Your Guide To Long Term Care Insurance

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Expert Reviewed by Marc Glickman and Phyllis Shelton

9 min read

Long-term care insurance is coverage that pays for nursing home care, home health care, care in an assisted living facility, or personal or adult daycare for individuals with a chronic or disabling condition who need constant supervision. LTC insurance may offer more flexibility and choice of providers compared to public assistance programs, such as Medicaid. Understanding how it works will help you get a policy that's right for you. Whether you're just getting started and wondering what long term care insurance is, or you have questions about the ins and outs of your policy, our library of explainers has what you need. And for any long term care questions you may have, our specialists are always here to help you out.

In this Guide

    What is Long Term Care?

    When most people think of long term care, they think of older people in nursing homes and assisted living facilities. But there are many different types of long term care, and it's important to understand what each one entails. 

    In general, long term care is the type of care that you may require if you are unable to perform activities of daily living (ADLs). These activities include bathing, dressing, grooming, using the toilet, eating, and moving around—for example, getting out of bed and into a chair.

    Understanding Long Term Care

    Long term care (LTC) is a topic that can be difficult and confusing to understand. You may believe you'll never need such assistance or that your existing medical coverage will take care of it. In this series, our goal is to give you the tools and information you need so that you can create a plan should you ever need care. Whether you have cared for a loved one and have a little knowledge about long term care or are just starting to educate yourself about LTC, it's important to start at the beginning with a better understanding of what it is.

    Read more about understanding long term care >

    Why would you need it?

    It can be difficult to imagine now, but chances are you'll require assistance with personal care at some point in your life. You may suffer from a disabling accident, chronic illness, or simply reach the age where you are no longer able to care for yourself. 

    As our population ages, the number of people suffering from cognitive illnesses such as dementia and Alzheimer’s disease is increasing. Currently, 6.2 million Americans have Alzheimer’s and that number is expected to grow to 13 million by 2050. The average life expectancy after an Alzheimer’s diagnosis is 8-10 years, during which time a person will require long term care.

    Read more about who needs long term care >

    What is long term care insurance & how does it work?

    A long-term care insurance policy can help pay for the cost of care that is needed due to a chronic illness, disability, or injury. Primarily, long term care insurance is designed to cover the costs of custodial and personal care, as opposed to medical care alone. Coverage may include the cost of staying in a nursing home or assisted living facility, adult day care or in-home care. 

    So what does long term care insurance cover? When your policy has been activated you can use it to cover many types of expenses, including:

    • Respite care
    • Adult day care
    • Assisted living facilities
    • Resident care
    • Alternative care
    • Nursing home
    • Memory care
    • Short term hospice

    Medicare does not cover long term care expenses. Medicare covers only brief stays in skilled nursing homes, hospice care, or home health services if three requirements are met :

    1. You were admitted to the hospital for three days or more
    2. Within 30 days of that hospital stay, you were admitted to a Medicare certified skilled nursing facility
    3. You require skilled nursing, physical therapy, or other therapy services as prescribed by your doctor

    If all those conditions are met, Medicare will pay some of the costs for the first 100 days in a skilled nursing facility. After 100 days, you’re responsible for 100% of those costs.

    How does traditional long term care insurance work?

    Traditional long term care insurance (LTCi) provides financial coverage in the event of a stay in a nursing home, assisted living facility, or in cases of home health care services. Traditional policies can be structured to meet the client’s needs, such as providing a specific daily benefit amount in the event of a long term care stay. Traditional LTCi functions like a typical insurance policy – the owner pays a premium now in exchange for future benefits. The policy doesn’t hold any cash value.

    Read more about traditional long term care insurance >

    How does hybrid long term care insurance work?

    You might consider a hybrid policy if you dislike the idea of paying premiums for long term care insurance that you may never need. Hybrid policies are designed to minimize the cost of the life insurance component and maximize the LTCi benefits. Many of the popular plans offer LTC protection beyond the life insurance death benefit and also compound inflation increases on the benefits. The premiums are often guaranteed and the life insurance death benefit is paid even if LTC is never needed.

    Read more about hybrid long term care insurance >

    Why is long term care insurance important?

    When it comes to your home, your health, and your finances, you want to be in the driver’s seat. That’s why it’s so important to plan now for retirement — and any future care you may need. Planning for long term care can be one of the most important decisions you can make, and it’s a gift for your family, too. 

    What are the odds you'll need long term care?

    When you reach a certain age, it's only natural to worry about the future. You may be asking yourself, "What will happen if I can no longer take care of myself?" or "What are my chances of needing long term care?" You may be surprised at how the need for long term care stacks up against many other life events.

    Watch this short interview with Dr. Bob Pokorski about the chances of needing care >

    Common signs you may be at risk of needing LTC

    While the need for long term care can arise at any age, there are certain risk factors that may make it more likely that someone will require this type of care. Knowing this will mean you are more likely to put a plan in place for you and your family.

    Read more about the likelihood of needing long term care >


    Who needs long term care insurance?

    Long term care is something that many Americans will require in the future, and long term care insurance may be the most effective way to protect your loved ones and yourself. In fact, 65-year-olds today have a 70% chance of needing long-term care, and an estimated 20% of Americans will need it for longer than five years. Yet only about 7.5 million Americans have long-term care insurance.

    The average cost of long-term care in the United States is increasing, and it is important to have long-term care insurance to cover these costs. The median cost of just one month in a nursing home is $7,908 according to Genworth’s Cost of Care Survey. The estimated cost for care in the final five years of life is $367,000 for people with dementia and $234,000 for those without. The average American will pay $172,000 for long-term care. Long-term care insurance is crucial to cover the costs that regular health insurance does not.

    If you are looking for a way to offset the increasing costs of long term care as you age, long-term care insurance is the best solution. It can give you peace of mind and protect your savings, ensuring that you will be able to afford the care you need. Plus, your kids won't have to worry about footing the bill for your care. Long-term care insurance is an important investment that you should consider making for yourself and your family.

    Anyone can benefit from having a long term care plan. People who need long term care insurance include:

    • Spouses and domestic partners who want to maintain assets for surviving spouse
    • People with a mortgage
    • High net worth individuals
    • Business owners who want the tax advantages of long term care insurance
    • Those who don’t want to rely on family for their care
    • Those who want to protect their financial legacy
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    Who will take care of me when I get old?

    Learn how to resiliently manage life’s transitions as you age. Joy Loverde, mature-market consultant and best-selling author of “Who Will Take Care of Me When I’m Old?” and “The Complete Eldercare Planner” gives us tips on how to plan for aging.

    Watch webinar now >

    How much long term care insurance do I need?

    There is no universal solution when trying to determine how much long term care insurance you need. That is because everyone's situation is different, and the amount of long-term care insurance you require will be determined by a variety of factors. They include:

    • Your age
    • The cost of care in your local area or where you plan to receive care
    • Your health background
    • Your family’s health background
    • The extent of care you’d like to receive
    • How long you want the policy to cover care
    • Your budget and financial situation

    To roughly estimate how much long term care insurance you may want to purchase, review the Cost of Care and factor in the impact of inflation and what type of care you would prefer for yourself. Will you plan to receive care at home, in a skilled facility, or assisted living community setting?

    We recommend coverage that provides premiums you can pay over the long term. This coverage should provide benefits that are between the lowest cost of part-time home care in your area and the cost of round-the-clock care in a skilled facility. Remember that you want to consider what the cost of care may be at the time of claim – that could be 20-30 years down the road. Other impacts to the cost of care:

    • Your health
    • The city and state where you will receive care
    • The type of care

    Affordability and value are two of the most important components of securing your plan. Remember, you want to be able to pay the premiums over the long term for meaningful coverage. We cover the cost of long term care insurance in the next section.

    Understanding the Cost of Care in 2022

    The cost of care varies by the care setting, geographic region of care, and degree of care required, among several additional factors. Take a look at what impacts has Covid had on the cost of care, who ultimately pays for care, and projected total costs for 2022.

    Download The 2022 BuddyIns Cost of Care Report PDF >

    How much does long term care insurance cost?

    The cost of long-term care insurance can vary depending on several factors, including your age, gender, health and family health history. However, for many people the cost is affordable when one considers the insurance benefits. The cost also varies depending on where you live and what kind of policy you choose.

    The average monthly price for a pay-as-you-go traditional LTC insurance policy is around $250 per month.

    However, in our opinion, the more important factors is the price compared to the maximum insurance benefits, how that compares to your goal for covering the cost of care, and what other extra benefits are provided by the insurance company.

    No matter what you end up paying, long-term care insurance still gives you good bang for your buck since there’s a good chance you’ll need long-term care later in life.

    Tax Breaks and Incentives*

    If you qualify to deduct some or all of your premiums as medical expenses, the premium limits you can deduct increase with your age. Make sure to consult with your CPA or tax advisor to learn more about how LTCi can help you save on your taxes.

    Read more about tax incentives from a BuddyIns LTC insurance partner >

    Funding Solutions and Strategies

    More American families now have tax advantaged HSAs that they are contributing to through a payroll deduction. Did you know that you can use the pre-tax money in these accounts to reimburse yourself for the cost of the premiums? Taking advantage of this tax-free money to pay for premiums provides even more value and affordability.

    More about Funding Solutions and Strategies >

    *Tax information presented here is for general information only and should not be used nor relied upon as specific tax advice.  Taxpayers should consult with their CPA or tax advisor for advice regarding their own tax situation and the tax status of LTCi premiums and benefits.

    Why work with a long term care insurance specialist?

    Using an independent long term care insurance specialist can give you peace of mind knowing they’ll shop around several different types of products and carriers to find options that are appropriate for your needs. This may save you money in the process. Purchasing long term care insurance is an important decision and process, so make sure you work with a specialist who will help build a plan that meets your needs.

    Why LTCi is Important to a Happy Retirement

    Best-selling author, international speaker, and economist Tom Hegna lays out his research and advice for securing a happy retirement. The author of Pay Checks and Play Checks shares his strategy and 7 steps to retirement security (some of his steps may surprise you). These aren’t your average retirement planning tips. These are real-world scenarios that include reasons why you need a long term care plan.

    Watch this important video >

    More questions about long term care insurance answered

    The decision to purchase long term care insurance is a personal one and it is also one of the most important decisions you can make to protect your retirement savings and preserve your legacy. The following are some of the most frequent questions we are asked about long term care insurance, and we’re happy to share them with you.

    This is one of the questions we are asked the most and the answer is not as simple as the question may sound. Many people wait to purchase LTCi until the ages of 40 to 65, and some purchase after they have had a personal experience with a family member who required care.

    However, the sooner you decide that long term care planning is right for you, the more options you generally have and the more affordable the coverage. That’s not to say that people at older ages don’t have options. A good long term care insurance specialist can help you determine what is available for your situation.