What a Good Long-Term Care Insurance Policy Should Include

The cost of long-term care continues to rise, and it is difficult to qualify for Medicaid to pay for elder care services without spending down savings and assets.

Long-term care insurance assists in covering daily living expenses for individuals with personal care needs, but the plans can be confusing. The following tips can help you make sense of the different options and find a policy that is right for you.

Long-Term Care Costs in 2024

Long-term care services support those who need assistance with everyday tasks such as bathing, cleaning, cooking, dressing, and getting around. You may be able to access these services at home, at a community-based adult day care or senior center, or in a residential setting such as assisted living facility or a nursing home.

A person turning 65 today has a nearly 70 percent chance of needing some kind of long-term care services in their remaining years. Any care that lasts longer than three months is considered long-term care. The average duration of long-term care services is 3.7 years for women and 2.2 years for men.

Even in that short amount of time, long-term care costs can quickly add up. According to 2023 data, recipients can expect to pay the following median annual amounts for long-term care services:

• Assisted living: $64,200 per year
• Home health aide: $75,000 per year
• Homemaker services: $68,000 per year
• Skilled nursing facility: $104,000 per year
• Nursing home: $116,800 per year

Prices were up year-over-year in each category, continuing the years-long trend of rising long-term care costs. Inflation and a shortage of skilled workers were the primary drivers of the latest price hikes.

Bureau of Labor Statistics (BLS) data shows that in-home elder care costs increased by 14.2 percent from March 2023 to March 2024. This is the largest increase in home health care prices over a 12-month period BLS has ever recorded.

Demand for long-term care services is also driving prices higher. From 2024 through 2027, an estimated 11,200 Americans will turn 65 every day.

Long-Term Care Insurance Costs

A private insurance policy can help cover part of the high — and rising — costs of long-term care. But like the care they cover, these plans have gotten more expensive, jumping around 30 percent to 40 percent in the past decade.

Annual premiums for long-term care insurance start at around $1,000 to $2,000 and can be as high as $10,000 to $12,000 or more. Cost factors include a person’s age at enrollment, coverage amount and length, gender, location, health status and medical history, and insurance company and type of policy.

The American Association for Long-Term Care Insurance gives these 2023 cost estimates:

• Single Male, Age 55: starting at $900 per year for a policy that covers $165,000 in care
• Single Female, Age 55: starting at $1,500 per year for a policy that covers $165,000 in care
• Couple, Age 55: starting at $2,080 combined per year for a $165,000 policy

Adding inflation protection to compensate for rising costs helps to maintain the coverage’s “real value,” but it also causes prices to drastically increase. For example, these same policies listed above, with benefits that grow at 5 percent compounded yearly, jump to:

• $3,500 per year for a 55-year-old single male;
• $6,200 per year for a 55-year-old single female; and
• $8,575 annually for a couple both aged 55.

Factors to Consider When Choosing Long-Term Care Insurance

In stark contrast to the estimated 70 percent of American 65 and older who will need long-term care services before they die, data from LIMRA indicates that just 3 percent to 4 percent of Americans 50 and older have a long-term care insurance policy.

Partly, this discrepancy is due to misunderstandings about what long-term care insurance is and what it covers, says LIMRA. Here’s what you should know when shopping around for a long-term care insurance plan:

What’s Covered

These policies cover daily living assistance services in a variety of settings, including nursing home care, home health care, assisted living, hospice care, respite care, adult day care, specialized Alzheimer’s care facilities, or a combination of these.

Some policies cover at-home skilled nursing care, as well as occupational, speech, physical, and rehabilitation therapy. Many also cover homemaker services, such as meal prep and housekeeping, as long as they are related to the personal care services received.

A policy that covers multiple types of care provides more flexibility. If the insured requires specific services, make sure that the plan covers them.

Waiting Period

Most long-term care insurance policies have a waiting period before benefits take effect. This waiting period is typically between 0 and 90 days. A longer waiting period generally means lower premiums.

Some policies may have different waiting periods for home health care and nursing home care, and some companies waive the waiting period for home health care. The policyholder must cover all expenses that the insurance pays for until the benefit period begins.

Daily Benefit

In addition to a maximum policy benefit, long-term care insurance has a daily benefit amount. This is the dollar value the insurance pays per day for long-term care services. More expensive plans have a higher daily benefit, while cheaper plans have a lower daily benefit.

Purchasing the maximum daily benefit ensures the greatest coverage possible under the plan. If the daily benefit doesn't cover a certain expense that the policyholder receives, the policyholder will have to cover any additional costs.

It is important to determine how the daily benefit is calculated. It can be based on each day's actual charges (called daily reimbursement) or the daily average, calculated each month (called monthly reimbursement).

A daily average benefit is better for home health care because an in-home aide might, on a given day, provide a full day of care, but on another day only provide a partial day of care.

Benefit Period

The lifetime chance of someone who buys a long-term care insurance policy at age 60 using that policy is about 50-50.

When purchasing a policy, the insured must choose how long they want coverage to last. For many patients, it is not necessary to purchase a lifetime policy. Three to four years of coverage — a period longer than the average nursing home stay — might be enough.

Factors such as personal and family medical history can influence this decision. To be on the safe side, someone can purchase more coverage than they may reasonably need. A 10-year policy, for example, can add extra protection and is still less expensive than a lifetime policy.

When buying long-term care insurance as part of a Medicaid planning strategy, be sure to purchase at least enough insurance to cover the five-year lookback period.

Inflation Protection

As health costs continue to rise, the same daily benefit amount covers fewer expenses. Insurance companies take this into account by offering inflation protection of 1 percent to 5 percent per year that is designed to build future policy value.

The two main types of inflation protection are compound interest increases and simple interest increases. The former provides interest on interest growth; the latter accrues interest only on the daily benefit.

Compound inflation protection is typically recommended for younger insureds (i.e., those in their 40s, 50s, and 60s) whose claim is projected to be at least 20 to 30 years away. Simple inflation growth may be sufficient for older policyholders and can provide premium cost savings.

Learn how to reduce long-term care insurance costs.

Insurer Rating

The number of companies selling long-term care insurance has fallen dramatically in recent years, from more than 100 to fewer than a dozen, including Mutual of Omaha, Genworth Financial, State Farm, Thrivent, National Guardian, Northwestern Mutual, Met Life, John Hancock, and Prudential.

Because you likely won’t use a policy right away, and maybe not for many years, it is crucial to choose a longstanding insurer that will still be around when you need the policy.

Check that the insurer has a rating in the top two categories by one of the services that rates insurance companies, such as A.M. Best, Moody’s, Standard & Poor's, or Weiss.

Is Long-Term Care Insurance Worth It?

Long-term care insurance is an option for people who:

• don’t currently qualify for Medicaid;
• want to avoid a Medicaid spend down; or
• need to fill a coverage gap while they try to meet Medicaid income and asset requirements.

For those who can afford to pay for ongoing long-term care expenses, buying a policy might not make sense. The Insurance Information Institute suggests that somebody with a net worth in the $1 million to $2 million range (not including home value) may be able to pay for long-term care out-of-pocket.

Anyone who falls somewhere in the middle — that is, they don’t have so little money that they qualify for Medicaid, but they also may not have enough money to treat long-term care as a regular, ongoing expense — insurance might make sense, not only for the financial benefits, but also the peace-of-mind.

In a recent survey, most adults told KFF News they do not feel prepared to handle the costs of long-term care, and that they have not taken financial or practical steps to plan for care needs that could arise as they age. The vast majority said it would be “impossible or very difficult” to pay for just one year at a nursing home (90 percent) or a single year of assistance from an aide or paid nurse (83 percent).

Insurance is one way to fund future living assistance. To better understand this option and other ways to pay for long-term care expenses, talk to a local elder law attorney