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At $7,000 per year, or about $583 per month, a long-term care policy like this is priced higher than average than most people can get. According to market data from the American Association for Long-Term Care Insurance (AALTCI), a single man or woman should pay between $2,100 and $3,600 per year (or $175 to $300 per month) for an inflation-protected long-term care insurance policy. That said, there is a very wide range associated with these prices and a number of important factors at play.
Do you have questions about long-term care planning? Talk to a financial advisor today.
What is long term care insurance?
Long-term care insurance is a policy that generally pays for home, residential, or custodial care. In practice, this insurance usually covers a home health aide, a stay in an assisted living facility, or a stay in a nursing home for the elderly. However, this may vary from policy to policy.
A typical long-term care policy does not cover ordinary medical treatment, but will generally cover medical treatment in the context of your long-term care facility. For example, your policy would not cover an annual checkup, but it would likely cover treatment performed by the doctor in your nursing home.
The exact nature of the coverage will depend on the style of policy you purchase. Any given policy will have a benefit limit, which will set the limit on the maximum costs you will pay, after which you may have to pay out of pocket. Some policies also have duration limits, meaning they will only cover treatment for a set number of days.
Finally, some policies adjust benefits each year, allowing the policyholder to account for inflation. For example, a policy with a 2% annual increase means your maximum benefits will increase by 2% each year.
How much does long-term care insurance typically cost?
Long-term care insurance costs depend on several factors, but the most important aspects of any policy include:
Benefit Limit
Profit growth (if applicable)
Age at which you take out the policy
Sex of the insured(s)
Duration of coverage (short-term or indefinite)
Pre-existing medical conditions
Based on its research, AALTCI has found that costs for individual long-term care policies that come with inflation protection typically run between $2,100 and $3,600 per year. But these figures are for men and women aged 55, so age may play a big role in these costs. Here is some AALTCI data for a policy with an initial value of $165,000 and 2% inflation growth:
Man, purchased at 55 years old: $1,650/year, $137.50/month
Woman, purchased at 55 years old: $2,725/year, $227/month
Man, purchased at 65 years old: $2,600/year, $216/month
Woman, purchased at 65 years old: $4,230/year, $352.50/month
Longevity and, as a result, gender is the most important determinant of long-term care policy prices. Women tend to pay more because they tend to outlive men into old age.
Beyond that, while planning ahead can save annual costs, long-term savings are often marginal. To see this, let’s take these two examples. Let’s say Elizabeth buys her policy at age 55 and Rebecca buys hers at age 65. While Elizabeth gets a less expensive premium, the extra 10 years she spends paying for the insurance means it will take until age 83 before Rebecca has spent roughly the same amount:
Isabel
Premium after age 55: $2,725/year
Total spending at age 65: $27,250
Total spending at age 83: $76,300
cardigan
Premium from age 65: $4,230/year
Total spent at age 65: $0
Total spending at age 83: $76,140
In the very long term, Rebecca’s policy will cost more, but it will take almost 20 years to cross that threshold. And this doesn’t take into account the opportunity cost of investments Elizabeth could have made with the money she spent on premiums. A financial advisor can help you determine a fair price for long-term care insurance in your situation.
Who needs long term care insurance?
Most, if not all, households should consider long-term care insurance. While not everyone will need residential or home care, when patients do need this help, it may be absolutely necessary. Residential care can help people with daily tasks, emergency medicine, and life-saving interventions.
But the costs of this care are beyond the reach of most households. While the details vary widely by state and region, a nursing home could cost between $130,000 and $150,000 per year, according to data from the state of Massachusetts. Assisted living facilities are less expensive, but still cost a percentage of that range.
And most health insurance, including Medicare, does not cover these costs. Without insurance, it is not uncommon for families to sell large assets, particularly their homes, to pay for long-term care. While Medicaid can pay for residential treatment, you must meet the program’s poverty requirements, which means you may have to divest assets to receive assistance. All of this can significantly affect your personal choices and estate planning options.
Long-term care is not cheap. As we noted above, even for a few hundred dollars a month, these policies still add up to tens of thousands in expenses during your retirement. This is still a drop in the bucket compared to the costs of needing treatment you can’t afford, so it may be an option worth considering. Consider speaking to a financial advisor for personalized advice.
Conclusion
Long-term care insurance helps pay for residential and in-home treatment, such as assisted living facilities and nursing homes. While a standard policy will cost several thousand dollars a year, very few will reach $7,000 unless you start late or require more exclusive benefits attached to your policy.
Tips for long-term care
A financial advisor can help you develop a comprehensive long-term care plan. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three vetted financial advisors serving your area, and you can take a free introductory call with your matched advisors to decide which one you think is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
While Medicaid is often best used as a backup plan, it is an essential option for many households. If you need to rely on Medicaid for your health coverage and long-term care, here are some ways you can protect your assets from the program’s poverty requirements.
Keep an emergency fund on hand in case you have unexpected expenses. An emergency fund should be liquid, in an account that is not at risk of significant fluctuations like the stock market. The downside is that inflation can erode the value of liquid cash. But a high-interest account allows you to earn compound interest. Compare savings accounts at these banks.
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