Long-Term Care Insurance | How It Works

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Long-Term Care Insurance | How It Works

Long-term care (LTC) insurance is an insurance plan that helps pay for long-term care. To illustrate, it pays for items such as nursing homes, hospice care, adult day care and getting assistance with activities of daily living, such as bathing, eating, etc.

Long-term care insurance costs vary based on multiple factors. LTC rates aren’t fixed and rise as you age. Furthermore, people with pre-existing conditions or health problems may have trouble finding this kind of coverage. Or they may face very high long-term care insurance costs.

Long-Term Care Insurance Average Cost

The average cost of long-term care insurance is $1,200 a year for a 60-year-old man for $165,000 coverage, according to the American Association for Long-term Care Insurance (AALCI). On the other hand, that figure for a 60-year-old woman is $1,960 for the same coverage.

However, married couples can buy a joint policy, which can be more affordable than two separate policies. Although, a disadvantage with doing that is the coverage limit is combined for the couple rather than two separate limits. Specifically, married couples who are 60 years old pay $2,550 annually on average for a joint policy with $165,000 coverage.

LTC costs increase over the years. The policies can factor in future inflation costs, such as adding 1% to 5% to the benefits each year. Adding that provision raises your LTC rates, but provides a bumper to help offset inflation growth.

Purchasing a LTC insurance policy doesn’t mean that’s the rate you will pay for the next 20 or 30 years, though. The costs can rise over the years and rate hikes can be significant.

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Factors That Affect the Cost of LTC Insurance

The cost depends on multiple factors, such as:

  • Your age: Costs increase as you age. If you buy coverage younger, the initial cost will be lower
  • Your gender: Women pay higher long-term care insurance rates. That is because they live longer than men on average. So, they are more likely to need long-term care.
  • Your health: If you have pre-existing conditions, long-term care insurance companies may deny coverage or charge you more coverage than a healthier person.
  • Amount of coverage: The policy specifics influence costs, including a policy’s pre-set daily limit, maximum benefits and the elimination period.
  • Riders: The policies may have riders that provide additional coverage. One example is inflation protection, which increases long-term care coverage amounts based on an annual percentage, such as 1% or 5%.
  • Whether you have individual or joint coverage: If you’re married, a joint long-term care insurance rather than two individual policies can save money. The difference is that a joint policy is one pool of money a couple can use to pay for long-term care insurance. In contrast, having two individual LTC insurance policies costs more because they are two separate policies with separate coverages.
  • The insurance company: Just like other types of insurance, the LTC insurance rates vary by company. It’s wise to get quotes from multiple insurance companies for the same level of coverage, so you can compare costs accurately.
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How to Confront LTC Insurance Rate Increases

As we mentioned earlier sudden rate hikes can occur, and you may find it difficult to pay them. Fortunately, there a few steps you can take to reduce the burden:

  • Decreasing the benefit period, which is the length of time a policy covers LTC claims, and maximum benefit, which is the amount of the policy.
  • Increasing the elimination period, which is the time before a policy begins paying for LTC claims.
  • Reducing the policy’s daily benefit, which is the maximum amount the policy will pay by day.
  • Reducing inflation protection.
Long-Term Care Costs Without Insurance

Long-term care insurance can be expensive. However, that is because long-term care, like nursing homes and assisted living, can be costly.

Now, the exact cost of long-term care varies by the duration and type of care, the providers and where you live. Other factors that influence costs include the time of day when home health and home care services are needed.

Long-Term Care Insurance | Benefits and Drawbacks

It can play an important role in your long-range financial plan, but the coverage isn’t cheap.

Pros
  • Offers future financial security. It helps foot down long-term care costs which come in old age when most people live on fixed incomes
  • Helps your loved ones. It helps relieve some of the stress your loved ones may face in providing long-term care for you.
  • Helps supplement health coverage. Medicare covers medical issues but won’t cover many long-term care needs. Having money to help offset those costs can help pay for necessary care, whether that’s at home, in a nursing home or assisted living facility.
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Cons
  • Not everyone is eligible.  The insurance company may reject coverage for a number of reasons. Particularly, if you have pre-existing conditions, you’re over 70, you’re in poor health or you’re already in long-term care. To illustrate, AALTCI estimates that LTC insurance companies reject nearly half (47%) of people between 70 and 74 years old.
  • The coverage can be expensive, especially if you have health issues, and typically increases as you age. An insurance company may approve coverage if you’re in poor health, however you may likely pay higher rates than other members.
  • Not many insurance companies offer long-term care coverage. Unlike other types of insurance, there simply aren’t that many insurers who even offer the policy. According to the AALTCI, as few as six insurance companies offer these policies.
Long-Term Care Insurance – When Would You Need it?

The bulk of the claims happens after a person turns 75. The AALTCI says only 19% of LTC insurance claims begin before a person is 75 years old.

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