A guide to buying long-term care insurance

Here are some key considerations to help you weigh the benefits, the options and the costs.

More than half of today’s 65-year-olds will wind up needing some form of long-term care, according to the U.S. Department of Health and Human Services. That can easily cost $50,000 per year or more, and Medicare typically doesn’t cover the costs of assisted living or nursing homes for more than a short period of time. “Next to buying a home and paying for college, long-term care is probably one of the biggest things that people have to pay for in their lives,” says Cynthia Hutchins, director of financial gerontology at Bank of America. “And when you look at the amount of retirement savings that people have, it’s an enormous undertaking to prepare for.”

One potential solution is buying long-term care insurance, which kicks in when the policyholder needs help with basic daily living activities. It can help pay for the cost of care for you or a loved one, either in your home or in an institutional setting such as a nursing home. But the premiums are pricey, and you’ll most likely still have to pay out of pocket for some amount of care. The following can help you decide whether — and when — to spring for a policy.

Assess the coverage options

There are more types of long-term care insurance available today than ever before, says Robert Murray, director, insurance relationship manager, Retirement & Personal Wealth Solutions, Bank of America. In addition to traditional long-term care insurance, where you pay an ongoing premium in exchange for coverage, you can also opt for permanent life insurance with a long-term care benefits rider, as well as a hybrid long-term care product, which combines long-term care insurance with a life insurance policy.

The coverage option that may be right for you depends on many factors, including what services you want included and how you want to pay for benefits. Traditional long-term care policies typically provide the most comprehensive coverage for the cost, notes Murray. But if you already need or want life insurance, or like the idea of returning some of the cost of the premiums to your heirs, then one of the other forms of insurance may be appropriate.

Decide when you might buy

In general, the younger you are when you apply, the less you’ll pay for coverage. If you’re younger, however, you may have more immediate financial priorities, such as funding college expenses or saving for retirement. Most buyers of long-term care insurance today are between ages 55 and 59 (24.7%) or between 60 and 64 (23.2%).1 Just don’t wait too long to buy, warns Murray, as the cost of coverage rises steeply as you get older. According to the American Association for Long-Term Care Insurance, the cost of long-term care insurance premiums may go up 6% to 8% per year in your 60s.

Besides your age, options that affect premium costs include adding an inflation rider, which increases your benefit by a fixed percentage each year, and to have benefits kick in earlier (after 30 days) versus later (up to 90). Plans also typically guarantee benefits for a certain length of time (typically two to four years); the longer your benefit period, the more you’ll pay.

Consider how else you might handle care

While long-term care insurance can be a useful financial tool, it’s not the only option for coverage. Many families consider “self-insuring” their long-term care needs with the thought that they will set aside sufficient assets to cover the costs. Others rely on family members to provide care when needed.

Especially if your parents are older and the costs of premiums would be burdensome, discuss with them whether other moves, such as purchasing an annuity or selling an existing whole life insurance policy, could provide adequate financial coverage for long-term care down the line. Says Murray: “Any plan is better than no plan.”

To learn more about your options, the U.S. Administration on Aging offers tools and resources that can help.