Understanding Long-Term Care Insurance: A Guide for Families

Long-term care insurance helps pay for services not covered by regular health insurance. This includes help with daily tasks like bathing, dressing, or eating. It also covers care in your home, a nursing home, assisted living, or adult day care. Thinking about how to pay for a parent's future care is important. This type of insurance can protect their savings and give your family peace of mind.

What is Long-Term Care?

Long-term care is ongoing support for people who can no longer manage daily activities on their own. This can be due to age, illness, or disability. Many people think Medicare or regular health insurance will cover these costs. However, they generally do not. Medicare only covers short stays in skilled nursing facilities or limited home healthcare, usually after a hospital stay¹. Long-term care is about helping with Activities of Daily Living (ADLs). These include bathing, dressing, eating, toileting, continence, and transferring (moving in and out of a bed or chair). Care can last for months or even years.

Data from the U.S. Department of Health and Human Services shows that nearly 70% of people turning 65 will need some type of long-term care services during their lifetime². This means most families will face these costs.

Why Consider Long-Term Care Insurance?

Care costs can be very high. In 2023, the national average cost for a private room in a nursing home was over 00,000 per year. Assisted living facilities averaged over 0,000 per year. Even home health aides cost around 0 an hour, which adds up quickly for constant care The exact costs vary by location and type of care. Without insurance, these bills can quickly use up a parent’s life savings.

Long-term care insurance offers a way to pay for these services without depleting assets. It can also reduce the emotional and financial burden on family members. Instead of you or other siblings becoming full-time caregivers, the insurance can pay for professional help. This allows families to focus on spending quality time together.

How Does Long-Term Care Insurance Work?

You buy the policy. You pay premiums, usually monthly or yearly. If your parent needs care, the policy pays out. Most policies begin paying when a person cannot perform two or more Activities of Daily Living (ADLs) or has a cognitive impairment like Alzheimer's disease.

Policies have a daily benefit amount, a benefit period, and an elimination period.

• Daily Benefit Amount: This is the maximum amount the policy will pay per day for care. You choose this amount when you buy the policy. For example, a 50 daily benefit means the policy pays up to 50 per day for covered services.
• Benefit Period: This is how long the policy will pay benefits. It can be for a certain number of years (e.g., 2, 3, 5 years) or for life. A longer benefit period means higher premiums.
• Elimination Period (Waiting Period): This is the time between when your parent first needs care and when the policy starts paying. It's like a deductible for health insurance. Common elimination periods are 30, 60, or 90 days. During this time, your parent must pay for care out of pocket. A longer elimination period usually means lower premiums.

Many policies also include an inflation rider. This option increases the daily benefit over time to keep pace with rising care costs. Without an inflation rider, a 50 daily benefit chosen today might not cover much of the cost 20 years from now. This is a very important feature to consider.

Types of Long-Term Care Insurance Policies

There are two main types:

1. Traditional Long-Term Care Insurance: This is a standalone policy. You pay premiums, and if you need care, it pays out. If you never need long-term care, the premiums paid are not returned.
2. Hybrid (Asset-Based) Policies: These combine long-term care coverage with a life insurance policy or an annuity. If your parent needs long-term care, the policy pays out for those services. If they don't, it pays a death benefit to their beneficiaries. This type of policy guarantees that something will be paid out, whether for care or as a death benefit. Hybrid policies often require a large single premium payment or a limited number of payments over a few years.

Hybrid policies often appeal to those who don't want to "lose" their premium payments if care isn't needed. However, they may offer less comprehensive long-term care benefits compared to traditional policies for the same cost.

When to Buy Long-Term Care Insurance

The best time to buy long-term care insurance is when your parent is younger and healthier. Premiums are based on age and health at the time of application. The older and less healthy someone is, the more expensive the premiums will be. If your parent waits too long, they might be refused coverage due to pre-existing conditions. Many experts suggest considering coverage in your 50s or early 60s. Applying in your 70s can be very difficult or unaffordable.

Key Considerations for Your Family

When evaluating policies for your parent, keep these points in mind:

• Affordability: Can your parent consistently afford the premiums? Premiums can increase over time, though most states regulate how much insurers can raise them.
• Health: Does your parent have any health conditions that might make them ineligible or increase premiums significantly?
• Existing Assets: Do your parents have sufficient assets to self-insure, meaning they could pay for care out of their own savings? Or do they want to protect those assets for inheritance or other purposes?
• Family Caregivers: Are family members able and willing to provide a significant amount of care if needed? Even with family help, professional care can still be necessary. See more about caregiving with siblings.
• Inflation: How will rising care costs affect benefits over 10 or 20 years? An inflation rider is often a good idea.

Get quotes from several different insurance companies. Look at their financial stability ratings. Read the policy details carefully. Understand what triggers benefits, what's covered, and what isn't. Talk to a financial advisor who specializes in long-term care planning. They can help you compare options specific to your parent's situation.

Thinking about long-term care insurance now can help you and your parent prepare for the future. It’s a way to ensure they receive quality care while protecting their financial security.

Next Steps

Discuss long-term care needs and options with your parent. If they are open to it, seek advice from a qualified financial advisor who understands long-term care planning. They can help you explore policies and understand the costs and benefits. For more help on financial matters, see Financial Planning for Elder Care.

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