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7 Factors to Consider Before Buying Long-term Care Insurance

Updated: March 27, 2023
By: Jonathan Trout
Jonathan Trout
Content Manager
Jonathan is a former product and content manager for Retirement Living. His background spans sales/marketing, finance, and telecommunications. Jonathan’s expertise in consumer wellness and research-backed data stories helped educate seniors on financial planning, retirement, and community resources. Jonathan graduated from Oklahoma State University with a B.S. in Environmental Sociology.
Content Manager
Edited by: Jeff Smith
Jeff Smith
Sr. Content Manager
As Retirement Living’s senior content manager, Jeff oversees the product and publishing of all retirement, investing, and consumer wellness content on the site. His extensive expertise in brand messaging and creating data-driven stories helps position Retirement Living as a top authority for senior content and community resources.
Sr. Content Manager
7 Factors to Consider Before Buying Long-term Care Insurance

Many people find themselves needing long-term care in later life, whether in a residential facility, nursing home, or with expert in-home care. Long-term care is expensive: A private room in a nursing home averages around $85,000 a year, though rates vary depending on your region and the type of facility. Long-term care insurance is a way to protect your retirement savings from overextension in the event you need long-term care accommodations.

  1. Consider if you’ll need long-term care

    Whether or not you’ll need long-term care insurance is a bit of a gamble. When you buy a policy, the insurance company is essentially betting you won’t live long enough to use the full value of your long-term care plan, or if you do live long enough, you won’t need extensive long-term care services. You’re betting, in both cases, that you will.

    Recent studies find about a quarter of people spend $50,000 or more on long-term care in their lifetime. You might be more likely to need it if your parents or grandparents required long-term care, especially if you have a family history of Alzheimer’s.

  2. Figure out if you’ll qualify for Medicare and Medicaid

    Medicare, the federal government’s insurance plan for the elderly, typically does not cover the costs associated with long-term care. If you are over age 65 and you or your spouse worked and paid taxes for at least ten years, you’ll most likely qualify for Medicare, but you shouldn’t expect it to cover much of your long-term care expenses.

    On the other hand, if you qualify for Medicaid, the program will pay for much if not all of the cost of long-term care. If you have Medicaid and buy a long-term care policy anyway, Medicaid becomes your secondary coverage, picking up costs the insurance doesn’t pay. But because of your low-income status, Medicaid would most likely have covered your care costs anyway, so you’d be paying for a policy you don’t need.

  3. Calculate the cost of long-term care insurance

    Long-term care insurance isn’t cheap. Premiums vary but average around $2,700 a year for a couple for a plan offering basic coverage. Premiums may also increase over time by anywhere from 20 to 130 percent annually, so if you purchase a policy now, you should expect to pay even more to renew it. If you are not financially able to continue making indefinite payments, you may not be able to afford long-term care insurance.

  4. Consider whether you’ll qualify

    Long-term care insurance can be challenging to qualify for, with as many as two-thirds of applicants being turned away. The insurance company has strict requirements for health and mental status most people have a hard time meeting in older age. In some cases, you may still qualify with a pre-existing health condition. However, you’ll likely be “rated” for this condition and charged a higher premium.

  5. Consider how much long-term care insurance to purchase

    Like all insurance coverage, you can choose between policies offering basic coverage of a few thousand dollars per year toward long-term care, all the way to extensive plans with generous daily and lifetime benefits. You should base the amount of coverage you purchase on your best guess of how much you’ll need, coupled with your knowledge of the cost of long-term care. Those costs vary depending on your region and the type of care you need.

    You can also purchase joint policies if you need coverage for both you and your spouse, and some of these come with additional benefits. For instance, if you buy a policy with a three-year benefit period for yourself and a three-year benefit period for your spouse as a joint policy, you’ll typically pay less than you would for one six-year policy. Plus, you may be able to use the six total years you’ve purchased flexibly between you (for example, if only one spouse ends up needing it, he or she may be able to use all six years of coverage).

    You should meet with your financial advisor to determine how much care you can safely cover using your retirement savings and investments, and how much insurance you should consider purchasing to pay for the rest.

  6. Long-term care insurance timing considerations

    The best age to apply for long-term care insurance is when you’re in your 50s and nearing retirement age but still in great physical and mental health. Not only are you more likely to qualify, but you’ll also be more likely to receive a “good health bonus” which may reduce your premiums which still applies even as your health declines.

    Of course, while the premiums will be lower if you buy your insurance in your 50s, you’ll also have to pay those premiums longer. But if you gamble and wait to purchase it, your health could decline to the point you no longer qualify or have to pay exorbitant premiums anyway.

  7. Long-term care policy limitations

    Long-term care policies usually have maximum daily benefits (MDB), elimination periods (EP) and policy maximums. Companies set MDBs to cap the amount paid out each day and EPs are a set waiting periods between when you need care due to illness or injury and when the policy starts paying benefits. All three of these limitations vary depending on which policy you buy.

    Other limitations you might see include not paying benefits for injuries suffered from things like attempted suicide, illegal acts or things covered under worker’s compensation laws. Long-term care policies also might limit benefits if you receive treatment in drug and alcohol facilities, mental institutions or internationally-located facilities.

Bottom Line

Long-term care insurance can be a vital safety net for many people, but it’s not for everyone. Talk to your financial advisor about all of these factors to decide if a policy is right for you.