The Truth About Long-Term Care Insurance

Auto insurance? Check. Health insurance? Check. Long-term care insurance? Not so fast.

The subject is not typical dinner conversation. But with the impending onslaught of baby boomers entering their senior years, the question of their ongoing care is a real concern.

According to the AARP Bulletin, the odds that you’ll need long-term care after the age of 65 are 70 percent—that’s how many Americans the publication estimates will likely need nursing home care or assistance with activities of daily living.

Is long-term care insurance (LTCI) the answer to quality care at home or in a first-class nursing care setting? And, what does it provide, who should buy it and what does it cost?

What about Medicare?

“Medicare does not pay for day-to-day care in the home,” says Gail Steingold, principal of Burling Insurance Group Long Term Care in Chicago.

The general advice is to first talk to your financial advisor about your goals as well as a reputable insurance broker who has expertise in LTCI. The top three providers are Genworth, Northwestern Mutual and John Hancock.

“We talk about the limits of LTCI in terms of a pool of money,” Steingold says. “For example, people buy $200-500k and more, depending on their assets. That amount could cover their care for up to five years at home, or three years in an institutional setting.”

Dawn Helwig, a LTCI expert, principal and consulting actuary with the Chicago office of Milliman, says the insurance “buys you financial freedom and avoids the possibility of going on Medicaid.”

Also, LTCI is not just for older adults. Cancer is the leading cause of claims for insureds under the age of 65. “Health insurance does not cover custodial care, such as help getting dressed or help eating,” Steingold explains.

Your Health Status Is Important 

“The longer you wait, the harder it is to get coverage because of health status,” Steingold says. “If you have MS, ALS or have had strokes or are already receiving assisted living services you are not insurable.”

Statistics indicate that average age of policyholders is 58. “Seven to 10 percent of the non-Medicaid population has LTCI,” Helwig said. The American Association for Long-Term Care says Alzheimer’s is the leading cause of claims over age 65, and it is the most frequent, longest and most expensive claim.

What Does It Cost?

For a husband and wife, both age 55 and in good health, the average annual premium is $2,350, according to a reference in the AARP Bulletin. The range is $2,085 to $3,970, depending on your health history and the insurer. Premiums can rise over time, but increases are never based on your personal medical history, and require state regulatory approval.

LTC insurance is not limitless. In the above scenario, the 55-year-old couple qualifies for $338,000 in coverage as soon as they pay their first premium. That amount increases over time to $821,500 by age 85. Many plans also have deductibles, meaning you will have to pay out a certain amount for care before coverage kicks in. And if your medical needs exceed those amounts, you will have to pay the balance.

Finally, Helwig said that females are the leading purchasers of LTC insurance. “They live longer, are usually the caregivers and are most likely to become single first.”