The Cost of Long Term Care Insurance
One of the primary concerns regarding long-term care insurance is its cost. As we will discuss below, the cost of a long term care insurance policy is impacted by a variety of factors, some of which are more obvious than others.
How much can I expect to pay?
Those who opt to pay for long-term care entirely out-of-pocket will, on average, end up paying a total of $138,000-$140,000. According to Genworth’s 2016 Cost of Care Survey, the median cost of care in a semi-private nursing home room is upwards of $80,000 per year, with a private room costing more than $10,000 more. Even cheaper options such as a home health aide will likely cost $45,000 or more. That’s no small amount of money, and many people don’t have the planning or savings to be able to afford such things.
Long-term care insurance is by no means cheap either, but because of the way it is set up, the cost is spread out over a longer period of time. According to a 2016 price index from the American Association for Long-Term Care Insurance, a single, 55-year-old man in good health who buys a new plan can expect to pay about $1,015 per year for a policy that will pay out $150 per day for up to three years. The same plan for a single woman of the same age would cost $1,490 per year, and the combined cost for a 60-year-old couple each buying the same coverage would be about $2,010 per year.
These kinds of prices are still out of reach for many people, though smart planning can help you get more for your dollar. Some money-saving tips and techniques, as well as alternatives to long-term care insurance, will be covered in later articles.
What influences the price of a long-term care insurance policy?
While average prices are listed above, the cost of long term-care insurance is impacted by several factors and can vary greatly from plan to plan and person to person. How much you pay will change depending on the amount of coverage you select, the maximum amount of benefit the policy will pay per day, the maximum number of years (typically measured in days) that the policy will pay, and the total amount that will be available through the policy. Other aspects of the plan that influence costs are the length of the elimination period and how many restrictions are put on the types of care that are covered. Optional extras, such as inflation riders, will also impact the cost. We have a separate article on inflation protection and other notable options and features for those who want to learn more.
The factors listed above may be the most obvious and straightforward things impacting the cost of a long-term care insurance policy, but there are numerous other things at play that can also impact the size of the long term care insurance premiums you pay. Here are some important points to keep in mind when buying long-term care insurance, as they could greatly change the cost of your policy:
Your current age and health are important. Most individual long-term care insurance policies require medical underwriting. Because of this, a policy purchased when you are younger and in better health will cost less than a policy purchased later on or after your health has started to decline. Those who are older and already have serious medical conditions, including those who are already paying for long-term care services, may have difficulty acquiring coverage. Even if you are able to buy a plan in a situation such as this, you will often have to buy a more limited amount of coverage or pay a significantly higher rate.
Getting coverage can be difficult for people with preexisting conditions. Many people are turned down for long-term care insurance because of such conditions. Even if you are given a policy, payment may be withheld for a certain period of time. If this is going to be the case with your plan, make sure that you can afford to pay for care out-of-pocket through this period. While it may seem tempting, omitting a preexisting condition when applying for LTC insurance isn’t a good idea. If you don’t tell the insurance company about your condition, they may refuse to pay for the care it requires.
Location matters. Make sure that the types of facilities and programs that you will need exist in your area. If they do not, moving elsewhere could make a big difference in the coverage you receive and the types of services you will have access to. It is also important to note that the average cost of long-term care insurance can vary wildly from state to state. Do some research and find out how your state ranks, and whether it may be beneficial to move elsewhere.
Marital status can influence costs. Long-term care insurance premiums are often lower for those who are married versus those who are single. Many companies also offer deals for couples who both want long-term care insurance.
Gender plays a role. Women tend to live longer than men and have a greater chance of making LTC insurance claims. This means that they also tend to have more costly premiums. This can be seen in the average yearly premiums listed above – the same plan costs more than $400 more per year for a woman than it does for a man.
Not all insurance companies are the same. In a 2016 price comparison, the American Association for Long-Term Care Insurance found that rates could vary as much as 94% between different insurers. This massive discrepancy is the result of a few different things. First, every company sets its own rates, and each one designs things a little bit differently. For example, the company selling the best rate for someone buying LTC insurance at age 55 may not have good rates for someone buying at 65. Rates are also liable to change as companies modify or discontinue older plans and introduce new ones. This is why it is crucial to shop around and compare your options before deciding on an LTC insurance plan.
Friends and family can be of great help to those in need of long-term care. While in most cases it is not reasonable to expect a friend or family member to provide all of the long-term care you need, they can still help out. Think about whether you will be able to rely on someone this way and discuss it with them. Even if they only help you with some things or on certain days of the week, those are still services that no longer need to be paid for or covered by long-term care insurance.
What else should I know when budgeting for LTC insurance?
Last but certainly not least, when budgeting for a long term care insurance policy, it is important to note that the price of your policy may go up after you buy it, leading to higher premiums. While this is no longer as big a problem as it once was, it is still a major concern for many people looking into LTC insurance policies. It is recommended that you budget for your premium to increase by as much as 50% at some point down the line.
More Useful Links:
Notable Riders Options and Features for LTC Insurance Plans