Long-term Insurance Information

By Health & Medical Last updated Friday, April/12/2024

General Information

With most policies, you continue to pay premiums until you die or you begin collecting benefits. However, many companies offer 10- or 20-pay policies in which you pay a considerably higher premium for 10 or 20 years to get a paid-up policy. There are myriad other options in piecing together your policy, but the five major ones are daily/monthly benefits, deduction period, term of benefits, lifetime pool of money and inflation factor. The amount of your premium will be determined by your age and the choices you make in these five areas.

According to the Department of Health and Human Services, the average cost at the end of 2009 for a private room in a nursing home was $219 a day. There are wide variations, depending on where you live, but that adds up to $6,570 a month or nearly $79,000 a year. The average cost for home health care was $21 per hour. Start at your monthly income -- Social Security benefits, pensions, annuity payments and whatever other income you have. Then decide what monthly benefit you'll need to cover your expenses.

Sometimes called a waiting period, most policies include a period of time between when you qualify for benefits and when the policy actually begins payments. The standard is 60 days, although, increasingly customers are opting for a 90-day deduction period because it further reduces premium costs. Choosing a longer deduction period will save you more. Medicare offers some short-term reimbursement for nursing home stays, and about 10 percent of persons needing nursing home care don't stay long enough to reach a 120-day deduction period.

Choosing how long you want the benefits to last. Until you die? For a certain number of years? According to the Kaiser Family Foundation, the average nursing home stay is two-and-a-half years. However, the median is closer to three years, so you probably should buy a policy that pays benefits at least that long. Choosing five-year or lifetime benefits will drastically increase the cost of your policy.

Long-term care insurance policies typically have a cap on the total benefits that will be paid. In most cases, the lifetime pool of money equals the monthly benefits multiplied by the months in the term of benefits -- say, $4,000 times 36 months, or $144,000, plus your inflation factor. However, some companies now offer a shared lifetime pool for couples. That allows partners to buy policies with a more affordable shorter duration, but each partner has access as needed to a larger combined pool of dollars.

Let's say you buy a long-term care policy at age 50 with a $100 daily benefit. If nursing home costs rise 3 percent a year, and you don't need the policy for 30 years, you will need nearly two-and-a-half times more benefits to match the resulting costs. That's why many long-term care insurance policies include an inflation factor. The standard in 2006 was 5 percent, but increasingly policy holders are choosing lower inflation factors to lower premium costs. However, failing to include an inflation factor in your policy will cut your premiums drastically, but it can leave you woefully short when you need to tap the benefits.

According to the American Association For Long Term Care Insurance, a 55-year-old couple buying a long-term care policy now expect to pay about $2,350 a year for about $338,000 of current benefits, or $169,000 each, which translates to roughly $4,650 per month. That includes a 3.5 percent inflation factor. In 25 years that benefit pool will grow to nearly $800,000. However, those figures vary widely by region and by company. For example, similar rankings a year earlier by LTC Connects showed a range from $1,275 annually to $2,100 among five companies offering virtually identical policies for a 55-year-old individual.

The younger you are, the lower your premium will be. In addition, couples get a discount. An individual buying the policy identical to the $169,000 benefit policy cited earlier would pay $1,480 a year, $305 more than the average cost paid by each of the couple. The most important additional discount is for good or preferred health discount. Some companies only require you to complete a health questionnaire; others require a physical exam to qualify for the discount. If the 55-year-old couple cited above failed to qualify for the preferred health discount, the policy cost would rise by $325 a year. Couples also can get lower premiums by choosing a shared care option.

Recently, MetLife got out of the long-term care insurance business, though the company said it would honor all existing policies. As 2010 drew to a close, many of the largest companies that issue policies announced premium hikes; one was nearly 40 percent. These increases were on top of their previous adjustments. The downside to buying a policy at a younger age is that you can count on price hikes that may force you to rethink your policy options so that you can continue to afford your premiums.

Qualified long-term care insurance premiums are deductible as an itemized medical expense. The IRS sets a limit on how much you can deduct each year, depending on your age at the end of each tax year. For example, in 2011 persons less than 40 years old can deduct only $340, but a 65-year-old can deduct $3,390. If you have a health savings account filled with pre-tax dollars, you can make tax-free withdrawals to pay long-term care premiums.

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