Long-term care insurance is an important way to mitigate risk in retirement. Unexpected health problems and related costs can take over a retiree’s financial life if they don’t have a plan to pay for care costs. The cost of such a policy will depend on a handful of factors – including your age and level of coverage – so whether you should accept an annual premium of $2,000 depends entirely on your personal profile.
If you buy quickly, this price can be a little high. In your 50s, a policy can cost between $1,000 and $2,000 per year, depending on what you need, according to data from the American Long Term Care Insurance Association.
If you wait until retirement, this price is quite low. In your 60s and 70s, a long-term care insurance policy can cost between $2,000 and $4,500 per year depending on your different coverage options.
Planning for all of your retirement needs early can have a big impact on your finances. Talk to a financial advisor today to build a personal plan.
What is Long Term Care Insurance?
Long-term care insurance is a policy that pays for ongoing support services.
Most often long-term care will pay for care at home, such as a visiting nurse, or staying in a medical facility, such as an assisted living or nursing home. Most people need insurance, Medicaid or another source of funds to pay for it. Depending on the nature of your services, long-term care can cost between $5,000 and $8,000 per month plus additional expenses.
For many policies, $2,000 is very reasonable
This all comes back to our main question, is $2,000 a year a reasonable price for long term care insurance?
The answer is, it depends. Going back to data from the American Long-Term Care Insurance Association, a few average policy prices for representative profiles include:
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Age 55, Single Male, $165,000 Coverage, No Inflation – $900/year
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Age 55, Single Female, $165,000 Coverage, No Inflation – $1,500/year
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Age 55, Single Male, $165,000 Coverage, 2% Inflation – $1,650/year
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Age 55, Single Female, $165,000 Coverage, 2% Inflation – $2,725
So, say you’re a woman in your 50s who wants a policy that adjusts for inflation. With that profile, $2,000 per month is a good deal. On the other hand, $2,000 a year is a bit expensive for a man in a similar situation.
So here are the prices if you wait until retirement age:
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Age 65, Single Male, $165,000 Coverage, No Inflation – $1,700/year
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Age 65, Single Female, $165,000 Coverage, No Inflation – $2,700/year
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Age 65, Single Male, $165,000 Coverage, 2% Inflation – $2,600/year
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Age 65, Single Female, $165,000 Coverage, 2% Inflation – $4,230/year
Here, your $2,000 offer is almost certainly a good deal, unless you’re a guy who doesn’t want to index his benefits to inflation, which is probably a bad decision.
Long-term care insurance is a key part of retirement planning. It is expensive, but the care it covers can be essential. While it might be difficult to budget for this insurance in retirement, it will be even more difficult to budget for the nursing home itself.
Talk to a financial advisor today about your long-term care insurance needs.
What Determines the Price of Long Term Care Insurance?
Long-term care is priced based on the same underlying logic as all health insurance. The more services you need, and the sooner you need them, the higher your premiums will be. Some of the most important factors include:
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Your age when you buy the policy
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Your life expectancy
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The amount of coverage
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Inflation adjustment of coverage
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Your state and its health care costs
The earlier you purchase care, the cheaper your premiums will be, because you have the insurance longer before using it. The longer your life expectancy, the higher your premiums because you will be able to use more care in general. Therefore, long-term care is generally more expensive for women than for men because women have a longer life expectancy.
Long-term care covers your costs up to a limit, and the higher the coverage limit, the more expensive your policy will be. An average policy offers $165,000 in coverage. For an additional premium you can have that coverage indexed to inflation. This will increase coverage at a set rate annually so that the policy maintains its spending power.
Inflation adjustment is, in general, essential.
Ultimately, your state and region will determine the costs of your overall care. For example, according to New York Life Insurance, it costs an average of $8,071 to stay in an assisted living facility in New York City. The same stay in a rural area of North Dakota would cost $3,179. This will determine the amount of coverage you need, as well as policy requirements and pricing.
A financial advisor can help you determine an appropriate premium.
Bottom line
Long-term care insurance is expensive, and for many people $2,000 is a very good price. Let’s find out how these policies work, and what you have to pay.
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