Long-Term Care Insurance

How Much Long-Term-Care Coverage Do You Need?

Start by finding out the average cost of care where you live. A just-released study by insurer Genworth makes that easy.

What is the rule of thumb for the amount of assets you need to self-insure against potential long-term-care costs rather than pay premiums for long-term-care insurance?Everyone who has enough money to afford the premiums should at least consider buying long-term-care insurance, no matter how much savings you have. The potential costs for extended care in a nursing home, in an assisted-living facility or in your own home can be so large that they could destroy your retirement savings, even if you start out with a substantial nest egg. The protection becomes even more valuable if your retirement-account balance has tumbled over the past year or so.

The average cost for a private nursing-home room is $74,208 a year ($203 a day), according to the cost-of-care survey released on April 30 by insurer Genworth. And that's in today's dollars. If the cost of care continues to rise at its current rate (more than 4% per year), then one year in a nursing home could be more than $270,000 if you need care in 30 years.

Nearly three-fourths of Genworth's initial claims are for long-term-care services received in the home, and those expenses can be even higher. The survey found the average rate for state-licensed home health aides was $18.50 per hour, which adds up to more than $400 per day for people who need 24-hour care.

To figure out how much coverage you should buy, start by looking at the average costs of care in the area where you plan to live. The prices vary a lot across the country: The average cost of a nursing-home room in Idaho is $49,153 per year, but it runs $125,925 in Connecticut. For specifics, see Genworth's Cost of Care Survey, which shows the average costs for a nursing home, an assisted-living facility, adult day health care, a home health aide and homemaker services, and includes a calculator to help you estimate future costs.

You could buy a long-term-care policy with a daily benefit that would cover the entire cost, or you could buy enough insurance to cover a portion of the cost and plan to self-insure any extra expenses yourself, which still limits some of your risk.

The more difficult decision is the length of benefit period to buy. Premiums for lifetime benefits are usually about twice as much as they are for a three-year benefit period, which is enough to cover the average length of care.

If you're married, you may be able to hedge your bets by buying a shared-benefit policy, which provides a pool of benefits -- say, six years between the two of you. If one spouse needs two years of care, the other can still get four years of coverage.

If you end up with a long-lasting condition, you could exhaust your benefits. But many states now offer partnership programs that let you qualify for Medicaid without having to spend all of your money. Say, for example, you buy a partnership policy that provides $200,000 of coverage. If you exhaust your benefits but still need more care, you can protect up to $200,000 of your assets and still qualify for Medicaid.

Several companies have recently started offering policies that are simpler and less expensive, yet still provide enough coverage to meet most long-term-care needs. See Long-Term-Care Insurance for Less for details. And for more information about all kinds of long-term-care insurance policies, see Kiplinger's Long-Term Care Center.

Most Popular

The Inflation Reduction Act and Taxes: What You Should Know
Tax Breaks

The Inflation Reduction Act and Taxes: What You Should Know

The U.S. Senate has passed the Inflation Reduction Act of 2022—a climate, energy, healthcare, and tax bill that would increase IRS funding, and change…
August 8, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
‘I Can’t Retire – I Need Health Insurance’
health insurance

‘I Can’t Retire – I Need Health Insurance’

Health insurance is seen as a huge hurdle for early retirees, but the answer to finding affordable coverage could be simpler than you think.
August 7, 2022

Recommended

Four Options When – Not If – Your LTC Premiums Go Up
long term care insurance

Four Options When – Not If – Your LTC Premiums Go Up

If you’re dreading getting a letter in the mail about your long-term care insurance premiums rising, you’re in good company. And you have some decisio…
August 4, 2022
Tax Changes and Key Amounts for the 2022 Tax Year
tax law

Tax Changes and Key Amounts for the 2022 Tax Year

Americans are facing a long list of tax changes for the 2022 tax year. Smart taxpayers will start planning for them now.
July 19, 2022
Long-Term Care: Other Coverage You May Want to Consider
Long-Term Care Insurance

Long-Term Care: Other Coverage You May Want to Consider

A third of applicants are rejected from buying long-term care insurance. Here are some smart alternatives.
June 7, 2022
Long-Term Care Insurance Premiums Rising, Benefits Shrinking
Long-Term Care Insurance

Long-Term Care Insurance Premiums Rising, Benefits Shrinking

There's a 70% chance you'll need some type of long-term care. Getting the right insurance is more complex these days. Here's some guidance.
June 2, 2022