7 Key Benefits of Long-Term Care Insurance

Long-term care (LTC) insurance helps provide financial support for individuals requiring assistance with daily activities. This may be due to aging, illness or disability. LTC insurance helps cover the costs of services like nursing home care, home health care and personal or adult daycare. Understanding its benefits can help you prepare for future health costs, providing additional financial stability in your later years.

To learn more about how long-term care insurance fits into your retirement plan, consult a financial advisor.

What Is Long-Term Care Insurance?

Long-term care insurance is a specialized policy that covers the costs of long-term care services. These services are typically necessary when an individual has a chronic illness, disability or condition requiring assistance with daily living activities, such as bathing, dressing, eating and moving around.

Unlike traditional health insurance, long-term care insurance focuses on providing coverage for extended care that goes beyond acute medical treatment and hospitalization.

Coverage Details

Long-term care insurance policies vary, but they generally cover several services.

• Home care. Home care is assistance provided in the individual’s own home. This includes help with daily activities, nursing care and therapy services.
• Adult day care. Adult day care provides supervised care during the day in a community setting, offering social and recreational activities.
• Assisted living facilities. Assisted living facilities are residential care settings that provide personal care support, meals and health services.
• Nursing home care. Nursing home care provides comprehensive care provided in a nursing home, including medical, personal and custodial care.

Types of Policies

There are two main types of long-term care policies.

• Traditional policies offer a range of coverage options and benefit periods. They tend to be more comprehensive, but come with higher premiums.
• Hybrid policies combine long-term care insurance with other types of insurance, such as life insurance or annuities. They offer flexibility and can provide a death benefit if long-term care is not needed.

Benefits of Long-Term Care Insurance

There are several reasons to consider a long-term care insurance policy.

1. Financial protection. The cost of long-term care can be overwhelming, with expenses often reaching thousands of dollars per month. Insurance helps mitigate these costs, preventing individuals from depleting their savings or liquidating assets to pay for care.
2. Preserving family assets. Without insurance, families may have to use their savings, investments or even sell their homes to cover long-term care expenses. By covering these costs, long-term care insurance allows individuals to maintain their wealth to pass to their heirs.
3. Choice of care options. Policyholders can select from a variety of care services, including in-home care, assisted living facilities and nursing homes. This flexibility can help individuals receive the type of care that best suits their needs and preferences.
4. Reduced burden on family members. When a loved one needs long-term care, the responsibility often falls on family members, who may themselves need care. Insurance can alleviate this burden by covering professional care services, allowing family members to focus on emotional support rather than caregiving.
5. Enhanced quality of life. Access to quality care services can significantly improve an individual’s well-being and comfort. Whether it’s receiving assistance with daily activities or specialized medical care, insurance can help individuals get the assistance they need to live comfortably.
6. Tax advantages. Premiums for qualified long-term care insurance policies can sometimes qualify for the medical expense deduction on federal tax returns. ¹ Additionally, benefits from these policies are typically do not classify as taxable income, providing further financial relief.
7. Peace of mind. Knowing that there’s a plan in place for future care needs can relieve anxiety about potential health issues or financial strains. This assurance allows individuals and their families to enjoy the present without constant worry about the future.

When to Buy Long-Term Care Insurance and What Affects the Cost

Financial professionals often suggest looking into long-term care insurance in your mid-50s to early 60s.

Buying earlier generally means lower premiums, but it also means paying those premiums for longer. On the other hand, waiting too long increases the risk of denial altogether. Once a chronic condition is diagnosed, qualifying for coverage can become difficult or impossible. The window for getting coverage at a reasonable cost is narrower than many people expect.

Health status plays a significant role in the application process. Unlike employer-sponsored health insurance, long-term care policies require medical underwriting. Insurers review your health history, current conditions, medications and, in some cases, cognitive function.

Pre-existing conditions like diabetes, heart disease or early signs of cognitive decline can lead to higher premiums, reduced coverage or outright denial. Applying while still in good health gives you more options and better pricing.

Several choices within the policy itself also affect your premium.

• Daily or monthly benefit amount
• Benefit period, or how many years the policy will pay out
• Elimination period, or how many days you must cover costs out of pocket before benefits begin
• Whether the policy includes inflation protection

Inflation protection tends to be one of the biggest cost drivers, but it’s also one of the most important features. Care costs have risen steadily over time, and a policy without inflation protection may cover a much smaller share of expenses by the time you need it.

It’s also worth knowing that long-term care insurance premiums are not always fixed. Unlike term life insurance, insurers can request rate increases on entire classes of policyholders, and many have done so over the past decade. Someone who buys a policy in their 50s and holds it for 20 or 30 years may see premiums rise during that time. Factoring in the possibility of increases is an important part of evaluating whether a policy is affordable over the long term, not just at the time of purchase.

For those who can’t qualify for traditional coverage or find the premiums out of reach, there are alternatives.

• Hybrid policies that combine life insurance or an annuity with a long-term care benefit are one option. These policies typically don’t require the same level of medical underwriting and offer a death benefit if you do not need long-term care.
• Self-insuring by setting aside dedicated savings is another approach, though it requires a substantial asset base to be realistic.
• Medicaid does cover long-term care for those who meet strict income and asset thresholds. However, qualifying generally means spending down most of your savings first, which may conflict with other financial goals.

Bottom Line

Long-term care insurance is an important part of a comprehensive financial or retirement plan, especially for those anticipating the need for extended care in their later years. This type of insurance can cover expenses for assistance with daily activities, such as bathing, dressing and eating, as well as costs for services like home care, assisted living or nursing home care. By covering these costs, long-term care insurance can help individuals maintain their independence, protect their assets and ensure a higher quality of life as they age.

Long-Term Care Insurance Tips

• A financial advisor can help you determine what part long-term care insurance plays in your retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with 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.
• In addition to long-term care insurance, life insurance is something most people should have. There are different types of life insurance you can choose from, including term and permanent life. Calculating how much life insurance you need can help when choosing which policy is best for you.

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