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At $7,000 per year, or about $583 per month, such a long-term care policy is more expensive than average for what most people can get. According to market data from the American Association for Long-Term Care Insurance (AALTCI), a single man or woman should expect to pay about $2,100 to $3,600 per year (or $175 to $300 per month) for an inflation-protected long-term care insurance policy. That said, there is a very wide range on these prices, and a number of important factors come into play.
Do you have questions about long-term care planning? Speak with a financial advisor today.
What is long-term care insurance?
Long-term care insurance is a policy that usually pays for home care, residential care or monitoring. In practice, this insurance usually pays for a home care assistant, a stay in a nursing home or a stay in a nursing home for people in their old age. However, this can vary per policy.
A typical long-term care policy does not cover regular medical treatment, but it will usually cover medical treatment in the context of your long-term care facility. For example, your policy may not cover annual checkups, but it will likely cover treatment from your nursing home physician.
The exact nature of the coverage depends on the style of policy you purchase. Every policy has a benefits cap, where the cap is set at the maximum cost it will cover, after which you may have to pay out of pocket. Some policies also have duration caps, meaning they only cover treatment for a certain number of days.
Finally, some policies adjust benefits each year, so the policyholder can account for inflation. For example, a policy with a 2% annual increase means that the maximum benefits increase by 2% each year.
How much does long-term care insurance typically cost?
The cost of long-term care insurance depends on a number of factors, but the main aspects of a particular policy are:
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Benefits ceiling
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Growth of benefits (if applicable)
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Age at which you take out the policy
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Gender of the policyholder(s)
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Duration of coverage (short-term or indefinite)
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Existing medical conditions
Based on its research, AALTCI found that the cost of individual long-term care policies with inflation protection typically ranges from $2,100 to $3,600 per year. But these figures are for men and women over the age of 55, so age can play a significant role in these costs. Here’s some data from AALTCI for a policy with an initial value of $165,000 and inflation growth of 2%:
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Male, purchased at age 55: $1,650/year, $137.50/month
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Woman, purchased at age 55: $2,725/year, $227/month
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Male, purchased at age 65: $2,600/year, $216/month
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Woman, purchased at age 65: $4,230/year, $352.50/month
Longevity and, as a result, gender is the most important factor in determining the price of long-term care policies. Women tend to pay more because they outlive men at a later age.
Additionally, planning ahead can save annual costs, but the long-term savings are often marginal. To see this, consider two examples. Let’s say Elizabeth buys her policy at age 55 and Rebecca buys hers at age 65. Although Elizabeth gets a lower premium, the extra 10 years she spends paying for the insurance means it will take Rebecca until age 83 to spend about the same amount:
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Elisabeth
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Premium from age 55: $2,725/year
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Total spent at age 65: $27,250
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Total spent at age 83: $76,300
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Rebecca
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Premium from age 65: $4,230/year
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Total spent at age 65: $0
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Total spent at age 83: $76,140
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In the long run, Rebecca’s policy will cost more, but it will take nearly 20 years to get past that mark. And that doesn’t take into account the opportunity cost of investments Elizabeth could have made with the money she spent on premiums. A financial advisor can help you determine a fair price for long-term care insurance in your situation.
Who needs long-term care insurance?
Most, if not all, households should consider long-term care insurance. While not everyone needs residential or home care, it can be absolutely necessary when patients need it. Residential care can help people with daily tasks, emergency care, and life-saving interventions.
But the cost of such care is out of reach for most households. While the details vary widely by state and region, a nursing home can cost between $130,000 and $150,000 a year, according to Massachusetts data. Assisted living facilities are less expensive, but still cost a percentage of that range.
And most health insurance plans, including Medicare, don’t pay for these costs. Without insurance, it’s not uncommon for families to sell large assets, especially their homes, to pay for long-term care. While Medicaid may pay for residential treatment, you must meet the program’s poverty requirements, meaning you may have to divest assets to receive assistance. All of this can have a significant impact on your personal estate planning choices and options.
Long-term care isn’t cheap. As we mentioned above, even at a few hundred dollars a month, these policies still add up to tens of thousands of dollars in expenses over the course of your retirement. This is still a drop in the ocean compared to the cost of treatment you can’t afford, so it may be a good option to consider. Consider talking to a financial advisor for personalized advice.
Conclusion
Long-term care insurance helps pay for home and residential treatment, such as assisted living and nursing homes. While a standard policy costs several thousand dollars a year, few will cost as much as $7,000 unless you’re starting late or need more unique benefits tied to your policy.
Tips for long-term care
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A financial advisor can help you create a comprehensive long-term care plan. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can schedule a free introductory meeting with your advisors to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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While Medicaid is often best used as a backup plan, it’s an essential option for many households. If you need Medicaid for your health insurance and long-term care, here are a few ways you can protect assets from the program’s poverty requirements.
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Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid—in an account that isn’t subject to big swings like the stock market. The tradeoff is that the value of liquid assets can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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