Long-term care insurance (LTCi) is a financial tool that can help you pay for the long-term care you may eventually need. Individuals with LTCi policies who meet eligibility requirements may be able to use the funds to pay for long-term care at home or in a care facility like a nursing home or assisted living. Since each insurance company has its own formula for setting long-term care insurance rates, you may see a significant difference in premiums when getting quotes. Insurance companies review lots of data when determining what to charge for these policies. We’ll review the issues that affect your long-term care insurance premium so you can understand the factors insurance companies consider and the effect they could have on payments for the policy you choose.
Age
As with most types of insurance, your age affects how much you will pay in long-term care insurance premiums. Usually, the younger you are, the less you will pay in premiums. The best time to buy long-term care insurance is between 50 and 65. You’ll get a better rate if you purchase it in your 50s rather than waiting until you are closer to retirement age.
Getting long-term care insurance after age 65 can be harder, but it’s not impossible. It’s worthwhile to get multiple quotes if you’re in the market for a policy later in life.
Health
You can expect to find questions about your health on a long-term care insurance application. Insurers may also ask a few questions about your family’s health history, and they may request your medical records if you have certain health conditions.
Your health status could affect the long-term care insurance premium cost, which may be more than the quoted rate. Also, insurance companies can decline to insure you if they feel you’re too much of a health risk. Generally speaking, the younger you are when you buy a policy, the easier it will be to meet insurance companies’ health requirements.
Gender
Long-term care insurance will generally be higher for women than for men. The National Council on Aging states that women typically pay more for long-term care than men because, statistically, women live longer, increasing the chances that they may require long-term care in their later years.
Location
Since long-term care costs vary significantly around the country, your long-term care insurance premium may cost more or less depending on where you live. For example, the median monthly cost for a semiprivate room in a nursing home in Alaska is $18,706, compared with $5,931 for the same type of room in Missouri. Insurers typically charge more if you live in an area where long-term care is more expensive.
Elimination period
Insurance companies offering long-term care policies establish an elimination period for each policy. This period is a certain number of days you must wait between requiring care and receiving payments for it from your policy. The elimination period protects insurance companies from people buying long-term care policies when they already need care.
Elimination periods can range from 30 days to a year but are usually 30, 60, or 90 days long. Policies with short elimination periods will have higher premiums than those with longer elimination periods.
Benefit amounts
Long-term care insurance policies state the maximum per-day amount they will pay for the care you need. Amounts generally range between $50 and $500 per day. The higher the daily limit, the higher your long-term care insurance premium cost will be.
Be aware that if you choose a low per-day payout, you will need to fund any remaining costs out of your pocket. You should research your area’s care facility rates for the actual costs when determining an appropriate daily benefit amount for your LTCi policy.
Benefit duration
Your long-term care benefit may have a cap on how long your policy will pay for services. When you file a claim, your coverage may pay for a year or longer. Some policies will pay for the rest of your life. Policies with longer benefit periods will carry significantly higher premiums than those that limit payouts to shorter periods.
Inflation protection
A long-term care insurance plan with an inflation protection provision means the payout increases a certain amount over time to account for inflation. Inflation protection costs more, adding to your overall insurance premium. Nonetheless, it may pay for itself if inflation rises and you find you need the coverage.
Type of long-term care insurance policy
There are three main types of long-term care insurance policies. Your best option depends on your individual circumstances and what you want to gain from a long-term care insurance policy.
Here is a brief description of each type of long-term care policy:
- Stand-alone (traditional) LTCi: This type of policy offers only long-term care insurance. You decide the amount of coverage, length of coverage, elimination period, and premium amount that fits into your budget.
- Hybrid LTCi: This type of policy provides living benefits for long-term care in addition to a death benefit for your beneficiaries from what is left over after paying for care. A long-term care annuity is another type of hybrid policy that provides payments for long-term care in addition to your annuity payments.
- Life insurance with a long-term care rider: These life insurance policies provide a death benefit as well as a rider that offers a living benefit for long-term care services. Be aware that if you collect payments on the long-term care rider, the sum will be subtracted from your death benefit, and your beneficiaries will receive a reduced payout after you pass away.
Unfortunately, making an apples-to-apples comparison of these three choices is impossible because each option’s coverage and benefits are different.
For example, the average premium of a stand-alone long-term care insurance policy without inflation protection for a 55-year-old male with a $165,000 benefit is around $950 a year (about $79 monthly), according to the American Association for Long-Term Care Insurance (AALTCI).
The AALTCI also offers examples of hybrid policies. In one example, a hybrid policy for a 55-year-old male that provides $4,000 per month for long-term care and a death benefit of $274,405 would cost $6,100 per year or $508 monthly.
A long-term care rider on a life insurance policy typically costs an extra $600 to $800 per year ($50 to $66 per month) in addition to your life insurance premium.
Keep in mind that these long-term care insurance premiums are just examples, and your price could be different based on any number of the factors mentioned above. However, you can see that the type of policy can impact the premium. Before determining which type of policy you want, it’s advisable to talk with a few providers and weigh your options.
Weighing the costs of long-term care insurance premiums
Long-term care insurance has many benefits, but it’s important to consider the costs and how different elements can affect what you will pay. Understanding the factors insurance providers use in determining your long-term care insurance premium will enable you to make an informed choice about the best policy for you and your family.
