Even if you’re healthy and active right now, there may come a time when you need extra help. Long-term care involves a variety of services designed to meet your health and/or personal care needs during a short or extended period. These services, provided in different types of settings, offer vital support to help you live as independently and safely as possible.

One common place to receive long-term care is in an assisted living facility. Although the costs of assisted living can be considerable, there are many ways to pay for it. This includes long-term care insurance.

Understanding long-term care insurance and assisted living

What is long-term care insurance?

Long-term care (LTC) insurance is an insurance policy designed to cover the costs of long-term care services. This includes not just medical care, but also personal care like help with bathing and dressing.

Who needs long-term care? Nearly everyone. A person turning age 65 today has nearly a 70% chance of requiring some type of long-term care later in life. Twenty percent of people will need this type of care for more than five years.¹

There are two main types of long-term care insurance:

• Traditional long-term care insurance: Traditional long-term care insurance is a standalone policy specifically designed to cover the costs of long-term care.
• Hybrid long-term care insurance: Hybrid long-term care policies combine long-term care insurance with either permanent life insurance or an annuity contract. These policies offer benefits for long-term care if needed, plus a death benefit or return of premium.

What is assisted living?

Assisted living is a home-like residential community for older adults. It allows residents to remain independent in their own private living unit, but with round-the-clock support services to help with certain activities. People in an assisted living community don’t need the type of medical care provided in a nursing home, but they may need help with bathing, dressing, cleaning, laundry, and medication management. Fitness programs, social activities, and even salon services may also be offered in an assisted living environment.  

Who is eligible for long-term care insurance?

There is no age requirement for long-term care insurance; nearly any healthy adult can qualify. However, if you have a pre-existing medical condition, an insurer may consider you high risk and deny your application for coverage.

It’s generally best to buy long-term care insurance when you’re fairly young and healthy. Since most long-term care claims are filed after the age of 70, buying a policy between ages 50-65 is a good rule of thumb. When you buy a policy too early, you risk paying premiums for an unnecessarily long time.

What assisted living expenses are covered by long-term care insurance?

Services covered under a long-term care policy generally include:

• Skilled nursing care
• Help with personal care tasks (e.g., grooming, eating, toileting)
• Therapy (e.g., physical, speech, occupational)

Some policies also cover services like laundry and housekeeping.

If you plan on entering assisted living one day, it’s important to choose a policy that specifically covers this type of facility. Most long-term care policies sold today are broad in scope, allowing you to apply your benefits in a wide range of settings.

What you should know before purchasing long-term care insurance

When does long-term care insurance coverage begin?

The coverage start date depends on the terms and conditions outlined in your policy. To be eligible for policy benefits, you usually must satisfy certain criteria, also called benefit triggers. These are often defined in terms of cognitive impairments or how much help you need with daily living tasks. Once your needs have been assessed by the insurer and you’re approved for care, they'll explain which specific benefits you're eligible for.

With most policies, there is a waiting period before benefits start, also called the elimination period. This means you'll have to pay for services out of your own pocket for a period of time (usually anywhere from 30-90 days). After this period, the insurer begins reimbursing you for services you receive.

Coverage parameters

Once benefits start, most policies cover costs up to a specified daily limit. Other policies pay a flat daily amount. Most long-term care policies also set limits on how long they’ll pay benefits. For example, while some will fund your long-term care costs for the rest of your life, it’s more common for policies to provide coverage for anywhere from two to five years. Policies usually also set a maximum lifetime benefit (the total they’ll pay out for your care).

Inflation protection

Inflation protection is an optional feature that can be added to a long-term care insurance policy. It’s designed to help policyholders keep pace with the rising costs of long-term care services over time.

Tax implications

Carrying long-term care insurance can have some tax advantages. You may be able to deduct some or all of your premiums as medical expenses if they meet the maximum deductible threshold. These thresholds increase with age.

Questions to ask when navigating policy requirements

When buying a long-term care policy, you want to be able to make an informed decision. Some questions to ask insurers/agents include:

• Is there a maximum daily benefit or maximum benefits per period?
• Do benefits adjust with inflation?
• Does the policy provide an expense allowance or reimburse expenses?

Long-term care insurance costs

Factors determining long-term care insurance costs

The cost of your long-term care policy is based on many factors, including your age, coverage limits, and scope of services covered. If you're already receiving long-term care services, or you're in poor health, you may only be able to buy a limited amount of coverage or you’ll pay a higher rate. In some cases, people with certain high-risk factors (e.g., a serious disability or impairment) may not qualify for long-term care insurance at all.

Approximate premium costs for different populations

According to the American Association for Long-term Care Insurance (AALCI), in 2023 the average cost of long-term care insurance is $900 a year for a 55-year-old man for $165,000 of coverage. Women pay significantly more in premiums. The average long-term care insurance cost for a 55-year-old woman is $1,500 a year for the same coverage.²

Other care options long-term care insurance may cover

Long-term care insurance typically covers the following:

• Nursing home care: This includes care provided in skilled nursing facilities for people who require 24/7 medical and personal care.
• Home health care: This refers to services such as home health care, personal care aides, and skilled nursing care provided in the home.
• Adult day health care: With this service, adults receive off-site care and supervision during the day even if they live at home.
• Hospice care: Hospice provides comfort-focused symptom and pain management for patients at the end of their life.
• Memory care: This is a type of residential long-term care focused on meeting the specialized needs of people with memory issues.  

Long-term care insurance and assisted living for dementia patients

In general, long-term care insurance will cover dementia care in an assisted living facility if you develop the condition after you enroll in the policy. However, if you or your loved one already has a dementia diagnosis at the time of enrollment, the insurer may deny coverage (most policies require medical underwriting). Keep in mind that even if one insurer denies you, you may be able to find coverage with another.   

How much long-term care insurance will you need?

The duration of long-term care required will vary from person to person. Consider that women tend to need care for longer (an average of 3.7 years), while men need care for an average of 2.2 years.

You'll also want to research the cost of long-term care where you live. Genworth's Cost of Care Survey shares the average costs for different long-term care settings. It also has a calculator you can use to estimate your potential future long-term care costs. For example, in Boston, the average annual cost of assisted living is currently $81,825. By 2031, this cost is expected to rise to $109,966.³

Other factors affecting how much long-term care insurance you’ll need include:

• Your age
• Your personal and family health history
• Your financial situation
• Whether you'll be able to (or want to) count on family for help

To get a clearer understanding of how much coverage is right for you, you should speak to a licensed insurance agent or financial advisor.

How to choose the best long-term care insurance for you

Below are some tips for choosing the right long-term care insurance plan for you or another older adult:

1. Review each policy thoroughly, including its coverages, terms, and exclusions. All long-term care policies are different.
2. Shop around with different carriers and get quotes on various types of policies. Compare costs, benefits, and drawbacks.
3. Check with your state's insurance department to make sure a carrier is licensed in your state. You can also find their financial rating through an agency like A.M. Best.
4. Avoid buying more coverage than you need. If you have sufficient income/savings or support from family members, you may not have a large financial burden from long-term care.
5. Do not buy too little coverage. If your policy isn't enough to cover your long-term care costs, you'll be required to use your own savings, income, and assets.
6. Make sure you can comfortably afford the monthly premium payment. Keep in mind these rates will likely go up over time.

Frequently asked questions

When is the right time to secure long-term care insurance?

The younger you are, the less it costs to buy long-term care coverage. The average age of people who buy these policies is 60 (or 50 for people buying coverage through their employer).

What is not covered by long-term care insurance?

Long-term care policies do not cover costs during the elimination period before benefits begin, which typically ranges from 30 to 90 days. Other common exclusions with long-term care policies may include coverage while outside of the U.S. and its territories as well as coverage related to alcoholism and drug addiction, self-inflicted injuries, and mental illness. 

What are the best options for long-term care insurance?

There is no one-size-fits-all long-term care insurance policy. That’s why it’s important to consider your individual needs, shop around, and compare coverages and premiums from different carriers. 

Bottom line

Long-term care insurance can provide a vital financial safety net should you ever need these types of services. That said, there are many factors to consider when buying a policy. Before you sign on the dotted line, take time to explore your options—and don’t hesitate to seek the advice of a professional.

Sources

1. U.S. Administration for Community Living. How Much Care Will You Need? Found on the internet at https://acl.gov/ltc/basic-needs/how-much-care-will-you-need

2. American Association for Long-Term Care Insurance. 2023 Long-Term Care Insurance Price Index Released. March 6, 2023. Found on the internet at https://www.aaltci.org/news/long-term-care-insurance-association-news/2023-long-term-care-insurance-price-index-released

3. Genworth. Cost of Care Survey. Found on the internet at https://www.genworth.com/aging-and-you/finances/cost-of-care.html