Although no one likes to think about needing long-term health care services, many of us may need the support at some point in life. Let’s look at what you need to know about long-term care insurance. 

Have you ever considered what you would do if you were diagnosed with a chronic health condition or disability requiring daily care?

According to the U.S. Department of Health and Human Services' Administration for Community Living,¹ nearly 70% of 65 year olds will need long-term care services or support. From this age group, women typically need care for about 3.7 years, while men require it for 2.2 years.

Remarkably, even though some of us (or our spouses) may eventually need long-term care, many people reach that stage only to discover they cannot afford to cover those out-of-pocket expenses.

Others, however, start planning for the possibility through a combination of strategies (including but not limited to): saving money, investing strategically and buying long-term care insurance. In fact, this type of insurance can be an important part of your overall financial plan.

What is long-term care insurance?

Do you or your spouse have a family medical history that includes certain health conditions? Are you concerned about the costs of long-term care later in life? If so, a long-term care insurance policy can help provide more peace of mind.

Think of the assistance you might need in the future to get through the day. You might find yourself needing help to bathe, eat, dress or rise from a chair. You could find it challenging to climb into bed at night, too.

As tempting as it may be to rely simply upon a partner, spouse or adult child for help, many people cannot care full-time for an adult — especially someone in failing health. Even well-intentioned loved ones may find caregiving tasks difficult to manage.

So, what about hiring someone to help out? If you do the math on what it would take to cover round-the-clock care over a few months you’ll see those numbers can run up fast. Alas, most traditional employer-based health insurance plans won’t cover extended daily care, only doctor and hospital bills.

That’s why so many people opt to purchase insurance to cover long-term care. Such a policy can help cover costs related to nursing, home health care and daycare for those who have reached 65 years of age and who have been formally diagnosed with a chronic medical issue, a disability or another condition like Alzheimer’s disease requiring significant assistance.

Unlike traditional health insurance, long-term care insurance typically covers personal and custodial care you can receive in your home or through a community organization or a licensed care facility.

How does long-term care insurance work?

If you are granted coverage (and note that it is not always provided), a long-term care policy will reimburse a daily amount (up to a pre-selected limit) for caregiver services. This can help the policyholder cover costs associated with daily activities like bathing, dressing or eating.

Once your health status qualifies you for long-term care services, your insurance provider will review your needs and policy to determine which benefits they will fund. Of course, this means that there's a risk that you'll remain financially responsible for some things. Still, with rising health costs, long-term care coverage can help you save money.

»Tip: Since most insurers will not grant new policies to people with pre-existing conditions, you'll want to think carefully about when to buy your insurance.

What about Medicare?

Perhaps you're thinking, “Won’t Medicare cover my long-term care needs after age 65?” Depending upon your diagnosis and overall health, Medicare may pay for skilled care in a nursing home for short periods (up to 100 days). It may also pay for limited amounts of home health care when you require skilled nursing or rehabilitation.

However, that’s not the same as providing continuous long-term support for your daily needs.

Let’s say you have a significant illness or injury and are hospitalized for a long period. Once you’ve made some progress and your doctor sends you home, you might be unable to live alone without help. The odds are good that you’ll have to pay for that kind of long-term care yourself. If you don’t have insurance to cover it, the bill could become very expensive. And if both you and your partner or spouse were to become ill in rapid succession or simultaneously, your combined health care costs could become exorbitant.

Granted, some people may be eligible for additional assistance through Medicaid — the federal and state health insurance program for low-income individuals. But to qualify for Medicaid, both your income and the value of your other assets must fall below certain limits, which vary from state to state.

Is a long-term care policy right for you?

There’s the cost of the policy to consider, of course, when deciding if a long-term care insurance policy is worth the investment. That price is usually determined by:

• Your age when you buy the policy
• The maximum amount a policy pays daily
• The total length of time that a policy will pay for care
• The maximum lifetime amount the policy will pay (maximum amount per day times the total number of days)
• Any additional benefits you choose, such as benefits that increase with inflation

Other personal considerations include:

• Who will help care for you should you need long-term care?
• Are you concerned about possible changes in your health status in later life?
• Will you be caring for minor or dependent adult children or grandchildren in your 50s and beyond? Might you take on care for an elderly parent or other family member?
• Can you afford to cover expenses related to extended home care, especially if health care prices continue to rise?

The takeaway

Long-term care insurance can be an important part of your overall financial plan, especially after you reach your 50s. Many people with long-term care insurance opt to buy it in their mid-50s to mid-60s, noting that long-term care insurance carriers won’t approve applicants over 75.

Again, remember that you likely won’t qualify for long-term care insurance once you’ve been diagnosed with a debilitating condition. Most policies require a medical exam to assess your health before they will grant coverage.

Buying long-term care insurance, sooner rather than later, can help position you to secure some necessary, quality care resources down the road, when you and your family need it most. A conversation with a financial advisor today may help you assess the potential role insurance might play in your long-term financial strategy.