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I Was Quoted $7,000 Per Year for Long-Term Care Insurance. Is That Too Much?


At $7,000 per year, or about $583 per month, a long-term care policy like this is priced higher than average for what most people can get. According to market data from the American Association for Long-Term Care Insurance (AALTCI), a single male or female should pay around $2,100 to $3,600 per year (or $175 to $300 per month) for an inflation-protected long term care insurance policy. That said, there’s a very large range related to these prices, and a number of important factors at play.

Do you have questions about long-term care planning? Speak with a financial advisor today.

What Is Long-Term Care Insurance?

Long-term care insurance is a policy that typically will pay for in-home, residential or custodial care. In practice, this insurance generally pays for either a home health aide, a stay in an assisted living facility or a stay in a nursing home for individuals in their old age. However, this can vary from policy to policy.

A typical long-term care policy does not pay for ordinary medical treatment, but it will generally cover medical treatment in the context of your long-term care facility. For example, your policy would not cover an annual checkup, but it would likely cover treatment by the doctor at your nursing home.

The exact nature of coverage will depend on the style of the policy you buy. Any given policy will have a benefits cap, setting the cap on the maximum costs it will pay, after which you may have to pay out of pocket. Some policies also have duration caps, meaning they will only cover treatment for a set number of days.

Finally, some policies adjust benefits up each year, allowing the insured to account for inflation. For example, a policy with a 2% annual increase means that its maximum benefits will increase by 2% every year.

What Does Long-Term Care Insurance Usually Cost?

The costs of long-term care insurance depend on a number of factors, but the most important aspects of any given policy include:

  • Benefits cap
  • Benefits growth (if any)
  • Age at which you purchase the policy
  • Sex of policyholder(s)
  • Duration of coverage (short-term or indefinite)
  • Pre-existing medical conditions

Based on its research, the AALTCI has found that the costs for individual long-term care policies that come with inflation protection typically come out to around $2,100 to $3,600 per year. But these figures are for males and females at age 55, so age can play a major role in these costs. Here’s some data from the AALTCI for a policy with an initial value of $165,000 and 2% inflation growth:

  • Male, Purchased at 55: $1,650/year, $137.50/month
  • Female, Purchased at 55: $2,725/year, $227/month
  • Male, Purchased at 65: $2,600/year, $216/month
  • Female, Purchased at 65: $4,230/year, $352.50/month

Longevity and, as a result, gender is the most important pricing determinant for long-term care policies. Women tend to pay more because they tend to outlive men in old age. 

Beyond that, while planning ahead can save on annual costs, the long-term savings are often marginal. To see this, take these two examples. Let’s say Elizabeth purchases her policy at age 55 and Rebecca purchases hers at age 65. While Elizabeth gets a less expensive premium, the extra 10 years she spends paying for insurance means that it will take until age 83 before Rebecca has spent about the same amount:

  • Elizabeth
    • Premium Starting at Age 55: $2,725/year
    • Total Spent by Age 65: $27,250
    • Total Spent by Age 83: $76,300
  • Rebecca
    • Premium Starting at Age 65: $4,230/year
    • Total Spent by Age 65: $0
    • Total Spent by Age 83: $76,140

In the very long term, Rebecca’s policy will cost more, but it will take almost 20 years to cross that threshold. And this does not account for the opportunity cost of investments that Elizabeth could have made with the money she spent on premiums. 

Who Needs Long-Term Care Insurance?

Most, if not all, households should consider long-term care insurance. While not everyone will need residential or in-home care, when patients do need this help, it can be absolutely necessary. Residential care can help people with daily tasks, emergency medicine and life-saving interventions.

But the costs of this care are beyond the reach of most households. While details range widely based on state and region, a nursing home could cost between $130,000 and $150,000 per year, according to data from the state of Massachusetts. Assisted living facilities are less expensive, but they still cost a percentage of that range.

And most health insurance, including Medicare, will not pay for these costs. Without insurance it is not uncommon for families to sell off large assets, particularly their homes, to pay for long-term care. While Medicaid may pay for residential treatment, you must meet the program’s poverty requirements, meaning that you may need to divest assets to receive assistance. All of this can significantly impact your personal choices and estate planning options.

Long-term care is not cheap. As we noted above, even at just a few hundred dollars per month these policies still add up to tens of thousands in spending over your retirement. This is still a drop in the bucket compared with the costs of needing treatment that you cannot afford, so it may be a worthwhile option to consider.

Bottom Line

Long-term care insurance helps pay for in-home and residential treatment, such assisted living facilities and nursing homes. While a standard policy will cost several thousand dollars per year, very few will get as high as $7,000, unless you start late or require more unique benefits attached to your policy.

Long-Term Care Tips

  • A financial advisor can help you build a comprehensive plan for long-term care. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • While Medicaid is often best used as a backup plan, it’s an essential option for many households. If you do need to rely on Medicaid for your health coverage and long-term care, here are a few ways that you can protect assets from the program’s poverty requirements. 

Photo credit: © Barysevich, © Krstic