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Your Long-Term Care Insurance Roadmap

When it comes to preparing for retirement, most consumers have only a vague idea about planning for potential long-term care expenses. Yet, as noted in another Cantissimo Senior Living blog post, well over half of Americans 65 or older will eventually require some form of long-term care.

Depending on the level of care needed, annual costs can range from around $19,000 for adult day care to over $100,000 per year for a private room in a skilled nursing facility. Medicare will pay for limited transitional care after a hospital stay, and older adults who meet specific low-income requirements can qualify for Medicaid. However, for most people, some or all these costs will be paid for from sources like retirement savings, a reverse mortgage, or selling a primary residence. Another option is long-term care insurance (LTCI).

What is Long Term Care Insurance?

This type of insurance pays for some or all costs of long-term care. It can cover care in a variety of settings:

LTCI can sometimes be obtained through some employee or association benefit programs. Also, some states are offering LTCI coverage. For example, in 2025, the state of Washington will provide up to $36,500 per lifetime for qualified state residents. Program funding comes from a 0.58% premium assessment on all employee wages in the state. Residents who are self-employed or already have LTCI insurance can opt-out.

Most LTCI policies are purchased by individuals or couples directly from companies offering these products. Yet, even though LTCI can reduce a significant financial risk, many people perceive this form of insurance as too expensive.

Below are current average rates for a 55-year-old person signing up for a $165,000 benefit:

  No inflation 1% inflation 2% inflation 3% inflation

5% inflation

Male $950 $1,375 $1,750 $2,220 $3,685
Female $1,500 $2,150 $2,815 $3,700 $6,400

While the no inflation option seems more affordable, the benefit may be woefully inadequate when needed for long-term care. The U.S. inflation rate hit a 13 year high in July 2021 at 5.4% after years of rates around 2%. While economists expect rates to decline, adding even a modest inflation factor to an LTCI policy can put coverage out of reach for many consumers.

Waiting to take out an LTCI policy can increase the cost even more. For example, the American Association for Long-Term Care Insurance estimates for a 55-year-old person who delays taking out an LTCI policy until age 65, the annual premium increases 49%.

Shopping for LTCI

For those who can afford LTCI, the purchase decision is complicated due to the complexity of the product. Since there are numerous possible long-term care situations, many different options can come into play for any given insurance policy. Consumers need to be aware of these options and analyze them carefully to ensure they obtain a policy providing the best fit.

Here are some guidelines for those considering LTCI.

  • son helping older mother research long-term care insurance optionsDo your homework - First, learn about LTCI. There are many moving parts to this product, so education about those various elements is essential. For example, benefits may be payable only in the case of specific "triggering" events. Understanding the specifics of such details is vital. Also, have a clear sense of your priorities. Suppose there is a family history of dementia. In this case, be prepared to thoroughly review memory care coverage options.
  • Identify and research companies that offer LTCI - Each state has an agency that regulates long-term care insurance companies. After making a list of insurers, check with the appropriate state agency about each company's licensing status and complaints history. Information about individual agents representing those companies is available as well. In addition, check on each company's ratings from firms like A.M. Best, Standard & Poor's, Moody's.
  • Ask about premium rate increases - Like auto and homeowner insurance, premiums for LTCI can increase during the life of the policy. Most states require LTCI companies to disclose premium rate increases made in prior years. Consider the impact of potential increased premiums on the ability to pay for the policy in the long run. A worst-case scenario would be needing to drop the policy later in life when the risk of needing coverage increases. Also, premium rate increases of existing policies must be approved by the state regulator. Check with the state office to see if any rate increase requests are pending for the company.
  • Look for limitations regarding pre-existing conditions - Many states require LTCI contracts to cover pre-existing conditions. However, there may be exclusion periods before receiving benefits.
  • Don't go it alone - Instead, consult with trusted financial professionals who know your situation. Their feedback can add essential perspective to the decision-making process.
  • Carefully read the policy outline - Request a policy outline describing the costs, benefits, and limitations of a policy before filling out an application. Comparing such outlines of different policies can help make apples-to-apples assessments.
  • Carefully complete policy applications - Make sure to provide all required information, especially related to health. Omitting certain medical details may cause the insurer to deny coverage. If someone else is filling out the application, make sure to review all documents for accuracy. Make a copy of the entire application prior to submission.
  • Pay the insurance company - Fees should be payable to the insurance company and no one else. For example, being asked to write a check to the agent or an unrelated third party is a red flag.
  • Thoroughly review the policy - Once the policy is delivered, carefully read it through. Make sure all provisions are understood. Don't hesitate to contact the agent with questions. Most states stipulate a right-to-examine period during which a full refund can be obtained for any reason. Feel free to use the entire right-to-examine period. Don't allow anyone to rush a signing before the period is over.
  • Inform those close to you - Identify the people who need to know about the policy. For example, a spouse or adult child would need to know about the policy provisions to provide a sounding board before signing. Once the policy is in force, these same people need to know when policy benefits and limitations apply and how to communicate with the insurance company on your behalf if necessary. These are also the people who the insurance company can contact in case a premium is overdue.

Long-term care insurance can provide a great way to reduce financial risk. However, complex product alternatives require a thorough analysis so the consumer can make the best choice.

Looking for more? Check out our post, Do You Need Long-Term Care Insurance? 

The Essential Assisted Living Checklist - We put together a list of the 129 questions you should be asking any potential assisted living facility.