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  1. Introduction
  2. What Long-Term Care Insurance Protects Against
  3. Who Should Buy Long-Term Care Insurance and When?
  4. The Cost of Long-Term Care Insurance
  5. Finding an Affordable Policy
  6. Rate Increases
  7. How Much Insurance Should You Buy?
  8. Choosing a Long-Term Care Insurer
  9. Using Your Long-Term Care Insurance Policy
  10. The Bottom Line

Long-term care insurance has a reputation for being pricey – and it can be. But there’s good news: Prices declined by about 10% from 2015 to 2016 for a couple in their 60s purchasing a new policy, according to the most recent industry analysis of policy pricing published by the American Association for Long-Term Care Insurance (AALTCI), a national trade group. The association’s director, Jesse Slome, said in a press release that some high-cost providers are no longer selling long-term care insurance and some other providers changed their pricing. What’s more, you can get a decent, basic policy for about $100 a month, AALTCI states. See also Long Term Care Insurance: Can It Be Affordable?

Benefits and Pricing for a Sample Policy

This example of a policy comes from the AALTCI: For a Tennessee couple who are both age 60, a good long-term care insurance policy offers each spouse $44,000 a year in coverage. That benefit grows each year, so by the time the couple is 80, each has $97,000 in coverage, and by the time they’re 85, each has $108,000 in coverage.  This policy has a benefit of $120 per day to start, offers coverage for a maximum of 360 days, has a 30-day elimination period, no certification period and a 100% home care benefit. The policy benefit grows by 5% per year based on simple inflation growth. This policy costs $1,920 per year for both spouses, or $160 per month.

Here’s a breakdown and explanation of what it all means.

  • $120 daily benefit: Not surprisingly, this is the maximum the policy will pay per day that you receive approved long-term care services. This benefit kicks in after the elimination period. If your care costs more than $120 per day, you’ll pay the difference yourself.
  • 30-day elimination period: The elimination period is the amount of time that must pass between when you first need long-term care and when the policy will start paying for it. You are responsible for your own long-term care bills during the elimination period. It’s similar to a deductible on your homeowner’s insurance, where you might pay for the first $2,000 in damages before your policy kicks in. Some LTC insurance policies only require you to satisfy the elimination period once, even if you file more than one claim during your time as a policyholder. 
  • 360 days of coverage: This is the maximum amount of time the policy will pay benefits for.
  • No certification period: A certification period is the amount of time for which your doctor expects you to need care, such as 60 days. If your policy has a certification period of 90 days, you wouldn’t receive any benefits under those circumstances. This sample policy doesn’t have this restriction. 
  • 100% home care benefit: If you are able to receive care in your own home, this policy will give you the same $120 a day benefit that you would get if you received care in a nursing home. Some policies don’t have home care benefits or only pay 50% or 70% of the usual daily benefit when you receive home care. 
  • 5% annual growth based on simple inflation: This policy increases by 5% each year based on the initial benefit amount. So your $120 daily benefit increases by $6 per year. In year two, your daily benefit is therefore $126, and in year three, it’s $132. A policy with annual growth based on compound inflation would grow more over time. Your initial $120 daily benefit still becomes $126 in year two, but in year three it’s $132.20. That’s a minor difference in the short run, but what about the long run? After 10 years, the simple inflation policy is worth $180 per day, while after 20 years it’s worth $240. The compound inflation policy is worth $195.47 per day after 10 years, and after 20 years, it’s worth $318.40. These increases also apply to the policy’s maximum lifetime benefit.

What about a higher-end policy? If the same couple purchased a policy with a $150 daily benefit that grows by 3% compounded annually, has a 90-day elimination period, offers benefits for a total of three years and has a 100% home care benefit, they could pay anywhere from $2,985 to $4,190 per year in premiums, depending on the insurer.

Notice that while this policy is better than the basic one in many ways, its elimination period is three times as long. A longer elimination period can lower your premiums but means you must be prepared to pay more out of pocket initially if you need long-term care. In addition, this policy’s benefit grows by 3% per year with compound interest, not 5% per year with simple interest, which gives you slower growth initially. But since this policy’s initial benefit is so much higher – $164,000 per spouse – the policy will be worth $325,000 per person at age 80 and $365,000 per person at age 85. 

Women vs. Men

Another factor affecting long-term care insurance premiums is your gender. Women are more likely to need long-term care, period, and they also tend to need it for longer than men do. As a result, some long-term care insurers  use what is called gender rating, meaning they charge women more than men for an otherwise identical policy since women are considered higher risk (that is, more likely to file a claim and cost the insurance company money). Your premiums could be 25% higher if you’re a woman – even more if you are single. While this practice is something to be aware of, there’s not much you can do about it, though some advocates have tried to fight it by claiming discrimination. Regardless of your gender and whether a particular insurer uses gender rating, you’ll find the lowest rates by shopping around. (For more insights, see Retirement Costs: Men vs. Women.)

Next, let’s go over how to find a long-term care insurance policy that has premiums you can afford.

Finding an Affordable Policy
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