How Much Does Long-Term Care Insurance Cost?

Published on: Aug 31 2020
By Jaxon Kim

Long-term care is a system of personal services and medical care provided to someone who is cognitively impaired or can’t perform two or more of the six activities of daily living (ADLs). The ADLs are dressing, bathing, eating, walking, toileting, and transferring (such as moving from a bed to a chair without help). Despite the name, some people need long-term care relatively briefly, such as when they are recovering from surgery or an accident. Others need the care for months or years, such as when they have chronic disabilities or illnesses or are declining due to age.

The possibility of needing long-term care (LTC), and having to pay for that care, is one of the great fears of older Americans. LTC can be expensive. The costs vary around the country and by the type of LTC needed, but it is expensive. LTC typically costs $100,000 or more per year.

Fortunately, there is insurance available that will cover many of the costs of LTC if it is needed. But only a minority of people who might need LTC purchase insurance. Many cite cost as the primary reason for not buying LTC insurance (LTCI).

So, how much does long-term care insurance cost?

Determining the Cost

The cost of long-term care insurance varies with a number of factors. According to the American Association for Long-Term Care Insurance (AALTCI), the average long-term care insurance premium for a 55-year-old in 2019 was $2,050 per year. Actual premiums deviate from the average based on factors such as age, health, place of residence, insurance provider and more. Below is a chart provided by AALTCI.org depicting the average annual premiums of leading LTC insurance companies for 2019 for a sample of LTCI buyers.

Annual Premium – Average of Leading LTC Insurance Companies
Single Male, Age 55 (Select Health)   $ 2,050
Single Female, Age 55  $ 2,700
Couple, Both Age 55 (cost shown is COMBINED for the couple)  $ 3,050

For initial pool of benefits equal to $164,000 (each at age 55). Value of benefits when policyholder reaches age 85 equals $386,500 each. Calculated: January 2019

Single Male, Age 60 (Pref Health)   $ 1,925
Single Female, Age 60  $ 3,050
Couple, Both Age 60 (cost shown is COMBINED for the couple)  $ 3,400

Source: AALTCI.org

This data was an average of annual premiums charged by leading insurance providers. Thus, it will not be accurate for every individual. The following factors impact the premiums an individual will pay.

Age: Most people typically take out their insurance policy in their mid-50s. Once a person turns 50, the insurance premium increases by 2% – 4% per year until they hit 60 where it increases by 6% – 8% per year.

Health: The average premiums are charged to people considered to be in good health. Applicants in excellent health might pay lower premiums. Applicants with less-than-good health will pay higher premiums or be denied coverage. Each insurer has its own definition of good health and the conditions that will result in a denying coverage. Many people decide to defer purchasing LTCI until they are older and closer to the age when they might need LTC. Delaying the purchase of LTCI increases the risk that health will decline, premiums will be higher, and coverage could be denied.

Gender: Women typically pay higher insurance premiums on average because they live longer than men and are more likely to need LTC during their lifetimes. In 2019, a single female age 55 paid $2,700 on average while a single male age 55 paid $2,050 on average.

Marital Status: Premiums are lower for coverage purchased jointly by married couples than for two individual policies. The average cost of an insurance premium for joint coverage for a married couple in 2019 was $3,050.

Amount of Coverage: Most policies pay a maximum daily benefit or reimbursement amount when LTC is needed. The premium for LTCI varies based on the maximum daily benefit and also by the maximum length of time the policy will pay benefits.

Insurance Company: The price of insurance policies varies among insurance providers. Premiums for identical coverage can vary by as much as 100%, according to AALTCI. Someone considering LTCI should receive quotes from several different insurance providers before making a decision.

The Bottom Line

“Most people focus on the premiums or cost of LTCI. A better approach is to compare the benefits or potential benefits of the insurance on one hand to the potential loss you’d incur should you need LTC and not have insurance on the other hand” said Bob Carlson, editor of RetirementWatch.com.

While the odds of needing long-term care are relatively low, even one year of LTC can cost up to $100,375. The actual cost could be higher or lower depending on the type of care received and where it is received. Only one year of LTC could put a significant dent in a person’s nest egg and the amount that can be left as a legacy for heirs. Purchasing LTCI as early as 55 may seem irrational, but the premiums paid over the years could be relatively inexpensive compared to paying for one year of LTC out of pocket.

Important assistance for this summary of “How Much Does Long-Term Care Insurance Cost?” goes to Bob Carlson, editor of the Retirement Watch financial advisory service and chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets.

Jaxon Kim is an editorial intern with Eagle Financial Publications.

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