The cost of long-term care insurance
For many people, long-term care insurance can be difficult to fit into an already tight budget. So just how much will the premiums for this type of insurance cost?
Some sources indicate that policies will cost between $3,000 and $6,000, while another source quotes a typical policy for a 60-year-old couple that provides a $164,000 maximum benefit will cost between $1,700 and $2,800 a year.
How are premium costs determined?
Insurance companies determine the cost of long-term care insurance based on a number of factors, including:
Age. As with life insurance, younger individuals will typically pay less for long-term care insurance. For example, the same policy that costs just over $2,300 a year for a 40-year-old will cost a 60-year-old $3,100 a year and an 80-year-old almost $7,900.
Health. Your overall health condition when you buy the policy will determine its cost. The better your health, the less you will pay.
Where you live. Since long-term care costs fluctuate based on geography, certain areas will require higher premiums.
Benefit amount and duration. Policies offer choices on how much in benefits you can receive and for how long. The larger both factors are, the more you will pay in premium for the policy.
The length of waiting period. Long-term care policies often have a waiting period, sometimes called an elimination period, before benefits will be paid. This is similar to a deductible on your health insurance or property insurance. For example, if the waiting period is 50 days, you will have to pay the first 50 days of care out of pocket before your insurance benefits kick in. Depending on the policy, the waiting period will begin the day you cannot perform daily living tasks that trigger benefits, or the day you being receiving care. The longer the waiting period, the lower the policy’s premium.
Partnership or non-partnership policies. Your premium rate will also depend on whether you purchase a partnership or non-partnership policy. In an effort to encourage more people to purchase long-term care insurance, the Deficit Reduction Act of 2005 (DRA) created the Qualified State Long Term Care Partnership program. Partnership policies allow policyholders to continue to qualify for Medicaid if they receive benefits from a policy. Premiums for Partnership policies are considerably more than non-partnership policies.
Additional features. As with most types of insurance, any additional features will increase the amount of premium. One of the more common features is an inflation feature that increases the benefit amount based on the rate of inflation each year you own the policy.
An aspect of long-term care insurance that consumers need to be aware of is that insurers can raise your premiums after you have purchased the policy. Insurance companies cannot single out just one or a few policies for increases, but must raise the rates of all policies within a specific rate class. Many states also require approval from the insurance department to raise premium rates. Companies are required to give a minimum amount of notice before they raise rates.
Before purchasing a policy, you should inquire of the agent or the state insurance department how often a company has raised rates and by how much.
Other tips to get the best deal on long-term care insurance include:
Shop around and compare the costs and benefits of several policies. An insurance agent or your state insurance department can provide rates for multiple companies.
Once you narrow down the policies you are considering, review them carefully. You may want to have your attorney or financial advisor review them as well.
Do not buy anything you don’t feel comfortable buying and don’t succumb to high-pressure sales tactics. If it helps, have a relative or adviser with you during any sales presentations.
Make sure the current premium fits within your budget and leave room for a future increase. The National Association of Insurance Commissioners says you should not spend more than 7 percent of your income on long-term care insurance.
States require insurance companies to give you a set number of days — typically 30 — to review the policy once you have signed the contract. This is called a lookback period. During this time, you can return a policy for a full refund if you change your mind.