Retirement planning often revolves around accumulating sufficient savings to replace your working income. The goal is to build a financial safety net that covers daily living expenses and allows for enjoyable leisure time. However, life is unpredictable, and future health needs are a significant consideration. If you require assistance with daily living activities later in life, you’ll likely need long-term care, whether at home or in a specialized facility. Long-term care insurance is designed to mitigate the financial uncertainties associated with these potential care costs, safeguarding your retirement savings and providing peace of mind.
A primary concern for individuals considering long-term care insurance is affordability. Specifically, the question arises: What is the cost of long term care insurance? To address this, it’s crucial to first understand the substantial expenses associated with long-term care itself.
The Real Cost of Long-Term Care (Without Insurance)
Long-term care expenses can fluctuate significantly depending on geographic location, the type of care setting, and the intensity of care required. However, across the board, these costs can be considerable. To illustrate, consider the average monthly costs in 2023 for various care settings across different U.S. cities, as reported by the Genworth Cost of Care Survey:
| Home Health Aide | Assisted Living | Nursing Home | |
|---|---|---|---|
| Albany, NY | $7,245 | $8,093 | $14,935 |
| Boulder, CO | $8,580 | $4,600 | $11,224 |
| Columbus, OH | $6,483 | $5,348 | $8,213 |
Many are surprised to learn that traditional health insurance, including Medicare, generally does not cover extended long-term care. Medicare’s coverage is limited to short-term stays in skilled nursing facilities for rehabilitation purposes. Medicaid may offer assistance, but typically only after individuals have significantly depleted their assets, a process known as “spending down.” Furthermore, Medicaid coverage for long-term care is usually restricted to approved nursing homes.
For those seeking to protect their assets and maintain greater control over their care options and environment, long-term care insurance presents a viable solution.
What Influences Long Term Care Insurance Cost?
The question then becomes, How much does long term care insurance cost? According to the 2024 Price Index survey from the American Association for Long-Term Care Insurance (AALTCI), the average annual premium for a long-term care insurance policy with a $165,000 benefit and no inflation protection is approximately $950 for a 55-year-old single male and $1,500 for a 55-year-old single female. For a couple both aged 55, the combined average annual premium is around $2,080.
Premiums increase with age. For the same policy purchased at age 60, the average annual premiums rise to $1,200 for a single male and $1,900 for a single female. Couples at age 60 can expect to pay about $2,600 annually combined.
Interestingly, a Nationwide Retirement Institute survey revealed that while nearly half of adults aged 28 and older cite cost as a barrier to purchasing long-term care insurance, their perception shifts when presented with a policy costing around $130 per month. In fact, 40% indicated they would reconsider their decision upon seeing this more affordable example.
“There’s a common misconception that long-term care insurance is expensive,” notes Holly Snyder, president of Nationwide’s Life Insurance business. “However, perspective is important. Securing a long-term care policy for a few hundred dollars a month can provide significant financial protection compared to the potentially thousands of dollars required for out-of-pocket care.”
Several factors influence the pricing of long-term care insurance. Understanding these elements can help you determine the policy cost and coverage that best suits your needs and budget:
Age, Health, and Gender
Younger and healthier individuals typically qualify for lower premiums. As age increases and health conditions potentially arise, the cost of insurance premiums rises. The AALTCI suggests that the optimal age to purchase long-term care insurance is in your mid-50s. Furthermore, women often face higher premiums than men due to statistical data indicating they tend to live longer and have a higher likelihood of needing long-term care services.
Marital Status
Some insurance providers offer premium discounts to married couples or partners who purchase policies together, recognizing the shared risk and potential for spousal caregiving.
Type of Policy
Traditional long-term care insurance policies, which focus solely on long-term care benefits, may have different pricing structures compared to hybrid policies. Hybrid policies combine long-term care coverage with life insurance or annuity features, potentially affecting the premium structure and benefits.
Coverage Amount and Duration
More comprehensive coverage, such as higher daily or monthly benefit amounts and longer benefit periods (the maximum length of time benefits will be paid), will result in higher premiums. Conversely, lower coverage levels and shorter benefit periods will typically lead to lower costs.
Elimination Period
The elimination period is the waiting period between when you become eligible for benefits and when the insurance payments begin. Common elimination periods range from 0 to 365 days. Choosing a longer elimination period will generally lower your premiums, as you are self-insuring for a longer initial period of care.
Inflation Protection
Adding inflation protection to your policy ensures that your benefit amounts will increase over time to keep pace with the rising costs of long-term care services. While crucial for maintaining the future value of your benefits, inflation protection will increase your monthly premiums.
Location
The geographic location where you reside impacts the average cost of care. Insurance premiums often reflect these regional variations in care expenses. Areas with higher average care costs may have correspondingly higher insurance premiums.
Riders and Additional Features
Optional policy riders and features, such as shared care benefits (allowing couples to share their benefit pools), return of premium options, or nonforfeiture benefits (providing some policy value even if you cancel coverage), can enhance policy benefits but also increase the overall cost.
Choosing the Right Long-Term Care Insurance Policy
Selecting the appropriate long-term care insurance policy involves a thoughtful evaluation of your individual circumstances and needs. Here are key steps to guide your decision-making process:
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Evaluate Your Needs: Assess your current health status, family health history, and personal risk factors to estimate the likelihood of needing long-term care in the future. Consider whether relying solely on family for care is a realistic and sustainable option. Caregiving can be physically, emotionally, and financially taxing, and it’s important to have open conversations with family members. As the Nationwide survey highlighted, many individuals are concerned about becoming a burden on their families as they age.
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Evaluate Coverage Options: Examine the range of services and care settings covered by different policies. Determine the types of care you would prefer, such as in-home care, assisted living, or nursing home care. Ensure that a policy adequately covers the services you are most likely to need and in your preferred setting.
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Understand Costs and Benefits: Carefully compare the premiums, benefit amounts, and benefit periods of various long-term care policies. Prioritize policies that offer inflation protection to safeguard your benefits against future cost increases. Explore hybrid policies, which offer a guaranteed premium and increasing benefits, providing cost predictability and inflation-adjusted coverage.
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Get Multiple Quotes: Long-term care insurance prices can vary significantly among providers. Consult with a financial advisor who can help you obtain quotes and navigate policy options that align with your budget and care needs. Additionally, contact your state’s insurance department for a list of licensed long-term care insurance providers in your area.
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Check Insurer’s Financial Strength: Before committing to a policy, research the financial stability and reputation of the insurance company. Review ratings from independent rating agencies like Moody’s or A.M. Best to ensure the insurer’s long-term ability to pay future claims. Also, investigate the company’s history of rate increases, as premiums can potentially rise over time.
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Review Policy Features: Pay close attention to essential policy features such as elimination periods, renewal guarantees (ensuring the insurer cannot cancel your policy as long as premiums are paid), and nonforfeiture benefits. These features offer important consumer protections and flexibility.
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Read the Fine Print: Thoroughly review the complete policy documents, including all terms, conditions, and exclusions. Ensure you fully understand the policy’s nuances and limitations before making a purchase.
Is Long-Term Care Insurance Worth It? Seek Professional Guidance to Find Out.
A certified financial professional can provide personalized recommendations for long-term care insurance tailored to your specific financial situation, health status, and care preferences. If you already have a financial advisor, initiate a conversation about long-term care planning. It’s noteworthy that 30% of respondents in the Nationwide survey reported that their financial professionals had not yet discussed long-term care as part of their financial planning.
Proactive planning for long-term care is a crucial element of a comprehensive retirement strategy. It can provide the financial security and peace of mind necessary to age well and protect your hard-earned savings. Integrating long-term care insurance into your broader financial plan may prove to be one of the most prudent financial decisions you make.
Numerous resources offer detailed guides to understanding long-term care insurance, including this comprehensive guide from Nationwide.
Sources
- Genworth Cost of Care Survey. Found on the internet at https://www.genworth.com/aging-and-you/finances/cost-of-care
- American Association for Long-Term Care Insurance (AALTCI). 2024 AALTCI Annual Price Index Survey. Found on the internet at https://www.aaltci.org/long-term-care-insurance/learning-center/ltcfacts-2024.php
- Nationwide Long-Term Care Survey (PPT). April 2024.
