What Long-Term Care Insurance Covers - SmartAsset

While Medicare and Medicaid both help aging adults afford some of their medical expenses, they may not cover the cost of an extended illness or disability. That’s where long-term care insurance comes into play. Long-term care insurance helps policyholders pay for their long-term care needs, such as nursing home care. This could become vital in the later years of your life, as LTC insurance acts as a safety net beneath your normal benefits.

A financial advisor can help you put together a financial plan for your healthcare needs.

What Is Long-Term Care Insurance?

Long-term care insurance helps individuals pay for a variety of services. Most of these services do not include medical care. Coverage may include the cost of staying in a nursing home or assisted living facility, adult day care or in-home care. This includes nursing care, physical, occupational or speech therapy and help with day to day activities.

A long-term care insurance policy pays for the cost of care due to a chronic illness, a disability, or injury. It also provides an individual with the assistance they may require as a result of the general effects of aging. Primarily, though, long-term care insurance is designed to help pay for the costs of custodial and personal care, versus strictly medical care.

When You Should Consider Long-Term Care Insurance

During the financial planning process, it’s important to consider long-term care costs. This is important if you are close to retirement age. Unfortunately, if you wait too long to purchase coverage, it may be too late. Many applicants may not qualify if they already have a chronic illness or disability.

According to the U.S. Department of Health and Human Services, an adult turning 65 has a 70% chance of needing some form of long-term care. While only one-third of retirees may never need long-term care coverage, 20% may need it for five years or longer. With a semi-private nursing home room averaging about $7,908 per month according to 2021 data from Genworth, long-term care could end up being a huge financial burden for you and your family.

Most health insurance policies won’t cover long-term care costs. Additionally, if you’re counting on Medicare to assist you with these extra expenses, you may be out of luck. Medicare doesn’t cover long-term care or custodial care. Most nursing homes classify under the custodial care category. This classification of care includes the supervision of your daily tasks.

So, if you don’t have long-term care insurance, you’re on the hook for these expenses. However, it’s possible to get help through Medicaid for low income families. But keep in mind, you may only receive coverage after you deplete your life savings. Just know that Medicare may cover short-term nursing care or hospice care, but little of the long-term care in between.

What Long Term Care Insurance Covers

So what does long term care insurance cover, Well, since the majority of long-term care policies are comprehensive policies, they may cover at-home care, adult day care, assisted living facilities (resident care or alternative care), and nursing home care. At home, long-term care may cover the cost of professional nursing care, occupational therapy, or rehabilitation. This may also include assistance with daily tasks, including bathing or brushing teeth.

Additionally, long-term care coverage can cover short-term hospice care for individuals who are terminally ill. The objective of hospice care is to help with pain management and provide emotional and physical support for all parties involved. Most policies allow beneficiaries to obtain care at a hospice facility, nursing home, or in the comfort of their own home. However, most hospice care is not considered long-term care and may receive coverage through Medicare.

Also, long-term care insurance can help cover the costs of respite care or temporary care. These policy extensions provide time off to those who care for an individual on a regular basis. Usually, respite care provides compensation to caregivers for 14 to 21 days a year. This care can take place at a nursing home, adult daytime care facility, or at home

What Long-Term Care Insurance Doesn’t Cover

If you have a pre-existing medical condition, you may not be eligible for long-term care during the exclusion period. The exclusion period can last for several months after your initial purchase of the policy. Also, if a family member provides in-home care, your policy may not pay them for their services.

Keep in mind, long-term care coverage won’t cover medical care costs. Many of your medical costs will fall under your coverage plan if you’re eligible for Medicare.

How Much Long-Term Care Insurance Costs

Some of the following factors may affect the cost of your long-term care policy:

The age of the policyholder.
The maximum amount the policy will pay per year.
The maximum number of days the policy will pay.
The lifetime maximum amount that the policy will pay
Any additional options or benefits you choose.

If you’re in poor health or you’re currently receiving long-term care, you may not qualify for a plan. However, it’s possible to qualify for a limited amount of coverage with a higher premium rate. Some group policies don’t even require underwriting.

According to the American Association for Long-Term Care Insurance (AALTCI), a couple in their mid-50s can purchase a new long-term care policy for around $3,000 a year. The combined benefit of this plan would be roughly $770,000. Keep in mind, some policies limit your payout period. These payout limitations may be two to five years, while other policies may offer a lifetime benefit. This is an important consideration when finding the right policy.

Bottom Line

While it’s highly likely that you may need some form of long-term care, it’s wise to consider how you will pay for this additional cost as you age. While a long-term care policy is a viable option, there are alternatives you can consider.

One viable choice would be to boost your retirement savings to help compensate for long-term care costs. Ultimately, it comes down to what level of risk you’re comfortable with and how well a long-term care policy fits into your bigger financial picture.

Retirement Tips

If you’re unsure what long-term care might mean to your retirement plans, consider working with a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and 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.
The looming costs of long-term care may have you thinking about how much money you’ll need for retirement. If you aren’t sure how you stack up against people your age in retirement savings, check out SmartAsset’s guide to average retirement assets.