Retirement planning often centers around accumulating enough savings to replace your working income. The goal is to build a comfortable nest egg that covers everyday living expenses and allows for enjoyable leisure activities in your golden years. However, life is unpredictable, and even the healthiest individuals may face unexpected needs for assistance with daily living. This is where long-term care becomes a crucial consideration, whether it’s received at home or in a specialized facility. Long-term care insurance is specifically designed to mitigate the financial uncertainties associated with these potential care costs, offering a safety net for your retirement finances.
A primary concern for many when considering long-term care insurance is affordability. The question naturally arises: How Much Does Long Term Care Insurance Cost? Let’s delve into this important question, starting by examining the actual expenses of long-term care in the United States.
Understanding the Real Cost of Long-Term Care
The expenses associated with long-term care can fluctuate significantly depending on geographic location, the type of care setting, and the intensity of care required. Regardless of these variables, the costs can be substantial. Below are the median monthly costs for different types of care in three U.S. cities for 2023, based on data from the Genworth Cost of Care Survey.1
| 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 |
It may be surprising to many that traditional health insurance policies generally do not cover long-term care services. This includes Medicare, the federal health insurance program for seniors, which typically only covers short-term stays in skilled nursing facilities for rehabilitation purposes. While Medicaid, another government program, can offer assistance, it’s primarily intended for individuals with limited income and assets. Qualifying for Medicaid often involves “spending down” a significant portion of your savings, and coverage may be restricted to specific nursing homes.
For those seeking to safeguard their assets and maintain greater control over where and how they receive care, long-term care insurance presents a viable path forward.
Decoding Long-Term Care Insurance Costs
So, how much is long term care insurance in terms of premiums? According to the 2024 annual Price Index survey conducted by the American Association for Long-Term Care Insurance (AALTCI), the average annual premium for a 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, purchasing policies, the combined average annual premium is around $2,080.
Premiums generally increase with age. For the same policy purchased at age 60, the average annual premium rises to $1,200 for a single male and $1,900 for a single female. Couples at age 60 can expect to pay roughly $2,600 in combined annual premiums.2
Interestingly, a Nationwide Retirement Institute Long-Term Care Survey of adults aged 28 and older revealed that nearly half of respondents cited cost as a deterrent for not buying long-term care insurance.3 However, when presented with a sample policy costing around $130 per month, 40% indicated they would reconsider their decision.
Holly Snyder, president of Nationwide’s Life Insurance business, highlights this perspective: “There’s a common misconception that long-term care insurance is expensive. However, perspective is important. You can secure a long-term care policy for as little as a few hundred dollars a month, compared to the several thousand you’d pay for care out of pocket.”
Key Factors Influencing Long-Term Care Insurance Premiums
The pricing of long-term care insurance is not uniform and is influenced by a variety of factors. Understanding these factors can help you better grasp how much long term care insurance will cost for your specific situation:
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Age, Health, and Gender: Younger and healthier individuals typically qualify for lower premiums. As age increases, so does the likelihood of needing care, resulting in higher insurance costs. The AALTCI suggests that the mid-50s is often the optimal time to purchase long-term care insurance. Furthermore, women often face higher premiums than men due to statistical data indicating they tend to live longer and have a greater chance of requiring long-term care.
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Marital Status: Some insurance providers offer premium discounts to married couples or partners who purchase policies together. This can be a significant factor in reducing the overall cost for couples.
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Type of Policy: Traditional long-term care insurance policies and hybrid policies (which combine long-term care benefits with life insurance or annuities) may have different pricing structures. Hybrid policies often have level premiums and can offer a return of premium benefit, potentially impacting the overall cost comparison.
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Coverage Amount and Duration: Policies with 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 naturally have higher premiums. The more extensive the protection, the greater the cost.
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Elimination Period: This is the waiting period, similar to a deductible, before your policy benefits begin to pay out. Common elimination periods range from 0 to 365 days. Choosing a longer elimination period generally translates to lower premiums, as you are agreeing to self-fund care costs for a longer initial period.
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Inflation Protection: Adding inflation protection to your policy is crucial to ensure that your benefits maintain their purchasing power over time as the cost of care increases. However, this valuable feature will also increase your monthly premium. The level of inflation protection you choose (e.g., 3% or 5% compound) will also affect the premium.
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Location: The cost of long-term care services varies significantly across different regions of the country. Insurance premiums often reflect these regional differences in care costs. Areas with higher average care costs will typically have higher long-term care insurance premiums.
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Riders and Additional Features: Optional features, known as riders, can be added to your policy to customize coverage. Examples include shared care benefits (allowing couples to share their benefit pools), return of premium riders, or nonforfeiture benefits (providing some value even if you cancel your policy). These additional features will increase the overall policy cost.
Where and How to Purchase Long-Term Care Insurance
Purchasing long-term care insurance can be done through several channels. You can work directly with a licensed insurance agent who specializes in long-term care insurance. Brokers, who represent multiple insurance companies, can also help you compare policies and find the best fit. Financial planners who offer insurance services can also assist you in incorporating long-term care insurance into your overall financial plan.
If you are currently employed, your employer might offer group long-term care insurance as an employee benefit. This can sometimes provide more favorable rates or simplified underwriting.
Another avenue to explore is your state’s long-term care partnership program, if one exists. These programs, often collaborations between state government and private insurers, allow you to purchase a qualified long-term care insurance policy. A key advantage of partnership policies is asset protection. If you exhaust your policy benefits and subsequently need to apply for Medicaid, you may be able to protect a certain amount of your assets from Medicaid spend-down requirements, based on the amount of benefits paid out by your partnership policy.
Choosing the Right Long-Term Care Insurance Policy: A Step-by-Step Guide
Determining how much long term care insurance you need and selecting the right policy involves a thoughtful process. Consider these key steps:
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Evaluate Your Needs: Realistically assess your current health status, family health history, and personal risk factors that might increase your likelihood of needing long-term care in the future. Consider whether relying solely on family for care is a practical and sustainable option, acknowledging the potential physical, emotional, and financial demands of caregiving.
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Evaluate Coverage Options: Carefully examine the range of services and care settings covered by different policies. Think about the types of care you would prefer to receive, such as in-home care, assisted living, or nursing home care, and ensure the policy covers those services.
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Understand Costs and Benefits: Thoroughly compare the premiums, benefit amounts, and benefit periods offered by various policies. Pay close attention to options that include inflation protection to safeguard against rising long-term care costs over time. Consider hybrid policies with guaranteed premiums for predictable costs.
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Get Multiple Quotes: Long-term care insurance premiums can vary significantly between insurance companies for similar coverage. Obtain quotes from multiple insurers to compare pricing and coverage options. Working with a financial advisor can streamline this process.
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Check Insurers’ Financial Strength: Before committing to a policy, research the financial stability and reputation of the insurance company. Check ratings from independent agencies like Moody’s or A.M. Best to ensure the insurer has a strong track record and the financial capacity to pay future claims. Also, review the company’s history of rate increases.
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Review Policy Features: Carefully examine the policy’s key features, including the elimination period, renewal guarantees (ensuring the policy cannot be canceled as long as premiums are paid), and any nonforfeiture benefits.
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Read the Fine Print: As with any insurance contract, meticulously read through the entire policy document to fully understand all terms, conditions, exclusions, and limitations.
Is Long-Term Care Insurance Worth It? Seek Professional Guidance to Find Out.
Deciding whether long-term care insurance is a worthwhile investment is a personal decision that depends on your individual circumstances, financial situation, and risk tolerance. A certified financial professional can provide tailored recommendations based on your specific needs and preferences. If you already have a financial advisor, initiate a conversation about long-term care planning, as it’s a crucial component of comprehensive retirement planning.
Proactive planning today can provide peace of mind and financial security as you age. Integrating long-term care insurance into your broader financial strategy may prove to be one of the most prudent decisions you make for your future well-being.
Many reputable companies offer comprehensive resources to help you understand long-term care insurance, including this 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.
