Last year, about 350,000 Americans purchased a long-term care insurance (LTCi) policy, and more than 7 million people currently hold active policies. Given that over 80 million Americans are age 55 and older, adoption remains relatively low. Data from the American Association for Long-Term Care Insurance (AALTCI) provides useful insights about LTCi policies and policyholders. The following summary is based on responses to the 2019 AALTCI annual price index survey of major LTC insurers and shows why long-term care insurance can be valuable despite rising premiums.
The annual cost of LTCi
Unlike many other insurance products, LTCi premiums are typically higher for women. Because women tend to live longer, they have a greater likelihood of needing long-term care and possibly for a longer period. In 2019, for healthy 55-year-olds the average annual premium was $2,050 for a single male and $2,700 for a single female. For healthy 60-year-olds, the average annual premium was $1,925 for a single male and $3,050 for a single female.
Couples can often achieve some economies of scale. In 2019, the average combined annual premium for a healthy 55-year-old couple was $3,050, while for a healthy 60-year-old couple it was about $3,400 combined.
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LTCi claims payments
The most common age for LTCi claims to begin is between 86 and 90 (27.2 percent), followed by ages 81 to 85 (25 percent). Only 17.5 percent of claims start at age 91 or older.
Just over half (51.5 percent) of LTCi claims begin as payments for home care services. The remainder is split between assisted living (24.5 percent) and nursing care (23 percent). Claims tend to end with a similar distribution: 43 percent cover home care, 29.5 percent cover nursing care, and 26.5 percent pay for assisted living.
In 2018, LTC insurers paid $10.3 billion to more than 303,000 claimants, an average of roughly $33,000 per claim year. That amount rose from $9.23 billion paid to 295,000 claimants in 2017 and $8.56 billion paid to 280,000 claimants in 2016. In 2018, 64 percent of claims were paid to female insureds, which helps explain higher average premiums for women.
Some individual claims illustrate how costly extended care can become. One insurer reported paying a female claimant more than $2,329,333 over 16 years and 6 months, while another insurer paid more than $2.6 million to a female claimant over 15 years and 4 months. Though these are among the largest claims, they highlight how long-term care expenses can quickly deplete personal assets when services are needed for many years.
>> Related: 4 Ways to Pay for Long-Term Care Services
LTCi policy considerations
If you are considering an LTCi policy, keep several points in mind. First, while many policies lock in a fixed premium for existing policyholders, the average cost to purchase a new LTCi policy increases with age and with more significant health issues, as the pricing examples above demonstrate.
Some LTCi premiums may qualify as medical expenses for tax purposes. Although more taxpayers now claim the standard deduction, those who itemize may be able to deduct tax-qualified LTCi premiums to the extent they exceed the adjusted gross income (AGI) threshold: currently 7.5 percent for those age 65 and older and 10 percent for those under 65. Tax rules can change, so consult current guidance for your situation.
Long-term care insurance can also be used within a continuing care retirement community (CCRC), also known as a life plan community, when you receive qualifying services. LTCi works well with fee-for-service (Type C) contracts and can offset monthly rates in communities with Type A or B contracts. Whether and how the policy applies depends on how the insurer classifies CCRCs and on the community’s contract terms.
If you have a lifecare (Type A) contract, ask the community how much of a monthly payment can be submitted for reimbursement under your LTCi policy—this question matters for reimbursement-style policies but is not relevant for cash-benefit policies.
>> Related: Vlog: Do You Know How Your Long-Term Care Policy Works at a CCRC?
In short, the details of both your LTCi policy and any CCRC contract matter a great deal. Carefully review the terms and ask specific questions about how benefits are paid, how the community treats reimbursements, and how premiums and coverage may change. Understanding those specifics will help you choose the policy and contract type that best fits your needs and budget.