How Much Does Long-Term Care Insurance Cost?

Oftentimes, retirement means living on a fixed income. Unfortunately, this typically comes at a time where health costs are rising. That’s why it is important to understand the average costs associated with long-term care insurance when planning for retirement.

The largest expense for a retiree in America is health care cost. The earlier you plan for this, the better your quality of life will be in your golden years. Understanding general cost can help you when comparing any quotes you may receive from agents and brokers, though exact premiums can vary based on individual factors. Therefore, any average cost figures you see while gathering information should be taken with a grain of salt.

Long-term care insurance costs are determined by the consideration of age, insurance carrier, family health history, gender, general health and policy options chosen. Insurance companies employ actuaries whose main job is to assess the risk of a given population.

The insurance carriers will look at your determining factors. Then, the actuarial work, as well as other critical departments will determine the final premiums to be quoted to an applicant. If a proposed insured is riskier than average, then the premiums will also be higher than average.

Riskier applications include higher age and poor health history. Other factors that increase costs are shorter elimination periods, longer coverage length, and optional riders, such as inflation protection. An elimination period is the amount of time that must pass before benefits are eligible to begin. The typical cost structure of such policies come in several forms, most commonly being monthly, quarterly or annual payment options.

According to Forbes, a long-term care insurance policy for an average 62 year old costs approximately $300 per month. For comparative purposes, Consumer Affairs states that an average 55-year-old man would pay about $142 per month. This cost comparison reiterates how important it is to secure long-term care insurance early.

Long-term care insurance should be considered based on the amount of discretionary income of the individual or household. Of course, the earlier the better, being that premiums will be cheaper the younger you are. But long-term care should be looked into at least by the age of 50. An ideal candidate would be someone between 50 to 70 years old with at least $50,000 to invest.

Premium payment options available for long-term care insurance policies are generally monthly, quarterly, semi-annually or annually. Some carriers also offer some variation of a quicker payoff, including 5-pay — which allows the policyholder to fully pay off the policy in 5 equal annual payments — or single-pay — a one-time payment.

While obtaining the correct coverage is an important consideration in determining which policy you ultimately buy, budgetary concerns do come into play. Each policy should be customized to your values, needs, priorities and budget. But this will likely come with a trade-off.

Your advisor should explain to you that a high benefit amount will add to your premium, while a shorter duration of coverage will decrease premium.

Adding features, such as inflation protection, will increase your premium, while a longer elimination period will decrease your premium. Current economic issues will come into play, as well. Inflation, for example, is a hot button issue in the news, which is driving incorporating the inflation protection rider into many newly issued long-term care insurance policies.

Retirement plans should be designed and reviewed holistically. Long-term care should play a part as health care is such a pressing issue for retirees, especially being that most are living on a fixed income.

You should understand how your income will be funded, whether that be by Social Security, your retirement nest egg or other sources. Next, you should identify fixed and variable expenses. Insurance policies would fall into fixed expenses as the cost often do not change.

You can also consider bypassing budgeting for the cost if you have the assets to pay a single premium for the policy. You should discuss with your advisor whether that will affect your monthly income in any significant way, as your assets will most likely be a large part of your income.

According to the American Association for Long-Term Care Insurance, traditional and tax qualified long-term care policies can be beneficial from that perspective. Talk to a trusted tax professional for advice on the qualification for a medical expense deduction.

Your qualification will depend on your age and plan’s tax-qualified status. Your long-term care insurance premium may be able to help you attain this on your tax return, further lowering your tax liability.

Remember, not all policies will qualify for this benefit, which is why having a trusted advisor can be beneficial.

Your first step in shopping for long-term care insurance would be to contact a trusted advisor. Typically, this would come in the form of an agent, broker or financial advisor. Agents are normally associated with one company. Brokers shop multiple carriers, which is important for price and feature comparison. It will also save you time from contacting different agents/companies directly.

Financial advisors can be associated with one or multiple companies. That should be identified before working with them.  Whichever professional you choose should be well versed enough in the industry to deeply explain policy details and benefits.

They should have a working knowledge of the financial strength and reputation of the long term care insurance companies they represent. This knowledge is obtained from past client situations, which they would have if they are experienced.

Be sure they specialize in long-term care insurance. It would be unfavorable for you to purchase a long-term care policy from someone whose business is concentrated in something else, like home and auto insurance.