What is long-term care insurance?

At some point in your life, you may need long-term care. Protective explains what long-term care insurance is and when you should consider it.

Long-term care insurance (LTCI) is a type of insurance designed to cover the costs associated with long-term care services that are not typically covered by traditional health insurance, Medicare or Medicaid. These services include assistance with activities of daily living (ADLs), such as bathing, dressing, eating and mobility, as well as care provided in various settings like nursing homes, assisted living facilities and a person’s home.

Those turning age 65 can expect to use some form of long-term care during their lives.¹ And although it's typically associated with health care for the elderly, many times, younger, working-age adults require long-term care due to a chronic condition, disability or injury.

Why buy long-term care insurance?

Being financially ready for the possibility that you will require long-term care is an important part of retirement planning. Statistics show 70% of people who reach age 65 will need long-term care.² Long-term care can cost as much as $250 a day, which can deplete a lifetime of savings, even if you only need care for a short period of time.

Although some health insurance plans cover nursing home expenses, it's generally only for a short time, such as when you are recovering from an illness or injury. With disability income insurance, you may receive compensation for a portion of your income (if you are unable to work), but not for long-term care. Medicare provides limited coverage for skilled nursing care following a hospitalization, but after that, it's up to you.

If you find yourself in any of the above situations, you might be wondering just who pays the medical bills. In this case, you have the option to pay for costs out-of-pocket, using Medicaid or LTCI. By securing LTCI, you can protect your assets, ensure you have access to quality care and relieve family members from the financial and emotional burden of caregiving.

How does long-term care insurance work?

Obtaining LTCI requires the prospective policyholder to complete an application, provide detailed medical records and participate in an interview to review their health status. Based on the information provided, the insurer will evaluate the applicant’s eligibility and health risks. The policyholder will be able to select the appropriate coverage for their specific needs, considering factors such as cost, benefit amounts and duration of coverage.

Consult with a qualified insurance agent who can help you decide if LTCI is right for you. And remember, like most life and health insurance policies, LTCI is often more affordable the younger and healthier you are.

How much does long-term care insurance cost?

Factors affecting the cost of LTCI include:

Age —Younger applicants typically pay lower premiums. For example, a 55-year-old may pay around $1,500 annually, while a 65-year-old could pay closer to $3,000 annually.

Gender — Women often pay higher premiums than men because they tend to live longer and are more likely to need long-term care. For instance, a 60-year-old woman may pay $2,700 annually compared to $2,200 for a man the same age.

Marital status — Married couples can sometimes get discounts. A married couple might pay $3,800 annually on a joint policy, while a single person could pay $2,500.

Health — Healthier individuals at the time of the application will generally receive lower premiums. Chronic conditions or a history of serious illness can increase costs.

Amount of coverage — The level of benefits chosen, such as the daily or monthly benefit amount and the length of the benefit period, affects premiums. Higher benefits and longer durations can result in higher premiums.

Benefits of long-term care insurance

LTCI provides financial security by covering the high costs of long-term care services, helping to preserve personal savings and assets. Premiums for qualified LTCI policies can be tax-deductible, subject to age-based limits and the medical expense threshold for itemized deductions. Benefits paid out from qualified LTCI policies are generally tax-free, provided they don’t exceed the greater of the actual costs or per diem limit set by the IRS. Your financial professional and/or tax professional can help you learn more about these benefits and design a strategy that’s best for you.

Sources:

1. LongTermCare.gov "Who Needs Care? Opens in a new tab

2. LongTermCare.gov "How Much Care Will You Need?" Opens in a new tab

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