Are Long-Term Care Insurance Policies Expensive?

The answer is, for most people, Long-Term Care Insurance is very affordable. However, premiums for Long-Term Care Insurance vary over 100% between insurance companies for the same benefits. Because of many variables, Long-Term Care Insurance can be expensive; however, many people can obtain affordable coverage.

Policies are custom designed, so you decide the total amount of benefits you wish to have in place and the cost of your policy.

Since Long-Term Care Insurance premiums are priced based on your age when you purchase a policy, you generally buy a policy once. Other pricing factors, in addition to your age, like your health, family history, and the total amount of benefits you wish to have in place, determine the premium. You want to make the best decision the first time.

Costs of LTC Insurance 

Once you understand how a policy works and what it covers, you research the current and future cost of care where you live or expect to live in the future. The LTC NEWS Cost of Care Calculator, as noted above, helps in your research. 

The cost of Long-Term Care Insurance depends on several things, including which insurance company you use. 

Insurance premiums are regulated, and every insurance company must file their products and their rates for approval with every state's insurance department.

The premium you will pay will depend on several factors, including:

• Age and Health: Your age and health when you apply are key in determining your premium. If you are older and have significant health problems, you will pay more than someone in good health and is younger - i.e., in your 40s or 50s, which is when most people obtain coverage.
• Gender: Women generally pay more than men because they live longer and thrive in a care environment longer than men do.
• Marital/Partner status: Premiums are lower for married or partnered individuals than people who live alone.
• Choice of Insurance Company: Prices for the same amount of coverage will vary among insurance companies over 100%. Working with a  specialist who can shop the top companies will help you find the best coverage at the best value.
• Amount of Coverage: The more benefits in your plan - the more expensive it will be. A specialist can help you decide the amount of coverage best for you - but you get to decide on the total amount of benefit. Some people just want a little help, and others want complete asset protection.

Be Sure it is an LTC Policy

First, be sure you are actually looking at a Long-Term Care Insurance policy. Long-Term Care Insurance is regulated by both the federal government and your state's insurance department, and policies must meet specific guidelines.

These guidelines offer consumer protections and tax advantages. An experienced Long-Term Care Insurance specialist can assist you in finding the appropriate plan.

Most policies are considered "tax-qualified," meaning they must comply with Sections 7702(b) and 4980(c) of the Internal Revenue Code. These regulations provide important consumer protections and uniformity between plans. These include:

1. The Code defines "Qualified Long-Term Care Services" as necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services and maintenance or personal care services which (A) are required by a "chronically ill individual" and (B) are provided pursuant to a plan of care prescribed by a "licensed health care practitioner."

2. A "Chronically Ill Individual" means any individual who has been certified by a "licensed health care practitioner" as:

(i) being unable to perform without "substantial assistance" from another individual at least 2 out of the 6 "activities of daily living" for a period of at least 90 days due to a loss of functional capacity (the ADL trigger),

(ii) having a level of disability similar to the level of disability described in the ADL trigger as determined under regulations prescribed by the Secretary of the Treasury in consultation with the Secretary of Health and Human Services

OR

(iii)requiring "substantial supervision" to protect such individuals from threats to health and safety due to "severe cognitive impairment" (including all forms of dementia, including Alzheimer's.

By federal definition, the "Activities of Daily Living" include only the following: eating, toileting, transferring, bathing, dressing, and continence.

A policy may not be considered "tax-qualified" unless the determination of whether an individual is a "chronically ill individual" takes into account at least five of those activities.

Triggers for Benefits

Most major companies use all six ADLs. "Substantial assistance" with at least two of the six ADLs means "hands-on assistance" and/or "standby assistance."

"Hands-on" assistance means the physical assistance of another person without which the individual would be unable to perform the activity of daily living.

"Standby assistance" means the presence of another person within arm's reach of the individual that is necessary to prevent, by physical intervention, injury to the individual while the individual is performing the ADL (such as being ready to catch the individual if the individual falls while getting into or out of the bathtub or shower as part of bathing, or being ready to remove food from the individual's throat if the individual chokes while eating.)

Cores Benefits Similar - Premiums Differ

Most plans will share many core benefits, but differences exist between companies and the various insurance policies available. 

Unfortunately, many financial planners and general insurance agents have limited knowledge and experience planning for long-term health care and designing plans. Product features and underwriting standards change frequently.

Many inexperienced advisors and agents often recommend far more benefits than what most people would need. This lack of experience is another reason to seek the help of a qualified and trusted specialist.

A qualified Long-Term Care Insurance specialist can guide you to find the right coverage at the best value. Remember, since premiums can vary over 100% for the same coverage, this is very important. Don't spend more money than you need to protect income and assets from the financial costs and burdens of aging. 

Premiums are Regulated

No individual insurance agent, agency, or financial advisor can give you special discounts or deals. 

Insurance premiums differ between insurance companies for the same benefits, in some cases over 100%. 

However, if multiple agents give you quotes for the same coverage, the premiums should be exactly the same as long as they quote the same underwriting category with the same benefits. 

The underwriting rules that each insurance company uses vary between companies. Your health history and other factors, including your family history, will be considered in the underwriting process. 

Underwriting impacts not only your ability to obtain coverage but your premium as well.

An experienced specialist will ask you detailed questions about your health and family history. If the insurance agent or advisor does not have many detailed questions, you should find another agent. 

Premium differences for the same coverage will be due to the underwriting class they use (preferred, select, standard, substandard), in addition to your gender, spousal or partner discounts, the amount of benefit, and "riders" that are added to the policy.

Not Every Agent or Advisor Provides Accurate Quotes

Inexperienced agents and financial advisors will often quote "preferred" without asking you many health and family history questions.

Most plans include optional "riders" to consider, and which will certainly affect your premium, including various inflation options and shared spousal benefits for spouses/partners. These vary from company to company.

Partnership LTC Insurance

Most states have partnership plans which provide additional dollar-for-dollar asset protection or "asset disregard." Specific states have different requirements for inflation options for a policy to be considered a partnership plan.

Short-Term Plans

Short-Term or limited duration plans have smaller benefits but generally have less conservative underwriting requirements. They will also consider new applicants at older ages, and they generally use the same trigger for benefits as traditional tax-qualified plans utilize.

Hybrid Plans

Asset-based or so-called "hybrid" policies are now a popular option for some people. These are life insurance or annuity policies with a rider for long-term care services, and some policies are just an acceleration of the death benefit. 

Asset-based 'hybrid' policies are regulated under federal law under Section 7702(b) or Section 101(g). Generally, you want to avoid a policy with a Section 101(g) chronic illness rider when planning long-term care.

Insurance policies that fall under Section 101(g) cannot, by law, use the term "long-term care," although many agents will inappropriately call these plans "long-term care."

Section 101(g) policies have many pitfalls, including lacking consumer protections, standard benefit triggers, and ways an insurance company can limit or avoid paying a claim.

The Benefit of Qualified Hybrid LTC Insurance

One benefit for qualified Hybrid Long-Term Care policies is you will either receive benefits for long-term care OR a death benefit. Typically, you get money from the policy in one of three ways, you require long-term care, pass-away, or surrender the policy and get the cash value.

These plans usually feature a single premium, although some can be paid over five, ten, twenty years, even annually with some companies.

Premiums Based on Your Age at Application

The best time to obtain coverage is in your 40s or 50s, when you still enjoy youth and good health. However, affordable options are available at older ages. Be sure you seek help from a specialist representing the major companies.

When you get the help of a specialist, you will have peace of mind that you shopped the top companies and found the best coverage at the lowest cost.

Example Premiums

Below we'll compare major A-rated companies based on the following situation: 

• 50-year-old couple  
• $3000 a month (or daily equivalent) 
• Initial benefit pool of $108,000
• 90-day elimination period

Premiums run from $85 a month to over $122 a month.

With 3% compound inflation, premiums can run from $190 a month to over $345 a month.

Your premium will vary depending on your actual age, state of residence, health, family history, and the exact benefits applied for. A specialist will help you compare all the available options.