According to the US Department of Health and Human Services, the typical person who turned 65 in 2020 has about a 70% chance of needing some sort of long-term care or assistance during their older years. And the costs of this type of care are high — the average person needing care at home will spend about $54,000 per year or $4,500 per month, and a person who needs a room in a care facility will pay an average of about $96,000 per year or $8,000 per month according to 2022 data from HCG Secure.
With costs so high, paying for long-term care can quickly drain your savings and limit your options for higher-quality care. Long-term care insurance can play an important role in ensuring you or a loved one spends the last chapters of life in comfort, but you need to know the ins and outs of this product before deciding if it’s right for you.
What is long-term care insurance?
Long-term care insurance can help you cover the expenses associated with getting skilled care for an extended amount of time for chronic health conditions. “What long-term care insurance does is it provides more day-to-day things,” says Peggy Haslach, a certified financial planner at Finity Group.
It’s separate from health insurance, including Medicare, which generally doesn’t cover these costs. While Medicaid can cover costs, not all facilities accept Medicaid payments.
You don’t have to move to a facility to gain the benefits of long-term care insurance — it can also cover the cost of care at home, including training for family members and in-home assistance. Long-term care insurance may also cover home modifications that make your living space more accessible and comfortable, such as ramps and shower handles.
Long-term care insurance kicks in when you’re experiencing difficulties living life on your own. Generally, insurance companies classify this according to the six activities of daily living, or ADLs:
- Transferring (getting from a bed to a chair)
When someone loses two of these six ADLs, they may be able to trigger their long-term care insurance benefits. In addition, certain cognitive issues associated with Alzheimer’s and dementia can automatically put your policy’s benefits into effect (although this usually requires a doctor’s evaluation).
After the benefits are triggered, you’ll still spend a certain amount of time (called the elimination period) paying out of pocket. The elimination period varies from policy to policy but is usually either 30, 60, or 90 days. After that period, your insurance will cover the rest of the costs up to a daily limit.
However, many policies have lifetime maximums on how long they will pay out — generally, two to four years of care, though unlimited policies do exist. If there’s a limit on your policy and you exceed it, you’ll need to dip back into your savings to cover costs. A high-yield savings account, such as UFB Premier Savings or Marcus by Goldman Sachs High Yield