(Even if your premiums are high, long-term care insurance can still be a smart buy.)
Jessica Huneck|February 16, 2020
Could you afford to enter a nursing home if you needed one? As Americans age, long-term care is more necessary than ever. Long-term care insurance is there to help pay for it.
Your guide to the average cost of long-term care insurance is right here. Once you’re ready to buy, independent insurance agents are here to make the process even easier. They’re experts who specialize in helping you find the right coverage at the right price.
What Is Long-Term Care Insurance?
Long-term care insurance pays for long-term care (usually in a nursing home, but sometimes from assisted living or a home health aide) if you ever need it. You pay monthly or yearly premiums in exchange for that coverage.
Traditional long-term care insurance is a stand-alone policy. Hybrid long-term care insurance is blended with life insurance. Both have their perks. Traditional policies tend to be simpler and more streamlined. Hybrid policies are more flexible.
What Is the Average Cost of Long-Term Care Insurance?
The average cost of long-term care insurance varies widely, from $1,000 a year to $10,000 or more. That averages out to about $80 to $800 a month in premiums.
Which end of that enormous spectrum your premiums will land on depends on three factors:
Your age: The younger you are, the cheaper it will be, because you’re likely to have more years of paying premiums before filing a claim.
The amount of daily benefit and years of coverage you choose: A lower benefit and fewer years means cheaper premiums—but less coverage.
Your location: Your state and its cost of living affect the cost of long-term care insurance a lot. More on that in the next section.
People in their 40s and 50s can expect to pay $1,000-$4,000 per year. People in their 60s and up can expect to pay $2,000-$10,000.
Thousands of dollars per year in premiums may seem like a lot, but it can still be a sound investment. That's because the average cost of a year in a private room in a nursing home topped $100,000 in 2018.
Annual median rate of long-term health care services in the United States as of 2018, by type (in US dollars)
In some states, the cost of a stay in a nursing home can be much higher. States in the northeastern US, as well as Alaska and Hawaii, have notoriously expensive long-term care.
Getting hundreds of thousands of dollars worth of benefits in exchange for a few years of paying high premiums doesn't seem like such a bad deal after all.
Hybrid vs. Traditional Long-Term Care Insurance
There isn’t usually a significant difference in cost between hybrid and traditional long-term care insurance. The difference is in the benefits.
Hybrid long-term care insurance
Hybrid policies are a new type of long-term care insurance that is steadily growing in popularity.
Hybrid insurance blends life insurance coverage and annuity options with long-term care insurance. You pay premiums towards a death benefit (just like with life insurance), but can “cash in” that benefit to pay for long-term care if you need it.
This allows you to hedge your bets and guarantee that you’ll get at least some benefit out of your long-term care insurance.
Traditional long-term care insurance
Traditional long-term care insurance is the original type. It’s a stand-alone policy purchased separately and administered separately from other policies like life insurance.
This means it’s more straightforward than a hybrid policy, which makes it easier to understand and plan around. You pay premiums toward the policy and file a claim if you ever need it. That’s it!
The downside of a traditional policy is that you may not ever use it, meaning you paid premiums for no cash benefit—but many find that the peace of mind that this policy offers is benefit enough on its own.
Which one is best?
It all depends on your needs and preferences. Hybrid policies offer flexibility while traditional policies offer simplicity.
Has a cash value and death benefit most of the time.
Can be paid up front and most of the time is required.
You can get your premium back if you change your mind.
Typically not tax-deductible.
Pay-as-you-go policy and typically more cost-effective.
No cash value option and you do not get the premium back if your policy lapses.
Tax-qualified plans can be tax-deductible over 10% of adjusted gross income and up to 100% for self-employed individuals.
Long-term care insurance is an investment. It’s important to make sure you’re making a good one. Many independent insurance agents are also certified financial planners. They’re experts who are well-equipped to help you make these big decisions.
How Much Long-Term Care Insurance Should I Buy?
It depends on your financial situation and on the cost of long-term care in your area.
The size of a long-term care insurance policy is measured in three ways:
Daily benefit: The daily benefit is the amount of money they’ll pay per day of care. (Long-term care is typically billed per day.) This amount may range from $50 on the very low end to $300 or more on the high end.
Maximum benefit: The total amount of money the insurance will pay, typically in the hundreds of thousands of dollars.
Length of coverage: The amount of time your policy will cover, usually 1-2 years or more.
The more coverage you get, the higher your premiums will be. Buying too much insurance can be just as bad as not buying enough, so it’s important to evaluate your needs as accurately as possible.
First, research the cost of long-term care in your area. Look for the average “per day” cost. Then, determine how much you’ll be able to pay for yourself, drawing on savings and other investments. The shortfall is the size of the daily benefit you should purchase.
The maximum benefit and duration of benefits are a little more complicated to suss out. It’s impossible to predict just how much care you’ll need, but looking at your family’s medical history and talking with trusted friends, family and financial advisors can help you decide.
Retiree confidence about having enough money for long-term care in retirement in the United States in 2019
In 2019, only 52% of retirees ranked themselves as "very" or "somewhat" sure that they have enough money to cover their long-term care should they need it. Long-term care insurance is a great way to put yourself into the "very" category.
How To Buy Long-Term Care Insurance
You’re armed with knowledge, which means that the hardest part of buying long-term care insurance is already over. Here’s how to do it, step by step:
Research: Check out the “traditional vs. hybrid” and “how much” sections above for tips on how to decide what type of policy to buy and how much coverage you need.
Contact an independent insurance agent: They’re experts who can shop around and find you quotes that make the most sense for your situation.
Fill out a medical history (and maybe get a medical exam): Your health status will affect the cost of premiums, so the insurance company will need to verify it before giving you a quote. You may be able to get this exam at home—ask your agent.
Get quotes and compare them: Your agent will round up a number of quotes for you. The cheapest quote may not be the best one. Be sure to compare the size of the benefit and the years of coverage before choosing to make sure you’re getting enough bang for your buck.
Sign on the dotted line! It’s that easy to buy long-term care insurance. Congratulations! You’ve just secured your financial future, so your golden years can stay truly golden.
Amount paid in claims benefits to individuals by long-term care insurance companies in the United States from 2014 to 2018 (in billion U. dollars)
Long-term care insurance companies paid out over $10 billion in benefits to their customers in 2018 alone, and that number is only trending up. Buying traditional long-term care insurance now secures you a piece of the pie—along with peace of mind.
Why Independent Insurance Agents?
Independent insurance agents are unique. While captive insurance agents can only sell insurance from one company, independent insurance agents can shop around among multiple companies to find the real right deal for you, not just one company’s “best” deal.
With an independent insurance agent, you can be sure you’re talking to a real expert who knows traditional long-term care insurance inside and out. Good luck shopping for this critical coverage.