What is long-term care insurance?

The increasing need for long-term care

Long-term care (LTC) is a type of support service that primarily helps people with chronic illnesses or disabilities and senior citizens. LTC can help with activities of daily living (ADLs) such as bathing, dressing and eating.

The need for long-term care is increasing in the U.S. This is due to a number of factors, including the aging population, rising health care costs and an increase in chronic diseases.

By 2050, 27 million people are expected to have long-term care insurance, according to the Family Caregiver Alliance.

The Family Caregiver Alliance projects that the number of individuals utilizing paid long-term care services in various settings — including home care, assisted living facilities and skilled nursing facilities — will likely double from 13 million people in 2000 to 27 million people by 2050. This estimate takes into account the anticipated increase in the elderly population requiring care.

What long-term care insurance covers

Long-term care insurance provides coverage for various medical and nonmedical services to support individuals receiving care in their own homes or in care facilities. Here's a breakdown of what this type of insurance typically covers:

• In-home care: This includes skilled nursing care provided by health care professionals in your own home.
• Adult day care: Coverage may extend to adult day care centers, where individuals receive supervision, socialization and activities during the day.
• Assisted living: Long-term care insurance can help cover the costs of assisted living, where assistance with daily activities is provided.
• Nursing home care: If you require more extensive care in a nursing home, long-term care insurance can help cover the expenses.
• Therapy services: Depending on the policy, coverage may include occupational, speech, physical and rehab therapies.
• Home modifications: Certain policies may include coverage for home modifications to make your living environment safer and more accessible, such as installing wheelchair ramps or grab bars.
• Respite care: Coverage may extend to respite care, allowing caregivers to take temporary breaks while someone else cares for the individual.
• Hospice care: Long-term care insurance can also help cover the costs of hospice care for individuals with terminal illnesses.

» MORE: 9 benefits of respite care

Long-term care insurance policies can vary, though, so reviewing your policy’s specific terms and conditions is crucial.

Additionally, long-term care insurance generally does not cover preexisting conditions, drug and alcohol abuse treatment, mental illnesses, self-inflicted injuries or certain types of cancer. Other typical exclusions are expenses like telephone, cable and internet bills.

» CALCULATE: What is the cost of in-home care?

Long-term care eligibility criteria

Eligibility criteria and coverage options may vary depending on the specific insurance provider and policy. However, there are a few common factors that play into eligibility, including:

• Age: Long-term care insurance is typically cheaper when you’re younger, but some policies have a minimum age requirement, usually around 40 to 50 years.
• Health status: Insurers assess your health history and current health condition before issuing a policy. Preexisting conditions and certain medical conditions may affect your eligibility or coverage options.
• Activities of daily living ability: Many policies require that you have difficulty performing a certain number of ADLs independently. ADLs include tasks like bathing, dressing, eating, using the bathroom, transferring and continence.

» LEARN: 8 aging-in-place home modifications for seniors

Pros and cons of long-term care insurance

Long-term care insurance offers coverage for expenses associated with long-term care services. While it can be a valuable tool in planning for the future, it’s important to weigh the pros and cons before opting for this coverage.

Pros

Long-term care insurance can provide a number of helpful benefits, including the following:

• Cost coverage: Long-term care insurance helps cover the expenses of related care services, which can be quite high. It can safeguard your savings and assets against depletion.
• Reduced burden on family: Long-term care insurance lessens the financial and caregiving burdens on your family members by providing access to professional care services.
• Independence and control: This type of insurance empowers you to maintain your independence and take control of your care decisions. It grants you the freedom to choose the type and quality of care you receive and the providers you work with.
• Peace of mind: Having long-term care insurance can give you the peace of mind of knowing you’re financially protected if you require long-term care.
• Customizable coverage: You can tailor your long-term care insurance coverage to meet your specific needs: You choose the policy limit, the daily or monthly benefit, the length of the elimination period and any extra features (e.g., inflation protection and shared care, which allows you to share benefits with your spouse). You can also choose the care setting that suits you.
• Tax-free benefits: The money you receive from your long-term care insurance when you need it is typically tax-free. You may even qualify to deduct some or all of your premiums from your taxes.

Cons

While long-term care insurance comes with many benefits, there are also some potential drawbacks to consider including:

• Unclaimed benefits: You may pay significant premiums for long-term care insurance and never actually need to use it. Statistically, about three in 10 people who reach the age of 65 today will not require long-term care services, according to the U.S. Department of Health and Human Services.
• Premium increases over time: Long-term care insurance premiums can increase as time goes on. Before purchasing coverage, it's important to inquire about the insurer's history of premium rates to understand how premiums may change in the future.

How to choose a long-term care insurance plan

So, how do you pick out a long-term care insurance plan? Consider your age and current health, associated costs versus potential care savings and the details of the plan’s coverage.

Age and health considerations

Your age and health are two of the most important factors in determining the cost of long-term care insurance. The younger and healthier you are, the lower your premiums will be — and if you wait too long to buy a policy, you may not be able to qualify due to health reasons.

Eric Calciano, lead benefits advisor at New City Insurance, emphasized the importance of assessing your health when considering insurance policies, "If you have any health concerns, it’s advisable to explore policy options sooner rather than later, as significant health issues can result in long-term care insurers declining to provide coverage."

Cost and affordability

The cost of long-term care insurance can vary based on the type of policy you choose, your age and your health. It’s important to factor in the price of premiums and to make sure you can afford to pay the premiums throughout the life of the policy.

Coverage limits and exclusions

Long-term care insurance policies typically have coverage payout limits and exclusions. As with any contract, it’s important to carefully review the coverage limits and exclusions of any policy you’re considering before you commit.

» MORE: Does Medicare cover assisted living?

Policy flexibility and customization

Long-term care insurance policies are customizable to your individual needs. For example, you can choose a policy that covers a variety of care options, such as nursing home care, assisted living and in-home care. You can also choose a policy with inflation protection, which will increase the amount of money the policy pays out each year to keep pace with inflation.

How to get long-term care insurance

Getting long-term care insurance involves several steps, including the application and underwriting process, determining premiums and benefit amounts and comparing insurance providers.

Alternatives to long-term care insurance

Long-term care insurance can be a good way to protect yourself from the financial burden of long-term care costs. However, it may not be suitable for everyone due to eligibility constraints, high premiums or personal preferences. Fortunately, there are a few alternatives worth considering.

Self-funding and personal savings

This is the most straightforward alternative to long-term care insurance. If you have the financial resources, you can simply save up money to pay for long-term care costs out of pocket. This may be a good option for people who are young and healthy and may be able to afford long-term care costs in the future.

It's important to remember that long-term care can be extremely expensive, so you will need a significant amount of savings to cover your costs.

Government programs

There are two government programs that can help pay for long-term care costs: Medicaid and Medicare. Medicaid is a government-funded health insurance program for low-income individuals and families. Medicare is a government-funded health insurance program for people 65 and older and those with certain disabilities.

Medicaid is the primary payer for long-term care services in the U.S. However, Medicaid eligibility requirements are fairly strict, so you may not qualify for benefits if you have any assets or income.

Medicare doesn’t cover long-term care services, but it does cover some of the costs of skilled nursing care and home health care.

Hybrid policies and combination products

Hybrid policies and combination products are available that combine features of long-term care insurance with features of other types of insurance, such as life insurance or annuities. These products can be a good option if you’re looking for a more comprehensive solution to your long-term care needs.