As America’s aging population grows, the question of how to finance care in one’s later years looms large. Long-term care insurance (LTCI) often enters the conversation as a potential solution. But the market today is far different than it was 10-20 years ago.
A recent exposé by Barron’s author Elizabeth O’Brien talks about a tumultuous market that has completely flipped upside down. In her piece titled; “They Bought Insurance for Security in Old Age. They Got a Financial Nightmare Instead.” Ms O’Brien uncovers a stand-alone LTC insurance market in decline. Here’s an excerpt from a section titled, “A Debacle with Many Causes”:
“A robust long-term care insurance market could have supported the aging baby boomers and eased financial pressure on the government for their care. Yet the traditional product has largely collapsed: Insurers issued just 35,000 stand-alone policies in 2023, down from more than 585,000 in 2000. Premium revenue plummeted from $1 billion in 2002 to $143 million in 2023, according to data from Limra, an industry trade association.” *MSN has published this piece in its entirety. You can read it here.
As you can see, the long-term care insurance market is at a pivotal point, and is fighting to stay relevant. Is long-term care insurance the right choice for you these days? In this article, we explore the pros and cons of purchasing long-term care insurance and offer practical advice for shopping wisely.
What is Long-Term Care Insurance?
Long-term care insurance is an insurance policy that you can purchase to pay for long-term care expenses in the future, when long-term care becomes a necessity. You shop for long-term care insurance just as if you were shopping for a new healthcare plan, or a new auto insurance policy.
There are a range of long-term care options and policy benefits to choose from, but understand that most of the benefit options come at a price. Once a policy starts paying benefits, that policy typically reimburses you a daily amount up to a pre-selected limit. Think $100 per day, or $200 per day.
When Do Long-Term Care Policies Start Paying Benefits?
You should check with the rules and regulations of your own state (most if not all states have an insurance commissioner), but generally these rules are pretty similar state-to-state.
In the state of Oregon for example, patients must be UNABLE to perform two or more activities of daily living (ADLs) or have a cognitive impairment (such as dementia) to begin accessing long-term care policy’s benefits. Sometimes a doctors order can trigger the access to benefits, so check with a local professional in your state to be sure.
Common “activities for daily living” include:
- Eating
- Dressing
- Mobility
- Bathing
- Toileting
- Continence (bowel/bladder control)
How are Long-Term Care Insurance Prices Determined?
Long-term care insurance providers may have slightly different methodologies around pricing, but here’s a short-list of variables that insurance carriers use to determine the cost of long-term care insurance:
- Age: How old you are when you purchase the policy
- Benefit amount: The maximum amount the policy will pay
- Other Options: Any optional benefits one may choose
- Health: Generally people with fewer health conditions pay less
- Gender: Women usually pay more than men
- Marital status: Married couples often pay less than single people
- Elimination period: The waiting period before benefits kick in (shorter elimination periods result in higher premiums)
- Inflation protection: Adding “inflation protection” increases the monthly premium
- Location or State: The cost of care varies by region, and insurance premiums often reflect these differences
- Insurance company: Premiums vary from company to company, even for the same amount of coverage
- Tobacco use: Insurers typically charge smokers between 10% and 40% more
The Case For Buying Long-Term Care Insurance
Because pensions seem to have gone the way of the dinosaur, and social security seems to be the only “security blanket” for aging retirees these days, long-term care insurance policies can make good sense for a lot of folks out there.
Did you know that according to the U.S. Bureau of Labor Statistics, only 15% of private industry workers had access to defined benefit retirement plans (pensions), and only 11% participated in them?
In short, what that means is – When it comes to funding retirement, we’re on our own. One of the potential solutions to this dilemma may be investing in a long-term care insurance policy before it’s too late.
Long-term care insurance provides coverage for services such as home care, assisted living, and nursing home care that aren’t typically covered by Medicare or standard health insurance. For many, it’s a great tool to protect financial assets and ensure access to quality care in our golden years.
The Benefits of Long-Term Care Insurance
Financial Protection
The Administration for Community Living (ACL.gov) says that “most Americans turning age 65 will need long-term care at some point in their lives”, and those costs can deplete one’s savings rather quickly if you’re not careful.
According to Genworth’s 2023 Cost of Care Survey, the average annual cost of a private nursing home room exceeds $100,000.
Flexibility and Choice
LTCI often covers a variety of care settings, from in-home care to assisted living facilities, giving policyholders greater control over their care options. When it comes to long-term care insurance, the policyholder can decide where they want to spend their insurance proceeds.
Make sure you look at “inflation protection” options (if available) so you don’t face any major gaps in coverage when you need it the most. Long-term insurance premiums have skyrocketed this past decade!
Peace of Mind
Having a policy reduces the emotional and financial strain on family members who might otherwise need to provide care or fund services. They say you can’t put a price on peace of mind, but of course the insurance industry has done just that when it comes to long-term insurance.
When purchased at the right time, and for the right reasons, long-term care insurance can be a big help to those who need it.
“Long-term care insurance is a vital component of financial planning for retirement. It’s not just about protecting assets – it’s about ensuring dignity and choice in your later years”, Jesse Slome, Executive Director of the American Association for Long-Term Care Insurance.
The Downside to Long-Term Care Insurance
High Premiums
Long-term care policies can be expensive and for some retirees, the costs may outweigh the benefits. You should be aware that long-term care insurance premiums can increase over time. There are a variety of factors that can cause an increase in premiums (such as inflation, interest rates, rising drug costs, rising administrative costs, changes in family composition, etc.).
Prior to the effective date of any policy rate increase, your insurance company is supposed to send you a letter describing the various options available to you, including but not limited to reducing your benefit amounts (in lieu of the premium price increase). Make sure you explore all options available before considering more drastic measures.
Shopping Can Be a Hassle
Shopping for any insurance policy can be a hassle, and long-term care insurance isn’t any different. It can be difficult to keep track of all the options and prices between carriers. We recommend using a long-term care insurance comparison worksheet to help you organize options and pricing among the different carriers you may be considering.
Uncertainty Around Use
If you have great family or caregiver support, you may be one of the lucky ones who never needs long-term care outside your home. If you don’t end up using the policy, the money spent on premiums may feel like a waste.
If you’re in good health and aging-in-place comfortably, count your blessings and know that the policy is there just in case you need it.
Limited Coverage and Fine Print
Policies may have “exclusions” or daily benefit limits, leaving gaps in coverage. A number of companies have even left the market, causing instability and a lot of questions about the policies that consumers are holding.
Lots of folks are finding out that the long-term care insurance policy that they purchased decades ago isn’t covering the high cost of in-home care, assisted living, or nursing home care. If you bought a policy without “inflation protection”, you could also have a major gap in coverage that will cost you money over and above what your policy covers.
Insurance Premium Price Increases
Long-term care insurance premiums can increase over a policy’s lifetime. According to the American Association for Long-Term Care Insurance (AALTCI), premium increases are common as insurers adjust for factors like inflation, rising healthcare costs, and changes in life expectancy.
Imagine you purchase a long-term care insurance policy at age 55 with an initial annual premium of $2,500. Over the years, due to factors like inflation, rising healthcare costs, and changes in life expectancy, the insurance company may need to increase the premium.
By the time you’re 70, the annual premium might have increased to $4,000 or more! These price increases (although painful) help ensure that the insurance providers can continue to cover future claims and maintain financial stability.
The LTC Insurance Marketplace is Shrinking
As noted, several big insurance players in the LTC space have fled the marketplace over the past 20 years, and the number of policies sold and written are down 96% compared to the year 2000!
According to the Mercer benchmarking survey, more large employers today offer pet insurance (45% to be exact) vs a stand-alone LTC insurance program option (just 22%). This means shopping for LTC policies is more difficult than ever.
“Consumers must weigh the cost of premiums against the likelihood of needing care. It’s not a one-size-fits-all solution, and for some, self-funding or hybrid products may be better options,” says Dr. Howard Gleckman, senior fellow at The Urban Institute and author of Caring for Our Parents.
How to Shop for Long-Term Care Insurance
If you’ve decided that long-term care insurance might be a good fit for you or a family member, the next step is navigating the marketplace. Here are some benchmarks on costs and some tips to keep in mind:
Average Annual Costs for Long-Term Care Insurance
| Benefits | Cost Per Year 60-year-old female | Cost Per Year 60-year-old male | Cost Per Year Couple age 60 |
|---|---|---|---|
| $165,000 level benefits | $1,900 | $1,175 | $2,600 |
| $165,000 benefits with 1% increase yearly | $2,550 | $1,600 | $3,525 |
| $165,000 benefits with 2% increase yearly | $3,300 | $2,000 | $4,525 |
| $165,000 benefits with 3% increase yearly | $4,300 | $2,525 | $5,800 |
| $165,000 benefits with 5% increase yearly | $6,600 | $3,800 | $8,750 |
| *Source: American Association of Long-Term Care Insurance |
Make Sure to Compare Providers
According to the American Association for Long-Term Care Insurance (AALTCI), only six companies currently sell stand-alone long-term care insurance policies: Bankers Life, Mutual of Omaha, National Guardian Life, New York Life, Northwestern Mutual, and Thrivent Financial.
The following companies are currently selling stand-alone long-term care insurance policies. They offer various options and coverage levels, so it’s a good idea to compare each policy to find the best fit for your needs.
- New York Life Insurance Company
- Offers two stand-alone long-term care insurance options: New York Life My Care and New York Life Secure Care.
- Northwestern Mutual
- Provides both stand-alone long-term care insurance policies and hybrid policies that combine life insurance with long-term care coverage.
- Bankers Life and Casualty Company
- Offers comprehensive and facility-only long-term care insurance policies, covering expenses associated with nursing homes, assisted living facilities, and Alzheimer’s facilities.
- National Guardian Life Insurance Company (NGL)
- Began marketing a new stand-alone long-term care insurance policy in 2016, focusing on coverage for long-term care expenses.
- Thrivent Financial
- Offers long-term care insurance policies and has been marketing LTCI since 1987, providing options for both nursing home and home health care expenses.
- Mutual of Omaha
- Offering two main plans: the MutualCare Secure Solution and the MutualCare Secure Choice program.
Other Tips: Shopping for LTC Insurance
Understand Policy Details
Carefully review what each policy covers, including daily benefit limits, waiting periods, and inflation protection. Remember to use a long-term care insurance comparison checklist if you think it might help.
Consult a Specialist
Consider working with an independent insurance broker who specializes in long-term care insurance, or work with a financial planner. They likely have more experience than the average Joe, and can help you compare options and find the best fit for your needs.
Leverage Online Tools
Websites like AALTCI.org and LongTermCare.gov offer educational resources and tools to help you understand and compare plans.
Explore Alternatives Like Hybrid Policies
Hybrid policies that combine life insurance with long-term care benefits or setting aside savings in a health savings account (HSA) may provide more flexibility.
Final Thoughts
Long-term care insurance isn’t a simple yes-or-no decision. It’s a nuanced choice that depends on your health, financial situation, and family circumstances. By understanding both the benefits and drawbacks, and by shopping carefully, you can make a well-informed decision that aligns with your goals for the future.
Whether you decide to purchase a long-term care insurance policy or explore alternative strategies, the most important thing is to plan ahead and make sure you have a strategy for covering these enormous expenses later in life.
Chris is a seasoned healthcare executive with decades of experience and the co-founder of AgingToday.com. Chris is an expert in digital transformation, health technology and artificial intelligence. He's currently focusing on how these innovations can be leveraged to improve the lives of aging adults.
