Is Senior Care Insurance Right for You?

In this article...
  • If you require long-term care in your golden years, the costs can derail even the best financial plans. Learn whether senior care insurance is right for you.

Many people begin saving for retirement as early as their 20s, but if you require long-term care in your golden years, the costs can derail even the best financial plans. Because most health insurance policies, including Medicare, don’t cover these expenses, some individuals purchase senior care insurance. In this article, you’ll learn what senior care insurance is and whether it's the right option for you.

What Is Senior Care Insurance?

Senior care insurance, which is often referred to as long-term care insurance, provides coverage for seniors who require extended residential or in-home care, including assistance with activities of daily living. Although terms vary by carrier and individual policy, these plans typically cover the following services:

  • Home health aides and other in-home professional services
  • Extended skilled nursing facility stays
  • Assisted living communities
  • Residential memory care facilities
  • Adult daycare services
  • Homemaker services
  • Respite care
  • Hospice

How Does Senior Care Insurance Work?

When you purchase senior care insurance, you’ll be assessed a premium, which must be paid according to the contract to maintain your coverage. Benefits typically begin paying out when the insured experiences significant cognitive impairment or can no longer perform at least two activities of daily living without assistance. 

Before choosing a care provider, make sure you understand your policy’s coverage terms, including any limitations and exclusions to your benefits. Your insurance agent or a representative from the company can help you navigate your coverage terms so you can get the care you need.

Senior care insurance pays 100% for many covered services, but policies may limit the daily benefit amount. If the cost of care exceeds the coverage limit, seniors must pay the balance out of pocket.

How Much Does Senior Care Insurance Cost?

In 2020, according to research done by the American Association for Long-Term Care Insurance, a single, 55-year-old male paid an average annual premium of $1,700 for a long-term care policy, while a 55-year-old female paid $2,675. However, premiums for these policies can vary considerably by provider and policy.

Other factors that are used to calculate premiums are summarized below.

Personal Risk Factors

Insurance carriers consider personal risk factors when approving coverage and assessing premiums. The following personal risk factors may be used to calculate premiums:

  • Age: Older individuals incur higher premiums, and some carriers may deny coverage to individuals over a certain age.
  • Gender: Statistically, women live longer than men, making it more likely they’ll file a long-term care claim. Consequently, their premiums are higher than men with a similar age and health profile.
  • Health: Individuals with disabilities, chronic illnesses and other conditions that increase the chance of requiring long-term care, may be assessed higher premiums. Individuals diagnosed with certain conditions, including Alzheimer’s, AIDS, Parkinson’s Disease and multiple sclerosis, may be denied coverage altogether due to their increased risk.

Coverage Terms

Carriers also consider the policy’s coverage terms when calculating the premium. Relevant factors may include:

  • Overall coverage: The type of care that’s covered and the total amount of reimbursement factor heavily into the policy's premium. Plans that offer 100% coverage may cost substantially more than those that pay for a smaller percentage of care.
  • The daily benefit limit: Long-term care policies typically cap how much they’ll pay out each day. Policies with a higher daily cap usually cost more.
  • The benefit period: Plans may limit the number of coverage days or years. Policies with longer benefit periods are more expensive.
  • The elimination period: Some policies include an elimination period, which typically ranges between 30 and 180 days, during which the insured must pay for their care before benefits kick in.

Some policies may also offer an inflation protection option, which increases the benefit as the cost of care increases. Married couples who opt for joint coverage may be assessed lower premiums than those who buy separate policies.

Where Can I Purchase Senior Care Insurance?

You can purchase senior care insurance directly from your carrier of choice or buy it through a licensed broker or agent. Because premiums can vary substantially by carrier, it may be helpful to do a cost comparison prior to signing a contract, and you should always purchase your policy from a reputable, financially stable company.

In some states, interested parties may purchase a long-term care policy through a state partnership program, which offers private coverage through Medicaid. These state-sponsored programs may offer additional benefits.

Is Senior Care Insurance Worth the Cost?

When deciding whether to purchase a long-term care plan, the main considerations are:

  • The possibility you’ll require long-term care
  • The price of long-term care if you don't have insurance
  • Your financial situation

According to AARP, more than half of people turning 65 will require long-term supports and services during their lifetime. Because women tend to live longer, the number who will seek long-term care is even higher. Although relatives and friends often serve as unpaid caregivers, many seniors must seek professional in-home or residential services, which can be costly.

Seniors who have substantial savings may be able to pay for their care out of pocket. Unfortunately, for seniors who aren’t able to pay out of pocket, Medicare doesn’t cover long-term supports and services. To pay for care, many of these seniors must go on Medicaid, which may require them to spend down their assets, diminishing their estate. Because of this, seniors who wish to safeguard their estate to pass on to loved ones may find long-term care insurance worthwhile. However, some seniors may find premium rates to be prohibitively high, and ultimately, deciding whether senior care insurance is worth the cost depends on your personal needs and current financial situation.

Alternatives to Senior Care Insurance

Senior care insurance isn’t the only option for individuals concerned with paying for future long-term care. Alternatives to senior care insurance include:

  • Annuities: Deferred annuities deliver a fixed income stream for a predetermined amount of time, so they may be ideal for covering long-term services and supports.
  • Life insurance with accelerated benefits: Life insurance that offers accelerated death benefits may let you access a percentage of the death benefit early to help pay for medical expenses such as long-term care.
  • Short-term care insurance: Short-term care policies are similar to LTC plans but limit the duration of coverage, typically to a year or less. These policies tend to be more affordable and easier to qualify for.

Seniors who have life insurance policies may also be able to purchase LTC or critical illness riders to supplement their basic insurance and provide for long-term care.