What is long-term care insurance?

Long-term care insurance provides funding for long-term care, including a nursing home or at-home care. Longtermlife

The bad news is that there are only a handful of companies that still offer long-term care insurance. If you’re able to find a policy, you’ll pay a lot more than someone a decade ago.

The reason why fewer companies offer long-term care insurance comes down to costs:

  • People are living longer while getting long-term care. That means more money being paid out by insurers.
  • Fewer people are buying long-term care policies, which means fewer dollars helping pay for those collecting benefits.

How do you get long-term care insurance?

The first step is to find an insurance company that offers long-term care policies.

You’ll also need a medical exam. The insurer will decide whether you’re a risk.

Younger people have a better shot at getting approval, so it's best to buy insurance young.

How much does long-term care insurance cost?

Long-term care policies can become expensive. State regulators are concerned about the rising costs, but insurers argue the rate increases are needed to help the changing market.

Specific long-term care insurance rates vary by age, health, level of benefits and insurer. Here are 2020 (the most recent data available) annual premiums for a $164,000 policy, according to the American Association for Long-Term Care Insurance:

  • Single male, age 55 -- $1,700
  • Single female, age 55 -- $2,765
  • Couple, age 55 -- $3,050

What is combination life insurance?

Combination life insurance is a permanent life insurance policy with a long-term care insurance rider.

This rider allows you to tap into your long-term care savings if you need it. You don’t pay taxes on it. If you don’t use it, the money will go toward a death benefit.

You can add other riders to the policy like:

  • Accelerated death benefits
  • Disability income
  • Critical illness

Once a doctor signs off, you get a percentage of the overall death benefit for the insurance rider. An example is if you have a $200,000 life insurance policy and a rider for 3% a month for long-term care, you could tap into $6,000 a month for long-term care expenses.

How much does combination life insurance cost?

Combination life insurance isn’t cheap.

A combination life insurance policy may cost you $75,000 if you’re willing to pay one lump sum for the long-term care rider. It may cost more if you spread out the payments over a few years. So, it’s not usually an option for someone who doesn’t have money available.

How do you get combination life insurance?

Unlike long-term care insurance, many insurers offer combination life insurance. If you already have a permanent life insurance plan, you can talk to your insurer about adding a long-term care rider or changing policies.

Since it’s a permanent life insurance plan, you can also add other riders to create a policy that works for you.

Once you find a policy for you, the insurer will likely ask a series of health-related questions and you’ll probably need a medical exam. The insurer will decide about approval and your rates by the answers to those questions and the exam.

Differences between long-term care insurance and combination life insurance

There are many differences between long-term care insurance and combination life insurance. Here are a few of them:

  • Combination life insurance provides permanent life insurance as well as long-term care coverage.
  • Long-term care insurance is only for long-term care.
  • Combination life insurance is more expensive than long-term care insurance.
  • Long-term care insurance premiums increase as you age. Combination life insurance premiums are usually consistent.
  • You lose any money not spent on a long-term care insurance policy.
  • Long-term care insurance usually has larger payouts than combination life insurance.

What long-term care plan is right for you?

It depends on your situation, finances and what you want out of your coverage.

Here are questions to ask yourself:

  • What do you want out of a policy? Do you just want long-term care coverage or the ability to transform that money into a death benefit?
  • How much money do you have to spend on a policy?
  • Do you already have life insurance or do you need a policy?
  • Do you have beneficiaries who need a death benefit?
  • Are you OK with spending higher rates for long-term care insurance as you age?

The answers to those questions will help you figure out what’s a better choice.

Then, your next step is to talk to a financial planner. Create budgeting and financial modeling to figure out whether you need long-term care protection.

If you feel you need it, shop around and get quotes from multiple companies. You may want to price both long-term insurance and combination life insurance to see which avenue makes sense for you.

How do people pay for long-term care?

Medicare usually doesn’t cover long-term care. Medicare covers your medical expenses, but when it comes to long-term care, you’re generally on your own.

One exception is people who qualify for Medicaid. Medicaid will pick up a portion of the costs of long-term care.

However, if you don’t qualify for Medicaid, you’ll need to figure out a way to pay for long-term care. That could result in your family selling your home to help pay for nursing home care.

Long-term care can cost thousands a month, so having a plan to pay for it is important.

When can you use long-term care protection?

A doctor must diagnose you with cognitive impairment or deem you incapable of performing at least two of six daily living activities:

  • Bathing
  • Continence
  • Getting dressed
  • Eating
  • Toileting
  • Transferring (moving to and from a bed or a chair)

Once a doctor signs off, you’re able to submit claims for your long-term care. Once you get the OK for long-term care insurance, you, your family or your representative can file claims.