The cost of long-term care insurance varies widely, but the average 55-year-old man will pay $1,700 per year for a three-year policy that covers $164,000 in care.1 The average 55-year-old woman will pay $2,675 for the same coverage.2
Although it’s not fun to think about it, eventually everyone ages. we all have to plan for the future.
But long-term care is expensive and getting more expensive (is that a word?). you need to have a plan to pay for it so you don’t go bankrupt financially and end up paying on your own. That’s where long-term care insurance comes in.
why you need long-term care insurance
Before we delve into the costs of long-term care insurance, let’s take a closer look at why you need it.
First, did you know that today’s 65-year-olds have a 70% chance of needing long-term care?3 about 20% will need it for more than five years.4 but only 7.5 million of Americans have some form of long-term care insurance.5 So pat yourself on the back for looking into this. you’re already ahead of the curve.
Having a long-term care insurance policy will take away a lot of worry about your future. it will also ease the burden on your loved ones. And you’ll have peace of mind knowing you won’t break the bank by dipping into those savings you’ve worked so hard for. The last thing you want to do is pay for expensive care out of your own pocket, directly from your savings and retirement funds. And while you could put a lot of money away in something like a pre-tax health savings account (HSA), this probably isn’t the best idea, since you’re still using your hard-earned savings.
what is long-term care insurance?
Long-term care insurance is a policy that covers costs related to care in a nursing home, assisted living facility, or caregivers who come to your home. pays support for those who are no longer able to perform activities of daily living as they age. it also covers things like home modifications, in-home caregivers, medical equipment, and care coordination (or care management). care coordination is a service that handles all aspects of long-term care, including finding it and managing schedules. All of this means you can potentially live longer in the comfort of your own home.
Traditional long-term care insurance policies kick in when you can no longer perform two of the six activities of daily living (think bathing, dressing, or eating).
Because Medicare is only activated for short-term hospital stays and rehabilitative care, and your regular health insurance won’t cover these costs, long-term care insurance is a must. Also, Medicaid (the government program for low-income people) only covers certain long-term care expenses, and not for very long. no matter how you look at it, these options shouldn’t be your first choice.
uninsured long-term care costs
If you don’t have long-term care insurance, be prepared to pay a lot of money for long-term care. It is expensive! like expensive gucci. let’s see the numbers.
The average cost of a semi-private nursing home stay in the United States is $7,756 for just one month.6 And that number increases to $8,821 for a private room.7 Remember, that’s per month!
The estimated cost of care in the last five years of life is $367,000 for people with dementia and $234,000 for those without.8 On average, Americans pay a total of $172,000 for care in the long term.9
These are huge numbers, people!
and keep in mind that these costs increase year after year, even faster than inflation. For example, according to research by Genworth Financial, an insurance company, the annual cost of home care services increased by $980 each year from 2004 to 2020.10 And a private room in a nursing home for just one year? which increased by $2,542 each year during that same period.11
Here’s a breakdown of annual long-term care costs as of 2020.12
If you don’t have a solid plan, these costs could burn up your savings pretty quickly. But if you do have a high enough net worth though, you may be able to self-insure.
how much does long-term care insurance cost?
so how much does long term care insurance cost?
can vary quite a bit. annual premiums can range from $1,000 to around $10,000. The insurance company will look at your age, gender, location, marital status, current health status, and family health history. You’ll also pay more if you choose a longer term or higher benefit. And keep in mind that different companies charge different rates for the same policy. they can also increase your premiums after you buy the policy.
right now the average 55 year old will pay $1,700 per year for a three year policy that covers $164,000 in care and a daily maximum of $150.13 and this benefit rolls over each year at 3%, so it would be close to $400,000 at age 85. the average 55-year-old woman will pay $2,675 for the same level of coverage.14 women pay more because they tend to live longer than men. according to federal data, women outlive men by about five years and need an average of 3.7 years of care compared to just 2.2 years for the average man.15,16
The good news is that couples get discounts. the average 55-year-old couple will pay $3,050 a year for a combined policy.17 Some states allow savings of up to 30%, but others are cutting it to around 15%.18
If you have a fairly standard policy, you’ll probably have a 30-90 day waiting period before the insurance kicks in. gap, even with long-term care insurance.
And if you’re worried about the cost of long-term care going up and you’re not sure if your policy will cover your care, you can add something called an inflation rider. With this in place, your benefit will increase (usually around 3% per year) to get closer to inflation rates. but adding this rider will also cost you a bit more in premiums.
Are hybrid long-term care policies cheaper?
If you’ve been researching long-term care insurance for some time, you’ve probably come across something called a hybrid policy. hybrid policies combine life insurance with long-term care coverage. they allow you to use your death benefit (the money your beneficiaries would receive when you die) while you’re still alive to pay for long-term care. if you ultimately don’t need care, your heirs get full payment.
Hybrid policies typically cost thousands of dollars more than traditional policies. That’s because, in addition to long-term care insurance, you’re also paying for life insurance that you may not even need. And although the premiums for hybrid policies are fixed, they are not tax deductible.
With hybrid policies, the insurer invests your money for you, like permanent life insurance. The problem is that they are not making good investments and their profits are likely to barely keep up with inflation. considering lost income, hybrids could be the most expensive long-term care insurance option.
Warning: If your health prevents you from qualifying for a traditional long-term care insurance policy, you may want to purchase a hybrid plan.
If you qualify for a traditional policy, simply purchase long-term care insurance and life insurance separately. (And speaking of life insurance, learn why term life insurance is your best option to protect your income and your family’s future.)
tax benefits of long-term care insurance
Although long-term care insurance is expensive, there is a silver lining: long-term care insurance premiums are tax deductible up to a certain limit. And you could even pay your premiums with a pre-tax health savings account (HSA).
If you itemize your deductions, the federal government and some states allow you to count some or all of your premiums as tax-deductible medical expenses. but they must rise to a certain level. and not all long-term care insurance plans qualify for these tax breaks. be sure to ask an insurance professional to see if yours is tax qualified.
Here’s a handy breakdown from the IRS that shows the maximum amount of your premiums you can deduct based on your age.19
how to get long-term care insurance
So now that you know the costs of long-term care and long-term care insurance, you may be ready to start looking at rates or seeing if you qualify.
While you can do this on your own, we recommend using one of our trusted independent insurance agents who are part of our Supported Local Provider (ELP) program. they’ll shop for you so you can save time and have peace of mind knowing you’re getting the right coverage at the best price.
connect with an elp today!