Long-term care insurance: Everything you need to know

Unfortunately, the high cost of long-term care services can easily exhaust a person’s retirement savings. This is why industry experts recommend taking out long-term care insurance for those who can afford to. Apart from helping seniors protect their retirement fund, this type of coverage gives them the option to get the best care possible.

If you are an insurance broker with people asking questions about long-term care insurance, this is an excellent article to share with them.

The answer to this can vary from state to state and country to country but in the USA, the policyholder needs to get certification from a reputable healthcare provider that they can no longer perform at least two of the following activities without direct assistance. These are also referred to as “benefit triggers,” And most countries have some form of this:

• Bathing: The ability to get in and out of bathroom to clean oneself.
• Continence: The ability to control urinary and bowel movements.
• Dressing: This is the ability to put on or take off one’s own clothes.
• Eating: This is the ability to feed oneself.
• Toileting: This is the ability to get on and off the toilet.
• Transferring: This is the ability to get in and out of a bed or a chair.

Policyholders may also be eligible for long-term care benefits if they have a debilitating condition, including Alzheimer’s disease, dementia, and schizophrenia.

In addition, most policies require beneficiaries to pay for care services out of pocket for a certain timeframe, also called an “elimination period.” This usually lasts 30-90 days, after which the insurance provider begins the reimbursements. LTCI plans pay out up to a daily limit for care until the lifetime maximum is reached.

Some insurers offer married couples a shared care option, allowing them to share the total coverage amount and draw from each other’s pool of benefits once one of the spouses reaches the limit on their policy.

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Just like other types of insurance policies, premiums for long-term care insurance plans are influenced by a range of factors. These include:

• Age: Individuals who take out policies while they are younger can expect to access lower rates, although they will have to pay their plans longer.
• Health status: Putting off buying insurance until health problems arise can result in more expensive premiums, or worse, having coverage denied.
• Gender: Women often pay more than their male counterparts as they tend to have longer lifespans, increasing the likelihood of them making a claim.
• Marital status: Married couples typically get lower premiums than single individuals. They also have the option of purchasing shared benefits. 
• Level of coverage: Higher daily and lifetime limits, as well as availing of additional features – including inflation protection and shorter elimination periods – can raise insurance costs.
• Insurer: Rates vary between insurance providers.

The American Association for Long-Term Care Insurance (AALTCI) recently released its 2022 Price Index detailing how much policyholders of different ages, gender, and marital status can expect to pay in annual premiums. Here’s a summary of the costs for a policy with $165,000 worth of coverage. According to the industry body, the rates shown below are for “Select” health policies, which are more expensive than “Preferred” health plans. 

Because such policies provide health-related coverage, it is easy to confuse long-term care insurance policies with other forms of health plans. However, there is a vast difference in terms of coverage.

• Standard health insurance: This covers the cost of medical treatment, including doctors and hospital visits, emergency surgeries, and medication. It does not cover long-term care services.
• Critical illness insurance: This covers treatment and recovery costs resulting from severe illnesses. Most policies pay out a lump sum that the policyholder can use to replace lost wages or pay for treatment-related costs and non-medical expenses, including mortgages and groceries.
• Disability insurance: This pays out a portion of income if the policyholder is unable to work due to injury or illness.
• Life insurance: This type of plan works by providing a tax-free lump-sum payment to the policyholder’s family after they die.
• Medicare: Available to seniors and disabled individuals, Medicare offers limited benefits for nursing home stays following hospitalization, often providing cover only if the illness is acute or temporary. It does not cover long-term custodial care or chronic medical conditions.
• Medicaid: This public health program provides financial support for long-term conditions, but with strict eligibility criteria. Depending on the state, specific income limits – $18,745 for states with expanded Medicaid, for example – are set and beneficiaries may need to liquidate their assets or spend a portion of their benefits out of pocket through the Medicaid spend-down program to qualify.

Read more: A guide to finding the best affordable health insurance plan

The Internal Revenue Service (IRS) allows qualified taxpayers to deduct a part of their long-term care insurance premiums on their tax returns as “unreimbursed medical expenses,” depending on their age. But they must itemize these deductions, which must also not exceed the adjusted gross income (AGI) threshold.

The table below shows the 2022 deduction limits set by the statutory body.

It is also important to note that LTCI plans come with tax-free benefits, meaning policyholders are not taxed from any benefits they receive.

There are going to be a variety of policies available from different companies in your country, but here are the common things to consider when choosing your policy:

• Benefit amount: This involves assessing the type of care one expects to receive and how much it costs on a daily basis. One important thing to take note of is long-term care expenses can vary significantly depending on where a person lives and the quality of care. Care from a private nursing facility, for example, costs more than at-home care.
• Payment term length: Some insurers give customers the option to choose how long they want to pay for the policy, usually from two years to a lifetime. One major determining factor here is medical history. If a person has a family history of a debilitating illness that would require many years of care, it may be preferable to pick a longer benefit period.
• Age: Most industry experts recommend taking out a policy between your mid-50s and early 60s. Buying an LTCI policy at a younger age can help slash premiums.
• Waiting or elimination period: Insurers typically impose waiting periods of 30, 60, or 90 days before the benefits kick in. This entails policyholders to pay for medical expenses out of pocket for a certain period. One thing to note is that the longer the elimination period, the lower the premiums.
• Inflation protection: Medical expenses have soared in the past several years due to inflation. Nursing home rates, for instance, have risen an average of 5% annually. Insurance providers often offer riders to protect against inflation, which result in yearly increases in the daily benefit.
• Tax implications: Most insurers offer tax-qualified policies, which come with tax-free benefits and deductible premiums. The deductions, however, vary depending on the taxpayer’s age.
• Insurer reputation: With many providers exiting the market in recent years, it is important for customers to practice due diligence and pick an insurer that is both financially stable and committed to offering policyholders the best care possible.

Read more: Can you use life insurance to build wealth?

The best long-term care insurance providers are going to vary wildly depending on which country you are in. Head on over to our Best of Insurance page and click on your country along the top to look for insurance brokerages that will work for you. They are all vetted by their peers in a survey conducted by our staff.

What about you? Do you think long-term care insurance is worth considering? Share your thoughts in the comment section below.