What Long-Term Care Insurance?

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What Long-Term Care Insurance?

Unlike traditional health insurance, long-term care insurance is designed to cover long-term services and supports, including personal and custodial care in a variety of settings such as your home, a community organization, or other facility.

Though it’s difficult to picture now, you’ll likely require assistance with daily tasks as you age. How are you planning on covering the costs?
One way to be ready is to invest in long-term care insurance. Services that fall under the umbrella of “long-term care” typically aren’t paid for by standard medical insurance plans. This entails helping with things like getting out of bed, getting dressed, and taking a shower.
When you have a long-term illness, disability, or mental illness like Alzheimer’s, you may need expensive medical care that your regular health insurance won’t cover. Most plans will pay for services rendered in a variety of settings, including but not limited to:

  • Your home.
  • A nursing home.
  • An assisted living facility.
  • An adult day care center.

What Long-Term Care Insurance

When you reach your 50s, it’s time to start planning for the cost of long-term care to be a significant part of your budget. You can’t put off buying health insurance until you absolutely need it. If you suffer from a chronic illness or disability, you won’t be accepted by a long-term care insurance company, and most companies won’t even consider you if you’re over 75. Most policyholders for long-term care insurance enroll in the program between the ages of 50 and 60.
It’s up to you and your preferences to decide if long-term care insurance is the best option.
There are a few things you should know about before going insurance shopping:

  • Why buy long-term care insurance?
  • How popular is long-term care insurance?
  • How long-term care insurance works
  • Cost of long-term care insurance
  • How to buy long-term care insurance
  • Understanding state “partnership” plans

Why buy long-term care insurance?

Administration for Community Living data for 2020 shows that nearly 70% of Americans over the age of 65 will require long-term care services or support. Care duration averages 3.7 years for women and 2.2 years for men.
Long-term care costs are not typically covered by standard medical insurance plans. Also, Medicare won’t bail you out of a jam because it only pays for brief nursing home stays and limited home health care visits in cases of skilled nursing or rehabilitation. Custodial care, which entails monitoring and assistance with daily activities, is not covered.
Most states require that you pay out of pocket for long-term care if you don’t have insurance to cover it. After depleting most of your savings, you may qualify for Medicaid, a federal and state health insurance program for those with low incomes.
There are two main motivating factors for people to purchase :

  1. To protect savings. The expense of long-term care after retirement can quickly deplete savings. According to Genworth’s 2020 Cost of Care Survey, the annual median cost of care in a semi-private nursing home room is $93,072.


Home health aideHomemaker servicesAdult day health careAssisted living facilityNursing home care
$54,912$53,772$19,236$51,600 for a private one-bedroom$93,072 for a semi private room

$105,852 for a private room


  1. To give you more choices for care. The better the quality of care you can afford, the more you will be able to spend. There is a small pool of nursing homes that will accept Medicaid as payment, so if you need to use the program, your options will be more restricted. Assisted living is often not covered by Medicaid in the United States.
    If you are on a fixed income with few liquid assets, purchasing long-term care insurance may be out of reach. According to the National Association of Insurance Commissioners, a number of professionals advise spending no more than five percent of your income on long-term care insurance.

How popular is long-term care insurance?

Since 2000, the market for long-term care insurance has seen a precipitous decline in the number of insurance providers offering this product. As of 2020, the National Association of Insurance Commissioners reports that slightly more than a hundred insurers offered policies to the public. Currently, there are around a dozen insurance providers offering their services to consumers.
The mass exodus can be attributed to the low interest rates and the unknown cost of paying future claims that have persisted since the 2008 recession. Insurers lose money when interest rates are low because that’s how they make money off of the premiums their clients pay them.
Things are always shifting in the market. One of the largest remaining insurers, Genworth, stopped selling individual long-term care policies through brokers and agents in March of this year. The company has a dedicated sales force that pitches and closes deals with both large and small groups of customers.

How long-term care insurance works

Long-term care insurance requires a buyer to submit an application with personal and medical details. The insurance company may request your medical records and conduct a phone or in-person interview with you.
The level of protection is customizable. Payments per day and total payouts over the policy’s lifetime are typically capped.
You will start paying premiums once your application is accepted and your policy is issued.
To qualify for benefits under a long-term care policy, you typically need to require assistance with two of the six “activities of daily living” (ADLs) or have dementia or another form of cognitive impairment.
Daily routines consist of the following:

  • Bathing.
  • Caring for incontinence.
  • Dressing.
  • Eating.
  • Toileting (getting on or off the toilet).
  • Transferring

When you need medical attention and file a claim, the insurance company will look over your doctor’s records and possibly send a nurse to assess your condition. Insurance company consent to treatment plans is required before filing a claim.
For the first 30, 60, or 90 days of long-term care, you’ll likely have to pay out of pocket before your insurer begins to reimburse you. The term for this stage is “elimination.”
After you become eligible for benefits and receive paid care during that period, the policy will begin to pay out. Most policies have a daily maximum up to which they will not pay for care.
When both spouses purchase policies from the same provider, the couple may be eligible for a shared care option. In the event that you and your spouse exhaust your individual policy’s benefits, you will be able to draw from your combined pool of benefits.

Cost of long-term care insurance

A number of factors affect the prices you pay, including:

  • Your age and health: When shopping for insurance, your rates will increase depending on your age and the severity of any preexisting conditions you may have.
  • Gender: Because of their longer life expectancy and higher likelihood of needing long-term care services, women typically pay more than men for this coverage.
  • Marital status: Insurance rates for married people are less expensive than those for single people.
  • Insurance company: Different insurance companies may charge different amounts for the same level of protection. That’s why it’s smart to shop around and compare rates from various providers.
  • Amount of coverage: Higher deductibles, longer elimination periods, and more treatment options will all increase your premiums, but more comprehensive coverage comes at a higher price.

According to the American Association for Long-Term Care Insurance’s 2020 price index, a long-term care policy with an initial pool of benefits of $164,000 would cost an average of $1,700 per year for a single, healthy man of 55. If those benefits were compounded at 3% per year, they would be worth $386,500 by the time the recipient was 85. A single female 55 years old can expect to pay around $2,675 annually for the same coverage. With both partners purchasing the median amount of coverage ($75,000), the annual premiums for a 55-year-old couple total $3,050.
However, the price of your policy may increase after you purchase it and may never go back down again. Over the past few years, many policyholders have seen increases in their rates as insurance companies have sought and received approval from state regulators to do so. The overall cost of claims was higher than expected, so they were able to increase rates. It was imperative to regulators that insurance companies have sufficient funds to continue paying claims, so they gave their blessing to the rate hikes.

Tax advantages of buying long-term care insurance

If you’re an older taxpayer who itemizes deductions, long-term care insurance may provide a tax break. Long-term care insurance premiums can be deducted in full or in part from your taxable income under federal and some state tax codes. As you get older, you can deduct a greater portion of your premium payments.

2021 federal tax deductible limits
Age at the end of the yearMaximum deductible premium
40 or under$450
41 to 50$850
51 to 60$1,690
61 to 70$4,520
71 and over$5,640


What Long-Term Care Insurance?

Long-term care insurance premiums are the only payments that can be deducted from your taxable income. Tax-qualified insurance policies are required to adhere to federal regulations. If you are unsure whether or not a policy qualifies as a tax deduction, contact your insurance provider.

How to buy long-term care insurance

An insurance agent or the insurance company itself can be used to make a purchase.
Purchasing a policy for long-term care may also be an option through your employer. There are some companies that will let you buy insurance through a broker at a discounted group rate. There may be some health questions to answer when purchasing coverage in this manner, but it may be simpler to get approved than if you were to purchase insurance on your own.
A good way to find the best deal on insurance is to get quotes from multiple providers. Even if your employer offers you a discount, you should still shop around because you may be able to get a better deal elsewhere.
An experienced agent who represents at least three different insurance companies is what the American Association for Long-Term Care Insurance recommends.
The association’s 2019 price comparison revealed large price discrepancies between insurers.

Understanding state ‘partnership’ plans

To promote long-term care planning, most states have “partnership” programs with long-term care insurance providers.
Specifically, here’s how it operates: Insurers commit to selling plans that meet minimum requirements, such as incorporating cost-of-living increases into benefit structures. When you buy a “partnership policy,” you get more protection for your assets if you ever exhaust your long-term care benefits and need Medicaid. To qualify for Medicaid in most states, for instance, an individual must reduce their assets to below $2,000. Partnership long-term care plans can speed up the process of becoming eligible for Medicaid. For every dollar your long-term care insurance pays out, you can keep a dollar that you would have otherwise had to spend to qualify for Medicaid.
Inquire with your state’s insurance office to learn more about any long-term care partnership programs offered there.
One of the most crucial factors to think about as you create a long-term financial plan is the potential cost of long-term care. If you’re not sure if investing in long-term care insurance is the right move, it’s worth discussing with a financial planner.

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