Long-Term Care Planning is Happening Before Age 60

At one time, Long-Term Care Insurance was an afterthought purchased by retirees once they saw their peers decline in health and need care. Once they saw the costs and burdens inflicted on their families, they investigated and purchased a policy.

Today, however, LTC Insurance is being purchased by people well before retirement as an essential part of an overall retirement plan. In 2019, 64.3% of those who purchased a policy were age 59 or younger, according to the 2020 Milliman Long-Term Care Insurance Survey published in Broker World Magazine, an industry publication.

The group age 60 to 64 represented 26.9% of those who purchased an LTC policy. On the young end, 13.8% of the purchasers were under age 50.

People purchase Long-Term Care Insurance to address the high costs of extended care due to an illness, accident, or the impact of aging. Much of this care is not paid for by traditional health insurance or Medicare (including supplements) because it is custodial in nature (help with daily activities) or skilled care that goes on for long periods of time.

Cost of Long-Term Care Services Expensive and Increases Over Time

The cost of care has a tremendous impact on a family's finances, no matter what age the care event occurs. According to the LTC NEWS Cost of Care Calculator, the national average cost one year of home care is over $53,000 a year based on a 44-hour week. Base assisted living costs average almost $51,000 a year. Nursing home costs remain the most expensive, with a national average of over $106,000 a year. Even for those with above-average amounts of savings, the costs would dramatically impact lifestyle and legacy.

The cost of care services varies depending on location. In certain parts of the country, the financial impact is even more significant. The cost of care is expected to increase every year due to higher labor costs and the high demand based on demographics.

Compare Lake Charles, LA and Sacramento, CA

For example, in Lake Charles, Louisiana, an average year of home care will run $38,896, the base cost of an assisted living facility will average $37,500, and a nursing home will average $66,795.

However, if you live in Sacramento, California, the costs are more expensive, with an average year of care at home being $59,488 a year - over $20,000 a year more than in Lake Charles. The average base cost of an assisted living facility is $53,670 a year in Sacramento, $16,170 more than in Lake Charles. The nursing home average cost in Sacramento is $129,758 a whopping $62,963 more than in Lake Charles.

The amount of benefits in an LTC policy will be based, in part, on where you live and where you might move to if relocation at some point is something being considered. Policies are portable, and you can receive benefits anywhere in the United States and U.S. territories. Some companies offer international benefits as well.

Purchasing Younger Means Lower Premium

There are two advantages in purchasing LTC Insurance when you are younger. The premium cost is much lower and since you usually have better health, you are less likely to be declined for coverage.

Long-Term Care Insurance is medically underwritten, and each company has their own standards. The Milliman survey reported that 28.1% of LTC Insurance applications were declined, up from 21% in 2012. Insurance companies alter their standards over time due to changes in medical science and their claims research.

Nearly half of those obtaining coverage received the best (lowest cost) premium class representing 46.2% of policies. 52.3% of those aged 50-59 received the best rate, higher percentages for those younger. These numbers show the younger you are when you obtain coverage, the more likely you will get the best premium class and, thus, a lower premium. 

Premiums vary depending on the total amount of benefits a policyholder wishes to have in their policy, in addition to a person's age, health, family history, and other factors. 

LTC Policy Options Vary

Remember, since Long-Term Care Insurance is custom-designed and the average cost of care varies depending on location, average premiums tend not clearly to represent these policies' affordability.

Generally, an applicant for a policy will select a monthly benefit (some companies still use a daily benefit). This benefit is the initial maximum amount of money available each month to pay for care. In areas of the country where the average cost is less, the amount of monthly benefit applied for will be less. In high-cost areas, the initial benefit will generally be higher to meet these higher costs. 

The report indicates 40.5% of policies had under $4500 a month. Another 48% had initial benefits between $4500 to $7499 a month. Another 11.4% had monthly benefits of $7500 a month or higher. 

Most Long-Term Care Insurance policies have an initial pool of money either calculated by a 'benefit-period' or just an initial amount of money. The benefit period in the amount of time a policyholder would have coverage at the time of claim if they used the maximum amount available every month. 52.1% of policies had three-year benefit periods.

Remember, if a policyholder doesn't use the maximum amount every month, benefits will last longer. In addition, if a policyholder has inflation benefits, both the monthly benefit and the benefit pool increase as well.

Inflation Benefits Vital as Care Costs Increase Over Time

Many people will request inflation benefits, and the Long-Term Care Insurance Partnership Program available in 45 states require some inflation benefits at most ages. The report says the most common inflation benefit selected was 3% compounded, representing 32.7% of policies.

The inflation benefits increase the monthly benefit annually, usually with no increase in premium. Some policies offer options to purchase additional benefits that, if accepted, increase the premium. 

Shared spousal benefits are a prevalent option for couples. While not every insurance company offers shared benefits, those who do it represent almost half (47.6%) of the policies sold.

American Families Benefiting Today from LTC Insurance

Long-Term Care Insurance is working as insurance companies are paying billions in benefits. These benefits are helping American families address the financial costs and burdens of aging. The industry has paid $12,996,456,962 in claims through 2019.

Many people think LTC Insurance just covers nursing homes. In 2019, a majority of claims were not for nursing home care. Assisted living facilities and home care represented 59% of the total claims. 

Policies are typically comprehensive, covering all types of care in addition to nursing homes. Home care, adult day care centers, assisted living facilities, memory care, and nursing homes are the most commonly type of extended care used at the time of claim. 

Once you qualify for benefits with a Long-Term Care Insurance policy, you decide how you use those benefits. While your care needs will depend on your needs, most people are looking to avoid nursing homes. The control and independence is with you, not the insurance company.

Experts recommend seeking a qualified Long-Term Care Insurance specialist to help you navigate the available options with every company. Most financial advisors and general insurance agents lack experience in this area and have little or no claims experience. Specialists will usually work with several companies, not one or two.