Understanding the Average Cost of Long Term Care Insurance

By Alexander

May 03, 2025

In Long Term Care Insurance

0

\Long term care insurance (LTCI) is designed to cover the costs of services not typically covered by health insurance, Medicare, or Medicaid. These services include assistance with activities of daily living (ADLs) such as bathing, dressing, and eating, which can become necessary due to aging, chronic illness, or disability. As the population ages, the need for long term care is increasing, making it essential to understand the average cost of long term care insurance policies.

What is Long Term Care Insurance?

Long term care insurance provides financial protection for the costs associated with long term care services. These services can be provided in various settings, including:

• Home Care: Assistance with ADLs and other services in your own home.
• Assisted Living Facilities: Residential communities that provide assistance with ADLs, meals, and social activities.
• Nursing Homes: Facilities that provide 24-hour medical care and assistance with ADLs.
• Adult Day Care Centers: Centers that provide daytime care and activities for adults who need supervision.

LTCI policies typically have a daily or monthly benefit limit, a benefit period (the length of time benefits will be paid), and an elimination period (the time you must pay for care out-of-pocket before the policy starts paying benefits). Understanding these components is crucial when evaluating the average cost of long term care insurance.

Factors Influencing Long Term Care Insurance Costs

Several factors influence the average cost of long term care insurance policies. These include:

Age

Age is one of the most significant factors affecting LTCI premiums. The younger you are when you purchase a policy, the lower your premiums will be. This is because younger applicants are generally healthier and less likely to need care in the near future. As you age, the risk of needing long term care increases, and so do premiums.

Health

Your current health status is another critical factor. Insurance companies typically require a medical exam and review of your medical history to assess your health. If you have pre-existing conditions, such as heart disease, diabetes, or Alzheimer's disease, you may be denied coverage or charged higher premiums.

Benefit Amount and Period

The benefit amount is the maximum daily or monthly amount the policy will pay for care. The benefit period is the length of time the policy will pay benefits (e.g., two years, five years, or lifetime). Higher benefit amounts and longer benefit periods will result in higher premiums. For example, a policy with a $200 daily benefit and a five-year benefit period will cost more than a policy with a $100 daily benefit and a three-year benefit period.

Elimination Period

The elimination period is the number of days you must pay for care out-of-pocket before the policy starts paying benefits. Common elimination periods are 30, 60, 90, or 180 days. A shorter elimination period will result in higher premiums, while a longer elimination period will lower premiums.

Inflation Protection

Inflation protection is an optional feature that increases your policy's benefit amount over time to keep pace with rising long term care costs. This is an essential feature, as long term care costs are expected to increase significantly in the future. Policies with inflation protection will have higher premiums than those without it.

Policy Type

There are two main types of long term care insurance policies: traditional and hybrid. Traditional policies are stand-alone policies that provide coverage for long term care services. Hybrid policies combine long term care insurance with another type of insurance, such as life insurance or an annuity. Hybrid policies often have higher premiums but offer the potential for a return of premium if you don't use the long term care benefits.

Average Cost of Long Term Care Insurance Policies

The average cost of long term care insurance policies can vary widely depending on the factors mentioned above. However, here are some general guidelines:

• Traditional LTCI: A 55-year-old couple can expect to pay around $2,500 to $4,500 per year for a policy with a benefit of $165,000 each, according to the American Association for Long-Term Care Insurance (AALTCI). This is just an estimate, and rates can vary widely by state, insurance company and policy specifics.
• Hybrid LTCI: Hybrid policies tend to be more expensive than traditional policies. A 55-year-old couple might pay $8,000 to $12,000 per year for a policy with a similar benefit, but it includes a death benefit or other financial component.

It's important to get quotes from multiple insurance companies to compare rates and find the best policy for your needs. Online tools and insurance brokers specializing in long term care insurance can help you with this process.

The Impact of Inflation on Future Costs

One of the most significant concerns when planning for long term care is the impact of inflation. Long term care costs have historically increased at a rate higher than general inflation, and this trend is expected to continue. According to Genworth’s Cost of Care Survey, the national median cost of a home health aide in 2024 is $6,101 per month. This cost can easily double or triple over the next 20 to 30 years.

Therefore, it's crucial to include inflation protection in your LTCI policy. This feature will increase your policy's benefit amount over time, ensuring that you have adequate coverage when you need it. Common inflation protection options include:

• Simple Inflation: The benefit amount increases by a fixed percentage each year (e.g., 3% or 5%).
• Compound Inflation: The benefit amount increases by a fixed percentage compounded annually.

While inflation protection will increase your premiums, it can provide significant peace of mind knowing that your policy will keep pace with rising costs.

Alternatives to Traditional Long Term Care Insurance

If traditional long term care insurance is not the right fit for you, there are several alternatives to consider:

Hybrid Life Insurance Policies

Hybrid life insurance policies combine life insurance with long term care benefits. These policies typically have a death benefit that is reduced if you use the long term care benefits. If you don't use the long term care benefits, your beneficiaries will receive the full death benefit.

Annuities with Long Term Care Riders

Annuities with long term care riders allow you to use a portion of your annuity's value to pay for long term care expenses. These riders typically have a waiting period before you can access the long term care benefits.

Health Savings Accounts (HSAs)

Health Savings Accounts (HSAs) are tax-advantaged savings accounts that can be used to pay for qualified medical expenses, including long term care. HSAs can be a valuable tool for saving for future long term care needs.

Self-Funding

Self-funding involves setting aside a portion of your savings or investments to pay for long term care expenses. This option requires careful planning and a significant amount of savings, as long term care costs can be substantial.

Planning for Long Term Care Needs

Planning for long term care needs is an essential part of retirement planning. Here are some steps you can take to prepare:

• Assess Your Risk: Evaluate your risk of needing long term care based on your age, health, and family history.
• Research Your Options: Explore different types of long term care insurance policies and alternatives to find the best fit for your needs.
• Get Quotes: Obtain quotes from multiple insurance companies to compare rates and coverage options.
• Consider Your Budget: Determine how much you can afford to spend on long term care insurance premiums.
• Consult with a Financial Advisor: Work with a financial advisor to develop a comprehensive retirement plan that includes long term care planning.

Making an Informed Decision About LTCI

Understanding the average cost of long term care insurance policies is crucial for making an informed decision about whether to purchase coverage. By considering the factors that influence premiums, exploring alternative options, and planning for future costs, you can protect your financial security and ensure access to the care you need.

Long term care insurance can provide peace of mind knowing that you have a plan in place to cover the costs of care if you need it. Don't wait until it's too late to start planning. Begin researching your options today and take control of your future.