Long-Term Care Insurance Guide

Long-term care insurance is designed to pay for expenses not covered by Medicare, Medicaid or private insurers. LTC plans may pay for hospice care, skilled nursing, in-home assistance and other services that can help older adults maintain their independence and preserve their quality of life as they age.

Like any other type of insurance coverage, long-term care insurance has advantages and disadvantages. Keep reading to learn more about the long-term care insurance pros and cons that are important to understand.

What Is Long-Term Care?

Long-term care refers to services and supports received over an extended period of time, which typically help an aging or disabled individual execute the activities of daily living (ADLs) and other everyday tasks. These basic ADLs, which are associated with attending to one’s own physical needs, fall into the following categories:

• Mobility
• Feeding
• Continence
• Toileting
• Personal hygiene
• Dressing

Because they can influence an individual's ability to live independently, instrumental ADLs form a second component of long-term care. These more complex tasks involve the following functional areas:

• Communication
• Transportation
• Shopping
• Meal preparation and cleanup
• Managing finances
• Medication management
• Home maintenance and cleaning
• Responding to emergencies
• Caring for household pets

Decline or impairment in an individual's ability to perform basic or instrumental ADLs due to aging or illness may result in the need for long-term care, which can include mobility assistance and help with bathing and grooming.

What Is Long-Term Care Insurance?

Long-term care insurance provides financial coverage for the services and support required by individuals with chronic illnesses or disabilities that necessitate ongoing assistance performing routine daily care tasks. These services, which may be medical or nonmedical, are typically not covered by major medical insurance or original Medicare.

What Does Long-Term Care Insurance Cover?

With the exception of policies designated as facilities-only, most LTC plans cover services provided at home, in a community setting or through a residential care facility. Most policies cover the following services and supports associated with long-term care:

• Adult daycare
• Residential assisted living programs
• Home health aides
• Rehabilitation services
• Skilled nursing care
• Hospice
• Respite care
• Speech, physical and occupational therapies
• Homemaker services, including meal preparation and housekeeping
• Custodial care services that provide assistance with ADLs such as grooming, bathing and dressing

Is Long-Term Care Insurance Worth the Money?

To understand the pros and cons of long-term care insurance, it's important to understand the benefits of long-term care facilities. One of the main advantages is that long-term care facilities provide safe environments for older adults who need a little help with activities of daily living.

Residents of these facilities don't have to worry about cooking, cleaning or doing other chores, leaving them free to enjoy their free time. Another advantage of moving to a long-term care facility is that there's no need to worry about doing home maintenance or renovating a home to accommodate a disability.

The main disadvantage of long-term care facilities is their costs. Depending on the facility selected, Medicare and Medicaid may not pay for room and board or the services provided by trained staff members. Long-term care insurance helps cover these services even when another type of insurance doesn't, making it worth the expense for many older adults.

What Is a Shared Care Option?

When both spouses of a married couple purchase LTC insurance, companies may offer a shared care option. This lets both individuals share the total amount of the coverage, so if one spouse reaches their policy limit, they may draw on their spouse’s pool of benefits. Rates for couples are typically less costly than purchasing two separate policies.

When Do LTC Insurance Benefits Pay Out?

Although rules vary by insurer and individual plan, most long-term care policies require the insured to meet one or more of the following criteria to be eligible for the payout of benefits:

• Inability to perform at least two of the six activities of daily living: mobility, feeding, continence, toileting, dressing or personal hygiene
• Diagnosis of dementia or other significant cognitive impairment
• Initial receipt of covered supports and services
• Out-of-pocket payment for services over a predetermined elimination period, which is generally 30, 60 or 90 days

Insurers typically require medical documentation that substantiates the need for services, and most carriers must approve a formal plan of care prior to issuing benefits. Some companies also limit coverage to services delivered at or by plan-approved residential care providers.

Advantages of Long-Term Care Insurance

The high cost of long-term care is what makes long-term care insurance so important for many older adults. One benefit of purchasing a long-term care policy is that beneficiaries get the peace of mind of knowing that their expenses will be covered should they need to move into a long-term care facility.

Writing for the CFA Institute, Susan Hoover reports that 70% of adults who reach the age of 65 will need long-term care at some point in their lives. Purchasing long-term care coverage can help defray the costs of medical services and room and board.

When discussing long-term care insurance pros and cons, it's important to note that this type of policy can help older adults avoid financial emergencies. Covered individuals must pay a monthly premium, but that premium guarantees that their long-term care costs will be covered in the future. With so many older adults struggling to save money, buying long-term care insurance can help covered individuals avoid having to pay thousands of dollars for care when the need arises.

Long-term care insurance is also ideal for older adults who've had other insurance policies canceled due to their age or medical status. Most long-term care policies come with guaranteed renewals, which means the insurer can't cancel the policy for any of the following reasons:

• Covered individual's age
• Changes in mental health
• Injuries or illnesses

Disadvantages of Long-Term Care Insurance

When considering long-term care insurance pros and cons, the monthly cost is the greatest disadvantage. According to financial expert Dave Ramsey, the annual premium for a 60-year-old man could be as much as $1,811 per year, or just under $151 per month.

The older an applicant is, the higher his or her premium will be, making it important to apply for long-term care insurance at the right time.

What is the best age to buy long-term care insurance?

Purchasing long-term care insurance at a younger age makes it possible to lock in a lower premium; however, buying too early increases the total cost of the coverage over the individual's lifetime. To limit the cost of LTC insurance as much as possible and ensure the coverage is in place when it's most likely to be needed, Dave Ramsey recommends purchasing a policy at around age 60. This applies to healthy individuals without family histories of serious illnesses developing at a young age. For older adults who worry that they could develop early dementia or another health problem before they turn 60, it's wise to buy long-term care coverage a little sooner.

Another disadvantage of long-term care insurance is that it can be difficult to qualify for coverage. Insurers typically deny applications from individuals with the following conditions:

• Dementia or memory loss
• Kidney failure
• Sickle cell anemia
• Systemic lupus erythematosus
• Hemophilia
• Schizophrenia
• Advanced multiple sclerosis
• Parkinson's disease
• Muscular dystrophy
• Cystic fibrosis
• Alzheimer's disease

What disqualifies seniors from long-term care insurance?

Even older adults without any of the conditions mentioned above may be turned down for long-term care insurance. Coverage may be denied for older adults who meet the following criteria:

• Uses a wheelchair, a walker or supplemental oxygen
• Inability to perform certain activities of daily living without assistance
• Requires assistance with grocery shopping, banking and other basic activities
• Uses or needs care provided by a nursing home, adult day care, home health aide or assisted living facility

How Much Does Long-Term Care Insurance Cost?

The cost of long-term care insurance can vary significantly. The following factors play a crucial role in the cost of a policy:

• The insurance carrier
• Your age at the time of initial purchase
• Your gender and marital status
• The benefit's maximum daily payout amount
• The benefit's maximum amount of payout days/years
• The policy’s lifetime maximum payout
• Optional riders such as cost-of-living adjustments

Where Can You Purchase Long-Term Care Insurance?

Many commercial insurers sell long-term care insurance directly to consumers. Policies may also be purchased through an insurance agent or broker, who may be able to secure the best price for the coverage you need. Some employers may also offer this benefit to employees.

When selecting a plan, it’s crucial to look at the financial health and stability of the carrier so you don’t pay years' worth of premiums only to find out the company has gone out of business when you’re in need of benefits. It may also be worthwhile to look for an insurer that offers customizable terms so you can get as much or as little insurance as you need and can afford.

Long-Term Care Insurance Pros and Cons: The Bottom Line

Although long-term care insurance can be costly, and it can be difficult for some older adults to qualify, many applicants are likely to find that the advantages outweigh the disadvantages. This type of insurance makes it possible to plan ahead for long-term care expenses, giving older adults more control over their finances.