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Should I Buy Long-Term Care Insurance (LTCI)? – Policies, Types & Cost

Thanks to modern medicine, the average American retiree currently lives longer than earlier generations. In 1960, the average 65-year-old male and female in the United States could expect to live to 77.9 and 80.9 years old, respectively. In 2010, those numbers rose to 81.6 and 84.2, according to the Social Security Administration.

Because aging is frequently accompanied by declining health, it’s no surprise that a Kaiser Family Foundation poll found that 65% of the public worries they won’t be able to afford the costs of care during their retirement years, placing a serious financial burden on their family. Enterprising insurance businesses, recognizing a need, developed insurance in the late 1970s to pay the costs of long-term care. In return for a monthly premium, purchasers could safeguard their families and assets from these expenses with the purchase of long-term care insurance (LTCI).

Despite the expressed need for LTCI, only about 7.2 million million Americans had a policy in 2014, according to the National Association of Insurance Commissioners. Should you purchase a long-term care insurance policy? If so, for how much and at what age? Here’s what you need to consider.

Probability and Impact of Long-Term Care

Science has conquered many of the diseases that plagued humans over the centuries and inevitably led to early deaths in years past. Instead, many Americans worry about the possibility of losing mental capacity and being dependent on others. A 2020 YouGov study found that 49% of U.S. adults worried about developing Alzheimer’s disease during their lifetimes, for example.

Is this concern warranted? To determine how critical an adverse event might be, risk managers evaluate two parameters:

  • Probability. Sometimes called “frequency” or “odds,” the term “probability” refers to an attempt to quantify the likelihood of a specific event occurring. The higher the probability, the more likely the event will take place. For example, the National Center for Health Statistics (cited by the Texas Department of Insurance) estimated that each year approximately 62 million common cold cases in the United States result in illness severe enough to require medical attention or restricted activity. That’s approximately one case for every five Americans (20%). By contrast, the CDC estimates that approximately 36,400 new HIV infections occurred in the U.S. in 2018 — approximately 0.01% as a share of the population. Although HIV/AIDS is a far more serious illness than the common cold, the average American’s probability of contracting it is many times lower.
  • Impact. The impact of an event refers to the consequences for its victims. Catching a common cold usually results in minor inconveniences, such as lost days at work and feeling poorly for a period, while contracting HIV is life-changing and potentially fatal if left untreated.

Risk management means taking action to reduce the serious negative consequences of an event that is likely to occur. Some events occur frequently but have little impact. For example, almost everyone suffers a mosquito bite, but the result is merely mild discomfort. Others occur rarely but have catastrophic consequences. For example, being in a commercial airplane crash usually results in death; however, there are very few airplane crashes — 0.155 per 100,000 aircraft flight hours, according to Forbes.

The Probability of Needing Long-Term Care

A study for America’s Health Insurance Plans found that 50% of people who buy LTCI will use the policy before they die. Other organizations, such as the U.S. Department of Health and Human Services (HHS), estimate that those aged 65 or older have a 70% chance of needing long-term care. In its study, America’s Health Insurance Plans declared that requiring long-term care is “the single largest financial risk faced by the elderly and their families.”

From age 65 to 90, the likelihood of suffering dementia doubles with every five years of increased age, according to a study published in the Annals of Neurology. Research cited by the Alzheimer’s Association estimated that nearly 14 million Americans would live with Alzheimer’s dementia by 2050.

The need for long-term care is not limited to the elderly. According to data from the American Association for Long-Term Care Insurance (AALTCI), 2.2% of LTCI claimants were under age 60 in 2012. In other words, there is always a chance that the average middle-aged American will need long-term care.

The Financial Impact of Long-Term Care

According to the AALTCI, more than 50% of those needing long-term care after age 65 use it for one year or more; approximately 15% of claimants require assistance for five years or more. Although data varies among individuals, women — who tend to live longer than men — typically need coverage for 3.7 years versus men’s 2.2 years, according to HHS.

The cost of care varies by the type of assistance provided, the care site, and the geographical location of the patient. Provider costs are higher in some states than in others. Also, prices historically increase over time. According to the Genworth Financial 2019 Cost of Care Survey, long-term care costs by type of care are as follows:

  • Home Care. The monthly cost of home services varies according to the services rendered. Homemaker services — such as housekeeping, meal preparation, and shopping assistance — cost an average of $4,290 per month in 2019 and are estimated to be $5,765 per month in 2029. The average monthly cost for home health aide services was $4,385 in 2019 and a projected $5,893 in 2029.
  • Adult Day Care. Adult day care centers offer a place — usually in a neighborhood setting — where adults who need assistance or supervision can spend the day and return to their homes at night. The average monthly cost for adult day care was $1,625 in 2019 and is expected to increase to $2,184 by 2029.
  • Assisted Living Facility. Patients in an assisted living facility live on the grounds and receive assistance with daily living activities. Meals are provided for them, as well as exercise facilities, social activities, and emergency medical care. The average monthly cost for an assisted living facility was $4,051 in 2019, with expected increases up to $5,444 by 2029.
  • Nursing Home. The difference between a nursing home and an assisted living facility is the intensity of care provided. A nursing home provides round-the-clock care and monitoring. Nursing home care is the most expensive in the care continuum, with a semi-private room costing $7,513 monthly in 2019 and expected to rise to $10,097 per month in 2029.

Although the actual costs for a specific individual are impossible to predict, the national accounting firm PWC estimates that the current lifetime cost of long-term care — excluding informal, voluntary care — is $172,000.

Because the need for long-term care is a high-probability, high-impact event, long-term care insurance is a popular strategy to manage the risk that such care will be needed.


Understanding Long-Term Care Insurance

Since its beginnings, insurance has been used to manage known risks of all sorts. Insurance is not intended to replace or restore the status when a physical loss occurs, but to compensate the insured for the resulting financial losses. For example, no amount of insurance can replace or restore a home and its contents destroyed by fire. However, homeowners insurance can provide the necessary funds to rebuild a similar house and replace its contents.

The components of long-term care insurance are detailed in the contract between the policy issuer and the policy buyer. Potential buyers of a long-term care policy should be familiar with the meaning of the following contract features.

1. Policy Types

There are three different kinds of long-term care insurance.

Individual Policy

In most cases, long-term care insurance applies to a single person, known as the insured party. For example, let’s say Bob and his wife Millie purchase an LTCI policy for Bob. If Bob needs long-term care, the insurance company will review his conditions to confirm his eligibility and begin making payments. However, if Millie needs long-term care, the couple will be responsible for her costs because she is not an insured party.

If Bob and Millie both want to buy individual policies, some insurance companies offer a “shared care” rider that allows a couple to share the total amount of coverage between their policies. In this case, if one of them needs care first, they can use up the benefits of their own policy, then draw on their spouse’s coverage up to the maximum. The insurance will pay no more benefits than the combined maximum of both policies.

Joint Policy

Rather than buying individual LTCI policies, Bob and Millie could purchase a joint policy that covers both of them. The terms of the contract remain the same, but the total of their combined benefits cannot exceed the maximum lifetime benefit identified in the plan. For example, say Bob and Mille purchase a policy with a lifetime benefit of $100,000. If Bob uses $60,000 of the total, that leaves $40,000 for Millie if needed. The disadvantage of a joint policy is that the first beneficiary might exceed the lifetime maximum, with no benefits remaining for the survivor.

Policy Owned in a Trust

If you have an irrevocable trust, that trust can own an LTCI policy that covers the lives of the trust grantor — namely, you. This may have significant estate tax advantages, according to wealth preservation consulting firm MS Consulting Group. The trust, as the owner of the policy, would receive tax-free reimbursements for any costs paid by the insurer. At the same time, the grantor — or their agent operating on their behalf — pays the medical expenses personally, deducting these payments from their income and estate and potentially reducing the estate value and taxes. Because tax laws change constantly and each situation is unique, be sure to seek competent legal and tax advice before purchasing an LTCI policy in a trust.

2. Covered Services

An LTCI policy may cover the costs of all or a limited portion of the following services:

  • Home Modification: Purchasing and installing physical equipment such as ramps or guides and modifications such as widening doorways
  • Home Care: Services provided by third parties — including family members, in some cases — who assist with daily living activities in the home, such as housekeeping, meal preparation, bathing and grooming, and shopping
  • Adult Day Care: A supervised setting outside the home for those who need a limited degree of assistance
  • Assisted Living: A supervised residence community that provides personal care such as meals, exercise, and health care to residents on an as-needed basis
  • Nursing Home: A facility that provides 24/7 health, social, and personal care services. Room and board are typically covered under the contract but may be charged separately

Most policies include care coordination services to help insureds find the best provider for their specific needs and subsequently ensure that services are delivered as contracted. Some plans add an option for unidentified “future services” if they become available after the insurance contract is issued.

3. Covered Providers

Policies often restrict the delivery of services to an approved network of providers to lower costs. Some insurers limit any provided care to certified or licensed providers, while others reimburse independent, unlicensed professionals or family members for approved services. Approved providers or services are usually restricted to a single, defined geographic area.

Policyholders may be able to purchase a “cash benefit” rider that covers in-home services. This rider is especially advantageous for those whose family members provide home care. In such cases, the insured party receives a check for the policy’s daily benefit instead of submitting provider invoices.

4. Coverage Amounts and Limits

Most insurers pay the lower of actual billed expenses or the maximum fee allowed for each service. Contract language may designate a maximum cash amount for services delivered within a defined period — daily, weekly, or monthly — or in total for the lifetime of the policy. For example, one insurer may limit home care reimbursement to billed charges up to $100 per day or $3,000 per month with a maximum of 36 months coverage; others may limit payment to the average cost of care in the area.

Any charges above the specified limits are the insured’s responsibility. Potential insurance buyers should compare policy limits with the actual fees charged by local care providers before purchasing a policy. Buyers should also note whether a policy includes inflation protection or if such protection is available as a rider to ensure reimbursement amounts will cover future provider fee increases. In 2015, Kiplinger magazine warned potential LTCI buyers that benefits like lifetime coverage and 5% compound inflation protection had become extremely expensive or were no longer available from many carriers.

5. Benefit Period

Some LTCI contracts specify a specific period for which the insurer will pay benefits, such as one year or five years. Other insurers do not define a maximum period but limit their financial exposure by setting a maximum lifetime dollar benefit. Because it’s impossible to forecast how long you may need long-term care, the latter option is more desirable.

6. Coverage Exclusions

Insurance policies frequently contain conditions that are excluded from coverage. The insurer will not pay any of the costs associated with these conditions. For example, the Federal Long Term Care Insurance Program for federal employees will not pay benefits for any illness, treatment, or medical condition arising out of participation in a felony, riot, or insurrection; attempted suicide; self-inflicted, intentional injury; or alcoholism or drug addiction.

Other common LTCI exclusions are services provided by family members, services delivered in a medical facility that is neither a nursing home nor a hospice facility, and services provided outside the geographic United States and its territories. Some policies also exclude preexisting conditions or mental and nervous disorders, such as Alzheimer’s — steer clear of such policies.

7. Qualification to Receive Benefits

Insurers include specific language in their contracts that define when an insured person is eligible to receive benefits. Often called “benefit triggers,” these usually require that the insured be unable to perform a minimum number of specific activities of daily living, or ADLs, such as bathing or showering, dressing, getting in and out of bed or a chair, walking, using the toilet, and eating.

The definition of “unable to perform” is also critical and may exclude those tasks the insured can perform with supervision. For example, people with Alzheimer’s may be able to perform physical tasks with assistance; some policies may not cover these tasks. Purchasers should also ensure that the list of ADLs in the contract includes cognitive impairment or decreased mental acuity as one of the triggers.

8. Elimination Period

Insurers typically require a minimum period of long-term care before reimbursement begins. Elimination periods may be 30, 60, 90, or 180 days at the option of the purchaser. During the elimination period, the insured is financially responsible for any costs of care.

The elimination period may be defined as calendar or benefit days, the former generally being more expensive than the latter. For example, say a person using adult day care goes three days per week. If their elimination period is 30 service days, they will wait 10 weeks before reimbursement starts. If it’s 30 calendar days, compensation will start in the fifth week after treatment begins.

The insurer may require a single elimination period during the contract term or establish a new elimination period if treatment is paused for a time. Be sure you know how the elimination period works before you select a policy.

9. Premium Increases and Policy Cancellations

Long-term care insurance is usually purchased years before any benefits might be received. In the interim, the insured makes periodic premium payments. Historically, most LTCI policies have a level-funded premium, which means the price doesn’t change over time.

However, as insurers’ financial losses mount due to underestimating benefit payments, many insurers have either stopped offering new or renewed LTCI plans or sought regulatory action for premium increases. Although an insurer can’t single out a specific insured party for a rate increase, it can raise premiums for a whole class of similar policyholders. Be prepared for higher premiums the longer you own a policy.

The only reasons an insurer can cancel an LTCI policy are fraud, nonpayment of premiums, or following the receipt of all benefits due under the contract. In other words, they cannot cancel a policy due to changes in the insured’s age, physical condition, or mental health.

10. Nonforfeiture Option

Some insurers offer a nonforfeiture option in the event that the insured ceases to make premium payments. This option may be a rider that can be purchased with the policy or may be required by specific state laws. Without a nonforfeiture benefit, an inability to pay premiums as agreed can result in the loss of all previous premium payments.

When premium payments cease, an insured with a nonforfeiture option receives a paid-up policy, which means no future payments are needed, with a choice of one of the following:

  • Reduced Paid-Up Benefit. The policy continues indefinitely, but with reduced daily benefit amounts, a limit on covered services, or both.
  • Reduced Benefit Period. The plan pays the same dollar benefit for a limited period of time identified in the nonforfeiture clause.
  • Return of Premiums. The company returns all or a stated portion of the premiums paid based on the length of time payments have been collected. This repayment is not adjusted for inflation.

11. Underwriting Guidelines

Prospective purchasers of long-term care insurance should be aware that insurance companies can decline to cover any applicant who fails to meet their underwriting guidelines. In 2018, one in five LTCI applicants under the age of 50 was rejected, according to the AALTCI. Each company establishes guidelines, including which conditions they consider uninsurable. For example, Genworth Financial provides a detailed list of circumstances that usually result in their denial of LTCI.

Specially trained employees of the insurance company, known as underwriters, evaluate the likelihood of each applicant to need extensive long-term care before issuing coverage. An underwriter who misjudges the risk of an applicant can cost a company millions of dollars if the insurer pays considerably more in benefits than it received in premiums.

12. Issuers of Long-Term Care Insurance

Potential purchasers of long-term care insurance may have a choice whether to seek an individual policy or a group plan. Contrary to conventional wisdom, a single policy may offer better benefits for lower premiums than an employer- or association-sponsored LTCI plan.

Group plans are typically more willing to offer coverage to individuals with health issues, according to the AALTCI. As a consequence, group plans are likely to have a higher proportion of sick people who are sure to use the benefit than a group chosen at random. Also, an employer plan is more likely to offer a unisex rate structure, ignoring the statistical probability that women live longer than men.

Group policies are often the most cost-effective for women or those who have health problems and are likely to be “rated” uninsurable. Those in reasonably good health or married and living with a partner will likely pay more for employer-offered coverage than if they purchased the same protection on an individual basis.


Cost Factors to Consider

An analysis of LTCI policies by LifePlans, Inc. found that in 2015, typical coverage included nursing home care with a $161 average daily limit and home care with a $155 average daily limit. Elimination periods were 49 days for nursing home care and 91 days for integrated care, or primary health care and mental health care provided in a single setting. Nursing home benefits were capped at four years. The average annual premium was $2,727, and two-thirds of plans had an inflation rider.

Premiums for long-term care insurance vary according to the age, gender, and location of the insured, as well as each policy’s benefits structure. The Genworth Financial Calculator illustrates the difference in premiums for men and women for the same policy in different states. The price of coverage is based on a daily maximum expense limit of $200 for a maximum term of three years, for a total maximum of $219,000. For example:

  • California: A 60-year-old male can expect to pay an annual premium of approximately $2,830, while a female of the same age can expect to pay $4,051 for the same benefits.
  • Texas: A 60-year-old male can expect to pay an annual premium of $2,070, while a female of the same age can expect to pay approximately $2,964 for the same benefits.

Because the premium for an LTCI policy is primarily based on age, health, and coverage, those who are younger, in good health, and opt for basic coverage can expect to pay less than older people in poor health.

LTC Insurer Failures

In 2018, CBS MoneyWatch noted that premium hikes for long-term care insurance — some doubling over the previous two years — forced some policyholders to choose between cutting their living expenses or cutting their benefits to continue paying premiums. In 2016, Penn Treaty American Corp liquidated two long-term care insurance units, according to the New York Times, while those insurers still willing to offer coverage have raised annual premiums by an average of 83% in recent years, per Forbes. Massachusetts Mutual Life Insurance company announced its intent to raise premiums by 77% in 2018, according to the Wall Street Journal.

According to the National Organization of Life and Health Insurance Guaranty Associations, 177 carriers sold long-term care policies near the peak of LTCI’s popularity in 2002. By 2017, only 56 insurers remained. Carriers’ financial problems arose due to their failure to anticipate the rapid increase in health care costs as well as the extended longevity of the insured.

The insurer with the largest market share of LTCI policies in the United States, Genworth Financial, has suffered losses of over $2.8 billion since entering the market in 1974. A 2016 Forbes article reported that the company agreed to a sale and recapitalization to a Chinese investment firm, but the transaction has been delayed many times since the announcement, with the latest extension in October of 2020, according to a Genworth press release.

Uncertainties are likely to continue in the LTCI markets. As a consequence, you should carefully scrutinize an insurer’s experience, financial strength, and customer relations before purchasing a policy. Ideally, your insurer will have years of experience offering LTCI, a strong balance sheet demonstrating its ability to pay benefits, and a roster of satisfied customers.

Likely Premium Increases for LTCI

Premium increases for LTCI are expected to continue in the future due to:

  • Low Interest Rates. Insurance companies collect and invest premiums in paying future benefits. Long-term interest rates never regained their pre-financial-crisis levels and are now near historic lows due to economic fallout from the COVID-19 pandemic. Low interest rates decrease the actual rate of return on insurers’ portfolios, forcing them to raise premiums to make up the deficit.
  • Low Policy Lapse Rates. As the probability of needing care and the costs of that care rise, fewer people let their policies terminate. As terminations decline, insurer obligations for future benefits remain high.
  • Decreasing Mortality Rates. People are living longer and are likely to need care for more extended periods at higher costs than insurers initially anticipated.
  • Higher Capital Requirements. To make sure long-term care insurers are able to meet their financial obligations to policyholders, regulators are raising statutory reserve requirements. Insurers raise premiums to cover more, if not all, of the costs of benefits paid out, and the excess funds are added to the insurer’s capital for regulatory purposes.
  • Regulatory Interaction. As insurers tighten procedures to restrict benefit payments, consumer complaints rise, attracting the attention of regulatory bodies. The increased scrutiny generates extra administrative costs as companies interact with consumers and insurance regulators.
  • Market Consolidation. As insurers leave the LTCI market, it reduces the need for remaining insurers to lower or stabilize premiums to remain competitive.
  • Standardized Products. As LTCI policy features become standard in a market dominated by a few large companies, price competition decreases as companies settle for maintaining, rather than growing, their market share.

Income Tax Consequences of LTCI

You may deduct premium payments for qualified long-term care insurance for income tax purposes, provided you itemize deductions and the total expense exceeds 10% of your adjusted gross income. For those over the age of 65, the threshold is 7.5%. In the tax year 2019, the 10% threshold will apply to all filers regardless of age.

LTCI premiums are deductible as medical expenses, and the deductible amount is capped based on the insured’s age. The most recent limits published by the IRS are:

  • Ages 40 and Under: $420
  • Ages 41 to 50: $790
  • Ages 51 to 60: $1,580
  • Ages 61 to 70: $4,220
  • Ages 71 and Older: $5,270

The limits are raised each year to adjust for inflation, and any unreimbursed expenses for qualified long-term care are also deductible.

You may not include benefits paid under a long-term care insurance policy in reportable income, except for amounts that exceed the higher of the beneficiary’s total qualified long-term care expenses or $370 per month.

A Cost-Benefit Comparison

Let’s say 60-year-old Texas resident James purchases an LTCI policy with an annual premium of $2,070. His total premiums paid between the ages of 60 and 80 (20 years) would be $41,400. At age 80, his monthly benefit, given a 2% compound inflation rate, would increase from $6,000 per month to $8,916. As a result, he would effectively break even on the cost of expenses when he receives benefits for five months ($41,400 ÷ $8,916 = 4.64 months).

If James dies before receiving any benefit payments, and his policy has a return of premium rider, his heirs would receive all or some portion of the premiums paid on the plan. Furthermore, James can enjoy the peace of mind of knowing his family won’t have to deal with the costs of his long-term care if he needs it.

Had James purchased the same LTCI policy 20 years earlier at age 40, his total paid premiums to age 80 would have more than doubled to $78,680 ($1,967 annually), while his monthly benefit would increase about 49% to $13,248. The premium is slightly higher for younger buyers due to the risk of them receiving benefits for a longer period. The younger James’ breakeven point would be six months, slightly longer due to the extra years of payments ($78,680 ÷ $13,248 = 5.94 months).

Although there are no apparent financial benefits of purchasing a policy at an early age, James would not have to worry that his health might deteriorate before he picks up a policy, resulting in either higher premiums or being unable to buy LTCI in the future.


Alternatives to Long-Term Care Insurance

Many middle-aged people decide not to purchase long-term care insurance because the price is often too high and the likelihood of payments is too dicey, as Forbes contributor Richard Eisenberg writes. Prospective policyholders without chronic medical conditions or family histories of age-related cognitive impairment may wish to wait until they’re close to age 60 to purchase LTCI.

Some may decide not to do so at all. If you’re not sure whether long-term care insurance is right for you, consider the following alternatives.

1. Hybrid Policies

Instead of purchasing LTCI, many people are turning to new hybrid policies that combine long-term care cost protection with life insurance or an annuity.

Hybrid policies pay out long-term care benefits if needed or the death benefit or annuity returns if not. Most of these policies are sold as a single premium and are popular because they provide a return on the money invested in the policy in all circumstances.

  • Life Insurance/LTCI Hybrid. This combination accelerates the payment of death benefits and spreads them over a set period of 24 to 48 months to cover long-term care costs. When the insured dies, any unpaid funds are paid as a death benefit. Some policies give the insured the option to purchase a rider that can renew the death benefit if it’s exhausted with long-term care payments.
  • Annuity/LTCI Hybrid. This annuity product includes a long-term care rider. Payments are made initially from the annuity until exhausted, with the rider continuing to make payments for a specified extended period.

2. Personal Savings

Americans tend to overestimate the probability and duration of needing long-term care. As a result, they overestimate their financial long-term care needs. According to statistics compiled by the U.S. Department of Health and Human Services, people over the age of 65 average about two years of long-term care before death — 1.5 years for men and 2.5 years for women. Among the approximately one in two Americans who need any long-term care during their lifetimes, the average rises to 3.2 years for men and 4.7 years for women.

Many financial advisers recommend using individual savings or retirement funds as an alternative to long-term care insurance. For example, if James from our earlier example began contributing to his IRA at age 40 in the equivalent amount of his annual LTCI premium ($1,967) and earned a return of 4% annually, his balance at age 80 would grow to $196,362 — enough to pay for 34 months of care at $5,673 per month.

3. Medicare and Medicaid

Medicare does not cover long-term care defined as custodial rather than medical care. Custodial care is assistance with the activities of daily life, such as walking, bathing, and food preparation. Custodial care providers do not have to be medical professionals. However, Medicare will cover medical costs in a long-term care hospital or skilled nursing facility, as well as certain in-home services and hospice care.

The Medicaid program was established specifically to help poor Americans and is currently the most significant single payer of nursing home care, responsible for 45% to 65% of all costs. Eligibility varies from state to state, according to the U.S. Department of Health and Human Services, and depends on age, marital status, residence, and financial resources. Generally, an applicant must have a maximum monthly income of $2,250 or less and assets of $2,000 or less to qualify. If your income and assets are slightly above those amounts, you might consider a Medicaid “spend down.” U.S. News & World Report discusses the pros and cons of this strategy.

As the U.S. population continues to age, more citizens will be able to access Medicaid to receive the long-term care they need. According to the Census Bureau, approximately one in five Americans will be 65 or older in 2030. Facilities and the caregiving system are not prepared to handle the influx of new patients, many of whom are likely to be dependent on public programs to pay for their care. As a consequence, Congress passed the Deficit Reduction Act in 2005, which created the Long-Term Care Partnership Program.

This program aims to encourage citizens to buy long-term care insurance by providing a dollar-for-dollar discount from the Medicaid asset limitation for each dollar of benefits paid on their behalf. For example, if a Medicaid applicant purchases a policy that will pay out $150,000 in claim benefits, the applicant can keep an additional $150,000 in assets above the Medicaid eligibility requirement. These assets are protected from recovery by Medicaid after death. You can find out whether your state has a partnership program from the American Association for Long-Term Care Insurance.


Best Time to Buy LTCI

Although premium costs for long-term care insurance are lowest for young people, buying LTCI young means paying decades of premiums with no guarantee that you’ll need long-term care — or that it will be available if you do.

When it comes to financial priorities, those under the age of 50 should focus first on having health, life, and disability insurance. Those who own homes or automobiles should also protect those first instead of buying protection for an event that might not happen for 30 or 40 more years. Other priorities to consider are saving for retirement and funding a child’s college education, both of which should be started as early as possible.

With so many demands on one’s income, it’s easy to understand why some people throw up their hands in frustration and do nothing. Your best bet is to use the following general rules of thumb.

If You’re Under the Age of 50 …

Be sure your other insurance needs are covered and opt for a hybrid product if you’re concerned about future insurability. At the same time, fully fund your retirement plans to the maximum possible and purchase investments that are consistent with your risk profile and investment horizon. Then, and only then, consider an LTCI product.

If You’re Over the Age of 50 …

If you’re in good health and have sufficient income to maintain potentially years of premium payments, consider an LTCI product with inflation protection, a minimum benefit period of three years, a 60-day elimination period, and a nonforfeiture option.

If you have a significant other, consider a joint policy. If you have an individual net worth of $6 million or more, investigate the possibility of owning an LTCI policy in a trust. Finally, couples who may face a spend down for Medicaid eligibility should contact their state insurance department to learn about the Long-Term Care Partnership Program.


Final Word

Aging is a fact of life. As we get closer to the end of our lifespans, it’s more likely that we’ll need long-term care at some point. And the combination of inflation and medical advances guarantees that the cost of care for the elderly will only increase in the future.

Rather than saddling family members with the burden of providing or paying for needed care during our senior years, depending on uncertain government assistance, or being forced to liquidate family heirlooms and valuables, more and more people are turning to long-term care insurance. If you’re considering purchasing a policy, be sure to deal with reputable agents and counselors who are thoroughly familiar with the product and have your best interests in mind.

Brian Martucci
Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he's not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.

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