What is long-term care insurance?
Long-term care insurance* is an optional form of insurance that provides extended coverage for health care services and support systems you may need after reaching a point when you can no longer care for yourself. Long-term care can be provided in your home, a community organization, or other facility.
Long-term care is a general term that covers a range of services from intensive nursing care to help with daily housework. Most long-term care helps with activities of daily living (ADL), which include feeding, bathing, toileting, grooming, and in-home movement, according to the U.S. Department of Health and Human Services (HHS). Long-term care services can also help with other daily tasks, such as housework, grocery shopping, taking medicine, or using the telephone.
Nearly 70% of senior citizens will need long-term care during their lives, according to HHS data.
Despite the common need for long-term care, most health care coverage options — including the Medicare program — do not cover long-term care for extended periods of time.
Long-term care costs are hard to predict and can become very expensive. The 2013 national average cost for long-term care in a nursing home semi-private room was $82,855 per year.1 A long-term care insurance (LTCI) policy can help cover some of these costs.
Long-term care services
There are 3 primary types of long-term care services available
- Home-based services
- Community-based services
- Facility-based services
Home-based care services
Home-based services include short-term services such as skilled physical therapy, nursing, assistance with basic activities like bathing and dressing, or chores like meal preparation.
Community-based care services
Community-based services provide health, social, and other support services during normal business hours. These services may include senior center activities, meal delivery programs, and transportation services.
Facility-based care services
Facility-based services can range from retirement communities with minor oversight to 24/7 nursing home care.
Your long-term care services may vary depending on your particular need. As you age, or your health condition worsens, your need for long-term care may increase. You may start with home-based services, where you receive care for a few hours a day, and eventually progress to a facility-based service where you need 24/7 care.
Paying long-term care facility costs
Long-term care facility costs are one of the largest out-of-pocket expenses for Medicare beneficiaries, according to a Kaiser Family Foundation (KFF) report.2 In 2010, the average Medicare beneficiary spent more on long-term care facilities than prescription drugs and dental out-of-pocket costs combined, according to KFF.
If you suffer from a chronic condition, your long-term care costs may be even higher. Medicare beneficiaries with Alzheimer’s disease, for example, spent an average of $5,459 on long-term care facility use in 2010. Those with Parkinson’s disease spent an average of $3,879 that year.
According to HHS statistics, the average cost of staying in a nursing room in 2010 was $6,235 per month for a semi-private room and $6,965 per month for a private room. A one-bedroom unit in an assisted facility was $3,293 per month.
The average stay in a nursing home lasts 3 years, according to a 2014 Genworth study. Based on the national average cost, a 3-year nursing home stay would cost the resident a staggering total of over $250,740.
Even daily and hourly assisted care can drain your financial resources. HHS statistics state that average hands-off caregiver services are $19 per hour. Home health aides charge an average of $21 per hour. A full day in an adult day health care center costs $67 per day.
The HHS statistics are national averages. Your long-term care costs can vary significantly depending on your location, care times, and other factors.
Long-term care insurance plan benefits
A long-term care insurance policy reimburses you for the daily cost for long-term care services that you need. Most LTCI policies allow you to use your daily benefits in a wide variety of settings, including the following:
- At home
- Adult day-service centers
- Assisted living facilities
- Nursing homes
- Alzheimer’s special care facilities
Some long-term care services may not be covered by your LTCI policy. Your insurance provider will have more information on any policy exclusions.
It is important to review your LTCI policy and understand your benefits and limitations. Long-term care insurance usually has 3 key aspects you should understand, according to BankRate.com3:
- Maximum daily or monthly benefits
- Benefit period
- Total benefit amount
Maximum daily or monthly benefits
Maximum daily or monthly benefits are the total amount that an insurance company will pay for your care during that timeframe. For example, if your policy has a $150 maximum daily benefit, the insurance company will only pay $150 for your long-term care per day.
A benefit period is the time period that an insurance company will pay for your long-term care. Common benefit periods are 1 year, 2 years, 3 years, 5 years, or your lifetime.
Total benefit amount
The total benefit amount is the maximum amount of coverage your policy provides. For example, if you have a monthly maximum of $7,500 and your benefit period is 2 years, you have a total benefit amount of $180,000.
You should review a policy’s maximum benefits, benefit period, and total benefit amount before enrolling because it can have a major impact on your long-term care costs in the future. If your policy has a 2-year benefit period and you stay in a nursing home for 5 years, you will have to pay out-of-pocket for 3 years of care.
If you think you need more coverage, you may be able to expand your benefits caps or time caps during the application process. However, you will pay higher premiums for more expansive long-term care coverage.
When long-term care insurance benefits begin
After you enroll in a LTCI policy, you must wait for a qualified “benefit trigger” to start receive benefits, according to HHS.
An example of a benefit trigger is an Alzheimer’s diagnosis, or becoming unable to perform activities of daily living with assistance for a specific period of time. Your insurance company may also request a plan of care from your physician.
After you qualify for your policy benefits, you may have to undergo a waiting period, or “elimination period” before your insurance company pays for your long-term care. During this time, you will be responsible for the cost of any long-term care services you receive.
Long-term care insurance costs
The cost of a long-term care insurance policy will vary depending on your age, your health, the policy type, benefit amounts, and benefit periods. The average cost of a LTCI policy was $2,207 per year, according to the 2007 HHS data. This equates to $183.92 per month.
If you need long-term care services, and you reach your policy’s benefit trigger, you may be able to stop paying your premiums. According to the HHS, “typically, you are not expected to pay premiums while you receive long-term care.”
The best time to enroll in a long-term care insurance policy is when you are healthy and before you need long-term care. Individuals with certain health conditions may not qualify for a LTCI policy. The HHS states that many insurance companies will not insure you if one or more of the following situations applies:
- You currently use long-term care services
- You currently need help with Activities of Daily Living (ADL)
- You have AIDS or AIDS-Related Complex
- You have Alzheimer’s disease or any form of dementia or cognitive dysfunction
- You have a progressive neurological condition such as Parkinson’s disease or multiple sclerosis
- You had a stroke in the past 2 years or you have a history of strokes
- You have metastatic cancer (cancer that has spread beyond its original site)
Insurance companies may consider additional health factors during the underwriting process.
*TZ Insurance Solutions LLC does not currently offer long-term care insurance and nothing in this article should be considered a solicitation of such insurance.