The good news is you can expect to live longer than your parents and grandparents did. But you may well spend some of those extra years needing long-term care (LTC), either at home or in an assisted living facility or nursing home. That can be prohibitively expensive, and without smart planning, your family could be left holding the bag.
In 2020, roughly one of three Americans will be 50 or older, and recent studies indicate that more than half of us may eventually need long- term care, at a cost that could derail almost any retirement plan. The price of a year in a nursing home now averages almost $75,000, according to the MetLife Mature Market Institute, while a private room in an assisted living facility is about $36,000 per year. (And those are averages. In high-cost areas, particularly along the coasts, daily charges may be much higher.) Medicare will cover only about 2% of the cost, while Medicaid is a solution only for those who are impoverished by luck or design.
Rather than pay for LTC out of pocket, increasing numbers of families are buying long-term care insurance. This year, more than 8 million people bought LTC policies, according to the American Association of Long-Term Care Insurance (AALTCI) in Westlake Village, California. That’s a 30% jump from just two years earlier, and demand is expected to grow even more quickly in the years ahead as the population ages.
In a recent survey of applicants for LTC coverage by Mutual of Omaha Insurance, some 40% of respondents said their purpose was to avoid becoming a burden to their children. “It’s like a gift they’re giving their kids—not having to worry about taking care of elderly parents,” says Jesse Slome, executive director of the AALTCI. In fact, making decisions about LTC has become a family matter. Six in 10 respondents to the Mutual of Omaha survey said they’d discussed long-term care with their families, and more than half indicated other family members had been involved in choosing to buy a policy.
Getting family consensus can be valuable when selecting policies that come with so many nuances. “This is not a one-size fits all purchase,” says Slome, who advises scrutinizing policy options and reading the fine print. It’s also important to make sure you’re buying from a financially sound company that will still be around when you need benefits. Some 80% of new individual policies in the U.S. are sold by eight leading long-term care insurers, according to the AALTCI.
It’s equally essential to get a comprehensive policy that covers all locations of care (home, nursing home and assisted living), an array of conditions (dementia and physical disability), and services such as skilled nursing. “Think of elderly care as a continuum,” Slome suggests. “You may start off needing home care, but then a major illness could require a stay in a nursing home.”
Also keep in mind that serious health conditions, more likely to set in with age, can make coverage more costly or prevent eligibility altogether. “If you wait to apply, you may no longer qualify for good health or other discounts or not at all,” says Slome. For example, the average annual cost for a 55-year-old purchasing LTC is $772 per year, but at 65, the same policy costs $1,456 annually, according to the AALTCI. If you’re in good health, you may get a 10% to 20% break on premiums.
Several other factors, including your location, may affect your premium. The cost of a semi-private room in a nursing home can be $400 a day or more in cities such as New York or San Francisco, compared with an average of $176 a day nationally, and higher day rates translate to higher premiums. You’ll also pay more to cover longer nursing home stays, while you may save if you accept a longer waiting period before benefits kick in. Inflation protection, essential in these days of ballooning health costs, will also boost your policy expense.
