A Guide to Nursing Home Insurance Options

Living on a fixed income can present significant challenges, especially when faced with the rising costs of long-term care. According to the Department of Health and Human Services, more than half of Americans turning 65 today will require some form of long-term care, making it essential to plan ahead. This is especially true if nursing home care becomes necessary. Nursing homes provide a higher level of assistance compared to assisted living facilities, particularly for individuals who need help with essential personal care tasks, known as activities of daily living (ADLs), such as bathing, dressing or eating. Since nursing home costs can quickly deplete savings, consulting with a financial advisor to explore insurance options or alternative funding strategies can help ensure your long-term financial stability and peace of mind.

Long-Term Care Insurance: The Basics

Long-term care insurance is a financial safety net designed to cover the costs associated with extended care services that aren’t typically covered by health insurance, Medicare or Medicaid. These services include assistance with daily activities such as bathing, dressing, eating and mobility, which may be provided either at home, in an assisted living facility or in a nursing home. As such, it’s sometimes referred to as nursing home insurance.

Policies are tailored to meet individual needs, and offer coverage for various levels of care. Things you’ll want to consider include the daily benefit amount, the duration of coverage and any elimination period (the waiting time before benefits begin). Premiums vary based on factors such as age, health and the specific features of the policy.

Securing long-term care insurance early, ideally in your 50s or 60s, can result in lower premiums and increased chances of qualifying for coverage. While it requires a financial commitment, this type of insurance can protect your savings and provide peace of mind by ensuring access to quality care when needed. Consulting a financial advisor can help you navigate policy options and select a plan that aligns with your long-term goals.

Nursing Home Insurance: What to Consider

Before you buy a policy, get an idea of what you want and what’s available. Here are three key points to keep in mind.

1. Buy it before you need it. First, consider buying nursing home insurance before you need it. Just like life insurance, long-term care insurance is cheaper if you’re younger and in better health. Your chances of being denied a policy are lower, too.

The American Association for Long-Term Care Insurance provides the following estimates of annual premiums based on its 2024 study of different long-term care insurance carriers.

Annual Premium Estimates

Unlike most life insurance policies, however, nursing home insurance policies can raise your rates over time. Make sure you have enough in the budget to cover future increases.

2. Get the right amount of coverage. Next, consider the amount of coverage you need. Remember that the average cost for a shared nursing home room is $8,600 a month. That cost will rise, and you’ll want to make sure you have enough coverage when you truly need it. Read up on the maximum a plan will pay per day or per month, then compare it to your anticipated needs.

3. Know your benefit period. In addition to a maximum dollar amount, plans may have a cap on how long they’ll pay benefits. Benefit periods can be anywhere from two years to the rest of your life, but lifetime policies are uncommon – and likely much pricier.

Although pricey, if you follow the above rules, long-term care insurance can be extremely helpful down the road. Here’s a breakdown of a few important benefits associated with these policies:

• Keeps you from eating into your hard-earned savings for a nursing home.
• Can bring you peace of mind knowing you’ll be covered if you need help down the line.
• Gives your children comfort that their inheritance won’t be consumed by your long-term care costs.
• Reduces your need for federal help from sources like Medicaid – which should only be used as a last resort because it can limit your options.

Understanding the “Elimination Period” of Nursing Home Insurance

An elimination period is the time between when you are first eligible to receive nursing home benefits and when you actually begin receiving them. Usually, you’re first eligible when you need help with at least two ADLs – which is verified by a nurse or doctor – after which your elimination period begins.

You can think of an elimination period as a waiting period, during which time you must cover your own costs in a nursing home. Once the period is over, your plan’s coverage kicks in and pays for your nursing home stay. Nursing home insurance policies typically let you choose your own elimination period, like 30, 60, or 90 days. If you choose a 60-day elimination period, you’d likely need to spend 60 consecutive days in a nursing home (while covering your own costs) before your policy pays a dime. That means an expense to you of $14,700.

Many people relate an elimination period to a deductible, where rather than paying dollars, you “pay” in days. And much like high deductible health plans, if you choose a longer elimination period, your premium will be lower. If you choose a shorter elimination period, your premium will be higher.

Look Into Buying Extra Benefits

Some nursing home, or long-term-care, policies have additional perks, such as a waiver of premium. With this perk, once you begin using your policy’s benefits, you no longer need to pay premiums to keep your coverage.

Other policies offer “shared” coverage, extending coverage to both you and your spouse or partner. Sometimes called a joint policy, this type of coverage provides assurance that if one person doesn’t use all the benefits, the other still can – a very handy option for many couples.

Another possible addition to some policies is inflation protection, which increases your policy’s payouts to match inflation. And with the cost of care rising each year, that could be crucial to receiving adequate coverage. Of course, any extras could end up increasing your monthly premiums.

Do States Offer Long-Term Care Partnerships?

You may already know that Medicaid can pay for long-term care in a nursing home. However, this is only after you spend nearly every penny of your personal savings. Long-term-care state partnership programs can be a solution to this dilemma.

In a long-term-care state partnership, people can buy long-term-care policies approved by the state. These then protect that person’s assets once insurance benefits run out. Practically speaking, this means a person can qualify for Medicaid while having a higher net worth, allowing protection for their savings while Medicaid covers continuing long-term care costs.

As a simplified example, suppose a person bought a qualified policy for $100,000 and used all the policy’s long-term care benefits but needed more care in a nursing home. Because the policy was within the state partnership program, the person could disregard up to $100,000 of their personal savings and qualify for Medicaid coverage to continue nursing home care without paying from their pocket.

To apply for a state partnership policy, check with your state’s department of insurance. You’ll also need to see that the policy you want meets your state’s requirements. For instance, this could include inflation protection or waiver of premium.

Bottom Line

The likelihood that many of us will need long-term care makes nursing home insurance an important option to consider. You can also look into long-term care insurance policies that provide in-home care. If you decide to buy insurance, don’t delay. Finally, be sure you understand your policy’s elimination period, whether you can share it with a spouse and that your annual premiums may edge up over time.

Tips for Preparing for Healthcare Expenses

• Consider talking to a financial advisor about preparing for long-term care costs. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area. You can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Healthcare expenses are just one thing to consider when assessing retirement income needs. Use SmartAsset’s retirement calculator to gauge your readiness level.

Photo credit: ©iStock.com/FredFroese, ©iStock.com/Anetta_R, ©iStock.com/lisafx