Why Long-Term Care Insurance?
It’s estimated that over 60% of people over the age of 65 will need some kind of long term care (LTC) services at some point in their lives. The annual cost of LTC varies, but it is possible to estimate potential costs. A study by MetLife conducted in 2012 found that the average annual cost of assisted living care in the United States was nearly $43,000.
The costs of long-term care are rising. In 1994, the average annual cost of LTC was around $40,000. Today, the average cost is closer to $70,000, and by 2030 annual costs could reach $300,000.
Long-term care insurance typically covers LTC services such as home care, assisted living, adult day services, and nursing homes. Many people believe that Medicaid will cover the costs of long-term care, but this is not always the case. Medicaid provides some of the benefits of long-term care insurance, but it does not cover assisted living or home care. Medicaid may also restrict access to the care provider who is right for you.
Do I Really Need LTC Insurance?
In the past few years, there have been a number of articles written by prominent news outlets suggesting that it does not make sense to purchase LTC insurance. The argument is typically along these lines – with the uncertainty over increases in premiums, you are better off “self-insuring,” which means putting aside some savings to cover your long-term care in the future.
Needless to say, the authors of this website are not in agreement. Yes, the premiums on LTC insurance are rising, but so are the costs. An good insurance policy will help you cover these costs in the future, which means that you will have the flexibility to choose the care that’s right for you. That’s the real difference between Medicaid and long-term care insurance – access to higher quality care.
What Determines Long-Term Care Insurance Rates?
How much will you pay for long-term care insurance? Though the cost will depend significantly on each individual, there are six primary factors in determining long-term care insurance rates:
- Benefit amount (daily or monthly)
- Length of benefits
- Elimination period
- Inflation protection
- Health rating
According to a study published by America’s Health Insurance Plans in 2005:
- 97% of all policies sold cover home care
- 75% have inflation protection
- Home care and nursing home benefits rose by 30% from 2000-2005, a rate greater than inflation
- The average age of a policy holder was 68 in 1990, and 61 in 2005
- 2/3 of all individual buyers are under 65
- 70% of non-buyers underestimate the cost of nursing homes, while only 14% of buyers underestimate this cost
- 65% of buyers did not know if their policy was tax qualified
- More than 50% of buyers did not know about the tax benefits of LTCI at all