Long-Term Care Insurance Options [2019 Guide]
If you live in the United States today, odds are you will need long-term care at some point. Long-term care insurance is a type of insurance designed to help you pay for this type of care. Nursing homes, medical rehab, and even in-home care may be covered by a quality long-term care insurance policy. If you are considering long-term care insurance or think it may be a good fit for someone in your family, here are the most important details you need to know about long-term care insurance.
What you will learn:
What is long-term care insurance?
Long-term care insurance is a type of insurance designed to pay for care commonly used for injury, illness, age, or memory-related needs. According to the US Department of Health and Human Services, someone turning 65 today has nearly a 70% chance of needing some type of long-term care during their lifetime. But 40% of people getting long-term care today are between 18 and 64 years old.
Long-term care may include services at home or in a facility. The average person who needs long-term care uses care services for about three years. In most cases, long-term care insurance doesn’t start right away. Short-term care insurance should cover that gap period.
In many cases, the insured individual will have to meet a certain list of requirements for a successful claim. That may include an in-person assessment to ensure they meet requirements for “activities of daily living” (ADLs) that they can’t handle on their own.
The main ADLs insurers look at are bathing, dressing, eating, transferring, toileting, and continence. Insurers commonly require you to need help with at least two of these ADLs to start getting paid by your long-term care insurance policy.
If you have a long-term care insurance policy and make a claim, you’ll usually get a monthly payment toward whichever service you choose. In a some cases, the insurer will pay the care provider directly. More commonly, you’ll get a check or direct deposit payment and can hire any provider that you think is the right fit for your family’s unique needs.
How much is the average long-term care insurance policy?
According to a survey by LifePlans, the average annual long-term care insurance premium is $2,727 for a policy that provides $161 per day for an average of four years. That translates to a cost of $227.25 per month for a benefit worth about $4,830 per month if you ever need it.
LongTermCare.gov shares that the average nursing home in the United States costs $225 per day for a semi-private room or $253 per day for a private room. Less-expensive assisted living costs $119 per day. Home health aides cost an average of $20.50 per hour.
If you need care that costs $5,000 per month for 36 months, that’s $180,000. Most US households don’t have that kind of cash lying around for a rainy day. Even with good retirement savings, long-term care insurance can help keep most of that six-figure sum in your pocket. If one spouse outlives the other by a large margin, the long-term care insurance could be the key to maintaining the same quality of living for their entire lifetime.
Live-in facilities that provide long term care easily cost $3,500 per month on the low end up to well over $10,000 per month for full-service nursing home or memory care. While long-term care insurance can be expensive, it’s much cheaper than the actual cost of long-term care.
What does long-term care insurance cover?
Long-term care insurance can cover a wide range of care services. On the low end, that might be a few hours per week for a home health aide to stop by and help with a few living-related chores around the home. On the high end, long-term care insurance covers full Alzheimer’s disease needs or nursing care.
Common uses of long-term care insurance proceeds include home care, assisted living, adult day care, hospice care, nursing home care, memory care (special Alzheimer’s and dementia facilities), and respite care. You may also use insurance funds for home modifications, for example adding rails to a shower or a device to get in and out of bed.
If care is more expensive than your insurance benefits, you may have to pay the difference out of pocket. Depending on your finances and age, Medicare may also be a help for some long-term care needs and home modifications.
A number of policies include a hybrid of long-term care and life insurance. In this scenario, the policy may provide a death benefit in addition to coverage for long-term care. But most long-term care and life insurance are sold separately.
Once you get paid by your long-term care policy, the insurance company isn’t going to count where you spend every dollar. You don’t need to do a full accounting of how the proceeds are used. If you really need long-term care, hopefully, your policy covers the entire cost.
Long-term care insurance taxes and rates
If you get long-term care insurance, you could wind up with a tax deduction that saves you money every April. If your policy meets IRS qualifications, you can deduct your long-term care insurance premiums from your income similarly to how you would deduct your health insurance.
If your long-term care is deemed medically necessary, you can deduct unreimbursed costs for long-term care as medical expenses. If you or a partner are in need of long-term care, there’s a good chance you qualify for this deduction.
Both long-term care insurance premiums and long-term care costs are only tax-deductible if you itemize your deductions. After the recent 2017 tax law changes, it is less likely that you will be itemizing than in the past. If you still qualify for itemized deductions, you could find big tax savings from care-related costs.
Premiums must meet the same requirements as medical-related deductions. That means you typically have to spend at least 10% of your adjusted gross income (AGI) to get the deduction. If you are self-employed, you may be able to deduce the premiums without meeting the 10% AGI threshold.
What does this all mean in dollars and cents? If you pay $3,000 in annual premiums and fall within the 22% tax bracket, you would save $660 per year on your taxes. That’s a good thing to keep in mind, particularly if you were on the fence about signing up due to the cost.
Is long-term care insurance worth it?
If you ever need it, long-term care can quickly turn into a six-figure cost. If you don’t have the savings, insurance, or other financial preparations in place, you could wind up having to go without needed care or rely on a family member for basic needs like going to the bathroom, eating breakfast, or changing your clothes.
It’s may be hard to picture yourself leaning on someone else for daily needs. But if it does come to be, having long-term care insurance in place might give you the choice between a private room and a shared one. It could be the difference between care at home or having to get dropped off at adult daycare. Preserving savings and increasing options are big reasons for getting long-term care insurance.
Few people think about the long-term likelihood of needing care, but the numbers are very clear. As we get older, the odds of needing care only increase. Just like with life insurance, we hope we’ll never need long-term care. But it’s a good idea just in case.
Whether or not they prepared financially for it during their working years, the need for long term care is a reality that most seniors must eventually face. Every situation is different, but most people as they age will either need long-term care themselves or find that their spouse needs it. Without proper planning, that can be a sobering truth indeed.
Top Long-Term Care Insurance Options
A 2017 study by Genworth Financial shows that long-term care, independent of medical bills, costs seniors anywhere from $18,000 a year (adult day care) to $97,000 a year (private room in a nursing home). And it’s a scenario the majority of seniors will face; about 70 percent of 65-year-olds will incur some type of long-term care costs in their lifetime, at an average cost of $138,000 per person.
For those who start thinking about long-term care resources in their ‘50s, purchasing a long-term care insurance policy could be a prudent option. But the premiums generally cost between $2,500 and $5,000 a year, and a senior will need to keep paying for the insurance after retirement. As with all insurance, it’s a gamble to theorize whether the expenditures in your younger years will be worthwhile, since no one knows how healthy their retirement years will be.
Alternatives for Long-Term Care
Another option, and a relatively new product, is a life insurance policy with a long-term care rider. These policies are structured to allow for life insurance payouts when the policyholder is younger and has beneficiaries to protect, which will turn into long-term care coverage in that person’s later years. The rider accumulates the most value when entered into in a person’s ‘40s or ‘50s.
When a senior faces a dire need for long-term care, other options do exist to help fund that expense even if that individual didn’t plan for it in his earlier years. Some seniors liquidate assets like houses and cars, which they no longer need if they are moving into a care facility, to pay the bills. Others, if their assets have become depleted, can use Medicaid to help pay for continued care. But those who don’t wish to drain their resources or find themselves restricted to Medicaid-accepting facilities might find themselves in a bind with a pressing need for an alternative income source.
Using Life Settlements for Long Term Care
Enter life settlements, in which seniors sell unwanted life insurance policies and receive a cash windfall that can be used for long-term care needs. Not every individual qualifies for a settlement, but declining health can often increase the odds that a settlement will be favorable. To learn whether you or your loved one could pursue a life settlement, try Magna’s simple life settlement calculator, or schedule a call with one of our specialists today.