heirs at your death.

Cons

• Long-term care insurance can be expensive and may not fit all budgets.
• Premiums for traditional long-term care insurance may rise over time.
• Depending on your age and health, you may not qualify for coverage.
• If you buy traditional long-term care coverage and never use it, you will have spent money for nothing.

How Much Does Long-Term Care Insurance Cost?

Prices for long-term care insurance can vary widely. On average, a couple age 55 in good health would pay $2,080 annually for a traditional plan with $165,000 in coverage, according to 2024 data from the American Association for Long-Term Care Insurance (AALTCI). The same plan with 3% annual inflation coverage would cost $5,025.

At 65, the same couple would pay $3,750 annually for $165,000 in coverage or $7,150 for a plan with 3% inflation coverage. Hybrid long-term care insurance policies cost more than traditional policies. A hybrid policy for a couple aged 55 would cost an average of $11,000 annually, AALTCI data shows.

Key Factors Affecting Your Long-Term Care Premiums

• Age: The older you get, the more likely you are to need care.
• Health: The worse your health is when you apply for long-term care insurance, the more you’ll pay.
• Gender: Because women live longer on average, they typically pay more for long-term care insurance than men.
• Amount of coverage: Policies with more benefits and fewer limitations cost more. Long-term care policies with inflation protection cost more than those without.
• Insurance carrier: Each insurance company sets premiums differently, so shop around and compare your options.

Is Long-Term Care Insurance Worth It?

Although long-term care insurance can provide peace of mind, the cost can put it out of reach for many. The National Association of Insurance Commissioners advises against buying long-term care insurance if:

• Your sole income is from Social Security or Supplemental Security Income (SSI)
• You are on Medicaid
• You have few assets
• You frequently struggle to meet basic expenses
• You can’t afford the premiums

However, long-term care insurance may be a smart purchase if:

• You have significant assets or a high income
• You can afford the premiums, including any future increases
• You want to avoid spending most of your assets on long-term care

A Shopper’s Guide to Long-Term Care Insurance, available from the NAIC, offers advice to help you decide if long-term care insurance is right for you.

The Bottom Line

Because coverage and costs can vary widely from one policy to another, purchasing long-term care insurance can be complex. Your financial planner can advise you on how long-term care insurance fits into your financial plan and help you choose a policy. You can also work with an insurance agent or broker to choose the best policy for your needs.

No matter what your age, maintaining a good credit score can help keep your options open, giving you more ways to pay for health care expenses. Consider signing up for free credit monitoring from Experian. It helps you keep tabs on your financial health so you can quickly address any issues with your credit.

Contact O1ne Mortgage for Your Mortgage Needs

At O1ne Mortgage, we understand the importance of planning for your future. Whether you’re looking to secure a mortgage or need advice on long-term care insurance, our team of experts is here to help. Call us today at 213-732-3074 for any mortgage service needs. Let us help you navigate the complexities of financial planning and secure your financial future.

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