You’d think health insurance would cover all your medical costs in your senior years. Unfortunately it’s not quite that simple. Getting older often requires specific types of medical care, and without long-term care insurance millions of seniors can find themselves without insurance options to cover the bills.
Long-term care insurance pays for the costs of a nursing home and other kinds of elder care that seniors need, such as in-home nursing care.
Long-term care insurance covers the costs associated with treating chronic illnesses or other ailments in old age, such as at-home care for Alzheimer’s patients or nursing home costs for people unable to live alone. In addition to nursing home costs LTC covers home health care, homemaker services, respite care and memory facilities.
It does not cover costs of surgeries, prescription drugs and doctors’ visits—those are covered by health insurance, or Medicare in the case of most seniors.
An estimated 3 out of 4 seniors will need some form of long-term care. But to understand who needs long-term care insurance, you first need to understand a couple things about Medicare and Medicaid:
Medicare is health insurance automatically granted to all Americans 65 or older. It does not cover long-term care costs. Medicaid is health insurance given primarily to poorer Americans. It does cover long-term care, but only if you’re broke.
If you’re thinking you can just give your kids your money when the time comes and qualify for Medicaid, think again. Here’s a full explainer on how your finances affect nursing home options, but the short version is that you can’t offload your money and qualify for Medicaid unless you did it more than 5 years ago.
Nursing homes can be incredibly expensive—while nationwide averages hover just over $200 per day, they can easily run to $400 per day depending on your area. That’s anywhere from $75,000 - $150,000 per year. A 5-year stay in a nursing home can easily cost over $750,000.
Long-term care insurance is worth considering for people with savings who don’t want to spend that much on elder care in their senior years.
Couples are at an advantage if they’re buying long-term care insurance together, as a policy that covers both spouses is only moderately more expensive than buying an individual policy.
If you’re broke and think you may always be, bummer. But the good news is, if you need long-term care Medicaid will cover you. There’s no need to consider long-term care insurance.
Long-term care insurance costs increase dramatically as you get older. If you haven’t bought it by the time you’re 60, it may become unaffordable.
For instance, a 55-year-old couple can expect to pay about $2,500 per year in annual premiums for long-term care insurance. A 60-year-old couple would pay $3,500, but by 65 it would cost $7,000 and by 70 it would likely cost $14,000 or more per year. Some tax deductions may be available depending on your age and state.
Most long-term care care insurance includes a 3% annual increase in the benefit amount to keep pace with inflation so they can cover the cost of care in the future, not just today. But the benefit amount is still fixed—if you need specialized care for a long time, your policy may not cover it all. Also keep in mind premium rates may increase annually as well. A 55-year-old couple who pays $2,500 premium in their first year with the policy may end up paying much more by the time they’re 60.
Long-term care is complicated and it’s becoming more so as we live longer. According to AARP 70 percent of people 65 and older will require some form of long term care in their lifetimes, with an average need of 3 years. If you have a complicated financial situation, talk to a professional financial advisor. If your situation is more clear-cut and you still have questions about long-term care insurance, talk to one of our Geniuses in the chat window below.