Long-term care insurance costs & coverage

Key Points

  • You should consider a long-term/extended care plan while you are still young and able to purchase it.
  • Long-term care insurance costs can be managed by adjusting your daily benefit levels.
  • Costs vary by location, so it’s best to get local estimates and determine what benefits you may need.
  • New hybrid insurance products can help you or your family benefit from the policy regardless of whether you use the long-term care coverage or not.

Long-term care insurance can be a crucial piece of your financial plan. Here are answers to five common questions you may have when shopping for long-term care insurance.

Question 1: Why should I buy it?

Seventy percent of people will need long-term care services sometime in their lives, according to the U.S. Department of Health and Human Services. Even if you have done a good job saving for retirement so far, you need to prepare for unexpected events that can derail your future, and the need for long-term care is one of the costliest of those events. For example, if you need to move to a nursing home, the median cost per year is over $87,000 per year.1 Medicare may cover some extended care costs but only under certain limited conditions.

What will your care cost?
If you or a loved one needs more hands-on care, you have choices, including assisted living or home health care. Here’s what you can expect.

 

Question 2: When should I buy it?

It’s best to purchase long-term care insurance while you are still healthy and able to purchase it. Often as you age you can develop conditions that may make coverage more expensive, or worse yet you may not be able to qualify at all.

Question 3: How much coverage will I need?

Look into nursing home and assisted living costs in your area so you can make an accurate estimate of how much coverage you may need, suggests Chris Rogers, vice president at John Hancock Long-Term Care Insurance. "Long-term care prices vary dramatically from state to state and even county to county," he says. The average stay in a nursing home is three years, he says, so a policy that offers three to six years of coverage is a good starting point. 

Another important choice is how much you may need in daily benefits. Even if the average cost of care is more than $200 a day, a lower daily benefit can still go a long way toward paying for much-needed home health care, aides and housekeepers. For instance, a two-year benefit period at $100 per day is a $73,000 pool of money. That can buy you time to make other decisions.

Question 4: How much will coverage cost?

In 2015, the average annual long-term care premium for a couple both age 60 was $2,170, according to the 2015 Long Term Care Insurance Price Index published by the American Association for Long-Term Care Insurance. But, over the long term, not covering the risk can end up costing so much more. Some experts recommend that most people pay up to 5 percent of their income for long-term care coverage. You may find you need to adjust the length of coverage or the daily payment in your policy to make the purchase more affordable. Look for a policy that allows you to add coverage down the road in case you find you want more benefits as you age, says Rogers. And, you may also want to consider a policy that provides automatic cost-of-living increases to protect against inflation.

Question 5: What if I buy it and don’t end up needing it?

If you are concerned about spending money on long-term care insurance that you’ll never use, you may want to consider some of the new hybrid products available. Many life insurance policies now offer a long-term care rider that allows the policyholder to use a portion of the death benefit for long-term care. There are also long-term care policies that pay a death benefit if the policyholder never needs long-term care. Both options mean that you or your family will benefit from the policy no matter how your circumstances unfold.

Pros and cons of your long-term care insurance options
Ask your advisor about the best long-term care strategy for you.

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